<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 23, 1996
REGISTRATION NO. 333-06027
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
SIGNATURE RESORTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
MARYLAND 6552 95-4582157
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
911 WILSHIRE BOULEVARD, SUITE 2250
LOS ANGELES, CALIFORNIA 90017
(213) 622-2211
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
STEVEN C. KENNINGER
CHIEF OPERATING OFFICER
SIGNATURE RESORTS, INC.
911 WILSHIRE BOULEVARD, SUITE 2250
LOS ANGELES, CALIFORNIA 90017
(213) 622-2211
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
<TABLE>
<S> <C>
EDWARD SONNENSCHEIN, JR., ESQ. PETER T. HEALY, ESQ.
LATHAM & WATKINS O'MELVENY & MYERS LLP
633 W. FIFTH STREET 275 BATTERY STREET
SUITE 4000 EMBARCADERO CENTER WEST
LOS ANGELES, CALIFORNIA 90071 SAN FRANCISCO, CALIFORNIA 94111
(213) 485-1234 (415) 984-8700
</TABLE>
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
---------------
If any of the securities on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [_]_______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]________
If delivery of the prospectus is expected to be made pursuant to Rule 434 of
the Securities Act of 1933, please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
SIGNATURE RESORTS, INC.
CROSS-REFERENCE SHEET
PURSUANT TO RULE 404(A) AND ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN
FORM S-1 REGISTRATION
STATEMENT PROSPECTUS CAPTION
-------------------------- ------------------
<C> <S> <C>
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus... Facing Page; Cross-Reference Sheet; Outside
Front Cover Page of Prospectus
2. Inside Front and Outside
Back Cover Pages of Pro-
spectus.................... Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information, Risk
Factors and Ratio of Earn-
ings to Fixed Charges...... Summary; Risk Factors; Selected Combined
Historical and Pro Forma Financial
Information
4. Use of Proceeds............. Summary; Use of Proceeds; Consolidated
Capitalization; Management's Discussion and
Analysis of Financial Condition and Results
of Operations
5. Determination of Offering
Price...................... Outside Front Cover Page; Underwriting
6. Dilution.................... Dilution
7. Selling Security Holders.... Not Applicable
8. Plan of Distribution........ Outside Front Cover Page; Underwriting
9. Description of Securities to
be Registered.............. Summary; Description of Capital Stock
10. Interests of Named Experts
and Counsel................ Experts; Legal Matters
11. Information with Respect to
the Registrant............. Outside and Inside Front Cover Pages of
Prospectus; Summary; Risk Factors; Use of
Proceeds; Consolidated Capitalization;
Selected Combined Historical and Pro Forma
Financial Information; Shares Eligible for
Future Sale; Dividend Policy; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Certain Relationships
and Related Transactions; Principal
Stockholders; Combined Financial Statements
of Signature Resorts, Inc.
12. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................ Management
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 23, 1996
5,250,000 SHARES
[LOGO]
SIGNATURE RESORTS, INC.
COMMON STOCK
All of the shares of Common Stock, $0.01 par value ("Common Stock"), of
Signature Resorts, Inc., a Maryland corporation (the "Company"), offered hereby
(the "Offering") are being sold by the Company. Prior to the Offering, there
has been no public market for the Common Stock of the Company. It is currently
estimated that the initial public offering price will be between $14.00 and
$16.00 per share of Common Stock. See "Underwriting" for a discussion of
factors considered in determining the initial public offering price. The Common
Stock has been approved for quotation on the Nasdaq National Market, subject to
notice of issuance, under the symbol "SIGR."
SEE "RISK FACTORS" COMMENCING ON PAGE 12 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share (3)......................... $ $ $
Total................................. $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 787,500 additional shares of Common Stock solely to cover over-
allotments, if any. If the Underwriters exercise this option in full, the
Price to Public will total $ , the Underwriting Discount will total
$ and the Proceeds to Company will total $ . See
"Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, when, as and if delivered and accepted by the Underwriters and subject
to their right to reject any order in whole or in part. It is expected that the
delivery of the certificates representing such shares will be made against
payment therefor at the office of Montgomery Securities on or about ,
1996.
-----------
MONTGOMERY SECURITIES GOLDMAN, SACHS & CO.
, 1996
<PAGE>
The following photos and charts are depicted:
Map Map of U.S. denoting Signature Resorts Locations and Logos
- --- corresponding to each of the three brands utilized by the company
Photo 1 San Luis Bay Inn - Avila Beach, California
- ------- Picture denotes ocean perspective of the resort and adjacent golf
course
Photo 2 Royal Palm Beach Club - St. Maarten, Netherlands, Antilles
- ------- Balcony perspective view of Royal Palm pool and swim up palapa bar
Photo 3 Royal Palm Beach Club - St. Maarten, Netherlands, Antilles
- ------- Aerial shot of beach front of Royal Palm Beach Club
Photo 4 Embassy Vacation Resort Poipu Point - Maui, Hawaii
- ------- Aerial shot looking over pool with view of beach front of Embassy
Vacation Resort Poipu Point
Photo 5 Embassy Vacation Resort Poipu Point - Maui, Hawaii
- ------- Interior view of resort looking out over balcony at ocean
Photo 6 Cypress Pointe - Lake Buena Vista, Florida
- ------- Angle frontal shot of one resort structure at Cypress Pointe - Lake
Buena Vista, Florida
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, ON THE OPEN MARKET
OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
EMBASSY VACATION RESORTS(SM) IS A SERVICE MARK OF THE PROMUS HOTEL
CORPORATION. WESTIN HOTELS & RESORTS IS A SERVICE MARK OF THE WESTIN HOTEL
COMPANY.
2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data, including
the financial statements and notes thereto, included elsewhere in this
Prospectus. Except as otherwise noted, all information in this Prospectus (i)
assumes no exercise of the Underwriters' over-allotment option, (ii) gives
effect to the consummation of the Consolidation Transactions (as defined
herein), which will occur immediately prior to the consummation of the
Offering, and (iii) assumes that the initial public offering price per share
will be $15 per share. Unless the context otherwise indicates, the "Company"
means Signature Resorts, Inc. following the consummation of the Consolidation
Transactions and includes its corporate and partnership predecessors.
THE COMPANY
Signature Resorts, Inc. is a leading developer and operator of timeshare
resorts in North America and is one of the largest companies in North America
devoted exclusively to timeshare operations. The Company, directly or through
wholly-owned affiliates, owns eight timeshare resorts, including one under
construction, and a ninth resort in which the Company holds a partial interest
(the "Existing Resorts"). The Existing Resorts are located in a variety of
popular resort destinations including Hilton Head Island, South Carolina;
Koloa, Kauai, Hawaii; the Orlando, Florida area (two resorts); St. Maarten,
Netherlands Antilles (two resorts); Branson, Missouri; South Lake Tahoe,
California; and Avila Beach, California. The Company's principal operations
currently consist of (i) acquiring, developing and operating timeshare resorts,
(ii) marketing and selling timeshare interests in its resorts, which typically
entitle the buyer to use a fully-furnished vacation residence, generally for a
one-week period each year ("Vacation Intervals") and (iii) providing financing
for the purchase of Vacation Intervals at its resorts.
The Company believes that, based on published industry data, it is the only
developer and operator of timeshare resorts in North America that will offer
Vacation Intervals in each of the three principal price segments in the market
(value, upscale (characterized by high quality accommodations and service) and
luxury (characterized by elegant accommodations and personalized service)). The
Company expects that its resorts will operate in the following three general
categories, each differentiated by price range, brand affiliation and quality
of accommodations:
. NON-BRANDED RESORTS. Vacation Intervals at the Company's six non-branded
resorts, which are not affiliated with any hotel chain, generally sell
for $6,000 to $15,000 and are targeted to buyers with annual incomes
ranging from $40,000 to $60,000. The Company believes its non-branded
resorts offer buyers an economical alternative to branded timeshare
resorts (such as Embassy Vacation Resorts and Westin Vacation Club
resorts) or traditional vacation lodging alternatives.
. EMBASSY VACATION RESORTS. Vacation Intervals at the Company's three
Embassy Vacation Resorts generally sell for $12,000 to $20,000 and are
targeted to buyers with annual incomes ranging from $60,000 to $150,000.
Embassy Vacation Resorts are designed to provide timeshare
accommodations that offer the high quality and value that is represented
by the more than 120 Embassy Suites hotels throughout North America.
. WESTIN VACATION CLUB RESORTS. Through its recent agreement with Westin
Hotels & Resorts ("Westin"), the Company has the exclusive right for a
five-year period to jointly acquire, develop and market with Westin
"four-star" and "five-star" timeshare resorts located in North America,
Mexico and the Caribbean (the "Westin Agreement"). The Company
anticipates that Vacation Intervals at Westin Vacation Club resorts
generally will sell for $16,000 to $25,000 and will be targeted to
buyers with annual incomes ranging from $80,000 to $250,000. The Westin
Agreement represents Westin's entry into the timeshare market.
The Company sells its Vacation Intervals through sales personnel located at
each of its Existing Resorts and at off-site sales centers. In addition, the
Company's resorts participate in the Vacation Interval exchange network
operated by Resort Condominiums International, Inc. ("RCI"), the world's
largest Vacation Interval
3
<PAGE>
exchange organization with more than two million Vacation Interval owners as
members. Membership in RCI entitles Vacation Interval owners to exchange their
annual Vacation Intervals for occupancy at any of the approximately 2,900 other
resorts participating in the RCI network. According to the American Resort
Development Association ("ARDA"), a non-profit industry organization, the
ability to exchange Vacation Intervals is cited by buyers as a primary reason
for purchasing a Vacation Interval.
According to ARDA, during the fifteen year period ending in 1994 (the most
recent year for which statistics are available), the total annual sales volume
for the timeshare industry increased from $490 million in 1980 to $4.76 billion
in 1994. A year-by-year presentation of annual Vacation Interval sales volume
is detailed under "Business--The Timeshare Industry--The Market." The Company
believes that, based on ARDA reports, the timeshare industry has benefited
recently from increased consumer acceptance of the timeshare concept resulting
from effective governmental regulation of the industry, the entry into the
industry by national lodging and hospitality companies and increased vacation
flexibility resulting from the growth of Vacation Interval exchange networks.
The Company expects the timeshare industry to continue to grow as consumer
awareness of the timeshare industry increases and as the so-called "baby boom
generation" enters the 40-55 year age bracket, the age group which purchased
the most Vacation Intervals in 1994.
For the twelve month period ended March 31, 1996, the Company sold 5,951
Vacation Intervals at the Existing Resorts, compared to 2,486 and 4,679 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
$23.5 million in 1994 to $47.4 million in 1995 to $70.2 million in 1996. As of
March 31, 1996, the Company had an existing inventory of 21,874 Vacation
Intervals at the Existing Resorts, and the Company is in the process of
developing or has current plans to develop an additional 66,069 Vacation
Intervals on land which the Company owns or has an option to acquire at the
Existing Resorts. The Company anticipates that the existing inventory at each
of its Existing Resorts (except the Company's Hilton Head Island resort),
including the planned expansion at these resorts, will provide sufficient
inventory for between three and ten years of Vacation Interval sales at such
resorts.
The Company has historically provided financing for approximately 85% of its
Vacation Interval buyers. Buyers who finance through the Company typically are
required to make a down payment of at least 10% of the Vacation Interval's
sales price and pay the balance of the purchase price over a period of one to
ten years. The Company typically borrows against its loans to Vacation Interval
buyers with borrowings from third-party lending institutions. At March 31,
1996, the Company had a portfolio of approximately 11,000 loans to Vacation
Interval buyers amounting to approximately $80 million. The loans had a
weighted average maturity of approximately seven years and a weighted average
interest rate of 15.0% compared to a weighted average cost of funds of 10.7% on
the Company's borrowings secured by such customer loans. As of December 31,
1995, approximately 7.4% of such consumer loans were considered by the Company
to be delinquent (past due by 60 or more days) and the Company has completed or
commenced foreclosure or deed-in-lieu of foreclosure on approximately 1.7% of
its consumer loans. The Company also provides resort management and maintenance
services at its non-branded resorts for which it receives fees paid by the
homeowners associations at its resorts. Pursuant to management agreements
between the Company and the Vacation Interval owners, the Company generally has
sole responsibility and exclusive authority for the day-to-day operation of
certain of its resorts, including administrative services, procurement of
inventories and supplies and promotion and publicity.
The Company's objective is to become North America's leading developer and
operator of timeshare resorts. To meet this objective, the Company intends to
(i) acquire, convert and develop additional resorts to be operated as Embassy
Vacation Resorts, Westin Vacation Club resorts and non-branded resorts,
capitalizing on the acquisition and marketing opportunities to be provided
through its relationships with Promus Hotels Corporation ("Promus"), Westin and
selected financial institutions, (ii) increase sales and financings of Vacation
Intervals at the Existing Resorts through broader-based marketing efforts and
in certain instances through the construction of additional Vacation Interval
inventory, (iii) improve operating margins by consolidating administrative
functions, reducing borrowing costs and reducing its sales and marketing
expenses as a percentage
4
<PAGE>
of revenues and (iv) acquire additional Vacation Interval inventory, management
contracts, Vacation Interval mortgage portfolios, and properties or other
timeshare-related assets that may be integrated into the Company's operations.
To implement its growth strategy, the Company intends to pursue resort
acquisitions and developments in a number of selected destination vacation
markets that are subject to barriers to entry, concentrating on the California
and Hawaii markets in which the Company's founders have extensive acquisition
and development experience. The Company intends to rely on cash generated from
operations, proceeds of the Offering and funds available under its existing
lines of credit to fund its development activities at the Existing Resorts and
to rely primarily on new financing arrangements to fund its acquisition
activities. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
The Company has established strategic agreements and relationships with
certain lodging companies and financial institutions, including the following:
. The Company is currently the only licensee and operator of Embassy
Vacation Resorts. The Company presently operates two Embassy Vacation
Resorts, has commenced construction on a third and is evaluating
additional properties which could be operated as Embassy Vacation
Resorts, but has not committed to any additional properties at this
time. In addition, Promus recently announced the creation of a new
timeshare division to expand its Embassy Vacation Resort timeshare
operations which the Company believes will provide it with growth
opportunities in the future.
. The Company, through the Westin Agreement, has the exclusive right for
five years to jointly acquire, develop and market with Westin Vacation
Intervals at "four-star" and "five-star" Westin-affiliated resorts. The
Company and Westin are evaluating a number of hotels currently operated
as Westin Hotels which could include or be expanded to include
facilities operated as Westin Vacation Club resorts, however the Company
has not committed to any such properties at this time.
. The Company has relationships with selected financial institutions which
control significant real estate portfolios and has acquired three of the
Existing Resorts from such institutions. The Company expects that these
relationships will continue to permit the Company to acquire resort
properties at attractive prices. The Company currently is evaluating the
acquisition of a number of properties currently owned or controlled by
such financial institutions, but has not committed to any additional
properties at this time.
The Company will use the proceeds of this Offering primarily to repay
outstanding indebtedness related to the Existing Resorts. See "Use of
Proceeds."
5
<PAGE>
THE RESORTS
The following table sets forth certain information as of March 31, 1996
regarding each of the Existing Resorts, including location, date acquired by
the Company, the number of existing and planned units at each Existing Resort,
the number of Vacation Intervals sold at each Existing Resort since its
acquisition or development by the Company and the number of Vacation Intervals
sold in 1995, the average sales price of Vacation Intervals sold at each
Existing Resort in 1995 and the number of Vacation Intervals available for sale
at each Existing Resort currently and giving effect to planned expansion. The
exact number of units and Vacation Intervals ultimately constructed at each
Existing Resort may differ from the following estimates based on future land
planning and site layout considerations.
<TABLE>
<CAPTION>
VACATION VACATION
UNITS AT RESORT INTERVALS SOLD AVERAGE INTERVALS AT RESORT
--------------- --------------- SALES ---------------------
DATE PRICE IN CURRENT PLANNED
RESORT LOCATION ACQUIRED(A) CURRENT PLANNED TOTAL 1995 1995 INVENTORY EXPANSION
------ -------- ----------- ------- ------- ------- ------ -------- --------- ---------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
NON-BRANDED RESORTS:
CYPRESS Lake Buena Vista, November 1992 184 500(b) 7,415 1,824 $10,734 1,972 16,116(b)
POINTE Florida
RESORT
PLANTATION Branson, Missouri July 1993 82 400(c) 3,540 1,094 9,519 643 16,218(c)
AT FALL
CREEK
ROYAL DUNES Hilton Head Island, April 1994 40 55(d) 1,306 577 10,862 732 765(d)
RESORT South Carolina
ROYAL PALM St. Maarten, Netherlands July 1995 140 140(e) 483 272 8,124 2,310 0(e)
BEACH CLUB Antilles
FLAMINGO St. Maarten, Netherlands August 1995 172 247(f) 226 104 6,885 2,781 3,900(f)
BEACH CLUB Antilles
SAN LUIS BAY Avila Beach, California June 1996 68 130(g) (h) (h) (h) 1,030(i) 3,162(g)
RESORT
EMBASSY VACATION RESORTS:
POIPU Koloa, Kauai, Hawaii November 1994 219 219(k) 546 281 19,074 10,623(k) 0
POINT(J)
GRAND BEACH Orlando, Florida January 1995 72 370(l) 1,889 1,523 13,063 1,783 15,198(l)
LAKE TAHOE South Lake Tahoe, May 1996(m) 0 210(n) (o) (o) (o) (o) 10,710(n)
California
--- ----- ------- ------ ------ ------
TOTAL............................................... 977 2,271 15,405 5,675 21,874 66,069
=== ===== ======= ====== ====== ======
</TABLE>
- --------
(a) The dates listed represent the date of acquisition or, if later, the date
of completion of development of the applicable resort by the Company. The
Embassy Vacation Resort Poipu Point was acquired by the Company in November
1994 as a traditional hotel. As units at the Embassy Vacation Resort Poipu
Point are sold as Vacation Intervals, the Company no longer rents such
units on a nightly basis.
(b) Includes 40 units, which will accommodate 2,040 Vacation Intervals, that
are currently under construction and scheduled for completion in September
1996. Also includes an additional estimated 276 units, which will
accommodate an additional estimated 14,076 Vacation Intervals, which the
Company plans to construct on land which it owns at the Cypress Pointe
Resort and for which all necessary governmental approvals and permits
(except building permits) have been obtained.
(c) Includes 16 units, which will accommodate an additional 816 Vacation
Intervals, that were completed in May 1996 and 16 units, which will
accommodate an additional 816 Vacation Intervals, on which the Company
commenced construction in June 1996 and for which all necessary
governmental approvals and permits have been received by the Company. Also
includes an additional estimated 286 units, which will accommodate an
additional estimated 14,586 Vacation Intervals, which the Company plans to
construct on land which it owns or is currently subject to a contract to
purchase at the Plantation at Fall Creek.
(d) Includes 15 units, which will accommodate 765 Vacation Intervals,
construction of which is planned to begin in either the fourth quarter of
1996 or the first quarter of 1997 and for which all necessary governmental
approvals and permits have been received by the Company.
6
<PAGE>
(e) The Company has not committed to any expansion of the Royal Palm Beach
Club. The Company is considering the acquisition of additional land
adjacent to the Royal Palm Beach Club for the addition of an estimated 60
units, which will accommodate an estimated 3,060 Vacation Intervals, but
has yet to enter into an agreement with respect to such additional land or
to obtain the necessary governmental approvals and permits for such
expansion.
(f) In May 1996 the Company acquired a five-acre parcel of land adjacent to the
Flamingo Beach Club on which the Company plans to develop an estimated 75
units which will accommodate an estimated 3,900 Vacation Intervals. The
Company is in the process of seeking to obtain the necessary governmental
approvals and permits for such proposed expansion.
(g) Includes 62 units, which will accommodate an estimated 3,162 Vacation
Intervals, for which all necessary discretionary governmental approvals and
permits have been received by the Company. The Company has not yet applied
for or obtained the required building permit to construct such additional
units. The Company plans to commence construction of the first 31 units in
September 1996. In addition, the Company is considering the acquisition of
additional land near the San Luis Bay Resort for the addition of an
estimated 100 units which will accommodate an estimated 5,100 Vacation
Intervals, but has yet to enter into an agreement with respect to such land
or to obtain the necessary governmental approvals and permits for such
proposed expansion.
(h) The Company commenced sales of Vacation Intervals at the San Luis Bay
Resort in June 1996.
(i) The Company in June 1996 acquired approximately 130 Vacation Intervals at
the San Luis Bay Resort out of the bankruptcy estate of Glen Ivy Resorts,
Inc. In addition, the Company acquired promissory notes in default that are
secured by approximately 900 Vacation Intervals. The Company intends to
foreclose upon and acquire clear title to such Vacation Intervals and
intends to complete such foreclosure procedures (or deed-in-lieu
procedures) in approximately four months following acquisition of the
resort.
(j) The Company is the managing general partner of Poipu Resort Partners L.P.,
a Hawaii limited partnership ("Poipu Partnership"), the partnership which
owns the Embassy Vacation Resort Poipu Point. As managing general partner,
the Company holds a 0.5% partnership interest for purposes of
distributions, profits and losses. The Company is also a limited partner of
the Poipu Partnership and holds a 29.93% partnership interest for purposes
of distributions, profits and losses, for a total partnership interest of
30.43%. In addition, following repayment of any outstanding partner loans,
the Company is entitled to receive a 10% per annum return on the Founders'
and certain former limited partners' initial capital investment of
approximately $4.6 million in the Poipu Partnership. After payment of such
preferred return and the return of approximately $4.6 million of capital to
the Company on a pari passu basis with the other partner in the
partnership, the Company is entitled to receive approximately 50% of the
net profits of the Poipu Partnership. In the event certain internal rates
of return specified in the Poipu Partnership Agreement are achieved, the
Company is entitled to receive approximately 55% of the net profits of the
Poipu Partnership.
(k) Includes 191 units that the Company currently rents on a nightly basis that
have not yet been sold as Vacation Intervals.
(l) Includes 30 units, which will accommodate 1,530 Vacation Intervals, that
are currently under construction and scheduled for completion in September
1996. Also includes at least 24 units, which will accommodate an additional
1,224 Vacation Intervals, on which the Company plans to commence
construction in the fourth quarter of 1996 and for which all necessary
discretionary governmental approvals and permits (excluding building
permits which have not yet been applied for by the Company) have been
received by the Company. The Company has also received all necessary
discretionary governmental approvals and permits to construct an additional
estimated 228 units on land which it owns at the Embassy Vacation Resort
Grand Beach, which will accommodate an additional estimated 11,628 Vacation
Intervals (excluding building permits which have not yet been applied for
by the Company). The Company plans to apply for and obtain these building
permits on a building-by-building basis.
(m) Construction began on the first 62 units at the Embassy Vacation Resort
Lake Tahoe in May 1996. Twenty-seven units, which will accommodate 1,377
Vacation Intervals, are scheduled for completion in January 1997 and 35
units, which will accommodate 1,785 Vacation Intervals, are scheduled for
completion in March 1997.
(n) Includes 62 units, which will accommodate 3,162 Vacation Intervals, on
which construction began in May 1996 and for which all necessary
discretionary governmental approvals and permits have been received by the
Company. Twenty-seven units, which will accommodate 1,377 Vacation
Intervals, are scheduled for completion in January 1997 and 35 units, which
will accommodate 1,785 Vacation Intervals, are scheduled for completion in
March 1997. The Company has also received all necessary discretionary
governmental approvals and permits to construct an additional estimated 148
units (excluding building permits which have not yet been applied for by
the Company and which will be applied for and obtained on a phase-by-phase
basis) on land that it owns at the Embassy Vacation Resort Lake Tahoe,
which will accommodate an estimated 7,548 Vacation Intervals, and, subject
to market demand, currently plans to construct 40 of such units commencing
in May of each year from 1997 through 1999 and the remaining 28 units
commencing in May 2000.
(o) The Company commenced sales of Vacation Intervals at the Embassy Vacation
Resort Lake Tahoe in June 1996, although the Company will not be able to
close any of such sales until the completion of the first units, currently
scheduled to occur in January 1997.
7
<PAGE>
THE CONSOLIDATION TRANSACTIONS AND CORPORATE BACKGROUND
The Company's Existing Resorts currently are owned and operated by individual
limited partnerships or limited liability companies (the "Property
Partnerships"), each affiliated with the Company's founding stockholders, Osamu
"Sam" Kaneko, Andrew J. Gessow and Steven C. Kenninger (sometimes referred to
herein as the "Founders"). The Property Partnerships consist of Grand Beach
Resort, L.P., a Georgia limited partnership (Embassy Vacation Resort Grand
Beach); AKGI-Flamingo C.V., a Netherlands Antilles limited partnership
(Flamingo Beach Club); AKGI-Royal Palm C.V., a Netherlands Antilles limited
partnership (Royal Palm Beach Club); Port Royal Resort, L.P., a South Carolina
limited partnership (Royal Dunes Resort); an approximately 30% interest in
Poipu Resort Partners, L.P., a Hawaii limited partnership (Embassy Vacation
Resort Poipu Point); Fall Creek Resort, L.P., a Georgia limited partnership
(Plantation at Fall Creek); Cypress Pointe Resort, L.P., a Delaware limited
partnership (Cypress Pointe Resort); Lake Tahoe Resort Partners, LLC, a
California limited liability company (Embassy Vacation Resort Lake Tahoe); and
San Luis Resort Partners, LLC, a Georgia limited liability company (San Luis
Bay Resort). Affiliates of the Founders currently are the sole general partners
or the sole members of each of the Property Partnerships. Each of the Property
Partnerships (other than the Embassy Vacation Resort Poipu Beach) which will
remain in existence following the Offering will be wholly owned by the Company.
The Company's timeshare resort acquisition and development business commenced
in 1992 to take advantage of the unique real estate development, financing and
travel industry expertise of the Founders. Mr. Kaneko, who is a Japanese
national and was educated in the United States, has more than 24 years of
experience in resort real estate acquisition and development. Prior to forming
the Company, Mr. Kaneko co-founded KOAR Group, Inc. ("KOAR"), a Los Angeles-
based real estate acquisition and development company, with Mr. Kenninger in
1985 and was previously the executive vice-president of the Hawaii-based United
States operations of a Japanese publicly-traded real estate developer. Mr.
Kenninger, a former business attorney for the seven years prior to co-founding
KOAR, has had overall responsibility for the development, acquisition,
licensing, branding and legal operations of the Company since 1993. Affiliates
of KOAR developed and currently own the Embassy Suites hotels located at Lake
Tahoe, downtown Chicago, the Seattle/Tacoma airport, Walnut Creek (Bay Area),
California and the Los Angeles International Airport. In May 1996, Promus
presented Rose Awards for 1995 to three of the Embassy Suites hotels affiliated
with KOAR and scored two of such hotels in the top three hotels of the over 100
properties contained in the Embassy Suites system in 1995. Promus annually
presents Rose Awards to a select few hotels judged to be the best in the chain
based on an equally weighted composite score of property performance in a
market, results of guest satisfaction surveys and product quality assessments
performed by Promus. Through this affiliation with the Embassy Suites hotel
division of Promus, the Company became the first and is currently the only
licensee and operator of Embassy Vacation Resorts. Prior to forming the
Company, Mr. Gessow in 1990 formed Argosy Group, Inc. ("Argosy"), a Woodside,
California based real estate acquisition and development company and was
previously president of both the Florida and west coast offices of Trammell
Crow Residential Services, a real estate development company.
Upon consummation of the Consolidation Transactions described below, the
partnership and limited liability company interests in each of the Property
Partnerships, certain of the stock of certain other corporations affiliated
therewith held by "accredited investors" (as defined pursuant to Regulation D
under the Securities Act) and certain debt obligations of the Property
Partnerships and affiliates (and, as a result, ownership of each of the
Existing Resorts) will be directly or indirectly transferred to the Company and
in exchange the holders of such partnership interests and certain of such stock
will receive shares of Common Stock in the Company. Holders of any such
partnership interests who are not "accredited investors" will receive cash at a
price commensurate with the value received by the accredited investors to be
determined prior to the Consent Solicitation. The Consolidation Transactions
will be consummated concurrently with, and are conditioned upon, the closing of
the Offering. All financial and share information presented in this Prospectus
assumes the consummation of the Consolidation Transactions and reflects the
issuance of an aggregate of 11,354,705 shares of Common Stock to the holders of
partnership interests in the Property Partnerships and to certain stockholders
of certain other corporations affiliated with the Company (the "Affiliated
Companies"). The Affiliated Companies include
8
<PAGE>
Argosy/KOAR Group, Inc., Resort Management International, Inc., Resort
Marketing International, Inc., RMI-Royal Palm C.V.o.a., RMI-Flamingo C.V.o.a.,
AK-St. Maarten, LLC, Premier Resort Management, Inc., Resort Telephone & Cable
of Orlando, Inc., Kabushiki Gaisha Kei, LLC, Vacation Ownership Marketing
Company and Vacation Resort Marketing of Missouri, Inc., each of which are
controlled by the Founders and currently provide administrative, utility,
management and/or marketing services to certain of the Property Partnerships.
Signature Resorts, Inc. was incorporated in Maryland in May 1996 by the
Founders to effect the Consolidation Transactions and the Offering. Pursuant to
a Private Placement Memorandum dated as of May 28, 1996, the Company solicited
and received on or before June 13, 1996 the consent and agreement of the
ultimate owners of interests in the Property Partnerships, the stockholders of
the Affiliated Companies and the holders of certain debt obligations to
exchange their partnership interests or shares in, and obligations of, the
Property Partnerships or Affiliated Companies (or their direct or indirect
interests in the owners thereof), as applicable, for shares of Common Stock in
the Company (the "Consent Solicitation"). Such exchange will occur
simultaneously with the closing of the Offering and is conditioned upon certain
timing constraints with respect to the Offering. The Consent Solicitation and
exchange of direct and indirect interests in, and obligations of, the Property
Partnerships and the Affiliate Companies, as applicable, for shares of Common
Stock in the Company are referred to herein as the "Consolidation
Transactions." Certain direct and indirect holders of interests in, and
obligations of, certain Property Partnerships will upon consummation of the
Consolidation Transactions receive shares of Common Stock in the Company equal
to a predetermined dollar value based on agreement between the Company and such
holders as set forth in the Private Placement Memorandum for the Consent
Solicitation. The balance of the shares of Common Stock issued in the
Consolidation Transactions will be issued to the holders of interests in the
remaining Property Partnerships and to the holders of interests in the
Affiliated Companies, which are comprised solely of the Founders or their
affiliates. Following consummation of the Consolidation Transactions and the
Offering, the ultimate owners of interests in the Property Partnerships and
stockholders of the Affiliated Companies will in the aggregate own
approximately 68.4% of the outstanding Common Stock in the Company, with
approximately 45.1% of the outstanding Common Stock of the Company being held
by the Founders, or affiliates thereof (in each case, based on the mid-point of
the estimated pricing range of the Common Stock in the Offering). For
additional information regarding the Property Partnerships and the Affiliated
Companies as well as the Consolidation Transactions and resulting effect
thereof, see "Consolidation Transactions," "Principal Stockholders" and
"Certain Relationships and Related Transactions."
The Company's principal executive offices are currently located at 911
Wilshire Boulevard, Suite 2250, Los Angeles, California 90017, and its
telephone number is (213) 622-2211. In September 1996, the Company will
relocate its principal executive offices to 5940 Century Boulevard, Suite 210,
Los Angeles, California 90045, and its telephone number will be (310) 417-5020.
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company........ 5,250,000 shares(1)
Common Stock to be outstanding after
the Offering.............................. 16,604,705 shares(1)(2)
Use of proceeds............................ To repay outstanding
indebtedness, to fund the cash
portion of the Consolidation
Transactions and for working
capital and other general
corporate purposes.
Nasdaq National Market symbol.............. "SIGR"
</TABLE>
- --------
(1) Assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting."
(2) Includes 11,354,705 shares of Common Stock issued in connection with the
Consolidation Transactions. See "The Consolidation Transactions." Does not
include 1,750,000 shares of Common Stock reserved for issuance pursuant to
the Company's 1996 Equity Participation Plan (as defined) and 500,000
shares of Common Stock reserved for issuance pursuant to the Company's
Employee Stock Purchase Plan (as defined). See "Executive Compensation."
9
<PAGE>
SUMMARY COMBINED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
(DOLLAR AMOUNTS IN THOUSANDS)
The following table sets forth: (i) combined historical financial information
of the Company, which includes each of the Property Partnerships and Affiliated
Companies, and (ii) pro forma financial information of the Company after giving
effect to the consummation of the Consolidation Transactions and the Offering
and the application of the net proceeds therefrom. Such information should be
read in conjunction with the selected combined historical and pro forma
financial information of the Company, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the combined financial
statements for the Company and the notes thereto which are contained elsewhere
in this Prospectus. Due to seasonality, other market factors and additions to
the number of the Company's resorts, the combined historical and pro forma
results for the three months ended March 31, 1995 and 1996 are not necessarily
indicative of results for a full year.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(4)
--------------------------------------------------------- --------------------------------
THREE MONTHS THREE MONTHS
ENDED YEAR ENDED
YEAR ENDED DECEMBER 31, MARCH 31, ENDED MARCH 31,
----------------------------------- -------------------- DECEMBER 31, -------------------
1992 1993 1994 1995 1995 1996 1995 1995 1996
------- -------- ------- ------- ------- ----------- ------------ ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenue:
Vacation Interval
sales................. $11,328 $ 22,238 $40,269 $59,071 $13,239 $ 13,983 $59,071 $13,239 $ 13,983
Interest............... 402 1,825 3,683 6,929 1,390 1,951 6,929 1,390 1,951
Other.................. 115 373 338 6,608 114 1,576 6,928 194 1,656
------- -------- ------- ------- ------- ----------- ------- ------- -----------
Total revenue.......... 11,845 24,436 44,290 72,608 14,743 17,510 72,928 14,823 17,590
Costs and operating
expenses:
Vacation Interval cost
of sales.............. 2,999 5,708 12,394 15,650 4,126 3,112 15,586 4,112 3,097
Advertising, sales and
marketing............. 4,734 10,809 18,745 28,488 6,617 6,572 28,488 6,617 6,572
Loan portfolio
Interest expense--
treasury............. 168 674 1,629 3,586 712 1,211 -- -- 357
Other................. 50 208 851 1,189 193 305 1,074 145 288
Provisions for
doubtful accounts.... 555 619 923 1,787 460 342 1,787 460 342
General and
administrative
Corporate............. 665 2,346 2,864 4,947 615 1,476 4,947 615 1,476
Resort-level.......... 375 877 874 1,607 327 849 1,607 327 849
Depreciation and
amortization.......... 209 384 489 1,675 372 504 1,830 372 650
Interest expense--
other................. -- 518 959 476 83 551 -- -- --
Equity loss on
investment in joint
venture............... -- -- 271 1,649 491 1 1,649 491 1
------- -------- ------- ------- ------- ----------- ------- ------- -----------
Total costs and
operating expenses.... 9,755 22,143 39,999 61,054 13,996 14,923 56,968 13,139 13,632
------- -------- ------- ------- ------- ----------- ------- ------- -----------
Pre-tax income.......... 2,090 2,293 4,291 11,554 747 2,587 15,960 1,684 3,958
Provision for taxes.... -- -- -- 641 -- 102 6,087 636 1,532
------- -------- ------- ------- ------- ----------- ------- ------- -----------
Net income.............. $ 2,090 $ 2,293 $ 4,291 $10,913 $ 747 $ 2,485 $ 9,873 $ 1,048 $ 2,426
======= ======== ======= ======= ======= =========== ======= ======= ===========
Pro forma net income(1). $ 1,301 $ 1,414 $ 2,674 $ 7,206 $ 464 $ 1,591
Pro forma net income per
share(1)............... -- -- -- -- -- $ 0.14 -- -- $ 0.15
Pro forma weighted
average shares
outstanding............ -- -- -- -- -- 11,354,705 -- -- 16,604,705
OTHER DATA:
EBITDA(2)............... $ 2,467 $ 3,869 $ 7,368 $17,291 $ 1,914 $ 4,853
Cash flows provided by
(used in)
Operating activities... (6,166) (3,262) (10,964) 5,460 1,116 (317)
Investing activities... (51) (10,776) (24,940) (40,075) (8,191) (6,483)
Financing activities... 5,146 15,341 36,134 37,102 6,721 6,183
Number of Existing
Resorts at period end.. 1 3 4 7 5 7
Number of Vacation
Intervals sold(3)...... 1,284 2,442 4,482 5,675 1,246 1,522
Numbers of Vacation
Intervals in
inventory(3)........... 1,164 1,233 2,401 9,917 3,036 21,874
Average price of
Vacation Intervals
sold(3)................ $ 8,822 $ 9,106 $ 8,985 $10,409 $10,625 $ 9,187
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------
ACTUAL AS ADJUSTED(5)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
Cash, including cash in escrow.......................... $ 5,693 $ 13,003
Total assets............................................ 148,541 163,535
Long-term debt.......................................... 90,923 38,452
Stockholders' equity.................................... 40,955 103,941
</TABLE>
10
<PAGE>
- --------
(1) Reflects the effect on historical statement of operations data, assuming
the combined Company had been treated as a C corporation rather than as
individual limited partnerships and limited liability companies for federal
income tax purposes.
(2) As shown below, EBITDA represents net income before interest expense,
income taxes and depreciation and amortization. EBITDA is presented because
it is a widely accepted financial indicator of a company's ability to
service and/or incur indebtedness. However, EBITDA should not be construed
as an alternative to net income as a measure of the Company's operating
results or to operating cash flow as a measure of liquidity. The following
table reconciles EBITDA to net income:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31 MARCH 31
---------------------------- -------------
1992 1993 1994 1995 1995 1996
------ ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net income.................... $2,090 $2,293 $4,291 $10,913 $ 747 $2,485
Interest expense--treasury.... 168 674 1,629 3,586 712 1,211
Interest expense--other....... -- 518 959 476 83 551
Taxes......................... -- -- -- 641 -- 102
Depreciation and amortization. 209 384 489 1,675 372 504
------ ------ ------ ------- ------ ------
EBITDA........................ $2,467 $3,869 $7,368 $17,291 $1,914 $4,853
====== ====== ====== ======= ====== ======
</TABLE>
(3) Includes the effect of sales or inventory at the Company's non-consolidated
resort.
(4) Reflects the effect on historical statement of operations data, assuming
the issuance of Common Stock offered hereby, the retirement of $52.5
million of debt, the elimination of interest expense related to the debt
retired, and the treatment of the combined Company as a C corporation as
described in (1) above.
(5) Adjusted to give effect to (i) the sale of 5,250,000 shares of Common Stock
offered hereby at an estimated offering price of $15.00 per share less the
underwriting discount and the payment by the Company of the estimated
offering expenses, (ii) the retirement of $52.5 million of debt and (iii)
the treatment of the combined Company as a C corporation resulting in a
deferred tax liability of $3.7 million at March 31, 1996.
RECENT DEVELOPMENTS
During the three months ended June 30, 1996, total revenue grew to $21.5
million, a 22% increase over the $17.6 million in total revenue reported for
the same period in the prior year. Growth in revenue was primarily the result
of both increased interest revenue attributed to growth in the Company's
mortgage receivable portfolio, and increases in other revenue attributed to
higher rental income, gains on a mortgage receivable portfolio acquired with
the St. Maarten properties and a gain associated with the repayment of a note
receivable acquired in connection with the purchase of Flamingo Beach Club.
These increases offset a 5.1% decrease in Vacation Interval sales revenue for
the consolidated resorts (the Existing Resorts excluding Embassy Vacation
Resort Poipu Point).
The number of intervals sold and average price of intervals sold at the
Existing Resorts grew during the second quarter of 1996 over the same period in
the prior year. The number of intervals sold at the Existing Resorts reached
1,540 in the second quarter of 1996 or 12.9% above the 1,369 sold during the
second quarter of 1995. The average price of intervals sold at the Existing
Resorts increased 10.1% from an average of $11,365 for the second quarter of
1995 to $12,514 for the second quarter of 1996.
Pre-tax net income grew 81.0% from $2.1 million for the three months ended
June 30, 1995 to $3.8 million for the three months ended June 30, 1996. As a
percentage of revenues, operating expenses decreased from 87.9% of total
revenues for the quarter ended June 30, 1995 to 82.1% of total revenues during
the same period in 1996. This operating improvement was principally due to
lower Vacation Interval cost of sales, advertising sales and marketing costs,
provision for doubtful accounts, and equity loss in joint venture as a
percentage of total revenues. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Recent Developments."
11
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be carefully considered in evaluating the
Company and its business before purchasing any of the shares of Common Stock
offered hereby. The Company cautions the reader that this list of risk factors
may not be exhaustive.
ACQUISITION STRATEGY AND RISKS RELATED TO RAPID GROWTH
A principal component of the Company's strategy is to continue to grow by
acquiring additional resorts. The Company's future growth and financial
success will depend upon a number of factors, including its ability to
identify attractive resort acquisition opportunities, consummate the
acquisitions of such resorts on favorable terms, convert such resorts to use
as timeshare resorts and profitably sell Vacation Intervals at such resorts.
There can be no assurance that the Company will be successful with respect to
such factors. The Company's ability to execute its growth strategy depends to
a significant degree on the existence of attractive resort acquisition
opportunities (which, in the past, have included completed or nearly completed
resort properties), its ability both to consummate acquisitions on favorable
terms and to obtain additional debt and equity capital and to fund such
acquisitions and any necessary conversion and marketing expenditures.
Currently, there are numerous potential buyers of resort real estate which are
better capitalized than the Company competing to acquire resort properties
which the Company may consider attractive resort acquisition opportunities.
There can be no assurance that the Company will be able to compete against
such other buyers successfully or that the Company will be successful in
consummating any such future financing transactions or equity offerings on
terms favorable to the Company. The Company's ability to obtain and repay any
indebtedness at maturity may depend on refinancing, which could be adversely
affected if the Company cannot effect the sale of additional debt or equity
through public offerings or private placements on terms favorable to the
Company. Factors which could affect the Company's access to the capital
markets, or the cost of such capital, include changes in interest rates,
general economic conditions, the perception in the capital markets of the
timeshare industry and the Company's business, results of operations,
leverage, financial condition and business prospects. In addition, an
important part of the Company's growth strategy is to acquire and develop
Westin Vacation Club resorts through the Westin Agreement. See "Business--
Westin Vacation Club Resorts." Westin has not previously been active in the
timeshare market and may not devote the corporate resources to such projects
at levels which will make the projects successful. Moreover, there can be no
assurance that Promus will elect to continue licensing the Embassy Vacation
Resort name to the Company with respect to possible future resorts.
BENEFITS TO FOUNDERS AND OTHER PERSONS; REPAYMENT OF INDEBTEDNESS OWED TO
FOUNDERS AND AFFILIATES
The Founders and the Company's other executive officers and directors will
realize benefits from the formation of the Company, the Consolidation
Transactions and the Offering that will not generally be received by other
persons participating in such transactions. Such benefits may include the
repayment by the Company of indebtedness owed to such individuals, the
acquisition of shares of Common Stock in the Consolidation Transactions and
retention under employment agreements. Thus, the Founders, other executive
officers and directors may have interests that conflict with the interests of
others participating in the Consolidation Transactions and with the interests
of persons acquiring Common Stock in the Offering. Messrs. Kaneko, Gessow and
Kenninger, or affiliates thereof, will receive 2,821,798, 3,210,599 and
1,447,930 shares of Common Stock in the Consolidation Transactions,
respectively, and will receive approximately $5.7 million, $6.0 million and
$2.9 million, respectively, of the net proceeds of the Offering for the
repayment of debt owed by the Company to affiliates of the Founders which will
be used by the Founders to repay third-party obligations. As a result of the
repayment of such third party obligations, the Founders will be released from
certain pledges of interests in various of the Property Partnerships securing
repayment of such debt. In addition, each of the Founders will be party to an
employment agreement with the Company that will provide for a base salary of
$280,000 per annum and will provide for the grant to each of the Founders of
options to purchase 150,000 shares of Common Stock, vesting in three equal
installments over three years. James E. Noyes, a director and Executive Vice
President of the Company, is a party to an employment agreement with the
Company that provides for an initial base salary and bonus of $400,000 per
annum and provides for the grant of options to purchase 375,000 shares of
Common
12
<PAGE>
Stock. Charles C. Frey, Genevieve Giannoni and Timothy D. Levin, the Company's
Chief Financial Officer and Treasurer, Senior Vice President of Operations and
Vice President--Architecture, respectively, will receive 5,600, 2,800 and 4,058
shares of Common Stock in the Consolidation Transactions, respectively, and
each will receive options to purchase 150,000, 150,000 and 10,000 shares of
Common Stock, respectively. In addition, upon consummation of the Consolidation
Transactions and the Offering, affiliates of Joshua S. Friedman, a proposed
director of the Company, may be deemed to beneficially own 2,220,936 shares of
Common Stock, and approximately $13.1 million of the net proceeds of the
Offering will be used to repay indebtedness owed by the Company to affiliates
of Mr. Friedman and related fees. See "Certain Relationships and Related
Transactions--Repayment of Affiliated Debt," "Principal Stockholders,"
"Consolidation Transactions" and "Management--Employment Agreements."
RISKS OF DEVELOPMENT AND CONSTRUCTION ACTIVITIES
The Company intends to actively continue development, construction,
redevelopment/conversion and expansion of timeshare resorts. There can be no
assurance that the Company will complete development and/or conversion of the
Lake Tahoe and Avila Beach resorts currently under development, complete the
expansion projects currently under development at the Company's Cypress Pointe,
Plantation at Fall Creek and Embassy Vacation Resort Grand Beach resorts,
undertake the additional expansion plans set forth in "Business-- Description
of the Company's Resorts" or undertake to develop other resorts or complete
such development if undertaken. Risks associated with the Company's
development, construction and redevelopment/conversion activities, including
activities relating to the Lake Tahoe and Avila Beach resorts, and expansion
activities, including activities relating to the Cypress Pointe, Plantation at
Fall Creek and Embassy Vacation Resort Grand Beach resorts, may include the
risks that: acquisition and/or development opportunities may be abandoned;
construction costs of a property may exceed original estimates, possibly making
the resort uneconomical or unprofitable; sales of Vacation Intervals at a newly
completed property may not be sufficient to make the property profitable;
financing may not be available on favorable terms for development of, or the
continued sales of Vacation Intervals at, a property; and construction may not
be completed on schedule, resulting in decreased revenues and increased
interest expense. In addition, the Company's construction activities typically
are performed by third-party contractors, the timing, quality and completion of
which cannot be controlled by the Company. Nevertheless, construction claims
may be asserted against the Company for construction defects and such claims
may give rise to liabilities. New development activities, regardless of whether
or not they are ultimately successful, typically require a substantial portion
of management's time and attention. Development activities are also subject to
risks relating to the inability to obtain, or delays in obtaining, all
necessary zoning, land-use, building, occupancy and other required governmental
permits and authorizations, the ability of the Company to coordinate
construction activities with the process of obtaining such permits and
authorizations, and the ability of the Company to obtain the financing
necessary to complete the necessary acquisition, construction, and/or
conversion work. Upon the closing of the Offering, the Company will not have
the financing available to complete all of its planned expansion as set forth
in "Business--Description of the Company's Resorts." The ability of the Company
to expand its business to include new resorts will in part depend upon the
availability of suitable properties at reasonable prices and the availability
of financing for the acquisition and development of such properties. In
addition, certain states and local laws may impose liability on property
developers with respect to construction defects, discovered or repairs made by
future owners of such property. Pursuant to such laws, future owners may
recover from the Company amounts in connection with any repairs made to the
developed property. See "Business--Business Strategy" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RISK OF INCREASING LEVERAGE; RESTRICTIVE COVENANTS
Future development by the Company at its Existing Resorts will be financed
with indebtedness obtained pursuant to the Company's existing credit facilities
or credit facilities obtained by the Company in the future. The agreements with
respect to such facilities do contain or in the future could contain
restrictive covenants, possibly including covenants limiting capital
expenditures, incurrence of debt and sales of assets and
13
<PAGE>
requiring the Company to achieve certain financial ratios, some of which could
become more restrictive over time. Subsequent acquisition activities will be
financed primarily by new financing arrangements. The Company's pro forma
indebtedness as well as the indebtedness to be incurred under such facilities
will be secured by mortgages on the Company's resort properties as well as
other assets of the Company. Among other consequences, the leverage of the
Company and such restrictive covenants and other terms of the Company's debt
instruments could impair the Company's ability to obtain additional financing
in the future, to make acquisitions and to take advantage of significant
business opportunities that may arise. In addition, the Company's leverage may
increase its vulnerability to adverse general economic and timeshare industry
conditions and to increased competitive pressures.
RISKS ASSOCIATED WITH PARTNERSHIP INVESTMENT IN POIPU PARTNERSHIP
The Embassy Vacation Resort Poipu Point is owned by a partnership consisting
of the Company and a third party. Property ownership through a partnership
involves additional risks, including requirements of partner consents for
major decisions (including approval of budgets), capital contributions and
entry into material agreements. If the Company and its partner are unable to
agree on major decisions, either partner may elect to invoke a buy/sell right,
which could require the Company to either sell its interest in the Embassy
Vacation Resort Poipu Point or to buy out the interest of its partner at a
time when the Company is not prepared to do so. In addition, under certain
circumstances, the other partner can require the Company to purchase such
partner's interest or sell its interest to the partner. If a dispute arises
under this partnership, an adverse resolution could have a material adverse
effect on the operations of the Company. In addition, as a general partner,
the Company will be subject to certain fiduciary obligations which may
obligate it to act in a manner which is not necessarily in the best interest
of the Company.
LIMITED OPERATING HISTORY; CONSOLIDATION TRANSACTIONS
The Company has been recently formed in order to effectuate the
Consolidation Transactions and the Offering. Although predecessors of the
Company have operating history in the timeshare and hospitality industries,
the Company has no operating history as an integrated entity with respect to
the Existing Resorts or experience operating as a public company, which could
have an adverse impact on the Company's operations and future profitability.
The Company has chosen to conduct its management operations (i) in two
locations in California primarily with respect to acquisition, development and
finance, (ii) in Chicago, Illinois primarily with respect to sales and
marketing and (iii) in Orlando, Florida primarily with respect to accounting,
treasury and property management operations. However, as the Company grows and
diversifies into additional geographic markets, no assurance can be given as
to management's ability to efficiently manage operations and control functions
without a centrally located management team. The Company's Existing Resorts
are currently owned by the Property Partnerships and are being transferred
directly or indirectly to the Company pursuant to the Consolidation
Transactions. The Consolidation Transactions involve consents of certain
constituent partners, members or shareholders in each entity owning the
Existing Resorts. This process involves more risk than if each Existing Resort
was previously owned by the Company or acquired by the Company concurrently
with the Offering. There can be no assurance that partners, members or
shareholders could not bring a claim against the Company as a result of such
Consolidation Transactions, and one individual has threatened to bring a
claim. See "Business--Insurance; Legal Proceedings." If a partner, member or
shareholder brings a successful claim against the Company, the Company's
earnings could be adversely affected.
LACK OF APPRAISALS; NO ASSURANCE AS TO VALUE
No independent valuations or appraisals were obtained in connection with the
Consolidation Transactions or the Offering. Accordingly, there can be no
assurance that the price paid by the Company to holders who received their
shares of Common Stock as a result of the Offering will not exceed the
proportionate value of the Existing Resorts and other assets acquired by the
Company. The valuation of the Company has been determined based upon a variety
of factors discussed under "The Consolidation Transactions" and "Underwriting"
and not solely on an asset by asset valuation based on historical cost or
current market value and, therefore, may exceed values that could be obtained
from a liquidation of the Company or of the individual Existing Resorts or
assets owned by the Company.
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GENERAL ECONOMIC CONDITIONS; CONCENTRATION IN TIMESHARE INDUSTRY
Any downturn in economic conditions or any price increases (e.g., airfares)
related to the travel and tourism industry could depress discretionary
consumer spending and have a material adverse effect on the Company's
business. Any such economic conditions, including recession, may also
adversely affect the future availability of attractive financing rates for the
Company or its customers and may materially adversely affect the Company's
business. Furthermore, adverse changes in general economic conditions may
adversely affect the collectibility of the Company's loans to Vacation
Interval buyers. Because the Company's operations are conducted solely within
the timeshare industry, any adverse changes affecting the timeshare industry
such as an oversupply of timeshare units, a reduction in demand for timeshare
units, changes in travel and vacation patterns, changes in governmental
regulations of the timeshare industry and increases in construction costs or
taxes, as well as negative publicity for the timeshare industry, could have a
material adverse effect on the Company's operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RISKS ASSOCIATED WITH CUSTOMER FINANCING
The Company offers financing to the buyers of Vacation Intervals at the
Company's resorts who make a down payment generally equal to at least 10% of
the purchase price. This financing generally bears interest at fixed rates and
is collateralized by a first mortgage on the underlying Vacation Interval. The
Company has entered into agreements with lenders for the financing of these
customer receivables. These agreements provide an aggregate of up to
approximately $135 million of available financing to the Company bearing
interest at variable rates tied to either the prime rate or LIBOR, of which
the Company currently has approximately $80 million of additional borrowing
availability. Under these arrangements, the Company pledges as security
promissory notes to these lenders, who typically lend the Company 80% to 90%
of the principal amount of such notes. Payments under these promissory notes
are made by the buyer/borrowers directly to a payment processing center and
such payments are credited against the Company's outstanding balance with the
respective lenders. The Company does not presently have binding agreements to
extend the terms of such financing or for any replacement financing, and there
can be no assurance that alternative or additional arrangements can be made on
terms that are satisfactory to the Company. Accordingly, future sales of
Vacation Intervals may be limited by both the availability of funds to finance
the initial negative cash flow that results from sales that are financed by
the Company and by reduced demand which may result if the Company is unable to
provide financing through unaffiliated lenders to buyers of Vacation
Intervals. If the Company is required to sell its customer receivables to
lenders, discounts from the face value of such receivables may be required by
such lenders, if lenders are available at all. At March 31, 1996, the Company
had a portfolio of approximately 11,000 loans to Vacation Interval buyers
amounting to approximately $80 million. The loans had a weighted average
maturity of approximately seven years and a weighted average cost of funds of
15.0%. At such date, the Company had borrowings secured by such loans of
approximately $55 million, which borrowings bear interest at variable rates
with a weighted average of 10.7%. The Company has historically derived income
from its financing activities. However, because the Company's borrowings bear
interest at variable rates and the Company's loans to buyers of Vacation
Intervals bear interest at fixed rates, the Company bears the risk of
increases in interest rates with respect to the loans it has from its lenders.
To the extent interest rates on the Company's borrowings decrease, the Company
faces an increased risk that customers will pre-pay their loans and reduce the
Company's income from financing activities. See "Business--Customer
Financing."
RISKS OF HEDGING ACTIVITIES
To manage risks associated with the Company's borrowings bearing interest at
variable rates, the Company expects from time to time to purchase interest
rate caps, interest rate swaps or similar instruments. The nature and quantity
of the hedging transactions for the variable rate debt will be determined by
the management of the Company based on various factors, including market
conditions, and there have been no limitations placed on management's use of
certain instruments in such hedging transactions. No assurance can be given
that any such hedging transactions will offset the risks of changes in
interest rates, or that the costs associated with hedging activities will not
increase the Company's operating costs.
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RISKS ASSOCIATED WITH CUSTOMER DEFAULT
The Company bears the risk of defaults by buyers who financed the purchase
of their Vacation Intervals. If a buyer of a Vacation Interval defaults on the
loan made by the Company to finance the purchase of such Vacation Interval
during the early part of the repayment schedule the Company generally must
take back the mortgage with respect to such Vacation Interval and replace it
with a performing mortgage. In connection with the Company taking back any
such Vacation Interval, the associated marketing costs other than certain
sales commissions will not have been recovered by the Company and they must be
incurred again after their Vacation Interval has been returned to the
Company's inventory for resale (commissions paid in connection with the sale
of Vacation Intervals may be recoverable from the Company's sales personnel
and from independent contractors upon default in accordance with contractual
arrangements with the Company, depending upon the amount of time that has
elapsed between the sale and the default and the number of payments made prior
to such default). Although private mortgage insurance or its equivalent is
available to cover Vacation Intervals, the Company has never purchased such
insurance. In addition, although the Company in many cases may have recourse
against Vacation Interval buyers, sales personnel and independent contractors
for the purchase price paid and for commissions paid, respectively, no
assurance can be given that the Vacation Interval purchase price or any
commissions will be fully or partially recovered in the event of buyer
defaults under such financing arrangements. The Company purchased defaulted
mortgage notes with respect to 900 Vacation Intervals at the San Luis Bay
Resort on which the Company is in the process of foreclosing. The Company will
be subject to the costs and delays associated with such foreclosure process.
See "Business--Customer Financing."
COMPETITION
The Company is subject to significant competition at each of its resorts
from other entities engaged in the business of resort development, sales and
operation, including interval ownership, condominiums, hotels and motels. Many
of the world's most recognized lodging, hospitality and entertainment
companies have begun to develop and sell Vacation Intervals in resort
properties. Although the Company currently is the sole licensee of Embassy
Vacation Resorts from Promus and the Company recently obtained the exclusive
development rights to Westin Vacation Clubs from Westin pursuant to the Westin
Agreement, other major companies that now operate or are developing or
planning to develop Vacation Interval resorts include Marriott Ownership
Resorts ("Marriott"), The Walt Disney Company ("Disney"), Hilton Hotels
Corporation ("Hilton"), Hyatt Corporation ("Hyatt"), Four Seasons Hotels &
Resorts ("Four Seasons") and Inter-Continental Hotels and Resorts ("Inter-
Continental"). Many of these entities possess significantly greater financial,
marketing, personnel and other resources than those of the Company and may be
able to grow at a more rapid rate or more profitably as a result. In addition,
there can be no assurance that Promus will not grant other entities a license
to develop Embassy Vacation Resorts or that Promus will not exercise its
rights to terminate the Embassy Vacation Resort licenses. In the second
quarter of 1996, the Company experienced increased competition in the Orlando,
Florida market which reduced sales at the Existing Resorts located in the
Orlando area.
In the event that the Westin Agreement becomes the subject of dispute
between the parties thereto, it is possible that the Company's interest in
pursuing acquisition and development opportunities at "four-star" and "five-
star" resorts could be barred pending the final resolution of such dispute.
Additionally, at the expiration or early termination of the Westin Agreement,
Westin could become a direct competitor with the Company in the timeshare
resort business, including in the markets most attractive to the Company. See
"--Westin Agreement" and "Business--Description of Resorts--Westin Vacation
Club Resorts." In addition, the five Embassy Suites hotels owned or controlled
by affiliates of the Founders, which will not be owned by the Company, may
compete with certain of the Company's timeshare resorts; however, the Company
anticipates that such five Embassy Suites hotels could be a significant source
of lead generation for its marketing activities. Subject to the covenants not
to compete (as described herein), the Founders could acquire resort and other
hotel properties that could compete with the Company's timeshare business. See
"Management--Employment Agreements; Covenants Not To Compete."
DEPENDENCE ON VACATION INTERVAL EXCHANGE NETWORKS; RISK OF INABILITY TO
QUALIFY RESORTS
The attractiveness of Vacation Interval ownership is enhanced significantly
by the availability of exchange networks that allow Vacation Interval owners
to exchange in a particular year the occupancy right in their
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Vacation Interval for an occupancy right in another participating network
resort. According to the ARDA, the ability to exchange Vacation Intervals was
cited by buyers as a primary reason for purchasing a Vacation Interval.
Several companies, including RCI, provide broad-based Vacation Interval
exchange services, and the Company's Existing Resorts are currently qualified
for participation in the RCI exchange network. However, no assurance can be
given that the Company will continue to be able to qualify its Existing
Resorts, or will be able to qualify its future resorts, for participation in
the RCI network or any other exchange network. Moreover, if such exchange
networks cease to function effectively, or if the Company's resorts are not
accepted as exchanges for other desirable resorts, the Company's sales of
Vacation Intervals could be materially adversely effected. See "Business--
Participation in Vacation Interval Exchange Networks."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a large extent upon the experience and
abilities of the Founders, who will serve as the Company's Chief Executive
Officer, President and Chief Operating Officer. The loss of the services of
any one of these individuals could have a material adverse effect on the
Company, its operations and its business prospects. See "Management--
Employment Agreements." The Company's success is also dependent upon its
ability to attract and maintain qualified development, acquisition, marketing,
management, administrative and sales personnel for which there is keen
competition among the Company's competitors. In addition, the cost of
retaining such key personnel could escalate over time. There can be no
assurance that the Company will be successful in attracting and/or retaining
such personnel.
Pursuant to the Poipu Partnership Agreement, the Company may be removed as
managing general partner if, under certain circumstances, two of the three
Founders (Osamu Kaneko, Andrew J. Gessow and Steven C. Kenninger) are no
longer officers of the Company. In addition, the Poipu Partnership Agreement
provides that certain of the Founders will be actively involved in the
management of the Embassy Vacation Resort at Poipu Point.
SEASONALITY AND VARIABILITY OF QUARTERLY RESULTS
The Company has historically experienced and expects to continue to
experience seasonal fluctuations in its gross revenues and net income from the
sale of Vacation Intervals. This seasonality may cause significant variations
in quarterly operating results. If sales of Vacation Intervals are below
seasonal norms during a particular period, the Company's annual operating
results could be materially adversely affected. In addition, the combination
of (i) the possible delay in generating revenue after the acquisition by the
Company of additional resorts prior to the commencement of Vacation Interval
sales and (ii) the expenses associated with start-up unit or room-rental
operations, interest expense, amoritization and depreciation expenses from
such acquisitions may materially adversely impact earnings. Furthermore,
earnings may be impacted by the timing of the completion and development of
future resorts, and the potential impact of weather or other natural disasters
at the Company's resort locations (e.g., hurricanes in Hawaii and St. Maarten
and earthquakes in California). Additional material variability in operating
results may occur. See "--Natural Disasters; Uninsured Loss" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
REGULATION OF MARKETING AND SALES OF VACATION INTERVALS; OTHER LAWS
The Company's marketing and sales of Vacation Intervals and other operations
are subject to extensive regulation by the federal government and the states
and foreign jurisdictions in which the Existing Resorts are located and in
which Vacation Intervals are marketed and sold. On a federal level, the
Federal Trade Commission has taken the most active regulatory role through the
Federal Trade Commission Act, which prohibits unfair or deceptive acts or
competition in interstate commerce. Other federal legislation to which the
Company is or may be subject appears in the Truth-in-Lending Act and
Regulation Z, the Equal Opportunity Credit Act and Regulation B, the
Interstate Land Sales Full Disclosure Act, Real Estate Standards Practices
Act, Telephone Consumer Protection Act, Telemarketing and Consumer Fraud and
Abuse Prevention Act, Fair Housing Act and the Civil Rights Acts of 1964 and
1968. In addition, many states have adopted specific laws and regulations
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regarding the sale of interval ownership programs. The laws of most states,
including, Florida, South Carolina and Hawaii, require the Company to file
with a designated state authority for its approval a detailed offering
statement describing the Company and all material aspects of the project and
sale of Vacation Intervals. The laws of California require the Company to file
numerous documents and supporting information with the California Department
of Real Estate, the agency responsible for the regulation of Vacation
Intervals. When the California Department of Real Estate determines that a
project has complied with California law, it will issue a public report for
the project. The Company is required to deliver an offering statement or
public report to all prospective purchasers of a Vacation Interval, together
with certain additional information concerning the terms of the purchase. The
laws of Illinois, Florida and Hawaii impose similar requirements. Laws in each
state where the Company sells Vacation Intervals generally grant the purchaser
of a Vacation Interval the right to cancel a contract of purchase at any time
within a period ranging from three to fifteen calendar days following the
earlier of the date the contract was signed or the date the purchaser has
received the last of the documents required to be provided by the Company.
Most states have other laws which regulate the Company's activities, such as
real estate licensure; seller's of travel licensure; anti-fraud laws;
telemarketing laws; price, gift and sweepstakes laws; and labor laws. The
Company believes that it is in material compliance with all federal, state,
local and foreign laws and regulations to which it is currently subject.
However, no assurance can be given that the cost of qualifying under Vacation
Interval ownership regulations in all jurisdictions in which the Company
desires to conduct sales will not be significant or that the Company is in
fact in compliance with all applicable federal, state, local and foreign laws
and regulations. Any failure to comply with applicable laws or regulations
could have a material adverse effect on the Company. See "Business--
Governmental Regulation."
In addition, certain state and local laws may impose liability on property
developers with respect to construction defects discovered or repairs made by
future owners of such property. Pursuant to such laws, future owners may
recover from the Company amounts in connection with the repairs made to the
developed property.
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various federal, state and local laws, ordinances and regulations, the
owner of real property generally is liable for the costs of removal or
remediation of certain hazardous or toxic substances located on or in, or
emanating from, such property, as well as related costs of investigation and
property damage. Such laws often impose such liability without regard to
whether the owner knew of, or was responsible for, the presence of such
hazardous or toxic substances. The presence of such substances, or the failure
to properly remediate such substances, may adversely affect the owner's
ability to sell or lease a property or to borrow using such real property as
collateral. Other federal and state laws require the removal or encapsulation
of asbestos-containing material when such material is in poor condition or in
the event of construction, demolition, remodeling or renovation. Other
statutes may require the removal of underground storage tanks. Noncompliance
with these and other environmental, health or safety requirements may result
in the need to cease or alter operations at a property. As of the date of the
Prospectus, Phase I environmental reports (which typically involve inspection
without soil sampling or ground water analysis) have been prepared by
independent environmental consultants for each Existing Resort. In connection
with the acquisition and development of the Embassy Vacation Resort Lake Tahoe
and the San Luis Bay Resort, the independent environmental consultants have
identified several areas of environmental concern. The areas of concern at the
Embassy Vacation Resort Lake Tahoe relate to possible contamination that
originated on the resort site due to prior uses and to contamination that may
migrate onto the resort site from upgradient sources. California regulatory
agencies have been monitoring the resort site and have required or are in the
process of requiring the responsible parties (presently excluding the Company)
to effect remediation action. The Company has been indemnified by certain of
such responsible parties for certain costs and expenses in connection with
contamination at the Embassy Vacation Resort Lake Tahoe (including Chevron
(USA), Inc.) and does not anticipate incurring material costs in connection
therewith; however, there is no assurance that the indemnitor(s) will meet
their obligations in a complete and timely manner. In addition, the Company's
San Luis Bay Resort is located in an area of Avila Beach, California which has
experienced underground contamination resulting from leaking pipes at a nearby
oil refinery. California regulatory agencies have required the installation of
groundwater monitoring wells on the beach near the resort site, and no demand
or claim in connection with such contamination has been made on the Company,
however, there is no assurance
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that claims will not be asserted against the Company with respect to this
environmental condition. The Company is not aware of any environmental
liability that would have a material adverse effect on the Company's business,
assets or results of operations. No assurance, however, can be given that
these reports reveal all environmental liabilities or that no prior owner
created any material environmental condition not known to the Company.
Certain environmental laws impose liability on a previous owner of property
to the extent that hazardous or toxic substances were present during the prior
ownership period. A transfer of the property does not relieve an owner of such
liability. Thus, the Company may have liability with respect to properties
previously sold by its predecessors.
The Company believes that it is in compliance in all material respects with
all federal, state and local ordinances and regulations regarding hazardous or
toxic substances and, except as described above with respect to the Embassy
Vacation Resort Lake Tahoe and the San Luis Bay Resort, the Company has not
been notified by any governmental authority or third party of any non-
compliance, liability or other claim in connection with any of its present or
former properties. See "Business--Environmental Matters."
COSTS OF COMPLIANCE WITH LAWS GOVERNING ACCESSIBILITY OF FACILITIES TO
DISABLED PERSONS
A number of state and federal laws, including the Fair Housing Act and the
Americans with Disabilities Act (the "ADA"), impose requirements related to
access and use by disabled persons on a variety of public accommodations and
facilities. These requirements did not become effective until after January 1,
1991. Although the Company believes that its Existing Resorts are
substantially in compliance with laws governing the accessibility of its
facilities to disabled persons, the Company may incur additional costs of
complying with such laws. Additional legislation may impose further burdens or
restriction on property owners (including homeowner associations at the
Existing Resorts) with respect to access by disabled persons. The ultimate
amount of the cost of compliance with such legislation is not currently
ascertainable, and, while such costs are not expected to have a material
effect on the Company, such costs could be substantial. Limitations or
restrictions on the completion of certain renovations may limit application of
the Company's growth strategy in certain instances or reduce profit margins on
the Company's operations. If a homeowner association at an Existing Resort
were required to make significant improvements as a result of non-compliance
with the ADA, Vacation Interval owners may default on their mortgages and/or
cease making required homeowner association assessment payments. The Company
is not aware of any non-compliance with the ADA, the Fair Housing Act or
similar laws that management believes would have a material adverse effect on
the Company's business, assets or results of operations.
NATURAL DISASTERS; UNINSURED LOSS
In 1992, prior to the Company's purchase of an interest in the Embassy
Vacation Resort Poipu Point, the resort was substantially destroyed by
Hurricane Iniki. The resort was rebuilt with insurance proceeds before the
Company acquired its interest in the resort, but could suffer similar damage
in the future. In September 1995 and July 1996, the Company's St. Maarten
resorts were damaged by hurricanes and could suffer similar damage in the
future. In addition, the Company's other resorts located in Hawaii and Florida
may be subject to hurricanes and damaged as a result thereof. The Company's
resorts located in California and Hawaii may be subject to damage resulting
from earthquakes. There are certain types of losses (such as losses arising
from acts of war) that are not generally insured because they are either
uninsurable or not economically insurable and for which the Company does not
have insurance coverage. Should an uninsured loss or a loss in excess of
insured limits occur, the Company could lose its capital invested in a resort,
as well as the anticipated future revenues from such resort and would continue
to be obligated on any mortgage indebtedness or other obligations related to
the property. Any such loss could have a material adverse effect on the
Company. See "Business--Insurance, Legal Proceedings."
EFFECTIVE VOTING CONTROL BY EXISTING STOCKHOLDERS; WESTIN DIRECTOR DESIGNATION
Upon closing of the Offering and the Consolidation Transactions, the
Founders will hold substantial amounts of shares of Common Stock (Messrs.
Kaneko, Gessow and Kenninger will hold 17.0%, 19.3% and
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8.7%, respectively) which may allow them, collectively, to exert substantial
influence over the election of directors and the management and affairs of the
Company. Accordingly, if such persons vote their shares of Common Stock in the
same manner, they will have sufficient voting power, in general, to determine
the outcome of various matters submitted to the stockholders for approval,
including mergers, consolidations and the sale of substantially all of the
Company's assets. Pursuant to the Westin Agreement, during the term thereof
Westin generally will have the right to designate one member of the Company's
Board of Directors, irrespective of its share ownership in the Company. See
"Principal Stockholders," "Description of Capital Stock" and "Business--Westin
Vacation Club Resorts." Such control may result in decisions which are not in
the best interest of the Company. In addition, under certain circumstances, in
the event that the Founders collectively own less than 75% of the shares of
Common Stock owned by them immediately following the closing of the Offering
and the consummation of the Consolidation Transactions, and the Common Stock
they own thereafter is less than 75% of the market value of the Common Stock
issued to them in the Offering, then the Company's partner in the Poipu
Partnership will be entitled to require the Company to either dispose of its
interest or purchase such partner's interest in the Poipu Partnership pursuant
to the terms and conditions of the partnership agreement.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND THE COMPANY'S
CHARTER AND BYLAWS
Certain provisions of the Company's articles of incorporation (the
"Charter") and bylaws (the "Bylaws"), as well as Maryland corporate law, may
be deemed to have anti-takeover effects and may delay, defer or prevent a
takeover attempt that a stockholder might consider to be in the stockholder's
best interest. For example, such provisions may (i) deter tender offers for
Common Stock, which offers may be beneficial to stockholders or (ii) deter
purchases of large blocks of Common Stock, thereby limiting the opportunity
for stockholders to receive a premium for their Common Stock over then-
prevailing market prices. These provisions include the following:
Preferred Shares. The Charter authorizes the Board of Directors to issue
Preferred Stock in one or more classes and to establish the preferences and
rights (including the right to vote and the right to convert into Common
Stock) of any class of Preferred Stock issued. No Preferred Stock will be
issued or outstanding as of the closing of the Offering. See "Description of
Capital Stock--Preferred Stock."
Staggered Board. The Board of Directors of the Company will have three
classes of directors. The terms of the first, second and third classes will
expire in 1997, 1998 and 1999, respectively. Directors for each class will be
chosen for a three-year term upon the expiration of the term of the current
class, beginning in 1997. The affirmative vote of two-thirds of the
outstanding Common Stock is required to remove a director.
Maryland Business Combination Statute. Under the Maryland General
Corporation Law ("MGCL"), certain "business combinations" (including the
issuance of equity securities) between a Maryland corporation and any person
who owns, directly or indirectly, 10% or more of the voting power of the
corporation's shares of capital stock (an "Interested Stockholder") must be
approved by a supermajority (i.e., 80%) of voting shares. In addition, an
Interested Stockholder may not engage in a business combination for five years
following the date he or she became an Interested Stockholder.
Maryland Control Share Acquisition. Maryland law provides that "Control
Shares" of a corporation acquired in a "Control Share Acquisition" have no
voting rights except to the extent approved by a vote of two-thirds of the
votes eligible under the statute to be cast on the matter. "Control Shares"
are voting shares of beneficial interest which, if aggregated with all other
such shares of beneficial interest previously acquired by the acquiror, would
entitle the acquiror directly or indirectly to exercise voting power in
electing directors within one of the following ranges of voting power: (i)
one-fifth or more but less than one-third, (ii) one-third or more but less
than a majority or (iii) a majority of all voting power. Control Shares do not
include shares of beneficial interest the acquiring person is then entitled to
vote as a result of having previously obtained stockholder approval. A
"Control Share Acquisition" means the acquisition of Control Shares, subject
to certain exceptions.
If voting rights are not approved at a meeting of stockholders then, subject
to certain conditions and limitations, the issuer may redeem any or all of the
Control Shares (except those for which voting rights have
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previously been approved) for fair value. If voting rights for Control Shares
are approved at a stockholders meeting and the acquiror becomes entitled to
vote a majority of the shares of beneficial interest entitled to vote, all
other stockholders may exercise appraisal rights. See "Certain Provisions of
Maryland Law and of the Company's Charter and Bylaws."
SHARES ELIGIBLE FOR FUTURE SALE
Upon closing of the Offering, all the shares of Common Stock offered hereby
will be eligible for public sale without restriction. Holders who received
their shares of Common Stock as a result of the Consolidation Transactions
hold their shares subject to the limitations of Rule 144 of the Securities Act
("Rule 144"). Such holders who received their shares of Common Stock as a
result of the Consolidation Transactions have been granted certain
registration rights pursuant to which the Company has agreed to file and cause
to become effective within six months of the Offering, a shelf registration
statement with the Commission for the purpose of registering the sale of such
shares of Common Stock. Future sales of substantial amounts of Common Stock,
or the potential for such sales, could adversely affect prevailing market
prices. See "Shares Eligible for Future Sale" and "Underwriting."
IMMEDIATE AND SUBSTANTIAL DILUTION; NO ANTICIPATED DIVIDENDS
Purchasers of Common Stock in the Offering will experience immediate
dilution in net tangible book value per share of Common Stock of $9.00 from
the initial public offering price per share. See "Dilution." In addition, the
Company does not anticipate that it will pay any dividends on its Common Stock
in the foreseeable future. See "Dividend Policy."
RISK OF TAX RE-CLASSIFICATION OF INDEPENDENT CONTRACTORS AND RESULTING TAX
LIABILITY; COST OF COMPLIANCE WITH APPLICABLE LAWS
The Company sells Vacation Intervals at its Existing Resorts through
independent sales agents. Such independent sales agents provide services to
the Company under contract and, the Company believes, are not employees of the
Company. Accordingly, the Company does not withhold payroll taxes from the
amounts paid to such independent contractors. Although the Internal Revenue
Service has made inquiries regarding the Company's classification of its sales
agents at its Branson, Missouri resort, no formal action has been taken and
the Company has requested that the inquiry be closed. In the event the
Internal Revenue Service or any state or local taxing authority were to
successfully classify such independent sales agents as employees of the
Company, rather than as independent contractors, and hold the Company liable
for back payroll taxes, such reclassification may have a material adverse
effect on the Company.
Additionally, from time to time, potential buyers of Vacation Intervals
assert claims with applicable regulatory agencies against Vacation Interval
salespersons for unlawful sales practices. Such claims could have adverse
implications for the Company in negative public relations and potential
litigation and regulatory sanctions.
LIMITED RESALE MARKET FOR VACATION INTERVALS
The Company sells the Vacation Intervals to buyers for leisure and not
investment purposes. The Company believes, based on experience at its Existing
Resorts, that the market for resale of Vacation Intervals by the buyers is
presently limited, and that any resales of Vacation Intervals are typically at
prices substantially less than the original purchase price. These factors may
make ownership of Vacation Intervals less attractive to prospective buyers,
and attempts by buyers to resell their Vacation Intervals will compete with
sales of Vacation Intervals by the Company. In addition, the market price of
Vacation Intervals sold by the Company at a given resort or by its competitors
in the market in which each resort is located could be depressed by a
substantial number of Vacation Intervals offered for resale.
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RISKS RELATED TO OPERATIONS IN ST. MAARTEN, NETHERLAND ANTILLES
Two of the Existing Resorts are located in St. Maarten, Netherland Antilles
in the Caribbean, both of which were acquired by the Company in a foreclosure
sale. There are a number of ongoing disputes with owners who owned units at
the Flamingo Beach Club, including certain claims respecting their obligations
to pay for annual maintenance expenses or whether there are certain
entitlements to guaranteed returns. If such claims are adversely determined
against the Company, such determination may have a material adverse impact on
the operation of this property.
In addition, a portion of the Company's Royal Palm Beach Club resort located
in St. Maarten, Netherlands Antilles, is operated by the Company pursuant to a
long-term ground lease that expires in 2050 and the types of assurance, such
as estoppel certificates, which would be provided in the United States, are
not available. Although the Company is unaware of any circumstances that could
cause the early termination of such ground lease before its scheduled
expiration date, any such early termination or cancellation of the ground
lease could have an adverse effect on the Company's operations. In addition,
title insurance is not available in the Netherlands Antilles. Accordingly, the
titles to the Company's real property and ground lease with respect to the
Flamingo Beach Club and Royal Palm Beach Club resorts are not insured, may be
subject to challenge, and, if successfully challenged, could result in
additional costs to operate these facilities.
POTENTIAL CONFLICTS OF INTEREST
Because affiliates of Messrs. Kaneko and Kenninger have operations in the
lodging industry other than those with respect to the development and
operation of timeshare resorts, potential conflicts of interest exist.
Affiliates of KOAR, which are owned by Messrs. Kaneko and Kenninger, have
developed and currently act as the managing general partner of partnerships
which own five hotels that are franchised as Embassy Suites hotels (one of
which, the Embassy Suites Lake Tahoe, is located in a market served by the
Company) and a residential condominium project overlooking the ocean in Long
Beach, California (a market which the Company is pursuing). Messrs. Kaneko and
Kenninger will continue to devote a portion of their time to KOAR's hotel
business and to meeting their duties and responsibilities to their investors
existing prior to the Consolidation Transactions and the Offering. In
addition, the Founders are currently pursuing the acquisition of one property
in California. Upon its acquisition the Founders intend to convert such
property to timeshare. Additionally, notwithstanding their covenants not to
compete, the Founders have the right to pursue certain other activities which
could divert their time and attention from the Company's business and result
in conflicts with the Company's business. See "Management--Employment
Agreements--Covenants Not To Compete," and "Business--Future Acquisitions."
RISKS RELATED TO WESTIN AGREEMENT; LIMITED CONTROL OF RESORTS AND TERMINATION
The Westin Agreement may involve certain additional risks to the Company's
future operations. The Westin Agreement imposes certain restrictions on the
Company's ability to develop certain timeshare resorts in conjunction with
hotel operators other than Westin. Generally, the Company is required, subject
to certain exceptions involving Embassy Vacation Resorts and Promus, to submit
for Westin's consideration any "four star" or "five star" development
opportunity that the Company has determined to pursue. In the event Westin
determines not to proceed with the Company to develop such resort, the Company
would be free only to develop the resort as a "non-branded" property or as a
property branded as an Embassy Vacation Resort or in conjunction with other
upscale operators, but excluding specified operators of luxury hotels and
resorts. In addition, all resorts acquired or developed pursuant to the Westin
Agreement will be owned by partnerships, limited liability companies or
similar entities in which each of Westin and the Company will own a 50% equity
interest and have an equal voice in management. Accordingly, the Company will
not be able to control such resorts or the applicable entities. In addition,
the Westin Agreement will be terminable by either party if certain thresholds
relating to development or acquisitions of resorts are not met, in the event
of certain changes in management of Westin or the Company or in the event of
an acquisition or merger of either party. See "Effective Voting Control of
Existing Stockholders; Westin Director Designation."
22
<PAGE>
ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
There has been no prior public market for the Company's Common Stock.
Although the Common Stock has been approved for quotation on the Nasdaq
National Market, subject to notice of issuance, there can be no assurance that
a viable public market for the Common Stock will develop or be sustained after
the Offering or that purchasers of the Common Stock will be able to resell
their Common Stock at prices equal to or greater than the initial public
offering price. The initial public offering price will be determined by
negotiations among the Company and the representatives of the Underwriters and
may not be indicative of the prices that may prevail in the public market
after the Offering is completed. Numerous factors, including announcements of
fluctuations in the Company's or its competitors' operating results and market
conditions for hospitality and timeshare industry stocks in general, could
have a significant impact on the future price of the Common Stock. In
addition, the stock market in recent years has experienced significant price
and volume fluctuations that often have been unrelated or disproportionate to
the operating performance of companies. These broad fluctuations may adversely
affect the market price of the Common Stock. See "Underwriting."
23
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 5,250,000 shares of
Common Stock offered by the Company hereby at an estimated initial public
offering price of $15.00 per share, after deducting underwriting discounts and
estimated expenses of the Offering, are estimated to be $71.2 million ($82.2
million if the Underwriters' over-allotment option is exercised in full). The
Company intends to use approximately $56.6 of the estimated net proceeds to
repay outstanding indebtedness and accrued interest and approximately $7.3
million to fund the cash paid to third parties in the Consolidation
Transactions. See "Certain Relationships and Related Transactions--Repayment
of Affiliated Debt." The balance of the estimated net proceeds of
approximately $7.3 million is intended to be used for working capital and
other general corporate purposes. Pending any such additional uses, the
Company will invest the excess proceeds in commercial paper, bankers'
acceptances, other short-term investment-grade securities and money-market
accounts. As of the date of the Prospectus, the Company has not entered into
any agreement to acquire or develop additional resorts.
Indebtedness to be repaid out of the net proceeds from the Offering bears
interest at rates currently ranging between approximately 10.0% and 18.0% per
annum and matures at various times over the next five years. Indebtedness to
be repaid that was incurred within the last year was incurred for acquisitions
and development of timeshare resorts and for general corporate purposes. None
of the proceeds from the Offering will be used to pay any delinquent
indebtedness.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying cash dividends on its Common Stock in the
foreseeable future. The Company currently intends to retain future earnings to
finance its operations and fund the growth of its business. Any payment of
future dividends will be at the discretion of the Board of Directors of the
Company and will depend upon, among other things, the Company's earnings,
financial condition, capital requirements, level of indebtedness, contractual
restrictions in respect of the payment of dividends and other factors that the
Company's Board of Directors deems relevant.
24
<PAGE>
CONSOLIDATED CAPITALIZATION
The following table sets forth, as of March 31, 1996, the debt and total
consolidated capitalization of the Company on an actual basis and as adjusted
to give effect to the sale of Common Stock offered hereby and the application
of the estimated net proceeds to the Company therefrom. This table should be
read in conjunction with the historical financial statements of the Company
and the related notes thereto included elsewhere in this Prospectus. See "Use
of Proceeds" and "Selected Combined Historical and Pro Forma Financial
Information."
<TABLE>
<CAPTION>
AS OF MARCH 31,
1996
-----------------
AS
ACTUAL ADJUSTED
-------- --------
(UNAUDITED)
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Debt:
Notes payable to financial institutions(1)................. $ 79,044 $ 38,452
Notes payable to related parties........................... 11,879 --
-------- --------
Total debt............................................... 90,923 38,452
Stockholder's equity:
Common Stock, $0.01 par value; 16,604,705 shares issued and
outstanding(2)............................................ -- 167
Additional paid-in capital................................. -- 100,111
Retained earnings.......................................... -- 3,663
-------- --------
Total stockholders' equity................................. 40,955 103,941
-------- --------
Total capitalization..................................... $131,878 $142,393
======== ========
</TABLE>
- --------
(1) Includes notes collateralized by notes receivable.
(2) Does not include an aggregate of 1,750,000 shares of Common Stock reserved
for issuance pursuant to the Company's 1996 Equity Participation Plan,
500,000 shares of Common Stock reserved for issuance pursuant to the
Employee Stock Purchase Plan and 787,500 shares of Common Stock which the
Underwriters may purchase pursuant to their over-allotment option. See
"Management--Executive Compensation" and "Underwriting."
25
<PAGE>
DILUTION
The net tangible book value of the Company at March 31, 1996 was
approximately $37.1 million, or $3.25 per share of Common Stock. Net tangible
book value per share represents the Company's total tangible assets less its
total liabilities, divided by the total number of outstanding shares of Common
Stock. After giving effect to the sale of 5,250,000 shares of Common Stock
offered by the Company hereby and the application of the estimated net
proceeds therefrom, the pro forma net tangible book value of the Company at
March 31, 1996, would have been approximately $100.1 million or $6.00 per
share of Common Stock. This represents an immediate increase in such net
tangible book value of $2.75 per share to the existing stockholders of the
Company and an immediate dilution in net tangible book value of $9.00 per
share to purchasers of Common Stock in the Offering. The following table
illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share (at mid-point
of estimated pricing range)................................... $15.00
Net tangible book value per share before the Offering........ $3.25
Increase per share attributable to new investors............. 2.75
-----
Pro forma net tangible book value per share after the Offering. 6.00
------
Dilution per share to new investors............................ $ 9.00
======
</TABLE>
The following table sets forth, as of March 31, 1996, after giving effect to
the Consolidation Transactions and the Offering, the number of shares of
Common Stock purchased, the total consideration paid therefor and the average
price paid per share by the existing stockholders of the Company and the
purchasers of Common Stock in the Offering, respectively. The following table
does not give effect to an aggregate of 1,750,000 shares of Common Stock
reserved for issuance pursuant to the Company's 1996 Equity Participation Plan
and 500,000 shares reserved for issuance pursuant to the Employee Stock
Purchase Plan, and does not include 787,500 shares of Common Stock which the
Underwriters may purchase pursuant to their over-allotment option. See
"Management--Executive Compensation" and "Underwriting."
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)... 11,354,705 68.4% $18,735,263 19.2% $ 1.65
New investors(2)........... 5,250,000 31.6 78,750,000 80.8 $15.00
---------- ----- ----------- -----
Total.................... 16,604,705 100.0% $97,485,263 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) Existing stockholders of the Company who received shares of Common Stock
pursuant to the Consolidation Transactions.
(2) Purchasers of Common Stock in the Offering.
26
<PAGE>
SELECTED COMBINED HISTORICAL FINANCIAL INFORMATION
(DOLLAR AMOUNTS IN THOUSANDS)
The selected combined historical financial information set forth in the
table below at or for the twelve month periods ended December 31, 1993, 1994
and 1995 have been derived from, and are qualified by reference to, the
combined financial statements of the Company which have been audited by Ernst
& Young LLP, independent accountants for the Company. The information
presented for 1992 was derived from the Company's records. The following
selected combined historical financial information at or for the three month
periods ended March 31, 1995 and March 31, 1996 has been derived from
unaudited financial statements that, in the opinion of management of the
Company, reflects all adjustments, consisting of normal recurring adjustments,
necessary to present fairly the financial information for such periods and as
of such date. The combined historical results for the three months ended March
31, 1995 and March 31, 1996 are not necessarily indicative of results for a
full year. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the combined financial information for the Company and the
notes thereto which are contained elsewhere herein.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- -----------------
1992 1993 1994 1995 1995 1996
------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenue:
Vacation Interval
sales................ $11,328 $ 22,238 $ 40,269 $ 59,071 $13,239 $ 13,983
Interest ............. 402 1,825 3,683 6,929 1,390 1,951
Other ................ 115 373 338 6,608 114 1,576
------- -------- -------- -------- ------- --------
Total revenue......... 11,845 24,436 44,290 72,608 14,743 17,510
Costs and operating
expenses:
Vacation Interval cost
of sales............. 2,999 5,708 12,394 15,650 4,126 3,112
Advertising, sales and
marketing............ 4,734 10,809 18,745 28,488 6,617 6,572
Loan portfolio
Interest expense--
treasury............. 168 674 1,629 3,586 712 1,211
Other................. 50 208 851 1,189 193 305
Provision for doubtful
accounts............. 555 619 923 1,787 460 342
General and
administrative
Corporate............. 665 2,346 2,864 4,947 615 1,476
Resort-level.......... 375 877 874 1,607 327 849
Depreciation and
amortization......... 209 384 489 1,675 372 504
Interest expense--
other................ -- 518 959 476 83 551
Equity loss on
investment in joint
venture.............. -- -- 271 1,649 491 1
------- -------- -------- -------- ------- --------
Total costs and
operating expenses... 9,755 22,143 39,999 61,054 13,996 14,923
Pre-tax income.......... 2,090 2,293 4,291 11,554 747 2,587
Provision for taxes... -- -- -- 641 -- 102
------- -------- -------- -------- ------- --------
Net Income.............. $ 2,090 $ 2,293 $ 4,291 $ 10,913 $ 747 $ 2,485
======= ======== ======== ======== ======= ========
CASH FLOW DATA:
EBITDA(1)............... $ 2,467 $ 3,869 $ 7,368 $ 17,291 $ 1,914 $ 4,853
Cash flow provided by
(used in):
Operating activities.. (6,166) (3,262) (10,964) 5,460 1,116 (317)
Investing activities.. (51) (10,776) (24,940) (40,075) (8,191) (6,483)
Financing activities.. 5,146 15,341 36,134 37,102 6,721 6,183
OPERATING DATA:
Number of Existing
Resorts at period end.. 1 3 4 7 5 7
Number of Vacation
Intervals sold(2)...... 1,284 2,442 4,482 5,675 1,246 1,522
Number of Vacation
Intervals in
inventory(2)........... 1,164 1,233 2,401 9,917 3,036 21,874
Average price of
Vacation Intervals
sold(2)................ $ 8,822 $ 9,106 $ 8,985 $ 10,409 $10,625 $ 9,187
BALANCE SHEET DATA (AT
END OF PERIOD):
Cash, including cash in
escrow................. $ 850 $ 2,567 $ 4,282 $ 6,288 $ 4,378 $ 5,693
Total assets............ 18,739 38,230 82,454 141,241 87,617 148,541
Long-term debt.......... 9,696 22,931 44,415 84,738 50,653 90,923
Equity.................. 7,439 11,838 30,780 38,470 32,010 40,955
</TABLE>
27
<PAGE>
- --------
(1) As shown below, EBITDA represents net income before interest expense,
income taxes and depreciation and amortization. EBITDA is presented
because it is a widely accepted financial indicator of a company's ability
to service and/or incur indebtedness. However, EBITDA should not be
construed as an alternative to net income as a measure of the Company's
operating results or to operating cash flow as a measure of liquidity. The
following table reconciles EBITDA to net income:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31 MARCH 31
---------------------------- -------------
1992 1993 1994 1995 1995 1996
------ ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net income.................... $2,090 $2,293 $4,291 $10,913 $ 747 $2,485
Interest expense--treasury.... 168 674 1,629 3,586 712 1,211
Interest expense--other....... -- 518 959 476 83 551
Taxes......................... -- -- -- 641 -- 102
Depreciation and amortization. 209 384 489 1,675 372 504
------ ------ ------ ------- ------ ------
EBITDA........................ $2,467 $3,869 $7,368 $17,291 $1,914 $4,853
====== ====== ====== ======= ====== ======
</TABLE>
(2)Includes the effect of sales or inventory at the Company's non-consolidated
resort.
28
<PAGE>
SELECTED COMBINED PRO FORMA FINANCIAL INFORMATION
The selected combined pro forma statements of operations data set forth
below for the year ended December 31, 1995 and for the three month periods
ended March 31, 1995 and March 31, 1996 all give effect to the Consolidation
Transactions and the Offering as if each had occurred on January 1, 1995. The
pro forma adjustments are based upon currently available information and
certain assumptions that management of the Company believes are reasonable
under current circumstances.
SELECTED COMBINED PRO FORMA STATEMENT OF OPERATIONS DATA
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
------- ----------- ---------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenue
Vacation Interval sales....................... $59,071 $ -- $59,071
Interest income............................... 6,929 -- 6,929
Other income.................................. 6,608 320 (1) 6,928
------- ------- -------
Total revenue................................. 72,608 320 72,928
Costs and Operating Expenses:
Vacation Interval cost of sales............... 15,650 (64)(2) 15,586
Advertising, sales and marketing.............. 28,488 -- 28,488
Loan portfolio
Interest expense--treasury.................. 3,586 (3,586)(2) --
Other....................................... 1,189 (115)(2) 1,074
Provision for doubtful accounts............. 1,787 -- 1,787
General and administrative
Corporate................................... 4,947 -- 4,947
Resort-level................................ 1,607 -- 1,607
Depreciation and amortization................. 1,675 155 (3) 1,830
Interest expense--other....................... 476 (476)(2) --
Equity loss on investment in joint venture.... 1,649 -- 1,649
------- ------- -------
Total costs and operating expenses............ 61,054 (4,086) 56,968
------- ------- -------
Pre-tax income.................................. 11,554 4,406 15,960
Provision for taxes........................... 641 5,446 (4) 6,087
------- ------- -------
Net income...................................... $10,913 $(1,040) $ 9,873
======= ======= =======
</TABLE>
- --------
(1) Reflects increase in interest income due to the purchase of loans from
certain combining interests of $2.7 million relating to loans made by such
combining interests to the joint venture. The loans carry interest at 12%
per annum.
(2) Reflects the following: (i) the elimination or reduction of interest
expense due to the expected retirement of $52.5 million of debt; (ii) the
reduction of Vacation Interval cost of sales due to the reduction of
capitalized interest related to the retirement of debt and (iii) the
elimination of financing fees on advances not required as a result of the
debt retirement. The average interest rate on the debt retired was 10.65%.
(3) Reflects the increase of goodwill amortization on the purchase of a joint
venture interest.
(4) Reflects the effect on 1995 historical statement of operations data of
(1)-(3) above and assumes the combined Company had been treated as a C
corporation rather than as individual limited partnerships and limited
liability companies for federal income tax purposes.
29
<PAGE>
SELECTED COMBINED PRO FORMA STATEMENTS OF OPERATIONS DATA
THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, 1995 MARCH 31, 1996
------------------------------ -------------------------------
PRO FORMA PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA ACTUAL ADJUSTMENTS PRO FORMA
------- ----------- --------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenue
Vacation Interval
sales................ $13,239 $ -- $13,239 $13,983 $ -- $13,983
Interest income....... 1,390 -- 1,390 1,951 -- 1,951
Other income.......... 114 80 (1) 194 1,576 80 (1) 1,656
------- ----- ------- ------- ------- -------
Total revenue......... 14,743 80 14,823 17,510 80 17,590
Costs and Operating
Expenses:
Vacation Interval cost
of sales............. 4,126 (14)(2) 4,112 3,112 (15)(2) 3,097
Advertising, sales and
marketing............ 6,617 -- 6,617 6,572 -- 6,572
Loan portfolio
Interest expense--
treasury........... 712 (712)(2) -- 1,211 (854)(2) 357
Other............... 193 (48)(2) 145 305 (17)(2) 288
Provision for
doubtful accounts.. 460 -- 460 342 -- 342
General and
administrative
Corporate overhead.. 615 -- 615 1,476 -- 1,476
Resort-level........ 327 -- 327 849 -- 849
Depreciation and
amortization......... 372 -- 372 504 146 (3) 650
Interest expense--
other................ 83 (83)(2) -- 551 (551)(2) --
Equity loss on
investment in joint
venture.............. 491 -- 491 1 -- 1
------- ----- ------- ------- ------- -------
Total costs and
operating expenses... 13,996 (857) 13,139 14,923 (1,291) 13,632
------- ----- ------- ------- ------- -------
Pre-tax income.......... 747 937 1,684 2,587 1,371 3,958
Provision for taxes. -- 636 (4) 636 102 1,430 (4) 1,532
------- ----- ------- ------- ------- -------
Net income.............. $ 747 $ 301 $ 1,048 $ 2,485 $ (59) $ 2,426
======= ===== ======= ======= ======= =======
</TABLE>
- --------
(1) Reflects increase in interest income due to the purchase of loans from
certain combining interests of $2.7 million relating to loans made by such
combining interests to the joint venture. The loans carry interest at 12%
per annum.
(2) Reflects the following: (i) the elimination or reduction of interest
expense due to the expected retirement of $52.5 million of debt; (ii) the
reduction of Vacation Interval cost of sales due to the reduction of
capitalized interest related to the retirement of debt and (iii) the
elimination of financing fees on advances not required as a result of the
debt retirement. The average interest rate on the debt retired was 10.65%.
(3) Reflects the increase of goodwill amortization on the purchase of a joint
venture interest.
(4) Reflects the effects on historical statements of operations data of (1)-
(3) above and assumes the combined Company had been treated as a C
corporation rather than as individual limited partnerships and limited
liability companies for federal income tax purposes.
30
<PAGE>
The selected combined pro forma balance sheet data set forth below at March
31, 1996 all give effect to the Consolidation Transactions and the Offering as
if each had occurred on March 31, 1996. The pro forma adjustments are based
upon currently available information and certain assumptions that management
of the Company believes are reasonable under current circumstances.
SELECTED COMBINED PRO FORMA BALANCE SHEET
MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA AS
ACTUAL ADJUSTMENTS(1) ADJUSTED
-------- -------------- --------
<S> <C> <C> <C>
ASSETS:
Cash.......................................... $ 3,725 $ 71,250 (2) $ 11,036
(2,668)(3)
(8,800)(4)
(52,471)(5)
Escrow........................................ 1,968 1,968
Mortgages receivable.......................... 73,930 73,930
Due from affiliates........................... 2,960 2,960
Other receivables, net........................ 4,834 4,834
Notes receivable from related parties......... 2,668 (3) 2,668
Prepaid expenses and other assets............. 1,902 1,902
Investment in joint venture................... 2,643 5,015 (6) 7,658
Real estate and development costs............. 50,528 50,528
Property and equipment........................ 2,166 2,166
Intangible assets............................. 3,885 3,885
-------- --------
$148,541 $163,535
======== ========
LIABILITIES AND EQUITY:
Accounts payable.............................. $ 5,462 $ 5,462
Accrued liabilities........................... 10,484 10,484
Due to affiliates............................. 717 717
Deferred taxes................................ 4,480 (7) 4,480
Notes payable to financial institutions....... 79,044 (40,592)(5) 38,452
Notes payable to related parties.............. 11,879 (11,879)(5) --
-------- --------
107,586 59,595
Equity........................................ 40,955 71,250 (2) 103,940
(8,800)(4)
5,015 (6)
(4,480)(7)
-------- --------
$148,541 $163,535
======== ========
</TABLE>
- -------
(1) The Consolidation Transactions have been accounted for at historical cost
as the Company is comprised of affiliates which are under common control.
(2) Reflects the proceeds of the Offering of 5,250,000 shares of Common Stock
($78,750) net of related expenses ($7,500).
(3) Reflects the purchase of loans from certain combining interests ($2,668)
relating to loans made by such combining interests to the joint venture.
(4) Reflects the acquisition of equity interests ($8,800).
(5) Reflects the repayment of notes payable to financial institutions
($40,592) and notes payable to related parties ($11,879).
(6) Reflects the purchase of joint venture interest ($5,015).
(7) Represents the establishment of deferred taxes for the difference between
the book and tax basis of assets and liabilities at March 31, 1996
($4,480).
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Signature Resorts, Inc. was formed in May 1996 to combine the ownership of
the Existing Resorts and the timeshare acquisition and development business of
the Company's predecessors. The Company generates revenues from the sale and
financing of timeshare interests in resorts, which typically entitle the buyer
to the use of a fully-furnished vacation resort in perpetuity, generally for a
one-week period each year. The Company generates additional revenues from room
rental operations, rentals of Vacation Intervals in Company inventory and from
fees associated with managing the timeshare resorts.
The Company recognizes sales of Vacation Intervals on an accrual basis after
a binding sales contract has been executed between the Company and the
proposed buyer, a 10% minimum down payment has been received, the rescission
period has expired, construction is substantially complete, and certain
minimum sales levels are achieved. If all the criteria are met, even in
instances where construction is not substantially complete, revenues are
recognized on the percentage-of-completion basis. Costs associated with the
acquisition and development of timeshare resorts, including carrying costs
such as interest and taxes, are capitalized as real estate and development
costs and allocated as Vacation Interval cost of sales as the respective
revenue is recognized. The Company's investment in the Embassy Vacation Resort
Poipu Point is accounted for using the equity method and reflected on the
balance sheet as "Investment in joint venture" and on the income statement as
"Equity loss on investment in joint venture."
Results of Operations
The following discussion of the results of operations relates to entities
comprising the Company on a combined historical basis. The results of
operations only reflect operations of entities in existence for each
respective reporting year. The following table sets forth certain operating
information for the entities comprising the Company.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------- ----------------
1993 1994 1995 1995 1996
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
AS A PERCENTAGE OF TOTAL
REVENUES
Vacation Interval sales....... 91.0% 90.9% 81.4% 89.8% 79.9%
Interest...................... 7.5% 8.3% 9.5% 9.4% 11.1%
Other......................... 1.5% 0.8% 9.1% 0.8% 9.0%
-------- -------- -------- ------- -------
Total Revenues.............. 100.0% 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ======= =======
AS A PERCENTAGE OF VACATION
INTERVAL SALES
Vacation Interval cost of
sales........................ 25.7% 30.8% 26.5% 31.2% 22.3%
Advertising, sales and
marketing.................... 48.6% 46.5% 48.2% 50.0% 47.0%
AS A PERCENTAGE OF INTEREST
INCOME
Loan Portfolio:
Interest expense--treasury.. 36.9% 44.2% 51.8% 51.2% 62.1%
Other expenses.............. 11.4% 23.1% 17.2% 13.9% 15.6%
</TABLE>
32
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<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------- ----------------
1993 1994 1995 1995 1996
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL REVENUES
Provision for doubtful accounts.. 2.5% 2.1% 2.5% 3.1% 2.0%
General and administrative....... 13.2% 8.4% 9.0% 6.4% 13.3%
Depreciation and amortization.... 1.6% 1.1% 2.3% 2.5% 2.9%
Interest expense--other.......... 2.1% 2.2% 0.7% 0.6% 3.1%
Equity loss on investment in
joint venture................... -- 0.6% 2.3% 3.3% 0.0%
------- ------- -------- ------- -------
Total costs and operating
expenses...................... 90.6% 90.3% 84.1% 94.9% 85.2%
======= ======= ======== ======= =======
SELECTED OPERATING DATA:
Vacation Intervals sold at non-
consolidated resorts(1)......... -- -- 281 -- 265
Vacation Intervals sold at
consolidated resorts(2)......... 2,442 4,482 5,394 1,246 1,257
Average sales price per Vacation
Interval at consolidated
resorts(3)...................... $ 9,106 $ 8,985 $ 10,953 $10,625 $11,124
Average sales price per Vacation
Interval at non-consolidated
resorts(4)...................... -- -- $ 19,074 -- $18,906
Number of Vacation Intervals in
inventory at year-end(5)........ 1,233 2,401 9,917 3,036 22,143
</TABLE>
- --------
(1) Reflects Vacation Intervals sold at the Embassy Vacation Resort Poipu
Point.
(2) Reflects Vacation Intervals sold at consolidated resorts (Cypress Pointe
Resort, Plantation at Fall Creek, Royal Dunes Resort, Royal Palm Beach
Club, Flamingo Beach Club, and San Luis Bay Resort).
(3) Reflects average price achieved on sales of Vacation Intervals at both
consolidated and non-consolidated resorts.
(4) Reflects Vacation Interval inventory at non-consolidated resorts.
(5) Reflects Vacation Interval inventory at consolidated resorts.
Comparison of the three months ended March 31, 1996 to three months ended
March 31, 1995. For the three months ended March 31, 1996 the Company achieved
total revenue of $17.5 million compared to $14.7 million for the three months
ended March 31, 1995, an increase of $2.8 million or 19%. This increase was
due to a 6% increase in Vacation Interval sales from $13.2 million to $14.0
million, a 43% increase in interest income from $1.4 million to $2.0 million,
and a $1.5 million increase in other income. Vacation Interval sales increased
for the three months ended March 31, 1996 over the same period during 1995 due
to a 0.9% increase in the number of Vacation Intervals sold, which grew from
1,246 in 1995 to 1,257 in 1996 and a higher average price realized on sale
which increased 4.7%. This was due to the commencement of the sale of Vacation
Intervals at the Royal Palm Beach Club and at the Flamingo Beach Club.
Interest income increased due to a $33.8 million increase in mortgage
receivables, which grew from $40.1 million as of March 31, 1995 to $73.9
million as of March 31, 1996, an increase of 84%. Other income increased $1.5
million from $0.1 million for the three months ended March 31, 1995 to
$1.6 million in for the three months ended March 31, 1996. This increase was
the result of room rental income at the properties increasing from $62,293 to
$0.5 million from 1995 to 1996, and the acquisition of a $6.5 million mortgage
receivable portfolio acquired with the two St. Maarten properties on which the
Company earned $0.6 million in the three months ended March 31, 1996. Room
rental operations revenues increased $1.3 million for the three months ended
March 31, 1996 versus the same period in 1995 reflecting higher occupancy
rates in 1996.
While operating costs increased from $14.0 million for the three months
ended March 31, 1995 to $14.9 million for the three months ended March 31,
1996, an increase of 6%, as a percentage of revenues, operating costs
decreased from 95% in 1995 to 85% in 1996. Relative decreases in Vacation
Interval cost of sales, advertising sales and marketing, and provision for
doubtful accounts as a percentage of revenues more than offset relative
increases in interest expense-treasury, general and administrative,
depreciation and amortization, interest expense-other and equity loss on
investment in joint venture. The Company was able to purchase and develop
Vacation Intervals at a relative discount to historical acquisition costs,
reducing the unit
33
<PAGE>
cost of each Vacation Interval sold on average. This is reflected in a
proportionate decrease in cost of Vacation Intervals sold from 31% of Vacation
Interval sales in 1995 to 22% of interval sales in 1996. Advertising, sales
and marketing costs decreased both as a percentage of total revenues from 45%
to 38%, and as a percentage of Vacation Interval sales from 50% to 47% from
1995 to 1996, respectively.
Loan portfolio expenses consisting of interest expense, other expenses and
provision for doubtful accounts increased from $1.4 million for the three
months ended March 31, 1995 to $1.9 million for the same period during 1996,
an increase of 36%. This increase reflects the 84% increase in mortgage
receivables due to interval sales growth and acquisitions of resorts made by
the Company following the first quarter of 1995.
General and administrative expenses increased from $0.9 million in 1995 to
$2.3 million in 1996. The increase in general and administrative expenses was
the result of increased salary expenses and overhead due to the acquisition of
additional resorts and growth in the size of the Company.
Depreciation and amortization increased from $0.4 million for the three
months ended March 31, 1995 to $0.5 million for the same period in 1996. The
slight increase was the result of additional capital expenditures and
intangible assets.
Equity loss on investment in joint venture decreased from $0.5 million for
the first quarter of 1995 to $1,317 for the first quarter of 1996 due to the
initiation of Vacation Interval sales at the Embassy Vacation Resort Poipu
Point, after the first quarter of 1995. Vacation Interval volume sales for the
first quarter of 1996 totaled 265 Vacation Intervals.
Pre-tax net income increased to $2.6 million, or 15% of total revenues, for
the three months ended March 31, 1996 versus $0.7 million for the three months
ended March 31, 1995, an increase of 271%.
Comparison of the year ended December 31, 1995 to year ended December 31,
1994. For the year ended December 31, 1995 the Company achieved total revenue
of $72.6 million compared to $44.3 million for the year ended December 31,
1994, an increase of $28.3 million or 64%. Total revenue grew due to a 47%
increase in Vacation Interval sales from $40.3 million to $59.1 million, an
86% increase in interest income from $3.7 million to $6.9 million, and a $6.3
million increase in resort operations and other income. The commencement of
sales of Vacation Intervals at Royal Palm, Flamingo Beach Club, and Embassy
Vacation Resort Grand Beach drove Vacation Interval sales volume from 4,482
sold in 1994 to 5,394 sold in 1995, an increase of 20%. These higher volumes,
combined with price growth, drove the 47% increase in Vacation Interval sales
revenue. Interest income increased due to a $34.9 million increase in mortgage
receivables, which grew from $33.4 million at the end of 1994 to $68.3 million
at the end of 1995, an increase of 104%. Other income increased $6.3 million
from $0.3 million in 1994 to $6.6 million in 1995. This increase was the
result of rental income at the resorts increasing from $0.2 million to $1.3
million from 1994 to 1995, and the acquisition of a $6.5 million mortgage
receivable portfolio acquired with the two St. Maarten resorts on which the
Company earned $2.2 million. In addition, the Company accrued $2.0 million of
business interruption insurance claims to compensate for loss revenues and
profits related to damages sustained from Hurricane Luis at the two St.
Maarten resorts.
While operating costs increased from $40.0 million for the year ended
December 31, 1994 to $61.1 million for the year ended December 31, 1995, an
increase of 53%, as a percentage of revenues operating costs decreased from
90.3% in 1994 to 84.1% in 1995. Relative decreases in Vacation Interval cost
of sales and other expenses, as a percentage of revenues were offset by
relative increases in interest expense-treasury, provision for doubtful
accounts, depreciation and amortization and equity loss on investment in joint
venture. The Company was able to purchase and construct Vacation Intervals at
a relative discount to historical development costs, reducing the unit cost on
average of each Vacation Interval sold. This is reflected in a proportionate
decrease in cost of Vacation Intervals sold from 30.8% of Vacation Interval
sales in 1994 to 26.5% of Vacation Interval sales in 1995. Although
advertising, sales and marketing costs decreased as a percentage of total
revenues from 42.3% to 39.2%, these costs increased as a percentage of
Vacation Interval sales from 46.5% in 1994 to 48.2% in 1995. This was
primarily the result of $2.0 million in expenses in 1995 relating to research
and development associated with national marketing strategies and programs
related to "branded" and "non-branded" resorts. Excluding these expenses,
advertising, sales and marketing costs in 1995 were 44.8% of Vacation Interval
sales, slightly less than in 1994.
34
<PAGE>
Loan portfolio expenses consisting of interest expense, other expenses and
provision for doubtful accounts increased from $3.4 million in total in 1994
to $6.6 million in total in 1995, an increase of 94%. This increase reflects
the 104% increase in mortgage receivables due to interval sales growth and
acquisitions of resorts made by the Company in 1995.
General and administrative expenses increased 75% from $3.7 million in 1994
to $6.6 million in 1995. The increase in general and administrative expenses
was the result of increased salary expenses and overhead due to the
acquisition of additional resorts and growth in the size of the Company.
Relative to revenues, general and administrative expenses were slightly higher
in 1995 at 9.0% of revenues versus 8.4% of revenues in 1994.
Depreciation and amortization increased from $0.5 million in 1994 to $1.7
million in 1995, reflecting increased depreciation resulting from an increase
in capital expenditures of $1.8 million and acquisitions resulting in a $2.0
million increase in intangible assets.
The Company made its investment in the Embassy Vacation Resort Poipu Point
during the last quarter of 1994. The Embassy Vacation Resort Poipu Point has
experienced losses associated with the start-up operations of the related
resort, which is being converted to timeshare. Equity loss on joint venture
increased from $0.3 million in 1994 to $1.6 million in 1995 reflecting a full
year's operations at the resort in 1995.
Pre-tax net income increased 170% to $11.6 million, or 15.9% of total
revenue, in 1995 from $4.3 million, or 9.7% of total revenues, in 1994.
Comparison of the year ended December 31, 1994 to year ended December 31,
1993. For the year ended December 31, 1994 the Company generated total revenue
of $44.3 million compared to $24.4 million in 1993, an increase of 82%. This
increase was due to an 82% growth in Vacation Interval sales revenues from
$22.2 million in 1993 to $40.3 million in 1994. The first full year of sales
at the Plantation at Fall Creek Resort and the addition of the Royal Dunes
Resort drove higher volume Vacation Interval sales from 2,442 Vacation
Intervals sold in 1993 to 4,482 Vacation Intervals sold in 1994. This volume
growth of 91% more than offset the 5.2% decrease in the average price of
Vacation Intervals sold to drive the 84% increase in Vacation Interval sales
revenues. Interest income increased due to a $16.0 million increase in
mortgage receivables from $17.4 million at the end of 1993 to $33.4 million at
the end of 1994, an increase of 92%.
Operating costs increased from $22.1 million for the year ended December 31,
1993 to $40.0 million for the year ended December 31, 1993, an increase of
81%. However, as a percentage of revenues, operating costs decreased slightly
from 90.6% in 1993 to 90.3% in 1994. Increases in interval cost of sales as a
percentage of revenue from 23.4% in 1993 to 28.0% in 1994 were more than
offset by decreases in other operating costs. From 1993 to 1994, advertising,
sales and marketing decreased from 44.2% of revenues to 42.3% of revenues,
general and administrative decreased from 13.2% of revenues to 8.4% of
revenues, and depreciation and amortization decreased from 1.6% of revenues to
1.1% of revenues. Vacation Interval cost of sales increased as a percentage of
revenues due to relatively higher Vacation Interval cost associated with the
first year of operations at Royal Dunes. Advertising, sales and marketing
costs decreased as a percentage of Vacation Interval sales from 48.6% in 1993
to 46.5% in 1994. This reflects increased Vacation Interval sales volume at
Cypress Pointe, which increased from 1,784 Vacation Intervals in 1993 to 2,061
Vacation Intervals in 1994. Although decreasing in terms of a percentage of
revenue, due to expansion in the administrative costs necessary to support a
growing business, general and administrative expenses increased in absolute
terms from $3.2 million in 1993 to $3.7 in 1994, a 16.0% increase.
Depreciation and amortization was approximately consistent between 1993 and
1994 at $0.4 million and $0.5 million respectively reflecting capital
expenditures of $0.2 million, and the recording of intangibles at Grand Beach
in late 1994 with no related amortization. Equity loss on investment in joint
venture of $0.2 million in 1994 reflects the Company's share of losses
associated with the start-up operations at the Embassy Vacation Resort Poipu
Point.
Loan portfolio expenses consisting of interest expense, loan portfolio and
provision for doubtful accounts increased from $1.5 million in 1993 to $3.4
million in 1994, an increase of 127%. This reflects the increase in
35
<PAGE>
Vacation Intervals sold in 1994 and a relative increase in borrowings made by
the Company secured by interval inventory. While loan portfolio expenses were
consistent as a percentage of total revenue, interest expense treasury
increased from 36.9% of interest income to 44.2%. Provision for doubtful
accounts decreased slightly from 2.5% of revenues to 2.1% of revenues. Other
loan portfolio expenses increased from $0.2 million in 1993 (0.9% of revenues)
to $0.9 million in 1994 (1.9% of revenues) reflecting additional costs from
portfolio management services started in 1994.
Pre-tax net income increased 87% from $2.3 million in 1993 to $4.3 million
in 1994.
Liquidity and Capital Resources
The Company generates cash for operations from the sale of Vacation
Intervals, the financing of the sales of Vacation Intervals, the rental of
unsold Vacation Interval units, and the receipt of management fees. With
respect to the sale of Vacation Intervals, the Company generates cash for
operations from the receipt of down payments from customers acquiring Vacation
Intervals, and the hypothecation of mortgage receivables from purchasers equal
to 85% to 90% of the amount borrowed by such purchasers. The Company generates
cash related to the financing of Vacation Interval sales on the difference
between the interest charged on the mortgage receivables, which averaged 10.5%
in 1995, and the interest paid on the notes payable secured by such mortgage
receivables.
During the three months ended March 31, 1996 and 1995, respectively, and the
years ended December 31, 1995, 1994, and 1993 cashflow provided by operating
activities was ($0.3 million), $1.1 million, $5.5 million, ($11.0 million) and
$3.3 million, respectively. While net income was higher for the three months
ended March 31, 1996 when compared to the same period in 1995, cash generated
from operating activities decreased principally due to increases in real
estate and development activities. Cash generated from operating activities
was higher for the year ended December 31, 1995 when compared to the same
period in the prior year primarily due to higher net income, decreases in the
amount spent on acquisition and development activities, and increases in
payables outstanding at the end of 1995 when compared to at the end of 1994.
Cash generated from operating activities was lower for the year ended December
31, 1994 when compared to the same period in the prior year primarily due to
accelerated acquisition and development activities during the year of 1994
when compared to the prior year.
Net cash provided by investing activities for the three months ended March
31, 1996, and 1995 and the years ended December 31, 1995, 1994 and 1993 was
($6.5) million, ($8.2) million, ($40.1) million, ($24.9) million, and ($10.8)
million, respectively. For the three months ended March 31, 1995, the change
in net mortgage receivables was higher than in the comparable period in 1996
due to higher sales of Vacation Intervals. In addition, the Company incurred
additional organizational costs relating to the opening of the Embassy
Vacation Resort Grand Beach in the first quarter of 1995 which resulted in the
booking of the related organizational costs. Net cash used by investing
activities was higher for the year ended December 31, 1995 when compared to
the same period in 1994 principally due to increases in mortgage receivables
which resulted from both higher sales of Vacation Intervals and the purchase
of a mortgage receivable portfolio with a book value of approximately $7.0
million related to the St. Maarten properties. Net cash used by investing
activities was higher for the year ended December 31, 1994 when compared to
the same period in the prior year due to both expenditures for the investment
in Embassy Vacation Resort Poipu Point and increases in the mortgage
receivables portfolio which resulted from higher Vacation Interval sales in
1994.
For the three months ended March 31, 1996 and 1995, and for the years ended
December 31, 1995, 1994 and 1993, net cash provided by financing activities
was $6.2 million, $6.7 million, $37.1 million, $36.1 million and $15.3
million, respectively. These net cash figures were affected by the Company's
increased borrowings secured by mortgage receivables to fund operations and
increased payments on these borrowings due to amortizations on a larger
portfolio. In addition, year to year net cash provided by investing activities
fluctuates as a result of borrowing activities for acquisition and
development, and from equity investments as a result of resort acquisitions.
The Company requires funds to finance the future acquisition and development
of timeshare resorts and properties and to finance customer purchases of
Vacation Intervals. Such capital has been provided by secured
36
<PAGE>
financings on Vacation Interval inventory, secured financings on mortgage
receivables, partner loans generally funded by third party lenders and capital
contributions. As of March 31, 1996, the Company had $29.9 million outstanding
under its notes payable secured by Vacation Interval inventory, and $51.7
outstanding under its notes payable secured by mortgage receivables. Upon
consummation of the Offering, and the application of proceeds therefrom, the
Company anticipates that the majority of notes payable secured by Vacation
Interval inventory will be paid down. In order to finance anticipated
development costs at Existing Resorts, the Company intends to rely on cash
from operations and borrowing capacity available on existing credit
facilities.
Over the next twelve months, the Company anticipates spending $38.0 million
for expansion and development activities at the Existing Resorts. The Company
plans to fund these expenditures with the net proceeds of the Offering (after
paydown of debt and purchase of partnership interests), $53.1 million in
available capacity on lines of credit (after the application of the Offering
proceeds) and cash generated from operations.
The Company intends to pursue a growth-oriented strategy. From time to time,
the Company may acquire, among other things, additional timeshare properties,
resorts and completed Vacation Intervals; land upon which additional timeshare
resorts may be built; management contracts (which may from time to time
require capital expenditures by the Company); loan portfolios of Vacation
Interval mortgages; portfolios which include properties or assets which may be
integrated into the Company's operations; and operating companies providing or
possessing management, sales, marketing, development, administration and/or
other expertise with respect to the Company's operations in the timeshare
industry.
The Company has entered into the Westin Agreement whereby the Company will
jointly develop with Westin the newly developed Westin Vacation Clubs concept.
See "Business--Westin Vacation Club Resorts." Currently, the Company is
evaluating several properties for potential acquisition and development, but
currently has no contracts or capital commitments relating to hotels pursuant
to the Westin Agreement.
The Company is currently evaluating the acquisition of several resort
properties to be branded as an Embassy Vacation Resort and several development
opportunities to be developed as an Embassy Vacation Resort, but currently has
no contracts or capital commitments relating to any potential Embassy Vacation
Resorts. The Company is also currently evaluating the acquisition of several
resort properties and of completed Vacation Intervals to be non-branded
timeshare resorts or inventory, but currently has no contracts or capital
commitments relating to any such potential property or inventory acquisitions.
In addition, the Company is currently evaluating several asset and operating
company acquisitions to integrate into or to expand the operations of the
Company, but currently has no contracts or capital commitments relating to any
such potential asset or operating company acquisitions.
In the future, the Company may negotiate additional credit facilities, or
issue corporate debt or equity securities. Any debt incurred or issued by the
Company may be secured or unsecured, fixed or variable rate interest and may
be subject to such terms as management deems prudent.
The Company believes that, with respect to its current operations, the net
proceeds to the Company from the Offering, together with cash generated from
operations and future borrowings, will be sufficient to meet the Company's
working capital and capital expenditure needs for the near future. However,
depending upon conditions in the capital and other financial markets and other
factors, the Company may from time to time consider the issuance of debt or
other securities, the proceeds of which would be used to finance acquisitions,
to refinance debt or for other general corporate purposes. The Company
believes that the Company's properties are adequately covered by insurance.
See "Business--Insurance; Legal Proceedings."
Recent Developments
For the three months ended June 30, 1996, the Company achieved total revenue
of $21.5 million compared to $17.6 million for the three months ended June 30,
1995, an increase of $3.9 million or 22%. This increase was primarily due to a
$3.9 million or 737% increase in other income and a $0.7 million or 47%
increase in interest income. Other income increased primarily due to the
realization of a $1.7 million gain related to the repayment of a note
receivable obtained in connection with the purchase of the Flamingo Beach
Club,
37
<PAGE>
$0.8 million received on a mortgage receivable portfolio acquired with the two
St. Maarten resorts, and a $0.4 million increase in rental income. Interest
income primarily increased due to a $21.7 million increase in mortgage
receivables, which increased from $55.3 million as of June 30, 1995 to $77.0
million as of June 30, 1996, an increase of 39%. The number of Vacation
Intervals sold at the Existing Resorts increased 12.5% to 1,540 for the three
months ended June 30, 1996, from 1,369 for the same period in the prior year.
The average price of Vacation Intervals sold at the Existing Resorts grew from
$11,365 to $12,514, an increase of 10.1%. Vacation Interval sales, which
reflects revenues at consolidated resorts (defined as the Existing Resorts
except the Embassy Vacation Resort Poipu Point), decreased approximately 5.1%
from $15.6 million to $14.8 million for the three months ended June 30, 1996
over the same period during 1995 due to a 9% decrease in the number of
Vacation Intervals sold at such consolidated resorts, which decreased from
1,369 in 1995 to 1,240 in 1996. Management attributes this decrease to (i) its
decision to reduce sales at the Royal Dunes Resort to preserve inventory until
the resort can be marketed through a nearby Westin Resort as contemplated by
the Westin Agreement in order to increase Vacation Interval sales prices and
reduce marketing costs and (ii) increased competition in the Orlando, Florida
area which reduced sales at the Cypress Pointe Resort and Embassy Vacation
Resort Grand Beach. The average price of Vacation Intervals sold at the
Company's consolidated resorts increased from $11,365 to $11,916, an increase
of 4.8% for the three months ended June 30, 1996 over the same period in 1995.
Total operating costs and expenses increased 14% from $15.5 million for the
three months ended June 30, 1995 to $17.6 million for the three months ended
June 30, 1996. As a percentage of revenue total operating costs and expenses
decreased from 87.9% in 1995 to 82.1% in 1996 primarily as a result of
relative decreases in Vacation Interval cost of sales, advertising, sales and
marketing costs, provision for doubtful accounts, and equity loss in joint
venture, which more than offset relative increases in interest expense-
treasury, general and administrative, depreciation and amortization, other
expenses, and interest expense-other. The Company was able to purchase and
develop Vacation Intervals at a relative discount to historical acquisition
costs, reducing the unit cost of each Vacation Interval sold on average. While
advertising, sales and marketing costs decreased as a percentage of total
revenues from 43.3% to 38.1%, as a percentage of Vacation Interval sales,
advertising, sales and marketing increased from 49.0% in 1995 to 55.2% in 1996
primarily as a result of the allocation of such costs over a lower number of
Vacation Intervals sold at the Company's consolidated resorts and additional
costs relating to research and development associated with national marketing
strategies.
Loan portfolio expenses consisting of interest expense, other expenses and
provision for doubtful accounts increased from $1.6 million for the three
months ended June 30, 1995 to $2.0 million for the same period during 1996, an
increase of 25%. This increase reflects the 98.5% increase in mortgage
payables due to Vacation Interval sales growth and acquisitions of resorts
made by the Company in 1996.
General and administrative expenses increased from $1.2 million in 1995 to
$2.3 million in 1996. The increase in general and administrative expenses was
the result of increased salary expenses and overhead due to the acquisition of
additional resorts and growth in the size of the Company.
Depreciation and amortization increased from $0.4 million for the three
months ended June 30, 1995 to $0.6 million for the same period in 1996. This
increase was the result of additional capital expenditures and intangible
assets associated with the acquisition of resorts during 1995.
Equity loss on investment in joint venture decreased from $0.5 million for
the three months ended June 30, 1995 to $0.1 million for the three months
ended June 30, 1996 due to the initiation of Vacation Interval sales at the
Embassy Vacation Resort Poipu Point after the second quarter of 1995 and
higher occupancy at the hotel, which increased from approximately 50% for the
period in 1995 to approximately 90% for the same period in 1996. For the three
months ended June 30, 1996, 306 intervals were sold at the Embassy Vacation
Resort Poipu Point at an average price of $20,467.
Pre-tax net income increased 81% to $3.8 million, representing 17.7% of
total revenues for the three months ended June 30, 1996.
38
<PAGE>
BUSINESS
OVERVIEW
The Company is a leading developer and operator of timeshare resorts in
North America and is one of the largest companies in North America devoted
exclusively to timeshare operations. The Company, directly or through wholly-
owned affiliates, owns eight timeshare resorts, including one under
construction, and a ninth resort with respect to which the Company holds a
partial interest. The Company's Existing Resorts are located in a variety of
popular resort destinations including Hilton Head Island, South Carolina;
Poipu Beach, Kauai, Hawaii; the Orlando, Florida area (two resorts);
St. Maarten, Netherlands Antilles (two resorts); Branson, Missouri; South Lake
Tahoe, California and Avila Beach, California. The Company's principal
operations currently consist of (i) acquiring, developing and operating
timeshare resorts, (ii) marketing and selling Vacation Intervals at its
resorts and (iii) providing financing for the purchase of Vacation Intervals
at its resorts.
For the twelve month period ended March 31, 1996, the Company sold 5,951
Vacation Intervals at the Existing Resorts, compared to 2,486 and 4,679 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 $23.5 million in 1994 to $47.4 million in 1995 to $70.2 million in 1996.
As of March 31, 1996, there was an existing inventory of 21,874 Vacation
Intervals at the Existing Resorts, and the Company is in the process of
developing or has current plans to develop an additional 66,069 Vacation
Intervals on land which the Company owns or has an option to acquire at the
Existing Resorts. The Company anticipates that the existing inventory at its
Existing Resorts (except the Company's Hilton Head Island resort), including
the planned expansion at these resorts, will provide sufficient inventory for
between three and ten years of Vacation Interval sales at such resorts.
THE TIMESHARE INDUSTRY
The Market. The resort component of the leisure industry primarily is
serviced by two separate alternatives for overnight accommodations: commercial
lodging establishments and timeshare or "vacation ownership" resorts.
Commercial lodging consists of hotels and motels in which a room is rented on
a nightly, weekly or monthly basis for the duration of the visit and is
supplemented by rentals of privately-owned condominium units or homes. For
many vacationers, particularly those with families, a lengthy stay at a
quality commercial lodging establishment can be very expensive, and the space
provided to the guest relative to the cost (without renting multiple rooms) is
not economical for vacationers. In addition, room rates and availability at
such establishments are subject to change periodically. Timeshare presents an
economical alternative to commercial lodging for vacationers.
According to the ARDA, the timeshare industry experienced a record year in
1994 (the most recent year for which statistics are available) with 384,000
new owners purchasing 560,000 Vacation Intervals with a sales volume of $4.76
billion. First introduced in Europe in the mid-1960s, ownership of Vacation
Intervals has been one of the fastest growing segments of the hospitality
industry over the past two decades. As shown in the following charts,
according to the ARDA the worldwide timeshare industry has expanded
significantly since 1980 both in number of Vacation Interval owners and sales
volume.
39
<PAGE>
[The following table is represented as a bar graph.]
Dollar Volume of Vacation Interval Sales
(in billions)
<TABLE>
<CAPTION>
<S> <C> <C>
1 1980 0.49
2 1981 0.965
3 1982 1.165
4 1983 1.34
5 1984 1.735
6 1985 1.58
7 1986 1.61
8 1987 1.94
9 1988 2.39
10 1989 2.97
11 1990 3.24
12 1991 3.74
13 1992 4.25
14 1993 4.505
15 1994 4.76
</TABLE>
[The following table is represented as a bar graph.]
Number of Vacation Intervals Owners
(in millions)
<TABLE>
<CAPTION>
<S> <C> <C>
1 1980 0.155
2 1981 0.220
3 1982 0.335
4 1983 0.470
5 1984 0.620
6 1985 0.805
7 1986 0.970
8 1987 1.125
9 1988 1.310
10 1989 1.530
11 1990 1.800
12 1991 2.070
13 1992 2.363
14 1993 2.760
15 1994 3.144
</TABLE>
Source: American Resort Development Association, The 1995 Worldwide Timeshare
Industry.
40
<PAGE>
The Company believes that, based on published industry data, the following
factors have contributed to the increased acceptance of the timeshare concept
among the general public and the substantial growth of the timeshare industry
over the past 15 years:
. Increased consumer confidence resulting from consumer protection
regulation of the timeshare industry and the entrance of brand name
national lodging companies to the industry;
. Increased flexibility of timeshare ownership due to the growth of
exchange organizations such as RCI;
. Improvement in the quality of both the facilities themselves and the
management of available timeshare resorts;
. Increased consumer awareness of the value and benefits of timeshare
ownership, including the cost savings relative to other lodging
alternatives; and
. Improved availability of financing for purchasers of Vacation Intervals.
The timeshare industry traditionally has been highly fragmented and
dominated by a very large number of local and regional resort developers and
operators, each with small resort portfolios generally of differing quality.
The Company believes that one of the most significant factors contributing to
the current success of the timeshare industry is the entry into the market of
some of the world's major lodging, hospitality and entertainment companies.
Such major companies which now operate or are developing Vacation Interval
resorts include Marriott, Disney, Hilton, Hyatt, Four Seasons and Inter-
Continental, as well as Promus and Westin. Unlike the Company, however, the
timeshare operations of each of Marriott, Disney, Hilton, Hyatt, Four Seasons
and Inter-Continental comprise only a small portion of such companies' overall
operations. Moreover, brand name lodging companies are believed by the Company
to have less than ten percent of the worldwide Vacation Interval market in
1994.
Of the Company's major brand name lodging company competitors, the Company
believes that, based on industry consultant reports: (i) Marriott entered the
timeshare market in 1985, currently sells Vacation Intervals at seven resorts
which it also owns and operates (Kauai, Hawaii; Palm Desert, California; Park
City, Utah; Breckenridge, Colorado; Williamsburg, Virginia; Hilton Head
Island, South Carolina; and Orlando, Florida) and directly competes with the
Company's Poipu Point, Hilton Head Island and Orlando area resorts;
(ii) Disney entered the market in 1991, currently sells Vacation Intervals at
three resorts which it also owns and operates (Lake Buena Vista and Vero
Beach, Florida; and Hilton Head Island, South Carolina) and directly competes
with the Company's Orlando area and Hilton Head Island resorts; (iii) Hilton
entered the market in 1993, currently sells Vacation Intervals at two resorts
which it owns and operates (Las Vegas, Nevada; and Orlando, Florida) and
directly competes with the Company's Orlando area resorts; (iv) Hyatt entered
the market in 1995, owns and operates one resort in Key West, Florida but does
not directly compete in any of the Company's existing markets (although Hyatt
has announced an intention to develop a timeshare resort in Orlando); (v) Four
Seasons is developing its first timeshare resort in Carlsbad, California but
does not currently directly compete in any of the Company's existing markets
and is not in sales of Vacation Intervals at any resorts; and (vi) Inter-
Continental announced its entry into the timeshare market in 1996, but has yet
to announce any specific projects and is not yet in sales of Vacation
Intervals at any resorts. See "--Competition."
The Economics. The Company believes that national lodging and hospitality
companies are attracted to the timeshare concept because of the industry's
relatively low product cost and high profit margins and the recognition that
Vacation Intervals provide an attractive alternative to the traditional hotel-
based vacation and allow the hotel companies to leverage their brands into
additional resort markets where demand exists for accommodations beyond
traditional hotels.
The Consumer. According to information compiled by the ARDA for the year
ended December 31, 1994, the prime market for Vacation Intervals is customers
in the 40-55 year age range who are reaching the peak of
41
<PAGE>
their earning power and are rapidly gaining more leisure time. The median age
of a Vacation Interval buyer at the time of purchase is 46. The median annual
household income of current Vacation Interval owners in the United States is
approximately $63,000, with approximately 35% of all Vacation Interval owners
having annual household income greater than $75,000 and approximately 17% of
such owners having annual household income greater than $100,000. Despite the
growth in the timeshare industry as of December 31, 1994, Vacation Interval
ownership has achieved only an approximate 3.0% market penetration among
United States households with income above $35,000 per year and 3.9% market
penetration among United States households with income above $50,000 per year.
According to the ARDA study, the three primary reasons cited by consumers
for purchasing a Vacation Interval are (i) the ability to exchange the
Vacation Interval for accommodations at other resorts through exchange
networks such as RCI (cited by 82% of Vacation Interval purchasers), (ii) the
money savings over traditional resort vacations (cited by 61% of purchasers)
and (iii) the quality and appeal of the resort at which they purchased a
Vacation Interval (cited by 54% of purchasers). According to the ARDA study,
Vacation Interval buyers have a high rate of repeat purchases: approximately
41% of all Vacation Interval owners own more than one interval representing
approximately 65% of the industry inventory and approximately 51% of all
owners who bought their first Vacation Interval before 1985 have since
purchased a second Vacation Interval. In addition, customer satisfaction
increases with length of ownership, age, income, multiple location ownership
and accessibility to Vacation Interval exchange networks.
The Company believes it is well positioned to take advantage of these
demographics trends because of the quality of its resorts and locations, its
program to allow buyers to exchange intervals at several of the Company's
resorts and its membership in RCI. The Company expects the timeshare industry
to continue to grow as the baby-boom generation enters the 40-55 year age
bracket, the age group which purchased the most Vacation Intervals in 1994.
BUSINESS STRATEGY
The Company's objective is to become North America's leading developer and
operator of timeshare resorts. To meet this objective, the Company intends to
(i) acquire, convert and develop additional resorts to be operated as Embassy
Vacation Resorts, Westin Vacation Club resorts and non-branded resorts,
capitalizing on the acquisition and marketing opportunities to be provided as
a result of its relationships with Promus, Westin, selected financial
institutions and its position in certain markets and the timeshare industry
generally, (ii) increase sales and financings of Vacation Intervals at the
Existing Resorts through broader-based marketing efforts and in certain
instances through the construction of additional Vacation Interval inventory,
(iii) improve operating margins by consolidating administrative functions,
reducing borrowing costs and reducing its sales and marketing expenses as a
percentage of revenues and (iv) acquire additional Vacation Interval
inventory; management contracts, Vacation Interval mortgage portfolios, and
properties or other timeshare-related assets that may be integrated into the
Company's operations. The key elements of the Company's strategy are described
below.
Acquisition and Development of New Resorts. The Company intends to acquire
and develop additional resorts to be operated as branded Embassy Vacation
Resorts, Westin Vacation Club resorts and as non-branded resorts. To implement
its growth strategy, the Company intends to pursue acquisitions and
developments in a number of vacation markets, concentrating on the California
and Hawaii markets in which the Company has experience and that are subject to
barriers to entry as a result of land availability and local land use
regulations. The Company believes that its relationships with Promus, Westin
and selected financial institutions that control resort properties located in
Hawaii and California will provide it with acquisition, development and hotel-
to-timeshare conversion opportunities and will allow it to take advantage of
currently favorable market opportunities to acquire resort and condominium
properties to be operated as timeshare resorts. Since the inception of the
resort acquisition and development business by the Company's predecessor in
1992, the Company believes it has been able to purchase hotel, condominium and
resort properties and/or entitled land at less than either their initial
development cost or replacement cost and remodel or convert such properties
for sale
42
<PAGE>
and use as timeshare resorts. In addition to acquiring existing resort and
hotel-to-timeshare conversion properties, the Company also seeks to develop
resorts located in destinations where it discerns a strong demand, which the
Company anticipates will enable it to achieve attractive rates of return.
The Company considers the potential acquisition or development of timeshare
resorts in locations based on existing timeshare competition in the area as
well as existing overall demand for accommodations. In evaluating whether to
acquire, convert or develop a timeshare resort in a particular location, the
Company analyzes relevant demographic, economic and financial data.
Specifically, the Company considers the following factors, among others, in
determining the viability of a potential new timeshare resort in a particular
location: (i) supply/demand ratio for the purchase of Vacation Intervals in
the relevant market and for Vacation Interval exchanges into the relevant
market by other Vacation Interval owners, (ii) the market's growth as a
vacation destination, (iii) the ease of converting a hotel or condominium
property into a timeshare resort from a regulatory and construction point of
view, (iv) the availability of additional land at the property for potential
future development and expansion, (v) competitive accommodation alternatives
in the market, (vi) uniqueness of location, and (vii) barriers to entry that
would tend to limit competition. The Company's San Luis Bay Resort, which it
acquired in June 1996 from the bankruptcy estate of Glen Ivy Resorts, Inc., is
one example of the Company's implementation of its acquisition strategy in the
California market. The Company is in the process of improving the amenities
offered at the resort and expanding the resort by adding additional one and
two bedroom timeshare units. The Company believes that its Embassy Vacation
Resort Lake Tahoe, which is currently under development in South Lake Tahoe,
California, is only the second significant new resort to be constructed in
South Lake Tahoe during the past twenty years (the first being KOAR's
development and opening in 1991 of the $70 million, 400 suite Embassy Suites
hotel in South Lake Tahoe) and is an example of the Company's growth through
development strategy in a market with relatively significant barriers to
entry. See "--Acquisition Process."
The Company believes that its relationships with Promus and Westin will
provide it with attractive acquisition, conversion, development and marketing
opportunities and uniquely position the Company to offer Vacation Intervals at
a variety of attractive resort destinations to multiple demographic groups in
the timeshare market. Capitalizing on two of its Founders' relationship with
Promus as a developer and owner of Embassy Suites hotels, in 1994 the Company
and Promus established Embassy Vacation Resorts, and the Company is currently
the only licensee of the Embassy Vacation Resorts name. However, the Company
has no ownership of or rights to the "Embassy Vacation Resorts" name or
servicemark, both of which are owned exclusively by Promus, except as set
forth in the Company's license agreements with Promus with respect to the
Company's Embassy Vacation Resorts. Through the Westin Agreement, the Company
has the exclusive right, subject to the terms of the Westin Agreement, to
jointly acquire, develop and market with Westin "four-star" and "five-star"
Westin-affiliated timeshare resorts in North America, Mexico and the
Caribbean. The Company's rights also cover the conversion of Westin hotels to
timeshare resorts. In addition, pursuant to the Westin Agreement, it is
expected that Westin will provide the Company with lead generation assistance
and marketing support and Promus currently provides such assistance at Embassy
Vacation Resorts. The five KOAR-owned Embassy Suites hotels also provide lead
generation assistance and support to the Company with respect to the marketing
of the Company's resorts. The Company's relationships with Promus and Westin
also provide it with a competitive advantage in the timeshare industry by
allowing it to offer two separate branded products in both the upscale and
luxury market segments. The Company believes that brand affiliation is
becoming an important characteristic in the timeshare industry as it provides
the consumer an important element of reliability and image in a fragmented
industry. Through its Embassy Vacation Resorts and Westin Vacation Club
resorts the Company believes it will be able to provide Vacation Interval
buyers with quality and consistency in their timeshare purchases. In addition,
through its non-branded resorts the Company will be able to appeal to the
value-conscious consumer who seeks the best value for his or her money and
does not seek affiliation with brand-name lodging companies.
Sales and Expansion at Existing Resorts. The Company intends to continue
sales of Vacation Intervals at the Existing Resorts by adding Vacation
Interval inventory through the construction of new development units and by
broadening marketing efforts. The Company believes is well positioned to
expand sales of Vacation Intervals at its Existing Resorts as a result of its
existing supply of Vacation Intervals in inventory as well as
43
<PAGE>
planned expansion. The Company currently has existing inventory of 21,874
Vacation Intervals and currently is in the process of developing, or has plans
to develop, units to accommodate an additional 66,069 Vacation Intervals at
its Existing Resorts, including construction in progress for 10,710 Vacation
Intervals at the Embassy Vacation Resort Lake Tahoe, the addition of
approximately 3,162 Vacation Intervals at the San Luis Bay Resort and current
construction of units which will add 2,040 Vacation Intervals at the Cypress
Pointe Resort, 1,632 Vacation Intervals at the Plantation at Fall Creek and
1,530 Vacation Intervals at the Embassy Vacation Resort Grand Beach. See "--
Description of the Company's Resorts."
Based on information received from the Company's customers and sales agents,
in addition to basic quality, expanded resort amenities and larger, multi-
purpose units, current and potential buyers want enhanced flexibility in
scheduling their vacations, a broader distribution of quality exchange
locations and the availability of other value-priced services. As a major
developer and operator of timeshare resorts in North America, the Company
believes that it has acquired skill and expertise both in the development and
operation of timeshare resorts and in the marketing and sales of Vacation
Intervals and that it has acquired the breadth of resorts which give it a
competitive advantage among Vacation Interval purchasers.
Improvement of Operating Margins. As the Company grows, management believes
it will be able to reduce operating costs as a percentage of revenues by
consolidating administrative functions and reducing borrowing costs by virtue
of its consolidated operations. The Company believes that its larger number of
resorts relative to its competitors will provide it with additional revenue
opportunities and economies of scale which will allow it the potential for
significant cost savings. Benefitting from economies of scale both internally
and through its relationships with Promus and Westin, the Company plans to
centralize many of the administrative functions currently performed at
individual resorts, such as accounting, reservations and marketing, resulting
in a reduction in labor costs throughout the Company's Existing Resorts. The
Company believes that increased efficiency, reduction in on-site
administrative requirements and a multi-resort management system will reduce
operating costs and allow the Company to experience increased margins by
spreading operating and corporate overhead costs over a larger revenue base.
In addition, operating margins at a resort tend to improve over time as a
greater percentage of Vacation Intervals are sold, resulting in lower selling,
marketing and advertising expenses. The Company believes that it will reduce
sales and marketing expenses as a result of the lead generation assistance
provided or to be provided by Westin and Promus (including marketing and lead
generation assistance from KOAR's five Embassy Suites hotels) and by targeting
potential buyers through Westin and Embassy Suites hotels.
Acquisition of Timeshare Assets, Management Contracts and Operating
Companies. As a result of the Company's relationships in the timeshare and
financial communities, the size and geographic diversity of its portfolio of
properties and position in the timeshare industry, the Company has access to a
variety of acquisition opportunities related to the Company's business. The
Company's business strategy includes pursuing growth by expanding or
supplementing the Company's existing timeshare business through acquisitions.
The Company believes that its record of acquiring resort properties gives the
Company credibility and, the Company's status as a public company may make the
acquisition by the Company of businesses or operations more attractive to
potential sellers. The Company believes that these collective factors will
help the Company acquire attractive assets, operations and companies in the
fragmented timeshare industry. Acquisitions which the Company may consider
include acquiring additional Vacation Intervals as inventory, management
contracts, Vacation Interval mortgage portfolios and properties or other
timeshare-related assets which may be integrated into the Company's
operations.
DESCRIPTION OF THE COMPANY'S RESORTS
The Company believes that, based on published industry data, it is the only
developer and operator of timeshare resorts in North America that will offer
Vacation Intervals in each of the three principal price segments in 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
44
<PAGE>
development and acquisition business of the Company's predecessors, the
Company has developed or acquired eight resorts, including one under
construction, and a ninth resort in which the Company holds a partial
interest, located in a variety of popular resort destinations including Lake
Buena Vista (Orlando area), Florida (developed in 1992); Branson, Missouri
(developed in 1993); Hilton Head Island, South Carolina (developed in 1994);
Koloa, Hawaii (acquired in 1994 and in which the Company holds an
approximately 30% interest); Orlando, Florida (developed in 1995); two resorts
located in St. Maarten, Netherlands Antilles (each acquired in 1995); Avila
Beach, California (acquired in 1996); and South Lake Tahoe, California
(currently under construction). The Company expects that its resorts will
operate in the following three general categories, each differentiated by
price range, brand affiliation and quality of accommodations:
. NON-BRANDED RESORTS. Vacation Intervals at the Company's six non-branded
resorts, which are not affiliated with any hotel chain, generally sell
for $6,000 to $15,000 and are targeted to buyers with annual incomes
ranging from $40,000 to $60,000. The Company believes its non-branded
resorts offer buyers an economical alternative to branded timeshare
resorts (such as Embassy Vacation Resorts and Westin Vacation Club
resorts) or traditional vacation lodging alternatives. Each of the
Company's non-branded resorts has been awarded the Gold Crown
Designation by RCI, the highest rating in the RCI system.
. EMBASSY VACATION RESORTS. Vacation Intervals at the Company's three
Embassy Vacation Resorts generally sell for $12,000 to $20,000 and are
targeted to buyers with annual incomes ranging from $60,000 to $150,000.
Embassy Vacation Resorts are designed to provide timeshare
accommodations that offer the high quality and value that is represented
by the more than 120 Embassy Suites hotels throughout North America.
. WESTIN VACATION CLUB RESORTS. Through the Westin Agreement, the Company
has the exclusive right for a five-year period to jointly acquire,
develop and market with Westin "four-star" and "five-star" timeshare
resorts located in North America, Mexico and the Caribbean. The Company
anticipates that Vacation Intervals at Westin Vacation Club resorts
generally will sell for $16,000 to $25,000 and will be targeted to
buyers with annual incomes ranging from $80,000 to $250,000.
Innovation in the design and quality of the resorts developed by the
Company, as well as the branded product image of its Embassy Vacation Resorts
and Westin Vacation Club resorts, has and will continue to result in
differentiation of the Company's resorts from those of its competitors. The
Company believes feedback from its Vacation Interval owners and property
management enhances the Company's product acquisition, development and design
process. The resorts designed and developed by the Company have been
recognized by major industry groups and publications for excellence in
architectural and landscape design and overall development quality. Each of
the Company's resorts that are operational has been designated a "Gold Crown"
resort by RCI, an award RCI reserves for the top 14% of its participating
resorts.
45
<PAGE>
The following table sets forth certain information as of March 31, 1996
regarding each of the Existing Resorts, including location, date acquired by
the Company, the number of existing and planned units at each Existing Resort,
the number of Vacation Intervals sold at each Existing Resort since its
acquisition or development by the Company and the number of Vacation Intervals
sold in 1995, the average sales price of Vacation Intervals sold at each
Existing Resort in 1995 and the number of Vacation Intervals available for
sale at each Existing Resort currently and giving effect to planned expansion.
The exact number of units and Vacation Intervals ultimately constructed at
each Existing Resort, as well as the future financial impact of these Vacation
Intervals on the Company, may differ from estimates based on future land
planning and site layout considerations.
<TABLE>
<CAPTION>
VACATION VACATION INTERVALS
UNITS AT RESORT INTERVALS SOLD AVERAGE AT RESORT
--------------- -------------- SALES ---------------------
DATE PRICE IN CURRENT PLANNED
RESORT LOCATION ACQUIRED(A) CURRENT PLANNED TOTAL 1995 1995 INVENTORY EXPANSION
------ -------- ----------- ------- ------- ------- ------ -------- --------- ---------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
NON-BRANDED RESORTS:
CYPRESS Lake Buena Vista, November 1992 184 500(b) 7,415 1,824 $10,734 1,972 16,116(b)
POINTE Florida
RESORT
PLANTATION Branson, Missouri July 1993 82 400(c) 3,540 1,094 9,519 643 16,218(c)
AT FALL
CREEK
ROYAL DUNES Hilton Head Island, April 1994 40 55(d) 1,306 577 10,862 732 765(d)
RESORT South Carolina
ROYAL PALM St. Maarten, Netherlands July 1995 140 140(e) 483 272 8,124 2,310 0(e)
BEACH CLUB Antilles
FLAMINGO St. Maarten, Netherlands August 1995 172 247(f) 226 104 6,885 2,781 3,900(f)
BEACH CLUB Antilles
SAN LUIS BAY Avila Beach, California June 1996 68 130(g) (h) (h) (h) 1,030(i) 3,162(g)
RESORT
EMBASSY VACATION RESORTS:
POIPU Koloa, Kauai, Hawaii November 1994 219 219(k) 546 281 19,074 10,623(k) 0
POINT(J)
GRAND BEACH Orlando, Florida January 1995 72 370(l) 1,889 1,523 13,063 1,783 15,198(l)
LAKE TAHOE South Lake Tahoe, May 1996(m) 0 210(n) (o) (o) (o) (o) 10,710(n)
California
--- ----- ------- ------ ------ ------
TOTAL ......................................... 977 2,271 15,405 5,675 21,874 66,069
=== ===== ======= ====== ====== ======
</TABLE>
- --------
(a) The dates listed represent the date of acquisition or, if later, the date
of completion of development of the applicable resort by the Company. The
Embassy Vacation Resort Poipu Point was acquired by the Company in
November 1994 as a traditional hotel. As units at the Embassy Vacation
Resort Poipu Point are sold as Vacation Intervals, the Company no longer
rents such units on a nightly basis.
(b) Includes 40 units, which will accommodate 2,040 Vacation Intervals, that
are currently under construction and scheduled for completion in September
1996. Also includes an additional estimated 276 units, which will
accommodate an additional estimated 14,076 Vacation Intervals, which the
Company plans to construct on land which it owns at the Cypress Pointe
Resort and for which all necessary governmental approvals and permits
(except building permits) have been obtained.
(c) Includes 16 units, which will accommodate an additional 816 Vacation
Intervals, which were completed in May 1996 and 16 units which will
accommodate an additional 816 Vacation Intervals, on which the Company
commenced construction in June 1996 and for which all necessary
governmental approvals and permits have been received by the Company. Also
includes an additional estimated 286 units, which will accommodate an
additional estimated 14,586 Vacation Intervals, which the Company plans to
construct on land which it owns or is currently subject to a contract to
purchase at the Plantation at Fall Creek.
(d) Includes 15 units, which will accommodate 765 Vacation Intervals,
construction of which is planned to begin in either the fourth quarter of
1996 or the first quarter of 1997 for which all necessary governmental
approvals and permits have been received by the Company.
(e) The Company has not committed to any expansion of the Royal Palm Beach
Club. The Company is considering the acquisition of additional land
adjacent to the Royal Palm Beach Club for the addition of an estimated 60
units, which will accommodate an estimated
46
<PAGE>
3,060 Vacation Intervals, but has yet to enter into an agreement with
respect to such additional land or to obtain the necessary permits for such
expansion.
(f) In May 1996 the Company acquired a five-acre parcel of land adjacent to
the Flamingo Beach Club on which the Company plans to develop an estimated
75 units which will accommodate an estimated 3,900 Vacation Intervals. The
Company is in the process of seeking to obtain the necessary governmental
approvals and permits for such proposed expansion.
(g) Includes 62 units, which will accommodate an estimated 3,162 Vacation
Intervals, for which all necessary discretionary governmental approvals
and permits have been received by the Company. The Company has not yet
applied for or obtained the required building permits to construct such
additional units. The Company plans to commence construction of the first
31 units in September 1996. In addition, the Company is considering the
acquisition of additional land near the San Luis Bay Resort for the
addition of an estimated 100 units which will accommodate an estimated
5,100 Vacation Intervals, but has yet to enter into an agreement with
respect to such land or to obtain the necessary governmental approvals and
permits for such proposed expansion.
(h) The Company commenced sales of Vacation Intervals at the San Luis Bay
Resort in June 1996.
(i) The Company in June 1996 acquired approximately 130 Vacation Intervals at
the San Luis Bay Resort out of the bankruptcy estate of Glen Ivy Resorts,
Inc. In addition, the Company acquired promissory notes in default that
are secured by approximately 900 Vacation Intervals. The Company intends
to foreclose upon and acquire clear title to such Vacation Intervals and
intends to complete such foreclosure procedures (or deed-in-lieu
procedures) in approximately four months following acquisition of the
resort.
(j) The Company is the managing general partner of the Poipu Partnership, the
partnership which directly owns the Embassy Vacation Resort Poipu Point.
As managing general partner, the Company holds a 0.5% partnership interest
for purposes of distributions, profits and losses. The Company is also a
limited partner of the Poipu Partnership and holds a 29.93% partnership
interest for purposes of distributions, profits and losses, for a total
partnership interest of 30.43%. In addition, following repayment of any
outstanding partner loans, the Company is entitled to receive a 10% per
annum return on the Founders' and certain former limited partners' initial
capital investment of approximately $4.6 million in the Poipu Partnership.
After payment of such preferred return and the return of approximately
$4.6 million of capital to the Company on a pari passu basis with the
other partner in the partnership, the Company is entitled to receive
approximately 50% of the net profits of the Poipu Partnership. In the
event certain internal rates of return specified under the partnership
agreement are achieved, the Company is entitled to receive approximately
55% of the net profits of the Poipu Partnership.
(k) Includes 191 units that the Company currently rents on a nightly basis
that have not yet been sold as Vacation Intervals.
(l) Includes 30 units, which will accommodate 1,530 Vacation Intervals, that
are currently under construction and scheduled for completion in September
1996. Also includes at least 24 units, which will accommodate an
additional 1,224 Vacation Intervals, on which the Company plans to
commence construction in the fourth quarter of 1996 and for which all
necessary discretionary governmental approvals and permits (excluding
building permits which have not yet been applied for by the Company) have
been received by the Company. The Company has also received all necessary
discretionary governmental approvals and permits to construct an
additional estimated 228 units on land which it owns at the Embassy
Vacation Resort Grand Beach, which will accommodate an additional
estimated 11,628 Vacation Intervals, (excluding building permits which
have not yet been applied for by the Company). The Company plans to apply
for and obtain these building permits on a building-by-building basis.
(m) Construction began on the first 62 units at the Embassy Vacation Resort
Lake Tahoe in May 1996. Twenty-seven units, which will accommodate 1,377
Vacation Intervals, are scheduled for completion in January 1997 and 35
units, which will accommodate 1,785 Vacation Intervals, are scheduled for
completion in March 1997.
(n) Includes 62 units, which will accommodate 3,162 Vacation Intervals, on
which construction began in May 1996 and for which all necessary
discretionary governmental approvals and permits have been received by the
Company. Twenty-seven units, which will accommodate 1,377 Vacation
Intervals, are scheduled for completion in January 1997 and 35 units,
which will accommodate 1,785 Vacation Intervals, are scheduled for
completion in March 1997. The Company has also received all necessary
discretionary governmental approvals and permits to construct an
additional estimated 148 units (excluding building permits which have not
yet been applied for by the Company and which will be applied for and
obtained on a phase-by-phase basis) on land that it owns at the Embassy
Vacation Resort Lake Tahoe, which will accommodate an estimated 7,548
Vacation Intervals, and, subject to market demand, currently plans to
construct 40 of such units commencing in May of each year from 1997
through 1999 and the remaining 28 units commencing in May 2000.
(o) The Company commenced sales of Vacation Intervals at the Embassy Vacation
Resort Lake Tahoe in June 1996, although the Company will not be able to
close any of such sales until the completion of the first units, currently
scheduled to occur in January 1997.
NON-BRANDED RESORTS
The Cypress Pointe Resort. Cypress Pointe Resort, the Company's first
timeshare resort, opened in November 1992 and is located in Lake Buena Vista,
Florida, approximately one-half mile from the entrance of Walt Disney World
and is an approximately 10 minute drive from all major Orlando attractions.
The resort is being developed in two phases. Phase I sits on 9.7 acres of land
and consists of nine buildings, eight of which currently are complete. Phase
II sits on 12.5 acres of land and will consist of seven buildings, the first
of which was completed in April 1996.
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Styled with a Caribbean theme, upon completion of the nine buildings, Phase
I will contain 192 three bedroom 1,460 square foot units. Each unit
comfortably accommodates up to eight people with its two large master
bedrooms, three bathrooms, living room with sleeper sofa, and full kitchen.
The three bedroom units in Phase I also offer a jacuzzi tub, a roman tub,
three color televisions (including one 460 screen), a video cassette player, a
complete stereo system, a washer/dryer and elegant interior details such as
nine-foot ceilings, crown moldings, interior ceiling fans, imported ceramic
tile, oversized sliding-glass doors and rattan and pine furnishings. With the
completion of Phase II, the resort will be equipped with three pools including
a 4,000 gallon heated pool with a volcano, two spas, two poolside cafes, two
tennis courts, a sand volleyball court, a basketball court, an exercise
facility, a kiddie pool, a gift shop, a lakeside gazebo, a shuffleboard court,
a picnic area and a video arcade. The resort also contains a full children's
playground and a new 17,000 square foot clubhouse.
Upon completion of Phases I and II, the resort will contain approximately
500 units. Upon completion of seven buildings in Phase II, Phase II will
contain a total of approximately 308 units consisting of one, two and three
bedroom units of up to 1,850 square feet and accommodating up to ten people.
Phase I consists of 168 existing units, with 24 units scheduled to be built
upon the completion of Phase II.
The resort currently contains 9,384 total Vacation Intervals of which 1,972
remained for sale as of March 31, 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 82 units each consisting of 2 bedrooms and 2 baths
and up to 1,417 square feet, built in a country style on approximately 130
acres of land. The Company currently plans to continue to expand the resort to
accommodate a total of 400 units. Each unit features two large master
bedrooms/baths, queen sized sofa-sleeper, full kitchen, three color
televisions, video cassette player, washer/dryer, cherry wood furnishings,
ceiling fans and jacuzzi or roman tub. The resort is equipped with 4 swimming
pools, a fishing dock, a shuffleboard court, a game room, a children's
playground, a health club, a tennis court, a miniature golf course, a sand
volleyball court, barbecue areas and a basketball court.
The resort currently contains 3,672 total Vacation Intervals of which 643
remained for sale as of March 31, 1996. Vacation Intervals at the Plantation
at Fall Creek are currently priced from $7,295 to $10,295 for one-week
Vacation Intervals, 1,094 of which were sold in 1995. Vacation Intervals at
the resort can be exchanged for Vacation Intervals at other locations through
RCI, which awarded the resort its Gold Crown Resort Designation.
The Royal Dunes Resort at Port Royal Plantation. The Royal Dunes Resort at
Port Royal Plantation opened in April 1994 and is located in Port Royal
Plantation on Hilton Head Island, South Carolina, only 400 yards from the
beach. The resort presently contains 40 units consisting of three bedrooms and
three bath units and upon completion scheduled for March 1997, will be
expanded to include a total of 55 units. The units can comfortably accommodate
eight people in their 1,460 square feet of living area with two master suites
with private bath, one guest bedroom with bath, a living room with a sofa
sleeper, a full kitchen and an outside deck. Each unit features a jacuzzi tub,
a roman tub, a washer/dryer, four color televisions, a video cassette player,
an entertainment center and elegant interior details such as nine-foot
ceilings, crown moldings, interior ceiling fans and rattan and pine
furnishings. The resort offers a heated swimming pool, outdoor whirlpool spa,
kiddie pool, sand volleyball court, barbecue grill and picnic area. The Royal
Dunes is conveniently located for golf, tennis, fishing, shopping, boating,
biking and croquet and adjacent to Royal Dunes is the Westin Hotel and Resort
at Port Royal, Hilton Head Island.
The resort currently contains 2,040 total Vacation Intervals of which 732
remained for sale as of March 31, 1996. Vacation Intervals at the Royal Dunes
are currently priced from $8,250 to $13,250 for one-week Vacation
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Intervals, 577 of which were sold in 1995. Vacation Intervals at the resort
can be exchanged for Vacation Intervals at other locations through RCI, which
awarded the resort its Gold Crown Resort Designation.
The Royal Palm Beach Club. The Royal Palm Beach Club, originally opened in
1990 and acquired by the Company in July 1995, is located at Simpson Bay in
St. Maarten, Netherlands Antilles. Located approximately one mile from the
island's major airport and ten minutes from local shopping and dining, the
resort is surrounded by the Caribbean on three sides. The resort contains 140
units consisting either of two bedrooms, two baths or three bedrooms, three
baths. Each unit is equipped with a full kitchen, complete with microwave and
dishwasher, color television, VCR and private lanai. The resort is equipped
with a private beach, an overflowing style pool located on the beach, a large
sun deck and a picnic area with barbecue grills. The Royal Palm Beach Club is
also conveniently located for water sports, boating, health club workouts and
tennis, and is located adjacent to a retail center, including an outdoor cafe,
dance clubs, market, hair salon, gift shop, mini-market and restaurants. Each
unit at the resort, as well as the resort grounds and common areas, recently
received a complete renovation in connection with repairs following the
September 1995 hurricane which damaged the resort.
The resort currently contains 7,280 total Vacation Intervals of which 2,310
remained for sale as of March 31, 1996. Units at the Royal Palm Beach Club,
are currently priced from $9,450 to $12,900 for one-week Vacation Intervals,
272 of which were sold by the Company in 1995. Vacation Intervals at the
resort can be exchanged for Vacation Intervals at other locations through RCI,
which awarded the resort its Gold Crown Resort Designation and through
Interval International ("II"), the other major exchange company in the
industry, which awarded the resort a "five-star" designation, the highest
quality level in the II system.
The Flamingo Beach Club. The Flamingo Beach Club, originally opened in
January 1991 and acquired by the Company in July 1995, is located on "the
Point" of the Pelican Key Peninsula in St. Maarten, Netherlands Antilles,
directly on the beach of the Caribbean. The resort is located approximately
two miles from the island's major airport and is within walking distance of
shopping and dining facilities. The resort is surrounded by the Caribbean
Ocean on three sides and contains 172 units consisting of beachfront studio
and one bedroom, one bath units. Each unit is equipped with two color
televisions, a video cassette player, air conditioning, a balcony suitable for
outside dining and a fully equipped kitchen complete with microwave oven and
dishwasher. The resort features water sports, a beach palapa bar and grill, a
mini-market, tennis facilities and a beach house bar. Each unit at the resort,
as well as the resort grounds and common areas, recently received a complete
renovation in connection with repairs following the September 1995 hurricanes
which damaged the resort.
The resort currently contains 8,994 total Vacation Intervals of which 2,781
remained for sale as of March 31, 1996. Vacation Intervals at the Flamingo
Beach Club are currently priced from $6,500 to $8,900 for one-week Vacation
Intervals, 104 of which were sold in 1995. Vacation Intervals at the resort
can be exchanged for Vacation Intervals at other locations through RCI, which
awarded the resort its Gold Crown Resort Designation.
The San Luis Bay Resort. The San Luis Bay Resort, located on 16 oceanview
acres in Avila Beach, California, near San Luis Obispo, was originally opened
in 1969 as a hotel club and in June 1996 was acquired by the Company from the
bankruptcy estate of Glenn Ivy Resorts, Inc., which had converted the property
to a timeshare resort in 1989. The resort is adjacent to a championship golf
course and is well located for visiting local wineries and historical
attractions. At present, a total of 68 studio and one bedroom units are
completed at the resort. The Company currently intends to commence
construction of the phase I addition of 30 units in September 1996. Upon
completion of the addition, units will be available in one and two bedroom
configurations (some with lock-off capability) and will offer a king size bed,
a queen size sofa sleeper, a porch, a full kitchen, two color televisions, a
video cassette player and a stereo. The phase II addition of 32 units is
scheduled to commence construction in fall 1997. The resort features a
swimming pool, a spa, four tennis courts, exercise facilities, a full service
salon, a video game room, a basketball court and a barbecue area. The resort
is also well located for windsurfing, boating, fishing and surfing.
The Company's inventory at the resort contains 1,030 available Vacation
Intervals (including Vacation Intervals which the Company is in the process of
acquiring through foreclosure), sales of which began in June
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1996. 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 at least 370 units
in 14 four and five story buildings. Despite the resort's remote, lake front
ambiance, it is only minutes from International Drive which provides access to
Orlando, Florida's major attractions. All current units offer three bedrooms
and three bathrooms with approximately 1,550 square feet of living area,
including a large screened-in deck and a full-size, well-equipped kitchen.
With two master suites, a third bedroom, and a sleeper sofa in the living
room, units can comfortably accommodate four couples. Each unit features air-
conditioning, a whirlpool tub, a washer/dryer, three cable televisions, a
video cassette player, a stereo and elegant interior details such as nine-foot
ceilings, crown molding, wooden venetian blinds, imported ceramic tile and
slate flooring. Upon full completion, the Company expects that the resort will
include 5,000 square feet of sand beaches, four gazebo-covered docks that
stretch out over Lake Bryan and easy access to water skiing, jetskiing,
parasailing, sailboating, wind surfing and fishing on Lake Bryan. The Grand
Beach resort will provide two outdoor pools, two spas, two kiddie pools, two
lighted tennis courts, sand volleyball courts, shuffleboard courts, a putting
green, a children's playground, barbecue and picnic areas and a fitness
complex with two clubhouses containing exercise rooms, kitchens and a video
arcade. In 1995, the resort was featured in both RCI Perspective Magazine and
Resort Development and Operations Magazine.
The resort currently contains 3,672 total Vacation Intervals of which 1,783
remained for sale as of March 31, 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 1992 after being substantially destroyed by
Hurricane Iniki and was acquired by the Company in November 1994. The resort
is located at the most southern point on the Poipu Sun Coast of Kauai, Hawaii,
offering a natural, open setting in an architectural style designed to blend
with the land. The resort spans 10 buildings on 22 acres with a total of 219
units. The units, one of which has one bedroom and one bathroom, 216 of which
have two bedrooms and two bathrooms and 2 of which have three bedrooms and
three bathrooms, range in size from 1,363 to 2,629 square feet. Each unit
either overlooks the ocean or one of the many gardens maintained on the
grounds. All units feature air-conditioning, two telephones with voice mail,
two cable televisions, video cassette player, stereo, washer/dryer, whirlpool
tub, full kitchen and a spacious lanai. Units can accommodate up to six people
and are appointed with designer furnishings, custom fabrics, and custom-
designed ceramic tile. The resort is equipped with a spectacular lagoon-like
freshwater swimming pool with a sandy beach entry and its own beach,
waterfalls, fish ponds, lush garden walkways, a kiddie pool and a health club
with weight and aerobic equipment, two hydrospas, sauna and steamroom. The
property is adjacent to a large sandy beach and is well located for scuba
diving, wind surfing, golf, tennis, surfing, horseback riding, fishing,
boating and exploring the island's rain forests, fern grottos and waterfalls.
The resort currently contains 11,169 total Vacation Intervals of which
10,732 remained for sale as of March 31, 1996. Units at the Embassy Vacation
Resort Poipu Point are currently priced from $13,700 (one bedroom) to $25,600
(three bedrooms) for one-week Vacation Intervals, 281 of which were sold in
1995. Vacation Intervals at the resort can be exchanged for Vacation Intervals
at other locations through RCI, which featured the resort in RCI Perspective
Magazine in 1995 and awarded it the RCI, Gold Crown Resort Designation.
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The Embassy Vacation Resort Lake Tahoe. Construction on the Embassy Vacation
Resort Lake Tahoe began in May 1996. The resort is located in South Lake
Tahoe, California, and is situated on nine acres near the shores of Lake Tahoe
adjoining the Lake Tahoe Marina in one of the world's most beautiful resort
areas. The architectural design of the resort connotes the rustic elegance
known as "Old Tahoe." Approximately one mile from the casinos and 1/2 mile
from the base lift of Heavenly Ski Resort, upon completion the resort will
contain 210 two bedroom/two bath units offering lake and mountain views. The
resort will feature a restaurant, an indoor/outdoor heated swimming pool, a
spa, a sunning deck, lakefront activities, bike rentals, ski valet, sundry
shop, convenience store and delicatessen.
Upon completion, the Company expects that the resort will contain units for
10,710 total Vacation Intervals. It is expected that Vacation Intervals at the
Embassy Vacation Resort Lake Tahoe will be initially priced from $17,000 to
$25,000 for one-week Vacation Intervals. RCI has indicated that Vacation
Intervals at the resort may be exchanged for Vacation Intervals at other
locations through RCI.
WESTIN VACATION CLUB RESORTS
The Company and Westin have entered into the Westin Agreement pursuant to
which the Company has acquired the exclusive right to jointly acquire, develop
and sell with Westin "four-star" and "five-star" Westin Vacation Club resorts
in North America, Mexico and the Caribbean for a five year term expiring May
3, 2001. Pursuant to the Westin Agreement, each of the Company and Westin will
own a 50% equity interest in such resorts and have an equal voice in their
management. The primary focus of the Westin Agreement is (i) developing
vacation ownership villas surrounding existing Westin hotel resort properties
and (ii) acquiring or developing hotels which can be operated under the Westin
hotel brand while at the same time being converted to vacation ownership
properties. Pursuant to the Westin Agreement, each of the Company and Westin
has agreed that, subject to certain exceptions, including certain Embassy
Vacation Resort acquisition and development opportunities, it will present to
the other party all "four-star" and "five-star" hotel and resort acquisition
and development opportunities (e.g., properties that are flagged by brands
such as Disney, Marriott, Omni, Ritz Carlton, Four Seasons/Regent, Inter-
Continental and Meridien) that it has determined to pursue and such other
party has a right of first refusal to determine whether to jointly develop
such opportunities with the other party subject to the foregoing exclusions.
Pursuant to the Westin Agreement, Westin and the Company will form a separate
partnership, limited liability company or similar entity to develop and
operate each Westin Vacation Club resort, of which Westin and the Company
shall be co-general partners or co-managers, as applicable. Each of the
Company and Westin will contribute 50% of the equity needed to develop and
operate each Westin Vacation Club resort. Pursuant to the Westin Agreement,
Westin has the right to manage all Westin Vacation Club resorts and the
Company and Westin will share the profits from such management activity. In
addition, Westin will promote the Westin Vacation Club concept by utilizing
its customer base for sales and marketing programs, arranging for on-site
sales desks and other in-house marketing programs, in exchange for which the
Company has agreed to reimburse Westin predetermined marketing and advertising
costs incurred by Westin. Under certain circumstances, either party may
terminate the Westin Agreement upon failure to reach specified development
goals. See "Risk Factors--Westin Agreement."
Pursuant to the Westin Agreement, the Company has agreed to make available
to Westin one voting seat on the Company's Board of Directors and has agreed
to use maximum reasonable efforts to cause the nomination and election of
Westin's designee. Westin has agreed to make available to the Company one non-
voting seat on its Board of Directors which will be filled by one of the
Founders. Following any public offering of equity securities by Westin, the
Company's seat on Westin's board will become a voting seat, entitled to all
reciprocal provisions granted by the Company to Westin. See "Risk Factors--
Effective Voting Control by Existing Stockholders; Westin Director
Designation."
SALES AND MARKETING
As one of the leading developers and operators of timeshare resorts in North
America, the Company believes that it has acquired the skill and expertise in
the development, management and operation of timeshare
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resorts and in the marketing of Vacation Intervals. The Company's primary
means of selling Vacation Intervals is through on-site salesforces at each of
its Existing Resorts. A variety of marketing programs are employed to generate
prospects for these sales efforts, which include targeted mailings, overnight
mini-vacation packages, certificate programs, seminars and various
destination-specific local marketing efforts. Additionally, incentive premiums
are offered to guests to encourage resort tours, in the form of entertainment
tickets, hotel stays, gift certificates or free meals. The Company's sales
process is tailored to each prospective buyer based upon the marketing program
that brought the prospective buyer to the resort for a sales presentation.
Prospective target customers are identified through various means of
profiling, and either include or will include Westin and Embassy Suites hotel
guests and current owners of timeshare. Cross-marketing targets current owners
of intervals at the Company's existing resorts, both to sell additional
intervals at the owner's home resort, or to sell an interval at another of the
Company's resorts. The Company also sells Vacation Intervals through off-site
sales centers.
The Company seeks to attract potential Vacation Interval buyers at its
Embassy Vacation Resorts by targeting past and present Embassy Suites' hotel
guests with in-hotel marketing and direct marketing programs. These marketing
efforts offer this target audience of Embassy Suites hotel guests value priced
vacation packages which include resort tours and the opportunity to purchase
complete vacations, including accommodations, airfare and other vacation
components such as car rental. Additionally, the Company has the ability to
generate resort tours through Embassy Suites' central reservation system (and
through the five KOAR-owned Embassy Suites hotels) by offering a premium for a
resort tour at the time a consumer books an Embassy Suites hotel in the
vicinity of an Embassy Vacation Resort property. The Company believes its
access to the Embassy Suites customer base allows it to generate Vacation
Interval sales from these prospective customers at a lower cost than through
other lead generation methods. Because a high percentage of such customers
already have a preference for the Embassy brand, the Company believes it
achieves relatively high sales closing percentages among these customers.
Pursuant to the Westin Agreement, the Company intends to use similar marketing
strategies at its Westin Vacation Club resorts. The Company's six non-branded
resorts also provide it the opportunity to cross-market customers among
resorts and give owners and prospective buyers the ability to visit and own
Vacation Intervals in multiple destinations. These cross-marketing programs
may also help to create a meaningful identity for the non-branded properties.
The Company has created its Owners Advantage Club which allows buyers
special privileges for exchange and rental at the Company's resorts.
CUSTOMER FINANCING
A typical Vacation Interval entitles the buyer to a one-week per year stay
at one of the Company's resorts and ranges in price from approximately $4,000
to $8,000 for a studio residence to approximately $12,000 to $26,000 for a
three bedroom residence. The Company offers financing to the purchasers of
Vacation Intervals in the Company's resort properties who make a down payment
generally equal to at least 10% of the purchase price. This financing
generally bears interest at fixed rates and is collateralized by a first
mortgage on the underlying Vacation Interval. A portion of the proceeds of
such financing is used to obtain releases of the Vacation Interval unit from
any underlying debt. The Company has entered into agreements with lenders for
the financing of customer receivables. These agreements provide an aggregate
of up to approximately $135 million of available financing to the Company
bearing interest at variable rates tied to either the prime rate or LIBOR of
which the Company currently has approximately $80 million of additional
borrowing capacity available. Under these arrangements, the Company pledges as
security qualified purchaser promissory notes to these lenders, who typically
lend the Company 80% to 90% of the principal amount of such notes. Payments
under these promissory notes are made by the purchaser borrowers directly to a
payment processing center and such payments are credited against the Company's
outstanding balance with the respective lenders. The Company does not
presently have binding agreements to extend the terms of such financing or for
any replacement financing, and there can be no assurance that alternative or
additional arrangements can be made on terms that are satisfactory to the
Company. Accordingly, future sales of Vacation Intervals may be limited by
both the availability of funds to
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finance the initial negative cash flow that results from sales that are
financed by the Company and by reduced demand which may result if the Company
is unable to provide financing to purchasers of Vacation Intervals. If the
Company is required to sell its customer receivables, discounts from the face
value of such receivables may be required by buyers, if buyers are available
at all.
At March 31, 1996, the Company had a portfolio of approximately 11,000 loans
to Vacation Interval buyers amounting to approximately $80 million. The loans
had a weighted average maturity of approximately seven years and a weighted
average cost of funds of 15.0%. At such date the Company had borrowings
secured by such loans of approximately $55 million, which borrowings bear
interest at variable rates with a weighted average of 10.7%. As of December
31, 1995, approximately 7.4% of such consumer loans were considered by the
Company to be delinquent (past due by 60 or more days) and the Company has
completed or commenced foreclosure or deed-in-lieu of foreclosure on
approximately 1.7% of its consumer loans. The Company has historically derived
income from its financing activities. However, because the Company's
borrowings bear interest at variable rates and the Company's loans to
purchasers of Vacation Intervals bear interest at fixed rates, the Company
bears the risk of increases in interest rates with respect to the loans it has
from its lenders. The Company intends to continue to engage in interest rate
hedging activities from time to time in order to reduce the risk and impact of
increases in interest rates with respect to such loans, but there can be no
assurance that any such hedging activity will be adequate at any time to fully
protect the Company from any adverse changes in interest rates. See "Risk
Factors--Risk of Hedging Activities."
The Company also bears the risk of purchaser default. The Company's practice
has been to continue to accrue interest on its loans to purchasers of Vacation
Intervals until such loans are deemed to be uncollectible, at which point it
expenses the interest accrued on such loan, commences foreclosure proceedings
and, upon obtaining title, returns the Vacation Interval to the Company's
inventory for resale. The Company closely monitors its loan accounts and
determines whether to foreclose on a case-by-case basis. See "Risk Factors--
Risks Associated with Customer Financing" and "--Risks Associated with
Customer Default."
ACQUISITION PROCESS
The Company obtains information with respect to resort acquisition
opportunities through interaction by the Company's management team with resort
operators, real estate brokers, lodging companies or financial institutions
with which the Company has established business relationships. From time to
time the Company is also contacted by lenders and property owners who are
aware of the Company's development, management, operations and sales expertise
with respect to Vacation Interval properties.
The Company has expertise in all areas of resort development including, but
not limited to, architecture, construction, finance, management, operations
and sales. With relatively little lead time and with minimal outside
consultant expense, the Company is able to analyze potential acquisition and
development opportunities. After completing an analysis of the prospective
market and the general parameters of the property or the site, the Company
generates a conceptual design to determine the extent of physical construction
or renovation that can occur on the site in accordance with the requirements
of the local governing agencies. For most properties, the predominant factors
in determining the physical design of the site include density of units,
maximum construction height, land coverage and parking requirements. Following
the preparation of such a conceptual design, the Company analyzes other
aspects of the development process, such as construction cost and phasing, to
match the projected sales flow in the relevant market. At this stage of
analysis, the Company undertakes to compare sales, construction cost and
phasing, debt and equity structure, cash flow, financing and overall project
cost to the acquisition cost. The Company's procedures when considering a
potential acquisition are set forth below.
Economic and Demographic Analysis. To evaluate the primary economic and
demographic indicators for the resort area, the Company considers the
following factors, among others, in determining the viability of a potential
new timeshare resort in a particular location: (i) supply/demand ratio for
Vacation Intervals in the relevant market, (ii) the market's growth as a
vacation destination, (iii) the ease of converting a hotel or
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condominium property into a timeshare resort, (iv) the availability of
additional land at the property for future development and expansion, (v)
competitive accommodation alternatives in the market, (vi) uniqueness of
location, and (vii) barriers to entry that would limit competition. The
Company examines the competitive environment in which the proposed resort is
located and all existing or to-be-developed resorts. In addition, information
respecting characteristics, amenities and financial information at competitive
resorts is collected and organized. This information is used to assess the
potential to increase revenues at the resort by making capital improvements.
Pro Forma Operating Budget. The Company develops a comprehensive pro forma
budget for the resort, utilizing available financial information in addition
to the other information collected from a variety of sources. The estimated
sales of units are examined, including the management fees associated with
such unit. Finally, the potential for overall capital appreciation of the
resort is reviewed, including the prospects for liquidity through sale or
refinancing of the resort.
Environmental and Legal Review. In conjunction with each prospective
acquisition or development, the Company conducts real estate and legal due
diligence on the property. This due diligence includes an environmental
investigation and report by a reputable environmental consulting firm similar
to that undertaken and prepared in connection with the Offering, including
tests on identified underground storage tanks. If recommended by the
environmental consulting firm, additional testing is generally conducted. The
Company also obtains a land survey of the property and inspection reports from
licensed engineers or contractors on the physical condition of the resort. In
addition, the Company conducts customary real estate due diligence, including
review of title documents, operating leases and contracts, zoning, and
governmental permits and licenses and a determination of whether the property
is in compliance with applicable laws.
OTHER OPERATIONS
Room Rental Operations. In order to generate additional revenue at certain
of the Existing Resorts that have an excess inventory of Vacation Intervals,
the Company rents units with respect to such unsold or unused Vacation
Intervals for use as a hotel. The Company offers these unoccupied units both
through direct consumer sales, travel agents or package vacation wholesalers.
In addition to providing the Company with supplemental revenue, the Company
believes its room-rental operations provide it with a good source of lead
generation for the sale of Vacation Intervals. As part of the management
services provided by the Company to Vacation Interval owners, the Company
receives a fee for services provided to rent an owner's Vacation Interval in
the event the owner is unable to use or exchange the Vacation Interval. In
addition, the Embassy Vacation Resort Poipu Point was acquired in November
1994 as a traditional hotel with the intention of converting the resort to
timeshare. Until such time as a unit at the resort is sold as Vacation
Intervals, the Company continues to rent such unit on a nightly basis. In the
future, other acquired resorts may be operated in this fashion during the
start-up of Vacation Interval sales. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Resort Management. The Company's Existing Resorts are (i) generally managed
by the Company itself pursuant to management agreements with homeowner
associations with respect to each of the Company's non-branded resorts, (ii)
managed by Promus pursuant to management agreements with the Company with
respect to the Company's Grand Beach and Lake Tahoe Embassy Vacation Resorts,
or (iii) managed by Aston Hotels & Resorts ("Aston") with respect to the
Embassy Vacation Resort Poipu Point.
At each of the Company's non-branded resorts, the Company enters into a
management agreement with an association comprised of owners of vacation
interests at the resort to provide for management and maintenance of the
resort. Pursuant to each such management agreement the Company is paid a
monthly management fee equal to 10% to 12% of monthly assessment fees.
Pursuant to each management agreement the Company has sole responsibility and
exclusive authority for all activities necessary for the day-to-day operation
of the non-branded resorts, including administrative services, procurement of
inventories and supplies and promotion and publicity. With respect to each
resort the Company also obtains comprehensive and general public liability
insurance, all-risk property insurance, business interruption insurance and
such other insurance as is customarily
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obtained for similar properties. See "Business--Insurance; Legal Proceedings."
The Company also provides all managerial and other employees necessary for the
non-branded resorts, including review of the operation and maintenance of the
resorts, preparation of reports, budgets and projections, employee training,
and the provision of certain in-house legal services. At the Company's Grand
Beach and Lake Tahoe Embassy Vacation Resorts, Promus provides (or will
provide with respect to Lake Tahoe), and at the Embassy Vacation Resort Poipu
Point, Aston provides management and maintenance services to the Company
pursuant to a management agreement and assumes responsibility of such day-to-
day operation of the Embassy Vacation Resorts.
PARTICIPATION IN VACATION INTERVAL EXCHANGE NETWORKS
The Company believes that its Vacation Intervals are made more attractive by
the Company's participation in Vacation Interval exchange networks operated by
RCI and II with respect to the Royal Palm Beach Club. In a recent 1995 study
sponsored by the Alliance for Timeshare Excellence and ARDA, the exchange
opportunity was cited by purchasers of Vacation Intervals as one of the most
significant factors in determining whether to purchase a Vacation Interval.
Membership in RCI allows the Company's customers to exchange in a particular
year their occupancy right in the unit in which they own a Vacation Interval
for an occupancy right at the same time or a different time in another
participating resort, based upon availability and the payment of a variable
exchange fee. A member may exchange his Vacation Interval for an occupancy
right in another participating resort by listing his Vacation Interval as
available with the exchange organization and by requesting occupancy at
another participating resort, indicating the particular resort or geographic
area to which the member desires to travel, the size of the unit desired and
the period during which occupancy is desired. RCI assigns a rating to each
listed Vacation Interval, based upon a number of factors, including the
location and size of the unit, the quality of the resort and the period during
which the Vacation Interval is available, and attempts to satisfy the exchange
request by providing an occupancy right in another Vacation Interval with a
similar rating. If RCI is unable to meet the member's initial request, it
suggests alternative resorts based on availability.
Founded in 1974, RCI has grown to be the world's largest Vacation Interval
exchange organization, which has a total of more than 2,900 participating
resort facilities and over 2.0 million members worldwide. During 1995 RCI
processed over 1.5 million Vacation Interval exchanges. The cost of the annual
membership fee in RCI, which typically is at the option and expense of the
owner of the Vacation Interval, is $65 per year. RCI has assigned high ratings
to the Vacation Intervals in the Company's resort properties which are
operational, and such Vacation Intervals have in the past been exchanged for
Vacation Intervals at other highly-rated member resorts. During 1995,
approximately 97% of all exchange requests were fulfilled by RCI, and
approximately 58% of all exchange requests are confirmed on the day of the
request. According to RCI, its members in the United States engage in an
average of 25.7 personal travel days per year and an average of 6.2 domestic
trips per year with an average duration of 4.2 days.
FUTURE ACQUISITIONS
The Company intends to expand its timeshare business by acquiring or
developing resorts located in attractive resort destinations, including Hawaii
and California, and is in the process of evaluating strategic acquisitions in
a variety of locations. Such future acquisition and development of resorts
could have a substantial and material impact on the Company's operations and
prospects. The Company currently is evaluating possible acquisitions of
resorts and development opportunities located in San Diego, California, the
greater Los Angeles, California area, on the Hawaiian islands of Hawaii, Maui
and Oahu, the Caribbean and in various Westin resorts throughout North
America. The Company has not entered into any definitive acquisition agreement
with respect to any such resort or development opportunity and there can be no
assurance that such an agreement will be negotiated or that any such
acquisition will be consummated. In addition, the Company has also explored
the acquisition of and may consider acquiring existing management companies,
timeshare developers and marketers, loan portfolios or other industry related
operations or assets in the fragmented timeshare development, marketing,
finance and management industry. See "Management--Employment Agreements" and
"Certain Relationships and Related Transactions--Founders' Other Business
Interests."
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COMPETITION
Although major lodging and hospitality companies such as Marriott, Disney,
Hilton, Hyatt, Four Seasons and Inter-Continental, as well as Promus and
Westin, have established or declared an intention to establish timeshare
operations in the past decade, the industry remains highly fragmented, with a
vast majority of North America's approximately 2,000 timeshare resorts being
owned and operated by smaller, regional companies. Of the Company's major
brand name lodging company competitors, the Company believes, based on
published industry data and reports, that Marriott currently sells Vacation
Intervals at seven resorts which it also owns and operates (Kauai, Hawaii;
Palm Desert, California; Park City, Utah; Breckenridge, Colorado;
Williamsburg, Virginia; Hilton Head Island, South Carolina; and Orlando,
Florida) and directly competes with the Company's Poipu Point, Hilton Head
Island and Orlando area resorts; Disney currently sells Vacation Intervals at
three resorts which it also owns and operates (Lake Buena Vista and Vero
Beach, Florida; and Hilton Head Island, South Carolina) and directly competes
with the Company's Orlando area and Hilton Head Island resorts; Hilton
currently sells Vacation Intervals at two resorts which it also owns and
operates (Las Vegas, Nevada; and Orlando, Florida) and directly competes with
the Company's Orlando area resorts; Hyatt owns and operates one resort in Key
West, Florida but does not directly compete in any of the Company's existing
markets (although Hyatt has announced an intention to develop a timeshare
resort in Orlando, Florida); Four Seasons currently is developing its first
timeshare resort in Carlsbad, California but is not yet in sales of Vacation
Intervals at any resorts; and Inter-Continental announced its entry into the
timeshare market in 1996, but has yet to announce any specific projects and is
not yet in sales of Vacation Intervals at any resorts. Many of these entities
possess significantly greater financial, marketing, personnel and other
resources than those of the Company and may be able to grow at a more rapid
rate as result.
The Company also competes with companies with unbranded resorts such as
Westgate, Vistana and Vacation Break, each of which competes with the
Company's Orlando area resorts, and Fairfield, which competes with the
Company's Orlando area and Branson resorts. The Company believes, based on
published industry data and reports, that its experience and exclusive focus
on the timeshare industry, together with its portfolio of resorts located in a
wide range of resort destinations and at a variety of price points,
distinguish it from each of its competitors and that the Company is uniquely
positioned for future growth.
GOVERNMENTAL REGULATION
General. The Company's Vacation Interval marketing and sales are subject to
extensive regulations by the federal government and the states and foreign
jurisdictions in which its resort properties are located and in which Vacation
Intervals are marketed and sold. On a federal level, the Federal Trade
Commission has taken the most active regularity role through the Federal Trade
Commission Act, which prohibits unfair or deceptive acts or competition in
interstate commerce. Other federal legislation to which the Company is or may
be subject appears on the truth-in-lending Act and Regulation Z, the Equal
Credit Opportunity Act and Regulation B, the Interstate and Land Sales Full
Disclosure Act, Real Estate Standards Practices Act, Telephone Consumer
Protection Act, Telemarketing and Consumer Fraud and Abuse Prevention Act,
Fair Housing Act and the Civil Rights Act of 1964 and 1968. In addition, many
states have adopted specific laws and regulations regarding the sale of
interval ownerships programs. The laws of most states, including Florida,
South Carolina and Hawaii require the Company to file with a designated state
authority for its approval a detailed offering statement describing the
Company and all material aspects of the project and sale of Vacation
Intervals. The laws of California require the Company to file numerous
documents and supporting information with the California Department of Real
Estate, the agency responsible for the regulation of Vacation Intervals. When
the California Department of Real Estate determines that a project has
complied with California law, it will issue a public report for the project.
The Company is required to deliver an offering statement or public report to
all prospective purchaser of a Vacation Interval, together with certain
additional information concerning the terms of the purchase. The laws of
Illinois, Florida and Hawaii impose similar requirements. Laws in each state
where the Company sells Vacation Intervals generally grant the purchaser of a
Vacation Interval the right to cancel a contract of purchase at any time
within a period ranging from three to 15 calendar days following the earlier
of the date the contract was signed or the date the purchaser has received the
last of the documents required to be provided by the Company.
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Most states have other laws which regulate the Company's activities such as
real estate licensure; sellers of travel licensure; anti-fraud laws;
telemarketing laws; price gift and sweepstakes laws; and labor laws. The
Company believes that it is in material compliance with all federal, state,
local and foreign laws and regulations to which it is currently or may be
subject. However, no assurance can be given that the cost of qualifying under
interval ownership regulations in all jurisdictions in which the Company
desires to conduct sales will not be significant. Any failure to comply with
applicable laws or regulations could have material adverse effect on the
Company. See "Risk Factors--Regulation of Sales of Vacation Intervals."
Environmental Matters. Under various federal, state and local environmental
laws, ordinances and regulations, a current or previous owner or operator of
real estate may be required to investigate and clean up hazardous or toxic
substances or petroleum product releases at such property, and may be held
liable to a governmental entity or to third parties for property damage and
for investigation and clean-up costs incurred by such parties in connection
with the contamination. Such laws typically impose clean-up responsibility and
liability without regard to whether the owner knew of or caused the presence
of the contaminants, and the liability under such laws has been interpreted to
be joint and several unless the harm is divisible and there is a reasonable
basis for allocation of responsibility. The cost of investigation, remediation
or removal of such substances may be substantial, and the presence of such
substances, or the failure to properly remediate the contamination on such
property, may adversely affect the owner's ability to sell or rent such
property or to borrow using such property as collateral. Persons who arrange
for the disposal or treatment of hazardous or toxic substances at a disposal
or treatment facility also may be liable for the costs of removal or
remediation of a release of hazardous or toxic substances at such disposal or
treatment facility, whether or not such facility is owned or operated by such
person. In addition, some environmental laws create a lien on the contaminated
site in favor of the government for damages and costs it incurs in connection
with the contamination. Finally, the owner of a site may be subject to common
law claims by third parties based on damages and costs resulting from
environmental contamination emanating from a site. In connection with its
ownership and operation of its properties, the Company may be potentially
liable for such costs.
Certain Federal, state and local laws, regulations and ordinances govern the
removal, encapsulation or disturbance of asbestos-containing materials
("ACMs") when such materials are in poor condition or in the event of
construction, remodeling, renovation or demolition of a building. Such laws
may impose liability for release of ACMs and may provide for third parties to
seek recovery from owners or operators of real properties for personal injury
associated with ACMs. In connection with its ownership and operation of its
properties, the Company may be potentially liable for such costs.
In addition, recent studies have linked radon, a naturally-occurring
substance, to increased risks of lung cancer. While there are currently no
state or federal requirements regarding the monitoring for, presence of, or
exposure to, radon in indoor air, the EPA and the Surgeon General recommend
testing residences for the presence of radon in indoor air, and the EPA
further recommends that concentrations of radon in indoor air be limited to
less than 4 picocuries per liter of air (Pci/L) (the "Recommended Action
Level"). The presence of radon in concentrations equal to or greater than the
Recommended Action Level in one or more of the Company's properties may
adversely affect the Company's ability to sell Vacation Intervals at such
properties and the market value of such property. Recently-enacted federal
legislation will eventually require the Company to disclose to potential
purchasers of Vacation Intervals at the Company's resorts that were
constructed prior to 1978 any known lead-paint hazards and will impose treble
damages for failure to so notify.
Electric transmission lines are located in the vicinity of the Company's
properties. Electric transmission lines are one of many sources of electro-
magnetic fields ("EMFs") to which people may be exposed. Research into
potential health impacts associated with exposure to EMFs has produced
inconclusive results. Notwithstanding the lack of conclusive scientific
evidence, some states now regulate the strength of electric and magnetic
fields emanating from electric transmission lines, while others have required
transmission facilities to measure for levels of EMFs. In addition, the
Company understands that lawsuits have, on occasion, been filed (primarily
against electric utilities) alleging personal injuries resulting from exposure
as well as fear of adverse health effects. In addition, fear of adverse health
effects from transmission lines has been a factor considered in
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determining property values in obtaining financing and in condemnation
proceedings in eminent domain brought by power companies seeking to construct
transmission lines. Therefore, there is a potential for the value of a
property to be adversely affected as a result of its proximity to a
transmission line and for the Company to be exposed to damage claims by
persons exposed to EMFs.
The Company has conducted Phase I assessments at each of its Existing
Resorts in order to identify potential environmental concerns. These Phase I
assessments have been carried out in accordance with accepted industry
practices and consisted of non-invasive investigations of environmental
conditions at the properties, including a preliminary investigation of the
sites and identification of publicly known conditions concerning properties in
the vicinity of the sites, physical site inspections, review of aerial
photographs and relevant governmental records where readily available,
interviews with knowledgeable parties, investigation for the presence of above
ground and underground storage tanks presently or formerly at the sites, a
visual inspection of potential lead-based paint and suspect friable ACMs where
appropriate, a radon survey, and the preparation and issuance of written
reports. The Company's assessments of its properties have not revealed any
environmental liability that the Company believes would have a material
adverse effect on the Company's business, assets or results of operations, nor
is the Company aware of any such material environmental liability.
Nevertheless, it is possible that the Company's assessments do not reveal all
environmental liabilities or that there are material environmental liabilities
of which the Company is unaware. The Company does not believe that compliance
with applicable environmental laws or regulations will have a material adverse
effect on the Company or its financial condition or results of operations.
In connection with the acquisition and development of the Embassy Vacation
Resort Lake Tahoe and the San Luis Bay Resort, the Company's environmental
consultant has identified several areas of environmental concern. The areas of
concern at the Embassy Vacation Resort Lake Tahoe relate to possible
contamination that originated on the resort site due to prior uses and to
contamination that may migrate onto the resort site from upgradient sources.
California regulatory agencies have been monitoring the resort site and have
required or is in the process of requiring the responsible parties (presently
excluding the Company) to effect remediation action. The Company has been
indemnified by certain of the responsible parties for certain costs and
expenses in connection with contamination at the Embassy Vacation Resort Lake
Tahoe (including Chevron (USA), Inc.) and does not anticipate incurring
material costs in connection therewith, however, there is no assurance that
the indemnitor(s) will meet their obligations in a complete and timely manner.
In addition, the Company's San Luis Bay Resort is located in an area of Avila
Beach, California which has experienced underground contamination resulting
from leaking pipes at a nearby oil refinery. California regulatory agencies
have required the installation of groundwater monitoring wells on the beach
near the resort site, and no demand or claim in connection with such
contamination has been made on the Company, however, there is no assurance
that claims will not be asserted against the Company with respect to this
environmental condition.
The Company believes that its properties are in compliance in all material
respects with all federal, state and local laws, ordinances and regulations
regarding hazardous or toxic substances. Except as described above with
respect to the Embassy Vacation Resort Lake Tahoe and the San Luis Bay Resort,
the Company has not been notified by any governmental authority or any third
party, and is not otherwise aware, of any material noncompliance, liability or
claim relating to hazardous or toxic substances or petroleum products in
connection with any of its present properties.
Other Regulations. Under various state and federal laws governing housing
and places of public accommodation the Company is required to meet certain
requirements related to access and use by disabled persons. Many of these
requirements did not take effect until after January 1, 1991. Although
management of the Company believes that its facilities are substantially in
compliance with present requirements of such laws, and the Company may incur
additional costs of compliance. Additional legislation may impose further
burdens or restriction on owners with respect to access by disabled persons.
The ultimate amount of the cost of compliance with such legislation is not
currently ascertainable, and, while such costs are not expected to have a
material effect on the Company, such costs could be substantial. Limitations
or restrictions on the completion of certain renovations may limit application
of the Company's growth strategy in certain instances or reduce profit margins
on the Company's operations.
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EMPLOYEES
As of April 30, 1996, the Company employed approximately 670 full-time
employees. The Company believes that its employee relations are good. Except
for certain employees located in the St. Maarten, Netherland Antilles
properties, none of the Company's employees is represented by a labor union.
The Company sells Vacation Intervals at its resorts through independent sales
agents. Such independent sales agents provide services to the Company under
contract and are not employees of the Company. See "Risk Factors--Risk of Tax
Re-Classification of Independent Contractors and Resulting Tax Liability; Cost
of Compliance with Applicable Laws."
INSURANCE; LEGAL PROCEEDINGS
The Company carries comprehensive liability, fire, hurricane, storm,
earthquake and business interruption insurance with respect to the Company's
resorts, with policy specifications, insured limits and deductibles
customarily carried for similar properties which the Company believes are
adequate. In September 1995 and July 1996, the Company's St. Maarten resorts
were damaged by a hurricane. With respect to such damage, the Company has
recovered amounts from its insurance carriers sufficient to cover 100% of the
property damage losses and is in the process of recovering amounts for
business interruption. The Company has agreed to provide approximately 2,700
replacement weeks to owners who were unable to use their Vacation Interval as
a result of such hurricane. Such provision of replacement Vacation Intervals
will have the short term effect of reducing the number of Vacation Intervals
available for sale or alternative rental as hotel rooms at the St. Maarten
resorts. The Company estimates all repairs to its St. Maarten resorts will be
completed by July 1996. There are, however, certain types of losses (such as
losses arising from acts of war) that are not generally insured because they
are either uninsurable or not economically insurable. Should an uninsured loss
or a loss in excess of insured limits occur, the Company could lose its
capital invested in a resort, as well as the anticipated future revenues from
such resort and would continue to be obligated on any mortgage indebtedness or
other obligations related to the property. Any such loss could have a material
adverse effect on the Company. See "Risk Factors--Natural Disasters; Uninsured
Loss."
The Company and the Founders are involved in a dispute with an individual
who is a former employee of KOAR Group, Inc. with whom two of the Founders and
affiliates of the Company were previously engaged in litigation from November
1994 through June 1995 (when such litigation was settled). Such individual is
an assignee of certain distributions of two of the Property Partnerships and a
10% shareholder of one of the Affiliated Companies. Although the Company
believed it had no obligation to do so, the Company offered such person the
opportunity to participate in the Consolidation Transactions following
determination that such person was an "accredited investor" within the meaning
of Regulation D under the Securities Act. The Company's offer was not timely
accepted and therefore such person will retain his assignee interests. Such
person has threatened litigation against the Company and the Founders relating
to his rights to participate in the Consolidation Transactions, the valuation
of his interests, the timing of the Company's offer and allegations that the
Company acted in bad faith. The Company believes that any such litigation
would be without merit and intends to vigorously defend any such litigation.
The Company is currently subject to litigation and claims respecting
employment, tort, contract, construction and commissions, disputes, among
others. In the judgment of management, none of such lawsuits or claims against
the Company is likely to have a material adverse effect on the Company or its
business.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning each person
who is a director or executive officer of the Company or upon the consummation
of the Offering will become a director of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Osamu Kaneko 48 Chairman of the Board and Chief Executive Officer
Andrew J. Gessow 39 Director and President
Steven C. Kenninger 43 Director, Chief Operating Officer and Secretary
James E. Noyes 49 Director and Executive Vice President
Charles C. Frey 40 Chief Financial Officer and Treasurer
Genevieve Giannoni 33 Senior Vice President of Operations
Timothy D. Levin 39 Vice President--Architecture
Juergen Bartels 55 Proposed Director
Sanford R. Climan 40 Proposed Director
Joshua S. Friedman 40 Proposed Director
W. Leo Kiely III 49 Proposed Director
</TABLE>
OSAMU KANEKO has served as Director, Chairman of the Board and Chief
Executive Officer of the Company since its inception. Mr. Kaneko was born in
Tokyo, Japan and received his B.A. degree from Indiana State University in
1971. From 1974 to 1986 Mr. Kaneko was the Executive Vice President of
Hasegawa Komuten (USA) Inc., the American subsidiary of Hasegawa Komuten Ltd.,
a large Japanese development company based in Tokyo. In this capacity, Mr.
Kaneko was responsible for the development of over $500 million of income
producing properties in Hawaii including approximately 2,000 resort
condominiums and three resort hotels. Mr. Kaneko co-founded KOAR with Mr.
Kenninger in 1985, which over the following seven years developed and acquired
over $400 million in commercial and hospitality properties, including five
Embassy Suites hotels. Pursuant to the Westin Agreement, Mr. Kaneko serves as
the Founder's designee on the Board of Directors of Westin Hotels & Resorts.
ANDREW J. GESSOW has served as Director and President of the Company since
its inception. Mr. Gessow founded Argosy Group Inc. in 1990 and served as
President since inception. Mr. Gessow served as a Partner with Trammell Crow
Company from 1987 to 1990, and was President of Trammell Crow Residential
Services, Florida and West Coast, and Founder and President of NuMarket Cable.
From 1981 through 1987, Mr. Gessow was Founder and President of Travel, Inc.
and Home Search, Inc. which he co-founded with Citicorp Venture Capital. Mr.
Gessow received his B.B.A. degree in Finance from Emory University in 1978 and
a M.B.A. degree from Harvard Business School in 1980.
STEVEN C. KENNINGER has served as Director, Chief Operating Officer and
Secretary of the Company since its inception. Mr. Kenninger co-founded KOAR
with Mr. Kaneko in 1985 and served as its President. Mr. Kenninger was a
practicing attorney at Paul, Hastings, Janofsky & Walker, Los Angeles,
California from 1977 through 1981 and at Riordan & McKinzie, Los Angeles,
California from 1981 through 1985, where he was a partner. Mr. Kenninger
graduated with highest distinction from Purdue University with a B.S. degree
in Mechanical Engineering in 1974, and received a J.D. degree from Stanford
Law School in 1977. Mr. Kenninger is a licensed real estate broker in
California and has been a member of the State Bar of California since 1977.
JAMES E. NOYES has served as Director and Executive Vice President of the
Company since June 1996 and has overall responsibility for the daily operation
of the Company's sales, marketing and resort/hotel management divisions. Prior
to joining the Company, from 1989 through June 1996 Mr. Noyes served as
President of The Trase Miller Group, the parent company of MTI Vacations,
Inc., with interests in vacation packaging, travel technology and specialized
teleservices, and has served in various executive positions in the
organization since
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1980. Mr. Noyes served in various executive positions for the Golf Division of
Wilson Sporting Goods from 1976 to 1980. Mr. Noyes was named as one of the
travel industry's Top 25 Most Influential Executives in 1995 by Tour and
Travel News. Mr. Noyes is a director of Premier Yachts, Ltd., Seadog, Inc. and
Preview Media, Inc. Mr. Noyes received a B.A. degree in 1970 from Dartmouth
College and received a M.B.A. degree in 1974 from Stanford Business School.
CHARLES C. FREY has served as Chief Financial Officer and Treasurer of the
Company since July 1996 and prior thereto had served as Senior Vice President
of Administration and Treasurer of the Company and its predecessor since 1992
and has overall responsibility for accounting, operating systems and resort
administration. Prior to joining the Company, Mr. Frey was Vice President and
Chief Financial Officer of Trammell Crow Residential Services-Florida from
1986 to 1992 where his responsibilities included control and administration of
real estate tax, insurance and payroll for over 65 residential communities.
Mr. Frey is a Certified Public Accountant, is a licensed real estate broker in
Florida and received a B.S. degree in Accounting and Economics from the
Indiana University of Pennsylvania in 1977.
GENEVIEVE GIANNONI has served as Senior Vice President of Operations of the
Company since 1995 and has overall responsibility for operations at all of the
Company's resorts. Ms. Giannoni joined Argosy in May 1992 as Director of
Marketing and became a Vice President of the Company's predecessor in 1993.
Prior to joining Argosy, Ms. Giannoni was a marketing director at Trammell
Crow Residential Services-Florida from 1987 to 1992 where her responsibilities
included marketing new residential communities. Ms. Giannoni is a licensed
real estate agent in Florida. She received her B.A. degree from Rollins
College in 1985 and graduated from the Crummer Management Program at Rollins
College in 1990.
TIMOTHY D. LEVIN has served as Vice President--Architecture of the Company
since its inception and of the Company's predecessor since December 1995. From
1989 through December 1995, Mr. Levin was the President of Sevelex
Consultants, Inc., an architectural and engineering firm affiliated with
Messrs. Kaneko and Kenninger. Prior thereto, Mr. Levin was the senior design
and production manager at Carl Wahlquist AIA Architects, Inc. from 1983
through 1988 and was instrumental in the design and construction of more than
ten Embassy Suites Hotels nationwide. Mr. Levin is a member of the American
Institute of Architects. Mr. Levin received his Bachelor of Architecture
degree from Southern California Institute of Architecture in 1986. Mr. Levin
has been a licensed General Contractor in the State of California since 1980.
JUERGEN BARTELS has consented to become a Director of the Company upon the
consummation of the Offering. Mr. Bartels has been Chairman and Chief
Executive Officer of Westin Hotels & Resorts since May 1995. From 1983 through
April 1995, Mr. Bartels was President and Chief Executive Officer of Carlson
Hospitality Group, Inc. ("Carlson"), where he directed Carlson's Radisson
Hotels International, Radisson Seven Seas Cruises and several restaurant
companies, including the T.G.I. Friday's chain. Prior to joining Carlson,
Mr. Bartels held executive positions with Holiday Inn and Ramada and was the
founder of Ramada Renaissance Hotels.
SANFORD R. CLIMAN has consented to become a Director of the Company upon the
consummation of the Offering. Mr. Climan has been Executive Vice President of
MCA Inc. ("MCA") since October 1995. Prior to joining MCA, Mr. Climan was a
member of the senior executive team at Creative Artists Agency, Inc. ("CAA"),
a leading literary and talent agency, from June 1986 to September 1995. At
CAA, Mr. Climan participated in a range of corporate advisory activities,
including mergers and acquisitions and financial restructurings. From 1979 to
1986, Mr. Climan held various positions in the entertainment industry. Mr.
Climan also serves as a director of Point Cast Inc. Mr. Climan received a B.A.
degree from Harvard College in 1977, a M.B.A. degree from Harvard Business
School in 1979 and a Master of Science in Health Policy and Management from
the Harvard School of Public Health in 1979.
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JOSHUA S. FRIEDMAN has consented to become a Director of the Company upon
the consummation of the Offering. Mr. Friedman is a founder of Canyon Partners
Incorporated, a private merchant banking firm and an affiliate of Canpartners
Incorporated, and has been a Managing Partner of Canyon Partners Incorporated
since its inception in 1990. From 1984 through 1990, Mr. Friedman was
Executive Vice President and Co-Director, Capital Markets of Drexel Burnham
Lambert Incorporated. Mr. Friedman also serves as a director of Yale
International, Inc., a publicly traded diversified industrial company, and
several privately held companies and charitable organizations. Mr. Friedman
received a B.A. degree from Harvard College in 1976, a M.A. degree from Oxford
University in 1978, a J.D. degree from Harvard Law School in 1982 and a M.B.A.
degree from Harvard Business School in 1982.
W. LEO KIELY III has consented to become a Director of the Company upon the
consummation of the Offering. Mr. Kiely has been President and Chief Operating
Officer of Coors Brewing Company since 1993. From 1982 through 1993, Mr. Kiely
held various executive positions with Frito-Lay Inc. ("Frito-Lay"), a
subsidiary of PepsiCo, most recently serving as President of Frito-Lay's
Central Division since 1991. Prior to joining Frito-Lay, Mr. Kiely was
President of Ventura Coastal Corporation, a division of Seven-Up Corporation,
from 1979 through 1982 and prior thereto held various positions with the
Wilson Sporting Goods Company and with the Proctor & Gamble Company. Mr. Kiely
also serves as a director of Bell Sports, Inc. He is also on the advisory
boards of the National Association of Manufacturers and several educational
and charitable organizations. Mr. Kiely received a B.A. degree from Harvard
College in 1969 and a M.B.A. degree from the Wharton School of Business at the
University of Pennsylvania in 1971.
COMMITTEES OF THE BOARD OF DIRECTORS
Executive Committee. Concurrently with the closing of the Offering, the
Board of Directors will establish an executive committee (the "Executive
Committee"), which will be granted such authority as may be determined from
time to time by a majority of the Board of Directors. The Company expects that
the Executive Committee will consist of the Founders and at least one
independent director. All actions by the Executive Committee will require the
unanimous vote of all of its members.
Audit Committee. Concurrently with the closing of the Offering, the Board of
Directors will establish an audit committee (the "Audit Committee"), which
will consist of two or more independent directors. The Audit Committee will be
established to make recommendations concerning the engagement of independent
public accountants, review with the independent public accountants the plans
and results of the audit engagement, approve professional services provided by
the independent public accountants, review the independence of the independent
public accountants, consider the range of audit and non-audit fees and review
the adequacy of the Company's internal accounting controls.
Compensation Committee. Concurrently with the closing of the Offering, the
Board of Directors will establish a compensation committee (the "Compensation
Committee"), which will consist of two or more non-employee or independent
directors to the extent required by Rule 16b-3 under the Exchange Act, to
determine compensation for the Company's senior executive officers, determine
awards under the Company's 1996 Equity Participation Plan and administer the
Company's Employee Stock Purchase Plan.
The Board of Directors of the Company initially will not have a nominating
committee or any other committee. The membership of the committees of the
Board of Directors will be established after the closing of the Offering.
CLASSIFIED BOARD OF DIRECTORS
The Charter provides for the Company's Board of Directors to be divided into
three classes serving staggered terms so that directors' initial terms will
expire either at the 1997, 1998 or 1999 annual meeting of stockholders.
Starting with the 1997 annual meeting of stockholders, one class of directors
will be elected each year for three-year terms. The classification of
directors makes it more difficult for a significant stockholder to
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change the composition of the Board of Directors in a relatively short period
of time and, accordingly, provides the Board of Directors and stockholders
time to review any proposal that a significant stockholder may make and to
pursue alternative courses of action which are fair to all the stockholders of
the Company.
DIRECTOR COMPENSATION
The Company intends to pay its directors who are not officers of the Company
("Independent Directors") a fee of $1,000 per meeting of the Board of
Directors and any committee thereof (including telephonic meetings) for their
services as directors. In addition, the Company intends to grant options to
purchase 15,000 shares of Common Stock at the initial public offering price to
each such Independent Director to vest in equal portions over a term of three
years. Each Independent Director who is still a member of the Board of
Directors at the end of the three year vesting period of the initial grant of
options will receive a grant of additional options to purchase 15,000 shares
of Common Stock at the fair market value of the Common Stock on the date of
the grant, with such options to vest over an additional three year period. In
addition to such option grants, the Independent Directors will be reimbursed
for expenses of attending each meeting of the Board of Directors. Officers of
the Company who are directors will not be paid any director fees but will be
reimbursed for expenses of attending meetings of the Board of Directors.
DIRECTORS AND OFFICERS INSURANCE
The Company has applied for a directors and officers liability insurance
policy with coverage typical for a public company such as the Company that
will become effective upon the effectiveness of the Registration Statement.
The directors and officers liability insurance policy insures (i) the officers
and directors of the Company from any claim arising out of an alleged wrongful
act by such person while acting as officers and directors of the Company, (ii)
the Company to the extent it has indemnified the officers and directors for
such loss and (iii) the Company for losses incurred in connection with claims
made against the Company for covered wrongful acts.
INDEMNIFICATION
The Charter provides for the indemnification of the Company's officers and
directors against certain liabilities to the fullest extent permitted under
applicable law. The Charter also provides that the directors and officers of
the Company be exculpated from monetary damages to the fullest extent
permitted under applicable law. It is the position of the Securities and
Exchange Commission that indemnification of directors and officers for
liabilities arising under the Securities Act is against public policy and
unenforceable pursuant to Section 14 of the Securities Act.
63
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table. The Company was incorporated as a Maryland
corporation in May 1996. Accordingly, the Company did not pay any cash
compensation to its executive officers for the year ended December 31, 1995.
The following table sets forth the annual base salary and other annual
compensation which the Company expects to pay in 1996 to the Company's chief
executive officer and each of the other four most highly compensated executive
officers whose cash compensation on an annualized basis is expected to exceed
$100,000 (salary and bonus) (the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------- ---------------
SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING
POSITION YEAR(1) SALARY BONUS(2) COMPENSATION(3) OPTIONS/SARS(4)
------------------ ------- -------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Osamu Kaneko............ 1996 $280,000 $ -- $ 2,500 150,000
Chairman of the Board
and
Chief Executive Officer
Andrew J. Gessow........ 1996 280,000 -- 2,500 150,000
Director and President
Steven C. Kenninger..... 1996 280,000 -- 2,500 150,000
Director, Chief
Operating Officer and
Secretary
James E. Noyes.......... 1996 280,000 120,000 14,500 375,000
Director and Executive
Vice President
Charles C. Frey......... 1996 160,000 -- 14,500 150,000
Chief Financial Officer
and Treasurer
</TABLE>
- --------
(1) Amounts given are annualized projections for the year ending December 31,
1996.
(2) See "--Incentive Compensation Plan" below for a discussion of annual
performance bonuses payable to key employees and executive officers.
(3) Represents automobile lease payments and insurance premiums.
(4) Options to purchase an aggregate of 1,380,000 shares of Common Stock will
be granted to directors, executive officers and other employees of the
Company effective upon closing of the Offering. See "--1996 Equity
Participation Plan."
64
<PAGE>
Option Grants in 1996. The following table contains information concerning
the grant of stock options under the Company's 1996 Equity Participation Plan
expected to be made for the year ended December 31, 1996 to the Named
Executive Officers. The table also lists potential realizable values of such
options on the basis of assumed annual compounded stock appreciation rates of
5% and 10% over the life of the options which are set for a maximum of ten
years.
OPTION GRANTS IN 1996
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
NUMBER OF ASSUMED ANNUAL
SECURITIES PERCENT OF RATES OF SHARE
UNDERLYING TOTAL OPTIONS EXERCISE PRICE APPRECIATION
OPTIONS GRANTED TO OR BASE FOR OPTION TERM(4)
GRANTED EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME (#)(1) FISCAL YEAR ($/SH) DATE(3) 5%($)(2) 10%($)(2)
- ---- ---------- ------------- -------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Osamu Kaneko............ 150,000 -- % $15(2) August 2006 $1,415 $ 3,586
Andrew J. Gessow........ 150,000 -- % $15(2) August 2006 $1,415 $ 3,586
Steven C. Kenninger..... 150,000 -- % $15(2) August 2006 $1,415 $ 3,586
James E. Noyes.......... 375,000 -- % $12 June 2006 $ 4,663 $ 10,090
Charles C. Frey......... 150,000 -- % $15(2) August 2006 $ 1,415 $ 3,586
</TABLE>
- --------
(1) The options granted to Messrs. Kaneko, Gessow, and Kenninger will vest in
three equal installments on the first, second, and third anniversaries of
the date of the grant. The options granted to Mr. Frey will vest with
respect to 75,000 shares upon the date of the grant, with the balance of
such shares vesting in five equal installments on the first, second,
third, fourth and fifth anniversaries of the grant. The options granted to
Mr. Noyes vested with respect to 75,000 shares on the date of the grant
and with respect to the remaining 300,000 shares will vest in forty-eight
equal installments at the end of each of the first forty-eight months that
Mr. Noyes is employed by the Company.
(2) Based on the estimated mid-point of the pricing range in the Offering of
$15.00 per share of Common Stock.
(3) The expiration date of the options will be ten years after the date of
grant.
(4) The potential realizable value is reported net of the option price, but
before income taxes associated with exercise. These amounts represent
assumed annual compounded rates of appreciation at 5% and 10% only from
the date of grant to the expiration date of the option.
INCENTIVE COMPENSATION PLAN
The Company plans to establish an incentive compensation plan for officers
and key employees of the Company after the closing of the Offering. This plan
will provide for payment of a cash bonus to participating officers and key
employees if certain performance objectives established for each individual
are achieved. Pursuant to such plan, each of Messrs. Kaneko, Gessow, and
Kenninger shall be entitled to receive a cash bonus of up to 100% of their
respective base compensation, respectively, upon the achievement by the
Company of specified targets of growth in earnings per share as determined by
the Compensation Committee. Pursuant to his employment agreement, Mr. Noyes
shall be entitled to receive a cash bonus of $30,000 per quarter for each
quarter that he is employed by the Company. The amount of the bonus to other
participating officers and key employees will be based on a formula to be
determined for each employee by the Compensation Committee, and is expected to
be based on growth in earnings per share and other factors.
1996 EQUITY PARTICIPATION PLAN
The Company has established an equity participation plan (the "1996 Equity
Participation Plan") to enable executive officers, other key employees,
Independent Directors and consultants of the Company to participate in the
ownership of the Company. The 1996 Equity Participation Plan is designed to
attract and retain executive officers, other key employees, Independent
Directors and consultants of the Company and to provide incentives to such
persons to maximize the Company's cash flow available for distribution. The
1996 Equity Participation Plan provides for the award to executive officers,
other key employees, Independent Directors and consultants of
65
<PAGE>
the Company of a broad variety of stock-based compensation alternatives such
as nonqualified stock options, incentive stock options, restricted stock and
performance awards and provides for the grant to executive officers, other key
employees, Independent Directors and consultants of nonqualified stock
options. Awards under the 1996 Equity Participation Plan may provide
participants with rights to acquire shares of Common Stock.
The 1996 Equity Participation Plan will be administered by the Compensation
Committee, which is authorized to select from among the eligible participants
the individuals to whom options, restricted stock purchase rights and
performance awards are to be granted and to determine the number of shares to
be subject thereto and the terms and conditions thereof. The members of the
Compensation Committee who are not affiliated with the Company will select
from among the eligible participants the individuals to whom nonqualified
stock options are to be granted, except as set forth below, and will determine
the number of shares to be subject thereto and the terms and conditions
thereof. The Compensation Committee is also authorized to adopt, amend and
rescind rules relating to the administration of the 1996 Equity Participation
Plan.
Nonqualified stock options will provide for the right to purchase Common
Stock at a specified price which may be less than fair market value on the
date of grant (but not less than par value), and usually will become
exercisable in installments after the grant date. Nonqualified stock options
may be granted for any reasonable term.
Incentive stock options will be designed to comply with the provisions of
the Internal Revenue Code of 1986, as amended (the "Code") and will be subject
to restrictions contained in the Code, including exercise prices equal to at
least 100% of fair market value of Common Stock on the grant date and a ten
year restriction on their term, but may be subsequently modified to disqualify
them from treatment as an incentive stock option.
Restricted stock may be sold to participants at various prices (but not
below par value) and made subject to such restrictions as may be determined by
the Compensation Committee. Restricted stock, typically, may be repurchased by
the Company at the original purchase price if the conditions or restrictions
are not met. In general, restricted stock may not be sold, or otherwise
transferred or hypothecated, until restrictions are removed or expire.
Purchasers of restricted stock, unlike recipients of options, will have voting
rights and will receive dividends prior to the time when the restrictions
lapse.
Performance awards may be granted by the Compensation Committee on an
individual or group basis. Generally, these awards will be based upon specific
agreements and may be paid in cash or in Common Stock or in a combination of
cash and Common Stock. Performance awards may include "phantom" stock awards
that provide for payments based upon increases in the price of the Company's
Common Stock over a predetermined period. Performance awards may also include
bonuses which may be granted by the Compensation Committee on an individual or
group basis and which may be payable in cash or in Common Stock or in a
combination of cash and Common Stock.
Promptly after the closing of the Offering, the Company expects to have
issued to executive officers, other key employees, Independent Directors and
consultants of the Company options to purchase 1,380,000 restricted shares of
Common Stock pursuant to the 1996 Equity Participation Plan. The term of each
of such option will be ten years from the date of grant. Except as otherwise
described herein, each such option vests twenty percent per year over five
years and is exercisable at a price per share equal to the initial price per
share of Common Stock sold to the public in the Offering.
A maximum of 1,750,000 shares will be reserved for issuance under the 1996
Equity Participation Plan.
EMPLOYEE STOCK PURCHASE PLAN
The Company has established the Signature Resorts, Inc. Employee Stock
Purchase Plan (the "Employee Stock Purchase Plan") to assist employees of the
Company in acquiring a stock ownership interest in the Company and to
encourage them to remain in the employment of the Company. The Employee Stock
Purchase Plan
66
<PAGE>
is neither a qualified pension, profit sharing or stock bonus plan under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
nor an "employee benefit plan" subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended. The following discussion
is a general summary of the material U.S. federal income tax consequences to
U.S. participants in the Employee Stock Purchase Plan. The discussion is based
on the Code, regulations thereunder, rulings and decisions now in effect, all
of which are subject to change. The summary does not discuss all aspects of
federal income taxation that may be relevant to a particular participant in
light of such participant's personal investment circumstances.
The Employee Stock Purchase Plan is intended to meet the requirements of an
"employee stock purchase plan" under Section 423 of the Code. Neither the
grant of the right to purchase shares, nor the purchase of shares, under the
Employee Stock Purchase Plan has a federal income tax effect on employees or
the Company. Any United States tax liability to the employee and the tax
deductions to the Company are deferred until the employee sells the shares,
disposes of the shares by gift or dies. Under the Employee Stock Purchase
Plan, shares are generally purchased for 85% of the fair market value thereof,
as permitted by the Code.
In general, if shares are held for more than one year after they are
purchased and for more than two years from the beginning of the enrollment
period in which they are purchased or if the employee dies while owning the
shares, gain on the sale or other disposal of the shares constitutes ordinary
income to and employee (with no corresponding deduction to the Company) to the
extent of the lesser of (i) 15% of the fair market value of the shares at the
beginning of the enrollment period or (ii) the gain on sale of the amount by
which the market value of the shares on the date of sale, gift or death,
exceeds the purchase price. Any additional gain is capital gain. If the shares
are sold or disposed of within either or both of the holding periods, an
employee recognizes ordinary income (and the Company receives a corresponding
deduction subject to Section 162(m) of the Code) to the extent that the fair
market value of the shares at the date of exercise of the option exceeds the
option price. Any appreciation or depreciation after the date of purchase is
capital gain or loss.
A maximum of 500,000 shares of Common Stock will be reserved for issuance
under the Employee Stock Purchase Plan. The Employee Stock Purchase Plan will
be administered by the Compensation Committee.
401(K) PLAN
The Company intends to establish a qualified retirement plan, with a salary
deferral feature designed to qualify under Section 401 of the Code (the
"401(k) Plan"). The 401(k) Plan will permit the employees of the Company to
defer a portion of their compensation in accordance with the provisions of
Section 401(k) of the Code. The 401(k) Plan will allow participants to defer
up to ten percent of their eligible compensation on a pre-tax basis subject to
certain maximum amounts. Matching contributions may be made in amounts and at
times determined by the Company. The 401(k) Plan provides for Company matching
contributions in an amount equal to fifty-cents for each one dollar of
participant contributions up to a maximum of three percent of the
participant's salary per year. No other Company matching contributions are
contemplated at this time. Certain other statutory limitations with respect to
the Company's contribution under the 401(k) Plan also apply. Participants will
receive service credit for employment with the predecessors of the Company and
affiliates. Amounts contributed by the Company for a participant will vest
over five years and will be held in trust until distributed pursuant to the
terms of the 401(k) Plan.
Employees of the Company will be eligible to participate in the 401(k) Plan
if they meet certain requirements concerning minimum age and period of
credited service. All contributions to the 401(k) Plan will be invested in
accordance with participant elections among certain investment options.
Distributions from participant accounts will not be permitted before age 59
1/2, except in the event of death, disability, certain financial hardships or
termination of employment.
67
<PAGE>
EMPLOYMENT AGREEMENTS
Messrs. Kaneko, Gessow, Kenninger and Noyes have or will each enter into an
employment agreement with the Company for a term of two years. While such
agreements have not been entered into (except with respect to Mr. Noyes which
was entered into in June 1996), the terms and conditions of such agreements
are not expected to differ materially with respect to the following
provisions: The employment agreement for each of such executives is expected
to provide for an annual salary of $280,000 per year, with annual performance
bonuses determined by the independent directors in connection with the
achievement of performance criteria to be determined (except with respect to
Mr. Noyes, who will receive a quarterly bonus of $30,000 for each quarter he
is employed by the Company). In addition, each of Messrs. Kaneko, Gessow,
Kenninger and Noyes have or will receive options to purchase shares of Common
Stock as described in "--1996 Equity Participation Plan." In addition, each of
Messrs. Kaneko, Gessow and Kenninger shall receive severance payments equal to
base compensation and bonus at the most recent annual amount for the longer of
the balance of the employment term or two years upon the death, disability,
termination or resignation of such executive, unless such executive resigns
without "good cause" or unless the Company terminates such executive as a
result of gross negligence, willful misconduct, fraud or a material breach of
the employment agreement. Each such executive will have "good cause" to
terminate his employment with the Company in the event of any reduction in his
compensation or benefits, material breach or material default by the Company
under his employment agreement or following the merger or change in control of
the Company.
Covenants Not To Compete. The Founders and Mr. Noyes have agreed to devote
substantially full time to the business of the Company and not engage in any
competitive businesses. In particular, the Founders will not manage, consult
or participate in any way in any timeshare business or acquire any property
with the intent to convert the property to a timeshare operation, unless the
Independent Directors of the Company determine that such investment is in the
best interest of the Company. Such noncompetition provisions shall survive for
two years following any termination of employment. The Founders are not,
however, prohibited from acquiring hotels, including hotels which may compete
directly with properties of the Company. See "Certain Relationships and
Related Transactions--Founders' Other Business Interests."
68
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FOUNDERS' OTHER BUSINESS INTERESTS
Affiliates of Messrs. Kaneko and Kenninger currently have managing general
partner or similar interests in entities which own investment properties which
the Company does not consider to be competitive with its timeshare business
(the "KOAR Interests"). These properties include a 225-unit condominium
project in Long Beach, California which is being marketed for whole share unit
sales or long-term residential use rather than vacation use (and with respect
to which the KOAR Interests currently own 74 of the total 225 units, the
balance having been sold to third parties); and several retail centers and a
proposed office development project. Messrs. Kaneko and Kenninger are also
currently the constituent general partners of a number of partnerships in
which they owe fiduciary duties to limited partners who invested over $80
million of equity therein (which partnerships include five Embassy Suites
hotels which are still owned by partnerships controlled by Affiliates of
Messrs. Kaneko and Kenninger (the "Prior Partnerships")). Messrs. Kaneko and
Kenninger are authorized by the Company to meet their duties and
responsibilities to the Prior Partnerships pursuant to the terms thereof,
including the sale, refinancing, restructuring and packaging of the Prior
Partnerships, and including with respect to the formation of public or private
entities for such purpose, including a public real estate investment trust
("REIT") for one or all of the Embassy Suites hotels in the Prior Partnerships
(provided, that Messrs. Kaneko and Kenninger agree not to serve as an officer
or employee of such REIT). Messrs. Kaneko and Kenninger agree to continue to
retain third party management companies to manage these properties (e.g.,
Promus Hotels manages all five Embassy Suites hotels), and to employ personnel
not employed by the Company to carry out the day-to-day responsibilities of
managing and overseeing these properties. However, Messrs. Kaneko and
Kenninger reserve the right to do what is reasonably necessary within these
constraints to carry out their duties and responsibilities to the Prior
Partnerships pursuant to the terms thereof. The Company does not believe that
such activities will detract materially from Messrs. Kaneko's and Kenninger's
services to the Company.
In addition, the Founders are currently pursuing the acquisition of one
property in California which may be converted to a timeshare property. The
Company will have the option, at its election (which the Company may exercise
at any time), to require the Founders to sell such property to the Company at
a price not exceeding 50% of the actual direct cost therein. Nevertheless,
there can be no assurance that the Company will exercise its option to acquire
any of such interest. The Founders have agreed that at the direction of the
Independent Directors and following a decision that the Company will not
acquire such property, the Founders will sell their interest in such property
or divest themselves of any controlling or managing interest in the property
within six months after receipt of a notice from the Company to do so, unless
the independent members of the Company's Board of Directors determine that any
such investment by or any such interest held by the Founders is in the best
interest of the Company. The covenants not to compete are intended to fully
protect the Company from Messrs. Kaneko, Gessow or Kenninger either competing
against the Company or being involved in the timeshare business without the
Company's consent. See "Business--Employment Agreements--Covenants Not To
Compete."
REPAYMENT OF AFFILIATED DEBT
Approximately $14.6 million of the net proceeds from the Offering will be
used to repay outstanding debt to affiliates of the Founders. Of the $14.6
million of the funds paid to the affiliates of the Founders, $14.2 million
will be used to pay off existing debt to third party financial institutions or
other third party financing sources or tax liabilities. The proceeds from the
loans were previously either invested in or loaned either to the Company or
its predecessors or to the Property Partnerships to acquire or develop the
Existing Resorts.
In addition, approximately $13.1 million of the net proceeds of the Offering
will be used to repay outstanding indebtedness owed to partnerships in which
an affiliate of Mr. Friedman, a proposed director of the Company, is a general
partner. Of such repayment, approximately $4.3 million will be repaid directly
to Mr. Friedman or his affiliates.
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<PAGE>
CONSOLIDATION TRANSACTIONS
The Company's Existing Resorts currently are owned and operated by the
Property Partnerships, each affiliated with the Founders. The Property
Partnerships consist of Grand Beach Resort, L.P., a Georgia limited
partnership (Embassy Vacation Resort Grand Beach); AKGI-Flamingo C.V., a
Netherlands Antilles limited partnership (Flamingo Beach Club); AKGI-Royal
Palm C.V., a Netherlands Antilles limited partnership (Royal Palm Beach Club);
Port Royal Resort, L.P., a South Carolina limited partnership (Royal Dunes
Resort); an approximately 30% interest in Poipu Resort Partners, L.P., a
Hawaii limited partnership (Embassy Vacation Resort Poipu Point); Fall Creek
Resort, L.P., a Georgia limited partnership (Plantation at Fall Creek);
Cypress Pointe Resort, L.P., a Delaware limited partnership (Cypress Pointe
Resort); Lake Tahoe Resort Partners, LLC, a California limited liability
company (Embassy Vacation Resort Lake Tahoe); and San Luis Resort Partners,
LLC, a Georgia limited liability company (San Luis Bay Resort). Affiliates of
the Founders currently are the sole general partners or sole members of each
of the Property Partnerships.
Upon consummation of the Consolidation Transactions described below, the
partnership and limited liability company interests in each of the Property
Partnerships, certain of the stock of certain other corporations affiliated
therewith held by "accredited investors" (as defined pursuant to Regulation D
under the Securities Act) and certain debt obligations of the Property
Partnerships and affiliates (and, as a result, ownership of each of the
Existing Resorts) will be directly or indirectly transferred to the Company
and in exchange the holders of such partnership interests and certain of such
stock will receive shares of Common Stock in the Company. Holders of any such
partnership interests who are not "accredited investors" will receive cash at
a price commensurate with the value received by the accredited investors to be
determined prior to the Consent Solicitation. The Consolidation Transactions
will be consummated concurrently with, and are conditioned upon, the closing
of the Offering. All financial and share information presented in this
Prospectus assumes the consummation of the Consolidation Transactions and
reflects the issuance of an aggregate of 11,416,667 shares of Common Stock to
the holders of partnership interests in the Property Partnerships and to
certain stockholders of the Affiliated Companies. The Affiliated Companies
include Argosy/KOAR Group, Inc., Resort Management International, Inc., Resort
Marketing International, Inc., RMI-Royal Palm C.V.o.a., RMI-Flamingo C.V.o.a.,
AK-St. Maarten, LLC, Premier Resort Management, Inc., Resort Telephone & Cable
of Orlando, Inc., Kabushiki Gaisha Kei, LLC, Vacation Ownership Marketing
Company and Vacation Resort Marketing of Missouri, Inc., each of which are
controlled by the Founders and currently provide administrative, utility,
management and/or marketing services to certain of the Property Partnerships.
Signature Resorts, Inc. was incorporated in Maryland in May 1996 by the
Founders to effect the Consolidation Transactions and the Offering. Pursuant
to a Private Placement Memorandum dated as of May 28, 1996, the Company in the
Consent Solicitation solicited and received on or before June 13, 1996 the
consent and agreement of the ultimate owners of interests in the Property
Partnerships, the stockholders of the Affiliated Companies and the holders of
certain debt obligations to exchange their partnership interests or shares in,
and obligations of, the Property Partnerships or Affiliated Companies (or
their direct or indirect interests in the owners thereof), as applicable, for
shares of Common Stock in the Company. Such exchange will occur simultaneously
with the closing of the Offering and is conditioned upon certain timing
constraints with respect to the Offering. The Consent Solicitation and
exchange of direct and indirect interests in, and obligations of, the Property
Partnerships and the Affiliate Companies, as applicable, for shares of Common
Stock in the Company are referred to herein as the "Consolidation
Transactions." Direct and indirect holders of interests in, and obligations
of, certain Property Partnerships will upon consummation of the Consolidation
Transactions receive shares of Common Stock in the Company equal to a
predetermined dollar value based on agreement between the Company and such
holders as set forth in the Private Placement Memorandum for the Consent
Solicitation. The balance of the shares of Common Stock issued in the
Consolidation Transactions will be issued to the holders of interests in the
remaining Property Partnerships and to the holders of interests in the
Affiliated Companies, which are comprised solely of the Founders or their
affiliates. Following consummation of the Consolidation Transactions and the
Offering, the ultimate owners of interests in the Property Partnerships and
stockholders of the Affiliated Companies will, in the aggregate, own
approximately 68.4% of the outstanding Common Stock in
70
<PAGE>
the Company, with approximately 45.1% of the outstanding Common Stock in the
Company being held by the Founders, or affiliates thereof (in each case based
on the mid-point of the estimated pricing range of the Common Stock in the
Offering). For additional information regarding the Property Partnerships and
the Affiliated Companies as well as the Consolidation Transactions and
resulting effect thereof, see "Principal Stockholders" and "Certain
Relationships and Related Transactions."
The following sets forth certain information regarding the Property
Partnerships:
<TABLE>
<CAPTION>
EXECUTIVE
OFFICERS,
DIRECTORS AND
AFFILIATES
OWNERSHIP CYPRESS AKGI- AKGI- SAN LUIS
INTERESTS POINTE FALL CREEK PORT ROYAL GRAND BEACH FLAMINGO ROYAL PALM LAKE TAHOE BAY
------------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Andrew J.
Gessow......... 17.50% 14.00% 24.71% 14.00% 40.00% 40.00% 40.00% 40.00%
Osamu Kaneko.... 5.00 4.00 30.73 15.00 40.00 40.00 40.00 40.00
Steven C.
Kenninger...... 2.50 2.00 13.20 7.90 20.00 20.00 20.00 20.00
Charles Frey.... 0.00 0.00 0.00 0.50 0.00 0.00 0.00 0.00
Timothy Levin... 0.00 0.00 0.86 0.50 0.00 0.00 0.00 0.00
Genevieve
Gianoni........ 0.00 0.00 0.00 0.25 0.00 0.00 0.00 0.00
Joshua Friedman. 22.50 17.13 0.00 0.00 0.00 0.00 0.00 0.00
Canpartners
Incorporated(1). 75.07 56.47 0.00 0.00 0.00 0.00 0.00 0.00
Approximate
Equity Value
Assigned....... $35,247,000 $11,030,000 $5,146,000 $22,621,000 $14,502,000(3) $29,004,000(3) $10,339,000(3) $6,092,000(3)
Book Value as of
December 31,
1995........... 13,954,127 2,596,710 3,235,750 12,575,459 747,434 3,127,322 N/A(2) N/A(2)
Debt Assumed as
of December 31,
1995........... 32,994,587 14,933,435 6,232,234 24,807,087 5,405,188 6,392,297 N/A N/A
</TABLE>
- -------
(1) Canpartners Incorporated is the sole general partner of limited
partnerships that hold the interests indicated. Joshua S. Friedman owns
his interest through these entities.
(2) The Embassy Vacation Resort Lake Tahoe and the San Luis Bay Resort were
acquired in May and June 1996, respectively. The value allocated by the
Company is the Company's costs to acquire the property.
(3) Wholly-owned by the Founders; accordingly, assigned values are estimated
solely for purposes of this table.
71
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PRINCIPAL STOCKHOLDERS
The information in the following table sets forth information regarding the
beneficial ownership of the Common Stock of the Company giving effect to the
consummation of the Consolidation Transactions, and as adjusted to reflect the
sale of shares offered hereby, with respect to (i) each person known by the
Company to beneficially owns 5% or more of the outstanding shares of Common
Stock, (ii) each person who is a director, proposed director or Named
Executive Officer of the Company and (iii) all directors, proposed directors
and executive officers of the Company as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING AFTER THE OFFERING
----------------------------- -----------------------
NAME AND ADDRESS OF
BENEFICIAL OWNER(1) SHARES PERCENTAGE SHARES PERCENTAGE
- ------------------- ------------- ------------ --------- ----------
<S> <C> <C> <C> <C>
Osamu Kaneko(2).......... 2,821,798 24.9% 2,821,798 17.0%
Andrew J. Gessow(3)...... 3,210,599 28.3% 3,210,599 19.3%
Steven C. Kenninger(2)... 1,447,930 12.8% 1,447,930 8.7%
James E. Noyes........... 75,000(5) * 75,000(5) *
Charles C. Frey.......... 5,600 * 80,600(6) *
Genevieve Giannoni....... 2,800 * 77,800(6) *
Timothy D. Levin......... 4,058 * 6,058 *
Juergen Bartels.......... -- -- -- --
Sanford R. Climan........ -- -- 3,250 *
Joshua S. Friedman(4).... -- -- -- --
W. Leo Kiely, III........ -- -- -- --
Canpartners
Incorporated(4)......... 2,220,936 19.6% 2,220,936 13.4%
9665 Wilshire Boulevard
Suite 200
Beverly Hills,
California 90210
All directors, proposed
directors and executive
officers as a group (11
persons)(6)............. 7,567,785 66.7% 7,723,035 46.5%
</TABLE>
- --------
* Less than 1%
(1) Except as otherwise indicated, each beneficial owner has the sole power to
vote, as applicable, and to dispose of all shares of Common Stock owned by
such beneficial owner.
(2) The address of such person is 911 Wilshire Boulevard, Suite 2250, Los
Angeles, California 90017.
(3) The address of such person is 2934 Woodside Road, Woodside, California
94062.
(4) Canpartners Incorporated ("Canyon") is the sole general partner of limited
partnerships that hold the shares indicated. Mr. Friedman (a proposed
director of the Company) and Mitchell R. Julis and R. Christian B. Evensen
are the sole shareholders and directors of Canyon and may be deemed to
share beneficial ownership of the shares shown as owned by Canyon. Such
persons disclaim beneficial ownership of such shares.
(5) Represents presently exercisable options to acquire shares of Common
Stock.
(6) Includes options to acquire 75,000 shares of Common Stock which are to be
granted upon the closing of the Offering and that will be exercisable
beginning within 60 days.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of the Offering and the consummation of the Consolidation
Transactions, the authorized capital stock of the Company will consist of (i)
50,000,000 shares of Common Stock, par value $0.01 per share, 16,604,705
shares of which will be outstanding after the Offering and the Consolidation
Transactions and (ii) 25,000,000 shares of Preferred Stock, par value $0.01
per share, none of which will be outstanding after the Offering and the
Consolidation Transactions. The following summary description of the capital
stock of the Company is qualified in its entirety by reference to the Charter
and Bylaws of the Company, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part. See "Additional
Information."
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters voted on by stockholders, including elections of directors, and,
except as otherwise required by law or provided in any resolution adopted by
the Board of Directors with respect to any series of Preferred Stock
establishing the designation, powers, preferences and relative, participating,
option or other special rights and powers of such series of Preferred Stock,
the holders of shares of Common Stock exclusively possess all voting power.
The Charter does not provide for cumulative voting in the election of
directors. Subject to any preferential rights of any outstanding series of
Preferred Stock, the holders of Common Stock are entitled to such
distributions as may be declared from time to time by the Board of Directors
from funds available therefor, and upon liquidation are entitled to receive
pro rata all assets of the Company available for distribution to such holders.
All shares of Common Stock issued in the Offering will be fully paid and
nonassessable and the holders thereof will not have preemptive rights.
PREFERRED STOCK
Preferred Stock may be issued from time to time, in one or more classes, as
authorized by the Board of Directors. Prior to issuance of shares of each
class, the Board of Directors is required by the MGCL and the Company's
Charter to fix for each such class, the terms, preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends or
other distributions, qualifications and terms or conditions of redemption, as
are permitted by Maryland law. The Board of Directors could authorize the
issuance of Preferred Stock with terms and conditions which could have the
effect of discouraging a takeover or other transaction which holders of some,
or a majority, of the Company's outstanding shares might believe to be in
their best interests or in which holders of some, or a majority, of shares
might receive a premium for their shares over the market price of such shares.
No Preferred Stock will be outstanding following the closing of the Offering.
TRANSFER AGENT AND REGISTRAR
The Company has appointed as its transfer agent and
registrar.
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<PAGE>
CERTAIN PROVISIONS OF MARYLAND LAW
AND OF THE COMPANY'S CHARTER AND BYLAWS
The following paragraphs summarize certain provisions of Maryland law and
the Company's Charter and Bylaws. The summary does not purport to be complete
and is subject to and qualified in its entirety by reference to the Company's
Charter and Bylaws, copies of which are exhibits to the Registration Statement
of which this Prospectus is a part, as described in "Additional Information,"
and to Maryland law.
CLASSIFICATION OF THE BOARD OF DIRECTORS
The Company's Charter provides that the number of directors of the Company
shall be established by the Bylaws but shall not be less than the minimum
number required by the MGCL, which in the case of the Company is three. The
Bylaws currently provide that the Board of Directors will consist of not fewer
than seven nor more than 13 members. Any vacancy on the Board of Directors
will be filled, at any regular meeting or at any special meeting called for
that purpose, by a majority of the remaining directors, except that a vacancy
resulting from an increase in the number of directors will be filled by a
majority of the entire board of directors. The Charter provides for a
staggered Board of Directors consisting of three classes as nearly equal in
size as practicable. One class will hold office initially for a term expiring
at the annual meeting of stockholders to be held in 1997, another class will
hold office initially for a term expiring at the annual meeting of
stockholders to be held in 1998 and another class will hold office initially
for a term expiring at the annual meeting of stockholders to be held in 1999.
As the term of each class expires, directors in that class will be elected for
a term of three years and until their successors are duly elected and qualify.
The Company believes that classification of the Board of Directors will help
to assure the continuity and stability of the Company's business strategies
and policies as determined by the Board of Directors.
The classified director provision could have the effect of making the
removal of incumbent directors more time-consuming and difficult, which could
discourage a third party from making a tender offer or otherwise attempting to
obtain control of the Company, even though such an attempt might be beneficial
to the Company and its stockholders. At least two annual meetings of
stockholders, instead of one, will generally be required to effect a change in
a majority of the Board of Directors. Thus, the classified board provision
could increase the likelihood that incumbent directors will retain their
positions. Holders of shares of Common Stock will have no right to cumulative
voting for the elections of directors. Consequently, at each annual meeting of
stockholders, the holders of a majority of outstanding shares of Common Stock
will be able to elect all of the successors of the class of directors whose
term expires at that meeting.
REMOVAL OF DIRECTORS
The Charter provides that a director may be removed with or without cause by
the affirmative vote of at least two-thirds of the votes entitled to be cast
in the election of directors, and by the vote required to elect a director,
the stockholders may fill a vacancy on the Board of Directors resulting from
removal. This provision, when coupled with the provision in the Bylaws
authorizing the Board of Directors to fill vacant directorships, could
preclude stockholders from removing incumbent directors except upon a
substantial affirmative vote and filling the vacancies created by such removal
with their own nominees.
BUSINESS COMBINATIONS
Under the MGCL, certain "Business Combinations" (including a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns ten percent or more of the
voting power of the corporation's shares or an affiliate of the corporation
who, at any time within the two-year period prior to the date in question, was
the beneficial owner of ten percent or more of the voting power of the then-
outstanding voting stock of the corporation (an "Interested Stockholder") or
an affiliate thereof are prohibited for five years after the most recent date
on which the Interested Stockholder became an Interested Stockholder.
Thereafter, any
74
<PAGE>
such Business Combination must be recommended by the Board of Directors of
such corporation and approved by the affirmative vote of at least (i) 80% of
the votes entitled to be cast by holders of outstanding voting shares of the
corporation and (ii) 66 2/3% of the votes entitled to be cast by holders of
outstanding voting shares of the corporation other than shares held by the
Interested Stockholder with whom the Business Combination is to be effected,
unless, among other things, the corporation's stockholders receive a minimum
price (as defined in the MGCL) for their shares and the consideration is
received in cash or in the same form as previously paid by the Interested
Stockholder for its shares. These provisions of Maryland law do not apply,
however, to Business Combinations that are approved or exempted by the Board
of Directors of the corporation prior to the time that the Interested
Stockholder becomes an Interested Stockholder. The Board of Directors of the
Company has exempted from these provisions of the MGCL any Business
Combination involving the Executive Officers and certain persons and entities
affiliated therewith.
CONTROL SHARE ACQUISITIONS
The MGCL provides that "Control Shares" of a Maryland corporation acquired
in a "Control Share Acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares of stock owned by the acquiror or by officers or
directors who are employees of the corporation. "Control Shares" are voting
shares of stock which, if aggregated with all other such shares of stock
previously acquired by such person, or in respect of which such person is able
to exercise or direct the exercise of voting power, would entitle the acquiror
to exercise voting power in electing directors within one of the following
ranges of voting power: (i) one-fifth or more but less than one-third, (ii)
one-third or more but less than a majority, or (iii) a majority of all voting
power. Control Shares do not include shares the acquiring person is then
entitled to voter as a result of having previously obtained stockholder
approval. A "Control Share Acquisition" means the acquisition of Control
Shares, subject to certain exceptions.
A person who has made or proposes to make a Control Share Acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the Board of Directors to call a special meeting of stockholders to
be held within 50 days of demand to consider the voting rights of the shares.
If no request for a meeting is made, the corporation may itself present the
question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute,
then, subject to certain conditions and limitations, the corporation may
redeem any or all of the Control Shares (except those for which voting rights
have previously been approved) for fair value determined, without regard to
the absence of voting rights for control shares, as of the date of the last
Control Share Acquisition or of any meeting of stockholders at which the
voting rights of such shares are considered and not approved. If voting rights
for Control Shares are approved at a stockholders meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote, all other
stockholders may exercise appraisal rights. The fair value of the shares are
determined for purposes of such appraisal rights may not be less than the
highest price per share paid in the Control Share Acquisition, and certain
limitations and restrictions otherwise applicable to the exercise of
dissenters' rights do not apply in the context of a Control Share Acquisition.
The control share acquisition statute does not apply to shares acquired in a
merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the Charter or Bylaws
of the corporation. The Company in its Bylaws has exempted from the Control
Share Acquisition statute the Executive Officers and certain persons and
entities affiliated therewith.
AMENDMENT TO THE COMPANY'S CHARTER AND BYLAWS
The Company's Charter, including its provisions on classification of the
Board of Directors and removal of directors, may be amended only by the
affirmative vote of the holders of at least 66 2/3% of the capital stock
entitled to vote. The Company's Bylaws may be amended by the affirmative vote
of holders of at least 66 2/3% of the capital stock entitled to vote on the
matter. Subject to the right of stockholders to adopt, alter and repeal the
Bylaws, the Board of Directors is authorized to adopt, alter or repeal the
Bylaws.
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<PAGE>
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws of the Company provide that (i) with respect to an annual meeting
of stockholders, nominations of persons for election to the Board of Directors
and the proposal of business to be considered by stockholders may be made only
(a) pursuant to the Company's notice of the meeting, (b) by the Board of
Directors, or (c) by a stockholder who is entitled to vote at the meeting and
has complied with the advance notice procedures set forth in the Bylaws, and
(ii) with respect to special meetings of stockholders, only the business
specified in the Company's notice of meeting may be brought before the meeting
of stockholders, or provided that the Board of Directors has determined that
directors shall be elected at such meeting, nominations of persons for
election to the Board of Directors may be brought by a stockholder who is
entitled to vote at the meeting and has complied with the advance notice
provisions set forth in the Bylaws.
STOCKHOLDER MEETINGS AND ACTION BY WRITTEN CONSENT
In order for stockholders to call special meetings, the Bylaws require the
written request of holders of shares entitled to cast not less than 25% of all
votes entitled to be cast at such meeting. Such provisions do not, however,
affect the ability of stockholders to submit a proposal to the vote of all
stockholders of the Company in accordance with the Bylaws, which provide for
the additional notice requirements for stockholder nominations and proposals
at the annual meetings of stockholders as described above.
The Bylaws provide that any action required or permitted to be taken at a
meeting of stockholders may be taken without a meeting by unanimous written
consent, if such consent sets forth such action and is signed by each
stockholder entitled to vote on the matter and a written waiver of any right
to dissent is signed by each stockholders entitled to notice of the meeting
but not entitled to vote at it.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Charter limits the liability of the Company's directors and
officers to the Company and its stockholders to the fullest extent permitted
from time to time by Maryland law. Maryland law presently permits the
liability of directors and officers to a corporation or its stockholders for
money damages to be limited, except (i) to the extent that it is proved that
the director or officer actually received an improper benefit or profit, or
(ii) if a judgment or other final adjudication is entered in a preceding based
on a finding that the director's or officers' action, or failure to act, was
the result of active and deliberate dishonesty and was material to the cause
of action adjudicated in the proceeding. This provision does not limit the
ability of the Company or its stockholders to obtain other relief, such as an
injunction or rescission.
The Company's Charter and Bylaws require the Company to indemnify its
directors, offices and certain other parties to the fullest extent permitted
from time to time by Maryland law. The MGCL presently permits a corporation to
indemnity its directors, officers and certain other parties against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by
them in connection with any proceeding to which they may be made a party by
reason of their service to the corporation, unless it is established that (i)
the act or omission of the indemnified party was material to the matter giving
rise to the proceeding, and (1) was committed in bad faith or (2) was the
result of active and deliberate dishonest; or (ii) the indemnified party
actually received an improper personal benefit in money, property or services;
or (iii) in the case of any criminal proceeding, the indemnified party had
reasonable cause to believe that the act or omission was unlawful.
Indemnification may be made against judgments, penalties, fines, settlements
and reasonable expenses actually incurred by the director or officer in
connection with the proceeding; provided, however, that if the proceeding is
one by or in the right of the corporation, indemnification may not be made
with respect to any proceeding in which the director or officer has been
adjudged to be liable to the corporation. In addition, a director or officer
may not be indemnified with respect to any proceeding charging improper
personal benefit to the director or officer in which the director or officer
was adjudged to be liable on the basis that personal benefit was improperly
received. The termination of any proceeding by conviction, or upon a plea of
nolo contendere or its equivalent, or an entry of any order of probation prior
to judgment, creates a rebuttable presumption that the director or officer did
not meet the requisite
76
<PAGE>
standard of conduct required for indemnification to be permitted. The Company
has applied for directors and officers insurance which will become effective
upon the effectiveness of the Registration Statement.
DISSOLUTION OF THE COMPANY
The dissolution of the Company must be approved by the affirmative vote of
holders of not less than a majority of all of the votes entitled to be cast on
the matter.
SHARES ELIGIBLE FOR FUTURE SALE
Upon closing of the Offering and the Consolidation Transactions, the Company
will have outstanding 16,604,705 shares of Common Stock. Of these shares, the
5,250,000 shares sold in the Offering plus any additional shares sold upon
exercise of the Underwriters' over-allotment option will be freely tradable in
the public market without restriction or further registration under the
Securities Act.
The remaining 11,354,705 outstanding shares of Common Stock were issued upon
consummation of the Consolidation Transactions and are "restricted securities"
as that term is defined under Rule 144 and may be sold only pursuant to
registration under the Securities Act or pursuant to an exemption therefrom,
such as that provided by Rule 144. In general, under Rule 144 as currently in
effect, if two years have elapsed since the later of the date of acquisition
of shares of Common Stock from the Company or the date of acquisition of
shares of Common Stock from any "affiliate" of the Company, as that term is
defined under the Securities Act, the acquiror or subsequent holder is
entitled to sell within any three-month period a number of shares of Common
Stock that do not exceed the greater of 1% of the then-outstanding shares of
Common Stock or the average weekly trading volume of shares of Common Stock on
all exchanges and reported through the automated quotation system of a
registered securities association during the four calendar weeks preceding the
date on which notice of the sale is filed with the Commission. Sales under
Rule 144 are also subject to certain restrictions on the manner of sales,
notice requirements and the availability of current public information about
the Company. If three years have elapsed since the date of acquisition of
shares of Common Stock from the Company or from any "affiliate" of the
Company, and the acquiror or subsequent holder thereof is deemed not to have
been an affiliate of the company at any time during the 90 days preceding a
sale, such person would be entitled to sell such shares of Common Stock in the
public market under Rule 144(i) without regard to the volume limitations,
manner of sale provisions, public information requirements or notice
requirements.
Each stockholder who received its shares of Common Stock as a result of the
Consolidation Transactions has agreed, with certain exceptions, not to offer,
sell, contract to sell or otherwise dispose (collectively "dispose") of any
Common Stock, for a period of 180 days after the closing of the Offering (one
year with respect to the Founders) without the prior written consent of
Montgomery Securities; one of such exceptions allows the Founders to pledge
between $30 million and $50 million of their Common Stock to secure a margin
loan in a maximum amount of $10 million and another exception allows the
Founders to pledge approximately $5.8 million of their Common Stock in
connection with their buyout of a former partner.
Pursuant to a Registration Rights Agreement (the "Registration Rights
Agreement") the Company has agreed to file and use its best efforts to have
declared effective within six months following the Offering, a shelf
registration statement with the Commission for the purpose of registering the
shares of Common Stock (the "Registrable Shares") issuable to holders of
restricted shares. The Company will use its best efforts to have the shelf
registration statement kept effective for a period of 18 months. Upon the
effectiveness of such shelf registration statement, and as provided in the
Registration Rights Agreement, the holders of the Registrable Shares will be
subject to the volume restrictions of Rule 144. The Company will bear the
expenses incident to the registration requirements of the Registrable Shares,
except that such expenses shall not include any underwriting discounts or
commissions, Securities and Exchange Commission or state securities
registration fees or transfer taxes relating to such shares.
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<PAGE>
Under the Registration Rights Agreement, the holders of the Registrable
Shares will also be entitled to include within any registration statement
under the Securities Act filed by the Company with respect to any underwritten
public offering of Common Stock (either of its own account or the account of
other security holders) at any time within three years following the Offering,
the shares of Registrable Shares held by such holders, subject to certain
conditions and restrictions. See "Underwriting." The existence of the
Registration Rights Agreement may adversely affect the terms upon which the
Company can obtain additional equity financing in the future.
The Company may require in its sole discretion that the Registrable Shares
be sold in block trades through underwriters or broker-dealers or that the
Registrable Shares be underwritten by investment banking firms selected by the
Company.
Prior to the Offering, there has been no public market for the Common Stock
and the effect, if any, that future market sales of Common Stock or the
availability of such Common Stock for sale will have on the market price of
the Common Stock prevailing from time to time cannot be predicted.
Nevertheless, sales of substantial amounts of Common Stock in the public
market (or the perception that such sales could occur) might adversely affect
market prices for the Common Stock.
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<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by Montgomery
Securities and Goldman, Sachs & Co. (the "Representatives"), have severally
agreed, subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement") by and among the Company and the Underwriters to
purchase from the Company the number of shares of Common Stock indicated below
opposite their respective names, at the initial public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters are
committed to purchase all of the shares of Common Stock if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
TO BE
UNDERWRITER PURCHASED
- ----------- ---------
<S> <C>
Montgomery Securities................................................
Goldman, Sachs & Co. ................................................
---------
Total........................................................ 5,250,000
=========
</TABLE>
The Underwriters, through the Representatives, have advised the Company that
the Underwriters propose initially to offer the shares of Common Stock to the
public at a public offering price set forth on the cover page of this
Prospectus. The Underwriters may allow selected dealers a concession of not
more than $ per share; the Underwriters may allow, and such dealers may
reallow, a concession of not more than $ per share to certain other
dealers. After the initial public offering, the public offering price and
other selling terms may be changed by the Representatives.
The Company has granted an option to the Underwriters, exercisable during a
30-day period after the date of this Prospectus, to purchase up to a maximum
of 787,500 additional shares of Common Stock to cover over-allotments, if any,
at the initial offering price less the underwriting discount. To the extent
that the Underwriters exercise this option, the Underwriters will be
committed, subject to certain conditions, to purchase such additional shares
in approximately the same proportion as set forth in the above table. The
Underwriters may purchase such shares only to cover over-allotments made in
connection with the Offering.
The Underwriting Agreement provides that the Company and the Founders will
indemnify the Underwriters against certain liabilities, including civil
liabilities under the Securities Act, or will contribute to payments the
Underwriters may be required to make in respect thereof.
The Company's officers, directors and the holders of the Registrable Shares
have agreed, with certain exceptions, that, for a period of 180 days from the
date of this Prospectus (one year with respect to the Founders), they will not
offer to sell, sell, contract to sell or otherwise sell or dispose of any
shares of their Common Stock or options or warrants to acquire shares of
Common Stock without the prior written consent of Montgomery Securities. One
of such exceptions allows the Founders to pledge between $30 million and $50
million of their Common Stock to secure a margin loan in a maximum amount of
$10 million or loans entered into by them, and another exception allows the
Founders to pledge approximately $5.8 million of their Common Stock in
connection with their buyout of a former partner. The Company has agreed not
to sell any shares of Common Stock for a period of 180 days from the date of
this Prospectus without the prior written consent of Montgomery Securities.
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<PAGE>
The Representatives have informed the Company that they do not intend to
confirm sales to accounts over which they exercise discretionary authority in
excess of 5% of the number of shares of Common Stock offered hereby.
Out of the 5,250,000 shares of Common Stock to be sold by the Company
pursuant to the Offering, the Underwriters have accepted the Company's request
to sell up to 5.4% of such shares at the public offering price set forth on
the cover page of the Prospectus to current and former partners of the
Founders (and their families), the Company's independent director nominees,
employees and independent contractors associated with each of the Company's
resorts and its affiliated companies, friends and supporters of the Company
(and their families) who have previously provided services or assistance to
the Property Partnerships, and other persons designated by the Company.
Pursuant to the Registration Rights Agreement, if holders of the Registrable
Securities elect to sell shares of Registrable Securities in a non-publicly
underwritten offering, the timing of sales and the volume sold shall be
managed in a manner consistent with the best interests of the Company.
Prior to this Offering, there has been no public trading market for the
Common Stock. Consequently, the initial public offering price will be
determined by negotiations among the Company and the Representatives of the
Underwriters. Among the factors to be considered in such negotiations will be
the history of, and the prospects for, the Company and the industry in which
it competes, an assessment of the Company's management, its past and present
earnings and the trend of such earnings, the prospects for future earnings of
the Company, the present state of the Company's development, the general
condition of securities markets at the time of the Offering and the market
price of publicly traded stocks of comparable companies in recent periods.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Latham & Watkins, Los Angeles, California. Matters of Maryland law
will be passed upon for the Company by Ballard, Spahr, Andrews & Ingersoll,
Baltimore, Maryland. Other matters will be passed upon for the Company by
Paul, Hastings, Janofsky & Walker, Los Angeles, California and Schreeder,
Wheeler & Flint, Atlanta, Georgia. Certain partners of Paul, Hastings,
Janofsky & Walker, members of their families and related persons following
consummation of the Consolidation Transactions and the Offering will own
approximately 1% of the Common Stock of the Company. Certain matters will be
passed upon for the Underwriters by O'Melveny & Myers LLP, San Francisco,
California in reliance, as to matters of Maryland law, on the opinion of
Ballard, Spahr, Andrews & Ingersoll.
EXPERTS
The combined financial statements of Signature Resorts, Inc. at December 31,
1994 and 1995 and for each of the three years in the period ended December 31,
1995, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports appearing elsewhere herein, which, as to the years 1993, 1994, and
1995, are based in part on the reports of Coopers & Lybrand LLP, independent
accountants. The information under the caption "Selected Combined Historical
Financial Information" for each of the three years in the period ended
December 31, 1995, included elsewhere herein, have been derived from combined
financial statements audited by Ernst & Young LLP, as set forth in their
report appearing elsewhere herein. The financial statements and the selected
combined historical financial information referred to above are included in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
The financial statements (not presented separately herein) of AKGI-Flamingo
C.V.o.a. and AKGI-Royal Palm C.V.o.a. at December 31, 1995 and for the year
then ended and of Cypress Pointe Resort, L.P. and Fall Creek Resort, L.P. at
December 31, 1994 and for each of the two years in the period ended December
31, 1994, have been audited by Coopers & Lybrand L.L.P., independent
accountants, as set forth in their reports appearing elsewhere herein, and are
included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
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ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, exhibits and schedules thereto, the "Registration Statement")
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement. For further information with respect to the Company
and the Common Stock offered hereby, reference is hereby made to such
Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete and in each instance, reference is made
to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. Copies of the Registration Statement may be obtained from the
Commission's principal office at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the following regional offices of the Commission: Seven World
Trade Center, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials may be obtained
from the public reference section of the Commission at its Washington address
upon payment of the fees prescribed by the Commission or may be examined
without charge at the offices of the Commission.
The Company intends to furnish its stockholders with annual reports
containing combined financial statements audited by an independent public
accounting firm and quarterly reports for the first three quarters of each
fiscal year containing unaudited combined financial information.
81
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports of Independent Auditors............................................ F-2
Financial Statements (Amounts as of March 31, 1995 and 1996
and for the three month periods then ended are unaudited)
Combined Balance Sheets at December 31, 1994 and 1995 and March 31, 1995
and 1996................................................................ F-7
Combined Statements of Income for each of the three years ended December
31, 1995 and for the three months ended March 31, 1995 and 1996......... F-8
Combined Statements of Equity for each of the three years ended December
31, 1995 and for the three months ended March 31, 1996.................. F-9
Combined Statements of Cash Flows for each of the three years ended
December 31, 1995 and for the three months ended March 31, 1995 and
1996.................................................................... F-10
Notes to Combined Financial Statements..................................... F-11
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Stockholders
Signature Resorts, Inc.
We have audited the accompanying combined balance sheets of Signature
Resorts, Inc. and Combined Affiliates as of December 31, 1995 and 1994, and
the related combined statements of income, equity and cash flows for each of
the three years in the period ended December 31, 1995. The combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits. We did not audit the 1995 financial statements of AKGI-
Flamingo C.V.o.a. and AKGI-Royal Palm C.V.o.a., combined affiliates, which
statements reflect total assets of $15,672,000, as of December 31, 1995 and
total revenues of $6,777,000, for the year then ended. We did not audit the
1994 and 1993 financial statements of Cypress Pointe Resorts, L.P. and Fall
Creek Resort, L.P., combined affiliates, which statements reflect total assets
of $46,718,000 as of December 31, 1994, and total revenues of $36,964,000 and
$24,429,000, for the years ended December 31, 1994 and 1993. Those statements
were audited by other auditors whose reports have been furnished to us, and
our opinion, insofar as it relates to data included for AKGI-Flamingo C.V.o.a.
and AKGI-Royal Palm C.V.o.a. as of December 31, 1995 and for the year then
ended, and for Cypress Point Resorts, L.P. and Fall Creek Resort, L.P. as of
December 31, 1994 and 1993 and for the years then ended is based solely on the
reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the combined
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits and the reports of other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the reports of other auditors, the
combined financial statements referred to above present fairly, in all
material respects, the combined financial position of Signature Resorts, Inc.
and Combined Affiliates at December 31, 1995 and 1994, and the combined
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Los Angeles, California
March 8, 1996
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners
Fall Creek Resort, L.P.
Branson, Missouri
We have audited the accompanying balance sheet of Fall Creek Resort, L.P. as
of December 31, 1994, and the related statements of income, partners' capital
(deficit), and cash flows for each of the two years in the period ended
December 31, 1994 (not presented separately herein). These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Fall Creek Resort, L.P. as
of December 31, 1994, and the results of its operations and its cash flows for
each of the two years in the period ended December 31, 1994, in conformity
with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Orlando, Florida
February 9, 1995
F-3
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners
Cypress Pointe Resorts, L.P.
Lake Buena Vista, Florida
We have audited the accompanying balance sheet of Cypress Pointe Resorts,
L.P. as of December 31, 1994, and the related statements of income, partners'
capital (deficit), and cash flows for each of the two years in the period
ended December 31, 1994 (not presented separately herein). These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cypress Pointe Resorts,
L.P. as of December 31, 1994, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Orlando, Florida
March 16, 1995
F-4
<PAGE>
To the Partners
of AKGI-Flamingo C.V.o.a.
Simpsonbay
St. Maarten, N.A.
INDEPENDENT AUDITORS' REPORT
INTRODUCTION
We have audited the accompanying balance sheet of AKGI-Flamingo C.V.o.a. as
of December 31, 1995, and the related statement of income, Partners' capital
and changes in financial position (not separately presented herein) for the
period May 23, 1995 to December 31, 1995. These financial statements are the
responsibility of the Partnerships' management. Our responsibility is to
express an opinion on these financial statements based on our audit.
SCOPE
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
OPINION
In our opinion, the financial statements give a true and fair view of the
financial position of the Partnership as of December 31, 1995 and of the
result for the period May 23, 1995 through December 31, 1995 in accordance
with generally accepted accounting principles.
Philipsburg, March 29, 1996
Coopers & Lybrand
F-5
<PAGE>
To the Partners
of AKGI-Royal Palm C.V.o.a.
Simpsonbay
St. Maarten, N.A.
INDEPENDENT AUDITORS' REPORT
INTRODUCTION
We have audited the balance sheet of AKGI-Royal Palm C.V.o.a. as of December
31, 1995, and the related statement of income, Partners' capital and changes
in financial position (not separately presented herein) for the period May 23,
1995 to December 31, 1995. These financial statements are the responsibility
of the Partnerships' management. Out responsibility is to express an opinion
on these financial statements based on our audit.
SCOPE
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
OPINION
In our opinion, the financial statements give a true and fair view of the
financial position of the Partnership as of December 31, 1995 and of the
result for the period May 23, 1995 through December 31, 1995 in accordance
with generally accepted accounting principles.
Philipsburg, April 9, 1996
Coopers & Lybrand
F-6
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
------------------------ ------------------------
1994 1995 1995 1996
----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents... $ 1,854,572 $ 4,341,591 $ 1,500,130 $ 3,725,050
Cash in escrow.............. 2,427,190 1,945,856 2,878,072 1,967,849
Mortgages receivable, net of
an allowance of $1,570,886
and $2,433,361 at December
31, 1994 and 1995,
respectively, $1,971,287
and $2,526,502 at March 31,
1995 and 1996,
respectively............... 33,437,116 68,255,778 40,073,544 73,929,963
Due from affiliates......... -- 2,700,820 87,696 2,960,235
Other receivables, net...... 1,019,673 6,383,134 1,384,197 4,834,139
Notes receivable from
related parties............ -- -- -- --
Prepaid expenses and other
assets..................... 1,676,348 2,125,118 1,439,921 1,901,365
Investment in joint venture. 4,293,525 2,644,449 3,802,518 2,643,132
Real estate and development
costs...................... 33,452,751 46,757,151 31,435,155 50,528,198
Property and equipment, net. 437,092 1,863,579 473,622 2,166,178
Intangible assets, net...... 3,856,571 4,223,834 4,542,280 3,884,533
----------- ------------ ----------- ------------
Total assets................ $82,454,838 $141,241,310 $87,617,135 $148,540,642
=========== ============ =========== ============
LIABILITIES AND EQUITY
Accounts payable............ $ 1,190,072 $ 4,599,000 $ 472,114 $ 5,462,248
Accrued liabilities......... 5,931,911 12,010,938 4,380,653 10,483,837
Due to affiliates........... 138,245 1,422,098 101,697 716,564
Deferred income taxes....... -- -- -- --
Notes payable to financial
institutions............... 34,439,558 72,395,704 39,399,581 79,043,767
Notes payable to related
parties.................... 9,975,454 12,343,518 11,253,222 11,878,840
----------- ------------ ----------- ------------
Total liabilities........... 51,675,240 102,771,258 55,607,267 107,585,256
Commitment..................
Equity...................... 30,779,598 38,470,052 32,009,868 40,955,386
----------- ------------ ----------- ------------
Total liabilities and
equity..................... $82,454,838 $141,241,310 $87,617,135 $148,540,642
=========== ============ =========== ============
</TABLE>
See accompanying notes to the combined financial statements.
F-7
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31 ENDED MARCH 31
----------------------------------- -----------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Interval sales.......... $22,237,812 $40,269,401 $59,070,917 $13,239,339 $13,982,404
Interest income......... 1,825,483 3,683,302 6,928,862 1,390,151 1,950,961
Other income............ 372,697 337,487 6,607,999 114,364 1,576,374
----------- ----------- ----------- ----------- -----------
Total revenues.......... 24,435,992 44,290,190 72,607,778 14,743,854 17,509,739
COSTS AND OPERATING
EXPENSES
Interval cost of sales.. 5,707,542 12,393,647 15,649,805 4,125,888 3,111,492
Advertising, sales, and
marketing.............. 10,808,680 18,744,828 28,488,178 6,617,240 6,572,361
Loan portfolio:
Interest expense--
treasury............. 673,706 1,629,283 3,585,927 711,719 1,210,976
Other expenses........ 208,258 850,661 1,188,502 192,872 305,312
Provision for doubtful
accounts............. 618,650 923,129 1,786,811 460,254 341,650
General and
administrative:
Corporate............. 2,346,043 2,863,833 4,946,525 615,149 1,475,690
Resort-level.......... 877,134 874,137 1,607,413 326,557 849,230
Depreciation and
amortization........... 384,470 489,160 1,675,515 372,540 503,869
Interest expense--other. 518,612 958,628 475,693 83,670 550,790
Equity loss on
investment in joint
venture................ -- 271,475 1,649,076 491,007 1,317
----------- ----------- ----------- ----------- -----------
Total costs and
operating expenses..... 22,143,095 39,998,781 61,053,445 13,996,896 14,922,687
----------- ----------- ----------- ----------- -----------
Net income before taxes. 2,292,897 4,291,409 11,554,333 746,958 2,587,052
Income taxes............ -- -- 641,545 -- 101,718
----------- ----------- ----------- ----------- -----------
Net income.............. $ 2,292,897 $ 4,291,409 $10,912,788 $ 746,958 $ 2,485,334
=========== =========== =========== =========== ===========
PRO FORMA INCOME DATA
(UNAUDITED)
Net income before taxes. $ 2,292,897 $ 4,291,409 $11,554,333 $ 746,958 $ 2,587,052
Pro forma provision for
income taxes........... 878,966 1,617,913 4,348,822 282,828 995,808
----------- ----------- ----------- ----------- -----------
Pro forma net income.... $ 1,413,931 $ 2,673,496 $ 7,205,511 $ 464,130 $ 1,591,244
=========== =========== =========== =========== ===========
Pro forma net income per
common share........... -- -- -- -- $ .14
Pro forma weighted
average common shares
outstanding............ -- -- -- -- 11,354,705
</TABLE>
See accompanying notes to the combined financial statements.
F-8
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
COMBINED STATEMENTS OF EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------
RETAINED MEMBERS'
EARNINGS EQUITY GENERAL LIMITED
SHARES AMOUNT (DEFICIT) (DEFICIT) PARTNERS PARTNERS TOTAL
------ -------- ---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1993................... -- $ -- $ -- $ -- $ 77,124 $ 7,361,649 $ 7,438,773
Issuance of common
stock................. -- -- -- -- -- -- --
Contributions.......... -- -- -- -- 1,010 2,500,890 2,501,900
Distributions.......... -- -- -- -- (154,488) (240,890) (395,378)
Net income............. -- -- -- -- 17,269 2,275,628 2,292,897
--- -------- ---------- ----------- ---------- ----------- -----------
Balance at December 31,
1993................... -- -- -- -- (59,085) 11,897,277 11,838,192
Issuance of common
stock................. -- -- -- -- -- -- --
Contributions.......... -- -- -- -- 3,204,997 12,315,000 15,519,997
Distributions.......... -- -- -- -- -- (870,000) (870,000)
Net (loss) income...... -- -- (271,475) -- 183,363 4,379,521 4,291,409
--- -------- ---------- ----------- ---------- ----------- -----------
Balance at December 31,
1994................... -- -- (271,475) -- 3,329,275 27,721,798 30,779,598
Issuance of common
stock................. 200 22,000 -- -- -- -- 22,000
Contributions.......... -- 155,000 656,133 1,000 374,000 -- 1,186,133
Distributions.......... -- -- -- (2,438,000) (42,467) (1,950,000) (4,430,467)
Net income............. -- -- 2,050,680 1,004,385 515,536 7,342,187 10,912,788
--- -------- ---------- ----------- ---------- ----------- -----------
Balance at December 31,
1995................... 200 177,000 2,435,338 (1,432,615) 4,176,344 33,113,985 38,470,052
Issuance of common
stock................. -- -- -- -- -- -- --
Contributions.......... -- -- -- -- -- -- --
Distributions.......... -- -- -- -- -- -- --
Net income............. -- -- 1,227,813 -- 4,150 1,253,371 2,485,334
--- -------- ---------- ----------- ---------- ----------- -----------
Balance at March 31,
1996................... 200 $177,000 $3,663,151 $(1,432,615) $4,180,494 $34,367,356 $40,955,386
=== ======== ========== =========== ========== =========== ===========
</TABLE>
See accompanying notes to the combined financial statements.
F-9
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31 ENDED MARCH 31
---------------------------------------- ------------------------
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 $ 746,958 $ 2,485,334
Adjustments to reconcile
net income to net cash
(used in) provided by
operating activities:
Depreciation and
amortization.......... 384,470 489,160 1,675,515 372,540 503,869
Provision for bad debt
expense............... 618,650 923,129 1,786,811 460,254 341,650
Equity loss on
investment in joint
venture............... -- 271,475 1,649,076 491,007 1,317
Changes in operating
assets and
liabilities:
Cash in escrow....... (413,591) (1,484,501) 481,334 (450,882) (21,993)
Due from affiliates.. -- -- (2,700,820) (87,696) (259,415)
Prepaid expenses and
other assets........ (642,680) (1,033,668) (448,770) 236,427 223,753
Real estate and
development costs... (7,270,978) (17,671,125) (13,304,400) 2,017,596 (3,771,047)
Other receivables.... (87,870) (549,041) (5,363,461) (364,524) 1,548,995
Accounts payable..... 358,896 24,486 3,408,928 (717,958) 863,248
Accrued liabilities.. 1,451,996 3,682,475 6,079,027 (1,551,258) (1,527,101)
Due to affiliates.... 45,730 92,515 1,283,853 (36,548) (705,534)
------------ ------------ ------------ ----------- -----------
Net cash (used in)
provided by operating
activities............. (3,262,480) (10,963,686) 5,459,881 1,115,916 (316,924)
INVESTING ACTIVITIES
Expenditures for
investment in joint
venture................ -- (4,565,000) -- -- --
Expenditures for
property and equipment. (255,156) (221,248) (1,764,253) (251,759) (361,124)
Expenditures for
intangible assets...... (722,923) (3,146,546) (1,705,012) (843,020) (106,043)
Mortgages receivable.... (9,797,740) (17,007,472) (36,605,473) (7,096,682) (6,015,835)
------------ ------------ ------------ ----------- -----------
Net cash used in
investing activities... (10,775,819) (24,940,266) (40,074,738) (8,191,461) (6,483,002)
FINANCING ACTIVITIES
Proceeds from notes
payable................ 16,478,302 35,266,249 71,062,122 11,119,199 16,598,982
Payments on notes
payable................ (7,591,261) (16,358,188) (33,105,976) (6,159,176) (9,950,919)
Proceeds from notes
payable to related
parties................ 6,120,971 5,145,454 3,711,005 1,520,709 205,000
Payments on notes
payable to related
parties................ (1,773,209) (2,569,224) (1,342,941) (242,941) (669,678)
Equity contributions.... 2,501,900 15,519,997 1,208,133 483,312 --
Equity distributions.... (395,378) (870,000) (4,430,467) -- --
------------ ------------ ------------ ----------- -----------
Net cash provided by
financing activities... 15,341,325 36,134,288 37,101,876 6,721,103 6,183,385
Net (decrease) increase
in cash and cash
equivalents............ 1,303,026 230,336 2,487,019 (354,442) (616,541)
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 $ 1,500,130 $ 3,725,050
============ ============ ============ =========== ===========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION
Cash paid during the
period for interest.... $ 1,352,000 $ 3,646,117 $ 5,413,502 $ 1,022,094 $ 2,047,086
============ ============ ============ =========== ===========
</TABLE>
See accompanying notes to the combined financial statements.
F-10
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. NATURE OF BUSINESS
Signature Resorts, Inc. and its combined affiliates (the Company) are
comprised of certain entities under common control. The Company generates
revenues from the sale and financing of timeshare interests in its resorts,
which typically entitle the owner to use a fully furnished vacation resort in
perpetuity, typically for a one-week period each year (each, a Vacation
Interval). The Company's principal operations consist of (1) developing and
acquiring vacation ownership resorts, (2) marketing and selling Vacation
Intervals at its resorts, (3) providing consumer financing for the purchase of
Vacation Intervals at its resorts, and (4) managing the operations of its
resorts. The entities comprising the combined Company consist of entities with
ownership interest in a resort property, entities providing services to a
resort property, and other entities not related to a particular resort
property. At December 31, 1995, the entities comprising the combined
affiliates are as follows:
<TABLE>
<CAPTION>
RESORT PROPERTY DATE ACQUIRED
--------------- -------------
<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
Embassy Vacation Resort
Grand Beach Resort, L.P. 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 Vacations Investors, L.P.
KGK, LLC
Argosy/KOAR Group
</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 Vacations Investors, L.P., Argosy/KOAR Group and KGK,
Inc. 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, L.P., and Vacation Resort Marketing of Missouri, Inc. had not been
formed and, accordingly, did not form part of the combined 1993 financial
statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination
The combined financial statements include the accounts of Signature Resorts,
Inc. and the companies listed in Note 1, which are wholly-owned by common
interests. All significant intercompany transactions and balances have been
eliminated from these combined financial statements.
Quarterly Financial Statements
The unaudited quarterly combined financial statements at March 31, 1995 and
1996 and for the three months ended March 31, 1995 and 1996 do not include all
disclosures provided in the annual combined financial statements. These
quarterly statements should be read in conjunction with the accompanying
annual audited combined financial statements and the footnotes thereto.
Results for the 1996 quarterly period are not necessarily
F-11
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
indicative of the results to be expected for the year ending December 31,
1996. However, the accompanying quarterly financial statements reflect all
adjustments which are, in the opinion of management, of a normal and recurring
nature necessary for a fair presentation of the financial position and results
of operations of the Company. Unless otherwise stated, all information
subsequent to December 31, 1995 is unaudited.
Cash and Cash Equivalents
Cash and cash equivalents consist of all highly liquid investments purchased
with an original maturity of three months or less. Cash and cash equivalents
consist of cash and money market funds.
Cash in Escrow
Cash in escrow is restricted cash consisting of deposits received on sales
of Vacation Intervals that are held in escrow until a certificate of occupancy
is obtained or the legal recission period has expired.
Real Estate and Development Costs
Real estate is valued at the lower of cost or net realizable value.
Development costs include both hard and soft construction costs and together
with real estate costs are allocated to Vacation Intervals based upon their
relative sales values. Interest, taxes, and other carrying costs incurred
during the construction period are capitalized. The amount of interest
capitalized during 1994 and 1995 was $2,040,544 and $2,088,382, respectively.
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company adopted Statement 121
in the first quarter of 1996 and there has been no material impact on the
Company's operations or financial position.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful life of 3 to 7 years.
Depreciation and amortization expense related to property and equipment was
$25,562, $59,710 and $337,765 in 1993, 1994, and 1995, respectively. For the
three months ended March 31, 1995 and 1996, depreciation and amortization
expense was $215,229 and $58,525, respectively.
Intangible Assets
Start-up costs and organizational costs incurred in connection with the
formation of the Company have been capitalized and are being amortized on a
straight-line basis over a period of three to five years. Start-up costs
relate to costs incurred to develop a marketing program prior to receiving
regulatory approval to market the related property.
Financing and loan origination fees incurred in connection with obtaining
funding for the Company have been capitalized and are being amortized on a
straight-line basis over the life of the respective loans.
Revenue Recognition
The Company recognizes sales of Vacation Intervals on an accrual basis after
a binding sales contract has been executed, a 10% minimum down payment has
been received, the recision period has expired, construction is substantially
complete, and certain minimum sales levels have been achieved. If all the
criteria are met except that construction is not substantially complete, then
revenues are recognized on the percentage-of-completion
F-12
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(cost to cost) basis. For sales that do not qualify for either accrual or
percentage-of-completion accounting, all revenue is deferred using the deposit
method.
Revenues from resort management and maintenance services are recognized on
an accrual basis as earned.
Income Taxes
The Company and its combined affiliates include entities taxed as regular
corporations at the corporate level, as S corporations taxable at the
shareholder level, or as partnerships taxable at the partner level.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. ACCOUNTS RECEIVABLE
The Company has accrued insurance claims as a result of hurricane damage to
the Royal Palm and Flamingo properties in St. Maarten of $3.8 million at
December 31, 1995. The receivable consists of property insurance claims of
$1.8 million and business interruption insurance claims of $2 million. The
Company has submitted additional claims above the $2.0 million accrued for
business interruption insurance and is in negotiations regarding these claims.
4. MORTGAGES RECEIVABLE
The Company provides financing to the purchasers of Vacation Intervals which
are collateralized by their interest in such Vacation Intervals. The mortgages
receivable bear interest at the time of issuance of between 12% and 17% and
remain fixed over the term of the loan, which is seven to ten years. The
weighted average rate of interest on outstanding mortgages receivable is 15%.
At December 31, 1994 and 1995, mortgages in the amount of $823,251 and
$1,796,060, respectively, are noninterest bearing. These mortgages have not
been discounted as management has determined that the effect would not be
material on the combined financial statements.
Additionally, the Company has accrued interest receivable related to
mortgages receivable of $415,127 and $860,776 at December 31, 1994 and 1995,
respectively, and $536,816 and $920,410 at March 31, 1995 and March 31, 1996,
respectively. The accrued interest receivable at December 31, 1995 and March
31, 1996 is net of an allowance for doubtful accounts of $151,201 and
$134,443, respectively.
The following schedule reflects the principal maturities of mortgages
receivable:
<TABLE>
<S> <C>
Year ended December 31:
1996...................................................... $ 6,347,717
1997...................................................... 7,230,664
1998...................................................... 8,422,516
1999...................................................... 9,778,920
2000...................................................... 11,315,961
Thereafter................................................ 27,593,361
-----------
Total principal maturities of mortgages receivable........ 70,689,139
Less allowance for doubtful accounts...................... (2,433,361)
-----------
Net principal maturities of mortgages receivable.......... $68,255,778
===========
</TABLE>
The Company considers all mortgages receivable past due more than 60 days to
be delinquent. At December 31, 1995, $4,670,000 of mortgages receivable were
delinquent.
At December 31, 1995, the Company estimated that $1,560,000 of additional
costs would be incurred related to Vacation Intervals sold or Intervals
currently available for sale. Obligations related to such improvements are
insignificant.
F-13
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The activity in the mortgages receivable allowance for doubtful accounts is
as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
----------------------
1994 1995 1995 1996
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance, beginning of the peri-
od............................ $ 798,441 $1,570,886 $1,570,886 $2,433,361
Provision...................... 923,129 1,786,811 460,254 341,650
Receivables charged off........ (150,684) (924,336) (59,853) (248,509)
---------- ---------- ---------- ----------
Balance, end of the period..... $1,570,886 $2,433,361 $1,971,287 $2,526,502
========== ========== ========== ==========
</TABLE>
5. REAL ESTATE AND DEVELOPMENT COSTS
Real estate and development costs and accumulated cost of sales consist of
the following:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
-------------------------- --------------------------
1994 1995 1995 1996
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Land.................... $ 18,102,052 $ 19,734,459 $ 18,239,948 $ 19,749,688
Development costs, ex-
cluding capitalized
interest............... 33,718,050 57,969,594 35,687,470 64,894,994
Capitalized interest.... 2,730,363 5,300,400 3,104,930 5,188,926
------------ ------------ ------------ ------------
Total real estate and
development costs...... 54,550,465 83,004,453 57,032,348 89,833,608
Less accumulated cost of
sales.................. (21,097,714) (36,247,302) (25,597,193) (39,305,410)
------------ ------------ ------------ ------------
Net real estate and de-
velopment costs........ $ 33,452,751 $ 46,757,151 $ 31,435,155 $ 50,528,198
============ ============ ============ ============
</TABLE>
F-14
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. INVESTMENT IN JOINT VENTURE
The Company is the managing general partner of the Poipu Partnership, the
partnership which directly owns the Embassy Vacation Resort at Poipu Point, a
venture that acquired a 219 unit condominium project situated on 22 acres of
oceanfront land at Poipu Beach, Kauai, Hawaii (the "Property"). The sole
purpose of the venture is to hold the Property for sale in phases as Vacation
Intervals while generating revenues from transient rentals as the Vacation
Intervals are being sold. As managing general partner, the Company holds a
0.5% partnership interest for purposes of distributions, profits and losses.
The Company is also a limited partner of the Poipu Partnership and holds a
29.93% partnership interest for purposes of distributions, profits and losses,
for a total partnership interest of 30.43%. In addition, following repayment
of any outstanding partner loans, the Company is entitled to receive a 10% per
annum return on the Founders' and certain former limited partners' initial
capital investment of approximately $4.6 million in the Poipu Partnership.
After payment of such preferred return and the return of approximately $4.6
million of capital to the Company on a pari passu basis with the other partner
in the partnership, the Company is entitled to receive approximately 50% of
the net profits of the Poipu Partnership. In the event certain internal rates
of return specified under the partnership agreement are achieved, the Company
is entitled to receive approximately 55% of the net profits of the Poipu
Partnership.
Summarized financial information as of December 31 relating to the Company's
investment is as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Mortgages receivable........................................ $ -- $ 3,474
Timeshare inventory......................................... -- 3,248
Net property and equipment.................................. 42,188 39,287
Total assets................................................ 45,553 50,696
Notes payable............................................... 30,300 35,494
Advances from partners...................................... -- 4,000
Partners' capital........................................... 14,108 8,688
Revenues.................................................... 491 10,119
Net loss.................................................... 892 5,419
</TABLE>
7. INTANGIBLE ASSETS
Intangible assets and accumulated amortization consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
----------------------- ------------------------
1994 1995 1995 1996
---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Organizational costs........ $2,540,511 $ 2,646,511 $ 2,522,256 $ 2,646,511
Start-up costs.............. 1,198,363 2,111,999 1,929,818 1,970,927
Loan origination fees....... 349,380 522,378 1,065,770 422,380
Financing fees.............. 698,229 1,444,242 491,181 1,437,731
---------- ----------- ----------- -----------
Total intangible assets..... 4,786,483 6,725,130 6,009,025 6,477,549
Less accumulated
amortization............... (929,912) (2,501,296) (1,466,745) (2,593,016)
---------- ----------- ----------- -----------
Net intangible assets....... $3,856,571 $ 4,223,834 $ 4,542,280 $ 3,884,533
========== =========== =========== ===========
</TABLE>
Amortization expense related to intangible assets was $358,908, $429,450,
and $1,337,750 in 1993, 1994 and 1995, respectively. For the three months
ended March 31, 1995 and 1996, amortization expense was $157,311 and $445,344,
respectively.
F-15
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
8. NOTES PAYABLE
Notes payable to financial institutions consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
----------------------- -----------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Construction loans payable not
to exceed $25 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 March 31, 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 $ 5,383,070 $10,660,405
Construction and acquisition
loan payable, due October
31,1998 with interest payable
monthly at LIBOR plus 4.25%
(9.94% at December 31, 1995
and 10.38% and 9.69% at March
31, 1995 and 1996,
respectively), secured by
land, improvements and
timeshare interests.......... -- 1,897,716 530,600 2,257,785
Revolving lines of credit not
to exceed $97 million in the
aggregate (limited by
eligible collateral), with
interest payable monthly at
rates ranging from prime plus
2% to prime plus 3% (10.5% to
11.5% and 10.65% to 11.65% at
December 31,1994 and 1995,
respectively, and 11% to 12%
and 10.25 % to 11.25% at
March 31, 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 21,299,592 40,439,980
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 9.69% at March
31, 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 2,116,903 3,674,772
</TABLE>
F-16
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
----------------------- -----------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revolving line of credit of
$15 million, with interest
payable at prime plus 2.5%
(11% and 11.5% at December
31, 1994 and March 31, 1995,
respectively), and prime plus
2% (10.65% and 10.25% at
December 31, 1995 and March
31, 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 $ 2,186,900 $ 3,736,265
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 March
31, 1996, respectively),
maturing seven years after
the date of the last advance,
secured by mortgages
receivable................... -- 3,873,513 -- 3,873,513
Working capital loan payable,
due September 30, 1995, with
interest payable monthly at
prime plus 2.5% (11% and
11.5% at December 31, 1994
and March 31, 1995,
respectively), secured by
time-share interests and with
total borrowings allowable of
$2,425,000................... 1,046,080 -- 1,707,856 --
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,
and 10.25% to 10.75% at
March 31, 1996,
respectively), due on dates
ranging from July 1997 to
November 1997, collateralized
by certain mortgage
receivables.................. -- 521,397 -- 1,713,204
Acquisition loans payable of
$9.85 million, with interest
payable at prime plus 3%
(11.65% and 11.25% at
December 31, 1995 and March
31, 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 -- 6,171,128
Land purchase obligation at
the Fall Creek Plantation
property (see note 9 for
further discussion).......... -- 1,500,000 -- 750,000
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 6,174,660 5,000,000
Other notes payable........... -- 261,253 -- 766,715
----------- ----------- ----------- -----------
Total notes payable........... $34,439,558 $72,395,704 $39,399,581 $79,043,767
=========== =========== =========== ===========
</TABLE>
F-17
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Under the terms of the revolving lines of credit agreements, the Company may
borrow from 85% to 90% of the balances of the pledged mortgages receivable. Of
the aggregate of $97 million borrowings available under these certain
agreements, the borrowing capacity expires seven to ten years after the date
on which the last advance related to mortgages receivable was executed.
Of the aggregate of $25 million available in construction loans payable,
$2.1 million of availability expires on February 28, 1996, $5.9 million
expires on March 31, 1996, $2.8 million expires on January 31, 1997,
$8.0 million expires January 14, 1998, and $6.2 million expires on May 9,
1998.
The loans contain certain covenants, the most restrictive of which requires
certain of the combined affiliates to maintain a minimum net worth, as defined
in the related loan agreement. In addition, the loan agreements contain
certain covenants restricting distributions to partners and additional
borrowings. At December 31, 1995, $18.4 million of equity was specifically
restricted from payment of distributions.
At December 31, 1995, contractual maturities of mortgages and other notes
payable over the next five years and thereafter, excluding first mortgage
notes payable and revolving lines of credit totaling $54,859,524 as these
amounts are payable based on established release prices or from excess cash
flows related to certain timesharing week sales, are as follows:
<TABLE>
<CAPTION>
Due in fiscal year
<S> <C>
1996....................................................... $ 8,906,686
1997....................................................... 4,886,527
1998....................................................... 3,655,080
1999....................................................... 29,129
2000....................................................... 32,227
Thereafter................................................. 26,531
-----------
$17,536,180
===========
</TABLE>
9. LAND PURCHASE AGREEMENT AND RELATED DEBT
The Company has entered into an agreement to purchase approximately 140
acres of land (the Property) at its Fall Creek Resort in Branson, Missouri,
upon which it intends to construct Vacation Intervals. The property is to be
acquired in four phases in four separate closings at a total purchase price of
$6 million. The first closing has occurred with the Company acquiring the land
for its first stage of development for $2 million. The second closing will
occur upon the settlement of a noninterest bearing land purchase obligation of
$1.5 million which will be paid as units are sold. The Company has the right
but not the obligation to acquire the other two phases under similar land
purchase obligations totaling $2.5 million.
10. RELATED-PARTY TRANSACTIONS
The Company has accrued $652,164 and $1,418,022 as a receivable and payable,
respectively, at December 31, 1995 with the condominium associations of the
various resorts. The related party payable to the condominium associations at
December 31, 1995 included $1,029,900 of a special assessment fee charged to
the Company. At December 31, 1994, the Company had accrued a payable of
$138,245 to the various condominium associations of the resorts. At March 31,
1995 and 1996, the Company has accrued a receivable of $14,485 and $869,531
and a payable of $101,697 and $1,454,142, respectively.
The Company has recorded a receivable of $1,153,829 and $120,697 from AKGI
Ski Run and AKGI San Luis Bay, properties to be acquired by the Company,
respectively, at December 31, 1995 for start-up costs at the properties
incurred by the Company. At March 31, 1996, a receivable of $1,312,562 and
$136,406 from AKGI Ski Run and AKGI San Luis Bay has been recorded.
F-18
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
In May of 1996 the Company purchased the land at Lake Tahoe (AKGI Ski Run)
for $8,715,382. The Company also purchased 1,018 Vacation Intervals, land and
defaulted promissory notes of the San Luis Bay Inn for $2,854,000 in June
1996.
Included in due from affiliates at December 31, 1995 and March 31, 1996 is
approximately $310,000 and $642,000, respectively, relating to expenses paid
on behalf of related parties to be subsequently reimbursed.
Additionally, approximately $140,000 and $79,137 is included in due from
affiliates at December 31, 1995 and March 31, 1996, respectively, for general
and administrative expenses incurred and paid in excess of 5% of net revenues
from the sale of Vacation Intervals in accordance with the terms of a
partnership agreement.
The Company also made payments of $925,122 and $295,011 during the twelve
months ended December 31, 1994 and 1995, respectively, to Sevelex Consultants,
Inc., an affiliate of the Company, for construction consulting and expense
reimbursement. For the three months ended March 31, 1995 and 1996, payments of
$138,699 and $-0-, respectively, were made to Sevelex Consultants, Inc.
Notes payable to related parties consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
---------------------- -----------------------
1994 1995 1995 1996
---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Notes payable to CPI
Securities, L.P., an affiliate
of a limited partner, with
interest at 10%, payable
monthly and the entire
principal balance and all
accrued interest due on
January 4, 1995............... $ 182,513 $ -- $ -- $ --
Notes payable to CPI
Securities, L.P., an affiliate
of a limited partner, with
interest at 12%, payable
monthly and the entire
principal balance and all
accrued interest due on
December 31, 1996 [see (a)
below]........................ 2,722,250 2,722,250 2,722,250 3,277,800
Notes payable to Grace
Investments, Ltd. one of the
limited partners, with
interest at 12% payable
monthly, due on December 31,
1996 [see (a) below].......... 1,666,650 1,666,650 1,666,650 2,222,200
Notes payable to Dickstein &
Company, L.P., a limited
partner, with interest payable
monthly at 12%, due on
December 31, 1996 [see (a)
below]........................ 1,111,100 1,111,100 1,111,100 --
Notes payable to certain
employees, investors, and
partners, with monthly
principal payments of
$100,000, plus interest at
12%, with additional interest
of $325 per interval sold..... 4,000,000 2,900,000 3,800,000 2,600,000
Acquisition loan payable with
interest payable at 12%, due
on December 31, 1996.......... -- 1,495,000 -- 1,495,000
Notes payable to partners, with
interest accrued at 16%,
payable on demand............. -- 2,157,018 1,693,222 2,078,840
Other.......................... 292,941 291,500 260,000 205,000
---------- ----------- ----------- -----------
Total notes payable to related
parties....................... $9,975,454 $12,343,518 $11,253,222 $11,878,840
========== =========== =========== ===========
</TABLE>
F-19
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(a) On January 1, 1996, the notes were amended to require interest at 13%
payable monthly. On March 1, 1996, CPI and Grace each assumed 50% of the
note payable to Dickstein. Minimum principal payments required under the
amendments are as follows:
<TABLE>
<CAPTION>
LENDER
---------------------
CPI GRACE
---------- ----------
<S> <C> <C>
1997............................................... $ 596,000 $ 404,000
1998............................................... 1,192,000 808,000
1999............................................... 1,489,800 1,010,200
---------- ----------
$3,277,800 $2,222,200
========== ==========
</TABLE>
Additional principal payments are required based on annual cash flows in
excess of projected amounts.
Beginning on the earlier of January 1, 1997 or the date of sale of the five
thousand one hundred and first (5,101) Vacation Interval sold, additional
interest is due to each lender for each Vacation Interval or alternate year
Vacation Interval sold. The amount due for each Vacation Interval sold is $150
and $101 to CPI and Grace, respectively.
Aggregate maturities of notes payable to related parties in the next five
years are as follows:
<TABLE>
<S> <C>
1996......................................................... $ 6,143,518
1997......................................................... 3,200,000
1998......................................................... 3,000,000
-----------
$12,343,518
===========
</TABLE>
11. COMMITMENT
The Company entered into a license agreement in April 1994 with Embassy
Vacation Resorts, a division of Embassy Suites, Inc. (ESI), to franchise the
Grand Beach property. The license allows the resort to be operated and
marketed as an "Embassy Vacation Resort." It provides for ESI to be paid a
percentage of net sales of the Embassy Vacation Resort property. Additional
terms are stated in the related license agreement.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, requires that the Company disclose estimated
fair values for its financial instruments. The following methods and
assumptions were used by the Company in estimating its fair value disclosures
for financial instruments:
Cash and cash equivalents and cash in escrow: The carrying amount reported
in the balance sheet for cash and cash equivalents and cash in escrow
approximates its fair value.
Mortgages receivable: The carrying amount reported in the balance sheet for
mortgages receivable approximates its fair value because the weighted average
interest rate on the portfolio of mortgages receivable approximates current
interest rates to be received on similar current mortgages receivable.
Notes payable and notes payable to related parties: The carrying amount
reported in the balance sheet for notes payable approximates its fair value
because the interest rates on these instruments approximate current interest
rates charged on similar current borrowings.
F-20
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31:
<TABLE>
<CAPTION>
1994 1995
----------------------- -----------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents... $ 1,854,572 $ 1,854,572 $ 4,341,591 $ 4,341,591
Cash in escrow.............. 2,427,190 2,427,190 1,945,856 1,945,856
Mortgages receivable........ 33,437,116 33,437,116 68,255,778 68,255,778
Notes payable............... 34,439,558 34,439,558 72,395,704 72,395,704
Notes payable to related
parties.................... 9,975,454 9,975,454 12,343,518 12,343,518
</TABLE>
13. OTHER INCOME
Other income for the year ended December 31, 1995 primarily consists of
business interruption insurance proceeds of $2,000,000, income from purchased
mortgages receivable of $2,180,000, rental income of $1,293,000 and management
fees of $841,000. Included in other income for the three months ended March
31, 1996 is $625,000 of income from purchased mortgages receivable, $473,000
of rental income and $234,219 of management fees.
14. PRO FORMA DISCLOSURES (UNAUDITED)
The Company has a pending public offering for the sale of common stock (the
"Offering"). Upon consummation of the Offering, the Company will be subject to
federal, state and foreign income taxes from the effective date of the sale of
the common stock. In addition, the Company will be required to provide a
deferred tax liability for cumulative temporary differences between financial
reporting and tax reporting by recording a provision for such deferred taxes
in its statement of income for the period following the effective date of the
Offering. Such deferred taxes will be based on the cumulative temporary
differences at the date of restructuring.
The unaudited pro forma provision for income taxes represents the estimated
income taxes that would have been reported had the Company filed federal,
state and foreign income tax returns as a regular corporation. The following
summarizes the unaudited pro forma provision for income taxes:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31 MARCH 31
------------------------------- --------------------
1993 1994 1995 1995 1996
-------- ---------- ----------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal............... $405,552 $ 361,290 $ 1,579,424 $ 240,626 $ 499,448
States................ 41,148 -- 4,934 -- 76,692
Foreign............... -- -- 662,288 -- 107,533
-------- ---------- ----------- ---------- ---------
446,700 361,290 2,246,646 240,626 683,673
Deferred:
Federal............... 346,393 1,018,602 1,476,865 593 251,384
States................ 85,873 238,021 633,808 41,609 66,565
Foreign............... -- -- (8,497) -- (5,814)
-------- ---------- ----------- ---------- ---------
432,266 1,256,623 2,102,176 42,202 312,135
-------- ---------- ----------- ---------- ---------
Unaudited pro forma
provision for income
taxes.................. $878,966 $1,617,913 $ 4,348,822 $ 282,828 $ 995,808
======== ========== =========== ========== =========
</TABLE>
F-21
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The reconciliation between the unaudited pro forma statutory provision for
income taxes and the unaudited pro forma actual provision for income taxes is
shown as follows for the year ended December 31:
<TABLE>
<CAPTION>
1993 1994 1995
-------- ---------- ----------
<S> <C> <C> <C>
Income tax at federal statutory rate...... $779,585 $1,459,079 $3,928,474
State tax, net of federal benefit......... 97,521 156,862 422,336
Foreign tax, net of federal benefit....... -- -- (8,497)
Nondeductible expenses.................... 1,860 1,972 6,509
-------- ---------- ----------
Unaudited pro forma provision for income
taxes.................................... $878,966 $1,617,913 $4,348,822
======== ========== ==========
</TABLE>
Deferred income taxes reflect the net tax affects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the pro forma net deferred tax liabilities were as follows for
the year ended December 31:
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Book over tax depreciation....... $ -- $ -- $ 28,142
Book over tax amortization....... 16,870 -- 218,340
Allowance for doubtful accounts.. 258,859 621,128 1,355,617
Gain on foreclosure.............. -- -- 203,716
Start-up costs................... 96,794 96,794 96,794
Net operating loss carryforward.. -- 1,048,417 --
Federal benefit of state deferred
tax............................. 67,830 148,712 364,207
Foreign tax credit carryover..... -- -- 632,007
Minimum tax credit carryover..... 561,679 922,969 2,502,393
----------- ----------- -----------
Total deferred tax assets.......... 1,002,032 2,838,020 5,401,216
Deferred tax liabilities:
Tax over book depreciation....... (20,374) (29,334) --
Tax over book amortization....... -- (40,033) --
Installment sales................ (1,771,627) (4,124,917) (8,586,188)
Marketing and commissions........ (18,443) (456,322) (568,394)
Deferred sales................... -- (281,931) (82,903)
Interest capitalization, net of
recovery........................ -- 56,688 (453,097)
Other............................ 14,141 (13,065) 127,799
----------- ----------- -----------
Total deferred tax liabilities..... (1,796,303) (4,888,914) (9,562,783)
----------- ----------- -----------
Pro forma net deferred tax
liabilities....................... $ (794,271) $(2,050,894) $(4,161,567)
=========== =========== ===========
</TABLE>
Additionally, certain of the Company's combined affiliates include foreign
corporations which are taxed at a regular rate of 45%. The Company has filed a
request for a tax holiday for AKGI-Royal Palm C.V.o.a. This request has been
verbally approved by the Chairman of the Tax Facility which effectively
reduces the tax to 2%. This 2% tax liability rate will be in effect up to and
including the fiscal year 1997. Generally, a foreign tax credit is allowed for
any taxes paid on foreign income up to the amount of U.S. tax.
F-22
<PAGE>
The folloing photos and charts are depicted:
Photo 7 Plantation at Fall Creek - Branson, Missouri
- ------- Photo of exterior resort structure from parking area of Plantation at
Fall Creek - Branson, Missouri
Photo 8 Photo of riverboat near plantation at Fall Creek - Branson, Missouri
- -------
Photo 9 Flamingo Beach Club - St. Maarten, Netherlands, Antilles
- ------- Interior photo from living room at kitchen and balcony --
overlooking ocean
Photo 10 Flamingo Beach Club - St. Maarten, Netherlands, Antilles
- -------- Beach perspective photo of resort set against ocean
Photo 11 Embassy Vacation Resort Grand Beach - Orlando, Florida
- -------- Balcony perspective photo overlooking water
Photo 12 Embassy Vacation Resort Grand Beach - Orlando, Florida
- -------- Pier perspective photo of resort set adjacent to water
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or by any of the
Underwriters. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the registered
securities to which this Prospectus relates or any offer to any person in any
jurisdiction where such an offer would be unlawful. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that the information herein is correct as of any time
subsequent to the date hereof.
------------------
TABLE OF CONTENTS
------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 12
Use of Proceeds........................................................... 24
Dividend Policy........................................................... 24
Consolidated Capitalization............................................... 25
Dilution.................................................................. 26
Selected Combined Historical Financial Information........................ 27
Selected Combined Pro Forma Financial Information......................... 29
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 32
Business.................................................................. 39
Management................................................................ 60
Certain Relationships and Related Transactions............................ 69
Consolidation Transactions................................................ 70
Principal Stockholders.................................................... 72
Description of Capital Stock.............................................. 73
Certain Provisions of Maryland Law and of the Company's Charter and
Bylaws................................................................... 74
Shares Eligible for Future Sale........................................... 77
Underwriting.............................................................. 79
Legal Matters............................................................. 80
Experts................................................................... 80
Additional Information.................................................... 81
Index to Combined Financial Statements.................................... F-1
</TABLE>
Until , 1996 all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a Prospectus. This is in addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotment or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5,250,000 SHARES
[LOGO]
SIGNATURE RESORTS, INC.
COMMON STOCK
---------------
PROSPECTUS
---------------
MONTGOMERY SECURITIES
GOLDMAN, SACHS & CO.
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated costs and expenses, other than
underwriting discounts and commissions, in connection with the sale and
distribution of the shares of Common Stock being registered hereby.
<TABLE>
<S> <C>
Commission Registration Fee...................................... $31,229
NASD filing fee.................................................. 9,557
Accounting fees and expenses..................................... *
Blue Sky fees and expenses....................................... *
Legal fees and expenses.......................................... *
Printing and engraving expenses.................................. *
Transfer Agent fees.............................................. *
Miscellaneous expenses........................................... *
-------
TOTAL.......................................................... $ *
=======
</TABLE>
- --------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Maryland corporation. Section 2-418 of the Maryland General
Corporation Law empowers the Company to indemnify, subject to the standards
set forth therein, any person who is a party in any action in connection with
any action, suit or proceeding brought or threatened by reason of the fact
that the person was a director, officer, employee or agent of such company, or
is or was serving as such with respect to another entity at the request of
such company. The Maryland General Corporation Law also provides that the
Company may purchase insurance on behalf of any such director, officer,
employee or agent.
The Company's Charter and Bylaws provide in effect for the indemnification
by the Company of each director and officer of the Company to the fullest
extent permitted by applicable law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the Consolidation Transactions in June 1996, investors in
the Property Partnerships and the Affiliated Entities agreed to contribute
their interests in such entities to the Company in return for the issuance of
11,354,705 shares of the Company's common stock, $.01 par value. Such
securities were issued by the Company in reliance upon an exemption from the
registration requirements of the Securities Act provided by Section 4(2)
thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
A list of exhibits filed with this Registration Statement on Form S-1 is set
forth in the Index to Exhibits on page E-1, and is incorporated herein by
reference.
(b) Financial Statement Schedules
None. Schedules are omitted because of the absence of the conditions under
which they are required or because the information required by such omitted
schedules is set forth in the financial statements or the notes thereto.
II-1
<PAGE>
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrants pursuant to the foregoing provisions, or otherwise, the
registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrants of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrants will, unless
in the opinion of their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by them is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(b) The registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(c) The registrant hereby undertakes to provide to the underwriter at the
closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Signature Resorts, Inc. has duly caused this Amendment No. 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 July 23, 1996.
SIGNATURE RESORTS, INC.
By: /s/ Andrew J. Gessow
-----------------------------------
Name: Andrew J. Gessow
Title: President
II-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement among Signature Resorts, Inc.,
Montgomery Securities and Goldman, Sachs & Co. dated as of
, 1996.*
3.1 Charter of Signature Resorts, Inc.
3.2 Bylaws of Signature Resorts, Inc.
4.1 Form of Stock Certificate of Signature Resorts, Inc.
5.1 Form of Opinion of Ballard, Spahr, Andrews & Ingersoll
regarding the validity of the Common Stock being registered
(including consent)
10.1 Form of Registration Rights Agreement among Signature Resorts,
Inc. and the persons named therein*
10.2.1 Form of Employment Agreements between Signature Resorts, Inc.
and each of Osamu Kaneko, Andrew J. Gessow and Steven C.
Kenninger*
10.2.2 Employment Agreement between Signature Resorts, Inc. and James
E. Noyes
10.3 1996 Equity Participation Plan of Signature Resorts, Inc.
10.4 Agreement of Limited Partnership of Pointe Resort Partners,
L.P. (subsequently renamed Poipu Resort Partners L.P.) dated
October 11, 1994
10.5 Signature Resorts, Inc. Employee Stock Purchase Plan
12.1 Statement regarding computation of ratio of earnings to fixed
charges*
21.1 Subsidiaries of Signature Resorts, Inc.*
23.1 Consent of Ballard, Spahr, Andrews & Ingersoll (included as
part of Exhibit 5.1)
23.2 Consent of Ernst & Young LLP
23.3 Consent of Coopers & Lybrand LLP
23.4 Consent of Director Nominee Juergen Bartels
23.5 Consent of Director Nominee Joshua S. Friedman
23.6 Consent of Director Nominee Sanford R. Climan
23.7 Consent of Director Nominee W. Leo Kiely, III
24.1 Power of Attorney+
</TABLE>
- --------
* to be filed by amendment
+ previously filed
<PAGE>
EXHIBIT 3.1
ARTICLES OF AMENDMENT
---------------------
KGK RESORTS, INC., a Maryland corporation, having its principal office at
c/o National Registered Agents, Inc. of MD, 11 East Chase Street, Baltimore,
Maryland 21202 (the "Corporation") hereby certifies to the State Department of
Assessments and Taxation of Maryland (hereinafter the "Department") that:
FIRST: The Charter of the Corporation is hereby amended by deleting
-----
therefrom in its entirety Article Second and by substituting in lieu thereof the
following new Article Second:
SECOND: The name of the Corporation (which is hereinafter called
the "Corporation") is:
Signature Resorts, Inc.
SECOND: The foregoing amendment to the Charter of the Corporation was
------
duly approved by the Board of Directors of the Corporation by unanimous written
consent in accordance with applicable sections of the Maryland General
Corporation Law and the Charter and Bylaws of the Corporation, the organization
meeting of the Board of Directors having been held and there being no stock of
the Corporation outstanding or subscribed for.
THIRD: The amendments set forth in these Articles of Amendment do
-----
not increase the authorized stock of the Corporation.
IN WITNESS WHEREOF, the Corporation has caused these presents to be
signed in its name and on its behalf by its President and its corporate seal to
be hereunder affixed and attested by its Secretary on this 12th day of June
----
1996, and its President acknowledges that these Articles of Amendment are the
act
STATE DEPARTMENT OF ASSESSMENTS
AND TAXATION
APPROVED FOR RECORD
6/13/96 at 1:32 P.M.
------- ---------
STATE OF MARYLAND
-----------------
I hereby certify that this is a true and complete copy of the 3 page document on
-
file in this office. DATED: 06/13/1996.
-----------
STATE DEPARTMENT OF ASSESSMENTS AND TAXATION
BY: /s/ signature illegible
_____________________________________________________________, Custodian
This stamp replaces our previous certification system. Effective: 6/95
<PAGE>
and deed of the Corporation and, under the penalties of perjury, that the
matters and facts set forth herein with respect to authorization and approval
are true in all material respects to the best of his knowledge, information and
belief.
ATTEST: KGK RESORTS, INC.
/s/ Steven C. Kenninger By: /s/ Andrew J. Gessow (SEAL)
- ------------------------------ -------------------------
Steven C. Kenninger Andrew J. Gessow
Secretary President
-2-
<PAGE>
KGK RESORTS, INC.
ARTICLES OF INCORPORATION
-------------------------
FIRST: The undersigned, Charles R. Moran, whose address is 300 East
Lombard Street, Baltimore, Maryland 21202, being at least eighteen years of age,
acting as incorporator, does hereby form a corporation under the General Laws of
the State of Maryland.
SECOND: The name of the corporation (which is hereinafter called the
"Corporation") is:
KGK Resorts, Inc.
THIRD: The purposes for which and any of which the Corporation is
formed and the business and objects to be carried on and promoted by it are:
(1) To engage in the business of developing and operating
timeshare resorts and to perform any and all activities necessary or desirable
in connection therewith.
(2) To engage in and perform any other activities or functions
which may lawfully be performed by a business corporation organized under the
General Laws of the State of Maryland.
The foregoing enumerated purposes and objects shall be in no way limited
or restricted by reference to, or inference from, the terms of any other clause
of this or any other Article of the Charter of the Corporation, and each shall
be regarded as independent; and they are intended to be and shall be construed
as powers as well as purposes and objects of the Corporation and shall be in
addition to and not in limitation of the general powers of corporations under
the General Laws of the State of Maryland.
FOURTH: The present address of the principal office of the
Corporation in the State of Maryland is c/o National Registered Agents, Inc. of
MD, 11 East Chase Street, Baltimore, Maryland 21202.
FIFTH: The name and address of the resident agent of the Corporation
is c/o National Registered Agents, Inc. of MD, 11 East Chase Street, Baltimore,
Maryland 21202. Said resident agent is a Maryland corporation.
SIXTH: The total number of shares of stock of all classes which
the Corporation has authority to issue is One Hundred Ten Million (110,000,000)
shares consisting of One Hundred Million (100,000,000) shares of common stock,
par value of One Cent ($.01) per share ("Common Stock") and Ten Million
(10,000,000) shares of preferred stock, par value of One Cent ($.01) per share
("Preferred Stock"). The aggregate par value of all of the Corporation's
STATE OF MARYLAND
-----------------
I hereby certify that this is a true and complete copy of the 7 page document on
-
file in this office. DATED: 05-28-1996.
----------
STATE DEPARTMENT OF ASSESSMENTS AND TAXATION
BY:_____________________________________________________________, Custodian
This stamp replaces our previous certification system. Effective: 6/95
<PAGE>
authorized shares of capital stock is One Million One Hundred Thousand Dollars
($1,100,000).
The designations and the preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications and
terms and conditions of redemption of the shares of each class of capital stock
of the Corporation are as follows:
(1) Preferred Stock. The Preferred Stock may be authorized for
---------------
issuance from time to time by the Board of Directors in one or more separately
designated classes or series. The designation of each such class or series, the
number of shares to be included in each such class or series, and the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends and terms and conditions of redemption shall be as
set forth in resolutions adopted by the Board of Directors and included in
Articles Supplementary filed as required by law from time to time prior to the
issuance of any shares of such class or series. Subject to the express
limitations, if any, of any class or series of Preferred Stock of which shares
are outstanding at the time, the Board of Directors is authorized, by the
adoption of resolutions, to increase or decrease (but not below the number of
shares of Preferred Stock of such class or series then outstanding) the number
of shares of Preferred Stock of such class or series and to alter the
designation of or, classify or reclassify, any unissued shares of Preferred
Stock of any class or series from time to time, by setting or changing the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications or terms and
conditions of redemption of such class or series.
(2) Common Stock. Subject to all rights of Preferred Stock, as
------------
expressly provided herein, by law or by the Board of Directors pursuant to this
Article Sixth, the Common Stock of the Corporation shall have all rights and
privileges afforded to capital stock by applicable law in the absence of any
express grant of rights or privileges in the Corporation's charter, including,
but not limited to, the following rights and privileges:
(a) The holders of shares of Common Stock shall have the right
to vote for the election of directors and on all other matters requiring
stockholder action, each share of Common Stock being entitled to one vote;
(b) Dividends may be declared and paid or set apart for payment
upon shares of Common Stock out of any assets or funds of the Corporation
legally available for the payment of dividends;
(c) Upon the voluntary or involuntary liquidation, dissolution
or winding-up of the Corporation, the net assets of the
-2-
<PAGE>
Corporation shall be distributed pro rata to the holders of shares of Common
--- ----
Stock in accordance with their respective rights and interests.
SEVENTH: The business and affairs of the Corporation shall be managed by a
Board of Directors which may exercise all of the powers of the Corporation
except those conferred on, or reserved to, the stockholders by law. The number
of directors of the Corporation initially shall be three (3), which number may
be increased or decreased pursuant to the Bylaws of the Corporation but in no
event shall be less than the minimum number required by the General Laws of the
State of Maryland. Each director shall hold office until the next annual
meeting of the stockholders of the Corporation and until his or her successor
shall have been elected and qualified. The names of the directors who will
serve until the first annual meeting of stockholders of the Corporation and
until their successors are elected and qualified are as follows:
Osamu Kaneko
Andrew J. Gessow
Steven C. Kenninger
The following provisions shall apply to the directors of the Corporation:
(a) The directors of the Corporation (other than any directors who may be
elected solely by holders of any class or series of Preferred Stock) shall be
and hereby are divided into three classes, designated "Class I," "Class II" and
"Class III," respectively. The number of directors in each class shall be as
nearly equal as possible. Each director shall serve for a term ending on the
date of the third Annual Meeting of Stockholders following the Annual Meeting at
which such director was elected, provided, however, that each initial director
in Class I, as determined by the directors, shall serve for a term ending on the
date of the Annual Meeting held in 1997, each initial director in Class II, as
determined by the directors, shall serve for a term ending on the date of the
Annual Meeting held in 1998, and each initial director in Class III, as
determined by the directors, shall serve for a term ending on the date of the
Annual Meeting held in 1999.
(b) In the event of any increase or decrease in the authorized number of
directors: (i) each director then serving shall nevertheless continue as
director of the class of which such director is a member until the expiration of
such director's term or such director's prior death, retirement, resignation or
removal; and (ii) except to the extent that an increase or decrease in the
authorized number of directors occurs in connection with the rights of holders
of Preferred Stock to elect additional directors, the newly created or
eliminated directorships resulting from any increase or decrease shall be
apportioned by the Board of Directors
-3-
<PAGE>
among the three classes so as to keep the number of directors in each class as
nearly equal as possible.
(c) Anything in this Article SEVENTH to the contrary notwithstanding,
each director shall serve until such director's successor is elected and
qualified, or until such director's earlier death, retirement, resignation or
removal.
(d) A director may be removed from office with or without cause only
by the affirmative vote of the holders of at least two-thirds of the votes
entitled to be cast in the election of directors.
EIGHTH: The following provisions are hereby adopted for the purposes
of defining, limiting and regulating the powers of the Corporation and of the
directors and stockholders:
(1) The Board of Directors shall have power from time to time and
in its sole discretion (a) to determine in accordance with sound accounting
practice what constitutes annual or other net profits, earnings, surplus or net
assets in excess of capital; (b) to fix and vary from time to time the amount to
be reserved as working capital, or determine that retained earnings or surplus
shall remain in the hands of the Corporation; (c) to set apart out of any funds
of the Corporation such reserve or reserves in such amount or amounts and for
such proper purposes as it shall determine and to abolish or redesignate any
such reserve or any part thereof; (d) to borrow or raise money upon any terms
for any Corporate purposes; (e) to distribute and pay distributions or dividends
in stock, cash or other securities or property, out of surplus or any other
funds or amounts legally available there for, at such times and to the
stockholders of record on such dates as it may, from time to time, determine;
and (f) to determine whether and to what extent and at what times and places and
under what conditions and regulations the books, accounts and documents of the
Corporation, or any of them shall be open to the inspection of stockholders,
except as otherwise provided by statute or by the Bylaws of the Corporation,
and, except as so provided, no stockholder shall have the right to inspect any
book, account or document of the Corporation unless authorized so to do by
resolution of the Board of Directors.
(2) The liability of the directors and officers of the
Corporation to the Corporation or its stockholders for money damages shall be
limited to the fullest extent permitted under the General Laws of the State of
Maryland now or hereafter in force, including, but not limited to, Section 5-349
of the Courts and Judicial Proceedings Article of the Annotated Code of
Maryland, or any successor provision of law of similar import, and the directors
and officers of the Corporation shall have no liability whatsoever to the
Corporation or its stockholders for money damages except to the extent which
such liability can not be limited or restricted
-4-
<PAGE>
under the General Laws of the State of Maryland now or hereafter in force.
Neither the amendment nor repeal of the foregoing sentence of this Section (2)
of Article EIGHTH nor the adoption nor amendment of any other provision of the
Charter or Bylaws of the Corporation inconsistent with the foregoing sentence
shall apply to or affect in any manner the applicability of the foregoing
sentence with respect to any act or omission of any director or officer
occurring prior to any such amendment, repeal or adoption.
(3) The Corporation shall indemnify, in the manner and to the fullest
extent permitted by law, any person who is or was a party to, or is threatened
to be made a party to, any threatened, pending or completed action, suit or
proceeding, whether or not by or in the right of the Corporation and whether
civil, criminal, administrative, investigative or otherwise, by reason of the
fact that such person is or was a director or officer of the Corporation, or
that such person, while an officer or director of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner or
trustee of another corporation, partnership, trust, employee benefit plan or
other enterprise. To the fullest extent permitted by law, the indemnification
provided herein shall include expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement and any such expenses may be paid by the
Corporation in advance of the final disposition of any such action, suit or
proceeding. Upon authorization by the Board of Directors, the Corporation may
indemnify employees and/or agents of the Corporation to the same extent provided
herein for directors and officers. Any repeal or modification of any of the
foregoing sentences of this Section (3) of Article EIGHTH shall be prospective
in operation and effect only, and shall not adversely affect any right to
indemnification or advancement of expenses hereunder existing at the time of any
such repeal or modification.
(4) No holders of shares of stock of the Corporation of any class
shall have preemptive rights or preferential right to purchase, subscribe for or
otherwise acquire any shares of stock of the Corporation of any class now or
hereafter authorized or any securities convertible into or exchangeable for
shares of stock of the Corporation of any class now or hereafter authorized or
any warrants, options or other instruments evidencing rights to purchase,
subscribe for or otherwise acquire shares of stock of the Corporation of any
class now or hereafter authorized, other than such preferential rights, if any,
as the Board of Directors in its sole discretion may determine, and at such
price as the Board of Directors in its sole discretion may fix.
(5) The Board of Directors shall have the power, in its sole
discretion and without limitation, to authorize the issuance at any time and
from time to time shares of stock of the Corporation, with or without par value,
of any class now or
-5-
<PAGE>
hereafter authorized and of securities convertible into or exchangeable for
shares of the stock of the Corporation, with or without par value, of any class
now or hereafter authorized, for such consideration (irrespective of the value
or amount of such consideration) and in such manner and by such means as said
Board of Directors may deem advisable.
(6) The Board of Directors shall have the power, in its sole
discretion and without limitation, to classify or reclassify any unissued shares
of stock, whether now or hereafter authorized, by setting, altering or
eliminating in any one or more respects, from time to time before the issuance
of such shares, any feature of such shares, including but not limited to the
designation, preferences, conversion or other rights, voting powers,
qualifications, and terms and conditions of redemption of, and limitations as to
dividends and any restrictions on, such shares.
(7) The Corporation reserves the right at any time and from time to
time to make any amendments to its Charter including any amendments changing the
terms of contract rights, as expressly set forth in its Charter, of any of its
outstanding stock by classification, reclassification or otherwise; and all
contract or other rights, preferences and privileges of whatsoever nature
conferred upon stockholders, directors and officers by and pursuant to the
Charter of the Corporation are granted subject to this reservation.
The enumeration and definition of particular powers of the Board of
Directors included in the foregoing shall in no way be limited or restricted by
reference to or inference from the terms of any other clause of this or any
other Article of the Charter of the Corporation, or construed as or deemed by
inference or otherwise in any manner to exclude or limit any powers conferred
upon the Board of Directors under the General Laws of the State of Maryland now
or hereafter in force.
IN WITNESS WHEREOF, I have signed these Articles of Incorporation,
acknowledging the same to be my act on this 28th day of May, 1996.
WITNESS:
/s/ Jacquiline L. Settle /s/ Charles R. Moran
- ---------------------------- ------------------------------
Charles R. Moran
-6-
<PAGE>
EXHIBIT 3.2
SIGNATURE RESORTS, INC.
BYLAWS
------
ARTICLE I
STOCKHOLDERS
------------
Section 1 - ANNUAL MEETING
--------------
The annual meeting of the stockholders of the Corporation shall be held in
April of each year at the time and place as shall be designated by the Board of
Directors by resolution and stated in the notice of the meeting. The business to
be transacted at the annual meeting shall include the election of directors and
any other corporate business as may come before the meeting.
Section 2 - SPECIAL MEETING
---------------
At any time in the intervals between annual meetings, a special meeting of
the stockholders may be called by the President or by the Board of Directors,
and shall be called by the President at the request in writing of stockholders
owning twenty five percent (25%) in amount of the entire capital stock of the
Corporation issued and outstanding and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting. No business shall be
transacted at a special meeting save that specially named in the notice.
Section 3 - NOTICE OF MEETING
-----------------
Not less than ten (10) days nor more than ninety (90) days before the date
of every stockholders' meeting, the Secretary shall give to each stockholder
entitled to vote at such meeting, and to each stockholder not entitled to vote
who is entitled to notice by statute, written or printed notice stating the
date, time and place of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, either by presenting it to
him personally or by leaving it at his residence or usual place of business
or by mailing it to him at his address as it appears on the records of the
Corporation. Notice which is mailed in accordance with the preceding sentence
shall be deemed to be given at the time when the same shall be deposited in the
United States mail with postage thereon prepaid. Any stockholder may waive
notice of any meeting by written waiver filed with the records of the meeting,
either before or after the holding thereof. The attendance of a stockholder at a
meeting shall constitute a waiver of notice of such meeting, except where a
stockholder attends a meeting for the express purpose of objecting to the
<PAGE>
transaction of any business because the meeting is not lawfully called or
convened.
No business shall be transacted at a special meeting save that specially
named in the notice.
Section 4 - NOMINATION AND STOCKHOLDER BUSINESS
-----------------------------------
(a) Annual Meetings of Stockholders
(1) Nominations of persons for election to the Board of Directors and
the proposal of business to be considered by stockholders may be made at an
annual meeting of stockholders (i) pursuant to the Corporation's notice of the
meeting, (ii) by or at the direction of the Board of Directors or (iii) by any
stockholder of the Corporation who was a stockholder of record at the time of
giving of notice provided for in this Section 4(a), who is entitled to vote at
the meeting and who has complied with the notice procedure set forth in this
Section 4(a).
(2) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (iii) of paragraph (a)(1)
of this Section 4, the stockholder must have given timely notice thereof in
writing to the secretary of the Corporation. To be timely, a stockholder's
notice shall be delivered to the secretary at the principal executive offices of
the Corporation not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is advanced by more than 30 days
or delayed by more than 60 days from such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the 90th day
prior to such annual meeting and not later than the close of business on the
later of the 60th day prior to such annual meeting or the tenth day following
the day on which public announcement of the date of such meeting is first made.
Such stockholder's notice shall set forth (i) as to each person whom the
stockholder proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (including such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected); (ii) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and of the beneficial
owner, if any, on whose behalf the proposal is made; and (iii) as to the
stockholder giving the notice and the beneficial owner, if any, on whose behalf
the
<PAGE>
nomination or proposal is made, (x) the name and address of such stockholder, as
they appear on the Corporation's books, and of such beneficial owner and (y) the
class and number of shares of stock of the Corporation which are owned
beneficially and of record by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph
(a)(2) of this Section 4 to the contrary, in the event that the number of
directors to be elected to the Board of Directors is increased and there is no
public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the Corporation at least 70
days prior to the first anniversary of the preceding year's annual meeting, a
stockholders' notice required by this Section 4(a) shall also be considered
timely, but only with respect to nominees for any new positions created by such
increase, it shall be delivered to the secretary at the principal executive
offices of the Corporation not later than the close of business on the tenth day
following the day on which such public announcement is first made by the
Corporation.
(b) Special Meetings of Stockholders. Only such business shall be conducted
--------------------------------
at a special meeting of stockholders as shall have been brought before the
meeting pursuant to the Corporation's notice of meeting. Nominations of persons
for election to the Board of Directors may be made at a special meeting of
stockholders at which directors are to be elected (i) pursuant to the
Corporation's notice of meeting, (ii) by or at the direction of the Board of
Directors or (iii) provided that the Board of Directors has determined that
directors shall be elected at such special meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice
provided for in this Section 4(b) who is entitled to vote at the meeting and who
complied with the notice procedures set forth in this Section 4(b). In the
event the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be) for election to such
position as specified in the Corporation's notice of meeting, if the
stockholder's notice required by paragraph (a)(2) of this Section 4(b) shall be
delivered to the secretary at the principal executive offices of the Corporation
not earlier than the 90th day prior to such special meeting and not later than
the close of business on the later of the 60th days prior to such special
meeting or the tenth day following the day on which public announcement is first
made of the date of the special meeting and of the nominees proposed by the
Board of Directors to be elected at such meeting.
-3-
<PAGE>
(c) General.
-------
(1) Only such persons who are nominated in accordance with the
procedures set forth in this Section 4 shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 4. The presiding officer of the meeting shall have the power and
duty to determine whether a nomination or any business proposed to be brought
before the meeting was made in accordance with the procedures set forth in this
Section 4 and, if any proposed nomination of business is not in compliance with
this Section 4, to declare that such defective nomination or proposal be
disregarded.
(2) For purposes of this Section 4, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 4, a
stockholder shall also comply with all applicable requirements of state law and
of the Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 4. Nothing in this Section 4 shall be deemed
to affect any rights of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
Section 5 - QUORUM
------
At any meeting of stockholders the presence in person or by proxy of
stockholders entitled to cast a majority of the votes thereat shall constitute a
quorum; but this section shall not affect any requirement under any statute or
the Articles of Incorporation (the "Articles") of the Corporation for the vote
necessary for the adoption of any measure. A majority of the votes cast at a
meeting of stockholders, duly called and at which a quorum is present, shall be
sufficient to take or authorize action upon any matter which may properly come
before the meeting unless more than a majority of votes is required by statute,
by the Charter of the Corporation or by these Bylaws.
In the absence of a quorum a majority of the shares represented in person
or by proxy may adjourn the meeting from time to time not more than one hundred
twenty (120) days without further notice other than by announcement at such
meeting. At such adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at the meeting
originally called. If the adjournment is for more than thirty (30)
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<PAGE>
days, or if after adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder
entitled to vote at the meeting.
Section 6 - VOTING
------
Each share of Voting Common Stock shall be entitled to one (1) vote.
Section 7 - VOTING OF STOCK BY CERTAIN HOLDERS
----------------------------------
Stock registered in the name of a corporation, partnership, trust or other
entity if entitled to be voted may be voted by the president or vice president,
a general partner, or trustee thereof as the case may be, or a proxy appointed
by any of the foregoing individual, unless some other person who has been
appointed to vote such stock pursuant to a bylaw or a resolution of the board of
directors of such corporation or other entity presents a certified copy of such
bylaw or resolution, in which case such person may vote such stock. Any
director or other fiduciary may vote stock registered in his name as such
fiduciary, either in person or by proxy.
Shares of stock of the Corporation directly or indirectly owned by it shall
not be voted at any meeting and shall not be counted in determining the total
number of outstanding shares entitled to be voted at any given time unless they
are held by it in a fiduciary capacity in which case they may be voted and shall
be counted in determining the total number of outstanding shares at any given
time.
The Board of Directors may adopt, by resolution, a procedure by which a
stockholder may certify, in writing, to the Corporation that any shares of stock
registered in the name of the stockholder are held for the account of a
specified person other than a stockholder. The resolutions shall set forth:
the class of stockholders who may make the certification, the purpose for which
the certification may be made, the form of certification and the information to
be contained in it; if the certification is with respect to a record date of
closing of the stock transfer books, the time after the record date of the stock
transfer books within which the certification must be reviewed by the
Corporation; and any other provisions with respect to the procedure which the
Board of Directors considers necessary or desirable. On receipt of such
certification, the person specified in the certification shall be regarded as,
for the purposes set forth in the certification, the stockholder of record of
the specified stock in place of the stockholder who makes certificates.
Notwithstanding any provision of the Charter of the Corporation or these
Bylaws, Subtitle 7 of Title 3 of the Maryland
-5-
<PAGE>
General Corporation Law ("MGCL") (as the same be hereafter be amended from time
to time), and/or hereafter acquired or held by Osamu Kaneko, Andrew J. Gessow
and Steven C. Kenninger and/or any affiliates (as defined in Section 3-601 of
the MGCL) or associates (as defined in Section 3-701 of the MGCL) of any of the
foregoing.
Section 8 - PROXIES
-------
At all meetings of stockholders, a stockholder may vote the shares owned of
record by him either in person or by proxy executed in writing by the
stockholder or by his duly authorized attorney in fact. Such proxy shall be
filed with the Secretary of the Corporation before or at the time of the
meeting. No proxy shall be valid after eleven (11) months from the date of its
execution, unless otherwise provided in the proxy.
Section 9 - PLACE OF MEETING
----------------
The Board of Directors may designate any place, either within or without
the State of Maryland, as the place of meeting for any annual or special meeting
of stockholders. If no designation is made, or if a special meeting be
otherwise called, the place of the meeting shall be the principal office of the
Corporation.
Section 10 - INFORMAL ACTION
---------------
Any action required or permitted to be taken at a meeting of stockholders
may be taken without a meeting if there is filed with the records of
stockholders meetings a unanimous written consent which sets forth the action
and is signed by each stockholder entitled to vote on the matter and a written
waiver of any right to dissent signed by each stockholder entitled to notice of
the meeting but not entitled to vote thereat.
ARTICLE II
DIRECTORS
---------
Section 1 - POWERS
------
The business and affairs of the Corporation shall be managed by its Board
of Directors, which may exercise all of the powers of the Corporation, except
such as are by statute or by the Charter or Bylaws of the Corporation expressly
conferred upon or reserved to the stockholders.
Section 2 - NUMBER AND TENURE
-----------------
At any regular meeting or at any special meeting called for that purpose, a
majority of the entire Board of Directors may establish, increase or decrease
the number of directors, provided
-6-
<PAGE>
that the number thereof shall not be less than seven (7), nor more than thirteen
(13), and further provided that the tenure of office of a director shall not be
affected by any decrease in the number of directors. Pursuant to the Articles,
the directors have been divided into classes with terms of three years with the
term of office of one class expiring at the Annual Meeting of Stockholders in
each year. Each director shall hold office for the term for which he is elected
and until his successor is elected and qualified, or until his resignation,
removal (in accordance with the Articles and these Bylaws) or death.
Section 3 - VACANCIES
---------
Any vacancy occurring on the Board of Directors shall be filled by the
election by the remaining directors at any regular or special meeting, except
that a vacancy resulting from an increase in the number of directors shall be
filled by a majority vote of the entire board of board directors. A director
elected to fill a vacancy shall be elected for the unexpired term of his
predecessor in office, provided that a director elected to fill a vacancy
resulting from an increase in the number of directors shall be elected to serve
until the next annual meeting of stockholders and until his successor is elected
and qualifies.
Section 4 - REGULAR MEETINGS
----------------
The Board of Directors shall meet for the purpose of the election of
officers and the transaction of other business as soon as practicable after each
annual meeting of stockholders. Other regular meetings of the Board of
Directors shall be held at such times and such places, either within or without
the State of Maryland, as may be designated from time to time by the President
or by the Board of Directors.
Section 5 - SPECIAL MEETING
---------------
Special meetings of the Board of Directors may be called by the President
or by a majority of the directors. The person or persons authorized to call
special meetings of the Board of Directors may fix any place, either within or
without the State of Maryland, as the place for holding the special meeting of
the Board of Directors called by such person or persons.
Section 6 - NOTICE
------
Notice of every regular or special meeting of the Board shall be given to
each director at least two (2) days-prior thereto either by written notice
delivered personally or mailed or telegrammed to his last known business or
residence address or by personal telephone call. Notice which is mailed in
accordance with the preceding sentence shall be deemed to be given at the time
when
-7-
<PAGE>
the same shall be deposited in the United States mail with postage thereon
prepaid. Any director may waive notice of any meeting by written waiver filed
with the records of the meeting, either before or after the holding thereof.
The attendance of a director at a meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting for the express purpose
of objecting to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
Section 7 - QUORUM
------
A majority of the Board of Directors shall constitute a quorum for the
transaction of business, but if less than such quorum is present at a meeting, a
majority of the directors present may adjourn the meeting from time to time
without further notice other than announcement at the meeting, until a quorum
shall be present.
Section 8 - MANNER OF ACTING
----------------
The action of a majority of the directors present at a meeting at which a
quorum is present shall constitute action of the Board of Directors unless the
concurrence of a greater proportion is required for such action by statute, by
the Charter of the Corporation or by these Bylaws.
Section 9 - COMPENSATION
------------
By resolution of the Board of Directors a fixed sum and expenses, if any,
of attendance at each regular or special meeting of the Board of Directors or of
committees hereof, and other compensation for their services as such or on
committees of the Board of Directors, may be paid to the Directors. No such
payment shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor, pursuant to a resolution of the
Board of Directors.
Section 10 - INFORMAL ACTION
---------------
Any action required or permitted to be taken at any meeting of the Board of
Directors may be taken without a meeting if a written consent to such action is
signed by all members of the Board of Directors and such written consent is
filed with the minutes of proceedings of the Board of Directors.
Section 11 - MEETING BY CONFERENCE TELEPHONE
-------------------------------
Members of the Board of Directors may participate in a meeting by means of
a conference telephone or similar communications
-8-
<PAGE>
equipment if all persons participating in the meeting can hear each other at the
same time. Participating in a meeting by such means constitutes presence in
person at a meeting.
Section 12 - REMOVAL
-------
A director may be removed, with or without cause, upon the affirmative vote
of not less than two-thirds (2/3) of the votes entitled to be cast in the
election of members of the Board of Directors and by the vote required to elect
a director, the stockholders may fill a vacancy on the Board of Directors
resulting from removal.
Section 13 - RESIGNATION
-----------
A director may resign at any time by giving written notice to the Board of
Directors, the President or the Secretary of the Corporation. Unless otherwise
specified in the notice, the resignation shall take effect upon the receipt
thereof by the Board of Directors or such officer and the acceptance of such
resignation shall not be necessary to make it effective.
ARTICLE III
COMMITTEES
----------
Section 1 - COMMITTEES
----------
The Board of Directors may appoint from among its members an Executive
Committee and other committees composed of two (2) or more directors and
delegate to these committees in the intervals between meetings of the Board of
Directors any of the powers of the Board of Directors, except the power to
declare dividends or distributions on stock, approve any merger or share
exchange which does not require stockholder approval, amend the Bylaws, issue
stock other than as permitted by statute, or recommend to the stockholders any
action which requires stockholder approval. Each committee may fix rules of
procedure for its business. A majority of the members of a committee shall
constitute a quorum for the transaction of business and the act of- a majority
of-those present at a meeting at which a quorum is present shall be the act of
the committee. The members of a committee present at any meeting, whether or not
they constitute a quorum, may appoint a director to act in place of an absent
member. The members of a committee may conduct any meeting thereof by conference
telephone in accordance with the provisions of Article II, Section 11.
Section 2 - MINUTES
-------
Each committee shall keep regular minutes of its meetings and report the
same to the Board of Directors when required.
-9-
<PAGE>
Section 3 - INFORMAL ACTION
---------------
Any action required or permitted to be taken at any committee meeting may
be taken without a meeting if a written consent to such action is signed by all
of the members of the committee and such written consent is filed with the
minutes of proceedings of the Board of Directors.
ARTICLE IV
OFFICERS
--------
Section 1 - NUMBER
------
The officers of the Corporation shall include a Chief Executive Officer,
President, any number of Vice Presidents, a Secretary, any number of Assistant
Secretaries, a Treasurer, any number of Assistant Treasurers and may include a
Chairman of the Board (or one or more Chairmen of the Board), a Vice Chairman of
the Board, a Chief Operating Officer, a Chief Financial Officer and such other
officers as the Board of Directors may elect. Any two (2) offices may be held by
the same person, except those of President and Vice President, but no officer
shall execute, acknowledge or verify any instrument in more than one capacity,
if such instrument is required to be executed, acknowledged or verified by any
two (2) or more officers. In addition, the Board of Directors may from time to
time appoint such other officers with such powers and duties as they shall deem
necessary or desirable.
Section 2 - ELECTION AND TENURE
-------------------
The officers of the Corporation shall be elected by the Board of Directors
at the first meeting of the Board of Directors held after each annual meeting of
the stockholders, or as soon after such first meeting as may be convenient,
except that the Chief Executive Officer may appoint one or more vice presidents,
assistant secretaries and assistant treasurers. Each officer shall hold office
until his successor shall have been duly elected and shall have qualified, or
until his death or until he shall resign or shall have been removed in the
manner hereinafter provided.
The Board of Directors may, at any time, and from time to time, authorize
the making or adoption by the Corporation of special contracts with an officer
or officers for services of such officer or officers for a fixed period and on
such terms and conditions, and with such powers, duties and compensation, as may
be fixed by such contract, and may elect such officer or officers for such term
or terms as may be specified by such contract.
Section 3 - REMOVAL; RESIGNATION
--------------------
- 10 -
<PAGE>
Any officer or agent of the Corporation may be removed by the Board of
Directors whenever, in its Judgment, the best interests of the Corporation will
be served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. An officer may resign at any time by
giving written notice to the Board of Directors, the President or the Secretary
of the Corporation. Unless otherwise specified in the notice, the resignation
shall take effect upon the receipt thereof by the Board of Directors or such
officer and the acceptance of such resignation shall not be necessary to make it
effective.
Section 4 - VACANCIES
---------
A vacancy in an office may be filled by the Board of Directors for the
unexpired portion of the term.
Section 5 - CHIEF EXECUTIVE OFFICER
-----------------------
The Board of Directors shall designate a Chief Executive Officer. In the
absence of such designation, the Chairman of the Board (or, if more than one,
the co-chairmen of the Board in the order designated at the time of their
election or, in the absence of any designation, then, in the order of their
election) shall be the Chief Executive Officer of the Corporation. The Chief
Executive Officer shall have general responsibility for implementation of the
policies of the Corporation, as determined by the Board of Directors, and for
the management of the business and affairs of the Corporation. In addition, the
Chief Executive Officer, together with the President, shall have the power to
determine the cash compensation of employees of the Corporation other than its
Senior Executive Officers.
Section 6 - CHIEF OPERATING OFFICER
-----------------------
The Board of Directors may designate a Chief Operating Officer. The Chief
Operating Officer shall have the responsibilities and duties as set forth by the
Board of Directors or the Chief Executive Officer.
Section 7 - CHIEF FINANCIAL OFFICER
-----------------------
The Board of Directors may designate a Chief Financial Officer. The Chief
Financial Officer shall have the responsibilities and duties as set forth by the
Board of Directors of the Chief Executive Officer.
Section 8 - CHAIRMAN OF THE BOARD
---------------------
The Board of Directors may designate a Chairman of the Board (or one or
more co-chairmen of the Board). The Chairman of the Board shall preside over the
meeting of the Board of Directors and
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<PAGE>
of the stockholders at which he shall be present. If there be more than one, the
co-chairmen designated by the Board of Directors will perform such duties. The
Chairman of the Board shall perform such other duties as may be assigned to him
or them by the Board of Directors.
Section 9 - PRESIDENT
---------
The President shall preside at all meetings of the Board of Directors and
of the stockholders at which he is present. He shall be the chief executive
officer of the Corporation and, subject to the control of the Board of
Directors, shall, in general, supervise and administer all of the business and
affairs of the Corporation. He may sign and execute all authorized bonds,
contracts or other obligations in the name of the Corporation. In general, the
President shall have all powers and shall perform all duties incident to the
office of President and such as may from time to time be prescribed by the
Board of Directors.
Section 10 - VICE PRESIDENT
--------------
In the absence or incapacity of the President, or in the event of a vacancy
in the office of President, the Vice President, if one (or in the event there be
more than one, the Vice Presidents in the order designated by the Board of
Directors, or, in the absence of such designation, then in the order of their
election) shall have the powers and perform the duties of President. A Vice
President shall also have such powers and perform such duties as may from time
to time be prescribed by the Board of Directors or by the President. A Vice
President may have such additional descriptive designations, if any, in his
title as may be assigned by the Board of Directors.
Section 11 - SECRETARY
---------
The Secretary shall attend all meetings of the Board of Directors and all
meetings of the stockholders and record all the proceedings of the meetings
thereof in a book to be kept for that purpose and shall perform like duties for
the standing committees when required. He shall give, or cause to be given,
notice of all meetings of the stockholders of the Board of Directors, and shall
perform such other duties incident to the office of Secretary as from time to
time may be prescribed by the Board of Directors or by the President, under
whose supervision he shall be. He shall have general charge of the stock ledger
and custody of the corporate records and of the seal of the Corporation and he,
or an Assistant Secretary, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by his signature
or by the signature of such Assistant Secretary. The Board of Directors may give
general authority to any other officer
-12-
<PAGE>
to affix the seal of the Corporation and to attest the affixing by his
signature.
Section 12 - ASSISTANT SECRETARY
-------------------
The Assistant Secretary, if one (1) (or if there be more than one (1), the
Assistant Secretaries in the order determined by the Board of Directors, or, in
the absence of such determination, then in the order of their election) shall,
in the absence of the Secretary or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the Secretary and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
Section 13 - TREASURER
---------
The Treasurer shall have general charge of the financial affairs of the
Corporation. He shall in general have all powers and perform all duties
incident to the office of Treasurer and such as may from time to time be
prescribed by the Board of Directors or by the President.
If required by the Board of Directors, he shall give the Corporation a bond
(which shall be renewed every six (6) years) in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of his office and for the restoration to the
Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
Section 14 - ASSISTANT TREASURER
-------------------
The Assistant Treasurer, if one (1) (or if there shall be more than one
(1), the Assistant Treasurers in the order determined by the Board of Directors,
or if there be no such determination, then in the order of their election),
shall in the absence of the Treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the Treasurer and
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
Section 15 - OTHER OFFICERS
--------------
Such other officers as may be elected by the Board of Directors shall have
such powers and perform such duties as the Board may from time to time
prescribe.
Section 16 - SALARIES
--------
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<PAGE>
The salaries of the officers shall be fixed from time to time by the Board
of Directors, and no officer shall be prevented from receiving such salary by
reason of the fact that he is also a director of the Corporation.
Section 17 - SPECIAL APPOINTMENTS
--------------------
In the absence or incapacity of any officer, or in the event of a vacancy
in any office, the Board of Directors may designate any person to fill any such
office pro tempore or for any particular purpose.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
-------------------------------------
Section 1 - CONTRACTS
---------
The Board of Directors may authorize any officer or officers, agent or
agents, to enter into any contract or execute and deliver any instrument in the
name of and on behalf of the Corporation, and such authority may be general or
confined to specific instances.
Section 2 - LOANS
-----
No loans shall be contracted on behalf of the Corporation and no evidence
of indebtedness shall be issued in its name unless authorized by a resolution of
the Board of Directors. Such authority may be general or confined to specific
instances.
Section 3 - CHECKS, DRAFTS, ETC.
--------------------
All checks, drafts or other orders for the payment of money, notes or other
evidences of indebtedness issued in the name of the Corporation, shall be signed
by such officer or officers of the corporation and in such manner as shall from
time to time be determined by resolution of the Board of Directors.
Section 4 - DEPOSITS
--------
All funds of the Corporation not otherwise employed shall be deposited from
time to time to the credit of the Corporation in such banks, trust companies or
other depositories as the Board of Directors may select.
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<PAGE>
ARTICLE VI
ISSUE AND TRANSFER OF STOCK
---------------------------
Section 1 - ISSUE
-----
Certificates representing shares of the Corporation shall be in such form
as shall be determined by the Board of Directors. Each certificate shall be
signed by the President or a Vice President and countersigned by the Secretary
or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, and shall
be sealed with the corporate seal. The signatures may be either manual or
facsimile signatures; and the seal may be the actual corporate seal or a
facsimile of it or in any other form. All certificates surrendered to the
Corporation for transfer shall be canceled, and no new certificates shall be
issued until the former certificate or certificates for a like number of shares
shall have been surrendered and cancelled, except that in case of a lost,
stolen, destroyed or mutilated certificate, a new one may be issued therefor
upon such terms and indemnity to the Corporation as the Board of Directors may
prescribe.
Section 2 - TRANSFER OF SHARES
------------------
Transfer of shares of the Corporation shall be made only on its stock
transfer books by the holder of record thereof, or by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the Corporation, and on surrender for cancellation of the certificate for such
shares. The person in whose name shares stand on the books of the Corporation
shall be deemed to be the owner thereof for all purposes.
Section 3 - STOCK LEDGER
------------
The Corporation shall maintain a stock ledger which contains the name and
address of each stockholder and the number of shares of stock of each class
which the stockholder holds. The stock ledger may be in written form or in any
form which can be converted within a reasonable time into written form for
visual inspection. The original or a duplicate of the stock ledger shall be
kept at the principal office or the principal executive offices of the
Corporation in the State of Maryland.
ARTICLE VII
FIXING DATE FOR DETERMINATION
OF STOCKHOLDERS' RIGHTS
-----------------------
The Board of Directors may fix, in advance, a date as the record date for
the purpose of determining stockholders entitled to notice of, or to vote at,
any meeting of stockholders, or stockholders entitled to receive payment of any
dividend or the
-15-
<PAGE>
allotment of any rights, or in order to make a determination of stockholders for
any other proper purpose. Only stockholders of record on such date shall be
entitled to notice of, and to vote at, such meeting or to receive such dividends
or rights, as the case may be, notwithstanding any transfer of any stock on the
books of the Corporation after such record date fixed as aforesaid. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
ARTICLE VIII
AMENDMENTS
----------
Subject to applicable law and the Articles, by affirmative vote of the
holders of not less than sixty-six and two-thirds percent (66-2/3%) of the
shares of stock entitled to vote, the stockholders shall have the right to
adopt, alter and repeal Bylaws. Subject to the right of the stockholders
provided in the preceding sentence, the Board of Directors shall have the power
to adopt, alter and repeal Bylaws.
ARTICLE IX
FISCAL YEAR
-----------
The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors.
ARTICLE IX
INDEMNIFICATION
---------------
The Corporation shall indemnify, in the manner and to the fullest extent
permitted by law, any person who is or was a party to, or is threatened to be
made a party to, any threatened, pending or completed action, suit or
proceeding, whether or not by or in the right of the Corporation and whether
civil, criminal, administrative, investigative or otherwise, by reason of the
fact that such person is or was a director or officer of the Corporation, or
that such person, while an officer or director of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner or
trustee of another corporation, partnership, trust, employee benefit plan or
other enterprise. To the fullest extent permitted by law, the indemnification
provided herein shall include expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement and any such expenses may be paid by the
Corporation in advance of the final disposition of any such action, suit or
proceeding. Upon authorization by the Board of Directors, the Corporation may
indemnify employees and/or agents of the Corporation to the same
-16-
<PAGE>
extent provided herein for directors and officers. Any repeal or modification
of any of the foregoing sentences of this Article IX, shall be prospective in
operation and effect only, and shall not adversely affect any right to
indemnification or advancement of expenses hereunder existing at the time of any
such repeal or modification.
The indemnification and reimbursement of expenses provided herein shall not
be deemed to limit the right of the Corporation to indemnify any other person
against any liability and expenses to the fullest extent permitted by law, nor
shall it be deemed exclusive of any other right to which any person seeking
indemnification from the Corporation may be entitled under any agreement, the
Article, a vote of the stockholders or disinterested directors, or otherwise,
both as to action in such person's official capacity as an officer or director
of the Corporation and as to action in another capacity, at the request of the
Corporation, while acting as an officer or director of the Corporation.
-17-
<PAGE>
EXHIBIT 4.1
[SIGNATURE RESORTS, INC. LOGO]
SIGNATURE RESORTS, INC.
NUMBER SHARES
SR________ ________
INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS
OF THE STATE OF MARYLAND CUSIP ________
This Certifies that
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE, OF
SIGNATURE RESORTS, INC.
(hereinafter called the "Corporation") transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney upon
surrender of this certificate properly endorsed. This certificate is not valid
until countersigned by the Transfer Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
DATED:
[SEAL]
CHIEF OPERATING OFFICER AND SECRETARY CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
CLASSES OF CAPITAL STOCK
The Corporation is authorized to issue stock of more than one class
consisting of Common Stock and one or more classes or series of Preferred Stock.
The Board of Directors of the Corporation is authorized to determine the
designations and any preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, terms and conditions of redemption of
any class or series of Preferred Stock before the issuance of such class or
series. The Corporation will furnish, without charge, to any shareholder making
a written request therefor, a written statement of the designations and any
preferences, conversion and other rights, voting powers, restrictions
limitations as to dividends, qualifications and terms and conditions of
redemption of each class or series of stock which the Corporation is authorized
to issue. Requests for such written statement may be directed to the Secretary
of the Corporation at the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - __________ Custodian ___________
(Cust) (Minor)
under Uniform Gifts to Minors
Act_____________________________
(State)
UNIF TRF MIN ACT - ______ Custodian (until age_____)
(Cust)
_________ under Uniform Transfers
(Minor)
to Minors Act __________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, __________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
______________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated__________________________
X__________________________________________
X__________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By_________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 174d-15.
<PAGE>
EXHIBIT 5.1
[FORM OF OPINION]
[BALLARD, SPAHR, ANDREWS & INGERSOLL LETTERHEAD]
July __, 1996
Signature Resorts, Inc.
911 Wilshire Boulevard
Suite 2250
Los Angeles, California 90017
Re: Signature Resorts, Inc., a Maryland corporation, (the "Company") -
Registration Statement on Form S-1 (File No. 333-06027)
Ladies and Gentlemen:
In connection with the registration of 6,037,500 shares of the
Company's Common Stock, par value $0.01 per share (the "Shares"), under the
Securities Act of 1933 as amended (the "Act"), by the Company on Form S-1 filed
with the Securities and Exchange Commission (the "Commission") on or about July
__, 1996 (the "Registration Statement"), you have requested our opinion with
respect to the matters set forth below.
We have acted as special Maryland corporate counsel for the Company in
connection with the matters described herein. In our capacity as special
Maryland corporate 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 certificates 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
<PAGE>
BALLARD SPAHR ANDREWS & INGERSOLL
Signature Resorts, Inc.
July __, 1996
Page 2
"Bylaws") and Resolutions of the Board of Directors of the Company adopted on or
before July __, 1996 and in full force and effect on July __, 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 against
payment of the purchase price therefore as determined by the Board of Directors
of the Company or a committee thereof, 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 commissioners for the various states of the
United States for registration of the Shares. We also consent to the
identification of our firm as Maryland 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.
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,
<PAGE>
EXHIBIT 10.2.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is dated as of June 13, 1996,
---------
between Signature Resorts, Inc., a Maryland corporation (the "Company"), and
-------
James E. Noyes (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 the earlier of (i) the date that the Executive
commences employment at the Company or (ii) July 1, 1996, and will terminate at
12:01 a.m. on June 30, 1998 (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 June 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 April 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 of the Company with primary responsibility for the daily operation and
profitability of (i.e. running) the Company's sales, marketing and
----
operations/property management/hotel divisions (the "Divisions"), subject to the
oversight of the Principals (as defined below) and the Executive's reporting
responsibility to the Principals. More specifically,
(i) The Executive and personnel from the Marketing and Sales
Divisions will be responsible for brand management and marketing between
the Company and the Embassy Vacation Resort and Westin brands to implement
the strategic marketing and sales plans for each of the Company's resorts;
(ii) The Executive and personnel from the Operations/Property
Management Division will oversee and coordinate both the growth of the
Company's resort management activities by acquiring other management
companies or resort management contracts and the key hotel marketing and
operational aspects of each of the Company's resorts (whether managed by
the Company or a third-party), including compliance with each hotel
operating budget (on both a revenue and expense basis) from both an asset
management standpoint and from meeting the vacation interval marketing
needs of each of the Company's resorts;
<PAGE>
(iii) Subject to approval of budgets by either the Board or the
Principals for added personnel, the Executive will be responsible for
building the necessary corporate and resort-level organization and
personnel to support the growth of the Company's activities;
(iv) The Executive's responsibility for each Division will extend
through the entire organization of the Company (subject to the Executive's
reporting responsibilities to the Principals) from corporate through all of
the sales, marketing and property management/operations positions at each
of the Company's resorts;
(v) The Executive will be responsible for formulating and
implementing and annual strategic business and marketing plan for the
Divisions (the "Business Plan"), including cash-flow projections, product
enhancement/positioning, homeowners' association budgets, vacation interval
sales prices and velocities, marketing costs by program and the like;
(vi) The Executive will be responsible for such other matters with
respect to the operation of the Divisions as determined by and delegated to
the Executive by the Principals and Board of Directors of the Company (the
"Board"), as applicable;
(vii) The areas of strategic relationships, finance, development,
acquisition of properties, acquisition of businesses or loan portfolios,
accounting, legal, treasury, collections and the like would remain the
responsibility of the Company's Principals.
In addition, for so long as the Executive is an employee of the Company and is
elected by the Company's stockholders, the Executive hereby agrees to serve as a
member of the Board. The Executive understands that his position as a member of
the Board is subject to the nomination by the Company; provided that the
Executive will be a member of the Board with a three-year term prior to the time
the Company consummates any public offering of securities and the Company (not
the Principals as Directors) agrees to use permissible commercially reasonable
efforts (subject to the exercise of its fiduciary duties) to cause the
nomination and election of the Executive to the Board following any such public
offering, subject to the terms and conditions of this Agreement. The Executive
shall devote his best efforts and his 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
the above services.
(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 Chicago, Illinois metropolitan area; provided, however,
that the Company will require the Executive to travel extensively to other
locations on the Company's business.
2
<PAGE>
(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
shall be permitted (i) to continue to serve as a director of Preview Media and
Ball Seed, (ii) to continue his personal investments in two early-stage joint
ventures (a high-end travel services company and the "Descender" gravity-
propelled downhill "jumbo-scooter") and (iii) 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 $280,000 during the first full year and not
less than $300,000 during the second full year of the Executive's employment
with the Company. In addition, should this Agreement be automatically renewed
pursuant to Section 2, above, the Company shall pay the Executive a salary of
not less than $320,000 during the third full year and not less than $340,000
during the fourth full year of the Executive's employment with the Company. In
the event the Agreement is renewed for a fifth year, the Company shall pay the
Executive a salary of $360,000 during the fifth full year of employment. 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.
(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. In addition, the Company agrees to reimburse the
Executive for any COBRA costs to maintain the Executive's current health
insurance coverage for himself through the Executive's prior employer until the
earlier to occur of (i) 90 days from the date of commencement of the Executive's
employment with the Company and (ii) the date of effectiveness of the
Executive's health insurance coverage provided by the Company. The Company
acknowledges that 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
in the form attached as Exhibit B hereto (the "Option Plan").
3
<PAGE>
The Company acknowledges that the potential incentive and wealth-building
benefits of the Option Agreement and the Option Plan to the Executive are
conditioned on the successful consummation of the public offering of the
Company's common stock. In the event that such public offering is materially
postponed or aborted for any reason, the Company agrees to offer the Executive
another vehicle designed to allow the Executive to share in the increased value
of the Company caused by the Executive's involvement therein during the term of
the Executive's employment by the Company. 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) Bonus. The Executive shall be paid in arrears a fixed quarterly
-----
bonus of $30,000 for each quarter that the Executive is employed with the
Company, payable at the end of each of the Company's fiscal quarters. This
quarterly bonus shall be paid during the Employment Period and any renewal
thereof as a mandatory (and not discretionary) payment by the Company. The
Executive shall have the opportunity to be considered for additional
performance-based bonus compensation at the sole and absolute discretion of the
Board, upon notification to the Executive; however, the Company makes no
commitment to the Executive that any additional bonus compensation in excess of
such $30,000 quarterly bonus will be paid to the Executive.
(e) Automobile and Other Fringe Benefits. For so long as the
------------------------------------
Executive is employed by the Company (but for a term not to exceed the duration
of the term of the Executive's current automobile lease (which the Executive has
informed the Company is approximately 34 months)), the Company shall pay to the
Executive an amount per month equal to the monthly payment due pursuant to such
automobile lease; provided such amount shall not exceed $1,000 per month. The
Executive will be entitled to fringe benefits comparable to those which are
currently enjoyed by, or in the future may be enjoyed by, the Company's
Principals.
(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 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 Board 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 the provisions set forth in this Agreement with respect to the Executive's
compensation, the Option Agreement and the terms and conditions of the
Executive's employment at the Company cannot be modified by the Board in a
manner which would result in less favorable or beneficial terms or conditions
thereof being imposed on the Executive without the Executive's full concurrence
and consent.
4
<PAGE>
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 each of the first five full years of 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
5
<PAGE>
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 resign from the Board and 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.
6
<PAGE>
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 his base salary
payable pursuant to Section 4(a) and quarterly 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 the pro rata portion of the quarterly bonus 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 (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 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.
For purposes of this Agreement, "Good Cause" shall mean, without the
express written consent of Executive, the occurrence of any of the following
events unless such events are substantially corrected within 30 days following
written notification by Executive to the Company that he intends to terminate
his employment hereunder for one of the reasons set forth below:
7
<PAGE>
(i) Any material alteration, reduction or diminution in the duties,
responsibilities and status of Executive's position;
(ii) the Company's requiring Executive to be based anywhere other
than at Company's office in the Chicago, Illinois metropolitan
area;
(iii) a material breach by the Company of any provision of this
Agreement; and
(iv) 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) (e.g., to spend more time with the Executive's daughter) 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 the amount of the Executive's prior month's earnings (if any) from
post-Company full time employment (including both salary, bonus and other cash
or cash equivalent compensation) at a subsequent full time employer or in
connection with a full time consulting practice or other self-employment or any
full time venture founded by the Executive; provided, however, that the Company
shall not be entitled to any Severance Payment offset or reduction as a result
of any earnings or income generated by the Executive from part-time consulting
work, unless and until such consulting work becomes a full time endeavor.
(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.
8
<PAGE>
(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
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.
9
<PAGE>
8. Covenant Not to Compete. 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 invest
in, manage, consult or participate in any way in any other timeshare business
(in either an active or passive manner); participate in or advise any business
wherein timeshare is a relevant business segment; or act for or on behalf of any
business that intends to enter or participate in the timeshare business.
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 their affiliates) more than 5% of any such company. 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. 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, or one day after delivery to an
overnight air courier guaranteeing next day delivery, addressed as follows:
10
<PAGE>
If to the Executive: James E. Noyes
293 Oak Street
Glen Ellyn, Illinois 60137
If to the Company: Signature Resorts, Inc.
911 Wilshire Blvd.
Suite 2250
Los Angeles, California 90017
Attention: Steven C. Kenninger
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
Illinois (without reference to the choice of law provisions of Illinois), 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.
12
<PAGE>
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 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.
21. Acknowledgements by the Company and the Executive. The Company and
-------------------------------------------------
the Executive additionally acknowledge and agree as follows:
(a) Departure from MTI/Trase Miller. The Executive agreed to leave the
-------------------------------
employment of MTI/Trase Miller, where the Executive had been employed for 16
years and where the Executive's current annual compensation was in excess of
$1.0 million, in exchange for the Executive accepting a position at the Company
with a sixty percent (60%) reduction in the Executive's current annual
compensation and with a stock option-based upside incentive for the Executive as
provided in the Option Agreement. Both the Executive and the Company accept
this exchange as fair and one in which each party has taken a risk and aligned
each's interests in connection with the terms and conditions of the Executive's
employment with the Company. Nothing in this Section 21(a) shall imply any
obligations on the part of either the Principals or the Company except as
expressly set forth elsewhere in the Agreement.
(b) The Executive's Family Commitments. Subject to the Executive's
----------------------------------
obligations under Section 3(b), the Company acknowledges and understands that
the Executive shares joint custody with the Executive's ex-wife of the
Executive's twelve-year old daughter and two college-age children, and therefore
the Company agrees not to require the Executive's relocation away from the
Chicago, Illinois metropolitan area.
(c) Geographic Location of the Executive's Office. Both the Executive and
---------------------------------------------
the Company acknowledge and understand that locating the Executive's office in
Chicago, Illinois is less than optimal from the Company's point of view, given
the Company's current operational headquarters in Orlando, Florida and the
location of the Company's Principals in California. Nevertheless, both the
Executive and the Company agree that this situation is manageable in view of the
provisions of Section 3(b) and agree to use each's best efforts to accommodate
the respective geographic locations.
(d) No Recruiting Representations by the Executive. The Company
----------------------------------------------
acknowledges and understands that the Executive has made no representations that
the Executive could or would recruit employees from MTI/Trase Miller, nor has
the Executive made any representations that the Executive will be able to
purchase travel fulfillment/telemarketing services from Trase/Miller on the
Company's behalf or on any terms more favorable than could be negotiated on an
arm's length basis by any third party. Notwithstanding the foregoing, the
Executive and the Company agree that one of the Executive's principal
responsibilities will be to develop and promote internally or to hire the right
employees (from wherever they are currently employed) necessary to effectively
run the Divisions, and to oversee and manage both the current operations of the
Divisions and the substantial growth in these operations planned by the Company.
The Company will require that the Executive abide by all of the Executive's
confidentiality and other employment obligations to
13
<PAGE>
MTI/Trase Miller with respect to unfair competition and similar matters.
However, the Executive has represented to the Company that the Executive is not
bound by and that the Executive is not a party to any written employment
agreement with MTI/Trase Miller or any other person or entity that would be
binding on the Executive while the Executive is employed by the Company.
14
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement as of the date and year first above written.
SIGNATURE RESORTS, INC.
/s/ OSAMU KANEKO
-------------------------------
Name: Osamu Kaneko
Title: Chief Executive Officer
EXECUTIVE
/s/ JAMES E. NOYES
------------------------------
James E. Noyes
15
<PAGE>
Exhibit A
Form of Option Agreement
16
<PAGE>
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement"), dated as of June 13,
1996, is made by and between Signature Resorts, Inc., a Maryland corporation
hereinafter referred to as "Company," and James E. Noyes, 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.
<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
- ------------ ---------
"Optionee" shall mean an Employee or consultant granted an Option
under this Agreement and the Plan.
2
<PAGE>
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 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
3
<PAGE>
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, on the date hereof the Company irrevocably grants to the Optionee
the option to purchase any part or all of an aggregate of three hundred seventy
five thousand (375,000) shares of its $.01 par value Common Stock upon the terms
and conditions set forth in this Agreement.
Section 2.2 - Purchase Price
- ----------- --------------
The purchase price of the shares of stock covered by the Option
shall be $12.00 per share without commission or other charge.
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
4
<PAGE>
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.
(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 forty-nine (49) cumulative installments as follows:
(i) The first installment shall consist of seventy-five
thousand (75,000) of the shares covered by the Option and shall become
exercisable on the date of execution of this Agreement.
(ii) Each of the forty-eight (48) successive installments
shall consist of six thousand two hundred fifty (6,250) shares covered by the
Option and shall become exercisable in equal installments at the end of each of
the first forty-eight (48) months during the term of the Optionee's employment
with the Company or any Subsidiary.
5
<PAGE>
(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
(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.
6
<PAGE>
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 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
7
<PAGE>
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 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
8
<PAGE>
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 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
9
<PAGE>
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
(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.
10
<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 regulations and rules promulgated by the Securities and
Exchange Commission thereunder, including without limitation Rule 16b-3.
Notwithstanding anything herein to the contrary,
11
<PAGE>
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.
SIGNATURE RESORTS, INC.
By /s/ OSAMU KANEKO
------------------------------------
Osamu Kaneko
Chief Executive Officer
By /s/ STEVEN C. KENNINGER
------------------------------------
Steven C. Kenninger
Secretary
/s/ JAMES E. NOYES
- -------------------------------
Optionee
12
<PAGE>
Exhibit B
Form of 1996 Equity Participation Plan of Signature Resorts, Inc.
17
<PAGE>
EXHIBIT 10.3
THE 1996 EQUITY PARTICIPATION PLAN
OF
SIGNATURE RESORTS, INC.
Signature Resorts, Inc., a Maryland corporation, has adopted The 1996
Equity Participation Plan of Signature Resorts, Inc. (the "Plan"), effective
June 13, 1996, for the benefit of its eligible employees, consultants and
directors. The Plan consists of two plans, one for the benefit of key Employees
(as such term is defined below), Independent Directors (as such term is defined
below) and consultants and another solely for the benefit of Independent
Directors.
The purposes of this Plan are as follows:
(1) To provide an additional incentive for directors, key Employees
and consultants to further the growth, development and financial success of the
Company by personally benefiting through the ownership of Company stock and/or
rights which recognize such growth, development and financial success.
(2) To enable the Company to obtain and retain the services of
directors, key Employees and consultants considered essential to the long range
success of the Company by offering them an opportunity to own stock in the
Company and/or rights which will reflect the growth, development and financial
success of the Company.
ARTICLE I
DEFINITIONS
1.1 General. Wherever the following terms are used in this Plan
-------
they shall have the meaning specified below, unless the context clearly
indicates otherwise.
1.2 Award Limit. "Award Limit" shall mean four hundred fifty
-----------
thousand (450,000) shares of Common Stock.
1.3 Board. "Board" shall mean the Board of Directors of the
-----
Company.
1.4 Change in Control. "Change in Control" shall mean a change in
-----------------
ownership or control of the Company effected through either of the following
transactions:
(a) any person or related group of persons (other than the Company or
a person that directly or indirectly controls, is controlled by, or is
under common control with, the Company) directly or indirectly acquires
beneficial ownership (within the meaning of Rule 13d-3 under the Exchange
Act) of securities possessing more than fifty percent (50%) of the total
combined voting power of the Company's outstanding securities pursuant to a
tender or exchange offer made directly to the Company's stockholders which
the Board does not recommend such stockholders to accept; or
(b) there is a change in the composition of the Board over a period of
twenty-four (24) consecutive months (or less) such that a majority of the
Board members (rounded up to the nearest whole number) ceases, by reason of
one or more proxy contests for the election of Board members, to be
comprised of individuals who either (i) have been Board members
continuously since the beginning of such period or (ii) have been elected
or nominated for election as Board
<PAGE>
members during such period by at least a majority of the Board members
described in clause (i) who were still in office at the time such election
or nomination was approved by the Board.
1.5 Code. "Code" shall mean the Internal Revenue Code of 1986, as
----
amended.
1.6 Committee. "Committee" shall mean the Compensation Committee
---------
of the Board, or another committee, or a subcommittee of the Board, appointed as
provided in Section 9.1.
1.7 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 preferred
stock and 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.
1.8 Company. "Company" shall mean Signature Resorts, Inc., a
-------
Maryland corporation.
1.9 Corporate Transaction. "Corporate Transaction" shall mean any
---------------------
of the following stockholder-approved transactions to which the Company is a
party:
(a) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which
is to change the State in which the Company is incorporated, form a holding
company or effect a similar reorganization as to form whereupon this Plan
and all Options are assumed by the successor entity;
(b) the sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company, in complete liquidation or
dissolution of the Company in a transaction not covered by the exceptions
to clause (a), above; or
(c) any reverse merger in which the Company is the surviving entity
but in which securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities are
transferred to a person or persons different from those who held such
securities immediately prior to such merger.
1.10 Deferred Stock. "Deferred Stock" shall mean Common Stock
--------------
awarded under Article VII of this Plan.
1.11 Director. "Director" shall mean a member of the Board.
--------
1.12 Dividend Equivalent. "Dividend Equivalent" shall mean a right
-------------------
to receive the equivalent value (in cash or Common Stock) of dividends paid on
Common Stock, awarded under Article VII of this Plan.
1.13 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.
1.14 Exchange Act. "Exchange Act" shall mean the Securities
------------
Exchange Act of 1934, as amended.
2
<PAGE>
1.15 Fair Market Value. "Fair Market Value" of a share of Common
-----------------
Stock as of a given date shall be (i) the closing price of a share of Common
Stock on the principal exchange on which shares of Common Stock are then
trading, if any (or as reported on any composite index which includes such
principal exchange), on the trading day previous to such date, or if shares were
not traded on the trading day previous to such date, then on the next preceding
date on which a trade occurred, or (ii) if Common Stock is not traded on an
exchange but is quoted on NASDAQ or a successor quotation system, the mean
between the closing representative bid and asked prices for the Common Stock on
the trading day previous to such date as reported by NASDAQ or such successor
quotation system; or (iii) if Common Stock is not publicly traded on an exchange
and not quoted on NASDAQ or a successor quotation system, the Fair Market Value
of a share of Common Stock as established by the Committee (or the Board, in the
case of grants to Independent Directors) acting in good faith.
1.16 Grantee. "Grantee" shall mean an Employee, Independent
-------
Director or consultant granted a Performance Award, Dividend Equivalent, Stock
Payment or Stock Appreciation Right, or an award of Deferred Stock, under this
Plan.
1.17 Incentive Stock Option. "Incentive Stock Option" shall mean
----------------------
an option which conforms to the applicable provisions of Section 422 of the Code
and which is designated as an Incentive Stock Option by the Committee.
1.18 Independent Director. "Independent Director" shall mean a
--------------------
member of the Board who is not an Employee of the Company.
1.19 Non-Qualified Stock Option. "Non-Qualified Stock Option"
--------------------------
shall mean an Option which is not designated as an Incentive Stock Option by the
Committee.
1.20 Option. "Option" shall mean a stock option granted under
------
Article III of this Plan. An Option granted under this Plan shall, as
determined by the Committee, be either a Non-Qualified Stock Option or an
Incentive Stock Option; provided, however, that Options granted to Independent
-------- -------
Directors and consultants shall be Non-Qualified Stock Options.
1.21 Optionee. "Optionee" shall mean an Employee, consultant or
--------
Independent Director granted an Option under this Plan.
1.22 Performance Award. "Performance Award" shall mean a cash
-----------------
bonus, stock bonus or other performance or incentive award that is paid in cash,
Common Stock or a combination of both, awarded under Article VII of this Plan.
1.23 Plan. "Plan" shall mean The 1996 Equity Participation Plan of
----
Signature Resorts, Inc.
1.24 QDRO. "QDRO" shall mean a qualified domestic relations order
----
as defined by the Code or Title I of the Employee Retirement Income Security Act
of 1974, as amended, or the rules thereunder.
1.25 Restricted Stock. "Restricted Stock" shall mean Common Stock
----------------
awarded under Article VI of this Plan.
3
<PAGE>
1.26 Restricted Stockholder. "Restricted Stockholder" shall mean
----------------------
an Employee, Independent Director or consultant granted an award of Restricted
Stock under Article VI of this Plan.
1.27 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.
1.28 Stock Appreciation Right. "Stock Appreciation Right" shall
------------------------
mean a stock appreciation right granted under Article VIII of this Plan.
1.29 Stock Payment. "Stock Payment" shall mean (i) a payment in
-------------
the form of shares of Common Stock, or (ii) an option or other right to purchase
shares of Common Stock, as part of a deferred compensation arrangement, made in
lieu of all or any portion of the compensation, including without limitation,
salary, bonuses and commissions, that would otherwise become payable to a key
Employee, Independent Director or consultant in cash, awarded under Article VII
of this Plan.
1.30 Subsidiary. "Subsidiary" shall mean (i) 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 50 percent or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain and (ii) any
partnership or limited liability company in which the Company (A) directly or
indirectly holds a managing partner or managing member interest or (B) is
entitled to 50 percent or more of the profits or assets upon dissolution.
1.31 Termination of Consultancy. "Termination of Consultancy"
--------------------------
shall mean the time when the engagement of an Optionee, Grantee or Restricted
Stockholder as a consultant to the Company or a Subsidiary is terminated for any
reason, with or without cause, including, but not by way of limitation, by
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 Consultancy.
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.
1.32 Termination of Directorship. "Termination of Directorship"
---------------------------
shall mean the time when an Optionee who is an Independent Director ceases to be
a Director for any reason, including, but not by way of limitation, a
termination by resignation, failure to be elected, death or retirement. The
Board, in its sole and absolute discretion, shall determine the effect of all
matters and questions relating to Termination of Directorship with respect to
Independent Directors.
1.33 Termination of Employment. "Termination of Employment" shall
-------------------------
mean the time when the employee-employer relationship between an Optionee,
Grantee or Restricted Stockholder and the Company or any Subsidiary is
terminated for any reason, with or without cause, 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 or continuing employment of an Optionee, Grantee or Restricted
Stockholder 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
4
<PAGE>
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; provided, however, that, with respect to Incentive Stock Options, a
-------- -------
leave of absence, change in status from an employee to an independent contractor
or other change in the employee-employer relationship shall constitute a
Termination of Employment if, and to the extent that, such leave of absence,
change in status or other change interrupts employment for the purposes of
Section 422(a)(2) of the Code and the then applicable regulations and revenue
rulings under said Section. 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
SHARES SUBJECT TO PLAN
2.1 Shares Subject to Plan.
----------------------
(a) The shares of stock subject to Options, awards of Restricted
Stock, Performance Awards, Dividend Equivalents, awards of Deferred Stock, Stock
Payments or Stock Appreciation Rights shall be Common Stock, initially shares of
the Company's Common Stock, par value $.01 per share. The aggregate number of
such shares which may be issued upon exercise of such options or rights or upon
any such awards under the Plan shall not exceed one million seven hundred fifty
thousand (1,750,000) shares of Common Stock. The shares of Common Stock
issuable upon exercise of such options or rights or upon any such awards may be
either previously authorized but unissued shares or treasury shares.
(b) The maximum number of shares which may be subject to options or
Stock Appreciation Rights granted under the Plan to any individual in any fiscal
year shall not exceed the Award Limit. To the extent required by Section 162(m)
of the Code, shares subject to Options which are canceled continue to be counted
against the Award Limit and if, after grant of an Option, the price of shares
subject to such Option is reduced, the transaction is treated as a cancellation
of the Option and a grant of a new Option and both the Option deemed to be
canceled and the Option deemed to be granted are counted against the Award
Limit. Furthermore, to the extent required by Section 162(m) of the Code, if,
after grant of a Stock Appreciation Right, the base amount on which stock
appreciation is calculated is reduced to reflect a reduction in the Fair Market
Value of the Company's Common Stock, the transaction is treated as a
cancellation of the Stock Appreciation Right and a grant of a new Stock
Appreciation Right and both the Stock Appreciation Right deemed to be canceled
and the Stock Appreciation Right deemed to be granted are counted against the
Award Limit.
2.2 Add-back of Options and Other Rights. If any Option, or other
------------------------------------
right to acquire shares of Common Stock under any other award under this Plan,
expires or is canceled without having been fully exercised, or is exercised in
whole or in part for cash as permitted by this Plan, the number of shares
subject to such Option or other right but as to which such Option or other right
was not exercised prior to its expiration, cancellation or exercise may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. Furthermore, any shares subject to Options or other awards which are
adjusted pursuant to Section 10.3 and become exercisable with respect to shares
of
5
<PAGE>
stock of another corporation shall be considered cancelled and may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. Shares of Common Stock which are delivered by the Optionee or Grantee or
withheld by the Company upon the exercise of any Option or other award under
this Plan, in payment of the exercise price thereof, may again be optioned,
granted or awarded hereunder, subject to the limitations of Section 2.1. If any
share of Restricted Stock is forfeited by the Grantee or repurchased by the
Company pursuant to Section 6.6 hereof, such share may again be optioned,
granted or awarded hereunder, subject to the limitations of Section 2.1.
Notwithstanding the provisions of this Section 2.2, no shares of Common Stock
may again be optioned, granted or awarded if such action would cause an
Incentive Stock Option to fail to qualify as an incentive stock option under
Section 422 of the Code.
ARTICLE III
GRANTING OF OPTIONS
3.1 Eligibility. Any Employee, Independent Director or consultant
-----------
selected by the Committee pursuant to Section 3.4(a)(i) shall be eligible to be
granted an Option. In addition, each Independent Director of the Company shall
be eligible to be granted Options at the times and in the manner set forth in
Section 3.4(d).
3.2 Disqualification for Stock Ownership. No person may be
------------------------------------
granted an Incentive Stock Option under this Plan if such person, at the time
the Incentive Stock Option is granted, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or any then existing Subsidiary or parent corporation (within the
meaning of Section 422 of the Code) unless such Incentive Stock Option conforms
to the applicable provisions of Section 422 of the Code.
3.3 Qualification of Incentive Stock Options. No Incentive Stock
----------------------------------------
Option shall be granted unless such Option, when granted, qualifies as an
"incentive stock option" under Section 422 of the Code. No Incentive Stock
Option shall be granted to any person who is not an Employee.
3.4 Granting of Options
-------------------
(a) The Committee shall from time to time, in its absolute
discretion, and subject to applicable limitations of this Plan:
(i) Determine which Employees are key Employees and select from
among the key Employees, Independent Directors or consultants (including
Employees, Independent Directors or consultants who have previously received
Options or other awards under this Plan) such of them as in its opinion should
be granted Options;
(ii) Subject to the Award Limit, determine the number of shares to
be subject to such Options granted to the selected key Employees, Independent
Directors or consultants;
(iii) Determine whether such Options are to be Incentive Stock
Options or Non-Qualified Stock Options and whether such Options are to qualify
as performance-based compensation as described in Section 162(m)(4)(C) of the
Code; and
6
<PAGE>
(iv) Determine the terms and conditions of such Options, consistent
with this Plan; provided, however, that the terms and conditions of Options
-------- -------
intended to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code shall include, but not be limited to, such terms and
conditions as may be necessary to meet the applicable provisions of Section
162(m) of the Code.
(b) Upon the selection of a key Employee, Independent Director
or consultant to be granted an Option, the Committee shall instruct the
Secretary of the Company to issue the Option and may impose such conditions on
the grant of the Option as it deems appropriate. Without limiting the
generality of the preceding sentence, the Committee may, in its discretion and
on such terms as it deems appropriate, require as a condition on the grant of an
Option to an Employee, Independent Director or consultant that the Employee,
Independent Director or consultant surrender for cancellation some or all of the
unexercised Options, awards of Restricted Stock or Deferred Stock, Performance
Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments or
other rights which have been previously granted to him under this Plan or
otherwise. An Option, the grant of which is conditioned upon such surrender,
may have an option price lower (or higher) than the exercise price of such
surrendered Option or other award, may cover the same (or a lesser or greater)
number of shares as such surrendered Option or other award, may contain such
other terms as the Committee deems appropriate, and shall be exercisable in
accordance with its terms, without regard to the number of shares, price,
exercise period or any other term or condition of such surrendered Option or
other award.
(c) Any Incentive Stock Option granted under this Plan may be
modified by the Committee to disqualify such option from treatment as an
"incentive stock option" under Section 422 of the Code.
(d) During the term of the Plan, each person who is an Independent
Director as of the date of the consummation of the initial public offering of
Common Stock automatically shall be granted (i) an Option to purchase fifteen
thousand (15,000) shares of Common Stock (subject to adjustment as provided in
Section 10.3) on the date of such initial public offering and (ii) an Option to
purchase fifteen thousand (15,000) shares of Common Stock (subject to adjustment
as provided in Section 10.3) on the third anniversary of such grant; provided
--------
that such Independent Director serves as a member of the Board on such third
anniversary. During the term of the Plan, a person who is initially elected to
the Board after the consummation of the initial public offering of Common Stock
and who is an Independent Director at the time of such initial election
automatically shall be granted (i) an Option to purchase fifteen thousand
(15,000) shares of Common Stock (subject to adjustment as provided in Section
10.3) on the date of such initial election and (ii) an Option to purchase
fifteen thousand (15,000) shares of Common Stock (subject to adjustment as
provided in Section 10.3) on the third anniversary of such grant; provided that
--------
such Independent Director serves as a member of the Board on such third
anniversary. Members of the Board who are employees of the Company and who
subsequently retire from the Company but remain on the Board, to the extent that
they are eligible, will receive Options as described in clause (i) of the
preceding sentence upon retirement from the Company and shall be eligible to
receive additional Options as described in and pursuant to the terms of clause
(ii) of the preceding sentence. All the foregoing Option grants authorized by
this Section 3.4(d) are subject to stockholder approval of the Plan.
7
<PAGE>
ARTICLE IV
TERMS OF OPTIONS
4.1 Option Agreement. Each Option shall be evidenced by a written
----------------
Stock Option Agreement, which shall be executed by the Optionee and an
authorized officer of the Company and which shall contain such terms and
conditions as the Committee (or the Board, in the case of grants to Independent
Directors) shall determine, consistent with this Plan. Stock Option Agreements
evidencing Options intended to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code shall contain such terms and
conditions as may be necessary to meet the applicable provisions of Section
162(m) of the Code. Stock Option Agreements evidencing Incentive Stock Options
shall contain such terms and conditions as may be necessary to meet the
applicable provisions of Section 422 of the Code.
4.2 Option Price. The price per share of the shares subject to
------------
each Option shall be set by the Committee; provided, however, that such price
-------- -------
shall be no less than the par value of a share of Common Stock, unless otherwise
permitted by applicable state law, and (i) in the case of Incentive Stock
Options and Options intended to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code, such price shall not be less than
100% of the Fair Market Value of a share of Common Stock on the date the Option
is granted; (ii) in the case of Incentive Stock Options granted to an individual
then owning (within the meaning of Section 424(d) of the Code) more than 10% of
the total combined voting power of all classes of stock of the Company or any
Subsidiary or parent corporation thereof (within the meaning of Section 422 of
the Code) such price shall not be less than 110% of the Fair Market Value of a
share of Common Stock on the date the Option is granted; and (iii) in the case
of grants to Independent Directors, such price shall equal 100% of the Fair
Market Value of a share of Common Stock pursuant to Section 3.4(d) on the date
the Option is granted; provided, however, that the price of each share subject
-------- -------
to each Option granted to Independent Directors on the date of the initial
public offering of Common Stock shall equal the initial public offering price
per share of Common Stock.
4.3 Option Term. The term of an Option shall be set by the
-----------
Committee in its discretion; provided, however, that, (i) in the case of grants
-------- -------
to Independent Directors pursuant to Section 3.4(d), the term shall be ten (10)
years from the date the Option is granted, without variation or acceleration
hereunder, but subject to Section 5.6, and (ii) in the case of Incentive Stock
Options, the term shall not be more than ten (10) years from the date the
Incentive Stock Option is granted, or five (5) years from such date if the
Incentive Stock Option is granted to an individual then owning (within the
meaning of Section 424(d) of the Code) more than 10% of the total combined
voting power of all classes of stock of the Company or any Subsidiary or parent
corporation thereof (within the meaning of Section 422 of the Code). Except as
limited by requirements of Section 422 of the Code and regulations and rulings
thereunder applicable to Incentive Stock Options, the Committee may extend the
term of any outstanding Option in connection with any Termination of Employment
or Termination of Consultancy of the Optionee, or amend any other term or
condition of such Option relating to such a termination.
4.4 Option Vesting
--------------
(a) The period during which the right to exercise an Option in whole
or in part vests in the Optionee shall be set by the Committee and the Committee
may determine that an Option may not be exercised in whole or in part for a
specified period after it is granted; provided, however, that Options granted to
-------- -------
Independent Directors pursuant to Section 3.4(d) shall become exercisable in
cumulative annual
8
<PAGE>
installments of 33 1/3% on each of the first, second and third anniversaries of
the date of Option grant, without variation or acceleration hereunder except as
provided in Section 10.3(b). At any time after grant of an Option, the Committee
may, in its sole and absolute discretion and subject to whatever terms and
conditions it selects, accelerate the period during which an Option (except an
Option granted to an Independent Director pursuant to Section 3.4(d)) vests.
(b) No portion of an Option which is unexercisable at Termination of
Employment, Termination of Directorship or Termination of Consultancy, as
applicable, shall thereafter become exercisable, except as may be otherwise
provided by the Committee in the case of Options granted to Employees,
Independent Directors or consultants either in the Stock Option Agreement or by
action of the Committee following the grant of the Option.
(c) To the extent that the aggregate Fair Market Value of stock with
respect to which "incentive stock options" (within the meaning of Section 422 of
the Code, but without regard to Section 422(d) of the Code) are exercisable for
the first time by an Optionee during any calendar year (under the Plan and all
other incentive stock option plans of the Company and any Subsidiary) exceeds
$100,000, such Options shall be treated as Non-Qualified Options to the extent
required by Section 422 of the Code. The rule set forth in the preceding
sentence shall be applied by taking Options into account in the order in which
they were granted. For purposes of this Section 4.4(c), the Fair Market Value
of stock shall be determined as of the time the Option with respect to such
stock is granted.
4.5 Consideration. In consideration of the granting of an Option,
-------------
the Optionee shall agree, in the written Stock Option Agreement, to remain in
the employ of (or to consult for or to serve as an Independent Director of, as
applicable) the Company or any Subsidiary for a period of at least one year
after the Option is granted or, in the case of an Independent Director, to the
end of such Independent Director's current Board term (or such shorter period as
may be fixed in the Stock Option Agreement or by action of the Committee or the
Board following grant of the Option). Nothing in this Plan or in any Stock
Option Agreement hereunder 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 any Optionee at any time for any reason whatsoever, with or without
good cause.
ARTICLE V
EXERCISE OF OPTIONS
5.1 Partial Exercise. An exercisable Option may be exercised in
----------------
whole or in part. However, an Option shall not be exercisable with respect to
fractional shares and the Committee (or the Board, in the case of Options
granted to Independent Directors) may require that, by the terms of the Option,
a partial exercise be with respect to a minimum number of shares.
5.2 Manner of Exercise. All or a portion of an exercisable Option
------------------
shall be deemed exercised upon delivery of all of the following to the Secretary
of the Company or his office:
(a) A written notice complying with the applicable rules established
by the Committee (or the Board, in the case of Options granted to Independent
Directors pursuant to Section 3.4(d)) stating that the Option, or a portion
thereof, is exercised. The notice shall be signed by the Optionee or other
person then entitled to exercise the Option or such portion;
9
<PAGE>
(b) Such representations and documents as the Committee (or the
Board, in the case of Options granted to Independent Directors pursuant to
Section 3.4(d)), in its absolute discretion, deems necessary or advisable to
effect compliance with all applicable provisions of the Securities Act of 1933,
as amended, and any other federal or state securities laws or regulations. The
Committee or Board may, in its absolute discretion, also take whatever
additional actions it deems appropriate to effect such compliance including,
without limitation, placing legends on share certificates and issuing stop-
transfer notices to agents and registrars;
(c) In the event that the Option shall be exercised pursuant to
Section 10.1 by any person or persons other than the Optionee, appropriate proof
of the right of such person or persons to exercise the Option; and
(d) Full cash payment to the Secretary of the Company for the shares
with respect to which the Option, or portion thereof, is exercised. However,
the Committee (or the Board, in the case of Options granted to Independent
Directors pursuant to Section 3.4(d)), may in its discretion (i) allow a delay
in payment up to thirty (30) days from the date the Option, or portion thereof,
is exercised; (ii) allow payment, in whole or in part, through the delivery of
shares of Common Stock owned by the Optionee, duly endorsed for transfer to the
Company with a Fair Market Value on the date of delivery equal to the aggregate
exercise price of the Option or exercised portion thereof; (iii) allow payment,
in whole or in part, through the delivery of property of any kind which
constitutes good and valuable consideration; (iv) allow payment, in whole or in
part, through the delivery of a full recourse promissory note bearing interest
(at no less than such rate as shall then preclude the imputation of interest
under the Code) and payable upon such terms as may be prescribed by the
Committee or the Board, or (v) allow payment through any combination of the
consideration provided in the foregoing subparagraphs (ii), (iii) and (iv). In
the case of a promissory note, the Committee (or the Board, in the case of
Options granted to Independent Directors pursuant to Section 3.4(d)) 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.
5.3 Conditions to Issuance of Stock Certificates. The Company
--------------------------------------------
shall not be required to issue or deliver any certificate or certificates for
shares of stock purchased upon the exercise of any 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;
(b) The completion of any registration or other qualification of
such shares under any state or federal law, or under the rulings or regulations
of the Securities and Exchange Commission or any other governmental regulatory
body which the Committee or Board shall, in its absolute discretion, deem
necessary or advisable;
(c) The obtaining of any approval or other clearance from any state
or federal governmental agency which the Committee (or Board, in the case of
Options granted to Independent Directors pursuant to Section 3.4(d)) shall, in
its absolute discretion, determine to be necessary or advisable;
10
<PAGE>
(d) The lapse of such reasonable period of time following the
exercise of the Option as the Committee (or Board, in the case of Options
granted to Independent Directors pursuant to Section 3.4(d)) may establish from
time to time for reasons of administrative convenience; and
(e) The receipt by the Company of full payment for such shares,
including payment of any applicable withholding tax.
5.4 Rights as Stockholders. The holders of Options shall not be,
-----------------------
nor have any of the rights or privileges of, stockholders of the Company in
respect of any shares purchasable upon the exercise of any part of an Option
unless and until certificates representing such shares have been issued by the
Company to such holders.
5.5 Ownership and Transfer Restrictions. The Committee (or Board,
------------------------------------
in the case of Options granted to Independent Directors pursuant to Section
3.4(d)), in its absolute discretion, may impose such restrictions on the
ownership and transferability of the shares purchasable upon the exercise of an
Option as it deems appropriate. Any such restriction shall be set forth in the
respective Stock Option Agreement and may be referred to on the certificates
evidencing such shares. The Committee may require the Employee to give the
Company prompt notice of any disposition of shares of Common Stock acquired by
exercise of an Incentive Stock Option within (i) two years from the date of
granting such Option to such Employee or (ii) one year after the transfer of
such shares to such Employee. The Committee may direct that the certificates
evidencing shares acquired by exercise of an Option refer to such requirement to
give prompt notice of disposition.
5.6 Limitations on Exercise of Options Granted to Independent
---------------------------------------------------------
Directors Pursuant to Section 3.4(d). No Option granted to an Independent
- ------------------------------------
Director pursuant to Section 3.4(d) may be exercised to any extent by anyone
after the first to occur of the following events:
(a) The expiration of twelve (12) months from the date of the
Optionee's death;
(b) the expiration of twelve (12) months from the date of the
Optionee's Termination of Directorship by reason of his permanent and total
disability (within the meaning of Section 22(e)(3) of the Code);
(c) the expiration of three (3) months from the date of the
Optionee's Termination of Directorship for any reason other than such Optionee's
death or his permanent and total disability, unless the Optionee dies within
said three-month period; or
(d) The expiration of ten years from the date the Option was
granted.
ARTICLE VI
AWARD OF RESTRICTED STOCK
6.1 Award of Restricted Stock
-------------------------
(a) The Committee may from time to time, in its absolute discretion:
(i) Select from among the key Employees, Independent Directors
or consultants (including Employees, Independent Directors or consultants who
have previously
11
<PAGE>
received other awards under this Plan) such of them as in its opinion should be
awarded Restricted Stock; and
(ii) Determine the purchase price, if any, and other terms and
conditions applicable to such Restricted Stock, consistent with this Plan.
(b) The Committee shall establish the purchase price, if any, and
form of payment for Restricted Stock; provided, however, that such purchase
-------- -------
price shall be no less than the par value of the Common Stock to be purchased,
unless otherwise permitted by applicable state law. In all cases, legal
consideration shall be required for each issuance of Restricted Stock.
(c) Upon the selection of a key Employee, Independent Director or
consultant to be awarded Restricted Stock, the Committee shall instruct the
Secretary of the Company to issue such Restricted Stock and may impose such
conditions on the issuance of such Restricted Stock as it deems appropriate.
6.2 Restricted Stock Agreement. Restricted Stock shall be issued
---------------------------
only pursuant to a written Restricted Stock Agreement, which shall be executed
by the selected key Employee, Independent Director or consultant and an
authorized officer of the Company and which shall contain such terms and
conditions as the Committee shall determine, consistent with this Plan.
6.3 Consideration. As consideration for the issuance of Restricted
--------------
Stock, in addition to payment of any purchase price, the Restricted Stockholder
shall agree, in the written Restricted Stock Agreement, to remain in the employ
of (or to consult for or serve as an Independent Director of, as applicable) the
Company or any Subsidiary for a period of at least one year after the Restricted
Stock is issued or, in the case of an Independent Director, to the end of such
Independent Director's current Board term (or such shorter period as may be
fixed in the Restricted Stock Agreement or by action of the Committee or the
Board following grant of the Restricted Stock). Nothing in this Plan or in any
Restricted Stock Agreement hereunder shall confer on any Restricted Stockholder
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 any Restricted Stockholder at any time
for any reason whatsoever, with or without good cause.
6.4 Rights as Stockholders. Upon delivery of the shares of
-----------------------
Restricted Stock to the escrow holder pursuant to Section 6.7, the Restricted
Stockholder shall have, unless otherwise provided by the Committee, all the
rights of a stockholder with respect to said shares, subject to the restrictions
in his Restricted Stock Agreement, including the right to receive all dividends
and other distributions paid or made with respect to the shares; provided,
--------
however, that in the discretion of the Committee, any extraordinary
- -------
distributions with respect to the Common Stock shall be subject to the
restrictions set forth in Section 6.5.
6.5 Restriction. All shares of Restricted Stock issued under this
------------
Plan (including any shares received by holders thereof with respect to shares of
Restricted Stock as a result of stock dividends, stock splits or any other form
of recapitalization) shall, in the terms of each individual Restricted Stock
Agreement, be subject to such restrictions as the Committee shall provide, which
restrictions may include, without limitation, restrictions concerning voting
rights and transferability and restrictions based on duration of employment with
the Company, Company performance and individual performance; provided, however,
-------- -------
that by action taken after the Restricted Stock is issued, the Committee
12
<PAGE>
may, on such terms and conditions as it may determine to be appropriate, remove
any or all of the restrictions imposed by the terms of the Restricted Stock
Agreement. Restricted Stock may not be sold or encumbered until all restrictions
are terminated or expire. Unless provided otherwise by the Committee, if no
consideration was paid by the Restricted Stockholder upon issuance, a Restricted
Stockholder's rights in unvested Restricted Stock shall lapse upon Termination
of Employment or, if applicable, upon Termination of Consultancy or Termination
of Directorship with the Company.
6.6 Repurchase of Restricted Stock. The Committee shall provide in
-------------------------------
the terms of each individual Restricted Stock Agreement that the Company shall
have the right to repurchase from the Restricted Stockholder the Restricted
Stock then subject to restrictions under the Restricted Stock Agreement
immediately upon a Termination of Employment or, if applicable, upon a
Termination of Consultancy or Termination of Directorship between the Restricted
Stockholder and the Company, at a cash price per share equal to the price paid
by the Restricted Stockholder for such Restricted Stock; provided, however, that
-------- -------
provision may be made that no such right of repurchase shall exist in the event
of a Termination of Employment or Termination of Consultancy without cause, or
following a change in control of the Company or because of the Restricted
Stockholder's retirement, death or disability, or otherwise.
6.7 Escrow. The Secretary of the Company or such other escrow
-------
holder as the Committee may appoint shall retain physical custody of each
certificate representing Restricted Stock until all of the restrictions imposed
under the Restricted Stock Agreement with respect to the shares evidenced by
such certificate expire or shall have been removed.
6.8 Legend. In order to enforce the restrictions imposed upon
-------
shares of Restricted Stock hereunder, the Committee shall cause a legend or
legends to be placed on certificates representing all shares of Restricted Stock
that are still subject to restrictions under Restricted Stock Agreements, which
legend or legends shall make appropriate reference to the conditions imposed
thereby.
ARTICLE VII
PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS,
DEFERRED STOCK, STOCK PAYMENTS
7.1 Performance Awards. Any key Employee, Independent Director or
-------------------
consultant selected by the Committee may be granted one or more Performance
Awards. The value of such Performance Awards may be linked to the market value,
book value, net profits or other measure of the value of Common Stock or other
specific performance criteria determined appropriate by the Committee, in each
case on a specified date or dates or over any period or periods determined by
the Committee, or may be based upon the appreciation in the market value, book
value, net profits or other measure of the value of a specified number of shares
of Common Stock over a fixed period or periods determined by the Committee. In
making such determinations, the Committee shall consider (among such other
factors as it deems relevant in light of the specific type of award) the
contributions, responsibilities and other compensation of the particular key
Employee, Independent Director or consultant.
7.2 Dividend Equivalents. Any key Employee, Independent Director
---------------------
or consultant selected by the Committee may be granted Dividend Equivalents
based on the dividends declared on Common Stock, to be credited as of dividend
payment dates, during the period between the date an Option, Stock Appreciation
Right, Deferred Stock or Performance Award is granted, and the date such Option,
Stock Appreciation Right, Deferred Stock or Performance Award is exercised,
vests or expires,
13
<PAGE>
as determined by the Committee. Such Dividend Equivalents shall be converted to
cash or additional shares of Common Stock by such formula and at such time and
subject to such limitations as may be determined by the Committee. With respect
to Dividend Equivalents granted with respect to Options intended to be qualified
performance-based compensation for purposes of Section 162(m), such Dividend
Equivalents shall be payable regardless of whether such Option is exercised.
7.3 Stock Payments. Any key Employee, Independent Director or
---------------
consultant selected by the Committee may receive Stock Payments in the manner
determined from time to time by the Committee. The number of shares shall be
determined by the Committee and may be based upon the Fair Market Value, book
value, net profits or other measure of the value of Common Stock or other
specific performance criteria determined appropriate by the Committee,
determined on the date such Stock Payment is made or on any date thereafter.
7.4 Deferred Stock. Any key Employee, Independent Director or
---------------
consultant selected by the Committee may be granted an award of Deferred Stock
in the manner determined from time to time by the Committee. The number of
shares of Deferred Stock shall be determined by the Committee and may be linked
to the market value, book value, net profits or other measure of the value of
Common Stock or other specific performance criteria determined to be appropriate
by the Committee, in each case on a specified date or dates or over any period
or periods determined by the Committee. Common Stock underlying a Deferred
Stock award will not be issued until the Deferred Stock award has vested,
pursuant to a vesting schedule or performance criteria set by the Committee.
Unless otherwise provided by the Committee, a Grantee of Deferred Stock shall
have no rights as a Company stockholder with respect to such Deferred Stock
until such time as the award has vested and the Common Stock underlying the
award has been issued.
7.5 Performance Award Agreement, Dividend Equivalent Agreement,
-----------------------------------------------------------
Deferred Stock Agreement, Stock Payment Agreement. Each Performance Award,
- --------------------------------------------------
Dividend Equivalent, award of Deferred Stock and/or Stock Payment shall be
evidenced by a written agreement, which shall be executed by the Grantee and an
authorized Officer of the Company and which shall contain such terms and
conditions as the Committee shall determine, consistent with this Plan.
7.6 Term. The term of a Performance Award, Dividend Equivalent,
-----
award of Deferred Stock and/or Stock Payment shall be set by the Committee in
its discretion.
7.7 Exercise Upon Termination of Employment. A Performance Award,
----------------------------------------
Dividend Equivalent, award of Deferred Stock and/or Stock Payment is exercisable
or payable only while the Grantee is an Employee, Independent Director or
consultant; provided that the Committee may determine that the Performance
Award, Dividend Equivalent, award of Deferred Stock and/or Stock Payment may be
exercised or paid subsequent to Termination of Employment or Termination of
Consultancy without cause, or following a change in control of the Company, or
because of the Grantee's retirement, death or disability, or otherwise.
7.8 Payment on Exercise. Payment of the amount determined under
--------------------
Section 7.1 or 7.2 above shall be in cash, in Common Stock or a combination of
both, as determined by the Committee. To the extent any payment under this
Article VII is effected in Common Stock, it shall be made subject to
satisfaction of all provisions of Section 5.3.
7.9 Consideration. In consideration of the granting of a
--------------
Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock
Payment, the Grantee shall agree, in a
14
<PAGE>
written agreement, to remain in the employ of, or to consult for, the Company or
any Subsidiary for a period of at least one year after such Performance Award,
Dividend Equivalent, award of Deferred Stock and/or Stock Payment is granted (or
such shorter period as may be fixed in such agreement or by action of the
Committee following such grant). Nothing in this Plan or in any agreement
hereunder shall confer on any Grantee any right to continue in the employ of, or
as a consultant for, the Company or any Subsidiary or shall interfere with or
restrict in any way the rights of the Company and any Subsidiary, which are
hereby expressly reserved, to discharge any Grantee at any time for any reason
whatsoever, with or without good cause.
ARTICLE VIII
STOCK APPRECIATION RIGHTS
8.1 Grant of Stock Appreciation Rights. A Stock Appreciation Right
-----------------------------------
may be granted to any key Employee, Independent Director or consultant selected
by the Committee. A Stock Appreciation Right may be granted (i) in connection
and simultaneously with the grant of an Option, (ii) with respect to a
previously granted Option, or (iii) independent of an Option. A Stock
Appreciation Right shall be subject to such terms and conditions not
inconsistent with this Plan as the Committee shall impose and shall be evidenced
by a written Stock Appreciation Right Agreement, which shall be executed by the
Grantee and an authorized officer of the Company. The Committee, in its
discretion, may determine whether a Stock Appreciation Right is to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the Code
and Stock Appreciation Right Agreements evidencing Stock Appreciation Rights
intended to so qualify shall contain such terms and conditions as may be
necessary to meet the applicable provisions of section 162(m) of the Code.
Without limiting the generality of the foregoing, the Committee may, in its
discretion and on such terms as it deems appropriate, require as a condition of
the grant of a Stock Appreciation Right to an Employee, Independent Director or
consultant that the Employee, Independent Director or consultant surrender for
cancellation some or all of the unexercised Options, awards of Restricted Stock
or Deferred Stock, Performance Awards, Stock Appreciation Rights, Dividend
Equivalents or Stock Payments, or other rights which have been previously
granted to him under this Plan or otherwise. A Stock Appreciation Right, the
grant of which is conditioned upon such surrender, may have an exercise price
lower (or higher) than the exercise price of the surrendered Option or other
award, may cover the same (or a lesser or greater) number of shares as such
surrendered Option or other award, may contain such other terms as the Committee
deems appropriate, and shall be exercisable in accordance with its terms,
without regard to the number of shares, price, exercise period or any other term
or condition of such surrendered Option or other award.
8.2 Coupled Stock Appreciation Rights
---------------------------------
(a) A Coupled Stock Appreciation Right ("CSAR") shall be related to a
particular Option and shall be exercisable only when and to the extent the
related Option is exercisable.
(b) A CSAR may be granted to the Grantee for no more than the number
of shares subject to the simultaneously or previously granted Option to which it
is coupled.
(c) A CSAR shall entitle the Grantee (or other person entitled to
exercise the Option pursuant to this Plan) to surrender to the Company
unexercised a portion of the Option to which the CSAR relates (to the extent
then exercisable pursuant to its terms) and to receive from the Company in
exchange therefor an amount determined by multiplying the difference obtained by
subtracting the Option
15
<PAGE>
exercise price from the Fair Market Value of a share of Common Stock on the date
of exercise of the CSAR by the number of shares of Common Stock with respect to
which the CSAR shall have been exercised, subject to any limitations the
Committee may impose.
8.4 Independent Stock Appreciation Rights
-------------------------------------
(a) An Independent Stock Appreciation Right ("ISAR") shall be
unrelated to any Option and shall have a term set by the Committee. An ISAR
shall be exercisable in such installments as the Committee may determine. An
ISAR shall cover such number of shares of Common Stock as the Committee may
determine. The exercise price per share of Common Stock subject to each ISAR
shall be set by the Committee. An ISAR is exercisable only while the Grantee is
an Employee, Independent Director or consultant; provided that the Committee may
determine that the ISAR may be exercised subsequent to Termination of Employment
or Termination of Consultancy without cause, or following a change in control of
the Company, or because of the Grantee's retirement, death or disability, or
otherwise.
(b) An ISAR shall entitle the Grantee (or other person entitled to
exercise the ISAR pursuant to this Plan) to exercise all or a specified portion
of the ISAR (to the extent then exercisable pursuant to its terms) and to
receive from the Company an amount determined by multiplying the difference
obtained by subtracting the exercise price per share of the ISAR from the Fair
Market Value of a share of Common Stock on the date of exercise of the ISAR by
the number of shares of Common Stock with respect to which the ISAR shall have
been exercised, subject to any limitations the Committee may impose.
8.4 Payment and Limitations on Exercise
-----------------------------------
(a) Payment of the amount determined under Section 8.2(c) and 8.3(b)
above shall be in cash, in Common Stock (based on its Fair Market Value as of
the date the Stock Appreciation Right is exercised) or a combination of both, as
determined by the Committee. To the extent such payment is effected in Common
Stock it shall be made subject to satisfaction of all provisions of Section 5.3
hereinabove pertaining to Options.
(b) Grantees of Stock Appreciation Rights may, in the discretion of
the Board or Committee, be required to comply with any timing or other
restrictions including a window-period requirement deemed advisable or prudent
by the Board or Committee or otherwise with respect to the settlement or
exercise of a Stock Appreciation Right.
8.5 Consideration. In consideration of the granting of a Stock
--------------
Appreciation Right, the Grantee shall agree, in the written Stock Appreciation
Right Agreement, to remain in the employ of (or to consult for or serve as an
Independent Director of, as applicable) the Company or any Subsidiary for a
period of at least one year after the Stock Appreciation Right is granted or, in
the case of an Independent Director, to the end of such Independent Director's
current Board term (or such shorter period as may be fixed in the Stock
Appreciation Right Agreement or by action of the Committee or the Board
following grant of the Restricted Stock). Nothing in this Plan or in any Stock
Appreciation Right Agreement hereunder shall confer on any Grantee any right to
continue in the employ of, or as a consultant for, the Company or any Subsidiary
or shall interfere with or restrict in any way the rights of the Company and any
Subsidiary, which are hereby expressly reserved, to discharge any Grantee at any
time for any reason whatsoever, with or without good cause.
16
<PAGE>
ARTICLE IX
ADMINISTRATION
9.1 Compensation Committee. Prior to the closing of the Company's
-----------------------
initial public offering of equity securities (the "Offering"), the Compensation
Committee shall consist of the entire Board. Following the closing of the
Offering, the Compensation Committee (or another committee or a subcommittee of
the Board assuming the functions of the Committee under this Plan) shall consist
solely of two or more Independent Directors appointed by and holding office at
the pleasure of the Board, each of whom is (i) a "non-employee director" (as
defined by Rule 16b-3), (ii) to the extent required by the applicable provisions
of Rule 16b-3, a "disinterested person" (as defined by Rule 16b-3) and (iii) an
"outside director" for purposes of Section 162(m) of the Code. Appointment of
Committee members shall be effective upon acceptance of appointment. Committee
members may resign at any time by delivering written notice to the Board.
Vacancies in the Committee may be filled by the Board.
9.2 Duties and Powers of Committee. It shall be the duty of the
-------------------------------
Committee to conduct the general administration of this Plan in accordance with
its provisions. The Committee shall have the power to interpret this Plan and
the agreements pursuant to which Options, awards of Restricted Stock or Deferred
Stock, Performance Awards, Stock Appreciation Rights, Dividend Equivalents or
Stock Payments are granted or awarded, and to adopt such rules for the
administration, interpretation, and application of this Plan as are consistent
therewith and to interpret, amend or revoke any such rules. Notwithstanding the
foregoing, the full Board, acting by a majority of its members in office, shall
conduct the general administration of the Plan with respect to grants to
Independent Directors. Any such grant or award under this Plan need not be the
same with respect to each Optionee, Grantee or Restricted Stockholder. Any such
interpretations and rules with respect to Incentive Stock Options shall be
consistent with the provisions of Section 422 of the Code. 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.
9.3 Majority Rule; Unanimous Written Consent. The Committee shall
-----------------------------------------
act by a majority of its members in attendance at a meeting at which a quorum is
present or by a memorandum or other written instrument signed by all members of
the Committee.
9.4 Compensation; Professional Assistance; Good Faith Actions.
----------------------------------------------------------
Members of the Committee shall receive such compensation for their services as
members as may be determined by the Board. All expenses and liabilities which
members of the Committee incur in connection with the administration of this
Plan shall be borne by the Company. The Committee may, with the approval of the
Board, employ attorneys, consultants, accountants, appraisers, brokers, or other
persons. The Committee, the Company and the Company's officers and Directors
shall be entitled to rely upon the advice, opinions or valuations of any such
persons. All actions taken and all interpretations and determinations made by
the Committee or the Board in good faith shall be final and binding upon all
Optionees, Grantees, Restricted Stockholders, the Company and all other
interested persons. No members of the Committee or Board shall be personally
liable for any action, determination or interpretation made in good faith with
respect to this Plan, Options, awards of Restricted Stock or Deferred Stock,
Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock
Payments, and all members of the Committee and the Board shall be fully
protected by the Company in respect of any such action, determination or
interpretation.
17
<PAGE>
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Not Transferable. Options, Restricted Stock awards, Deferred
-----------------
Stock awards, Performance Awards, Stock Appreciation Rights, Dividend
Equivalents or Stock Payments under this Plan may not be sold, pledged,
assigned, or transferred in any manner other than by will or the laws of descent
and distribution or pursuant to a QDRO, unless and until such rights or awards
have been exercised, or the shares underlying such rights or awards have been
issued, and all restrictions applicable to such shares have lapsed. No Option,
Restricted Stock award, Deferred Stock award, Performance Award, Stock
Appreciation Right, Dividend Equivalent or Stock Payment or interest or right
therein shall be liable for the debts, contracts or engagements of the Optionee,
Grantee or Restricted Stockholder 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, except to
the extent that such disposition is permitted by the preceding sentence.
During the lifetime of the Optionee or Grantee, only he may exercise
an Option or other right or award (or any portion thereof) granted to him under
the Plan, unless it has been disposed of pursuant to a QDRO. After the death of
the Optionee or Grantee, any exercisable portion of an Option or other right or
award may, prior to the time when such portion becomes unexercisable under the
Plan or the applicable Stock Option Agreement or other agreement, be exercised
by his personal representative or by any person empowered to do so under the
deceased Optionee's or Grantee's will or under the then applicable laws of
descent and distribution.
10.2 Amendment, Suspension or Termination of this Plan. Except as
--------------------------------------------------
otherwise provided in this Section 9.2, this Plan may be wholly or partially
amended or otherwise modified, suspended or terminated at any time or from time
to time by the Board or the Committee. However, without approval of the
Company's stockholders given within twelve months before or after the action by
the Board or the Committee, no action of the Board or the Committee may, except
as provided in Section 10.3, increase the limits imposed in Section 2.1 on the
maximum number of shares which may be issued under this Plan or modify the Award
Limit, and no action of the Committee may be taken that would otherwise require
stockholder approval as a matter of applicable law, regulation or rule. No
amendment, suspension or termination of this Plan shall, without the consent of
the holder of Options, Restricted Stock awards, Deferred Stock awards,
Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock
Payments, alter or impair any rights or obligations under any Options,
Restricted Stock awards, Deferred Stock awards, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents or Stock Payments theretofore granted
or awarded, unless the award itself otherwise expressly so provides. No
Options, Restricted Stock, Deferred Stock, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents or Stock Payments may be granted or
awarded during any period of suspension or after termination of this Plan, and
in no event may any Incentive Stock Option be granted under this Plan after the
first to occur of the following events:
(a) The expiration of ten years from the date the Plan is adopted by
the Board; or
(b) The expiration of ten years from the date the Plan is approved
by the Company's stockholders under Section 10.4.
18
<PAGE>
10.3 Changes in Common Stock or Assets of the Company, Acquisition
-------------------------------------------------------------
or Liquidation of the Company and Other Corporate Events.
- --------------------------------------------------------
(a) Subject to Section 10.3(d), in the event that the Committee (or
the Board, in the case of grants to Independent Directors) determines that any
dividend or other distribution (whether in the form of cash, Common Stock, other
securities, or other property), recapitalization, reclassification, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, liquidation, dissolution, or sale, transfer, exchange
or other disposition of all or substantially all of the assets of the Company
(including, but not limited to a Corporate Transaction), or exchange of Common
Stock or other securities of the Company, issuance of warrants or other rights
to purchase Common Stock or other securities of the Company, or other similar
corporate transaction or event, in the Committee's sole discretion (or in the
case of grants to Independent Directors, the Board's sole discretion), affects
the Common Stock such that an adjustment is determined by the Committee to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan or with respect
to an Option, Restricted Stock award, Performance Award, Stock Appreciation
Right, Dividend Equivalent, Deferred Stock award or Stock Payment, then the
Committee (or the Board, in the case of grants to Independent Directors) shall,
in such manner as it may deem equitable, adjust any or all of
(i) the number and kind of shares of Common Stock (or other
securities or property) with respect to which Options, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents or Stock Payments may be granted under
the Plan, or which may be granted as Restricted Stock or Deferred Stock
(including, but not limited to, adjustments of the limitations in Section 2.1 on
the maximum number and kind of shares which may be issued and adjustments of the
Award Limit),
(ii) the number and kind of shares of Common Stock (or other
securities or property) subject to outstanding Options, Performance Awards,
Stock Appreciation Rights, Dividend Equivalents, or Stock Payments, and in the
number and kind of shares of outstanding Restricted Stock or Deferred Stock, and
(iii) the grant or exercise price with respect to any Option,
Performance Award, Stock Appreciation Right, Dividend Equivalent or Stock
Payment.
(b) Subject to Sections 10.3(b)(vii) and 10.3(d), in the event of
any Corporate Transaction or other transaction or event described in Section
10.3(a) or any unusual or nonrecurring transactions or events affecting the
Company, any affiliate of the Company, or the financial statements of the
Company or any affiliate, or of changes in applicable laws, regulations, or
accounting principles, the Committee (or the Board, in the case of grants to
Independent Directors) in its discretion is hereby authorized to take any one or
more of the following actions whenever the Committee (or the Board, in the case
of grants to Independent Directors) determines that such action is appropriate
in order to prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under the Plan or with respect to any
option, right or other award under this Plan, to facilitate such transactions or
events or to give effect to such changes in laws, regulations or principles:
(i) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the Board, in the case of
grants to Independent Directors) may provide, either by the terms of the
agreement or by action taken prior to the occurrence of such transaction or
event and either automatically or upon the optionee's request,
19
<PAGE>
for either the purchase of any such Option, Performance Award, Stock
Appreciation Right, Dividend Equivalent, or Stock Payment, or any Restricted
Stock or Deferred Stock for an amount of cash equal to the amount that could
have been attained upon the exercise of such option, right or award or
realization of the optionee's rights had such option, right or award been
currently exercisable or payable or fully vested or the replacement of such
option, right or award with other rights or property selected by the Committee
(or the Board, in the case of grants to Independent Directors) in its sole
discretion;
(ii) In its sole and absolute discretion, the Committee (or
the Board, in the case of grants to Independent Directors) may provide, either
by the terms of such Option, Performance Award, Stock Appreciation Right,
Dividend Equivalent, or Stock Payment, or Restricted Stock or Deferred Stock or
by action taken prior to the occurrence of such transaction or event that it
cannot be exercised after such event;
(iii) In its sole and absolute discretion, and on such terms
and conditions as it deems appropriate, the Committee (or the Board, in the case
of grants to Independent Directors) may provide, either by the terms of such
Option, Performance Award, Stock Appreciation Right, Dividend Equivalent, or
Stock Payment, or Restricted Stock or Deferred Stock or by action taken prior to
the occurrence of such transaction or event, that for a specified period of time
prior to such transaction or event, such option, right or award shall be
exercisable as to all shares covered thereby, notwithstanding anything to the
contrary in (i) Section 4.4 or (ii) the provisions of such Option, Performance
Award, Stock Appreciation Right, Dividend Equivalent, or Stock Payment, or
Restricted Stock or Deferred Stock;
(iv) In its sole and absolute discretion, and on such terms
and conditions as it deems appropriate, the Committee (or the Board, in the case
of grant to Independent Directors) may provide, either by the terms of such
Option, Performance Award, Stock Appreciation Right, Dividend Equivalent, or
Stock Payment, or Restricted Stock or Deferred Stock or by action taken prior to
the occurrence of such transaction or event, that upon such event, such option,
right or award be assumed by the successor or survivor corporation, or a parent
or subsidiary thereof, or shall be substituted for by similar options, rights or
awards covering the stock of the successor or survivor corporation, or a parent
or subsidiary thereof, with appropriate adjustments as to the number and kind of
shares and prices; and
(v) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the Board, in the case of
grants to Independent Directors) may make adjustments in the number and type of
shares of Common Stock (or other securities or property) subject to outstanding
Options, Performance Awards, Stock Appreciation Rights, Dividend Equivalents, or
Stock Payments, and in the number and kind of outstanding Restricted Stock or
Deferred Stock and/or in the terms and conditions of (including the grant or
exercise price), and the criteria included in, outstanding options, rights and
awards and options, rights and awards which may be granted in the future.
(vi) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Committee may provide either by the
terms of a Restricted Stock award or Deferred Stock award or by action taken
prior to the occurrence of such event that, for a specified period of time prior
to such event, the restrictions imposed under a Restricted Stock Agreement or a
Deferred Stock Agreement upon some or all shares of Restricted Stock or Deferred
Stock may be terminated, and, in the case of Restricted Stock, some or all
shares of
20
<PAGE>
such Restricted Stock may cease to be subject to repurchase under Section 6.6 or
forfeiture under Section 6.5 after such event.
(vii) None of the foregoing discretionary terms of this Section
10.3(b) shall be permitted with respect to Options granted under Section 3.4(d)
to Independent Directors to the extent that such discretion would be
inconsistent with the applicable exemptive conditions of Rule 16b-3. In the
event of a Change in Control or a Corporate Transaction, to the extent that the
Board does not have the ability under Rule 16b-3 to take or to refrain from
taking the discretionary actions set forth in Section 10.3(b)(iii) above, each
Option granted to an Independent Director shall be exercisable as to all shares
covered thereby upon such Change in Control or during the five days immediately
preceding the consummation of such Corporate Transaction and subject to such
consummation, notwithstanding anything to the contrary in Section 4.4 or the
vesting schedule of such Options. In the event of a Corporate Transaction, to
the extent that the Board does not have the ability under Rule 16b-3 to take or
to refrain from taking the discretionary actions set forth in Section
10.3(b)(ii) above, no Option granted to an Independent Director may be exercised
following such Corporate Transaction unless such Option is, in connection with
such Corporate Transaction, either assumed by the successor or survivor
corporation (or parent or subsidiary thereof) or replaced with a comparable
right with respect to shares of the capital stock of the successor or survivor
corporation (or parent or subsidiary thereof).
(c) Subject to Section 10.3(d) and 10.8, the Committee (or the
Board, in the case of grants to Independent Directors) may, in its discretion,
include such further provisions and limitations in any Option, Performance
Award, Stock Appreciation Right, Dividend Equivalent, or Stock Payment, or
Restricted Stock or Deferred Stock agreement or certificate, as it may deem
equitable and in the best interests of the Company.
(d) With respect to Incentive Stock Options and Options and Stock
Appreciation Rights intended to qualify as performance-based compensation under
Section 162(m), no adjustment or action described in this Section 10.3 or in any
other provision of the Plan shall be authorized to the extent that such
adjustment or action would cause the Plan to violate Section 422(b)(1) of the
Code or would cause such option or stock appreciation right to fail to so
qualify under Section 162(m), as the case may be, or any successor provisions
thereto. Furthermore, no such adjustment or action shall be authorized to the
extent such adjustment or action would result in short-swing profits liability
under Section 16 or violate the exemptive conditions of Rule 16b-3 unless the
Committee (or the Board, in the case of grants to Independent Directors)
determines that the option or other award is not to comply with such exemptive
conditions. The number of shares of Common Stock subject to any option, right
or award shall always be rounded to the next whole number.
(e) In the event of any Corporate Transaction, each outstanding
Option, Performance Award, Stock Appreciation Right, Dividend Equivalent, Stock
Payment, Restricted Stock, or Deferred Stock award shall, immediately prior to
the effective date of the Corporate Transaction, automatically become fully
exercisable for all of the shares of Common Stock at the time subject to such
rights or fully vested, applicable, and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. However, an outstanding right
shall not so accelerate if and to the extent: (i) such right is, in connection
with the Corporate Transaction, either to be assumed by the successor or
survivor corporation (or parent thereof) or to be replaced with a comparable
right with respect to shares of the capital stock of the successor or survivor
corporation (or parent thereof) or (ii) the acceleration of exercisability of
such right is subject to other limitations imposed by the Plan Administrator at
the time
21
<PAGE>
of grant. The determination of comparability of rights under clause (i) above
shall be made by the Plan Administrator, and its determination shall be final,
binding and conclusive.
10.4 Approval of Plan by Stockholders. This Plan will be submitted
---------------------------------
for the approval of the Company's stockholders within twelve months after the
date of the Board's initial adoption of this Plan. Options, Performance Awards,
Stock Appreciation Rights, Dividend Equivalents or Stock Payments may be granted
and Restricted Stock or Deferred Stock may be awarded prior to such stockholder
approval, provided that such Options, Performance Awards, Stock Appreciation
Rights, Dividend Equivalents or Stock Payments shall not be exercisable and such
Restricted Stock or Deferred Stock shall not vest prior to the time when this
Plan is approved by the stockholders, and provided further that if such approval
has not been obtained at the end of said twelve-month period, all Options,
Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock
Payments previously granted and all Restricted Stock or Deferred Stock
previously awarded under this Plan shall thereupon be canceled and become null
and void.
10.5 Tax Withholding. The Company shall be entitled to require
----------------
payment in cash or deduction from other compensation payable to each Optionee,
Grantee or Restricted Stockholder of any sums required by federal, state or
local tax law to be withheld with respect to the issuance, vesting or exercise
of any Option, Restricted Stock, Deferred Stock, Performance Award, Stock
Appreciation Right, Dividend Equivalent or Stock Payment. The Committee (or the
Board, in the case of grants to Independent Directors) may in its discretion and
in satisfaction of the foregoing requirement allow such Optionee, Grantee or
Restricted Stockholder to elect to have the Company withhold shares of Common
Stock otherwise issuable under such Option or other award (or allow the return
of shares of Common Stock) having a Fair Market Value equal to the sums required
to be withheld.
10.6 Loans. The Committee may, in its discretion, extend one or
------
more loans to key Employees in connection with the exercise or receipt of an
Option, Performance Award, Stock Appreciation Right, Dividend Equivalent or
Stock Payment granted under this Plan, or the issuance of Restricted Stock or
Deferred Stock awarded under this Plan. The terms and conditions of any such
loan shall be set by the Committee.
10.7 Forfeiture Provisions. Pursuant to its general authority to
----------------------
determine the terms and conditions applicable to awards under the Plan, the
Committee (or the Board, in the case of grants to Independent Directors) shall
have the right (to the extent consistent with the applicable exemptive
conditions of Rule 16b-3) to provide, in the terms of Options or other awards
made under the Plan, or to require the recipient to agree by separate written
instrument, that (i) any proceeds, gains or other economic benefit actually or
constructively received by the recipient upon any receipt or exercise of the
award, or upon the receipt or resale of any Common Stock underlying such award,
must be paid to the Company, and (ii) the award shall terminate and any
unexercised portion of such award (whether or not vested) shall be forfeited, if
(a) a Termination of Employment, Termination of Consultancy or Termination of
Directorship occurs prior to a specified date, or within a specified time period
following receipt or exercise of the award, or (b) the recipient at any time, or
during a specified time period, engages in any activity in competition with the
Company, or which is inimical, contrary or harmful to the interests of the
Company, as further defined by the Committee (or the Board, as applicable).
10.8 Limitations Applicable to Section 16 Persons and Performance-
-------------------------------------------------------------
Based Compensation. Notwithstanding any other provision of this Plan, this
- ------------------
Plan, and any Option, Performance Award, Stock Appreciation Right, Dividend
Equivalent or Stock Payment granted, or Restricted Stock or Deferred Stock
awarded, to any individual who is then subject to Section 16 of the Exchange
Act, shall
22
<PAGE>
be subject to any additional limitations set forth in any applicable exemptive
rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3
of the Exchange Act) that are requirements for the application of such exemptive
rule. To the extent permitted by applicable law, the Plan, Options, Performance
Awards, Stock Appreciation Rights, Dividend Equivalents, Stock Payments,
Restricted Stock and Deferred Stock granted or awarded hereunder shall be deemed
amended to the extent necessary to conform to such applicable exemptive rule.
Furthermore, notwithstanding any other provision of this Plan, any Option or
Stock Appreciation Right intended to qualify as performance-based compensation
as described in Section 162(m)(4)(C) of the Code shall be subject to any
additional limitations set forth in Section 162(m) of the Code (including any
amendment to Section 162(m) of the Code) or any regulations or rulings issued
thereunder that are requirements for qualification as performance-based
compensation as described in Section 162(m)(4)(C) of the Code, and this Plan
shall be deemed amended to the extent necessary to conform to such requirements.
10.9 Effect of Plan Upon Options and Compensation Plans. The
---------------------------------------------------
adoption of this Plan shall not affect any other compensation or incentive plans
in effect for the Company or any Subsidiary. Nothing in this Plan shall be
construed to limit the right of the Company (i) to establish any other forms of
incentives or compensation for Employees, Independent Directors or consultants
of the Company or any Subsidiary or (ii) to grant or assume options or other
rights otherwise than under this Plan in connection with any proper corporate
purpose including but not by way of limitation, the grant or assumption of
options in connection with the acquisition by purchase, lease, merger,
consolidation or otherwise, of the business, stock or assets of any corporation,
partnership, firm or association.
10.10 Compliance with Laws. This Plan, the granting and vesting of
---------------------
Options, Restricted Stock awards, Deferred Stock awards, Performance Awards,
Stock Appreciation Rights, Dividend Equivalents or Stock Payments under this
Plan and the issuance and delivery of shares of Common Stock and the payment of
money under this Plan or under Options, Performance Awards, Stock Appreciation
Rights, Dividend Equivalents or Stock Payments granted or Restricted Stock or
Deferred Stock awarded hereunder are subject to compliance with all applicable
federal and state laws, rules and regulations (including but not limited to
state and federal securities law and federal margin requirements) and to such
approvals by any listing, regulatory or governmental authority as may, in the
opinion of counsel for the Company, be necessary or advisable in connection
therewith. Any securities delivered under this Plan shall be subject to such
restrictions, and the person acquiring such securities shall, if requested by
the Company, provide such assurances and representations to the Company as the
Company may deem necessary or desirable to assure compliance with all applicable
legal requirements. To the extent permitted by applicable law, the Plan,
Options, Restricted Stock awards, Deferred Stock awards, Performance Awards,
Stock Appreciation Rights, Dividend Equivalents or Stock Payments granted or
awarded hereunder shall be deemed amended to the extent necessary to conform to
such laws, rules and regulations.
10.11 Titles. Titles are provided herein for convenience only and
-------
are not to serve as a basis for interpretation or construction of this Plan.
23
<PAGE>
10.12 Governing Law. This Plan and any agreements hereunder shall be
--------------
administered, interpreted and enforced under the internal laws of the State of
Maryland without regard to conflicts of laws thereof.
* * *
I hereby certify that the foregoing Plan was duly adopted by the Board
of Directors of Signature Resorts, Inc. on June 13, 1996.
Executed on this 13th day of June, 1996.
-------------------------------------
Steven C. Kenninger
Director, Chief Operating Officer and
Secretary
* * * * * * *
I hereby certify that the foregoing Plan was approved by the stockholders
of Signature Resorts, Inc. on June 13, 1996.
Executed at Los Angeles, California on this 13th day of June, 1996.
-------------------------------------
Steven C. Kenninger
Director, Chief Operating Officer and
Secretary
24
<PAGE>
EXHIBIT 10.4
AGREEMENT OF LIMITED PARTNERSHIP
OF
POINTE RESORT PARTNERS, L.P.,
a Hawaii limited partnership
by and among
ARGOSY/KOAR GROUP, INC.,
a Georgia corporation,
as the Managing General Partner
HAL PACIFIC INC.,
a Washington corporation,
as the Non-Managing General Partner
and
ARGOSY/KOAR GROUP, INC.,
a Georgia corporation,
and
HAL PACIFIC INC.,
a Washington corporation,
as the Limited Partners
October 11, 1994
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I DEFINITIONS................................................... 2
ARTICLE II NAME AND PRINCIPAL PLACE OF BUSINESS.......................... 14
2.1 NAME.......................................................... 14
2.2 PRINCIPAL PLACE OF BUSINESS................................... 14
2.3 REGISTERED OFFICE AND REGISTERED AGENT........................ 14
ARTICLE III PURPOSE OF THE PARTNERSHIP.................................... 14
ARTICLE IV TERM.......................................................... 15
ARTICLE V CAPITAL CONTRIBUTIONS AND PARTNERSHIP INTERESTS............... 15
5.1 CAPITAL CONTRIBUTION OF THE PARTNERS.......................... 15
5.2 ADDITIONAL CAPITAL CONTRIBUTIONS.............................. 17
5.3 RETURN OF CAPITAL CONTRIBUTIONS AND CAPITAL ACCOUNTS.......... 17
5.4 PARTNERSHIP INTERESTS IN THE PARTNERSHIP...................... 18
5.5 ADMISSION OF ADDITIONAL PARTNERS.............................. 19
5.6 DELINQUENT PARTNER PROVISIONS................................. 19
ARTICLE VI ALLOCATIONS................................................... 20
6.1 PROFITS....................................................... 20
6.2 LOSSES........................................................ 20
6.3 MINIMUM GAIN.................................................. 21
6.4 GENERAL RULE.................................................. 21
ARTICLE VII DISTRIBUTIONS................................................. 21
7.1 ORDER......................................................... 21
7.2 AMOUNTS WITHHELD.............................................. 22
ARTICLE VIII REPRESENTATIONS, WARRANTIES AND
OBLIGATIONS OF THE MANAGING GENERAL PARTNER................... 23
8.1 REPRESENTATIONS AND WARRANTIES OF THE MANAGING
GENERAL PARTNER............................................... 23
8.2 CERTAIN OBLIGATIONS OF THE MANAGING GENERAL
PARTNER....................................................... 24
8.3 ADDITIONAL OBLIGATIONS OF THE MANAGING GENERAL PARTNER........ 26
ARTICLE IX APPLICATION OF PROCEEDS, CERTAIN FEES
AND EXPENSES OF THE PARTNERSHIP............................... 29
9.1 APPLICATION OF PROCEEDS, FEES AND EXPENSES.................... 29
9.2 DEVELOPMENT, CONSTRUCTION AND SALE OVERHEAD REIMBURSEMENT..... 29
9.3 MANAGEMENT MARKETING FEE...................................... 29
9.4 PAYMENT FOR ADDITIONAL SERVICES............................... 30
9.5 DIRECT COSTS.................................................. 30
9.6 REIMBURSEMENT OF ORGANIZATION COSTS........................... 30
</TABLE>
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<TABLE>
<C> <S> <C>
ARTICLE X STATUS OF THE MANAGING GENERAL PARTNER........................ 31
10.1 CONTROL AND RESPONSIBILITY.................................... 31
10.2 STATUS OF PARTNERSHIP INTEREST................................ 31
10.3 EXTENT OF OBLIGATION.......................................... 31
10.4 RIGHTS AND POWERS OF THE MANAGING GENERAL PARTNER............. 31
10.5 LIMITATIONS ON AUTHORITY OF THE MANAGING GENERAL PARTNER...... 33
10.6 G.P. MAJOR DECISIONS.......................................... 37
10.7 REMOVAL OF THE MANAGING GENERAL PARTNER....................... 37
10.8 [Intentionally Deleted]....................................... 40
10.9 LIABILITY AND INDEMNIFICATION OF THE GENERAL PARTNERS......... 40
10.10 NO WITHDRAWAL BY GENERAL PARTNERS............................. 41
10.11 CHANGE IN OWNERSHIP OF THE GENERAL PARTNERS................... 41
ARTICLE XI STATUS OF LIMITED PARTNERS.................................... 42
11.1 LIABILITY..................................................... 42
11.2 BUSINESS OF THE PARTNERSHIP................................... 43
11.3 STATUS OF PARTNERSHIP INTEREST................................ 43
11.4 DEATH, INCAPACITY OR DISSOLUTION OF A LIMITED PARTNER......... 43
11.5 INVESTMENT REPRESENTATION AND COVENANTS....................... 43
ARTICLE XII TRANSFER OF A PARTNERSHIP INTEREST............................ 44
12.1 ASSIGNMENT.................................................... 44
12.2 SUBSTITUTION.................................................. 45
12.3 ADDITIONAL CONDITIONS TO ASSIGNMENT AND SUBSTITUTION.......... 45
12.4 DEATH, INCAPACITY OR DISSOLUTION OF A LIMITED
PARTNER OR THE NON-MANAGING GENERAL PARTNER................... 46
ARTICLE XIII DISSOLUTION AND TERMINATION OF THE PARTNERSHIP................ 46
13.1 DISSOLUTION AND TERMINATION................................... 46
13.2 WINDING UP.................................................... 46
ARTICLE XIV LOANS......................................................... 47
14.1 LOANS TO AND FROM PARTNERSHIP................................. 47
14.2 PRIORITY OF LOANS BY PARTNERS................................. 48
ARTICLE XV BUY-SELL...................................................... 48
ARTICLE XVI ACCOUNTING AND REPORTS........................................ 50
16.1 BOOKS AND RECORDS............................................. 50
16.2 FISCAL YEAR................................................... 50
16.3 FINANCIAL STATEMENTS AND REPORTS.............................. 51
16.4 BANK ACCOUNTS................................................. 51
16.5 TAX RETURNS................................................... 51
16.6 FEDERAL INCOME TAX ELECTIONS.................................. 51
ARTICLE XVII AMENDMENTS.................................................... 52
</TABLE>
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<TABLE>
<C> <S> <C>
ARTICLE XVIII MISCELLANEOUS................................................. 52
18.1 MEETINGS...................................................... 52
18.2 OTHER VENTURES................................................ 52
18.3 NOTICES....................................................... 52
18.4 CAPTIONS...................................................... 53
18.5 IDENTIFICATION................................................ 53
18.6 COUNTERPARTS.................................................. 53
18.7 APPLICABLE LAW................................................ 53
18.8 PARTNER'S AGE AND COMPETENCE.................................. 53
18.9 BINDING AGREEMENT............................................. 53
18.10 SEVERABILITY.................................................. 53
18.11 ENTIRE AGREEMENT.............................................. 54
</TABLE>
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<PAGE>
THE LIMITED PARTNERSHIP INTERESTS DESCRIBED IN THIS DOCUMENT ARE SUBJECT TO THE
RESTRICTIONS ON TRANSFER AND OTHER TERMS AND CONDITIONS SET FORTH HEREIN.
PURCHASERS WILL BE REQUIRED TO BEAR THE RISK OF THEIR INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME. THE LIMITED PARTNERSHIP INTERESTS HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "FEDERAL ACT"), OR
THE SECURITIES LAWS OF ANY STATES ("STATE LAWS") AND ARE BEING OFFERED AND SOLD
IN RELIANCE UPON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE FEDERAL
ACT AND THE STATE LAWS. NEITHER THE LIMITED PARTNERSHIP INTERESTS NOR ANY PART
THEREOF MAY BE OFFERED FOR SALE, PLEDGED, HYPOTHECATED, SOLD, ASSIGNED, OR
TRANSFERRED AT ANY TIME EXCEPT IN COMPLIANCE WITH THE TERMS AND CONDITIONS OF
THIS PARTNERSHIP AGREEMENT AND PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE FEDERAL ACT AND ANY APPLICABLE STATE LAWS OR IN A TRANSACTION WHICH IS
EXEMPT FROM REGISTRATION UNDER THE FEDERAL ACT AND ANY APPLICABLE STATE LAWS.
=======================================================
AGREEMENT OF LIMITED PARTNERSHIP OF
-----------------------------------
POINTE RESORT PARTNERS, L.P.
----------------------------
THIS AGREEMENT OF LIMITED PARTNERSHIP OF POINTE RESORT PARTNERS, L.P. (this
"Agreement"), is made and entered into effective as of the 11th day of October,
1994, by and between ARGOSY/KOAR GROUP, INC., a Georgia corporation
("Argosy/KOAR"), having mailing addresses at 911 Wilshire Boulevard, Suite 2150,
Los Angeles, California 90017 and 2934 Woodside Road, Woodside, California
94062; and HAL PACIFIC INC., a Washington corporation, having a mailing address
at Columbia Center, Suite 6600, 701 Fifth Avenue, Seattle, Washington 98104
("HAL").
W I T N E S S E T H:
-------------------
Argosy/KOAR and HAL desire to form the Partnership for the purposes and upon
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and intending to be legally bound hereby, the parties hereto covenant, agree and
certify as follows:
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ARTICLE I
---------
DEFINITIONS
-----------
The following capitalized terms shall have the meanings defined herein, and
not those stated in the Hawaii Revised Limited Partnership Act.
1.1 "Act" means the Hawaii Revised Limited Partnership Act.
---
1.2 "Adjusted Capital Contributions" means, as of any day, a Partner's
------------------------------
Capital Contributions reduced by the amount of cash and the fair market value of
any Partnership Property distributed to such Partner pursuant to Article VII
(other than Preferred Return) and Section 13.2(d). In the event any Partner
transfers all or any portion of its interest in accordance with the terms of
this Agreement, its transferee shall succeed to the Adjusted Capital
Contributions of the transferor to the extent it relates to the transferred
interest. By way of explanation, the intent is that a Partner's Adjusted
Capital Contributions on which the Preferred Return is paid will be reduced by
any distributions to the Partner in excess of the Preferred Return.
Consequently, to the extent that a Partner receives distributions in excess of
the Preferred Return, its Adjusted Capital Contributions will be reduced and,
consequently, the amount due under the Preferred Return for succeeding years
will be reduced accordingly.
1.3 "Affiliate" means (i) any person or entity directly or indirectly
---------
controlling, controlled by or under common control with another person or
entity, (ii) other than in Sections 12.1 and 15.2, any person owning or
controlling 20% or more of the outstanding voting securities of such other
person or entity, (iii) any officer, director, partner of such person or entity
and (iv) for the purposes of Sections 12.1 and 15.2, any person or entity owning
or controlling 50% or more of the outstanding voting securities of such other
person or entity.
1.4 "Agreement" means this Agreement of Limited Partnership.
---------
1.5 "Approval Date" is defined in the Purchase Agreement, provided that
-------------
the Approval Date shall not be deemed to have occurred if the Purchase Agreement
has been terminated on or prior to such date.
1.6 "Approved Budget" means the Proposed Project Budget when approved by
---------------
the General Partners pursuant to Section 8.3(b).
1.7 "Argosy/KOAR" shall have the meaning set forth in the Preamble.
-----------
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1.8 "Association" means the condominium owners' association for the
-----------
Project.
1.9 "Bankruptcy" means, with respect to any Partner, that a petition
----------
shall have been filed by or against such Partner as a "debtor" under the
provisions of the bankruptcy laws of the United States of America or that such
Partner shall have made an assignment for the benefit of its creditors generally
or a receiver, trustee or conservator shall have been appointed for
substantially all of the property and assets of such Partner.
1.10 "Bridge Loan" shall mean a $30,300,000 bridge loan to the
-----------
Partnership to be funded by HAL or its Affiliate ("New Lender") for the purpose
of financing the Partnership's purchase of the Property and the pay-off of the
Loan. The Bridge Loan shall be on such terms and conditions as the New Lender
and the Partnership shall reasonably agree to, which shall be consistent with
and include, but not be limited to, (i) accrual of interest at a rate equal to
eleven percent (11%) per annum from the Closing Date through December 31, 1994,
with such rate increasing thereafter by one percentage point per annum each
month up to a maximum rate of twenty percent (20%) per annum, with all such
interest compounded monthly, (ii) payment of all accrued and unpaid interest on
August 31, 1995, and thereafter monthly, (iii) repayments of principal upon
"monetization" (i.e., upon the Partnership's receipt of proceeds of End Paper
----
Financing, but in no event later than sixty (60) days after the execution of the
Purchase Money Promissory Notes by the Interval buyers), in an amount equal to
the greater of twenty percent (20%) of the gross sales price of such Interval or
$3,500 (or $1,750 in lieu of $3,500 with respect to sales of bi-annual
Intervals), provided, however, that such repayments of principal shall be made
upon the Partnership's receipt of payment in the case of cash sale, (iv) a
maturity date of the earlier of November 1, 1999, or the date that HAL ceases to
be a General Partner of the Partnership, (v) an origination fee of $300,000
which shall be deemed fully earned and payable on the Closing Date, (vi) such
affirmative, negative and financial covenants as the New Lender shall reasonably
require, including, without limitation, (a) maintenance by the Partnership of
tangible net worth of at least $10,000,000, (b) commencing with the first
calendar quarter of 1996, limitation of marketing and sale expenses regarding
Intervals to fifty percent (50%) of net sales, determined quarterly, and (c)
maintenance of a ratio of total indebtedness to tangible net worth of not more
than 3 to 1 (including End Paper Financing), (vii) prohibitions against the
sale, transfer, mortgage or other encumbrance of any of the Property or any
interest therein or right of use thereof, other than sales of Intervals in the
ordinary course of the Partnership's business for fair market value in arm's-
length transactions, (viii) security consisting of a first-priority mortgage and
security interest in all assets of the partnership, other than assets pledged in
connection with End Paper Financing
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<PAGE>
(in which assets New Lender shall have a second-priority security interest),
(ix) provisions that Hawaii law will govern the Bridge Loan and that all parties
consent to jurisdiction and venue in Hawaii, and (x) such other commercially
reasonable terms and conditions as New Lender shall require.
1.11 "Bridge Loan Escrow" shall mean an escrow established with the
------------------
Escrow Holder for the deposit of the funds for the Bridge Loan pursuant to
Section 10.5.A.
1.12 "Buy-Sell Price" means the purchase price for which the Electing
--------------
Partner proposes to value the assets of the Partnership for purposes of Article
15.
1.13 "Capital Contributions" means, with respect to any Partner, the
---------------------
amount of money (including the amounts contributed to the Partnership under
Article V) contributed to the Partnership with respect to the Partnership
Interest held by such Partner.
1.14 "Closing Date" shall mean the closing date under the Purchase
------------
Agreement and the Funding Agreement, currently scheduled for November 1, 1994.
1.15 "Code" means the Internal Revenue Code of 1986, as amended.
----
1.16 "Declaration" shall mean the Declaration of Condominium Property
-----------
Regime of the Pointe at Poipu, dated anuary 19, 1994, recorded March 17, 1994 in
the Bureau of Companies of the State of Hawaii as Document No. 94-047821, as
amended by a First Amendment recorded May 27, 1994 as Document No. 94-090495.
1.17 "Delinquent Contribution" shall have the meaning set forth in
-----------------------
Section 5.6.
1.18 "Delinquent Partner" shall have the meaning set forth in Section
------------------
5.6.
1.19 "Deposit" shall mean all amounts deposited by HAL North America Inc.
-------
(an affiliate of HAL) and Argosy/KOAR pursuant to the Escrow Agreement.
1.20 "Direct Costs" means the operating expenses, fees and general and
------------
administrative costs of the Partnership (including payments under the Profit
Interest Agreement), which shall be made as set forth in the Approved Budget,
together with all other costs or expenses set forth in the Approved Budget,
together with any such expenses, fees and costs as shall be approved by G.P.
Major Decision or as shall be permitted to be made by the Managing General
Partner pursuant to Section 8.3(b), together
-4-
<PAGE>
with any and all other costs incurred by either General Partner in good faith
directly related to and for the benefit of the Project, subject to Section
8.3(b), provided that such costs shall not have been incurred intentionally or
with gross negligence in violation of the then-current Approved Budget, unless
such costs were incurred in an emergency situation, in which event the Partner
incurring any such costs will be reimbursed by the Partnership.
1.21 "Dispute Resolution" shall mean the procedures set forth in Section
------------------
10.7(d).
1.22 "Electing Partner" means the Partner giving an Election Notice.
----------------
1.23 "Election Day" means the thirtieth (30th) day following the
------------
occurrence of an Impasse.
1.24 "Election Notice" means a written notice given by the Electing
---------------
Partner, which shall state (i) that the Electing Partner has elected to
institute the buy-sell procedures set forth in Article XV; (ii) the basis upon
which such procedures are being instituted; and (iii) the Buy-Sell Price.
1.25 "Election Period" means the period commencing on the Election Day
---------------
and ending at 11:59 p.m. local time at the Partnership's principal place of
business on the sixtieth (60th) day following the Election Day.
1.26 "End Paper Financing" means financing obtained by the Partnership,
-------------------
on terms acceptable to the New Lender (in the New Lender's sole and absolute
discretion) whereby the Partnership will borrow against pledges of purchase
money loans held by the Partnership from sales of Intervals.
1.27 "Equity" means the G.P. Equity and the L.P. Equity.
------
1.28 "Escrow Agreement" means that agreement entered into by the Escrow
----------------
Holder, HAL North America Inc., Argosy/KOAR, and Seller with respect to the
Pointe at Poipu Beach, Kauai, Hawaii, Escrow No. 94-401-0454, dated September
27, 1994, as amended on September 28, 1994, October 4, 1994 and October 10,
1994.
1.29 "Escrow Holder" means Title Guaranty Escrow Services of Hawaii,
-------------
Inc., Kauai Branch.
1.30 "ESI" means Embassy Suites, Inc., a Hawaii corporation.
---
1.31 "Excusable Decision to Terminate for HAL" means a reasonable
---------------------------------------
determination by HAL, made in the exercise of its good faith business judgment
and as a result of the receipt by HAL
-5-
<PAGE>
between the Approval Date and prior to the Closing Date of reliable new
knowledge or information about either (i) the feasibility or physical condition
of the Project, or (ii) the character or integrity of the principals of
Argosy/KOAR, which knowledge or information is of such a substantial and
material nature that the viability of the Project or the compatibility of HAL
and Argosy/KOAR as prospective partners is effectively destroyed; provided,
however, that no issue associated with either the financial condition of or the
cost or availability of funds to HAL shall constitute an Excusable Decision to
Terminate for HAL.
1.32 "Excusable Decision to Terminate for Argosy/KOAR" means a reasonable
-----------------------------------------------
determination by Argosy/KOAR, made in the exercise of its good faith business
judgment and as a result of the receipt by Argosy/KOAR between the Approval Date
and the Closing Date of reliable new knowledge or information about either (i)
the feasibility or physical condition of this Project, or (ii) the character or
integrity of the principals of HAL, which knowledge or information is of such a
substantial and material nature that the viability of the Project or the
compatibility of HAL and Argosy/KOAR as prospective partners is effectively
destroyed; provided, however, that no issue associated with either the financial
condition of or the cost or availability of funds to Argosy/KOAR shall
constitute an Excusable Decision to Terminate for Argosy/KOAR.
1.33 "Forward Commitment" means, prior to the commencement of sales of
------------------
Intervals, a commitment of at least $5,000,000 (and, later, in amounts as the
General Partners deem necessary) from a creditworthy entity to fund a revolving
credit line to the Partnership in the sum of, or to purchase from the
Partnership for an amount equal to, at least 85% of the face amount of the
Purchase Money Promissory Notes to be received from Interval buyers, within
sixty (60) days after execution thereof by the Interval buyers.
1.34 "Funding Agreement" means that certain Funding Agreement dated
-----------------
October 7, 1994 by and between M5 and Argosy/ KOAR.
1.35 "General Partners" shall mean the Managing General Partner, the Non-
----------------
Managing General Partner and any successor(s) as may be designated and admitted
to the Partnership pursuant to the terms hereof.
1.36 "G.P. Equity" means the respective amounts contributed by the
-----------
General Partners to the Partnership pursuant to Sections 5.1(a) and 5.2(a).
1.37 "G.P. Major Decision" means any of the following decisions:
-------------------
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<PAGE>
(a) Other than in the ordinary course of selling Intervals, to sell,
exchange or dispose of (i) all or substantially all of the Project, or (ii) any
portion of the Project in a manner other than as contemplated in the then-
applicable Approved Budget.
(b) The call for additional capital contributions from the Partners.
(c) The admission of a person as a Partner.
(d) Any borrowing or the assumption of any indebtedness by the
Partnership (i) from a Partner (including any Affiliate) in any amount, or (ii)
from any third party by the Partnership (other than in connection with the
pledge of receivables or mortgages) which would cause outstanding Partnership
borrowing and indebtedness incurred without the consent of HAL pursuant to this
clause to exceed in the aggregate, $500,000 (other than End Paper Financing
except to the extent provided by Section 1.37(m)).
(e) The making of any distributions pursuant to Section 7.1 hereof.
(f) Any amendment to this Agreement.
(g) The annual approval of the Proposed Project Budget or any
expenditures in excess of the Proposed Project Budget for the applicable period
approved by G.P. Major Decision to the extent not permitted by Section 8.3(b).
(h) The removal of the Managing General Partner pursuant to Section
10.7.
(i) The entry into any agreements between the Partnership and the
Managing Partner, the Non-Managing Partner and/or any of their respective
Affiliates.
(j) The entry into material contracts, agreements or arrangements with
third parties in connection with the provision of major supplies and services to
the Project (including, by way of example and not by way of limitation, the
Forward Commitment, the License Agreement, the Resort Management Agreement, the
Resort Submanagement Agreement, the Subcontract Agreement and the Marketing
Agreement).
(k) Except as may be provided in this Agreement (including, but not
limited to, the payments to be made under Section 10.5F below) and any other
contract or agreement otherwise previously approved by the General Partners or
in the then applicable Approved Budget, any
-7-
<PAGE>
compensation to be paid by the Partnership to any senior management employees of
the Partnership.
(l) Any election under the Code which would materially change or affect
the method of tax accounting of the Partnership.
(m) The major terms of the End Paper Financing, or the incurrence of End
Paper Financing in an amount in excess of that provided for in the then
applicable Approved Budget.
(n) Any other decision for which the approval of both the Managing
General Partner and the Non-Managing General Partner is specifically required by
this Agreement.
1.38 "HAL" shall have the meaning set forth in the Preamble.
---
1.39 "HAL Limited Partners" means HAL, in its capacity as a Limited
--------------------
Partner, and Limited Partners admitted pursuant to the second sentence of
Section 5.5(a).
1.40 "Impasse" shall mean the failure of the Managing General Partner and
-------
the Non-Managing General Partner to agree with respect to any G.P. Major
Decision referred to in Section 1.37 (a)(i), (b), (e), (g), (h), (j) or (m) or
violations by the Managing General Partner of Section 8.3(b). An Impasse shall
be deemed to occur on the day after the last day on which any such consent or
approval of a General Partner is required to be given pursuant to a written
notice delivered by a General Partner to the other General Partner requesting
its consent (which notice must give the receiving General Partner thirty (30)
days following receipt to respond) and on which the receiving General Partner
has failed to give such consent or approval (i.e., the failure of the receiving
General Partner to give such consent or approval within such thirty (30) day
period shall be deemed to constitute the receiving General Partner's disapproval
of such G.P. Major Decision which can create an Impasse); provided, however, a
Impasse will not occur in the event the General Partner giving the notice
withdraws its request for the other General Partner's request, consent or
approval.
1.41 "Initial Capital Contribution" (or "initial capital contribution")
----------------------------
means the $75,000 initial capital contribution to the Partnership by the
Managing General Partner and the $75,000 initial capital contribution to the
Partnership by the Non-Managing General partner pursuant to Section 5.1(a), and
the respective initial capital contributions made by the Limited Partners to the
Partnership pursuant to Section 5.1(b).
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<PAGE>
1.42 "Interval" means an undivided interest in fee simple to use and
--------
occupy a Unit for a specific period of time or times every calendar year or
alternate calendar years in the Project.
1.43 "Land" means the 219-Unit existing condominium project known as the
----
"The Pointe at Poipu" located on approximately 22 acres of oceanfront land at
Poipu Beach on Kauai, Hawaii, such real property being described on Exhibit "A"
-----------
attached hereto and incorporated herein by reference.
1.44 "Lender" means, collectively, The Mitsui Trust & Banking Co., Ltd.
------
and, as participants in the Loan, Mitsui Leasing (U.S.A.), Sanshin (U.S.A.) and
SL Capital Corporation.
1.45 "Lender Note and Mortgage" means the promissory note evidencing the
------------------------
Loan and the first mortgage securing the Loan and encumbering the Property to be
acquired by M5 from Lender pursuant to the Loan Purchase Agreement and to be
paid off in its entirety by payment of $30,000,000 to M5 on the Closing Date.
1.46 "License Agreement" means that certain agreement which is
-----------------
contemplated to be negotiated by and between the Partnership and ESI pursuant to
which the Partnership shall have the right, subject to the terms and conditions
of the License Agreement, to market and operate the Project under the name
"Embassy Vacation Resort at Poipu Beach" and to use the "E" service mark in
connection therewith.
1.47 "Limited Partner" or "Limited Partners" means Argosy/KOAR, HAL and
--------------- ----------------
any successor(s) or additional or substituted persons or entities of the same
class. In the event any additional persons or entities are admitted to the
Partnership, reference to a "Limited Partner" shall be to any one of the
"Limited Partners."
1.48 "Liquidating Events" means any of the following events:
------------------
(a) by agreement of HAL and Argosy/KOAR;
(b) the expiration of the term of this Agreement;
(c) the decision by the Managing General Partner that it would be
in the best interest of the Partnership to dissolve and the concurrent
approval of the Non-Managing General Partner;
(d) the determination by either HAL or Argosy/KOAR not to fund the
balance of its Capital Contribution or the Bridge Loan, as the case may be,
prior to the Closing Date; or
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<PAGE>
(e) any event causing dissolution of the Partnership pursuant to
the Act (unless the Partnership is immediately reconstituted pursuant to
the terms of this Agreement).
1.49 "Loan" shall mean the loan by Lender to Seller in the original
----
principal amount of $62 million.
1.50 "Loan Purchase Agreement" shall mean that certain Loan Purchase
-----------------------
Agreement dated as of July __, 1994 by and between M5, as Purchaser, and Lender.
1.51 "L.P. Equity" means the respective amounts contributed by the
-----------
Limited Partners as their Capital Contributions to the Partnership pursuant to
Sections 5.1(b) and 5.2(a).
1.52 "Managing General Partner" means Argosy/KOAR and any successor(s) as
------------------------
may be designated and admitted to the Partnership pursuant to the terms hereof.
1.53 "Management Fees" means the fee income (net of expenses, including
---------------
the amounts payable to the Resort Manager pursuant to the Resort Submanagement
Agreement) to PRM pursuant to the Resort Management Agreement.
1.54 "Marketing Agent" means an Affiliate of the Partnership, which will
---------------
act as the exclusive sales agent for the sales of Intervals at the Project
pursuant to the terms and conditions of the Marketing Agreement and which
intends to subcontract its duties and responsibilities as Marketing Agent to the
Subcontract Agent(s).
1.55 "Marketing Agreement" means an exclusive sales and marketing
-------------------
agreement between the Partnership and the Marketing Agent which shall set forth
the terms and conditions of the Marketing Agent's marketing and sale of the
Intervals.
1.56 "M5" means M5 Corp., a Hawaii corporation.
--
1.57 "Net Cash From Operations" means the gross cash proceeds from
------------------------
Partnership operations (including sales and dispositions of Intervals made in
the ordinary course of business) less the portion thereof used to pay or
establish reserves for all Partnership Direct Costs. "Net Cash From Operations"
shall not be reduced by depreciation, amortization, cost recovery deductions or
similar allowances, but shall be increased by any reductions of reserves
previously established pursuant to the first sentence of this definition (which
are not applied to the contingencies for which such reserves were established)
and the definition of "Net Cash From Sales or Refinancings."
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<PAGE>
1.58 "Net Cash From Sales or Refinancings" means the net cash proceeds
-----------------------------------
from all sales and other dispositions (other than sales and dispositions of
Intervals made in the ordinary course of business) and all refinancings of the
Property, less payments made pursuant to the Profit Interest Agreement, or any
portion thereof used to establish reserves, all as determined by the General
Partners. "Net Cash From Sales or Refinancings" shall include all principal and
interest payments with respect to any note or other obligation received by the
Partnership in connection with sales and other dispositions (other than in the
ordinary course of business) of the Property.
1.59 "New Lender" means whichever of HAL or its Affiliate that funds the
----------
Bridge Loan.
1.60 "Non-Delinquent Partners" shall have the meaning set forth in
-----------------------
Section 5.6.
1.61 "Non-Managing General Partner" means HAL and any successor(s) as may
----------------------------
be designated and admitted to the Partnership as a General Partner pursuant to
the terms hereof and has not been designated Managing General Partner pursuant
to this Agreement.
1.62 "Notice Partner" means the Partner receiving an Election Notice.
--------------
1.63 "Official Records" means the records of the Bureau of Conveyances of
----------------
the State of Hawaii.
1.64 "Partners" shall refer collectively to the General Partners and to
--------
the Limited Partners. Reference to a "Partner" shall be to any one of the
"Partners."
1.65 "Partnership" means the limited partnership formed pursuant to this
-----------
Agreement.
1.66 "Partnership Interest" means the partnership interest of a Partner
--------------------
in the Partnership.
1.67 "Percentage Interest" means the interest of each Partner as set
-------------------
forth in Section 5.4, and as adjusted from time to time pursuant to Article V.
1.68 "Preferred Return" means a sum equivalent to 10% per annum
----------------
(compounded annually and cumulatively (i.e., such amounts shall accrue if not
----
paid)) of the Adjusted Capital Contributions of a Partner.
1.69 "Prime Rate" means the prime rate of interest as stated from time to
----------
time in the Wall Street Journal (or the maximum amount permitted by law,
whichever is less).
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1.70 "PRM" means Poipu Resort Management, Inc., an entity which is to be
---
owned seventy percent (70%) by M5 and thirty percent (30%) by the Partnership.
1.71 "Profits and Losses" means, for such fiscal year or other period, an
------------------
amount equal to the Partnership's taxable income or loss for such year or
period.
1.72 "Profit Interest Agreement" means the Agreement dated October __,
-------------------------
1994 by and among M5 and the Partnership.
1.73 "Project" means, collectively, the Land and the existing 219 unit
-------
condominium project thereon to be operated by the Partnership as a condominium
project for transient occupancy and sold in phases as Intervals (at 51 Intervals
per Unit for a total of 11,169 Units), along with all related improvements as
are now or hereafter made thereto.
1.74 "Property" shall have the meaning ascribed thereto in the Purchase
--------
Agreement, which includes the Land and the improvements thereon, including an
existing 219-Unit condominium project.
1.75 "Proposed Project Budget" means the annual operating and capital
-----------------------
expenditure budget for the Project.
1.76 "Purchase Agreement" shall mean that certain Agreement of Purchase
------------------
and Sale and Joint Escrow Instructions dated as of October 7, 1994 by and
between Argosy/KOAR and Seller, as such agreement may be amended.
1.77 "Purchase Escrow" means the escrow established in connection with
---------------
the Purchase Agreement at Title Guaranty Escrow Services, Inc., 235 Queen
Street, Honolulu, Hawaii 96813.
1.78 "Purchase Money Promissory Notes" means all purchase money
-------------------------------
promissory notes the Partnership receives in connection with the sale of all or
any portion of the Property, including, without limitation, the sale of
Intervals.
1.79 "Purchase Notice" shall mean a Notice by a Notice Partner given
---------------
pursuant to Section 15(c).
1.80 "Purchase Price" shall mean the sum of $40,000,000 plus the amount
--------------
payable for the "Pre-Opening FF&E" under the terms and conditions of the
Purchase Agreement.
1.81 "Purchasing Partner" is defined in Section 15(c).
------------------
1.82 "Regulations" shall have the meaning set forth in the definition of
-----------
"Treasury Regulations."
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<PAGE>
1.83 "Resort Manager" means a qualified management company mutually
--------------
agreed upon by M5 and the Partnership in their sole and absolute discretion.
1.84 "Resort Management Agreement" means an agreement between the
---------------------------
Association and PRM providing for the terms and conditions of PRM's management
of the Project.
1.85 "Resort Submanagement Agreement" means an agreement between PRM and
------------------------------
the Resort Manager providing for the terms and conditions of the Resort
Manager's management of the Project.
1.86 "Seller" means Poipu Suite Partners, a Hawaii limited Partnership.
------
1.87 "Selling Partners" is defined in Section 15(c).
----------------
1.88 "Subcontract Agent" means Shell Development Corporation-Poipu, Inc.,
-----------------
a Hawaii corporation, or its Affiliate, and/or such other sales agents with
marketing and sales experience in the Hawaii market to whom the Marketing Agent
subcontracts the on-site marketing and sales responsibility for the Project.
1.89 "Subcontract Agreement" means an agreement between Marketing Agent
---------------------
and the Subcontract Agent pursuant to which the Marketing Agent shall
subcontract to the Subcontract Agent the on-site marketing and sales duties and
responsibilities of the Marketing Agent.
1.90 "Takeout Loan" shall mean a commitment by an entity to the
------------
Partnership to refinance the Bridge Loan. The Non-Managing Partner will consent
to any Takeout Loan upon the following or better terms: (a) a term of not less
than three (3) years, (b) an applicable interest rate of less than Prime Rate
plus five percent (5%), (c) up-front loan fees of less than two and one-half
percent (2.5%) of the loan amount, (d) incentive and/or back-end fees of less
than two and one-half percent (2.5%) of the loan amount, and (e) release fees of
less than either (i) thirty percent (30%) of net sales, or (ii) twenty-five
percent (25%) of net sales, provided distributions pursuant to Section 7.1
hereof are made to pay down the Takeout Loan before any distributions to any
Partners. HAL shall have a right of first refusal to make the Takeout Loan on
the terms and conditions as contained in a proposed Takeout Loan.
1.91 "Transfer" means the sale, assignment, transfer, encumbrance,
--------
hypothecation or disposal, whether voluntarily or by operation of law, (a) of
all or any part of a Partner's interests or rights in the Partnership, or (b)
except as provided in Section 10.11, of all or any part of the ownership of a
Partner or any constituent partners or shareholders thereof.
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<PAGE>
1.92 "Treasury Regulations" or "Regulations" shall, unless otherwise
-------------------- -----------
indicated, refer to those regulations, including temporary regulations,
promulgated by the Department of the Treasury with respect to certain provisions
of the Code.
1.93 "Unit" means each of the 219 existing condominium units which are a
----
part of the Project.
ARTICLE II
----------
NAME AND PRINCIPAL PLACE OF BUSINESS
------------------------------------
2.1 NAME. The name of the Partnership shall be:
----
"Pointe Resort Partners, L.P."
2.2 PRINCIPAL PLACE OF BUSINESS. The principal place of business of
---------------------------
the Partnership shall initially be Argosy/KOAR Group, Inc., c/o Dwyer, Imanaka,
Schraff, Kudo, Meyer & Fujimoto, 1800 Pioneer Plaza, 900 Fort Street Mall,
Honolulu, Hawaii, Attention: Mitchell A. Imanaka, Esq. The Partnership may
relocate its office from time to time by notice thereof to the Non-Managing
General Partner and the Limited Partners or have additional offices as the
Managing General Partner may determine.
2.3 REGISTERED OFFICE AND REGISTERED AGENT. The name and address of
--------------------------------------
the registered office of the Partnership in the State of Hawaii shall be c/o
Dwyer, Imanaka, Schraff, Kudo, Meyer & Fujimoto, 1800 Pioneer Plaza, 900 Fort
Street Mall, Honolulu, Hawaii, Attention: Mitchell A. Imanaka, Esq. The name
and address of the registered agent of the Partnership in the State of Hawaii
shall be CT Corporation System.
ARTICLE III
-----------
PURPOSE OF THE PARTNERSHIP
--------------------------
The sole purpose and business of the Partnership shall be to own, operate
and hold the Property for investment and to develop the Project for sale in
phases as a timeshare vacation ownership and, until the Property can be sold as
such, to rent a portion of the Property to transient guests, and otherwise in
any manner to deal with the Property and all such other business incidental to
and not inconsistent with the general purposes herein set forth.
-14-
<PAGE>
ARTICLE IV
----------
TERM
----
The term of the Partnership shall commence as of the date hereof and shall
continue until the earlier of (i) the occurrence of a Liquidating Event, (ii)
the agreement of all remaining General Partners to terminate the Partnership,
(iii) the later of (A) the sale of all Intervals, or (B) the collection of all
amounts due and owing under Purchase Money Promissory Notes, or (iv) thirty (30)
years from the date of this Agreement, on which date this Partnership shall be
dissolved.
ARTICLE V
---------
CAPITAL CONTRIBUTIONS AND PARTNERSHIP INTERESTS
-----------------------------------------------
5.1 CAPITAL CONTRIBUTION OF THE PARTNERS.
------------------------------------
(a) The Partners hereby agree that $75,000 of the deposits into
the Purchase Escrow on or about September 28, 1994, by Argosy/KOAR and by HAL
North America Inc. (on behalf of HAL), pursuant to the terms and conditions of
the Escrow Agreement, shall be deemed to constitute each General Partner's
Capital Contribution. The agreement of the General Partners to act as general
partners, thereby becoming potentially responsible or obligated to third parties
for any debts or obligations incurred by the Partnership in the event that
Partnership assets prove insufficient in the period in which the General
Partners shall act as general partners, together with their respective Capital
Contributions, is agreed by the parties hereto to be adequate and sufficient
consideration from the General Partners for the Partnership Interest granted to
each General Partner by this Agreement.
(b) The Limited Partners shall make their respective initial cash
Capital Contributions as follows:
(i) Argosy/KOAR and HAL each hereby agree that $125,000 and
$225,000 of the deposits into the Purchase Escrow on or about September 28,
1994, pursuant to the terms and conditions of the Escrow Agreement, by
Argosy/KOAR and by HAL North America Inc. (on behalf of HAL), shall be
applied as a portion of their respective Capital Contributions as Limited
Partners to the Partnership;
(ii) Subject to subsection (c) below, and subject to the
right of the Managing General Partner to bring in additional Limited
Partners pursuant to Section 5.5(a), on or before the Approval Date,
Argosy/KOAR and HAL, as Limited Partners, shall make additional cash
Capital Contributions to the Partnership of $1,320,000 and
-15-
<PAGE>
$1,980,000, respectively, which shall be deposited in the Purchase Escrow;
(iii) On or before the Closing Date and subject to the right
of the Managing General Partner to bring in additional Limited Partners
pursuant to Section 5.5 (a), Argosy/KOAR, as a Limited Partner, and HAL
Limited Partners shall make additional cash Capital Contributions to the
Partnership of $730,000 and $10,470,000, respectively, of which sufficient
funds will be deposited in the Purchase Escrow to complete the purchase of
the Property pursuant to the Purchase Agreement, with the remaining amount
to be deposited into the bank account established for the Partnership.
Argosy/KOAR and HAL shall each be credited against such contribution
obligation amounts actually paid by them prior to the date such
contribution is due to cover costs referred to in Section 9.6, to the
extent such costs are covered by the Partnership's initial Approved Budget.
Upon execution of this Agreement and payment of the Capital Contributions
provided for in Section 5.1, the Partners shall own the following interests in
the Profits and Losses of the Partnership:
<TABLE>
<CAPTION>
Capital
-------
<S> <C>
Argosy/KOAR (as Managing General
Partner) $ 75,000
HAL (as Non-Managing General Partner) 75,000
Argosy/KOAR (as a Limited Partner) 2,175,000
HAL Limited Partners 12,675,000
Totals $15,000,000
</TABLE>
(c) Prior to the Closing Date, in the event that HAL reasonably
determines, in the exercise of its good faith business judgment that an
Excusable Decision to Terminate by HAL exists, HAL shall have the right not to
fund either the balance of its Capital Contribution or the Bridge Loan. In the
event that HAL determines in the exercise of its good faith business judgment
not to fund either the balance of its capital contribution or the Bridge Loan
for any reason other than an Excusable Decision to Terminate by HAL and, as a
result, HAL and Argosy/KOAR lose the Deposit as liquidated damages to Seller,
HAL shall reimburse Argosy/KOAR for Argosy/KOAR's share of the Deposit placed
into the Purchase Escrow.
(d) Prior to the Closing Date, in the event Argosy/KOAR reasonably
determines, in the exercise of its good faith business judgment, that an
Excusable Decision to Terminate by Argosy/KOAR exists, Argosy/KOAR shall have
the right not to fund the balance of its Capital Contribution. In the event
that Argosy/KOAR determines in the exercise of its good faith business
-16-
<PAGE>
judgment not to fund the balance of its capital contribution for any reason
other than an Excusable Decision to Terminate by Argosy/KOAR and, as a result,
HAL and Argosy/KOAR lose the Deposit as liquidated damages to Seller,
Argosy/KOAR shall reimburse HAL for HAL's share of the Deposit placed into the
Purchase Escrow.
5.2 ADDITIONAL CAPITAL CONTRIBUTIONS.
--------------------------------
(a) Except as otherwise may be required by this Agreement, the
Limited Partners shall not be required to make any further Capital Contributions
to the Partnership, unless approved by the General Partners. Except as otherwise
may be required by law or by contract, the General Partners shall not be
required to make any further Capital Contributions to the Partnership, unless
the General Partners elect (as a G.P. Major Decision) to do so in which case
0.5% of any additional Capital Contribution shall be made by each of the General
Partners, 84.5% of any additional Capital Contributions shall be made by HAL
Limited Partners and 14.5% of any additional Capital Contributions shall be made
by Argosy/KOAR as a Limited Partner.
(b) Contribution Among General Partners to Cover Excess Losses.
----------------------------------------------------------
In the event (i) that either General Partner shall be held liable for any debt,
liability or obligation of the Partnership pursuant to a final judgment of a
court of competent jurisdiction or other binding adjudicative proceeding and
either General Partner has assets to satisfy (or partially satisfy) such
judgment, and (ii) after the entry of such final judgment, the winning party
successfully levies on assets of such General Partner without the agreement or
cooperation of such General Partner, such General Partner shall be reimbursed
for the amount actually paid on such judgment pursuant to such levy, including
reasonable attorneys' fees and costs necessarily incurred in connection
therewith by the other Partners in the proportion that such amounts would have
been borne pursuant to Section 6.2 had such losses been allocated as Partnership
Losses; provided, however, no Partner shall have such right of reimbursement
with respect to any settlement of an action which was either made or entered
into without the consent of the other Partners.
5.3 RETURN OF CAPITAL CONTRIBUTIONS AND CAPITAL ACCOUNTS.
----------------------------------------------------
(a) A capital account shall be established for each Partner. None
of the Partners shall be entitled to withdraw any part of its respective capital
account or to receive any distribution from the Partnership except as
specifically provided herein. The Managing General Partner may create such other
accounts in the Partnership's books and records as it deems necessary or
appropriate.
-17-
<PAGE>
(b) No Partner shall have the right to withdraw its respective
Capital Contributions or demand or receive the return of its Capital
Contributions or any part thereof, except as otherwise provided in this
Agreement.
(c) The Managing General Partner shall not be personally liable
for the return of the Capital Contributions of the Partners, if and to the
extent that any return is required, and any such return shall be made solely
from the assets of the Partnership.
(d) The Partnership shall not pay interest on Capital
Contributions of any Partner.
5.4 PARTNERSHIP INTERESTS IN THE PARTNERSHIP.
----------------------------------------
(a) The initial Percentage Interests of the Partners for purposes
of distributions pursuant to Section 7.1(c)(i) and the corresponding allocations
of Profits and Losses pursuant to Article VI shall be as follows:
<TABLE>
<CAPTION>
Percentage
Interest
----------
<S> <C>
Argosy/KOAR (as Managing General Partner) .5%
HAL (as Non-Managing General Partner) .5%
Argosy/KOAR (as a Limited Partner) 39.5%
HAL Limited Partners 59.5%
</TABLE>
(b) The initial Percentage Interests of Partners for purposes of
distributions pursuant to Section 7.1(c)(ii) and the corresponding allocations
of Profits and Losses pursuant to Article VI shall be as follows:
<TABLE>
<CAPTION>
Percentage
Interest
----------
<S> <C>
Argosy/KOAR (as Managing General Partner) .5%
HAL (as Non-Managing General Partner) .5%
Argosy/KOAR (as a Limited Partner) 44.5%
HAL Limited Partners 54.5%
</TABLE>
(c) The Capital Contributions and Percentage Interests of Partners
shall be adjusted from time to time as set forth in this Agreement. Except to
the extent otherwise provided by this Agreement, HAL Limited Partners shall
share in allocations and distributions made to HAL Limited Partners as a group
pursuant to this Agreement in proportion to their respective Capital
Contributions as Limited Partners.
(d) Notwithstanding anything contained in this Agreement to the
contrary, in no event shall the General Partners
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<PAGE>
own, in the aggregate, less than one percent (1%) of the Percentage Interests.
5.5 ADMISSION OF ADDITIONAL PARTNERS.
--------------------------------
(a) Additional Partners may be admitted to the Partnership only in
the manner provided in Sections 12.2 and 12.3 relating to substitution.
Notwithstanding the foregoing, at any time up to and until the Capital
Contribution by HAL pursuant to Section 5.1(b)(iii), the Managing General
Partner may bring in additional Limited Partners, acceptable to the Non-Managing
General Partner in its reasonable discretion, to contribute up to 50% of the
initial capital otherwise to be contributed by HAL as a Limited Partner.
Notwithstanding the proportional reduction in HAL's Limited Partnership Interest
resulting from the admission of additional Limited Partners pursuant to this
Section 5.5, in no event shall any of the rights of HAL be subordinate to any
new Partner without the written consent of HAL.
(b) Upon the admission of any additional Limited Partner, the
Partnership Interests of the Limited Partners shall be adjusted in such manner
and to such extent as is consistent with such terms as previously approved
pursuant to Section 5.5(a) hereof, and the Partners shall execute appropriate
amendments to this Agreement for the purpose of conforming and modifying any
other provisions of this Agreement as reasonably may be required as a result of
the admission of any additional Partners, and such amendments shall be effective
upon execution of such documents by the Partners.
5.6 DELINQUENT PARTNER PROVISIONS. If any Partner (the "Delinquent
-----------------------------
Partner") shall fail without excuse or justification to fund any Capital
Contributions pursuant to Sections 5.1 or 5.2 as and when such Capital
Contributions are due, then, the sole remedy of any other Partners which are not
Delinquent Partners (the "Non-Delinquent Partners") shall be as follows:
(i) In the event that Argosy/KOAR is the Delinquent Partner, for
each $150,000 that Argosy/KOAR fails to contribute to the Partnership, the HAL
Limited Partners may elect to contribute such amounts on behalf of Argosy/KOAR
and elect to treat such contribution as a contribution to capital by such HAL
Limited Partners (who shall then be referred to herein as the "Contributing
Partner"), and the Percentage Interest of Argosy/KOAR thereupon shall be reduced
(first, as to Argosy/KOAR's Percentage Interest as a Limited Partner, and
thereafter, if necessary, as to Argosy/KOAR's Percentage Interest as a General
Partner), and the Percentage Interest of the Contributing Partner shall be
increased, by five (5) full percentage points (i.e. if Argosy/KOAR as a Limited
Partner had 39.5 percentage points for purposes of Section 7.1(c)(i) immediately
prior to such
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<PAGE>
failure to contribute, its interest would be reduced to 34.5 percentage points);
or
(ii) In the event any HAL Limited Partner is the Delinquent
Partner, for each $850,000 that such Limited Partner fails to contribute to the
Partnership, the Non-Delinquent Partners may elect to contribute such amounts on
behalf of such HAL Limited Partner and elect to treat such contribution as a
contribution to capital by the Non-Delinquent Partner, and the Percentage
Interest of such HAL Limited Partner thereupon shall be reduced (first, as to
such HAL Limited Partner's Percentage Interest as a Limited Partner, and
thereafter, if necessary to the extent applicable as to such HAL Limited Partner
Percentage Interest as a General Partner), and the Percentage Interest of the
Contributing Partner shall be increased, by five (5) percentage points. The
increases and decreases in Percentage Interests provided for in this Section 5.6
shall be made on a proportionate basis in the event of defaults of less than or
more than $150,000 (in the case of Argosy/KOAR) or $850,000 (in the case of HAL
Limited Partners), as the case may be.
ARTICLE VI
----------
ALLOCATIONS
6.1 PROFITS. Profits shall be allocated in the following order and
-------
priority:
(a) First, to the Partners in the amount and reverse order of
cumulative Losses allocated pursuant to Sections 6.2(b) through (e) hereof for
all prior periods, which allocation of Profits shall be treated as canceling
such prior allocation of Losses for purposes of allocating additional Profits
and Losses;
(b) Next, to the Partners pari passu until they have been
---- -----
allocated aggregate Profits under this Section 6.1(b) equal to the aggregate
accrued Preferred Return (whether or not paid);
(c) Next, to the Partners in the order and amount of distributions
provided for in Section 7.1(c) (whether or not such distributions are made).
6.2 LOSSES. Losses shall be allocated in the following order and
------
priority:
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<PAGE>
(a) First, to the Partners in the amount and reverse order of the
cumulative Profits allocated pursuant to Sections 6.1(b) and (c) hereof for
all prior periods, which allocation of Losses shall be treated as canceling
such prior allocation of Profits for purposes of allocating additional
Profits and Losses;
(b) Next, to the Partners pari passu until they have been
---- -----
allocated aggregate Losses under this Section 6.2(b) equal to their Capital
Contributions;
(c) All Losses shall thereafter be allocated to the Partners in
proportion to their respective Capital Contributions. In no event, however,
shall an allocation of Losses be made to a Partner in an amount that would cause
such Partner's deficit capital account to exceed his share of the Partnership's
"minimum gain" (as defined in Treasury regulation section 1.704-2(d)) taking
into account any adjustments pursuant to Treasury Regulation Section 1.704-
1(b)(2)(ii)(d)(4)-(6).
(d) Next, 85% to the Non-Managing General Partner and 15% to the
Managing Partner.
(e) Notwithstanding the foregoing, all partner nonrecourse
deductions within the meaning of Treas. Reg. (S)1.704-2 shall be allocated in
accordance with the requirements of such section.
6.3 MINIMUM GAIN. Notwithstanding the provisions of Paragraphs 6.1,
------------
all items of gross income and gain shall first be allocated in a manner that
complies with the "minimum gain chargeback" requirements of Treasury Regulation
Section 1.704-2 and the "qualified income offset" requirements of Treasury
Regulation Section 1.704-1(b)(2)(ii)(d)(3), in that order. The allocations
pursuant to this Paragraph 6.3 shall be deducted from the Partnership's profits
and losses in applying Paragraphs 6.1 and 6.2. However, in applying Paragraph
6.1(a), any allocations made or to be made pursuant to this paragraph shall be
taken into account.
6.4 GENERAL RULE. All allocations shall be in conformance with the
------------
substantial economic effect requirements of Code Section 704(b) and the
regulations thereunder.
ARTICLE VII
-----------
DISTRIBUTIONS
-------------
7.1 ORDER. All Net Cash from Operations and Net Cash from Sales or
-----
Refinancing shall be distributed at such times as
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<PAGE>
the General Partners in their sole discretion may determine (based upon such
factors as the working capital and/or reserve needs of the Partnership, etc.),
at least annually, in the following order and priority:
(a) To the Limited and General Partners, in pari passu, in
---- -----
payment of all accrued Preferred Return, to the extent practicable, then
due and owing;
(b) Next, to the Limited and General Partners, in pari passu, in
---- -----
return of all of their respective Capital Contributions, to the extent
practicable; and
(c) Next, 1% to the General Partners equally and, (i) to the
extent HAL Limited Partners have not received distributions resulting in a
cumulative internal rate of return equal to 30%, to the Limited Partners in
accordance with their Percentage Interests set forth in Section 5.4(a), as
adjusted as provided in this Agreement, and (ii) to the extent HAL Limited
Partners have received distributions resulting in a cumulative internal
rate of return equal to or exceeding 30%, to Limited Partners in accordance
with their Percentage Interests set forth in Section 5.4(b), as adjusted as
provided in this Agreement.
(d) Notwithstanding the foregoing provisions of this Section 7.1,
until the Bridge Loan has been paid off in full by the Partnership, no
distribution will be made pursuant to this Section 7.1 other than
distributions to cover Partners' tax liability on the net income of the
Partnership based upon the cumulative net profits and losses of the
Partnership from its inception, at a marginal tax rate of 50%,
(notwithstanding the fact that neither HAL nor Argosy/KOAR may have
received distributions equal to all of the Preferred Return and Capital
Contributions, and subject to any payments due and owing to M5 under the
Profit Interest Agreement). Any distribution under this Section 7.1(d)
shall be treated as an advance against, and shall be recouped from, any
further distributions under Sections 7.1(a)-(c). No tax distributions will
be made following the date that the Bridge Loan has been paid off.
7.2 AMOUNTS WITHHELD. In the event that the Partnership is required to
----------------
pay or withhold any federal or state tax attributable to distributions or
allocations to any Partner, such withholding shall come solely out of any
distributions then due to such Partner (but shall be treated as an actual
distribution to such Partner). If the required withholding exceeds such
distributions, such Partner shall be obligated to pay the Partnership cash in an
amount equal to such excess plus interest at 10% until paid (which payment shall
not be treated as a Capital Contribution for purposes of this Agreement).
-22-
<PAGE>
ARTICLE VIII
------------
REPRESENTATIONS, WARRANTIES AND
-------------------------------
OBLIGATIONS OF THE MANAGING GENERAL PARTNER
-------------------------------------------
8.1 REPRESENTATIONS AND WARRANTIES OF THE MANAGING GENERAL PARTNER.
---------------------------------------------------------------
The Managing General Partner does hereby represent and warrant to the
Partnership, the Non-Managing General Partner and the Limited Partners that:
(a) As of the date of this Agreement, the Managing General Partner
is a corporation duly organized and, validly existing under the laws of the
State of Georgia; and the Managing General Partner has provided HAL with
full and complete copies of its organizational documents.
(b) As of the date of this Agreement, the Managing General Partner
has the requisite power and authority to enter into this Agreement and to
perform its obligations according to the terms hereof.
(c) The partners of the Managing General Partner have authorized
(and have taken all necessary actions to authorize) the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby.
(d) The execution, delivery and performance of this Agreement by
the Managing General Partner does not contravene any provision or
constitute a default under any indenture, mortgage or other agreement
binding on the Managing General Partner, its partners or its Affiliates, or
contravene any law, rule, regulations, order, writ, judgment, decree,
determination or award presently in effect applicable to the Managing
General Partner, its partners or its Affiliates or the Property.
(e) As of the date of this Agreement, there are no actions, suits,
proceedings or judgments pending or, to its knowledge, threatened against
the Managing General Partner or its Affiliates in any court or by or before
any governmental agency or instrumentality or any arbitrator in which an
adverse determination could have a material adverse effect on the business,
operations, properties, assets or financial condition of the Managing
General Partner, its partners or its Affiliates or the Partnership, or the
ability of the Managing General Partner to perform its obligations under
this Agreement.
(f) The Partnership will, during the term hereof, be a limited
partnership duly organized, validly existing and in good standing under the
laws of the State of Hawaii and
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<PAGE>
is will be during the term hereof, qualified to do business and in good
standing in each jurisdiction in which it is selling Intervals or where the
location or nature of its properties or business makes such qualification
necessary (except where failure to do so would not adversely affect the
Partnership). The Partnership has, and will continue to have, powers
adequate for undertaking and performing the obligations hereunder, and for
carrying on its business and owning its property.
(g) The execution, delivery and performance of the provisions of
this Agreement will not violate, constitute a default under, or result in
the creation or imposition of any lien, charge or encumbrance upon any of
the properties or assets of the Partnership pursuant to any provision of
any law, regulation, judgment, decree, order, franchise or permit
applicable to the Partnership, the Partnership's charter documents or any
contract or other agreement or instrument to which the Partnership is a
party or by which the Partnership or the Partnership's properties or assets
are bound. No consent of any government or agency thereof, or any other
person, firm or entity not a party hereto, is or will be required as a
condition to the execution, delivery, performance or enforceability of this
Agreement.
(h) To the current actual knowledge of the Managing General
Partner, there is no action, litigation or other proceeding pending (or, to
the Managing General Partner's knowledge, threatened) before any
arbitration tribunal, court, governmental agency or administrative body
against the Partnership which, if adversely determined, might materially
adversely affect the Project or the business or financial condition of the
Partnership, or which questions the validity of this Agreement.
(i) The Managing General Partner is not in default with respect to
any agreement to which it is a party or any statute or regulation
applicable to it.
The Managing General Partner hereby agrees to indemnify, defend and hold
harmless the Partnership from and against any and all claims, demands, losses,
damages, liabilities, lawsuits and other proceedings, judgments and awards, and
costs and expenses (including, but not limited to, reasonable attorneys' fees)
arising directly or indirectly, in whole or in part, out of any breach or
default of any representation or warranty contained in this Agreement.
8.2 CERTAIN OBLIGATIONS OF THE MANAGING GENERAL PARTNER. The Managing
---------------------------------------------------
General Partner does hereby covenant and agree with the Partnership, the Non-
Managing General Partner and the Limited
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<PAGE>
Partners that, subject to the limitation on the Managing General Partner's
authority in Sections 10.5 and 10.6:
(a) it will be responsible for the overall supervision of the
management, sale, marketing and operation of the Property;
(b) it will represent the Partnership in all transactions and
dealings with other parties consistent with its fiduciary obligation to the
Partnership;
(c) it will establish and maintain checking, savings and other
banking accounts on behalf of the Partnership, as it may deem appropriate;
(d) it will prepare and submit the preliminary Proposed Project
Budget for the Non-Managing General Partner's review by October 15 of each
year and the final Proposed Project Budget for the Non-Managing General
Partner's approval pursuant to Section 10.6 by no later than November 15 of
each year. The Approved Budget for the period ending December 31, 1995 is
attached as Schedule I to this Agreement, and includes the budget of
preclosing and closing costs. The Managing General Partner and the Non-
Managing General Partner agree that the Proposed Project Budgets for future
periods will be prepared using the principles set forth in the side letter
from Iain Watson to Andrew Jody Gessow dated October 9, 1994, and, without
limitation, will include the amounts payable by the Partnership pursuant to
the License Agreement, the Resort Management Agreement, the Marketing
Agreement, indebtedness of the Partnership, and Sections 10.5F and 10.12 of
this Agreement;
(e) it will cause to be prepared and use its reasonable efforts to
have timely filed all federal and state tax information returns for the
Partnership and will cause to be prepared and use its reasonable efforts to
have timely filed with appropriate state and federal regulatory
administrative bodies all reports which are required to be filed with such
entities under the applicable rules;
(f) it will furnish to the Partners all information and accounting
of the Partnership on a timely basis and, when and if requested by any
Partner or required to be provided to the Partners herein, upon reasonable
notice;
(g) subject to Section 18.2 relating to each Partner's right to
develop or acquire non-competing projects, it will diligently devote such
time to the management of the Project as may be necessary for the proper
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performance of its duties hereunder and consistent with its fiduciary
obligation to the Partnership;
(h) it will maintain and review all books of account for all costs
and expenses incurred in connection with the development, management,
marketing and operation of the Project;
(i) it will use its maximum reasonable efforts not to act in any
manner which will (i) cause the termination of the Partnership for federal
income tax purposes, (ii) cause the Partnership to be treated for federal
income tax purposes as an association taxable as a corporation, (iii) harm
in any way the Project or other assets, or (iv) result in any liability to
any of the Limited Partners; and
(j) it will take all actions reasonably necessary, appropriate or
desirable for the continuation of the Partnership's valid organization and
existence as a limited partnership affording limited liability to the
Limited Partners.
8.3 ADDITIONAL OBLIGATIONS OF THE MANAGING GENERAL PARTNER. In
------------------------------------------------------
addition to the obligations set forth in Section 8.2 hereof, but subject to the
limitations on the Managing General Partner's authority in Sections 10.5 and
10.6 and as specifically provided in other sections of this Agreement, the
Managing General Partner does hereby covenant and agree with the Partnership,
the Non-Managing General Partner and the Limited Partners that it shall use its
reasonable efforts to do the following at the appropriate times:
(a) to perform all of the duties and responsibilities of the
Managing General Partner of the Partnership;
(b) with respect to the Approved Budget:
(i) For each line item (as set forth in the side letter from
Iain Watson to Andrew Jody Gessow dated October 9, 1994) for periods
beginning July 1, 1995, the Managing General Partner will not deviate from
the Approved Budget line item amount by more than 5% (except that for the
two line items related to revenues and operating expenses for transient
guests, such percentage shall be 10%) without obtaining the consent of the
Non-Managing General Partner.
(ii) For each line item for periods from inception through
June 30, 1995, the Managing General Partner will not deviate from the
Approved Budget line item amount by more than 5%, and shall not deviate
from the two line items related to revenues and operating expenses for
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transient guests by more than 25%, without obtaining the consent of the
Non-Managing General Partner.
(iii) The Managing Partner will not materially change the
manner of marketing or sales of the Project, or materially change product
pricing or discounting policies, or materially change the planned number of
Intervals sold without the prior approval of the Non-Managing General
Partner.
(iv) The General Partners understand that, in the event of
the occurrence of (A) war or any natural disaster, the Approved Budget will
have to be amended, the requirements of the Managing General Partner in
(i), (ii) and/or (iii) above may not be achievable by the Managing General
Partner (for which the Managing General Partner's failure to meet is hereby
excused) and both General Partners will work reasonably with each other to
develop and approve an alternative Proposed Project Budget as expeditiously
as is reasonably possible (and in any event, within 30 days) to replace the
previous Approved Budget, and (B) an emergency, the Managing General
Partner shall have the power (without the consent of the Non-Managing
Partner) to make any disbursements it in good faith determines are
necessary as a result thereof, provided that the Managing General Partner
promptly shall notify the Non-Managing Partner of the nature of the
emergency and the acts taken by the Managing General Partner in response
thereto and both General Partners will work reasonably with each other to
develop and approve an alternative Proposed Project Budget as expeditiously
as is reasonably possible (and in any event, within 30 days) to replace the
previous Approved Budget.
(v) In the event that the Non-Managing General Partner, in
its sole and absolute discretion, determines to not approve expenditures
which exceed the percentages of the Approved Budget set forth in this
Section 8.3(b) and actual cash disbursements of the Partnership are higher
than the upper limit permitted in this Section 8.3(b), the Managing General
Partner will promptly cause cash disbursements to be limited to ensure
compliance with permitted cash disbursements, subject to the provisions of
(iv) above and to the Managing General Partner's physical ability to comply
with this provision.
(c) to process through governmental authorities the approvals and
permits necessary to sell and operate the Project;
(d) to negotiate and execute the Marketing Agreement and the
Subcontract Agreement;
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(e) to form the Association and cause the Partnership to perform
all of its duties and obligations as the "Developer" in accordance with the
Declaration and all instruments referenced and contemplated thereunder;
(f) to negotiate, execute and administer the License Agreement;
(g) to negotiate, execute and administer the Resort Management
Agreement and the Resort Submanagement Agreement and to monitor the Resort
Manager;
(h) to negotiate, execute and administer the Forward Commitment;
(i) to negotiate, close and administer the Takeout Loan as soon as
practicable;
(j) to coordinate and supervise interior design selection,
purchase and installation of all furniture, fixtures and equipment and pre-
opening purchases of the Project from appropriate designers, purchasers,
installers, suppliers and fabricators;
(k) to monitor the payment to the Partnership of all Purchase
Money Promissory Notes received from Interval purchasers during sales of
the Project and to use its reasonable efforts to convert such receivables
into cash (by either hypothecation or sale) as soon as practicable;
(l) to amend, as appropriate or necessary, the Declaration, sale
agreements, deeds and related closing documents to convey the Intervals in
the ordinary course of business;
(m) to monitor the sale of Intervals on a secured installment
sales basis or for cash by the Subcontract Agent(s);
(n) to hypothecate or sell the Purchase Money Promissory Notes and
the mortgages securing the obligations of Interval purchasers thereunder;
(o) in the ordinary course of business, to acquire, hold, improve,
own, lease, encumber, pledge, option, exchange or otherwise dispose of real
or personal property (or rights or interests therein) of any nature
whatsoever, as may be necessary or advisable (in the Managing General
Partner's reasonable business judgment) for the operation of the
Partnership;
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(p) in the ordinary course of business, to enter into contracts,
agreements or arrangements concerning the assets of the Partnership, as may
be necessary or advisable (in the Managing General Partner's reasonable
business judgment) for the operation of the Partnership;
(q) in the ordinary course of business, to employ persons, agents
or independent contractors, as may be necessary or advisable (in the
Managing General Partner's reasonable business judgment) for the operation
of the Partnership;
(r) in the ordinary course of business, to borrow money from
anyone for Partnership purposes, and, if security is required therefor, to
execute and deliver all instruments, deeds of trust, mortgages, security
agreements, assignments or other security documents relating to all or a
portion of the assets of the Partnership as may be necessary or advisable
for the operation of the Partnership;
(s) to pay Direct Costs and to establish reasonable reserves for
anticipated liabilities and obligations of the Partnership, whether
contingent or otherwise; and
(t) to execute and deliver any and all instruments to effectuate
the foregoing and to take all such actions, as may be necessary or
advisable for the operation of the Partnership business.
ARTICLE IX
----------
APPLICATION OF PROCEEDS, CERTAIN FEES
-------------------------------------
AND EXPENSES OF THE PARTNERSHIP
-------------------------------
9.1 APPLICATION OF PROCEEDS, FEES AND EXPENSES. The Managing General
------------------------------------------
Partner is authorized to apply the capital of the Partnership and any other
proceeds to the Partnership from other sources in accordance with the
Partnership purposes in accordance with the Approved Budget(s) and this
Agreement.
9.2 DEVELOPMENT, CONSTRUCTION AND SALE OVERHEAD REIMBURSEMENT. The
---------------------------------------------------------
Partnership shall reimburse the Managing General Partner for overhead incurred
in connection with services rendered by the Managing General Partner in its
oversight of development of the Project as well as sales of Intervals during the
development of the Project as set forth in Section 10.5.F, to the extent
provided for in the Approved Budget or pursuant to Section 8.3(b).
9.3 MANAGEMENT MARKETING FEE. The Partners acknowledge that the
------------------------
Association and the Partnership, respectively, will
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enter into the Resort Management Agreement and the Marketing Agreement,
respectively (and the Marketing Agent thereafter will enter into the Subcontract
Agreement with the Subcontract Agent), and will pay the Resort Manager and the
Marketing Agent, respectively, the management fees and the marketing fees set
forth in each, to the extent provided for in the Approved Budget or pursuant to
Section 8.3(b).
9.4 PAYMENT FOR ADDITIONAL SERVICES. Nothing contained hereunder shall
-------------------------------
be deemed to preclude the payment to any Partner and/or its Affiliates of fees
not designated herein, provided that such fees are for services or goods
required by the Partnership; are not in excess of the prevailing rate or fees
for such services or goods which would be charged by unaffiliated parties in
arm's-length transactions; and such fees or agreements are provided for in the
Approved Budget or pursuant to Section 8.3(b).
9.5 DIRECT COSTS. Subject to the terms and conditions of the initial
------------
Approved Budget, the Partners shall be reimbursed for all Direct Costs which the
Partners incur (or incurred prior to the date hereof) on behalf of the
Partnership. All due diligence costs in accordance with the initial Approved
Budget shall be reimbursed to the Partners at the closing of the Partnership's
purchase of the Property. The Partners shall exercise reasonable diligence to
(i) minimize the costs and expenses of the sale and operation of the Project,
and (ii) maintain such costs and expenses at rates generally not higher than the
standard paid in the locality for the sale and operation of properties similar
to the Project. The General Partners will be reimbursed for all Direct Costs
incurred by them in excess of those amounts credited to such General Partner's
initial capital contribution on the Closing Date.
9.6 REIMBURSEMENT OF ORGANIZATION COSTS. The Partnership will
-----------------------------------
reimburse, to the extent such party has not previously been reimbursed by the
Partnership or been given credit against Capital Contributions pursuant to
Section 5.1(b): (i) to the extent provided for in the Partnership's initial
Approved Budget or in Section 8.3(b), the General Partners for their attorneys'
fees and costs incurred in connection with the formation of such General Partner
and due diligence investigation in connection therewith; and (ii) to the extent
provided for in the Partnership's initial Approved Budget and subsequent
Approved Budgets or in Section 8.3(b), the General Partners for all Direct Costs
(including, but not limited to, all legal fees, title insurance premiums, and
all direct or out-of-pocket costs) incurred prior to or after formation of the
Partnership to acquire, operate and sell the Project and the borrowing of the
Bridge Loan.
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ARTICLE X
---------
STATUS OF THE MANAGING GENERAL PARTNER
--------------------------------------
10.1 CONTROL AND RESPONSIBILITY. Except as otherwise limited herein,
--------------------------
the Managing General Partner shall be solely responsible for the management of
the Project and shall have all powers generally conferred by law as well as
those which are necessary, advisable or consistent in connection therewith. Any
note, contract, deed, bill of sale, mortgage, lease or other commitment
purporting to bind the Partnership to any action shall be signed by the Managing
General Partner on behalf of the Partnership or by any person(s) to whom the
Managing General Partner grants the authority under an agreement or arrangement.
10.2 STATUS OF PARTNERSHIP INTEREST. Except as may be otherwise
------------------------------
provided in this Agreement, the Partnership Interest owned by the Managing
General Partner shall be fully paid and non-assessable. The Managing General
Partner shall not have the right to reduce its contributions to the capital of
the Partnership, or assign its Partnership Interest, except as a result of
(i) the dissolution and termination of the Partnership, (ii) its removal from
the Partnership as the Managing General Partner as provided in Section 10.7
hereof, or (iii) as otherwise provided in this Agreement and in accordance with
applicable law.
10.3 EXTENT OF OBLIGATION. The Managing General Partner shall devote
--------------------
such time to the affairs of the Partnership as it shall reasonably deem
necessary to conduct the proper performance of its duties hereunder and the
operation of the Partnership, all in accordance with this Agreement and the Act.
It is expressly understood and agreed that the Managing General Partner shall
not be required to devote its entire time or resources to the business of the
Partnership.
10.4 RIGHTS AND POWERS OF THE MANAGING GENERAL PARTNER. In addition to
-------------------------------------------------
any other rights and powers which it may possess under the Act or pursuant to
this Agreement, and in addition to any rights and powers necessary to fulfill
its obligations pursuant to Sections 8.2 and 8.3, but subject to the limitations
on the Managing General Partner's authority contained in Sections 10.5 and 10.6
or in any other section of this Agreement, the Managing General Partner shall
have all specific rights and powers required or appropriate to its management of
the Project, which shall include, without limitation, the following rights and
powers on behalf of the Partnership:
(a) subject to Section 9.6, to pay on behalf of the Partnership
(and be reimbursed for) any and all organizational expenses incurred in the
creation of the Partnership, including, without limitation, travel
expenses,
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legal and accounting fees and state securities exemption and registration
expenses;
(b) except as may otherwise be provided herein, to acquire an
interest in the Partnership and to become a Limited Partner subject to all
obligations and duties of a Limited Partner;
(c) except as may otherwise be provided herein, to place record
title to, or the right to use, any assets of the Partnership in the name(s)
of a nominee(s), as may be necessary or advisable for the operation of the
Partnership;
(d) as and when deemed necessary by the Managing General Partner,
to require in all Partnership contracts that no General Partner will be
personally liable thereon and that the party contracting with the
Partnership shall look solely to the assets of the Partnership for
satisfaction; and
(e) to the extent provided in Section 5.5, admit a person as a
Limited Partner.
It is specifically contemplated that the Managing General Partner shall execute
master deeds, declaration of condominiums and amendments thereto, sale
agreements, deeds and related closing documents to convey Intervals in the
ordinary course of business, including secured installment sales of such
Intervals. Furthermore, the Non-Managing General Partner and the Limited
Partners agree, as and when requested by the Managing General Partner, to
execute and have notarized special power of attorney instruments authorizing the
Managing General Partner to carry out all of its duties and responsibilities
hereunder without any consent or signature requirements of the Non-Managing
General Partner and the Limited Partners unless such consent is required under
this Agreement, including, without limitation, Sections 10.5 and 10.6.
Funds of the Partnership, which in the sole discretion of the
Managing General Partner are not required for current obligations, may be
invested from time to time in certificates of deposit issued by chartered state
or national banks which are insured by the Federal Deposit Insurance
Corporation, securities issued or guaranteed by the United States Government or
any of its agencies or instrumentalities, shares of diversified, open-end
investment companies registered under the Investment Company Act of 1940, known
as "money market mutual funds," which invest in securities issued or guaranteed
by the United States Government or any of its agencies and instrumentalities,
certificates of deposit issued by domestic banks or London branches of domestic
banks, bankers' acceptances and domestic commercial paper and similar
investments providing
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for appropriate safety of principal. HAL shall designate such money market
mutual funds where the Partnership deposits the funds.
10.5 LIMITATIONS ON AUTHORITY OF THE MANAGING GENERAL PARTNER. The
--------------------------------------------------------
Managing General Partner shall not have the authority:
(a) to do any act in contravention of this Agreement;
(b) to do any act which would make it impossible to carry on the
purpose of the Partnership; provided, however, that the sale of all or any
portion(s) of the Partnership's Property shall not be deemed to be an act
making it impossible for the Partnership to carry on its purpose;
(c) to possess Partnership Property, to purchase or lease assets
from the Partnership or to assign the rights of the Partnership in specific
Partnership Property for other than for the benefit of the Partnership;
(d) to continue the Partnership with Partnership Property in
contravention of Section 13.1 hereof;
(e) to cause the Partnership to enter into contracts with the
Managing General Partner or any of its Affiliates which would bind the
Partnership after the removal, Bankruptcy, dissolution, and liquidation or
other termination of existence of the Managing General Partner;
(f) to cause the Partnership or itself to commingle the
Partnership funds with those of any other person or entity;
(g) except as specifically referred to in or contemplated by this
Agreement, to sell, exchange or convey title to, or to contract to sell or
grant an option for the sale or otherwise dispose of in any manner all or
any material portion of the Property, other than in the ordinary course of
business, without first having obtained the consent of the Non-Managing
General Partner; however, the restrictions stated in this Section shall not
limit the authority of the Managing General Partner to sell, transfer and
convey Intervals on behalf of the Partnership on such terms and conditions
as the Managing General Partner may deem to be appropriate, including,
without limitation, secured and unsecured installment sales subject to
compliance with G.P. Major Decisions; or
(h) to do any act which is in breach of its fiduciary
responsibilities or which was not determined in
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good faith by the Managing General Partner at the time the act was carried
out to be in the best interests of the Partnership.
Notwithstanding the above, the parties acknowledge and agree that the following
shall serve as a preliminary development plan for the Project, which plan may be
changed or altered at any time in the sole discretion of the General Partners:
A. Immediately prior to the Close of Escrow under the Purchase
Agreement, subject to the terms of the Bridge Loan, New Lender shall fund
$30,300,000 from the Bridge Loan into the Bridge Loan Escrow (of which
$300,000 shall be used for fees paid to New Lender) and $30,000,000 shall
be paid to M5, which amount shall then be used by M5 to acquire the Lender
Note and Mortgage pursuant to the terms and conditions of the Loan Purchase
Agreement, whereupon the Lender Note and Mortgage shall automatically and
immediately be deemed to have been amended and restated to reduce the
principal balance thereof to $30,000,000 and such amended Lender Note and
Mortgage shall be deemed paid and satisfied in full and, immediately
thereafter, the Partnership shall be deemed to have acquired the Property
from Seller free and clear of the amended Lender Note and Mortgage but
subject to the Bridge Loan, all as provided in the Funding Agreement.
B. In the event the Bridge Loan is not fully paid by December 31,
1996, for a reason other than the Partnership's failure to obtain a Takeout
Loan which is solely or substantially as a result of the refusal by HAL, in
its capacity as a General Partner, to consent to the Partnership's
execution of such Takeout Loan when required to do so pursuant to the
definition thereof, HAL's Percentage Interest in the Partnership as a
Limited Partner shall thereupon increase by 20 percentage points
(calculated in a manner similar to the parenthetical at the end of Section
5.6(i)) and Argosy/KOAR's Percentage Interest in the Partnership as a
Limited Partner shall thereupon decrease by 20 percentage points (provided
that HAL's increase in Percentage Interest provided for in this paragraph B
shall not be shared with other HAL Limited Partners);
C. 100% of the Direct Costs will be funded first by the General
Partners' and the Limited Partners' initial Capital Contributions required
under Section 5.1 (totaling $15,000,000) until such funds are exhausted.
Thereafter, Direct Costs shall be funded from either the Bridge Loan, Net
Cash From Operations, or the hypothecations of any Purchase Money
Promissory Notes or other funding sources agreed to and arranged by the
General Partners;
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D. The Partnership and the Marketing Agent will enter into the
Marketing Agreement. The Managing General Partner intends to subcontract
the duties and responsibilities of the Marketing Agent to the Subcontract
Agent pursuant to the Subcontract Agreement;
E. Prior to selling any Intervals, the Partnership will procure
the Forward Commitment;
F. The Managing General Partner will receive from available
Project funds/cash flow overhead reimbursement and Project administration
funds at a rate of $20,000 per month for reimbursement of off-site general
and administrative costs and expenses plus reimbursement of actual on-site
general and administrative costs and expenses as incurred (budgeted at
$35,000 per month) from November, 1994 through the earlier of the
commencement of sales of Intervals or June 30, 1995 (subject to any
necessary increases for on-site personnel in the three (3) months preceding
the commencement of Interval sales, but only to the extent approved by the
Non-Managing General Partner). Upon the commencement of the sales of
Intervals and until such time as Argosy/KOAR is no longer serving as
Managing General Partner, the Managing General Partner shall receive such
reimbursement at a rate of 5% of actual net revenues (i.e., revenues
derived from the sale of all Intervals with respect to which the buyer
thereof has made a down payment of at least 10% and the contract of sale
therefor is not rescinded within the applicable statutory period) during
the sellout period with respect to the first sale of each Interval (and not
with respect to any subsequent sales of such Interval for which the buyer
has defaulted in the payment of the purchase price therefor); provided,
however, 4% of such actual net revenues shall be paid on a current monthly
basis from and after the commencement of sales of Intervals as follows: (i)
an amount (not to exceed the entire 4% amount) equal to (a) the salaries,
benefits and related costs of all on-site employees of the partnership,
excluding any employees dedicated to mortgage receivables administration
(as set out in Iain Watson's letter to Andrew Jody Gessow of October 9,
1994) and excluding any employees whose salaries, benefits and related
costs are covered by third parties (including but not limited to the Resort
Manager, the Marketing Agent, and the Subcontract Agent), and (b) the on-
site office costs incurred by the Partnership (including but not limited to
rent, utilities, telecommunications, postage and supplies), and (c) any
other costs incurred in the administration of the Project, specifically
excluding: outside legal and accounting costs, insurance, property taxes,
closing costs associated with interval sales, franchise fees, fees to the
marketing subcontractor, any costs or fees directly associated with off-
site marketing, expenses and fees to the
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Resort Manager, and other non-reimbursable costs (all as set out in Iain
Watson's letter to Andrew Jody Gessow of October 9, 1994), and (ii) any net
amount remaining after said clause (i) payment thereof shall be payable and
paid to Argosy/KOAR). In addition to the amount set forth in clause (i)
above, 1% of such actual net revenues will accrue and be deferred until
such time as the Partners have received all of their respective Capital
Contributions and Preferred Return, whereupon and thereafter Argosy/KOAR
shall receive (on a 50/50 basis with the payments to HAL pursuant to
Section 10.12 hereof) all available Project funds/cash flow until such time
as all of such accrued and deferred 1% overhead reimbursement and Project
administration funds have been paid; provided, further, any and all
overhead reimbursements and Project administration funds received by
Argosy/KOAR prior to the commencement of sales of Intervals as provided
above shall be deemed an advance against Argosy/KOAR's 1% accrual and,
after the return of Capital Contributions and payment of the Preferred
Return but prior to any payments of the 1% accrual to Argosy/KOAR, HAL
first shall be paid from available Project funds/cash flow an amount equal
to the total amount deemed advanced to Argosy/KOAR as aforesaid.
G. The Project will be marketed and operated as "Embassy Vacation
Resort at Poipu Beach" under the License Agreement granted by ESI
(franchisor of 103 Embassy Suites hotels, the largest chain of all suite
hotels in the world, and manager of 56 Embassy Suites hotels, including
five hotels owned by affiliates of the Managing General Partner) to
Argosy/KOAR, which will be assigned to the Partnership. It is anticipated
that ESI will be paid a royalty of at least the following: (i) by the
Partnership, a base license fee of 2% of net sales payable as and when
Intervals close; (ii) by the Association, an interval license fee of $7.50
per year per Interval commencing with the sale of 110 Units; and (iii) by
the Partnership, an incentive license fee equal to ten percent (10%) of the
Net Profits, if any (as defined in the License Agreement), which amounts
shall be paid prior to any payments under the Profit Interest Agreement or
distributions to the Partners under Section 7.1(c) hereof. Moreover, the
Partnership will hold ESI harmless against any and all claims from anyone
arising out of the sales, marketing or operation of the Project. Amounts
payable pursuant to this Section 10.5G shall be provided for in the
Proposed Project Budget; and
H. Subject to the provisions of Section 8.3, the Managing General
Partner or its Affiliates may provide products and/or services to the
Partnership, or otherwise contract with the Partnership, during the
development of the Project or upon its completion, so long as the Non-
Managing
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General Partner approves of such arrangement, including, with respect to
the Marketing Agent, the Marketing Agreement, the Resort Management
Agreement and the Resort Submanagement Agreement.
I. The Partnership shall pay to M5, as more specifically set out
in the Profit Interest Agreement, 10% of the amounts that otherwise would
have been distributable to the Partners under this Agreement (specifically
excluding amounts distributed under Section 7.1(a) and (b) hereof but
specifically including any amounts distributable in the form of
distributions for tax payments and distributions upon liquidation of the
Partnership).
No person or entity dealing with the Managing General Partner with
respect to the Partnership or its property shall be under any obligation to
inquire into the authority of the Managing General Partner to bind the
Partnership and the limitations on the Managing General Partner's authority
imposed in this section shall be consulted only for determining liabilities
among the Partners themselves.
10.6 G.P. MAJOR DECISIONS. Notwithstanding any provision contained in
--------------------
Section 10.4 and 10.5 hereof, or any other provision to the contrary contained
in this Agreement, the Consent of the General Partners will be necessary to take
any G.P. Major Decision.
10.7 REMOVAL OF THE MANAGING GENERAL PARTNER.
---------------------------------------
(a) The Managing General Partner may be removed only following
notice and failure within a reasonable time after receipt of notice to cure
injury to the Partnership, upon the vote of the Non-Managing General Partner and
written notice of such vote to the Managing General Partner, if the Managing
General Partner acts in any of the following ways or any of the following
occurs:
(i) the principals of the Managing General Partner (Osamu
Kaneko, Steven C. Kenninger and/or Andrew Jody Gessow and/or any principal
admitted by the Managing General Partner at a later date) acted in a way
that constituted gross or willful neglect, actual fraud, breach of a
fiduciary duty or willful misconduct and such act was materially harmful to
the Partnership (unless such harm or violation is remedied by the Managing
General Partner);
(ii) the Partnership commenced a voluntary bankruptcy
proceeding (or an involuntary bankruptcy proceeding was commenced which was
not dismissed within ninety (90) days thereafter) other than with the prior
written consent of the Non-Managing General Partner;
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(iii) the Managing General Partner operates the business of
the Partnership in a manner which is shown by clear and convincing evidence
to be incompetent and materially harmful to the Partnership, or in willful
violation of a material item of this Agreement (unless such harm or
violation is remedied by the Managing General Partner or such harm or
violation resulted from an act of the Managing General Partner in response
to an emergency in order to protect the Partnership);
(iv) the Bankruptcy of the Managing General Partner (or other
incapacity which prevents the Managing General Partner from effectively
discharging the duties set forth in this Agreement) unless, within 90 days
from such event, the remaining General Partner(s) elect to continue the
business of the Partnership;
(v) Except as provided in Section 10.8 and 10.11 below, any
constituent shareholder or partner of the Managing General Partner shall
Transfer any of its Percentage Interest, whether directly or by operation
of a transfer or its interest in such Managing General Partner; and
(vi) at least two of the following persons, Andrew Jody
Gessow, Osamu Kaneko or Steven C. Kenninger, and any other principal of
Argosy/KOAR who has been consented to by HAL in writing as an acceptable
principal by HAL (which consent shall not be unreasonably withheld), are no
longer actively engaged in the business and affairs of Argosy/KOAR.
(b) If the Managing General Partner is removed pursuant to Section
10.7(a) of this Agreement, (i) the remaining Partners promptly shall take all
steps reasonably necessary to either assume or cause another person or entity to
assume the authority of the "Managing General Partner," (ii) the Managing
General Partner's liability as a general partner shall cease as to all events
which occur subsequent to its removal and, unless a substituted general partner
is elected as a result of a Liquidating Event, the Partnership promptly shall
take over all steps reasonably necessary to cause such cessation of liability,
(iii) the removed Managing General Partner shall retain its capital account and
Percentage Interest in the Partnership but such interest in the Partnership
shall be converted to that of a Limited Partner (subject to the exercise by the
Non-Managing General Partner of its rights pursuant to Article XV), and (iv)
such Managing General Partner shall receive any overhead reimbursement accrued
but unpaid under Section 9.2 through and including the date of removal. Notice
of the removal of the Managing General Partner shall be delivered to the
Managing General Partner by Partners voting for its removal at least thirty (30)
days prior to the effective date of such removal.
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Upon removal of the Managing General Partner, the Non-Managing General Partner
shall assume the duties of the Managing General Partner under this Agreement,
unless the Non-Managing General Partner delegates such duties to another
Managing General Partner appointed by it.
(c) If the Managing General Partner is removed pursuant to Section
10.7(a)(i) of this Agreement, all of the provisions of Section 10.7(b) will
apply; provided, however, the Partnership thereafter (but not before) shall be
entitled to offset against all amounts distributable to the removed Managing
General Partner all damages incurred by the Partnership solely as a result of
the acts of the Managing General Partner which gave rise to its removal which
are determined by Dispute Resolution to have been the result of willful or gross
neglect, actual fraud, breach of fiduciary duty or willful misconduct by one or
more of the principals identified in Section 10.7(a)(i).
(d) It is the desire and intention of all of the parties hereto to
agree upon a mechanism and procedure under which any disputes or disagreements
under or relating to this Agreement calling for a determination by Dispute
Resolution will, except as otherwise stated hereinafter, be resolved in a prompt
and expeditious matter. The parties intend that such rapid mechanism and
procedure be utilized to resolve any and all such disputes and disagreements.
Accordingly, any controversy or dispute arising out of this Agreement calling
for a determination by Dispute Resolution shall be heard by a referee pursuant
to the provisions of Hawaii law. All of the parties hereto promptly and
diligently shall cooperate with one another and the referee, and shall perform
such acts as may be necessary to obtain a prompt and expeditious resolution of
the dispute or controversy in accordance with the terms hereof. The parties
hereto agree that the referee shall have the power to decide all issues of fact
and law and report his decision thereon and issue all legal and equitable relief
appropriate under the circumstances of the controversy before him. The parties
shall agree upon a single referee experienced in resolving disputes of the kind
under consideration, which referee shall then try all issues, whether of fact or
law, and report a finding and judgment thereon. If the parties are unable to
agree upon a referee within ten (10) days of a written request to do so by any
party hereto, then any party hereto may thereafter seek to have one appointed
pursuant to Hawaii law. The cost of such proceeding initially shall be borne
equally by the parties to the dispute. However, the prevailing party in such
proceeding shall be entitled, in addition to all other costs, to recover its
contribution for the cost of the referee as an item of damage and/or recoverable
costs. Subject to the foregoing, the parties hereby consent to jurisdiction and
venue in the Superior Court of the Island and County of Kauai, Hawaii, with
respect to all such disputes or disagreements under this Agreement, and agree
that any action
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with respect to any of the foregoing shall be brought and maintained only in
such courts sitting in the Island and County of Kauai, Hawaii.
10.8 [Intentionally Deleted]
10.9 LIABILITY AND INDEMNIFICATION OF THE GENERAL PARTNERS.
-----------------------------------------------------
(a) The General Partners (including any partners, or any
directors, officers or employees of any partners of the General Partners) shall
not be liable, responsible or accountable in damages or otherwise to the
Partnership or to any other Partner for any liability or loss relating to the
performance or non-performance of any act or covenant (including, but not
limited to, those covenants set forth in Sections 8.2 and 8.3 hereof) concerning
the Partnership, provided such General Partner was acting in good faith within
what such General Partner reasonably believed to be the scope of such General
Partner's authority and for a purpose which such General Partner reasonably
believed to be in the best interest of the Partnership, except for acts of
willful or gross neglect, actual fraud, breach of fiduciary responsibility or
willful misconduct.
(b) The Partnership (but not the other General Partner or the
Limited Partners) shall indemnify and hold harmless each General Partner
(including any partners, shareholders or directors, officers or employees of any
partners or shareholders of such General Partner) against any liability or loss
or threat of liability or loss, including legal fees, as a result of any claim
or legal proceeding relating to the performance or non-performance of any act
concerning the Partnership, provided such General Partner was acting in good
faith within what such General Partner reasonably believed to be the scope of
such General Partner's authority and for a purpose which such General Partner
reasonably believed to be in the best interest of the Partnership, except for
acts of willful or gross neglect, actual fraud, breach of fiduciary
responsibility or willful misconduct.
(c) The Partnership, each General Partner and the Limited
Partners, jointly and severally, hereby release each General Partner (including
any directors, shareholders, officers or employees of any partners or
shareholders of each General Partner) from any liability or loss to the
Partnership, the other General Partner or the Limited Partners for acts or
omissions for which such General Partner could receive indemnification pursuant
to this Section 10.9.
(d) Any liability of the Partnership shall first be satisfied out
of the income or assets of the Partnership (including the proceeds of any
insurance which the Partnership
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may recover), and if such assets shall not be sufficient to satisfy such
liability, the liability shall be borne by the General Partners in accordance
with the provisions of Section 5.2(b).
10.10 NO WITHDRAWAL BY GENERAL PARTNERS. Notwithstanding any other
---------------------------------
provision of this Agreement or right provided by law, neither General Partner
shall be entitled to withdraw from the Partnership without the prior approval of
the other General Partners.
10.11 CHANGE IN OWNERSHIP OF THE GENERAL PARTNERS. Notwithstanding any
-------------------------------------------
other provision of this Agreement or right provided by law, no constituent
shareholder or partner shall Transfer any interest in any Partner without the
consent of all other General Partners; provided, however, without the consent of
(but subject to prior written notice to) the other Partners, (i) any constituent
shareholder or partner of a Partner may assign its interest in any distributions
of the Partnership, or may effectuate a Transfer to a revocable living trust for
the benefit of such shareholder or partner or an immediate family member, so
long as such partner or shareholder retains all voting rights with respect to
its partnership or shareholder interest and the party to whom such distributions
are assigned does not have the right to foreclose or otherwise acquire or
succeed to such shareholder's or partner's interest in the Partnership, (ii)
Steven C. Kenninger and/or Osamu Kaneko make effectuate Transfers between
themselves and/or Transfers to Andrew Jody Gessow provided that each retains an
interest in the Managing General Partner; and (iii) the shareholders of
Argosy/KOAR shall initially be Andrew Jody Gessow ("Gessow") with a 25% interest
("Gessow Sole Interest"); Osamu Kaneko ("Kaneko") with a 33.33% interest; Steven
C. Kenninger ("Kenninger") with a 16.67% interest, and Gessow with a second 25%
interest being held in trust ("AKG Trust Interest"); provided, however, that
Argosy/KOAR shall have the right with the prior approval of the Non-Managing
Partner (which approval shall not be unreasonably withheld) to assign all of the
right of the AKG Trust Interest to receive distributions from the Partnership to
any or all of the following persons or entities: (a) Herbert Alfree or other
senior marketing executive(s) or other employee(s) of Argosy/KOAR, for providing
sales, marketing or other services to the Partnership; (b) the Subcontract Agent
or other Partnership sales and marketing groups working for the Partnership
either onsite or offsite, in order to provide incentives to maximize profits to
the Partnership; (c) either KPI Realty, Inc., Itochu Corporation or Canyon
Partners (or any of their affiliates) to maintain business relationships for the
purpose of generating additional vacation ownership investment opportunities; or
(d) any combination of Gessow, Kaneko or Kenninger. Argosy/KOAR will make the
request(s) to the Non-Managing Partner to effectuate these assignments as soon
as practicable, to which the Non-
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Managing Partner will promptly respond. Notwithstanding the foregoing or
anything contained in this Agreement to the contrary, (A) HAL acknowledges and
agrees that Argosy/KOAR intends to assign all of its rights, duties and
obligations as Managing General Partner and/or as a Limited Partner to an entity
to be formed by Argosy/KOAR on or before the Closing Date, and HAL further
agrees that (a) such assignment shall not be deemed to be a Transfer for
purposes of this Agreement so long as Steven C. Kenninger, Osamu Kaneko and
Andrew Jody Gessow each retains their respective interests in such entity as set
forth above, and (b) upon the effective date of such assignment, Argosy/KOAR
will have no further obligations, duties or liability hereunder so long as such
entity assumes all of such obligations, duties and liabilities of Argosy/KOAR,
(B) including, but not limited to, Section 10.7(a)(vi) or elsewhere in this
Agreement to the contrary, in the event of the death or adjudication of insanity
or incompetency or divorce of any of Gessow, Kaneko or Steven C. Kenninger,
their respective estates shall and/or ex-spouses may (subject to the divorced
parties' agreement) succeed to each such person's capital account and Percentage
Interest in the Managing General Partner (which, in the event of divorce, may
not exceed 50% of such Percentage Interest) provided that each such transfer
complies with the requirements of Section 12.2 and each such successor has no
voting rights.
10.12 PAYMENT TO HAL. Upon the commencement of the sales of Intervals,
--------------
and until such time as HAL is no longer a General Partner, HAL shall receive
from available Project funds/cash flow overhead reimbursement and Project
administration funds at the rate of 1% of actual net revenues (as defined in
Section 10.5F) during the sellout period; provided, however, that such net
revenues will accrue and be deferred until such time as the Partners have
received all of their respective Capital Contributions and Preferred Return,
whereupon and thereafter HAL shall receive (on a 50/50 basis with Argosy/KOAR
with respect to Argosy/KOAR's accrued and deferred 1% payment pursuant to
Section 10.5F) until such time as all of such accrued and deferred 1% overhead
reimbursement and Project administration funds have been paid.
ARTICLE XI
----------
STATUS OF LIMITED PARTNERS
--------------------------
11.1 LIABILITY. The liability of each Limited Partner (in its capacity
---------
as a Limited Partner) for the losses, debts, expenses, liabilities or
obligations of the Partnership shall be limited to its capital contribution and
its share of any undistributed assets of the Partnership to the extent required
by law.
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11.2 BUSINESS OF THE PARTNERSHIP. Except as specifically provided
---------------------------
herein, a Limited Partner shall not be entitled to participate in the conduct of
the business or management of the Partnership and shall have no authority to act
for or to bind the Partnership in any manner relating thereto.
11.3 STATUS OF PARTNERSHIP INTEREST. No Limited Partner shall have the
------------------------------
right to withdraw or reduce its capital contribution to the Partnership except
as a result of (i) the dissolution and termination of the Partnership or (ii) as
otherwise provided in this Agreement and in accordance with applicable law. No
Limited Partner shall have the right to bring an action for partition against
the Partnership. Notwithstanding anything to the contrary stated herein, any
Limited Partner may terminate, by written notice to the General Partner, its
right, title and interest as a Limited Partner in the Partnership and thereby
forfeit any right to distributions or other income from the Partnership,
including, without limitation, return of its original capital contribution in
the Partnership. If any Limited Partner so terminates its interest as a Limited
Partner, such Limited Partner shall have no further obligations or liabilities
under this Agreement.
11.4 DEATH, INCAPACITY OR DISSOLUTION OF A LIMITED PARTNER. Neither the
-----------------------------------------------------
death or adjudication of Bankruptcy, insanity or incompetency of a Limited
Partner who is an individual nor the liquidation or dissolution of a Limited
Partner which is not an individual shall affect the continuing existence of the
Partnership; the Partnership shall continue in existence despite such occurrence
and the estate or the successor of such Limited Partner shall succeed to the
capital account and the Percentage Interest of such Partner in the Partnership
as an assignee until admitted as a Limited Partner.
11.5 INVESTMENT REPRESENTATION AND COVENANTS. Each of the Limited
---------------------------------------
Partners, by executing this Agreement, represents, warrants and covenants to the
Partnership and to the General Partners as follows:
(a) That the net worth and income of the Limited Partner are
adequate to support the obligations incurred by its admission to the
Partnership;
(b) That the Limited Partner has read and is familiar with this
Agreement;
(c) That the Limited Partner is purchasing an interest in the
Partnership for its own account, for investment purposes only, and not with
a view toward distribution or resale and under no circumstances will the
Limited Partner sell, transfer, hypothecate, assign or pledge all or any
portion of an interest in the Partnership
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in the absence of the consent of the General Partner in compliance with the
provisions of this Agreement; and
(d) That the Limited Partner will not sell, transfer, assign or
convey an interest in the Partnership except (i) pursuant to an effective
registration or exemption under applicable federal and state securities
laws and (ii) in accordance with the conditions set forth in Article XII
hereof.
ARTICLE XII
-----------
TRANSFER OF A PARTNERSHIP INTEREST
----------------------------------
12.1 ASSIGNMENT. In the event of any permitted Transfer, the transferee
----------
shall be recognized by the Partnership provided that (i) the terms of such
assignment are not in contravention of any of the provisions of this Agreement;
(ii) such assignment is fully executed by the assignor and assignee; and
(iii) such assignment is received by the Partnership and recorded on the books
thereof. In the event of such an assignment of a Partnership Interest, the
following rules shall govern:
(a) The "effective date" of an assignment of a Partnership
Interest as used hereunder shall be that date set forth on the written
instrument of assignment.
(b) Notwithstanding anything herein to the contrary, both the
Partnership and the other Partners shall be entitled to treat the assignor
of such interest as the absolute owner thereof in all respects and shall
incur no liability for distributions of cash or other property made in good
faith to it until such time as the written assignment has been received by
and recorded on the books of the Partnership.
(c) An assignee of a Partner's interest in the Partnership shall
be entitled to receive distributions of cash or other property from the
Partnership attributable to the interest acquired by reason of such
assignment from and after the effective date of the assignment of such
interest to it except as provided in subparagraph (b) hereinabove. An
assignee shall not be entitled to vote or to have any other rights under
this Agreement, except as set forth herein.
(d) The profits, losses and distributable cash attributable to the
Partnership Interest acquired by reason of such assignment shall be divided
among and allocated between the assignor and assignee of such interest and
in accordance with subparagraph (e) hereinbelow.
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(e) The division and allocation of profits, losses and
distributable cash attributable to the Partnership Interest between
assignor and assignee during any fiscal year of the Partnership shall be
based upon the length of time during such fiscal year, as measured by the
effective date of the assignment, that the interest was owned by each of
them and shall not be based upon the date(s) during such fiscal year on
which income was earned or losses were incurred by the Partnership.
12.2 SUBSTITUTION. No assignee of the whole or any portion of a
------------
Partner's interest in the Partnership shall have the right to become a
substituted Partner in place of its assignor unless all of the following
conditions are satisfied:
(a) the assignor and assignee execute and acknowledge a written
instrument of assignment, together with such other instruments as the
Managing General Partner may deem necessary or desirable to effect the
admission of the assignee as a substituted Partner;
(b) such instrument of assignment provided for herein has been
delivered to and received by the Managing General Partner;
(c) the written consent of the General Partners to such
substitution has been obtained, the granting or denial of which shall be
within the sole discretion of the General Partners;
(d) a transfer fee has been paid by the assignee to the
Partnership which is sufficient to cover all reasonable expenses connected
with such assignment and substitution, including attorneys' fees and
recording costs.
12.3 ADDITIONAL CONDITIONS TO ASSIGNMENT AND SUBSTITUTION. In addition
----------------------------------------------------
to the conditions to assignment and substitution set forth elsewhere in this
Agreement, the other Partner(s) and the Partnership shall not recognize any
assignment or substitution of any Partner for any purpose, if (a) such transfer
together with prior transfers would result in sale or exchange of fifty percent
(50%) or more of the total interest in the Partnership capital and profits
within a twelve (12) month period, or (b) the Partnership shall not have
received, if required by any Partner, an opinion of counsel selected by the
Managing General Partner to the effect that such sale (i) will not result in
termination of the limited partnership under applicable law; (ii) will not
result in termination of the Partnership for federal income tax purposes;
(iii) will not change the status of the Partnership as a partnership for federal
income tax purposes; (iv) will not cause any Partnership assets to be treated as
"Plan Assets" as such term is defined in regulations promulgated by the United
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States Department of Labor; and (v) will not give rise to liability of the
Partnership, any Partner or any agent or advisor of any Partner for violation of
applicable securities laws.
12.4 DEATH, INCAPACITY OR DISSOLUTION OF A LIMITED PARTNER OR THE NON-
-----------------------------------------------------------------
MANAGING GENERAL PARTNER.
------------------------
(a) Upon the death or adjudication of bankruptcy, insanity or
incompetency of a Limited Partner or the Non-Managing General Partner, as
the case may be, who is an individual, his legally authorized personal
representatives shall have all the rights of a Limited Partner or the Non-
Managing General Partner, as the case may be, for the purpose of settling
or managing his estate, and shall have such power as such party possessed
to make an assignment of his interest in the Partnership in accordance with
the terms hereof and to join with such assignee in making application to
substitute such assignee as a Limited Partner or the Non-Managing General
Partner, as the case may be.
(b) Upon the adjudication of bankruptcy, dissolution or other
cessation to exist as a legal entity of any Limited Partner or the Non-
Managing General Partner, as the case may be, which is not an individual,
the authorized representative of such entity, possessed of the rights of
such Limited Partner or the Non-Managing General Partner, as the case may
be, for the purpose of winding up, in any orderly fashion, and disposing of
the business of such entity, shall have such power as such entity possessed
to make an assignment of its interest in the Partnership in accordance with
the terms hereof and to join with such assignee in making application to
substitute such assignee as a Limited Partner or the Non-Managing General
Partner, as the case may be.
ARTICLE XIII
------------
DISSOLUTION AND TERMINATION OF THE PARTNERSHIP
----------------------------------------------
13.1 DISSOLUTION AND TERMINATION. The Partnership shall be dissolved
---------------------------
and terminated upon the occurrence of any Liquidating Event.
13.2 WINDING UP. Upon the occurrence of a Liquidating Event, the
----------
Partnership shall continue solely for the purposes of winding up its affairs in
an orderly manner, liquidating its assets, and satisfying the claims of its
creditors and Partners. No Partner shall take any action that is inconsistent
with, or not necessary to or appropriate for, the winding up of the
Partnership's business and affairs. The Managing General Partner (or, in the
event there is no Managing General Partner, any remaining General Partner) or in
the event there is no remaining General Partner, any persons elected by a
majority in interest in
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the Partnership shall be responsible for overseeing the winding up and
dissolution of the Partnership and shall take full account of the Partnership's
liabilities and the Property, and the Property shall be liquidated as promptly
as is consistent with obtaining the fair value thereof, and the proceeds
therefrom, to the extent sufficient, shall be applied and distributed in the
following order:
(a) First, to the payment and discharge of all of the
Partnership's debts and liabilities to creditors other than the Partners
(and, for purposes of this subparagraph (a), the New Lender and the lender
under the Takeout Loan shall not be deemed to be a Partner);
(b) Second, to the establishment of any reasonable reserves deemed
necessary by the Managing General Partner for anticipated contingent or
unforeseen liabilities or obligations of the Partnership;
(c) Third, to the payment and discharge of all of the
Partnership's debts and liabilities to Partners; and
(d) The balance, if any, to the Partners and in accordance with
Section 7.1.
In the event it becomes necessary to make a distribution of the Property in
kind, then such Property may be transferred and conveyed to the Partners, or
their assigns, so as to vest to each of them as tenants-in-common a percentage
interest in the whole of said Property equal to the percentage Partnership
Interest of such Partner. In no event will any Partner have any obligation to
contribute the amount, if any, of their negative capital account upon any
Liquidating Event, except as otherwise specifically provided in this Agreement.
ARTICLE XIV
-----------
LOANS
-----
14.1 LOANS TO AND FROM PARTNERSHIP.
-----------------------------
(a) In the event the General Partners shall determine that funds
in addition to the Capital Contributions are reasonably necessary for
maintaining and protecting the Property of the Partnership or conducting
its business in excess of the Partners' prior Capital Contributions, the
General Partners shall be authorized to borrow funds on behalf of the
Partnership from any lender (including, but not limited to, any Partner or
any Affiliate) at a rate and with such origination fees and costs deemed
acceptable to the General Partners (but on competitive terms and conditions
if the lender is a General Partner), subject
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to the limitations in Section 10.5, and all or a portion of the Property of
the Partnership may be conveyed as security for any such indebtedness;
provided, however, that the borrowing of funds from Limited Partners and
the conveyance of Property as security therefor shall be made only to the
extent allowed by applicable law.
(b) The Partnership shall not be permitted to make any loans to
any Partner without the express written approval of the General Partners.
14.2 PRIORITY OF LOANS BY PARTNERS. In the event that any Partner or
-----------------------------
Affiliate of any Partner shall lend money to the Partnership, the principal and
interest with respect to such loans shall be subordinate to the Bridge Loan and
shall be paid pursuant to the terms and conditions agreed to by the General
Partners. Any Partner who shall lend money to the Partnership under the terms
of this Article XIV shall be considered an unrelated creditor with respect to
such loan to the extent allowed by applicable law.
ARTICLE XV
----------
BUY-SELL
--------
15.(a) In the event of an Impasse, for a period ending at 11:59 p.m.
(local time at the Partnership's principal place of business) on the Election
Day, this buy-sell procedure may be invoked by the giving of a single Election
Notice by (1) the General Partner who proposed, approved, consented to, or voted
in favor of the matter giving rise to the Impasse, or (2) the other General
Partner. For the purpose of this Article XV, if the Impasse results in the
removal of the Managing General Partner, pursuant to Section 10.7, such Managing
General Partner shall be deemed to be a General Partner. No Election Notice may
be given with respect to a particular Impasse after the first Election Notice.
(b) An Election Notice shall constitute an irrevocable offer by
the Electing Partner either to (1) purchase all, but not less than all, of the
general and limited partnership interests in the Partnership of the Notice
Partner, (and, if the Electing Partner is HAL, to also purchase all, but not
less than all, of the interests in the Partnership of all HAL Limited Partners
other than HAL), or (2) sell all, but not less than all, of its interests in the
Partnership to the Notice Partner (and, if the Electing Partner is Argosy/KOAR,
to also sell all, but not less than all, of the interests in the Partnership of
all HAL Limited Partners other than HAL). The Election Notice shall contain the
Electing Partner's value of the entire Partnership. Except as adjusted pursuant
to Section 15(d)
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the purchase price for any interest being purchased pursuant to this Article XV
is the amount that would be distributed pursuant to Section 13.2(d) to the
Partner whose interest is being purchased pursuant to Section 15(d) if the
Partnership were sold for the Buy/Sell Price and the Partnership was liquidated
pursuant to Section 13.2.
(c) For the Election Period, the Notice Partner shall have the
right to elect to purchase all of the aggregate interests of the Electing
Partner and, if the Notice Partner is HAL, to also purchase all, but not less
than all, of the interests in the Partnership of all HAL Limited Partners other
than HAL, in which event the Notice Partner shall become the Purchasing Partner.
In the event the Notice Partner fails to make such election in full during the
Election Period, the Electing Partner shall become the Purchasing Partner and
shall be obligated to purchase, the interests of the Notice Partner (and, if the
Electing Partner is HAL, to also purchase all of the interests in the
Partnership of all HAL Limited Partners other than HAL). All such Partners whose
interests are being purchased shall become Selling Partners and shall be
obligated to sell their interests to such Purchasing Partner.
(d) The closing of the purchase and sale of the Selling Partners'
interests shall occur one hundred twenty (120) days following the date of the
Election Notice (provided, however, the Purchasing Partner shall have the right
to extend the closing date for nine (9) one week periods by paying to the
Partnership $100,000 prior to the commencement of each one week period) and at
such place as is mutually agreeable to the Purchasing Partner and the Selling
Partners, or upon the failure to agree, at the Partnership's principal place of
business. At the closing the Purchasing Partner shall pay to each Selling
Partner, by cash or other immediately available funds, the purchase price for
the interest being purchased as determined pursuant to Section 15(b) and each
Selling Partner shall deliver to each Purchasing Partner good title, free and
clear of any liens, claims, encumbrances, security interests, or options (other
than those granted by this Agreement) to the Selling Partner's interest thus
purchased. In the event that any Purchasing Partner shall fail to perform its
obligation to purchase hereunder for any reason other than force majeure
(limited to war involving the United States or natural disasters that cause
substantial physical damage to the Project, in which case the closing date with
respect to such purchase shall be extended until such time as the Purchasing
Partner is able to complete its purchase or, if the Property is destroyed, then
either Partner may terminate such purchase without penalty upon written notice
to the other Partner), the Purchasing Partner shall be deemed forever to have
waived its right to purchase the interest of the Selling Partner pursuant to
this Article XV and the Selling Partner then may give written notice of and
acquire
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the interest in the Partnership held by the Purchasing Partner within ninety
(90) days after the expiration of the 120-day period referenced above at a price
equal to the Buy-Sell Price, less, in the event HAL is the Selling Partner
(which is purchasing the interest of the Purchasing Partner), twenty-five
percent (25%), or in the event Argosy/KOAR is a Selling Partner (which is
purchasing the interest of the Purchasing Partner), seven and one half percent
(7.5%). The Buy-Sell Price shall be tendered in cash. At the closing the
Partners shall execute such documents and instruments of conveyance as may be
necessary or appropriate to confirm the transactions contemplated hereby,
including, without limitation, the Transfer of the Partnership Interests of the
Selling Partners to the Purchasing Partner and the assumption by the Purchasing
Partner of each Selling Partner's obligation with respect to the Selling
Partner's interest transferred to such Purchasing Partner. The reasonable costs
of such Transfer and closing, including, without limitation, attorneys' fees and
filing fees, shall be divided equally between the Selling Partners and the
Purchasing Partner.
ARTICLE XVI
-----------
ACCOUNTING AND REPORTS
----------------------
16.1 BOOKS AND RECORDS.
-----------------
(a) The Managing General Partner shall maintain full and accurate
books of the Partnership on a current basis, showing all receipts and
expenditures, assets and liabilities, profits and losses, and all other
records necessary for recording the Partnership's affairs, including those
sufficient to record the allocations and distributions as set forth in
Articles VI and VII hereof. Such books and records shall be open for the
inspection and examination by any Partner, in person or by their duly
authorized representative, at reasonable times at the offices of the
Partnership. The Managing General Partner shall also maintain at the office
of the Partnership at least one set of fully executed original Partnership
Agreements, financing documents and agreements entered into by the
Partnership.
(b) The Partnership books and records shall be kept on the accrual
method of accounting for federal income tax reporting purposes and any
change in method shall be made by the General Partners in their sole
discretion to the extent permitted by law.
16.2 FISCAL YEAR. The annual accounting period of the Partnership shall
-----------
be the calendar year unless otherwise required by law.
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16.3 FINANCIAL STATEMENTS AND REPORTS. The Managing General Partner
--------------------------------
shall provide the following reports and financial statements to the Non-Managing
General Partner and the Limited Partners as soon as reasonably practicable, but
shall use reasonable efforts to provide such reports and financial statements no
later than the dates set forth below:
(a) Within ninety (90) days after the end of each fiscal year of
the Partnership, (i) a balance sheet as of the end of such fiscal year,
together with statements of income, Partners' equity, and changes in
financial position, (ii) a report of the activities of the Partnership for
such year, (iii) a report on distributions to the Limited Partners for such
period, and (iv) a statement of any transactions with the Managing General
Partner, any officer or director of the Managing General Partner, or any
entity in which any of them has an interest showing the amount paid or
accrued to each recipient and the services performed. The balance sheet and
such financial statements shall be prepared in accordance with generally
accepted accounting principles and shall be audited and accompanied by an
opinion of the independent certified public accountants preparing such
report, which accountants shall be selected by the Managing General
Partner.
(b) Within thirty (30) days after the end of each calendar month,
the Managing General Partner shall provide the other Partners with monthly
operating reports for the Property with respect to such month and from time
to time, such other information as may be reasonably requested by the other
Partners, including such information as the other Partners may reasonably
request in order that the other Partners may comply with the reporting
requirements of the Code, or any relevant rule or regulation of a
regulatory body of appropriate jurisdiction.
16.4 BANK ACCOUNTS. All funds of the Partnership shall be deposited in
-------------
its name in such checking and savings accounts or time certificates as shall be
designated by the Managing General Partner. Withdrawals therefrom shall be made
upon such signature(s) as the Managing General Partner may designate.
16.5 TAX RETURNS. In addition to the annual report, the Managing
-----------
General Partner shall, at Partnership expense, cause income tax information
returns for the Partnership to be prepared and filed with the appropriate
authorities within ninety (90) days after the end of each taxable year.
16.6 FEDERAL INCOME TAX ELECTIONS. All elections required or permitted
----------------------------
to be made by the Partnership under the Code shall be made by the General
Partners. The Managing General Partner shall be the "tax matters partner" as
defined under Section
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6231(a)(7) of the Code, but any rights not exclusively granted to the tax
matters partner by the Code or the Treasury Regulations hereby are reserved to
both General Partners.
ARTICLE XVII
------------
AMENDMENTS
----------
Unless specifically provided otherwise herein, this Agreement may be
amended at any time only upon the approval in writing of both the General
Partners; provided, however, any amendment to Sections 11.1 and 11.3 herein
shall require the unanimous approval of all of the Partners.
ARTICLE XVIII
-------------
MISCELLANEOUS
-------------
18.1 MEETINGS. Meetings of the Partnership may be called by either
--------
General Partner and shall be called upon the written request to the Managing
General Partner of any General Partner.
18.2 OTHER VENTURES. The Partners acknowledge that the business of the
--------------
Partnership shall be the management of the improvements on the Property and the
sale of Intervals. Any of the Partners may engage in or possess an interest in
other business ventures of every nature and description, including those which
may compete with or provide services to the Partnership or the Property without
any obligation to share any profits therefrom with the Partnership or the
Partners; provided, however, no Partner or any Affiliate thereof may engage or
have any financial interest in any entity engaged in any competing activity in
the Island and County of Kauai, Hawaii until the Partners have been returned all
of their respective Capital Contributions and been paid all of their Preferred
Return and at least eighty percent (80%) of the Intervals have been sold.
18.3 NOTICES. All notices under this Agreement shall be in writing,
-------
duly signed by the party giving such notice, and transmitted by registered or
certified mail addressed as follows:
(a) If given to the Partnership or the Managing General Partner,
at the addresses set forth in Section 2.3 hereof or at such other address
as the Managing General Partner may hereafter designate in writing; and
(b) If given to any other Partner, at the address set forth in the
Preamble for such Partner, or at such other address as such Partner may
hereafter designate by written notice to the Partnership.
-52-
<PAGE>
18.4 CAPTIONS. Section titles or captions contained in this Agreement
--------
are inserted only as a matter of convenience and for reference and in no way
define, limit, extend or describe the scope of this Agreement or the intent of
any provision hereof.
18.5 IDENTIFICATION. Whenever the singular number is used in this
--------------
Agreement and when required by the context, the same shall include the plural;
and the masculine gender shall include the feminine and neuter genders; and the
word "person" or "party" shall include corporation, firm, partnership,
proprietorship or other form of association.
18.6 COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts and all of such counterparts shall be deemed an original and for
all purposes constitute one agreement binding on the parties hereto,
notwithstanding that all parties are not signatory to the same counterpart.
18.7 APPLICABLE LAW. This Agreement shall be governed by and construed
--------------
in accordance with the laws of the State of Hawaii.
18.8 PARTNER'S AGE AND COMPETENCE. Anything in this Agreement to the
----------------------------
contrary notwithstanding, no Partner, or any assignee of the interests thereof,
shall be a person or organization prohibited by law from becoming a Partner.
Any assignment of an interest in the Partnership to any person or organization
not meeting such standard shall be void and ineffectual and shall not bind the
Partnership.
18.9 BINDING AGREEMENT. Except as otherwise provided herein to the
-----------------
contrary, this Agreement shall be binding upon and inure to the benefit of the
parties hereto, and their successors and assigns.
18.10 SEVERABILITY. If any provision of this Agreement shall be declared
------------
invalid or unenforceable, the remainder of this Agreement will continue in full
force and effect so far as the intent of the parties can be carried out.
-53-
<PAGE>
18.11 ENTIRE AGREEMENT. This Agreement, with such schedules and exhibits
----------------
attached hereto, contains the entire agreement of the parties.
IN WITNESS WHEREOF, the parties hereto have affixed their hands and seals
as of the day and year first above written.
MANAGING GENERAL PARTNER:
------------------------
ARGOSY/KOAR GROUP, INC.,
a Georgia corporation
By:
-----------------------------------------
Title:
----------------------------------
NON-MANAGING GENERAL PARTNER:
----------------------------
HAL PACIFIC INC.,
a Washington corporation
By:
-----------------------------------------
Title:
----------------------------------
By:
-----------------------------------------
Title:
----------------------------------
LIMITED PARTNERS:
----------------
ARGOSY/KOAR GROUP, INC.,
a Georgia corporation
By:
-----------------------------------------
Title:
----------------------------------
HAL PACIFIC INC.,
a Washington corporation
By:
-----------------------------------------
Title:
----------------------------------
By:
-----------------------------------------
Title:
----------------------------------
-54-
<PAGE>
EXHIBIT 10.5
THE SIGNATURE RESORTS, INC.
EMPLOYEE STOCK PURCHASE PLAN
Signature Resorts, Inc., a corporation organized under the laws of the
State of Maryland (the "Company"), hereby adopts The Signature Resorts, Inc.
Employee Stock Purchase Plan (the "Plan"). The purposes of the Plan are as
follows:
(1) To assist employees of the Company and its Subsidiary Corporations (as
defined below) in acquiring a stock ownership interest in the Company pursuant
to a plan which is intended to qualify as an "employee stock purchase plan"
within the meeting of Section 423(b) of the Internal Revenue Code of 1986, as
amended (the "Code").
(2) To help employees provide for their future security and to encourage
them to remain in the employment of the Company and its Subsidiary Corporations.
1. DEFINITIONS
Whenever any of the following terms is used in the Plan with the first
letter or letters capitalized, it shall have the following meaning unless
context clearly indicates to the contrary (such definitions to be equally
applicable to both the singular and the plural forms of the terms defined):
(a) "Authorization" has the meaning assigned to that term in Section 3(b)
hereof.
(b) "Board of Directors" or "Board" means the Board of Directors of the
Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the committee appointed to administer the Plan
pursuant to Section 12 hereof.
(e) "Company" means Signature Resorts, Inc., a Maryland corporation.
(f) "Date of Exercise" means, with respect to any Option, the last day of
the Offering Period for which the Option was granted.
(g) "Date of Grant" means, with respect to any Option, the date upon which
the Option is granted, as set forth in Section 3(a) hereof.
(h) "Eligible Compensation" means the employee's base pay.
(i) "Eligible Employee" means an employee of the Company or any Subsidiary
Corporation (1) who does not, immediately after the option is granted, own stock
possessing five percent or more of the total combined voting power or value of
all classes of stock of the Company, a Parent Corporation or a Subsidiary
Corporation; (2) who has been employed by the Company or any Subsidiary
Corporation for not less than six months; (3) whose customary
<PAGE>
employment is for more than 20 hours per week; and (4) whose customary
employment is for more than five months in any calendar year. For purposes of
paragraph (i), the rules of Section 424(d) of the Code with regard to the
attribution of stock ownership shall apply in determining the stock ownership of
an individual, and stock which an employee may purchase under outstanding
options shall be treated as stock owned by the employee. During a leave of
absence meeting the requirements of Treasury Regulation 1.421-7(h)(2), an
individual shall be treated as an employee of the Company or Subsidiary
Corporation employing such individual immediately prior to such leave. "Eligible
Employee" shall not include any director of the Company or any Subsidiary
Corporation who does not render services to the Company in the status of an
employee within the meaning of Section 3401(c) of the Code.
(j) "Offering Period" shall mean the six-month periods commencing March 1
and September 1 of each Plan Year as specified in Section 3(a) hereof or such
other dates which are six months apart as determined by the Committee. Options
shall be granted on the Date of Grant and exercised on the Date of Exercise as
provided in Sections 3(a) and 4(a) hereof.
(k) "Option" means an option granted under the Plan to an Eligible Employee
to purchase shares of the Company's Stock.
(l) "Option Period" means, with respect to any Option, the period beginning
upon the Date of Grant and ending upon the Date of Exercise.
(m) "Option Price" has the meaning set forth in Section 4(b) hereof.
(n) "Parent Corporation" means any corporation, other than the Company, in
an unbroken chain of corporations ending with the Company if, at the time of the
granting of the Option, each of the corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
(o) "Participant" means an Eligible Employee who has complied with the
provisions of Section 3(b) hereof.
(p) "Payday" means the regular and recurring established day for payment of
cash compensation to employees of the Company or any Subsidiary Corporation.
(q) "Plan" means The Signature Resorts, Inc. Employee Qualified Stock
Purchase Plan.
(r) "Plan Year" means the calendar year.
(s) "Stock" means the shares of the Company's Common Stock, $0.01 par
value.
(t) "Subsidiary Corporation" means any corporation, other than the Company,
in an unbroken chain of corporations beginning with the Company if, at the time
of the granting of the Option, each of the corporations other than the last
corporation in an unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
2
<PAGE>
2. STOCK SUBJECT TO THE PLAN
Subject to the provisions of Section 9 hereof (relating to adjustments upon
changes in the Stock) and Section 11 hereof (relating to amendments of the
Plan), the Stock which may be sold pursuant to Options granted under the Plan
shall not exceed in the aggregate 500,000 shares in total and may be unissued
shares or treasury shares or shares bought on the market for purposes of the
Plan.
3. GRANT OF OPTIONS
(a) General Statement. The Company shall offer Options under the Plan to
-----------------
all Eligible Employees in successive six-month Offering Periods until the
earlier of (i) the date when the number of shares of Stock available under the
Plan have been sold or (ii) the date when the Plan is terminated. Dates of
Grant shall include March 1 and September 1 of each Plan Year and/or such other
date or dates as the Committee may from time to time determine. Each Option
shall expire on the Date of Exercise immediately after the automatic exercise of
the Option pursuant to Section 4(a) hereof. The number of shares of Stock
subject to each Option shall equal the payroll deductions authorized by each
Participant in accordance with subsection (b) hereof for the Option Period,
divided by the Option Price, except as provided in Section 4(a).
(b) Election to Participate; Payroll Deduction Authorization. Except as
--------------------------------------------------------
provided in subsection (d) hereof, an Eligible Employee shall participate in the
Plan only by means of payroll deduction. Each Eligible Employee who elects to
participate in the Plan shall deliver to the Company during the calendar month
preceding a Date of Grant no later than five (5) working days before such Date
of Grant, a completed and executed written payroll deduction authorization in a
form prepared by the Company (the "Authorization"). An Eligible Employee's
Authorization shall give notice of such Eligible Employee's election to
participate in the Plan for the next following Offering Period and subsequent
Offering Periods and shall designate a stated whole dollar amount of Eligible
Compensation to be withheld on each Payday. The amount withheld shall not be
less than $10.00 each Payday and the stated amount shall not exceed 10% of
Eligible Compensation. The cash compensation payable to a Participant for an
Offering Period shall be reduced each Payday through a payroll deduction in an
amount equal to the stated withdrawal amount specified in the Authorization
payable on such Payday, and such amount shall be credited to the Participant's
account under the Plan. Any Authorization shall remain in effect until the
Eligible Employee amends the same pursuant to this subsection, withdraws
pursuant to Section 5 or ceases to be an Eligible Employee pursuant to Section
6.
(c) $25,000 Limitation. No Eligible Employee shall be granted an Option
------------------
under the Plan which permits his rights to purchase stock under the Plan and
under all other employee stock purchase plans of the Company, any Parent
Corporation or any Subsidiary Corporation subject to the Section 423 to accrue
at a rate which exceeds $25,000 of fair market value of such stock (determined
at the time the Option is granted) for each calendar year in which the Option is
outstanding at any time. For purpose of the limitation imposed by this
subsection, the right to purchase stock under an Option accrues when the Option
(or any portion thereof) first becomes exercisable during the calendar year, the
right to purchase stock under an Option accrues at the rate provided in the
Option, but in no case may such rate exceed $25,000 of the fair market value of
such stock (determined at the time such Option is granted) for any one calendar
year, and a right
3
<PAGE>
to purchase stock which has accrued under an Option may not be carried over to
any other Option.
(d) Leaves of Absence. During a leave of absence meeting the requirements
-----------------
of Treasury Regulation Section 1.421-7(h)(2), a Participant may continue to
participate in the Plan by making cash payments to the Company on each Payday
equal to the amount of the Participant's payroll deductions under the Plan for
the Payday immediately preceding the first day of such Participant's leave of
absence.
4. EXERCISE OF OPTIONS; OPTION PRICE
(a) General Statement. Each Participant automatically and without any act
-----------------
on such Participant's part shall be deemed to have exercised such Participant's
Option on the Date of Exercise to the extent that the balance then in the
Participant's account under the Plan is sufficient to purchase at the Option
Price whole shares of the Stock subject to the Option. The Company will pay to
the Participant any cash in lieu of fractional shares of Stock remaining after
the purchase of whole shares of Stock upon exercise of an Option without any
interest thereon. Certificates representing fractional shares will not be
issued.
(b) Option Price Defined. The option price per share of Stock (the "Option
--------------------
Price") to be paid by a Participant upon the exercise of the Participant's
Option shall be equal to 85% of the lesser of the fair market value of a share
of Stock on the Date of Exercise or the fair market value of a share of Stock on
the Date of Grant. The fair market value of a share of Stock as of a given date
shall be: (i) the closing price of a share of Stock on the principal exchange on
which the Stock is then trading, if any, on such date, or, if shares were not
traded on such date, then on the next preceding trading day during which a sale
occurred; (ii) if the Stock is not traded on an exchange but is quoted on Nasdaq
or a successor quotation system, (1) the last sales price (if the Stock is then
listed as a National Market Issue under the NASD National Market System) or (2)
the mean between the closing representative bid and asked prices (in all other
cases) for a share of the Stock on such date, or, if shares were not traded on
such date, then on the next preceding trading day during which a sale occurred,
as reported by Nasdaq or such successor quotation system; (iii) if the Stock is
not publicly traded on an exchange and not quoted on Nasdaq or a successor
quotation system, the mean between the closing bid and asked prices for a share
of Stock on such date, or, if shares were not traded on such date, then on the
next preceding trading day during which a sale occurred, as determined in good
faith by the Committee; or (iv) if the Stock is not publicly traded, the fair
market value of a share of Stock established by the Committee acting in good
faith.
(c) Delivery of Share Certificate. As soon as practicable after the
-----------------------------
exercise of any Option, the Company will deliver to the Participant or his or
her nominee the whole shares of Stock purchased by the Participant from funds
credited to the Participant's account under the Plan. Any fractional shares of
Stock or cash in lieu of fraction shares of Stock remaining after the purchase
of whole shares of Stock upon exercise of an Option will be credited to such
Participant's account and carried forward and, in the case of cash in lieu of
fractional shares, applied toward the purchase of whole shares of Stock pursuant
to the Option, if any, granted to such Participant for the next following
Offering Period. Certificates representing fractional shares will not be
issued. In the event the Company is required to obtain authority from any
commission or agency to issue any such certificate, the Company shall seek to
obtain such authority. The inability of the
4
<PAGE>
Company to obtain authority from any such commission or agency which the
Committee in its absolute discretion, deems necessary for the lawful issuance of
any such certificate shall relieve the Company from liability to any Participant
except to pay to the Participant the amount of the balance in the Participant's
account in cash in one lump sum without any interest thereon.
(d) Pro Rata Allocations. If the total number of shares of Stock for which
--------------------
Options are to be exercised on any date exceeds the number of shares remaining
unsold under the Plan (after deduction of all shares for which Options have
theretofore been exercised), the Committee shall make a pro rata allocation of
the available remaining shares in as nearly a uniform manner as shall be
practicable and any balance of payroll deductions credited to the accounts of
Participants which have not been applied to the purchase of shares of Stock
shall be paid to such Participants in cash in one lump sum within sixty (60)
days after the Date of Exercise, without any interest thereon.
5. WITHDRAWAL FROM THE PLAN
(a) General Statement. Any Participant may withdraw from participation
-----------------
under the Plan at any time except that no Participant may withdraw during the
last ten (10) days of any Offering Period. A Participant who wishes to withdraw
from the Plan must deliver to the Company a notice of withdrawal in a form
prepared by the Company (the "Withdrawal Election") not later than ten (10) days
prior to the Date of Exercise during any Offering Period. Upon receipt of a
Participant's Withdrawal Election, the Company shall pay to the Participant the
amount of the balance in the Participant's account under the Plan in cash in one
lump sum within sixty (60) days, without any interest thereon. Upon receipt of
a Participant's Withdrawal Election by the Company, the Participant shall cease
to participate in the Plan and the Participant's Option shall terminate.
(b) Eligibility Following Withdrawal. A Participant who withdraws from the
--------------------------------
Plan and who is still an Eligible Employee shall be eligible to participate
again in the Plan as of any subsequent Date of Grant by delivering to the
Company an Authorization pursuant to Section 3(b) hereof.
6. TERMINATION OF EMPLOYMENT
(a) Termination of Employment Other than by Death. If the employment of a
---------------------------------------------
Participant terminates other than by death, the Participant's participation in
the Plan automatically and without any act on the Participant's part shall
terminate as of the date of the termination of the Participant's employment. As
soon as practicable after such a termination of employment, the Company will pay
to the Participant the amount of the balance in the Participant's account under
the Plan without any interest thereon. Upon a Participant's termination of
employment covered by this Section 6(a), the Participant's Authorization,
interest in the Plan and Option under the Plan shall terminate.
(b) Termination By Death. If the employment of a participant is terminated
--------------------
by the Participant's death, the executor of the Participant's will or the
administrator of the Participant's estate by written notice to the Company may
request payment of the balance in the Participant's account under the Plan, in
which event the Company shall make such payment without any interest thereon as
soon as practicable after receiving such notice; upon receipt of such notice the
Participant's Authorization, interest in the Plan and Option under the Plan
shall terminate. If the Company does not receive such notice prior to the next
Date of Exercise, the Participant's Option shall be deemed to have been
exercised on such Date of Exercise.
5
<PAGE>
7. RESTRICTION UPON ASSIGNMENT
An Option granted under the Plan shall not be transferable other than by
will or the laws of descent and distribution, and is exercisable during the
Participant's lifetime only by the Participant. Except as provided in Section
6(c) hereof, an Option may not be exercised to any extent except by the
Participant. The Company shall not recognize and shall be under no duty to
recognize any assignment or alienation of the Participant's interest in the
Plan, the Participant's Option or any rights under the Participant's Option.
8. NO RIGHTS OF STOCKHOLDERS UNTIL SHARES ISSUED
With respect to shares of Stock subject to an Option, a Participant shall
not be deemed to be a stockholder of the Company, and the Participant shall not
have any of the rights or privileges of a stockholder, until such shares have
been issued to the Participant or his or her nominee following exercise of the
Participant's Option. No adjustments shall be made for dividends (ordinary or
extraordinary, whether in cash securities, or other property) or distribution or
other rights for which the record date occurs prior to the date of such
issuance, except as otherwise expressly provided herein."
9. CHANGES IN THE STOCK; ADJUSTMENTS OF AN OPTION
Whenever any change is made in the Stock or to Options outstanding under
the Plan, by reason of a stock split, stock dividend, recapitalization or other
subdivision, combination, or reclassification of shares, appropriate action
shall be taken by the Committee to adjust accordingly the number of shares of
Stock subject to the Plan and the number and the Option Price of shares of Stock
subject to the Options outstanding under the Plan to preserve, but not increase,
the rights of Participants hereunder.
10. USE OF FUNDS; NO INTEREST PAID
All funds received or held by the Company under the Plan shall be included
in the general funds of the Company free of any trust or other restriction and
may be used for any corporate purpose. No interest will be paid to any
Participant or credited to any Participant's account under the Plan with respect
to such funds.
11. AMENDMENT OF THE PLAN
The Board of Directors may amend, suspend, or terminate the Plan at any
time and from time to time, provided that approval by a vote of the holders of
more than 50% of the outstanding shares of the Company's capital stock entitled
to vote shall be required to amend the Plan (i) to increase the total number of
shares of Stock reserved for sale pursuant to Options under the Plan, (ii) in
any manner that would cause the Plan to no longer be an "employee stock purchase
plan" within the meaning of Section 423(b) of the Code or (iii) in any manner
that would require stockholder approval under applicable law, regulation or
rule.
6
<PAGE>
12. ADMINISTRATION BY COMMITTEE; RULES AND REGULATIONS
(a) Appointment of Committee. The Plan shall be administered by the
------------------------
Committee. Prior to the closing of the Company's initial public offering of
equity securities (the "Offering"), the Committee shall consist of the entire
Board. Following the closing of the Offering, the Committee shall consist
solely of two or more members of the Board of Directors, each of whom is (i) a
"non-employee director" (as defined by Rule 16b-3 under the Securities Exchange
Act of 1934, as amended (the "Act")), (ii) to the extent required by the
applicable provisions of Rule 16b-3, a "disinterested person" (as defined by
Rule 16b-3 under the Act) and (iii) and "outside director" for purposes of
Section 162(m) of the Code. Each member of the Committee shall serve for a term
commencing on a date specified by the Board of Directors and continuing until
the member dies or resigns or is removed from office by the Board of Directors.
The Committee at its option may utilize the services of an agent to assist in
the administration of the Plan including establishing and maintaining an
individual securities account under the Plan for each Participant.
(b) Duties and Powers of Committee. It shall be the duty of the Committee
------------------------------
to conduct the general administration of the Plan in accordance with the
provisions of the Plan. The Committee shall have the power to interpret the
Plan and the terms of the Options and to adopt such rules for the
administration, interpretation, and application of the Plan as are consistent
therewith and to interpret, amend or revoke any such rules. 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 the Plan.
(c) Majority Rule. The Committee shall act by a majority of its members in
-------------
office. The Committee may act either by vote at a meeting or by a memorandum or
other written instrument signed by a majority of the Committee.
(d) Compensation; Professional Assistance; Good Faith Actions. All expenses
---------------------------------------------------------
and liabilities incurred by members of the Committee in connection with the
administration of the Plan shall be borne by the Company. The Committee may,
with the approval of the Board, employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Committee, the Company and its
officers and directors shall be entitled to rely upon the advice, opinions or
valuations of any such persons. All actions taken and all interpretations and
determinations made by the Committee in good faith shall be final and binding
upon all Participants, 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 Options, and
all members of the Committee shall be fully protected by the Company in respect
to any such action, determination, or interpretation.
13. NO RIGHTS AS AN EMPLOYEE
Nothing in the Plan shall be construed to give any person (including any
Eligible Employee or Participant) the right to remain in the employ of the
Company, a Parent Corporation or a Subsidiary Corporation or to affect the right
of the Company, any Parent Corporation or any Subsidiary Corporation to
terminate the employment of any person (including any Eligible Employee or
Participant) at any time, with or without cause.
7
<PAGE>
14. MERGER, ACQUISITION OR LIQUIDATION OF THE COMPANY
In the event of the merger or consolidation of the Company into another
corporation, the acquisition by another corporation of all or substantially all
of the Company's assets or 50% or more of the Company's then outstanding voting
stock, the liquidation or dissolution of the Company or any other reorganization
of the Company, the Date of Exercise with respect to outstanding Options shall
be the business day immediately preceding the effective date of such merger,
consolidation, acquisition, liquidation, dissolution, or reorganization unless
the Committee shall, in its sole discretion, provide for the assumption or
substitution of such Options in a manner complying with Section 424(a) of the
Code.
15. TERM; APPROVAL BY STOCKHOLDERS
No Option may be granted during any period of suspension of the Plan or
after termination of the Plan. The Plan shall be submitted for the approval of
the Company's stockholders within 12 months after the date of the Board of
Directors' adoption of the Plan. Options may be granted prior to such
stockholder approval; provided, however, that such Options shall not be
exercisable prior to the time when the Plan is approved by the stockholders; and
provided, further, that if such approval has not been obtained by the end of
said 12-month period, all Options previously granted under the Plan shall
thereupon expire.
16. EFFECT UPON OTHER PLANS
The adoption of the Plan shall not affect any other compensation or
incentive plans in effect for the Company, any Parent Corporation or any
Subsidiary Corporation. Nothing in this Plan shall be construed to limit the
right of the Company, any Parent Corporation or any Subsidiary Corporation (a)
to establish any other forms of incentives or compensation for employees of the
Company, any Parent Corporation or any Subsidiary Corporation or (b) to grant or
assume options otherwise than under this Plan in connection with any proper
corporate purpose, including, but not by way of limitation, the grant or
assumption of options in connection with the acquisition, by purchase, lease,
merger, consolidation or otherwise, of the business, stock or assets of any
corporation, firm or association.
17. CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES.
The Company shall not be required to issue or deliver any certificate or
certificates for shares of Stock purchased upon the exercise of Options prior to
fulfillment of all the following conditions:
(a) The admission of such shares to listing on all stock exchanges, if any,
on which is then listed; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under the rulings or regulations of the
Securities and Exchange Commission or any other governmental regulatory body,
which the Committee shall, in its absolute discretion, deem necessary or
advisable; and
8
<PAGE>
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The payment to the Company of all amounts which it is required to
withhold under federal, state or local law upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the exercise of
the Option as the Committee may from time to time establish for reasons of
administrative convenience.
18. NOTIFICATION OF DISPOSITION
Each Participant shall give prompt notice to the Company of any disposition
or other transfer of any shares of Stock purchased upon exercise of an Option if
such disposition or transfer is made (a) within two (2) years from the Date of
Grant of the Option or (b) within one (1) year after the transfer of such shares
to such Participant upon exercise of such Option. Such notice shall specify the
date of such disposition or other transfer and the amount realized, in cash,
other property, assumption of indebtedness or other consideration, by the
Participant in such disposition or other transfer.
19. NOTICES
Any notice to be given under the terms of the Plan to the Company shall be
addressed to the Company in care of its Secretary and any notice to be given to
any Eligible Employee or Participant shall be addressed to such Employee at such
Employee's last address as reflected in the Company's records. By a notice
given pursuant to this Section, either party may designate a different address
for notices to be given to it, him or her. Any notice which is required to be
given to an Eligible Employee or a Participant shall, if the Eligible Employee
or Participant is then deceased, be given to the Eligible Employee's or
Participant's personal representative if such representative has previously
informed the Company of his status and address by written notice under this
Section. Any notice shall have been deemed duly given if enclosed in a properly
sealed envelope or wrapper addressed as aforesaid at the time it is deposited
(with postage prepaid) in a post office or branch post office regularly
maintained by the United States Postal Service.
20. HEADINGS
Headings are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of the Plan.
9
<PAGE>
* * * * * * *
I hereby certify that the foregoing Plan was adopted by the Board of
Directors of Signature Resorts, Inc. on June 13, 1996.
Executed as of this 13th day of June, 1996.
-----------------------------------------------
Steven C. Kenninger
Director, Chief Operating Officer and Secretary
* * * * * * *
I hereby certify that the foregoing Plan was approved by the stockholders
of Signature Resorts, Inc. on June 13, 1996.
Executed at Los Angeles, California on this 13th day of June, 1996.
-----------------------------------------------
Steven C. Kenninger
Director, Chief Operating Officer and Secretary
10
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts," under
the caption "Summary Combined Historical and Pro Forma Financial Information"
and to the use of our report dated March 8, 1995, in Amendment No. 1 to the
Registration Statement (Form S-1 No. 333-06027) and related Prospectus of
Signature Resorts, Inc. dated June 14, 1996.
Ernst & Young LLP
Los Angeles, California
July 22, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1 (File
No. 333-06027) of our reports dated March 16, 1995, February 9, 1995, March
29, 1996, and April 9, 1996. We also consent to the reference to our firm
under the caption "Experts" in the Registration Statement.
Coopers & Lybrand L.L.P.
Orlando, Florida
July 22, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF DIRECTOR NOMINEE
The undersigned hereby consents to the reference of the undersigned as a
director nominee of Signature Resorts, Inc. (the "Company") in the Company's
Registration Statement on Form S-1 (File No. 333-06027).
/s/ Juergen Bartels
-----------------------------
Juergen Bartels
<PAGE>
EXHIBIT 23.5
CONSENT OF DIRECTOR NOMINEE
The undersigned hereby consents to the reference of the undersigned as a
director nominee of Signature Resorts, Inc. (the "Company") in the Company's
Registration Statement on Form S-1 (File No. 333-06027).
/s/ Joshua S. Friedman
-----------------------------
Joshua S. Friedman
<PAGE>
EXHIBIT 23.6
CONSENT OF DIRECTOR NOMINEE
The undersigned hereby consents to the reference of the undersigned as a
director nominee of Signature Resorts, Inc. (the "Company") in the Company's
Registration Statement on Form S-1 (File No. 333-06027).
/s/ Sanford R. Climan
-----------------------------
Sanford R. Climan
<PAGE>
EXHIBIT 23.7
CONSENT OF DIRECTOR NOMINEE
The undersigned hereby consents to the reference of the undersigned as a
director nominee of Signature Resorts, Inc. (the "Company") in the Company's
Registration Statement on Form S-1 (File No. 333-06027).
/s/ W. Leo Kiely, III
-----------------------------
W. Leo Kiely, III
