<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 31, 1996
REGISTRATION NO. 333-06027
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
SIGNATURE RESORTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
MARYLAND 6552 95-4582157
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
911 WILSHIRE BOULEVARD, SUITE 2250
LOS ANGELES, CALIFORNIA 90017
(213) 622-2211
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
STEVEN C. KENNINGER
CHIEF OPERATING OFFICER
SIGNATURE RESORTS, INC.
911 WILSHIRE BOULEVARD, SUITE 2250
LOS ANGELES, CALIFORNIA 90017
(213) 622-2211
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
<TABLE>
<S> <C>
EDWARD SONNENSCHEIN, JR., ESQ. PETER T. HEALY, ESQ.
LATHAM & WATKINS O'MELVENY & MYERS LLP
633 W. FIFTH STREET 275 BATTERY STREET
SUITE 4000 EMBARCADERO CENTER WEST
LOS ANGELES, CALIFORNIA 90071 SAN FRANCISCO, CALIFORNIA 94111
(213) 485-1234 (415) 984-8700
</TABLE>
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
---------------
If any of the securities on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434 of
the Securities Act of 1933, please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
SIGNATURE RESORTS, INC.
CROSS-REFERENCE SHEET
PURSUANT TO RULE 404(A) AND ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN
FORM S-1 REGISTRATION
STATEMENT PROSPECTUS CAPTION
-------------------------- ------------------
<C> <S> <C>
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus... Facing Page; Cross-Reference Sheet; Outside
Front Cover Page of Prospectus
2. Inside Front and Outside
Back Cover Pages of Pro-
spectus.................... Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information, Risk
Factors and Ratio of Earn-
ings to Fixed Charges...... Summary; Risk Factors; Selected Combined
Historical and Pro Forma Financial
Information
4. Use of Proceeds............. Summary; Use of Proceeds; Consolidated
Capitalization; Management's Discussion and
Analysis of Financial Condition and Results
of Operations
5. Determination of Offering
Price...................... Outside Front Cover Page; Underwriting
6. Dilution.................... Dilution
7. Selling Security Holders.... Not Applicable
8. Plan of Distribution........ Outside Front Cover Page; Underwriting
9. Description of Securities to
be Registered.............. Summary; Description of Capital Stock
10. Interests of Named Experts
and Counsel................ Experts; Legal Matters
11. Information with Respect to
the Registrant............. Outside and Inside Front Cover Pages of
Prospectus; Summary; Risk Factors; Use of
Proceeds; Consolidated Capitalization;
Selected Combined Historical Financial
Information; Selected Combined Pro Forma
Financial Information; Shares Eligible for
Future Sale; Dividend Policy; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Certain Relationships
and Related Transactions; Principal
Stockholders; Combined Financial Statements
of Signature Resorts, Inc.
12. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................ Management
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 31, 1996
5,250,000 SHARES
[LOGO]
SIGNATURE RESORTS, INC.
COMMON STOCK
All of the shares of Common Stock, $0.01 par value ("Common Stock"), of
Signature Resorts, Inc., a Maryland corporation (the "Company"), offered hereby
(the "Offering") are being sold by the Company. Prior to the Offering, there
has been no public market for the Common Stock of the Company. It is currently
estimated that the initial public offering price will be between $14.00 and
$16.00 per share of Common Stock. See "Underwriting" for a discussion of
factors considered in determining the initial public offering price. The Common
Stock has been approved for quotation on the Nasdaq National Market, subject to
notice of issuance, under the symbol "SIGR."
SEE "RISK FACTORS" COMMENCING ON PAGE 12 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share (3)......................... $ $ $
Total................................. $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 787,500 additional shares of Common Stock solely to cover over-
allotments, if any. If the Underwriters exercise this option in full, the
Price to Public will total $ , the Underwriting Discount will total
$ and the Proceeds to Company will total $ . See
"Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, when, as and if delivered and accepted by the Underwriters and subject
to their right to reject any order in whole or in part. It is expected that the
delivery of the certificates representing such shares will be made against
payment therefor at the office of Montgomery Securities on or about ,
1996.
-----------
MONTGOMERY SECURITIES GOLDMAN, SACHS & CO.
, 1996
<PAGE>
The following photos and charts are depicted:
Map Map of U.S. denoting Signature Resorts Locations and Logos
- --- corresponding to each of the three brands utilized by the company
Photo 1 San Luis Bay Inn - Avila Beach, California
- ------- Picture denotes ocean perspective of the resort and adjacent golf
course
Photo 2 Royal Palm Beach Club - St. Maarten, Netherlands, Antilles
- ------- Balcony perspective view of Royal Palm pool and swim up palapa bar
Photo 3 Royal Palm Beach Club - St. Maarten, Netherlands, Antilles
- ------- Aerial shot of beach front of Royal Palm Beach Club
Photo 4 Embassy Vacation Resort Poipu Point - Maui, Hawaii
- ------- Aerial shot looking over pool with view of beach front of Embassy
Vacation Resort Poipu Point
Photo 5 Embassy Vacation Resort Poipu Point - Maui, Hawaii
- ------- Interior view of resort looking out over balcony at ocean
Photo 6 Cypress Pointe - Lake Buena Vista, Florida
- ------- Angle frontal shot of one resort structure at Cypress Pointe - Lake
Buena Vista, Florida
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, ON THE OPEN MARKET
OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
EMBASSY VACATION RESORTS(SM) IS A SERVICE MARK OF THE PROMUS HOTEL
CORPORATION. WESTIN HOTELS & RESORTS(SM) IS A SERVICE MARK OF THE WESTIN HOTEL
COMPANY.
2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data, including
the financial statements and notes thereto, included elsewhere in this
Prospectus. Except as otherwise noted, all information in this Prospectus (i)
assumes no exercise of the Underwriters' over-allotment option, (ii) gives
effect to the consummation of the Consolidation Transactions (as defined
herein), which will occur immediately prior to the consummation of the
Offering, and (iii) assumes that the initial public offering price per share
will be $15 per share. Unless the context otherwise indicates, the "Company"
means Signature Resorts, Inc. following the consummation of the Consolidation
Transactions and includes its corporate and partnership predecessors.
THE COMPANY
Signature Resorts, Inc. is one of the largest developers and operators of
timeshare resorts in North America, based on number of resorts in sales. The
Company is devoted exclusively to timeshare operations and directly or through
wholly-owned affiliates owns eight timeshare resorts, including one under
construction, and a ninth resort in which the Company holds a partial interest
(the "Existing Resorts"). The Existing Resorts are located in a variety of
popular resort destinations including Hilton Head Island, South Carolina;
Koloa, Kauai, Hawaii; the Orlando, Florida area (two resorts); St. Maarten,
Netherlands Antilles (two resorts); Branson, Missouri; South Lake Tahoe,
California; and Avila Beach, California. The Company's principal operations
currently consist of (i) acquiring, developing and operating timeshare resorts,
(ii) marketing and selling timeshare interests in its resorts, which typically
entitle the buyer to use a fully-furnished vacation residence, generally for a
one-week period each year ("Vacation Intervals") and (iii) providing financing
for the purchase of Vacation Intervals at its resorts.
The Company believes that, based on published industry data, it is the only
developer and operator of timeshare resorts in North America that will offer
Vacation Intervals in each of the three principal price segments of the market
(value, upscale (characterized by high quality accommodations and service) and
luxury (characterized by elegant accommodations and personalized service)). The
Company expects that its resorts will operate in the following three general
categories, each differentiated by price range, brand affiliation and quality
of accommodations:
. NON-BRANDED RESORTS. Vacation Intervals at the Company's six non-branded
resorts, which are not affiliated with any hotel chain, generally sell
for $6,000 to $15,000 and are targeted to buyers with annual incomes
ranging from $35,000 to $80,000. The Company believes its non-branded
resorts offer buyers an economical alternative to branded timeshare
resorts (such as Embassy Vacation Resorts and Westin Vacation Club
resorts) or traditional vacation lodging alternatives.
. EMBASSY VACATION RESORTS. Vacation Intervals at the Company's three
Embassy Vacation Resorts generally sell for $12,000 to $20,000 and are
targeted to buyers with annual incomes ranging from $60,000 to $150,000.
Embassy Vacation Resorts are designed to provide timeshare
accommodations that offer the high quality and value that is represented
by the more than 120 Embassy Suites hotels throughout North America.
. WESTIN VACATION CLUB RESORTS. Through its recent agreement with Westin
Hotels & Resorts ("Westin"), the Company has the exclusive right for a
five-year period to jointly acquire, develop and market with Westin
"four-star" and "five-star" timeshare resorts located in North America,
Mexico and the Caribbean (the "Westin Agreement"). The Company
anticipates that Vacation Intervals at Westin Vacation Club resorts
generally will sell for $16,000 to $25,000 and will be targeted to
buyers with annual incomes ranging from $80,000 to $250,000. The Westin
Agreement represents Westin's entry into the timeshare market.
The Company sells its Vacation Intervals through sales personnel located at
each of its Existing Resorts and at off-site sales centers. In addition, the
Company's resorts participate in the Vacation Interval exchange network
operated by Resort Condominiums International, Inc. ("RCI"), the world's
largest Vacation Interval
3
<PAGE>
exchange organization with more than two million Vacation Interval owners as
members. Membership in RCI entitles Vacation Interval owners to exchange their
annual Vacation Intervals for occupancy at any of the approximately 2,900 other
resorts participating in the RCI network. According to the American Resort
Development Association ("ARDA"), a non-profit industry organization, the
ability to exchange Vacation Intervals is cited by buyers as a primary reason
for purchasing a Vacation Interval.
According to ARDA, during the fifteen year period ending in 1994 (the most
recent year for which statistics are available), the total annual sales volume
for the timeshare industry increased from $490 million in 1980 to $4.76 billion
in 1994. A year-by-year presentation of annual Vacation Interval sales volume
is detailed under "Business--The Timeshare Industry--The Market." The Company
believes that, based on ARDA reports, the timeshare industry has benefited
recently from increased consumer acceptance of the timeshare concept resulting
from effective governmental regulation of the industry, the entry into the
industry by national lodging and hospitality companies and increased vacation
flexibility resulting from the growth of Vacation Interval exchange networks.
The Company expects the timeshare industry to continue to grow as consumer
awareness of the timeshare industry increases and as the so-called "baby boom
generation" enters the 40-55 year age bracket, the age group which purchased
the most Vacation Intervals in 1994.
For the twelve month period ended 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 March 31, 1996,
approximately 7.1% of such consumer loans were considered by the Company to be
delinquent (past due by 60 or more days) and the Company has completed or
commenced foreclosure or deed-in-lieu of foreclosure on approximately 2.0% of
its consumer loans. The Company also provides resort management and maintenance
services at its non-branded resorts for which it receives fees paid by the
homeowners associations at its resorts. Pursuant to management agreements
between the Company and the Vacation Interval owners, the Company generally has
sole responsibility and exclusive authority for the day-to-day operation of
certain of its resorts, including administrative services, procurement of
inventories and supplies and promotion and publicity.
The Company's objective is to become North America's leading developer and
operator of timeshare resorts. To meet this objective, the Company intends to
(i) acquire, convert and develop additional resorts to be operated as Embassy
Vacation Resorts, Westin Vacation Club resorts and non-branded resorts,
capitalizing on the acquisition and marketing opportunities to be provided
through its relationships with Promus Hotels Corporation ("Promus"), Westin and
selected financial institutions, (ii) increase sales and financings of Vacation
Intervals at the Existing Resorts through broader-based marketing efforts and
in certain instances through the construction of additional Vacation Interval
inventory, (iii) improve operating margins by consolidating administrative
functions, reducing borrowing costs and reducing its sales and marketing
expenses as a percentage
4
<PAGE>
of revenues and (iv) acquire additional Vacation Interval inventory, management
contracts, Vacation Interval mortgage portfolios, and properties or other
timeshare-related assets that may be integrated into the Company's operations.
To implement its growth strategy, the Company intends to pursue resort
acquisitions and developments in a number of selected destination vacation
markets that are subject to barriers to entry, concentrating on the California
and Hawaii markets in which the Company's founders have extensive acquisition
and development experience. The Company intends to rely on cash generated from
operations, proceeds of the Offering and funds available under its existing
lines of credit to fund its development activities at the Existing Resorts and
to rely primarily on financing arrangements to be obtained in the future to
fund its acquisition activities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
The Company has established strategic agreements and relationships with
certain lodging companies and financial institutions, including the following:
. The Company is currently the only licensee and operator of Embassy
Vacation Resorts. The Company presently operates two Embassy Vacation
Resorts, has commenced construction on a third and is evaluating
additional properties which could be operated as Embassy Vacation
Resorts, but has not committed to any additional properties at this
time. In addition, Promus recently announced the creation of a new
timeshare division to expand its Embassy Vacation Resort timeshare
operations which the Company believes will provide it with growth
opportunities in the future.
. The Company, through the Westin Agreement, has the exclusive right for
five years to jointly acquire, develop and market with Westin Vacation
Intervals at "four-star" and "five-star" Westin-affiliated resorts. The
Company and Westin are evaluating a number of hotels currently operated
as Westin Hotels which could include or be expanded to include
facilities operated as Westin Vacation Club resorts, however the Company
has not committed to any such properties at this time.
. The Company has relationships with selected financial institutions which
control significant real estate portfolios and has acquired three of the
Existing Resorts from such institutions. The Company expects that these
relationships will continue to permit the Company to acquire resort
properties at attractive prices. The Company currently is evaluating the
acquisition of a number of properties currently owned or controlled by
such financial institutions, but has not committed to any additional
properties at this time.
The Company will use the proceeds of this Offering primarily to repay
outstanding indebtedness related to the Existing Resorts. See "Use of
Proceeds."
5
<PAGE>
THE RESORTS
The following table sets forth certain information as of 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 November 1992 184 500(b) 7,415 1,824 $10,734 1,972 16,116(b)
POINTE Vista, Florida
RESORT
PLANTATION Branson, July 1993 82 400(c) 3,540 1,094 9,519 643 16,218(c)
AT FALL Missouri
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 May 1996(m) 0 210(n) (o) (o) (o) (o) 10,710(n)
Tahoe, 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. Should the Company elect to
construct a higher percentage of three bedroom units, rather than its
current planned mix of one, two and three bedroom units, the actual number
of planned units and Vacation Intervals will be lower than is indicated
above.
(c) Includes 16 units, which will accommodate an additional 816 Vacation
Intervals, 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. Of this total, the Company is obligated to convey four Vacation
Intervals to the former owners of the land on which the Embassy Vacation
Resort Lake Tahoe is being developed. Such conveyance will be made upon
completion of the first phase of development. The Company has also received
all necessary discretionary governmental approvals and permits to construct
an additional estimated 148 units (excluding building permits which have
not yet been applied for by the Company and which will be applied for and
obtained on a phase-by-phase basis) on land that it owns at the Embassy
Vacation Resort Lake Tahoe, which will accommodate an estimated 7,548
Vacation Intervals, and, subject to market demand, currently plans to
construct 40 of such units commencing in May of each year from 1997 through
1999 and the remaining 28 units commencing in May 2000.
(o) The Company commenced sales of Vacation Intervals at the Embassy Vacation
Resort Lake Tahoe in June 1996, although the Company will not be able to
close any of such sales until the completion of the first units, currently
scheduled to occur in January 1997.
7
<PAGE>
THE CONSOLIDATION TRANSACTIONS AND CORPORATE BACKGROUND
The Company's Existing Resorts currently are owned and operated by individual
limited partnerships or limited liability companies (the "Property
Partnerships"), each affiliated with the Company's founding stockholders, Osamu
"Sam" Kaneko, Andrew J. Gessow and Steven C. Kenninger (sometimes referred to
herein as the "Founders"). The Property Partnerships consist of Grand Beach
Resort, L.P., a Georgia limited partnership (Embassy Vacation Resort Grand
Beach); AKGI-Flamingo C.V., a Netherlands Antilles limited partnership
(Flamingo Beach Club); AKGI-Royal Palm C.V., a Netherlands Antilles limited
partnership (Royal Palm Beach Club); Port Royal Resort, L.P., a South Carolina
limited partnership (Royal Dunes Resort); an approximately 30% interest in
Poipu Resort Partners, L.P., a Hawaii limited partnership (Embassy Vacation
Resort Poipu Point); Fall Creek Resort, L.P., a Georgia limited partnership
(Plantation at Fall Creek); Cypress Pointe Resort, L.P., a Delaware limited
partnership (Cypress Pointe Resort); Lake Tahoe Resort Partners, LLC, a
California limited liability company (Embassy Vacation Resort Lake Tahoe); and
San Luis Resort Partners, LLC, a Georgia limited liability company (San Luis
Bay Resort). Affiliates of the Founders currently are the sole general partners
or the sole members of each of the Property Partnerships. Each of the Property
Partnerships (other than the Embassy Vacation Resort Poipu Beach) which will
remain in existence following the Consolidation Transactions and the Offering
will be wholly owned by the Company.
The Company's timeshare resort acquisition and development business commenced
in 1992 to take advantage of the unique real estate development, financing and
travel industry expertise of the Founders. Mr. Kaneko, who is a Japanese
national and was educated in the United States, has more than 24 years of
experience in resort real estate acquisition and development. Prior to forming
the Company, Mr. Kaneko co-founded KOAR Group, Inc. ("KOAR"), a Los Angeles-
based real estate acquisition and development company, with Mr. Kenninger in
1985 and was previously the executive vice-president of the Hawaii-based United
States operations of a Japanese publicly-traded real estate developer. Mr.
Kenninger, a former business attorney for the seven years prior to co-founding
KOAR, has had overall responsibility for the development, acquisition,
licensing, branding and legal operations of the Company since 1993. Affiliates
of KOAR developed and currently own the Embassy Suites hotels located at Lake
Tahoe, downtown Chicago, the Seattle/Tacoma airport, Walnut Creek (Bay Area),
California and the Los Angeles International Airport. In May 1996, Promus
presented its Rose Awards to three of the Embassy Suites hotels affiliated with
KOAR and scored two of such hotels in the top three hotels of the over 100
properties contained in the Embassy Suites system in 1995. Promus annually
presents Rose Awards to a select few hotels judged to be the best in the chain
based on an equally weighted composite score of property performance in a
market, results of guest satisfaction surveys and product quality assessments
performed by Promus. KOAR's Embassy Suites hotels are managed for KOAR by
Promus. Through its affiliation with the Embassy Suites hotel division of
Promus, the Company became the first and is currently the only licensee and
operator of Embassy Vacation Resorts. Prior to forming the Company, Mr. Gessow
in 1990 formed Argosy Group, Inc. ("Argosy"), a Woodside, California based real
estate acquisition and development company and was previously president of both
the Florida and west coast offices of Trammell Crow Residential Services, a
real estate development company.
Upon consummation of the Consolidation Transactions described below, the
partnership and limited liability company interests in each of the Property
Partnerships, certain of the stock of certain other corporations affiliated
therewith held by "accredited investors" (as defined pursuant to Regulation D
under the Securities Act) and certain debt obligations of the Property
Partnerships and affiliates (and, as a result, ownership of each of the
Existing Resorts) will be directly or indirectly transferred to the Company and
in exchange the holders of such partnership interests and certain of such stock
will receive shares of Common Stock in the Company. Holders of any such
partnership interests who are not "accredited investors" will receive cash at a
price commensurate with the value received by the accredited investors to be
determined prior to the Consent Solicitation. The Consolidation Transactions
will be consummated concurrently with, and are conditioned upon, the closing of
the Offering. All financial and share information presented in this Prospectus
assumes the consummation of the Consolidation Transactions and reflects the
issuance of an aggregate of 11,354,705 shares of Common Stock to the holders of
partnership interests in the Property Partnerships and to certain stockholders
of certain other corporations affiliated with the Company (the "Affiliated
Companies"). The Affiliated Companies include
8
<PAGE>
Argosy/KOAR Group, Inc., Resort Management International, Inc., Resort
Marketing International, Inc., RMI-Royal Palm C.V.o.a., RMI-Flamingo C.V.o.a.,
AK-St. Maarten, LLC, Premier Resort Management, Inc., Resort Telephone & Cable
of Orlando, Inc., Kabushiki Gaisha Kei, LLC, Vacation Ownership Marketing
Company and Vacation Resort Marketing of Missouri, Inc., each of which are
controlled by the Founders and currently provide administrative, utility,
management and/or marketing services to certain of the Property Partnerships.
Signature Resorts, Inc. was incorporated in Maryland in May 1996 by the
Founders to effect the Consolidation Transactions and the Offering. Pursuant to
a Private Placement Memorandum dated as of May 28, 1996, the Company solicited
and received on or before June 13, 1996 the consent and agreement of the
ultimate owners of interests in the Property Partnerships, the stockholders of
the Affiliated Companies and the holders of certain debt obligations to
exchange their partnership interests or shares in, and obligations of, the
Property Partnerships or Affiliated Companies (or their direct or indirect
interests in the owners thereof), as applicable, for shares of Common Stock in
the Company (the "Consent Solicitation"). Such exchange will occur
simultaneously with the closing of the Offering and is conditioned upon certain
timing constraints with respect to the Offering. The Consent Solicitation and
exchange of direct and indirect interests in, and obligations of, the Property
Partnerships and the Affiliate Companies, as applicable, for shares of Common
Stock in the Company are referred to herein as the "Consolidation
Transactions." Certain direct and indirect holders of interests in, and
obligations of, certain Property Partnerships will upon consummation of the
Consolidation Transactions receive shares of Common Stock in the Company equal
to a predetermined dollar value based on agreement between the Company and such
holders as set forth in the Private Placement Memorandum for the Consent
Solicitation. The balance of the shares of Common Stock issued in the
Consolidation Transactions will be issued to the holders of interests in the
remaining Property Partnerships and to the holders of interests in the
Affiliated Companies, which are comprised solely of the Founders or their
affiliates. Following consummation of the Consolidation Transactions and the
Offering, the ultimate owners of interests in the Property Partnerships and
stockholders of the Affiliated Companies will in the aggregate own
approximately 68.4% of the outstanding Common Stock in the Company, with
approximately 45.0% of the outstanding Common Stock of the Company being held
by the Founders, or affiliates thereof (in each case, based on the mid-point of
the estimated pricing range of the Common Stock in the Offering). For
additional information regarding the Property Partnerships and the Affiliated
Companies as well as the Consolidation Transactions and resulting effect
thereof, see "Consolidation Transactions," "Principal Stockholders" and
"Certain Relationships and Related Transactions."
The Company's principal executive offices are currently located at 911
Wilshire Boulevard, Suite 2250, Los Angeles, California 90017, and its
telephone number is (213) 622-2211. In September 1996, the Company will
relocate its principal executive offices to 5940 Century Boulevard, Suite 210,
Los Angeles, California 90045, and its telephone number will be (310) 417-5020.
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company........ 5,250,000 shares(1)
Common Stock to be outstanding after
the Offering.............................. 16,604,705 shares(1)(2)
Use of proceeds............................ To repay outstanding
indebtedness, to fund the cash
portion of the Consolidation
Transactions and for working
capital and other general
corporate purposes.
Nasdaq National Market symbol.............. "SIGR"
</TABLE>
- --------
(1) Assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting."
(2) Includes 11,354,705 shares of Common Stock issued in connection with the
Consolidation Transactions. See "The Consolidation Transactions." Does not
include 1,750,000 shares of Common Stock reserved for issuance pursuant to
the Company's 1996 Equity Participation Plan (as defined) and 500,000
shares of Common Stock reserved for issuance pursuant to the Company's
Employee Stock Purchase Plan (as defined). See "Management--Executive
Compensation."
9
<PAGE>
SUMMARY COMBINED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
(DOLLAR AMOUNTS IN THOUSANDS)
The following table sets forth: (i) combined historical financial information
of the Company, which includes each of the Property Partnerships and Affiliated
Companies, and (ii) pro forma financial information of the Company after giving
effect to the consummation of the Consolidation Transactions and the Offering
and the application of the net proceeds therefrom. Such information should be
read in conjunction with the selected combined historical and pro forma
financial information of the Company, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the combined financial
statements for the Company and the notes thereto which are contained elsewhere
in this Prospectus. Due to seasonality, other market factors and additions to
the number of the Company's resorts, the combined historical and pro forma
results for the 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
Resort-level.......... 665 2,346 2,864 4,947 615 1,476 4,947 615 1,476
Corporate............. 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 $11,353 $10,625 $12,479
</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 (defined as all of the Existing Resorts other than the
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.
Without giving effect to the application of the net proceeds of the Offering,
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 (the number
of such shares in each case being based on the mid-point of the estimated
pricing range of the Common Stock in the Offering), respectively, and will
receive approximately $6.3 million, $6.6 million and $3.2 million,
respectively, of the net proceeds of the Offering for the repayment of debt
owed by the Company to affiliates of the Founders substantially all of which
will be used by the Founders to repay third-party obligations and to pay tax
liabilities. As a result of the repayment of such third party obligations, the
Founders will be released from certain pledges of interests in various of the
Property Partnerships securing repayment of such debt. In addition, each of
the Founders will be party to an employment agreement with the Company that
will provide for a base salary of $280,000 per annum and will provide for the
grant to each of the Founders of options to purchase 150,000 shares of Common
Stock, vesting in three equal installments
12
<PAGE>
over three years. James E. Noyes, a director and Executive Vice President of
the Company, is a party to an employment agreement with the Company that
provides for an initial base salary and bonus of $400,000 per annum and
provides for the grant of options to purchase 375,000 shares of Common Stock.
Charles C. Frey, Genevieve Giannoni and Timothy D. Levin, the Company's Chief
Financial Officer and Treasurer, Senior Vice President of Operations and Vice
President--Architecture, respectively, will receive 5,600, 2,800 and 4,058
shares of Common Stock in the Consolidation Transactions, respectively, and
each will receive options to purchase 150,000, 150,000 and 10,000 shares of
Common Stock, respectively. In addition, upon consummation of the
Consolidation Transactions and the Offering, affiliates of Joshua S. Friedman,
a proposed director of the Company, may be deemed to beneficially own
2,220,936 shares of Common Stock, and approximately $13.1 million of the net
proceeds of the Offering will be used to repay indebtedness owed by the
Company to affiliates of Mr. Friedman and to pay related fees. See "Certain
Relationships and Related Transactions--Repayment of Affiliated Debt,"
"Principal Stockholders," "Consolidation Transactions" and "Management--
Employment Agreements."
RISKS OF DEVELOPMENT AND CONSTRUCTION ACTIVITIES
The Company intends to actively continue development, construction,
redevelopment/conversion and expansion of timeshare resorts. There can be no
assurance that the Company will complete development and/or conversion of the
Lake Tahoe and Avila Beach resorts currently under development, complete the
expansion projects currently under development at the Company's Cypress
Pointe, Plantation at Fall Creek and Embassy Vacation Resort Grand Beach
resorts, undertake the additional expansion plans set forth in "Business--
Description of the Company's Resorts" or undertake to develop other resorts or
complete such development if undertaken. Risks associated with the Company's
development, construction and redevelopment/conversion activities, including
activities relating to the Lake Tahoe and Avila Beach resorts, and expansion
activities, including activities relating to the Cypress Pointe, Plantation at
Fall Creek and Embassy Vacation Resort Grand Beach resorts, may include the
risks that: acquisition and/or development opportunities may be abandoned;
construction costs of a property may exceed original estimates, possibly
making the resort uneconomical or unprofitable; sales of Vacation Intervals at
a newly completed property may not be sufficient to make the property
profitable; financing may not be available on favorable terms for development
of, or the continued sales of Vacation Intervals at, a property; and
construction may not be completed on schedule, resulting in decreased revenues
and increased interest expense. In addition, the Company's construction
activities typically are performed by third-party contractors, the timing,
quality and completion of which cannot be controlled by the Company.
Nevertheless, construction claims may be asserted against the Company for
construction defects and such claims may give rise to liabilities. New
development activities, regardless of whether or not they are ultimately
successful, typically require a substantial portion of management's time and
attention. Development activities are also subject to risks relating to the
inability to obtain, or delays in obtaining, all necessary zoning, land-use,
building, occupancy and other required governmental permits and
authorizations, the ability of the Company to coordinate construction
activities with the process of obtaining such permits and authorizations, and
the ability of the Company to obtain the financing necessary to complete the
necessary acquisition, construction, and/or conversion work. Upon the closing
of the Offering, the Company will not have the financing available to complete
all of its planned expansion as set forth in "Business--Description of the
Company's Resorts." The ability of the Company to expand its business to
include new resorts will in part depend upon the availability of suitable
properties at reasonable prices and the availability of financing for the
acquisition and development of such properties. In addition, certain states
and local laws may impose liability on property developers with respect to
construction defects, discovered or repairs made by future owners of such
property. Pursuant to such laws, future owners may recover from the Company
amounts in connection with any repairs made to the developed property. See
"Business--Business Strategy" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RISK OF INCREASING LEVERAGE; RESTRICTIVE COVENANTS
Future development by the Company at its Existing Resorts will be financed
with indebtedness obtained pursuant to the Company's existing credit
facilities or credit facilities obtained by the Company in the future. The
agreements with respect to such facilities do contain or in the future could
contain restrictive covenants, possibly including covenants limiting capital
expenditures, incurrence of debt and sales of assets and
13
<PAGE>
requiring the Company to achieve certain financial ratios, some of which could
become more restrictive over time. Subsequent acquisition activities will be
financed primarily by new financing arrangements. The Company's pro forma
indebtedness as well as the indebtedness to be incurred under such facilities
will be secured by mortgages on the Company's resort properties as well as
other assets of the Company. Among other consequences, the leverage of the
Company and such restrictive covenants and other terms of the Company's debt
instruments could impair the Company's ability to obtain additional financing
in the future, to make acquisitions and to take advantage of significant
business opportunities that may arise. In addition, the Company's leverage may
increase its vulnerability to adverse general economic and timeshare industry
conditions and to increased competitive pressures.
RISKS ASSOCIATED WITH PARTNERSHIP INVESTMENT IN POIPU PARTNERSHIP
The Embassy Vacation Resort Poipu Point is owned by a partnership consisting
of the Company and a third party. Property ownership through a partnership
involves additional risks, including requirements of partner consents for
major decisions (including approval of budgets), capital contributions and
entry into material agreements. If the Company and its partner are unable to
agree on major decisions, either partner may elect to invoke a buy/sell right,
which could require the Company to either sell its interest in the Embassy
Vacation Resort Poipu Point or to buy out the interest of its partner at a
time when the Company is not prepared to do so. In addition, under certain
circumstances, the other partner can require the Company to purchase such
partner's interest or sell its interest to the partner. If a dispute arises
under this partnership, an adverse resolution could have a material adverse
effect on the operations of the Company. In addition, as a general partner,
the Company will be subject to certain fiduciary obligations which may
obligate it to act in a manner which is not necessarily in the best interest
of the Company.
LIMITED OPERATING HISTORY; CONSOLIDATION TRANSACTIONS
The Company has been recently formed in order to effectuate the
Consolidation Transactions and the Offering. Although predecessors of the
Company have operating history in the timeshare and hospitality industries,
the Company has no operating history as an integrated entity with respect to
the Existing Resorts or experience operating as a public company, which could
have an adverse impact on the Company's operations and future profitability.
The Company has chosen to conduct its management operations (i) in two
locations in California primarily with respect to acquisition, development and
finance, (ii) in Chicago, Illinois primarily with respect to sales and
marketing and (iii) in Orlando, Florida primarily with respect to accounting,
treasury and property management operations. However, as the Company grows and
diversifies into additional geographic markets, no assurance can be given as
to management's ability to efficiently manage operations and control functions
without a centrally located management team. The Company's Existing Resorts
are currently owned by the Property Partnerships and are being transferred
directly or indirectly to the Company pursuant to the Consolidation
Transactions. The Consolidation Transactions involve consents of certain
constituent partners, members or shareholders in each entity owning the
Existing Resorts. This process involves more risk than if each Existing Resort
was previously owned by the Company or acquired by the Company concurrently
with the Offering. There can be no assurance that partners, members or
shareholders could not bring a claim against the Company as a result of such
Consolidation Transactions, and one individual has threatened to bring a
claim. See "Business--Insurance; Legal Proceedings." If a partner, member or
shareholder brings a successful claim against the Company, the Company's
earnings could be adversely affected.
LACK OF APPRAISALS; NO ASSURANCE AS TO VALUE
No independent valuations or appraisals were obtained in connection with the
Consolidation Transactions or the Offering. Accordingly, there can be no
assurance that the price paid by the Company to holders who received their
shares of Common Stock as a result of the Offering will not exceed the
proportionate value of the Existing Resorts and other assets acquired by the
Company. The valuation of the Company has been determined based upon a variety
of factors discussed under "The Consolidation Transactions" and "Underwriting"
and not solely on an asset by asset valuation based on historical cost or
current market value and, therefore, may exceed values that could be obtained
from a liquidation of the Company or of the individual Existing Resorts or
assets owned by the Company.
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GENERAL ECONOMIC CONDITIONS; CONCENTRATION IN TIMESHARE INDUSTRY
Any downturn in economic conditions or any price increases (e.g., airfares)
related to the travel and tourism industry could depress discretionary
consumer spending and have a material adverse effect on the Company's
business. Any such economic conditions, including recession, may also
adversely affect the future availability of attractive financing rates for the
Company or its customers and may materially adversely affect the Company's
business. Furthermore, adverse changes in general economic conditions may
adversely affect the collectibility of the Company's loans to Vacation
Interval buyers. Because the Company's operations are conducted solely within
the timeshare industry, any adverse changes affecting the timeshare industry
such as an oversupply of timeshare units, a reduction in demand for timeshare
units, changes in travel and vacation patterns, changes in governmental
regulations of the timeshare industry and increases in construction costs or
taxes, as well as negative publicity for the timeshare industry, could have a
material adverse effect on the Company's operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RISKS ASSOCIATED WITH CUSTOMER FINANCING
The Company offers financing to the buyers of Vacation Intervals at the
Company's resorts who make a down payment generally equal to at least 10% of
the purchase price. This financing generally bears interest at fixed rates and
is collateralized by a first mortgage on the underlying Vacation Interval. The
Company has entered into agreements with lenders for the financing of these
customer receivables. These agreements provide an aggregate of up to
approximately $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 $52.6 million, which borrowings bear interest at variable rates
with a weighted average of 10.7%. As of March 31, 1996, approximately 7.1% of
such consumer loans were considered by the Company to be delinquent (past due
by 60 or more days) and the Company has completed or commenced foreclosure or
deed-in-lieu of foreclosure on approximately 2.0% of its consumer loans. The
Company has historically derived income from its financing activities.
However, because the Company's borrowings bear interest at variable rates and
the Company's loans to buyers of Vacation Intervals bear interest at fixed
rates, the Company bears the risk of increases in interest rates with respect
to the loans it has from its lenders. To the extent interest rates on the
Company's borrowings decrease, the Company faces an increased risk that
customers will pre-pay their loans and reduce the Company's income from
financing activities. See "Business--Customer Financing."
RISKS OF HEDGING ACTIVITIES
To manage risks associated with the Company's borrowings bearing interest at
variable rates, the Company expects from time to time to purchase interest
rate caps, interest rate swaps or similar instruments. The nature and quantity
of the hedging transactions for the variable rate debt will be determined by
the management of the Company based on various factors, including market
conditions, and there have been no limitations placed on management's use of
certain instruments in such hedging transactions. No assurance can be given
that any such hedging transactions will offset the risks of changes in
interest rates, or that the costs associated with hedging activities will not
increase the Company's operating costs.
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RISKS ASSOCIATED WITH CUSTOMER DEFAULT
The Company bears the risk of defaults by buyers who financed the purchase
of their Vacation Intervals. If a buyer of a Vacation Interval defaults on the
loan made by the Company to finance the purchase of such Vacation Interval
during the early part of the repayment schedule the Company generally must
take back the mortgage with respect to such Vacation Interval and replace it
with a performing mortgage. In connection with the Company taking back any
such Vacation Interval, the associated marketing costs other than certain
sales commissions will not have been recovered by the Company and they must be
incurred again after their Vacation Interval has been returned to the
Company's inventory for resale (commissions paid in connection with the sale
of Vacation Intervals may be recoverable from the Company's sales personnel
and from independent contractors upon default in accordance with contractual
arrangements with the Company, depending upon the amount of time that has
elapsed between the sale and the default and the number of payments made prior
to such default). Although private mortgage insurance or its equivalent is
available to cover Vacation Intervals, the Company has never purchased such
insurance. In addition, although the Company in many cases may have recourse
against Vacation Interval buyers, sales personnel and independent contractors
for the purchase price paid and for commissions paid, respectively, no
assurance can be given that the Vacation Interval purchase price or any
commissions will be fully or partially recovered in the event of buyer
defaults under such financing arrangements. The Company purchased defaulted
mortgage notes with respect to 900 Vacation Intervals at the San Luis Bay
Resort on which the Company is in the process of foreclosing. The Company will
be subject to the costs and delays associated with such foreclosure process.
See "Business--Customer Financing."
COMPETITION
The Company is subject to significant competition at each of its resorts
from other entities engaged in the business of resort development, sales and
operation, including interval ownership, condominiums, hotels and motels. Many
of the world's most recognized lodging, hospitality and entertainment
companies have begun to develop and sell Vacation Intervals in resort
properties. Although the Company currently is the sole licensee of Embassy
Vacation Resorts from Promus and the Company recently obtained the exclusive
development rights to Westin Vacation Clubs from Westin pursuant to the Westin
Agreement, other major companies that now operate or are developing or
planning to develop Vacation Interval resorts include Marriott Ownership
Resorts ("Marriott"), The Walt Disney Company ("Disney"), Hilton Hotels
Corporation ("Hilton"), Hyatt Corporation ("Hyatt"), Four Seasons Hotels &
Resorts ("Four Seasons") and Inter-Continental Hotels and Resorts ("Inter-
Continental"). Many of these entities possess significantly greater financial,
marketing, personnel and other resources than those of the Company and may be
able to grow at a more rapid rate or more profitably as a result. In addition,
there can be no assurance that Promus will not grant other entities a license
to develop Embassy Vacation Resorts or that Promus will not exercise its
rights to terminate the Embassy Vacation Resort licenses. In the second
quarter of 1996, the Company experienced increased competition in the Orlando,
Florida market which reduced sales at the Existing Resorts located in the
Orlando area.
In the event that the Westin Agreement becomes the subject of dispute
between the parties thereto, it is possible that the Company's interest in
pursuing acquisition and development opportunities at "four-star" and "five-
star" resorts could be barred pending the final resolution of such dispute.
Additionally, at the expiration or early termination of the Westin Agreement,
Westin could become a direct competitor with the Company in the timeshare
resort business, including in the markets most attractive to the Company. See
"--Westin Agreement" and "Business--Description of Resorts--Westin Vacation
Club Resorts." In addition, the five Embassy Suites hotels owned or controlled
by affiliates of the Founders, which will not be owned by the Company, may
compete with certain of the Company's timeshare resorts; however, the Company
anticipates that such five Embassy Suites hotels could be a significant source
of lead generation for its marketing activities. Subject to the covenants not
to compete (as described herein), the Founders could acquire resort and other
hotel properties that could compete with the Company's timeshare business. See
"Management--Employment Agreements; Covenants Not To Compete."
DEPENDENCE ON VACATION INTERVAL EXCHANGE NETWORKS; RISK OF INABILITY TO
QUALIFY RESORTS
The attractiveness of Vacation Interval ownership is enhanced significantly
by the availability of exchange networks that allow Vacation Interval owners
to exchange in a particular year the occupancy right in their
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Vacation Interval for an occupancy right in another participating network
resort. According to the ARDA, the ability to exchange Vacation Intervals was
cited by buyers as a primary reason for purchasing a Vacation Interval.
Several companies, including RCI, provide broad-based Vacation Interval
exchange services, and the Company's Existing Resorts are currently qualified
for participation in the RCI exchange network. However, no assurance can be
given that the Company will continue to be able to qualify its Existing
Resorts, or will be able to qualify its future resorts, for participation in
the RCI network or any other exchange network. Moreover, if such exchange
networks cease to function effectively, or if the Company's resorts are not
accepted as exchanges for other desirable resorts, the Company's sales of
Vacation Intervals could be materially adversely effected. See "Business--
Participation in Vacation Interval Exchange Networks."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a large extent upon the experience and
abilities of the Founders, who will serve as the Company's Chief Executive
Officer, President and Chief Operating Officer. The loss of the services of
any one of these individuals could have a material adverse effect on the
Company, its operations and its business prospects. See "Management--
Employment Agreements." The Company's success is also dependent upon its
ability to attract and maintain qualified development, acquisition, marketing,
management, administrative and sales personnel for which there is keen
competition among the Company's competitors. In addition, the cost of
retaining such key personnel could escalate over time. There can be no
assurance that the Company will be successful in attracting and/or retaining
such personnel.
Pursuant to the Poipu Partnership Agreement, the Company may be removed as
managing general partner if, under certain circumstances, two of the three
Founders (Osamu Kaneko, Andrew J. Gessow and Steven C. Kenninger) are no
longer officers of the Company. In addition, the Poipu Partnership Agreement
provides that certain of the Founders will be actively involved in the
management of the Embassy Vacation Resort at Poipu Point.
SEASONALITY AND VARIABILITY OF QUARTERLY RESULTS
The Company has historically experienced and expects to continue to
experience seasonal fluctuations in its gross revenues and net income from the
sale of Vacation Intervals. This seasonality may cause significant variations
in quarterly operating results. If sales of Vacation Intervals are below
seasonal norms during a particular period, the Company's annual operating
results could be materially adversely affected. In addition, the combination
of (i) the possible delay in generating revenue after the acquisition by the
Company of additional resorts prior to the commencement of Vacation Interval
sales and (ii) the expenses associated with start-up unit or room-rental
operations, interest expense, amoritization and depreciation expenses from
such acquisitions may materially adversely impact earnings. Furthermore,
earnings may be impacted by the timing of the completion and development of
future resorts, and the potential impact of weather or other natural disasters
at the Company's resort locations (e.g., hurricanes in Hawaii and St. Maarten
and earthquakes in California). Additional material variability in operating
results may occur. See "--Natural Disasters; Uninsured Loss" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
REGULATION OF MARKETING AND SALES OF VACATION INTERVALS; OTHER LAWS
The Company's marketing and sales of Vacation Intervals and other operations
are subject to extensive regulation by the federal government and the states
and foreign jurisdictions in which the Existing Resorts are located and in
which Vacation Intervals are marketed and sold. On a federal level, the
Federal Trade Commission has taken the most active regulatory role through the
Federal Trade Commission Act, which prohibits unfair or deceptive acts or
competition in interstate commerce. Other federal legislation to which the
Company is or may be subject appears in the Truth-in-Lending Act and
Regulation Z, the Equal Opportunity Credit Act and Regulation B, the
Interstate Land Sales Full Disclosure Act, Real Estate Standards Practices
Act, Telephone Consumer Protection Act, Telemarketing and Consumer Fraud and
Abuse Prevention Act, Fair Housing Act and the Civil Rights Acts of 1964 and
1968. In addition, many states have adopted specific laws and regulations
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regarding the sale of interval ownership programs. The laws of most states,
including, Florida, South Carolina and Hawaii, require the Company to file
with a designated state authority for its approval a detailed offering
statement describing the Company and all material aspects of the project and
sale of Vacation Intervals. The laws of California require the Company to file
numerous documents and supporting information with the California Department
of Real Estate, the agency responsible for the regulation of Vacation
Intervals. When the California Department of Real Estate determines that a
project has complied with California law, it will issue a public report for
the project. The Company is required to deliver an offering statement or
public report to all prospective purchasers of a Vacation Interval, together
with certain additional information concerning the terms of the purchase. The
laws of Illinois, Florida and Hawaii impose similar requirements. Laws in each
state where the Company sells Vacation Intervals generally grant the purchaser
of a Vacation Interval the right to cancel a contract of purchase at any time
within a period ranging from three to fifteen calendar days following the
earlier of the date the contract was signed or the date the purchaser has
received the last of the documents required to be provided by the Company.
Most states have other laws which regulate the Company's activities, such as
real estate licensure; seller's of travel licensure; anti-fraud laws;
telemarketing laws; price, gift and sweepstakes laws; and labor laws. The
Company believes that it is in material compliance with all federal, state,
local and foreign laws and regulations to which it is currently subject.
However, no assurance can be given that the cost of qualifying under Vacation
Interval ownership regulations in all jurisdictions in which the Company
desires to conduct sales will not be significant or that the Company is in
fact in compliance with all applicable federal, state, local and foreign laws
and regulations. Any failure to comply with applicable laws or regulations
could have a material adverse effect on the Company. See "Business--
Governmental Regulation."
In addition, certain state and local laws may impose liability on property
developers with respect to construction defects discovered or repairs made by
future owners of such property. Pursuant to such laws, future owners may
recover from the Company amounts in connection with the repairs made to the
developed property.
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various federal, state and local laws, ordinances and regulations, the
owner of real property generally is liable for the costs of removal or
remediation of certain hazardous or toxic substances located on or in, or
emanating from, such property, as well as related costs of investigation and
property damage. Such laws often impose such liability without regard to
whether the owner knew of, or was responsible for, the presence of such
hazardous or toxic substances. The presence of such substances, or the failure
to properly remediate such substances, may adversely affect the owner's
ability to sell or lease a property or to borrow using such real property as
collateral. Other federal and state laws require the removal or encapsulation
of asbestos-containing material when such material is in poor condition or in
the event of construction, demolition, remodeling or renovation. Other
statutes may require the removal of underground storage tanks. Noncompliance
with these and other environmental, health or safety requirements may result
in the need to cease or alter operations at a property. As of the date of the
Prospectus, Phase I environmental reports (which typically involve inspection
without soil sampling or ground water analysis) have been prepared by
independent environmental consultants for each Existing Resort. In connection
with the acquisition and development of the Embassy Vacation Resort Lake Tahoe
and the San Luis Bay Resort, the independent environmental consultants have
identified several areas of environmental concern. The areas of concern at the
Embassy Vacation Resort Lake Tahoe relate to possible contamination that
originated on the resort site due to prior uses and to contamination that may
migrate onto the resort site from upgradient sources. California regulatory
agencies have been monitoring the resort site and have required or are in the
process of requiring the responsible parties (presently excluding the Company)
to effect remediation action. The Company has been indemnified by certain of
such responsible parties for certain costs and expenses in connection with
contamination at the Embassy Vacation Resort Lake Tahoe (including Chevron
(USA), Inc.) and does not anticipate incurring material costs in connection
therewith; however, there is no assurance that the indemnitor(s) will meet
their obligations in a complete and timely manner. In addition, the Company's
San Luis Bay Resort is located in an area of Avila Beach, California which has
experienced underground contamination resulting from leaking pipes at a nearby
oil refinery. California regulatory agencies have required the installation of
groundwater monitoring wells on the beach near the resort site, and no demand
or claim in connection with such contamination has been made on the Company,
however, there is no assurance
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that claims will not be asserted against the Company with respect to this
environmental condition. The Company is not aware of any environmental
liability that would have a material adverse effect on the Company's business,
assets or results of operations. No assurance, however, can be given that
these reports reveal all environmental liabilities or that no prior owner
created any material environmental condition not known to the Company.
Certain environmental laws impose liability on a previous owner of property
to the extent that hazardous or toxic substances were present during the prior
ownership period. A transfer of the property does not relieve an owner of such
liability. Thus, the Company may have liability with respect to properties
previously sold by its predecessors.
The Company believes that it is in compliance in all material respects with
all federal, state and local ordinances and regulations regarding hazardous or
toxic substances and, except as described above with respect to the Embassy
Vacation Resort Lake Tahoe and the San Luis Bay Resort, the Company has not
been notified by any governmental authority or third party of any non-
compliance, liability or other claim in connection with any of its present or
former properties. See "Business--Environmental Matters."
COSTS OF COMPLIANCE WITH LAWS GOVERNING ACCESSIBILITY OF FACILITIES TO
DISABLED PERSONS
A number of state and federal laws, including the Fair Housing Act and the
Americans with Disabilities Act (the "ADA"), impose requirements related to
access and use by disabled persons on a variety of public accommodations and
facilities. These requirements did not become effective until after January 1,
1991. Although the Company believes that its Existing Resorts are
substantially in compliance with laws governing the accessibility of its
facilities to disabled persons, the Company may incur additional costs of
complying with such laws. Additional legislation may impose further burdens or
restriction on property owners (including homeowner associations at the
Existing Resorts) with respect to access by disabled persons. The ultimate
amount of the cost of compliance with such legislation is not currently
ascertainable, and, while such costs are not expected to have a material
effect on the Company, such costs could be substantial. Limitations or
restrictions on the completion of certain renovations may limit application of
the Company's growth strategy in certain instances or reduce profit margins on
the Company's operations. If a homeowner association at an Existing Resort
were required to make significant improvements as a result of non-compliance
with the ADA, Vacation Interval owners may default on their mortgages and/or
cease making required homeowner association assessment payments. The Company
is not aware of any non-compliance with the ADA, the Fair Housing Act or
similar laws that management believes would have a material adverse effect on
the Company's business, assets or results of operations.
NATURAL DISASTERS; UNINSURED LOSS
In 1992, prior to the Company's purchase of an interest in the Embassy
Vacation Resort Poipu Point, the resort was substantially destroyed by
Hurricane Iniki. The resort was rebuilt with insurance proceeds before the
Company acquired its interest in the resort, but could suffer similar damage
in the future. In September 1995 and July 1996, the Company's St. Maarten
resorts were damaged by hurricanes and could suffer similar damage in the
future. In addition, the Company's other resorts located in Hawaii and Florida
may be subject to hurricanes and damaged as a result thereof. The Company's
resorts located in California and Hawaii may be subject to damage resulting
from earthquakes. There are certain types of losses (such as losses arising
from acts of war) that are not generally insured because they are either
uninsurable or not economically insurable and for which the Company does not
have insurance coverage. Should an uninsured loss or a loss in excess of
insured limits occur, the Company could lose its capital invested in a resort,
as well as the anticipated future revenues from such resort and would continue
to be obligated on any mortgage indebtedness or other obligations related to
the property. Any such loss could have a material adverse effect on the
Company. See "Business--Insurance, Legal Proceedings."
EFFECTIVE VOTING CONTROL BY EXISTING STOCKHOLDERS; WESTIN DIRECTOR DESIGNATION
Upon closing of the Offering and the Consolidation Transactions, the
Founders will hold substantial amounts of shares of Common Stock (Messrs.
Kaneko, Gessow and Kenninger will hold 17.0%, 19.3% and
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8.7%, respectively) which may allow them, collectively, to exert substantial
influence over the election of directors and the management and affairs of the
Company. Accordingly, if such persons vote their shares of Common Stock in the
same manner, they will have sufficient voting power, in general, to determine
the outcome of various matters submitted to the stockholders for approval,
including mergers, consolidations and the sale of substantially all of the
Company's assets. Pursuant to the Westin Agreement, during the term thereof
Westin generally will have the right to designate one member of the Company's
Board of Directors, irrespective of its share ownership in the Company. See
"Principal Stockholders," "Description of Capital Stock" and "Business--Westin
Vacation Club Resorts." Such control may result in decisions which are not in
the best interest of the Company. In addition, under certain circumstances, in
the event that the Founders collectively own less than 75% of the shares of
Common Stock owned by them immediately following the closing of the Offering
and the consummation of the Consolidation Transactions, and the Common Stock
they own thereafter is less than 75% of the market value of the Common Stock
issued to them in the Offering, then the Company's partner in the Poipu
Partnership will be entitled to require the Company to either dispose of its
interest or purchase such partner's interest in the Poipu Partnership pursuant
to the terms and conditions of the partnership agreement.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND THE COMPANY'S
CHARTER AND BYLAWS
Certain provisions of the Company's articles of incorporation (the
"Charter") and bylaws (the "Bylaws"), as well as Maryland corporate law, may
be deemed to have anti-takeover effects and may delay, defer or prevent a
takeover attempt that a stockholder might consider to be in the stockholder's
best interest. For example, such provisions may (i) deter tender offers for
Common Stock, which offers may be beneficial to stockholders or (ii) deter
purchases of large blocks of Common Stock, thereby limiting the opportunity
for stockholders to receive a premium for their Common Stock over then-
prevailing market prices. These provisions include the following:
Preferred Shares. The Charter authorizes the Board of Directors to issue
Preferred Stock in one or more classes and to establish the preferences and
rights (including the right to vote and the right to convert into Common
Stock) of any class of Preferred Stock issued. No Preferred Stock will be
issued or outstanding as of the closing of the Offering. See "Description of
Capital Stock--Preferred Stock."
Staggered Board. The Board of Directors of the Company will have three
classes of directors. The terms of the first, second and third classes will
expire in 1997, 1998 and 1999, respectively. Directors for each class will be
chosen for a three-year term upon the expiration of the term of the current
class, beginning in 1997. The affirmative vote of two-thirds of the
outstanding Common Stock is required to remove a director.
Maryland Business Combination Statute. Under the Maryland General
Corporation Law ("MGCL"), certain "business combinations" (including the
issuance of equity securities) between a Maryland corporation and any person
who owns, directly or indirectly, 10% or more of the voting power of the
corporation's shares of capital stock (an "Interested Stockholder") must be
approved by a supermajority (i.e., 80%) of voting shares. In addition, an
Interested Stockholder may not engage in a business combination for five years
following the date he or she became an Interested Stockholder.
Maryland Control Share Acquisition. Maryland law provides that "Control
Shares" of a corporation acquired in a "Control Share Acquisition" have no
voting rights except to the extent approved by a vote of two-thirds of the
votes eligible under the statute to be cast on the matter. "Control Shares"
are voting shares of beneficial interest which, if aggregated with all other
such shares of beneficial interest previously acquired by the acquiror, would
entitle the acquiror directly or indirectly to exercise voting power in
electing directors within one of the following ranges of voting power: (i)
one-fifth or more but less than one-third, (ii) one-third or more but less
than a majority or (iii) a majority of all voting power. Control Shares do not
include shares of beneficial interest the acquiring person is then entitled to
vote as a result of having previously obtained stockholder approval. A
"Control Share Acquisition" means the acquisition of Control Shares, subject
to certain exceptions.
If voting rights are not approved at a meeting of stockholders then, subject
to certain conditions and limitations, the issuer may redeem any or all of the
Control Shares (except those for which voting rights have
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previously been approved) for fair value. If voting rights for Control Shares
are approved at a stockholders meeting and the acquiror becomes entitled to
vote a majority of the shares of beneficial interest entitled to vote, all
other stockholders may exercise appraisal rights. See "Certain Provisions of
Maryland Law and of the Company's Charter and Bylaws."
SHARES ELIGIBLE FOR FUTURE SALE
Upon closing of the Offering, all the shares of Common Stock offered hereby
will be eligible for public sale without restriction. Holders who received
their shares of Common Stock as a result of the Consolidation Transactions
hold their shares subject to the limitations of Rule 144 of the Securities Act
("Rule 144"). Such holders who received their shares of Common Stock as a
result of the Consolidation Transactions have been granted certain
registration rights pursuant to which the Company has agreed to file and cause
to become effective within six months of the Offering, a shelf registration
statement with the Commission for the purpose of registering the sale of such
shares of Common Stock. Future sales of substantial amounts of Common Stock,
or the potential for such sales, could adversely affect prevailing market
prices. See "Shares Eligible for Future Sale" and "Underwriting."
IMMEDIATE AND SUBSTANTIAL DILUTION; NO ANTICIPATED DIVIDENDS
Purchasers of Common Stock in the Offering will experience immediate
dilution in net tangible book value per share of Common Stock of $9.00 from
the initial public offering price per share. See "Dilution." In addition, the
Company does not anticipate that it will pay any dividends on its Common Stock
in the foreseeable future. See "Dividend Policy."
RISK OF TAX RE-CLASSIFICATION OF INDEPENDENT CONTRACTORS AND RESULTING TAX
LIABILITY; COST OF COMPLIANCE WITH APPLICABLE LAWS
The Company sells Vacation Intervals at its Existing Resorts through
independent sales agents. Such independent sales agents provide services to
the Company under contract and, the Company believes, are not employees of the
Company. Accordingly, the Company does not withhold payroll taxes from the
amounts paid to such independent contractors. Although the Internal Revenue
Service has made inquiries regarding the Company's classification of its sales
agents at its Branson, Missouri resort, no formal action has been taken and
the Company has requested that the inquiry be closed. In the event the
Internal Revenue Service or any state or local taxing authority were to
successfully classify such independent sales agents as employees of the
Company, rather than as independent contractors, and hold the Company liable
for back payroll taxes, such reclassification may have a material adverse
effect on the Company.
Additionally, from time to time, potential buyers of Vacation Intervals
assert claims with applicable regulatory agencies against Vacation Interval
salespersons for unlawful sales practices. Such claims could have adverse
implications for the Company in negative public relations and potential
litigation and regulatory sanctions.
LIMITED RESALE MARKET FOR VACATION INTERVALS
The Company sells the Vacation Intervals to buyers for leisure and not
investment purposes. The Company believes, based on experience at its Existing
Resorts, that the market for resale of Vacation Intervals by the buyers is
presently limited, and that any resales of Vacation Intervals are typically at
prices substantially less than the original purchase price. These factors may
make ownership of Vacation Intervals less attractive to prospective buyers,
and attempts by buyers to resell their Vacation Intervals will compete with
sales of Vacation Intervals by the Company. In addition, the market price of
Vacation Intervals sold by the Company at a given resort or by its competitors
in the market in which each resort is located could be depressed by a
substantial number of Vacation Intervals offered for resale.
21
<PAGE>
RISKS RELATED TO OPERATIONS IN ST. MAARTEN, NETHERLAND ANTILLES
Two of the Existing Resorts are located in St. Maarten, Netherland Antilles
in the Caribbean, both of which were acquired by the Company in a foreclosure
sale. There are a number of ongoing disputes with owners who owned units at
the Flamingo Beach Club, including certain claims respecting their obligations
to pay for annual maintenance expenses or whether there are certain
entitlements to guaranteed returns. If such claims are adversely determined
against the Company, such determination may have a material adverse impact on
the operation of this property.
In addition, a portion of the Company's Royal Palm Beach Club resort located
in St. Maarten, Netherlands Antilles, is operated by the Company pursuant to a
long-term ground lease that expires in 2050 and the types of assurance, such
as estoppel certificates, which would be provided in the United States, are
not available. Although the Company is unaware of any circumstances that could
cause the early termination of such ground lease before its scheduled
expiration date, any such early termination or cancellation of the ground
lease could have an adverse effect on the Company's operations. In addition,
title insurance is not available in the Netherlands Antilles. Accordingly, the
titles to the Company's real property and ground lease with respect to the
Flamingo Beach Club and Royal Palm Beach Club resorts are not insured, may be
subject to challenge, and, if successfully challenged, could result in
additional costs to operate these facilities.
POTENTIAL CONFLICTS OF INTEREST
Because affiliates of Messrs. Kaneko and Kenninger have operations in the
lodging industry other than those with respect to the development and
operation of timeshare resorts, potential conflicts of interest exist.
Affiliates of KOAR, which are owned by Messrs. Kaneko and Kenninger, have
developed and currently act as the managing general partner of partnerships
which own five hotels that are franchised as Embassy Suites hotels (one of
which, the Embassy Suites Lake Tahoe, is located in a market served by the
Company) and a residential condominium project overlooking the ocean in Long
Beach, California (a market which the Company is pursuing). Messrs. Kaneko and
Kenninger will continue to devote a portion of their time to KOAR's hotel
business and to meeting their duties and responsibilities to their investors
existing prior to the Consolidation Transactions and the Offering. In
addition, the Founders are currently pursuing the acquisition of one property
in California. Upon its acquisition the Founders intend to convert such
property to timeshare. Additionally, notwithstanding their covenants not to
compete, the Founders have the right to pursue certain other activities which
could divert their time and attention from the Company's business and result
in conflicts with the Company's business. See "Management--Employment
Agreements--Covenants Not To Compete," and "Business--Future Acquisitions."
RISKS RELATED TO WESTIN AGREEMENT; LIMITED CONTROL OF RESORTS AND TERMINATION
The Westin Agreement may involve certain additional risks to the Company's
future operations. The Westin Agreement imposes certain restrictions on the
Company's ability to develop certain timeshare resorts in conjunction with
hotel operators other than Westin. Generally, the Company is required, subject
to certain exceptions involving Embassy Vacation Resorts and Promus, to submit
for Westin's consideration any "four star" or "five star" development
opportunity that the Company has determined to pursue. In the event Westin
determines not to proceed with the Company to develop such resort, the Company
would be free only to develop the resort as a "non-branded" property or as a
property branded as an Embassy Vacation Resort or in conjunction with other
upscale operators, but excluding specified operators of luxury hotels and
resorts. In addition, all resorts acquired or developed pursuant to the Westin
Agreement will be owned by partnerships, limited liability companies or
similar entities in which each of Westin and the Company will own a 50% equity
interest and have an equal voice in management. Accordingly, the Company will
not be able to control such resorts or the applicable entities. In addition,
the Westin Agreement will be terminable by either party if certain thresholds
relating to development or acquisitions of resorts are not met, in the event
of certain changes in management of Westin or the Company or in the event of
an acquisition or merger of either party. See "Effective Voting Control of
Existing Stockholders; Westin Director Designation."
22
<PAGE>
ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
There has been no prior public market for the Company's Common Stock.
Although the Common Stock has been approved for quotation on the Nasdaq
National Market, subject to notice of issuance, there can be no assurance that
a viable public market for the Common Stock will develop or be sustained after
the Offering or that purchasers of the Common Stock will be able to resell
their Common Stock at prices equal to or greater than the initial public
offering price. The initial public offering price will be determined by
negotiations among the Company and the representatives of the Underwriters and
may not be indicative of the prices that may prevail in the public market
after the Offering is completed. Numerous factors, including announcements of
fluctuations in the Company's or its competitors' operating results and market
conditions for hospitality and timeshare industry stocks in general, could
have a significant impact on the future price of the Common Stock. In
addition, the stock market in recent years has experienced significant price
and volume fluctuations that often have been unrelated or disproportionate to
the operating performance of companies. These broad fluctuations may adversely
affect the market price of the Common Stock. See "Underwriting."
23
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 5,250,000 shares of
Common Stock offered by the Company hereby at an estimated initial public
offering price of $15.00 per share, after deducting underwriting discounts and
estimated expenses of the Offering, are estimated to be $71.2 million ($82.2
million if the Underwriters' over-allotment option is exercised in full). The
Company intends to use approximately $56.6 of the estimated net proceeds to
repay outstanding indebtedness and accrued interest and approximately $7.3
million to fund the cash paid to third parties in the Consolidation
Transactions. Of such $56.6 million of the estimated net proceeds to be used
to repay outstanding indebtedness and accrued interest (i) Messrs. Kaneko,
Gessow and Kenninger, or their affiliates, will receive approximately $6.3
million, $6.6 million and $3.2 million, respectively, in repayment of
indebtedness owed by the Company, substantially all of which will be used by
them to repay third-party obligations and to pay tax liabilities and
(ii) affiliates of Mr. Friedman, a proposed director of the Company, will
receive approximately $13.1 million thereof in repayment of indebtedness owed
by the Company. See "Certain Relationships and Related Transactions--Repayment
of Affiliated Debt." The balance of the estimated net proceeds of
approximately $7.3 million is intended to be used for working capital and
other general corporate purposes. Pending any such additional uses, the
Company will invest the excess proceeds in commercial paper, bankers'
acceptances, other short-term investment-grade securities and money-market
accounts. As of the date of the Prospectus, the Company has not entered into
any agreement to acquire or develop additional resorts.
Indebtedness to be repaid out of the net proceeds from the Offering bears
interest at rates currently ranging between approximately 10.0% and 18.0% per
annum and matures at various times over the next five years. Indebtedness to
be repaid that was incurred within the last year was incurred for acquisitions
and development of timeshare resorts and for general corporate purposes. None
of the proceeds from the Offering will be used to pay any delinquent
indebtedness.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying cash dividends on its Common Stock in the
foreseeable future. The Company currently intends to retain future earnings to
finance its operations and fund the growth of its business. Any payment of
future dividends will be at the discretion of the Board of Directors of the
Company and will depend upon, among other things, the Company's earnings,
financial condition, capital requirements, level of indebtedness, contractual
restrictions in respect of the payment of dividends and other factors that the
Company's Board of Directors deems relevant.
24
<PAGE>
CONSOLIDATED CAPITALIZATION
The following table sets forth, as of March 31, 1996, the debt and total
consolidated capitalization of the Company on an actual basis and as adjusted
to give effect to the sale of Common Stock offered hereby and the application
of the estimated net proceeds to the Company therefrom. This table should be
read in conjunction with the historical financial statements of the Company
and the related notes thereto included elsewhere in this Prospectus. See "Use
of Proceeds" and "Selected Combined Historical and Pro Forma Financial
Information."
<TABLE>
<CAPTION>
AS OF 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)............................................ -- 166
Additional paid-in capital................................. -- 100,111
Retained earnings.......................................... -- 3,664
-------- --------
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
Resort-level.......... 665 2,346 2,864 4,947 615 1,476
Corporate............. 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 $ 11,353 $10,625 $ 12,479
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 at the beginning of the
period. The pro forma adjustments are based upon currently available
information and certain assumptions that management of the Company believes
are reasonable under current circumstances.
SELECTED COMBINED PRO FORMA STATEMENT OF OPERATIONS DATA
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenue
Vacation Interval sales................. $ 59,071 $ -- $ 59,071
Interest income......................... 6,929 -- 6,929
Other income............................ 6,608 320 (1) 6,928
---------- --------- ----------
Total revenue........................... 72,608 320 72,928
Costs and Operating Expenses:
Vacation Interval cost of sales......... 15,650 (64)(2) 15,586
Advertising, sales and marketing........ 28,488 -- 28,488
Loan portfolio
Interest expense--treasury............ 3,586 (3,586)(2) --
Other................................. 1,189 (115)(2) 1,074
Provision for doubtful accounts....... 1,787 -- 1,787
General and administrative
Resort-level.......................... 4,947 -- 4,947
Corporate............................. 1,607 -- 1,607
Depreciation and amortization........... 1,675 155 (3) 1,830
Interest expense--other................. 476 (476)(2) --
Equity loss on investment in joint
venture................................ 1,649 -- 1,649
---------- --------- ----------
Total costs and operating expenses...... 61,054 (4,086) 56,968
---------- --------- ----------
Pre-tax income............................ 11,554 4,406 15,960
Provision for taxes..................... 641 5,446 (4) 6,087
---------- --------- ----------
Net income................................ $ 10,913 $ (1,040) $ 9,873
========== ========= ==========
Pro forma net income per common share..... $ 0.96 -- $ 0.59
Pro forma weighted average common shares
outstanding.............................. 11,354,705 5,250,000 (5) 16,604,705
</TABLE>
- --------
(1) Reflects increase in interest income due to the purchase of loans from
certain combining interests of $2.7 million relating to loans made by such
combining interests to the joint venture. The loans carry interest at 12%
per annum.
(2) Reflects the following: (i) the elimination or reduction of interest
expense due to the expected retirement of $52.5 million of debt; (ii) the
reduction of Vacation Interval cost of sales due to the reduction of
capitalized interest related to the retirement of debt and (iii) the
elimination of financing fees on advances not required as a result of the
debt retirement. The average interest rate on the debt retired was 10.65%.
(3) Reflects the increase of goodwill amortization on the purchase of a joint
venture interest.
(4) Reflects the effect on 1995 historical statement of operations data of
(1)-(3) above and assumes the combined Company had been treated as a C
corporation rather than as individual limited partnerships and limited
liability companies for federal income tax purposes.
(5) Reflects the Offering of 5,250,000 shares of Common Stock.
29
<PAGE>
SELECTED COMBINED PRO FORMA STATEMENTS OF OPERATIONS DATA
THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, 1995(6) 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
Resort-level........ 615 -- 615 1,476 -- 1,476
Corporate........... 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
========== ========= ========== ========== ========= ==========
Pro forma net income per
common share........... $ .07 -- $ .06 $ .22 -- $ .15
Pro forma weighted
average common shares
outstanding............ 11,354,705 5,250,000(5) 16,604,705 11,354,705 5,250,000 (5) 16,604,705
</TABLE>
- -------
(1) Reflects increase in interest income due to the purchase of loans from
certain combining interests of $2.7 million relating to loans made by such
combining interests to the joint venture. The loans carry interest at 12%
per annum.
(2) Reflects the following: (i) the elimination or reduction of interest
expense due to the expected retirement of $52.5 million of debt; (ii) the
reduction of Vacation Interval cost of sales due to the reduction of
capitalized interest related to the retirement of debt and (iii) the
elimination of financing fees on advances not required as a result of the
debt retirement. The average interest rate on the debt retired was 10.65%.
(3) Reflects the increase of goodwill amortization on the purchase of a joint
venture interest.
(4) Reflects the effects on historical statements of operations data of (1)-
(3) above and assumes the combined Company had been treated as a C
corporation rather than as individual limited partnerships and limited
liability companies for federal income tax purposes.
(5) Reflects the Offering of 5,250,000 shares of Common Stock.
(6) Properties acquired subsequent to January 1, 1995 are assumed to have been
acquired as of January 1, 1995, some of which were not operating until
subsequent to January 1, 1995.
30
<PAGE>
The selected combined pro forma balance sheet data set forth below at 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>
MARCH 31, 1996
---------------------------------
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
<PAGE>
<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 21,874
</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
consolidated resorts.
(4) Reflects Vacation Interval inventory at non-consolidated resorts.
(5) Reflects Vacation Interval inventory at consolidated resorts and non-
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
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<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.
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<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
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<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 15.0%
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
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<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 $28.2 million outstanding
under its notes payable secured by Vacation Interval inventory, and $52.6
million outstanding under its notes payable secured by mortgage receivables.
Upon consummation of the Offering, and the application of proceeds therefrom,
the Company anticipates that the majority of notes payable secured by Vacation
Interval inventory will be paid down. In order to finance anticipated
development costs at Existing Resorts, the Company intends to rely on cash
from operations and borrowing capacity available on existing credit
facilities.
Over the next twelve months, the Company anticipates spending $38.0 million
for expansion and development activities at the Existing Resorts. The Company
plans to fund these expenditures with the net proceeds of the Offering (after
paydown of debt and purchase of partnership interests), $53.1 million in
available capacity on lines of credit (after the application of the Offering
proceeds) and cash generated from operations.
The Company intends to pursue a growth-oriented strategy. From time to time,
the Company may acquire, among other things, additional timeshare properties,
resorts and completed Vacation Intervals; land upon which additional timeshare
resorts may be built; management contracts (which may from time to time
require capital expenditures by the Company); loan portfolios of Vacation
Interval mortgages; portfolios which include properties or assets which may be
integrated into the Company's operations; and operating companies providing or
possessing management, sales, marketing, development, administration and/or
other expertise with respect to the Company's operations in the timeshare
industry.
The Company has entered into the Westin Agreement whereby the Company will
jointly develop with Westin the newly developed Westin Vacation Clubs concept.
See "Business--Westin Vacation Club Resorts." Currently, the Company is
evaluating several properties for potential acquisition and development, but
currently has no contracts or capital commitments relating to hotels pursuant
to the Westin Agreement.
The Company is currently evaluating the acquisition of several resort
properties to be branded as an Embassy Vacation Resort and several development
opportunities to be developed as an Embassy Vacation Resort, but currently has
no contracts or capital commitments relating to any potential Embassy Vacation
Resorts. The Company is also currently evaluating the acquisition of several
resort properties and of completed Vacation Intervals to be non-branded
timeshare resorts or inventory, but currently has no contracts or capital
commitments relating to any such potential property or inventory acquisitions.
In addition, the Company is currently evaluating several asset and operating
company acquisitions to integrate into or to expand the operations of the
Company, but currently has no contracts or capital commitments relating to any
such potential asset or operating company acquisitions.
In the future, the Company may negotiate additional credit facilities, or
issue corporate debt or equity securities. Any debt incurred or issued by the
Company may be secured or unsecured, fixed or variable rate interest and may
be subject to such terms as management deems prudent.
The Company believes that, with respect to its current operations, the net
proceeds to the Company from the Offering, together with cash generated from
operations and future borrowings, will be sufficient to meet the Company's
working capital and capital expenditure needs for the near future. However,
depending upon conditions in the capital and other financial markets and other
factors, the Company may from time to time consider the issuance of debt or
other securities, the proceeds of which would be used to finance acquisitions,
to refinance debt or for other general corporate purposes. The Company
believes that the Company's properties are adequately covered by insurance.
See "Business--Insurance; Legal Proceedings."
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 revenue and a $0.7 million or 47%
increase in interest revenue. Other revenue 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,
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<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 revenue. Interest
revenue 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 all of the Existing
Resorts other than 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 costs 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.
Without giving effect to the application of the net proceeds of the
Offering, pre-tax net income increased 81% to $3.8 million, representing 17.7%
of total revenues for the three months ended June 30, 1996.
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BUSINESS
OVERVIEW
The Company is one of the largest developers and operators of timeshare
resorts in North America, based on number of resorts in sales. The Company is
devoted exclusively to timeshare operations and directly or through wholly-
owned affiliates owns eight timeshare resorts, including one under
construction, and a ninth resort with respect to which the Company holds a
partial interest. The Company's Existing Resorts are located in a variety of
popular resort destinations including Hilton Head Island, South Carolina;
Poipu Beach, Kauai, Hawaii; the Orlando, Florida area (two resorts);
St. Maarten, Netherlands Antilles (two resorts); Branson, Missouri; South Lake
Tahoe, California and Avila Beach, California. The Company's principal
operations currently consist of (i) acquiring, developing and operating
timeshare resorts, (ii) marketing and selling Vacation Intervals at its
resorts and (iii) providing financing for the purchase of Vacation Intervals
at its resorts.
For the twelve month period ended 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 Vacation Interval sales volume and number of
Vacation Interval owners.
39
<PAGE>
<TABLE>
<CAPTION>
[The following table is represented as a bar graph.]
Dollar Volume of Vacation Interval Sales
(in billions)
<S> <C> <C>
1 1980 0.49
2 1981 0.965
3 1982 1.165
4 1983 1.34
5 1984 1.735
6 1985 1.58
7 1986 1.61
8 1987 1.94
9 1988 2.39
10 1989 2.97
11 1990 3.24
12 1991 3.74
13 1992 4.25
14 1993 4.505
15 1994 4.76
</TABLE>
<TABLE>
<CAPTION>
[The following table is represented as a bar graph.]
Number of Vacation Intervals Owners
(in millions)
<S> <C> <C>
1 1980 0.155
2 1981 0.220
3 1982 0.335
4 1983 0.470
5 1984 0.620
6 1985 0.805
7 1986 0.970
8 1987 1.125
9 1988 1.310
10 1989 1.530
11 1990 1.800
12 1991 2.070
13 1992 2.363
14 1993 2.760
15 1994 3.144
</TABLE>
Source: American Resort Development Association, The 1995 Worldwide Timeshare
Industry.
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,
the Company believes that in addition to basic quality, expanded resort
amenities and larger, multi-purpose units, current and potential buyers want
enhanced flexibility in scheduling their vacations, a broader distribution of
quality exchange locations and the availability of other value-priced
services. As a major developer and operator of timeshare resorts in North
America, the Company believes that it has acquired skill and expertise both in
the development and operation of timeshare resorts and in the marketing and
sales of Vacation Intervals and that it has acquired the breadth of resorts
which give it a competitive advantage among Vacation Interval purchasers.
Improvement of Operating Margins. As the Company grows, management believes
it will be able to reduce operating costs as a percentage of revenues by
consolidating administrative functions and reducing borrowing costs by virtue
of its consolidated operations. The Company believes that its larger number of
resorts relative to its competitors will provide it with additional revenue
opportunities and economies of scale which will allow it the potential for
significant cost savings. Benefitting from economies of scale both internally
and through its relationships with Promus and Westin, the Company plans to
centralize many of the administrative functions currently performed at
individual resorts, such as accounting, reservations and marketing, resulting
in a reduction in labor costs throughout the Company's Existing Resorts. The
Company believes that increased efficiency, reduction in on-site
administrative requirements and a multi-resort management system will reduce
operating costs and allow the Company to experience increased margins by
spreading operating and corporate overhead costs over a larger revenue base.
In addition, operating margins at a resort tend to improve over time as a
greater percentage of Vacation Intervals are sold, resulting in lower selling,
marketing and advertising expenses. The Company believes that it will reduce
sales and marketing expenses as a result of the lead generation assistance
provided or to be provided by Westin and Promus (including marketing and lead
generation assistance from KOAR's five Embassy Suites hotels) and by targeting
potential buyers through Westin and Embassy Suites hotels.
Acquisition of Timeshare Assets, Management Contracts and Operating
Companies. As a result of the Company's relationships in the timeshare and
financial communities, the size and geographic diversity of its portfolio of
properties and position in the timeshare industry, the Company has access to a
variety of acquisition opportunities related to the Company's business. The
Company's business strategy includes pursuing growth by expanding or
supplementing the Company's existing timeshare business through acquisitions.
The Company believes that its record of acquiring resort properties gives the
Company credibility and, the Company's status as a public company may make the
acquisition by the Company of businesses or operations more attractive to
potential sellers. The Company believes that these collective factors will
help the Company acquire attractive assets, operations and companies in the
fragmented timeshare industry. Acquisitions which the Company may consider
include acquiring additional Vacation Intervals as inventory, management
contracts, Vacation Interval mortgage portfolios and properties or other
timeshare-related assets which may be integrated into the Company's
operations.
DESCRIPTION OF THE COMPANY'S RESORTS
The Company believes that, based on published industry data, it is the only
developer and operator of timeshare resorts in North America that will offer
Vacation Intervals in each of the three principal price segments of the market
(value, upscale (characterized by high quality accommodations and service) and
luxury (characterized by elegant accommodations and personalized service)).
Since the inception of the timeshare
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 $35,000 to $80,000. The Company believes its non-branded
resorts offer buyers an economical alternative to branded timeshare
resorts (such as Embassy Vacation Resorts and Westin Vacation Club
resorts) or traditional vacation lodging alternatives. Each of the
Company's non-branded resorts has been awarded the Gold Crown Resort
Designation by RCI, the highest rating in the RCI system.
. EMBASSY VACATION RESORTS. Vacation Intervals at the Company's three
Embassy Vacation Resorts generally sell for $12,000 to $20,000 and are
targeted to buyers with annual incomes ranging from $60,000 to $150,000.
Embassy Vacation Resorts are designed to provide timeshare
accommodations that offer the high quality and value that is represented
by the more than 120 Embassy Suites hotels throughout North America.
. WESTIN VACATION CLUB RESORTS. Through the Westin Agreement, the Company
has the exclusive right for a five-year period to jointly acquire,
develop and market with Westin "four-star" and "five-star" timeshare
resorts located in North America, Mexico and the Caribbean. The Company
anticipates that Vacation Intervals at Westin Vacation Club resorts
generally will sell for $16,000 to $25,000 and will be targeted to
buyers with annual incomes ranging from $80,000 to $250,000.
Innovation in the design and quality of the resorts developed by the
Company, as well as the branded product image of its Embassy Vacation Resorts
and Westin Vacation Club resorts, has and will continue to result in
differentiation of the Company's resorts from those of its competitors. The
Company believes feedback from its Vacation Interval owners and property
management enhances the Company's product acquisition, development and design
process. The resorts designed and developed by the Company have been
recognized by major industry groups and publications for excellence in
architectural and landscape design and overall development quality. Each of
the Company's resorts that are operational has been designated a "Gold Crown"
resort by RCI, an award RCI reserves for the top 14% of its participating
resorts.
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. Should the Company elect to
construct a higher percentage of three bedroom units, rather than its
current planned mix of one, two and three bedroom units, the actual number
of planned units and Vacation Intervals will be lower than is indicated
above.
(c) Includes 16 units, which will accommodate an additional 816 Vacation
Intervals, 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. Of this total, the Company is obligated to
convey four Vacation Intervals to the former owners of the land on which
the Embassy Vacation Resort Lake Tahoe is being developed. Such conveyance
will be made upon completion of the first phase of development. The
Company has also received all necessary discretionary governmental
approvals and permits to construct an additional estimated 148 units
(excluding building permits which have not yet been applied for by the
Company and which will be applied for and obtained on a phase-by-phase
basis) on land that it owns at the Embassy Vacation Resort Lake Tahoe,
which will accommodate an estimated 7,548 Vacation Intervals, and, subject
to market demand, currently plans to construct 40 of such units commencing
in May of each year from 1997 through 1999 and the remaining 28 units
commencing in May 2000.
(o) The Company commenced sales of Vacation Intervals at the Embassy Vacation
Resort Lake Tahoe in June 1996, although the Company will not be able to
close any of such sales until the completion of the first units, currently
scheduled to occur in January 1997.
NON-BRANDED RESORTS
The Cypress Pointe Resort. Cypress Pointe Resort, the Company's first
timeshare resort, opened in November 1992 and is located in Lake Buena Vista,
Florida, approximately one-half mile from the entrance of Walt Disney World
and is an approximately 10 minute drive from all major Orlando attractions.
The resort is being developed in two phases. Phase I sits on 9.7 acres of land
and consists of nine buildings, eight of which currently are complete. Phase
II sits on 12.5 acres of land and will consist of seven buildings, the first
of which was completed in April 1996.
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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.
As of March 31, 1996, the resort contained 3,672 total Vacation Intervals of
which 643 remained for sale. An additional 816 Vacation Intervals were
completed in May 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 Glen Ivy Resorts, Inc., which had converted the property
to a timeshare resort in 1989. The resort is adjacent to a championship golf
course and is well located for visiting local wineries and historical
attractions. At present, a total of 68 studio and one bedroom units are
completed at the resort. The Company currently intends to commence
construction of the phase I addition of 30 units in September 1996. Upon
completion of the addition, units will be available in one and two bedroom
configurations (some with lock-off capability) and will offer a king size bed,
a queen size sofa sleeper, a porch, a full kitchen, two color televisions, a
video cassette player and a stereo. The phase II addition of 32 units is
scheduled to commence construction in fall 1997. The resort features a
swimming pool, a spa, four tennis courts, exercise facilities, a full service
salon, a video game room, a basketball court and a barbecue area. The resort
is also well located for windsurfing, boating, fishing and surfing.
The Company's inventory at the resort contains 1,030 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 approximately 370
units in 14 four and five story buildings. Despite the resort's remote, lake
front ambiance, it is only minutes from International Drive which provides
access to Orlando, Florida's major attractions. All current units offer three
bedrooms and three bathrooms with approximately 1,550 square feet of living
area, including a large screened-in deck and a full-size, well-equipped
kitchen. With two master suites, a third bedroom, and a sleeper sofa in the
living room, units can comfortably accommodate four couples. Each unit
features air-conditioning, a whirlpool tub, a washer/dryer, three cable
televisions, a video cassette player, a stereo and elegant interior details
such as nine-foot ceilings, crown molding, wooden venetian blinds, imported
ceramic tile and slate flooring. Upon full completion, the Company expects
that the resort will include 5,000 square feet of sand beaches, four gazebo-
covered docks that stretch out over Lake Bryan and easy access to water
skiing, jetskiing, parasailing, sailboating, wind surfing and fishing on Lake
Bryan. The Grand Beach resort will provide two outdoor pools, two spas, two
kiddie pools, two lighted tennis courts, sand volleyball courts, shuffleboard
courts, a putting green, a children's playground, barbecue and picnic areas
and a fitness complex with two clubhouses containing exercise rooms, kitchens
and a video arcade. In 1995, the resort was featured in both RCI Perspective
Magazine and Resort Development and Operations Magazine.
The resort currently contains 3,672 total Vacation Intervals of which 1,783
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 1993 after being substantially destroyed by
Hurricane Iniki and was acquired by the Company in November 1994. The resort
is located at the most southern point on the Poipu Sun Coast of Kauai, Hawaii,
offering a natural, open setting in an architectural style designed to blend
with the land. The resort spans 10 buildings on 22 acres with a total of 219
units. The units, one of which has one bedroom and one bathroom, 216 of which
have two bedrooms and two bathrooms and 2 of which have three bedrooms and
three bathrooms, range in size from 1,363 to 2,629 square feet. Each unit
either overlooks the ocean or one of the many gardens maintained on the
grounds. All units feature air-conditioning, two telephones with voice mail,
two cable televisions, video cassette player, stereo, washer/dryer, whirlpool
tub, full kitchen and a spacious lanai. Units can accommodate up to six people
and are appointed with designer furnishings, custom fabrics, and custom-
designed ceramic tile. The resort is equipped with a spectacular lagoon-like
freshwater swimming pool with a sandy beach entry and its own beach,
waterfalls, fish ponds, lush garden walkways, a kiddie pool and a health club
with weight and aerobic equipment, two hydrospas, sauna and steamroom. The
property is adjacent to a large sandy beach and is well located for scuba
diving, wind surfing, golf, tennis, surfing, horseback riding, fishing,
boating and exploring the island's rain forests, fern grottos and waterfalls.
The resort currently contains 11,169 total Vacation Intervals of which
10,732 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 $52.6 million, which borrowings bear
interest at variable rates with a weighted average of 10.7%. As of March 31,
1996, approximately 7.1% of such consumer loans were considered by the Company
to be delinquent (past due by 60 or more days) and the Company has completed
or commenced foreclosure or deed-in-lieu of foreclosure on approximately 2.0%
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. In addition, the
Company will add one additional Independent Director to its Board of Directors
concurrently with or following the consummation of the Offering.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Osamu Kaneko 48 Chairman of the Board and Chief Executive Officer
Andrew J. Gessow 39 Director and President
Steven C. Kenninger 43 Director, Chief Operating Officer and Secretary
James E. Noyes 49 Director and Executive Vice President
Charles C. Frey 40 Chief Financial Officer and Treasurer
Genevieve Giannoni 33 Senior Vice President of Operations
Timothy D. Levin 39 Vice President--Architecture
Juergen Bartels 55 Proposed Director
Sanford R. Climan 40 Proposed Director
Joshua S. Friedman 40 Proposed Director
W. Leo Kiely III 49 Proposed Director
</TABLE>
OSAMU KANEKO has served as Director, Chairman of the Board and Chief
Executive Officer of the Company since its inception. Mr. Kaneko was born in
Tokyo, Japan and received his B.A. degree from Indiana State University in
1971. From 1974 to 1986 Mr. Kaneko was the Executive Vice President of
Hasegawa Komuten (USA) Inc., the American subsidiary of Hasegawa Komuten Ltd.,
a large Japanese development company based in Tokyo. In this capacity, Mr.
Kaneko was responsible for the development of over $500 million of income
producing properties in Hawaii including approximately 2,000 resort
condominiums and three resort hotels. Mr. Kaneko co-founded KOAR with Mr.
Kenninger in 1985, which over the following seven years developed and acquired
over $400 million in commercial and hospitality properties, including five
Embassy Suites hotels. Pursuant to the Westin Agreement, Mr. Kaneko serves as
the Founder's designee on the Board of Directors of Westin Hotels & Resorts.
ANDREW J. GESSOW has served as Director and President of the Company since
its inception. Mr. Gessow founded Argosy Group Inc. in 1990 and served as
President since inception. Mr. Gessow served as a Partner with Trammell Crow
Company from 1987 to 1990, and was President of Trammell Crow Residential
Services, Florida and West Coast, and Founder and President of NuMarket Cable.
From 1981 through 1987, Mr. Gessow was Founder and President of Travel, Inc.
and Home Search, Inc. which he co-founded with Citicorp Venture Capital. Mr.
Gessow received his B.B.A. degree in Finance from Emory University in 1978 and
a M.B.A. degree from Harvard Business School in 1980.
STEVEN C. KENNINGER has served as Director, Chief Operating Officer and
Secretary of the Company since its inception. Mr. Kenninger co-founded KOAR
with Mr. Kaneko in 1985 and served as its President. Mr. Kenninger was a
practicing attorney at Paul, Hastings, Janofsky & Walker, Los Angeles,
California from 1977 through 1981 and at Riordan & McKinzie, Los Angeles,
California from 1981 through 1985, where he was a partner. Mr. Kenninger
graduated with highest distinction from Purdue University with a B.S. degree
in Mechanical Engineering in 1974, and received a J.D. degree from Stanford
Law School in 1977. Mr. Kenninger is a licensed real estate broker in
California and has been a member of the State Bar of California since 1977.
JAMES E. NOYES has served as Director and Executive Vice President of the
Company since June 1996 and has overall responsibility for the daily operation
of the Company's sales, marketing and resort/hotel management divisions. Prior
to joining the Company, from 1989 through June 1996 Mr. Noyes served as
President of The Trase Miller Group, the parent company of MTI Vacations,
Inc., with interests in vacation packaging, travel technology and specialized
teleservices, and has served in various executive positions in the
organization since
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1980. Mr. Noyes served in various executive positions for the Golf Division of
Wilson Sporting Goods from 1976 to 1980. Mr. Noyes was named as one of the
travel industry's Top 25 Most Influential Executives in 1995 by Tour and
Travel News. Mr. Noyes is a director of Premier Yachts, Ltd., Seadog, Inc. and
Preview Media, Inc. Mr. Noyes received a B.A. degree in 1970 from Dartmouth
College and received a M.B.A. degree in 1974 from Stanford Business School.
CHARLES C. FREY has served as Chief Financial Officer and Treasurer of the
Company since July 1996 and prior thereto had served as Senior Vice President
of Administration and Treasurer of the Company and its predecessor since 1992
and has overall responsibility for accounting, operating systems and resort
administration. Prior to joining the Company, Mr. Frey was Vice President and
Chief Financial Officer of Trammell Crow Residential Services-Florida from
1986 to 1992 where his responsibilities included control and administration of
real estate tax, insurance and payroll for over 65 residential communities.
Mr. Frey is a Certified Public Accountant, is a licensed real estate broker in
Florida and received a B.S. degree in Accounting and Economics from the
Indiana University of Pennsylvania in 1977.
GENEVIEVE GIANNONI has served as Senior Vice President of Operations of the
Company since 1995 and has overall responsibility for operations at all of the
Company's resorts. Ms. Giannoni joined Argosy in May 1992 as Director of
Marketing and became a Vice President of the Company's predecessor in 1993.
Prior to joining Argosy, Ms. Giannoni was a marketing director at Trammell
Crow Residential Services-Florida from 1987 to 1992 where her responsibilities
included marketing new residential communities. Ms. Giannoni is a licensed
real estate agent in Florida. She received her B.A. degree from Rollins
College in 1985 and graduated from the Crummer Management Program at Rollins
College in 1990.
TIMOTHY D. LEVIN has served as Vice President--Architecture of the Company
since its inception and of the Company's predecessor since December 1995. From
1989 through December 1995, Mr. Levin was the President of Sevelex
Consultants, Inc., a project management and design consulting firm affiliated
with Messrs. Kaneko and Kenninger. Prior thereto, Mr. Levin was the senior
design and production manager at Carl Wahlquist AIA Architects, Inc. from 1983
through 1988 and was instrumental in the design and construction of more than
ten Embassy Suites Hotels nationwide. Mr. Levin is a member of the American
Institute of Architects. Mr. Levin received his Bachelor of Architecture
degree from Southern California Institute of Architecture in 1986. Mr. Levin
has been a licensed General Contractor in the State of California since 1980.
JUERGEN BARTELS has consented to become a Director of the Company upon the
consummation of the Offering. Mr. Bartels has been Chairman and Chief
Executive Officer of Westin Hotels & Resorts since May 1995. From 1983 through
April 1995, Mr. Bartels was President and Chief Executive Officer of Carlson
Hospitality Group, Inc. ("Carlson"), where he directed Carlson's Radisson
Hotels International, Radisson Seven Seas Cruises and several restaurant
companies, including the T.G.I. Friday's chain. Prior to joining Carlson,
Mr. Bartels held executive positions with Holiday Inn and Ramada and was the
founder of Ramada Renaissance Hotels.
SANFORD R. CLIMAN has consented to become a Director of the Company upon the
consummation of the Offering. Mr. Climan has been Executive Vice President of
MCA Inc. ("MCA") since October 1995. Prior to joining MCA, Mr. Climan was a
member of the senior executive team at Creative Artists Agency, Inc. ("CAA"),
a leading literary and talent agency, from June 1986 to September 1995. At
CAA, Mr. Climan participated in a range of corporate advisory activities,
including mergers and acquisitions and financial restructurings. From 1979 to
1986, Mr. Climan held various positions in the entertainment industry. Mr.
Climan also serves as a director of 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.
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EXECUTIVE COMPENSATION
Summary Compensation Table. The Company was incorporated as a Maryland
corporation in May 1996. Accordingly, the Company did not pay any cash
compensation to its executive officers for the year ended December 31, 1995.
The following table sets forth the annual base salary and other annual
compensation which the Company expects to pay in 1996 to the Company's chief
executive officer and each of the other four most highly compensated executive
officers whose cash compensation on an annualized basis is expected to exceed
$100,000 (salary and bonus) (the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------- ---------------
SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING
POSITION YEAR(1) SALARY BONUS(2) COMPENSATION(3) OPTIONS/SARS(4)
------------------ ------- -------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Osamu Kaneko............ 1996 $280,000 $ -- $ 2,500 150,000
Chairman of the Board
and
Chief Executive Officer
Andrew J. Gessow........ 1996 280,000 -- 2,500 150,000
Director and President
Steven C. Kenninger..... 1996 280,000 -- 2,500 150,000
Director, Chief
Operating Officer and
Secretary
James E. Noyes.......... 1996 280,000 120,000 14,500 375,000
Director and Executive
Vice President
Charles C. Frey......... 1996 160,000 -- 14,500 150,000
Chief Financial Officer
and Treasurer
</TABLE>
- --------
(1) Amounts given are annualized projections for the year ending December 31,
1996.
(2) See "--Incentive Compensation Plan" and "--Employment Agreements" below
for a discussion of annual performance bonuses payable to key employees
and executive officers.
(3) Represents automobile lease payments and insurance premiums.
(4) Options to purchase an aggregate of 1,380,000 shares of Common Stock will
be granted to directors, executive officers and other employees of the
Company effective upon closing of the Offering. See "--1996 Equity
Participation Plan."
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Option Grants in 1996. The following table contains information concerning
the grant of stock options under the Company's 1996 Equity Participation Plan
expected to be made for the year ended December 31, 1996 to the Named
Executive Officers. The table also lists potential realizable values of such
options on the basis of assumed annual compounded stock appreciation rates of
5% and 10% over the life of the options which are set for a maximum of ten
years.
OPTION GRANTS IN 1996
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
NUMBER OF ASSUMED ANNUAL
SECURITIES PERCENT OF RATES OF SHARE
UNDERLYING TOTAL OPTIONS EXERCISE PRICE APPRECIATION
OPTIONS GRANTED TO OR BASE FOR OPTION TERM(4)
GRANTED EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME (#)(1) FISCAL YEAR ($/SH) DATE(3) 5%($)(2) 10%($)(2)
- ---- ---------- ------------- -------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Osamu Kaneko............ 150,000 -- % $15(2) August 2006 $1,415 $ 3,586
Andrew J. Gessow........ 150,000 -- % $15(2) August 2006 $1,415 $ 3,586
Steven C. Kenninger..... 150,000 -- % $15(2) August 2006 $1,415 $ 3,586
James E. Noyes.......... 375,000 -- % $12 June 2006 $ 4,663 $ 10,090
Charles C. Frey......... 150,000 -- % $15(2) August 2006 $ 1,415 $ 3,586
</TABLE>
- --------
(1) The options granted to Messrs. Kaneko, Gessow, and Kenninger will vest in
three equal installments on the first, second, and third anniversaries of
the date of the grant. The options granted to Mr. Frey will vest with
respect to 75,000 shares upon the date of the grant, with the balance of
such shares vesting in five equal installments on the first, second,
third, fourth and fifth anniversaries of the grant. The options granted to
Mr. Noyes vested with respect to 75,000 shares on the date of the grant
and with respect to the remaining 300,000 shares will vest in forty-eight
equal installments at the end of each of the first forty-eight months that
Mr. Noyes is employed by the Company.
(2) Based on the estimated mid-point of the pricing range in the Offering of
$15.00 per share of Common Stock.
(3) The expiration date of the options will be ten years after the date of
grant.
(4) The potential realizable value (in thousands of dollars) is reported net
of the option price, but before income taxes associated with exercise.
These amounts represent assumed annual compounded rates of appreciation at
5% and 10% only from the date of grant to the expiration date of the
option.
INCENTIVE COMPENSATION PLAN
The Company plans to establish an incentive compensation plan for officers
and key employees of the Company after the closing of the Offering. This plan
will provide for payment of a cash bonus to participating officers and key
employees if certain performance objectives established for each individual
are achieved. Pursuant to such plan, each of Messrs. Kaneko, Gessow, and
Kenninger shall be entitled to receive a cash bonus of up to 100% of their
respective base compensation, respectively, upon the achievement by the
Company of specified targets of growth in earnings per share as determined by
the Compensation Committee. Pursuant to his employment agreement, Mr. Noyes
shall be entitled to receive a cash bonus of $30,000 per quarter for each
quarter that he is employed by the Company. The amount of the bonus to other
participating officers and key employees will be based on a formula to be
determined for each employee by the Compensation Committee, and is expected to
be based on growth in earnings per share and other factors.
1996 EQUITY PARTICIPATION PLAN
The Company has established an equity participation plan (the "1996 Equity
Participation Plan") to enable executive officers, other key employees,
Independent Directors and consultants of the Company to participate in the
ownership of the Company. The 1996 Equity Participation Plan is designed to
attract and retain executive officers, other key employees, Independent
Directors and consultants of the Company and to provide incentives to such
persons to maximize the Company's 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
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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 estimates that it
will issue to executive officers, other key employees, Independent Directors
and consultants of the Company options to purchase approximately 1,380,000
restricted shares of Common Stock pursuant to the 1996 Equity Participation
Plan. The term of each of such option will be ten years from the date of
grant. Except as otherwise described herein, each such option vests twenty
percent per year over five years and is exercisable at a price per share equal
to the initial price per share of Common Stock sold to the public in the
Offering.
A maximum of 1,750,000 shares will be reserved for issuance under the 1996
Equity Participation Plan.
EMPLOYEE STOCK PURCHASE PLAN
The Company has established the Signature Resorts, Inc. Employee Stock
Purchase Plan (the "Employee Stock Purchase Plan") to assist employees of the
Company in acquiring a stock ownership interest in the Company and to
encourage them to remain in the employment of the Company. The Employee Stock
Purchase Plan
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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.
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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."
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FOUNDERS' OTHER BUSINESS INTERESTS
Affiliates of Messrs. Kaneko and Kenninger currently have managing general
partner or similar interests in entities which own investment properties which
the Company does not consider to be competitive with its timeshare business
(the "KOAR Interests"). These properties include a 225-unit condominium
project in Long Beach, California which is being marketed for whole share unit
sales or long-term residential use rather than vacation use (and with respect
to which the KOAR Interests currently own 74 of the total 225 units, the
balance having been sold to third parties); and several retail centers and a
proposed office development project. Messrs. Kaneko and Kenninger are also
currently the constituent general partners of a number of partnerships in
which they owe fiduciary duties to limited partners who invested over $80
million of equity therein (which partnerships include five Embassy Suites
hotels which are still owned by partnerships controlled by Affiliates of
Messrs. Kaneko and Kenninger (the "Prior Partnerships")). Messrs. Kaneko and
Kenninger are authorized by the Company to meet their duties and
responsibilities to the Prior Partnerships pursuant to the terms thereof,
including the sale, refinancing, restructuring and packaging of the Prior
Partnerships, and including with respect to the formation of public or private
entities for such purpose, including a public real estate investment trust
("REIT") for one or all of the Embassy Suites hotels in the Prior Partnerships
(provided, that Messrs. Kaneko and Kenninger agree not to serve as an officer
or employee of such REIT). Messrs. Kaneko and Kenninger agree to continue to
retain third party management companies to manage these properties (e.g.,
Promus Hotels manages all five Embassy Suites hotels), and to employ personnel
not employed by the Company to carry out the day-to-day responsibilities of
managing and overseeing these properties. However, Messrs. Kaneko and
Kenninger reserve the right to do what is reasonably necessary within these
constraints to carry out their duties and responsibilities to the Prior
Partnerships pursuant to the terms thereof. The Company does not believe that
such activities will detract materially from Messrs. Kaneko's and Kenninger's
services to the Company.
In addition, the Founders are currently pursuing the acquisition of one
property in California which may be converted to a timeshare property. The
Company will have the option, at its election (which the Company may exercise
at any time), to require the Founders to sell such property to the Company at
a price not exceeding 50% of the actual direct cost therein. Nevertheless,
there can be no assurance that the Company will exercise its option to acquire
any of such interest. The Founders have agreed that at the direction of the
Independent Directors and following a decision that the Company will not
acquire such property, the Founders will sell their interest in such property
or divest themselves of any controlling or managing interest in the property
within six months after receipt of a notice from the Company to do so, unless
the independent members of the Company's Board of Directors determine that any
such investment by or any such interest held by the Founders is in the best
interest of the Company. The covenants not to compete are intended to fully
protect the Company from Messrs. Kaneko, Gessow or Kenninger either competing
against the Company or being involved in the timeshare business without the
Company's consent. See "Business--Employment Agreements--Covenants Not To
Compete."
REPAYMENT OF AFFILIATED DEBT
Approximately $16.1 million of the net proceeds from the Offering will be
used to repay outstanding debt to affiliates of the Founders. Of the $16.1
million of the funds paid to the affiliates of the Founders, $15.7 million
will be used to pay off existing debt to third party financial institutions or
other third party financing sources or tax liabilities. The proceeds from the
loans were previously either invested in or loaned either to the Company or
its predecessors or to the Property Partnerships to acquire or develop the
Existing Resorts.
In addition, approximately $13.1 million of the net proceeds of the Offering
will be used to repay outstanding indebtedness owed to partnerships in which
an affiliate of Mr. Friedman, a proposed director of the Company, is a general
partner. Of such repayment, approximately $4.3 million will be repaid directly
to Mr. Friedman or his affiliates.
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CONSOLIDATION TRANSACTIONS
The Company's Existing Resorts currently are owned and operated by the
Property Partnerships, each affiliated with the Founders. The Property
Partnerships consist of Grand Beach Resort, L.P., a Georgia limited
partnership (Embassy Vacation Resort Grand Beach); AKGI-Flamingo C.V., a
Netherlands Antilles limited partnership (Flamingo Beach Club); AKGI-Royal
Palm C.V., a Netherlands Antilles limited partnership (Royal Palm Beach Club);
Port Royal Resort, L.P., a South Carolina limited partnership (Royal Dunes
Resort); an approximately 30% interest in Poipu Resort Partners, L.P., a
Hawaii limited partnership (Embassy Vacation Resort Poipu Point); Fall Creek
Resort, L.P., a Georgia limited partnership (Plantation at Fall Creek);
Cypress Pointe Resort, L.P., a Delaware limited partnership (Cypress Pointe
Resort); Lake Tahoe Resort Partners, LLC, a California limited liability
company (Embassy Vacation Resort Lake Tahoe); and San Luis Resort Partners,
LLC, a Georgia limited liability company (San Luis Bay Resort). Affiliates of
the Founders currently are the sole general partners or the sole members of
each of the Property Partnerships. Each of the Property Partnerships (other
than the Embassy Vacation Resort Poipu Beach) which will remain in existence
following the Consolidation Transactions and the Offering will be wholly owned
by the Company.
Upon consummation of the Consolidation Transactions described below, the
partnership and limited liability company interests in each of the Property
Partnerships, certain of the stock of certain other corporations affiliated
therewith held by "accredited investors" (as defined pursuant to Regulation D
under the Securities Act) and certain debt obligations of the Property
Partnerships and affiliates (and, as a result, ownership of each of the
Existing Resorts) will be directly or indirectly transferred to the Company
and in exchange the holders of such partnership interests and certain of such
stock will receive shares of Common Stock in the Company. Holders of any such
partnership interests who are not "accredited investors" will receive cash at
a price commensurate with the value received by the accredited investors to be
determined prior to the Consent Solicitation. The Consolidation Transactions
will be consummated concurrently with, and are conditioned upon, the closing
of the Offering. All financial and share information presented in this
Prospectus assumes the consummation of the Consolidation Transactions and
reflects the issuance of an aggregate of 11,354,705 shares of Common Stock to
the holders of partnership interests in the Property Partnerships and to
certain stockholders of the Affiliated Companies. The Affiliated Companies
include Argosy/KOAR Group, Inc., Resort Management International, Inc., Resort
Marketing International, Inc., RMI-Royal Palm C.V.o.a., RMI-Flamingo C.V.o.a.,
AK-St. Maarten, LLC, Premier Resort Management, Inc., Resort Telephone & Cable
of Orlando, Inc., Kabushiki Gaisha Kei, LLC, Vacation Ownership Marketing
Company and Vacation Resort Marketing of Missouri, Inc., each of which are
controlled by the Founders and currently provide administrative, utility,
management and/or marketing services to certain of the Property Partnerships.
Signature Resorts, Inc. was incorporated in Maryland in May 1996 by the
Founders to effect the Consolidation Transactions and the Offering. Pursuant
to a Private Placement Memorandum dated as of May 28, 1996, the Company in the
Consent Solicitation solicited and received on or before June 13, 1996 the
consent and agreement of the ultimate owners of interests in the Property
Partnerships, the stockholders of the Affiliated Companies and the holders of
certain debt obligations to exchange their partnership interests or shares in,
and obligations of, the Property Partnerships or Affiliated Companies (or
their direct or indirect interests in the owners thereof), as applicable, for
shares of Common Stock in the Company. Such exchange will occur simultaneously
with the closing of the Offering and is conditioned upon certain timing
constraints with respect to the Offering. The Consent Solicitation and
exchange of direct and indirect interests in, and obligations of, the Property
Partnerships and the Affiliate Companies, as applicable, for shares of Common
Stock in the Company are referred to herein as the "Consolidation
Transactions." Direct and indirect holders of interests in, and obligations
of, certain Property Partnerships will upon consummation of the Consolidation
Transactions receive shares of Common Stock in the Company equal to a
predetermined dollar value based on agreement between the Company and such
holders as set forth in the Private Placement Memorandum for the Consent
Solicitation. The balance of the shares of Common Stock issued in the
Consolidation Transactions will be issued to the holders of interests in the
remaining Property Partnerships and to the holders of interests in the
Affiliated Companies, which are comprised solely of the Founders or their
affiliates. Following consummation of the Consolidation Transactions and the
Offering, the ultimate owners of interests in the Property Partnerships and
stockholders of the Affiliated Companies will, in the aggregate, own
approximately 68.4% of the outstanding Common Stock in
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the Company, with approximately 45.0% of the outstanding Common Stock in the
Company being held by the Founders, or affiliates thereof (in each case based
on the mid-point of the estimated pricing range of the Common Stock in the
Offering). For additional information regarding the Property Partnerships and
the Affiliated Companies as well as the Consolidation Transactions and
resulting effect thereof, see "Principal Stockholders" and "Certain
Relationships and Related Transactions."
The following sets forth certain information regarding the Property
Partnerships:
<TABLE>
<CAPTION>
EXECUTIVE
OFFICERS,
DIRECTORS AND
AFFILIATES
OWNERSHIP CYPRESS AKGI- AKGI- SAN LUIS
INTERESTS POINTE FALL CREEK PORT ROYAL GRAND BEACH FLAMINGO ROYAL PALM LAKE TAHOE BAY
------------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Osamu Kaneko.... 5.00% 4.00% 30.73% 15.00% 40.00% 40.00% 40.00% 40.00%
Andrew J.
Gessow......... 17.50 14.00 24.71 14.00 40.00 40.00 40.00 40.00
Steven C.
Kenninger...... 2.50 2.00 13.20 7.90 20.00 20.00 20.00 20.00
Charles Frey.... 0.00 0.00 0.00 0.50 0.00 0.00 0.00 0.00
Timothy Levin... 0.00 0.00 0.86 0.50 0.00 0.00 0.00 0.00
Genevieve
Giannoni....... 0.00 0.00 0.00 0.25 0.00 0.00 0.00 0.00
Joshua
Friedman(1).... 22.50 17.13 0.00 0.00 0.00 0.00 0.00 0.00
Canpartners
Incorporated(1). 75.07 56.47 0.00 0.00 0.00 0.00 0.00 0.00
Approximate
Equity Value
Assigned....... $35,247,000 $11,030,000 $5,146,000 $22,621,000 $14,502,000(3) $29,004,000(3) $10,339,000(3) $6,092,000(3)
Book Value as of
December 31,
1995........... 13,954,127 2,596,710 3,235,750 12,575,459 747,434 3,127,322 N/A(2) N/A(2)
Debt Assumed as
of December 31,
1995........... 32,994,587 14,933,435 6,232,234 24,807,087 5,405,188 6,392,297 N/A N/A
</TABLE>
- -------
(1) Canpartners Incorporated is the sole general partner of limited
partnerships that hold the interests indicated. Joshua S. Friedman owns
his interests through these entities.
(2) The Embassy Vacation Resort Lake Tahoe and the San Luis Bay Resort were
acquired in May and June 1996, respectively. The value allocated by the
Company is the Company's costs to acquire the property.
(3) Wholly-owned by the Founders; accordingly, assigned values are estimated
solely for purposes of this table.
71
<PAGE>
PRINCIPAL STOCKHOLDERS
The information in the following table sets forth information regarding the
beneficial ownership of the Common Stock of the Company giving effect to the
consummation of the Consolidation Transactions, and as adjusted to reflect the
sale of shares offered hereby, with respect to (i) each person known by the
Company to beneficially owns 5% or more of the outstanding shares of Common
Stock, (ii) each person who is a director, proposed director or Named
Executive Officer of the Company and (iii) all directors, proposed directors
and executive officers of the Company as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING AFTER THE OFFERING
----------------------------- -----------------------
NAME AND ADDRESS OF
BENEFICIAL OWNER(1) SHARES PERCENTAGE SHARES PERCENTAGE
- ------------------- ------------- ------------ --------- ----------
<S> <C> <C> <C> <C>
Osamu Kaneko(2)(3)....... 2,821,798 24.9% 2,821,798 17.0%
Andrew J. Gessow(2)(4)... 3,210,599 28.3% 3,210,599 19.3%
Steven C.
Kenninger(2)(3)(5)...... 1,447,930 12.8% 1,447,930 8.7%
James E. Noyes........... 75,000(7) * 75,000(7) *
Charles C. Frey.......... 5,600 * 80,600(8) *
Genevieve Giannoni....... 2,800 * 77,800(8) *
Timothy D. Levin......... 4,058 * 6,058 *
Juergen Bartels.......... -- -- -- --
Sanford R. Climan........ -- -- 3,250 *
Joshua S. Friedman(6).... -- -- -- --
W. Leo Kiely, III........ -- -- -- --
Canpartners
Incorporated(6)......... 2,220,936 19.6% 2,220,936 13.4%
9665 Wilshire Boulevard
Suite 200
Beverly Hills,
California 90210
All directors, proposed
directors and executive
officers as a group (11
persons)(6)............. 7,567,785 66.7% 7,723,035 46.5%
</TABLE>
- --------
* Less than 1%
(1) Except as otherwise indicated, each beneficial owner has the sole power to
vote, as applicable, and to dispose of all shares of Common Stock owned by
such beneficial owner.
(2) The number of shares indicated to be acquired by each of the Founders in
the Consolidation Transactions is based upon the mid-point of the
estimated pricing range of the Common Stock in the Offering set forth on
the cover page of this Prospectus. To the extent the public offering price
is above the mid-point, the ultimate number of shares acquired by the
Founders will be greater than as set forth above; to the extent the public
offering price is below the mid-point, the number of shares acquired by
the Founders will be lower than as set forth above.
(3) The address of such person is 911 Wilshire Boulevard, Suite 2250, Los
Angeles, California 90017.
(4) The address of such person is 2934 Woodside Road, Woodside, California
94062.
(5) The shares indicated are held by Mr. Kenninger through trusts, pension
plans and profit sharing plans, under which Mr. Kenninger may be deemed to
have, or to share, beneficial ownership of such shares.
(6) Canpartners Incorporated ("Canyon") is the sole general partner of limited
partnerships that hold the shares indicated. Mr. Friedman (a proposed
director of the Company) and Mitchell R. Julis and R. Christian B. Evensen
are the sole shareholders and directors of Canyon and may be deemed to
share beneficial ownership of the shares shown as owned by Canyon. Such
persons disclaim beneficial ownership of such shares.
(7) Represents presently exercisable options to acquire shares of Common
Stock.
(8) Includes options to acquire 75,000 shares of Common Stock which are to be
granted upon the closing of the Offering and that will be exercisable
beginning within 60 days.
72
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of the Offering and the consummation of the Consolidation
Transactions, the authorized capital stock of the Company will consist of (i)
50,000,000 shares of Common Stock, par value $0.01 per share, 16,604,705
shares of which will be outstanding after the Offering and the Consolidation
Transactions and (ii) 25,000,000 shares of Preferred Stock, par value $0.01
per share, none of which will be outstanding after the Offering and the
Consolidation Transactions. The following summary description of the capital
stock of the Company is qualified in its entirety by reference to the Charter
and Bylaws of the Company, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part. See "Additional
Information."
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters voted on by stockholders, including elections of directors, and,
except as otherwise required by law or provided in any resolution adopted by
the Board of Directors with respect to any series of Preferred Stock
establishing the designation, powers, preferences and relative, participating,
option or other special rights and powers of such series of Preferred Stock,
the holders of shares of Common Stock exclusively possess all voting power.
The Charter does not provide for cumulative voting in the election of
directors. Subject to any preferential rights of any outstanding series of
Preferred Stock, the holders of Common Stock are entitled to such
distributions as may be declared from time to time by the Board of Directors
from funds available therefor, and upon liquidation are entitled to receive
pro rata all assets of the Company available for distribution to such holders.
All shares of Common Stock issued in the Offering will be fully paid and
nonassessable and the holders thereof will not have preemptive rights.
PREFERRED STOCK
Preferred Stock may be issued from time to time, in one or more classes, as
authorized by the Board of Directors. Prior to issuance of shares of each
class, the Board of Directors is required by the MGCL and the Company's
Charter to fix for each such class, the terms, preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends or
other distributions, qualifications and terms or conditions of redemption, as
are permitted by Maryland law. The Board of Directors could authorize the
issuance of Preferred Stock with terms and conditions which could have the
effect of discouraging a takeover or other transaction which holders of some,
or a majority, of the Company's outstanding shares might believe to be in
their best interests or in which holders of some, or a majority, of shares
might receive a premium for their shares over the market price of such shares.
No Preferred Stock will be outstanding following the closing of the Offering.
TRANSFER AGENT AND REGISTRAR
The Company has appointed Wells Fargo Bank as its transfer agent and
registrar.
73
<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.
75
<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.
78
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by Montgomery
Securities and Goldman, Sachs & Co. (the "Representatives"), have severally
agreed, subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement") by and among the Company and the Underwriters to
purchase from the Company the number of shares of Common Stock indicated below
opposite their respective names, at the initial public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters are
committed to purchase all of the shares of Common Stock if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
TO BE
UNDERWRITER PURCHASED
- ----------- ---------
<S> <C>
Montgomery Securities................................................
Goldman, Sachs & Co. ................................................
---------
Total........................................................ 5,250,000
=========
</TABLE>
The Underwriters, through the Representatives, have advised the Company that
the Underwriters propose initially to offer the shares of Common Stock to the
public at a public offering price set forth on the cover page of this
Prospectus. The Underwriters may allow selected dealers a concession of not
more than $ per share; the Underwriters may allow, and such dealers may
reallow, a concession of not more than $ per share to certain other
dealers. After the initial public offering, the public offering price and
other selling terms may be changed by the Representatives.
The Company has granted an option to the Underwriters, exercisable during a
30-day period after the date of this Prospectus, to purchase up to a maximum
of 787,500 additional shares of Common Stock to cover over-allotments, if any,
at the initial offering price less the underwriting discount. To the extent
that the Underwriters exercise this option, the Underwriters will be
committed, subject to certain conditions, to purchase such additional shares
in approximately the same proportion as set forth in the above table. The
Underwriters may purchase such shares only to cover over-allotments made in
connection with the Offering.
The Underwriting Agreement provides that the Company and the Founders will
indemnify the Underwriters against certain liabilities, including civil
liabilities under the Securities Act, or will contribute to payments the
Underwriters may be required to make in respect thereof.
The Company's officers, directors and the holders of the Registrable Shares
have agreed, with certain exceptions, that, for a period of 180 days from the
date of this Prospectus (one year with respect to the Founders), they will not
offer to sell, sell, contract to sell or otherwise sell or dispose of any
shares of their Common Stock or options or warrants to acquire shares of
Common Stock without the prior written consent of Montgomery Securities. One
of such exceptions allows the Founders to pledge between $30 million and $50
million of their Common Stock to secure a margin loan in a maximum amount of
$10 million or loans entered into by them, and another exception allows the
Founders to pledge approximately $5.8 million of their Common Stock in
connection with their buyout of a former partner. The Company has agreed not
to sell any shares of Common Stock for a period of 180 days from the date of
this Prospectus without the prior written consent of Montgomery Securities.
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<PAGE>
The Representatives have informed the Company that they do not intend to
confirm sales to accounts over which they exercise discretionary authority in
excess of 5% of the number of shares of Common Stock offered hereby.
Out of the 5,250,000 shares of Common Stock to be sold by the Company
pursuant to the Offering, the Underwriters have accepted the Company's request
to sell up to 5.4% of such shares at the public offering price set forth on
the cover page of the Prospectus to current and former partners of the
Founders (and their families), the Company's independent director nominees,
employees and independent contractors associated with each of the Company's
resorts and its affiliated companies, friends and supporters of the Company
(and their families) who have previously provided services or assistance to
the Property Partnerships, and other persons designated by the Company.
Pursuant to the Registration Rights Agreement, if holders of the Registrable
Securities elect to sell shares of Registrable Securities in a non-publicly
underwritten offering, the timing of sales and the volume sold shall be
managed in a manner consistent with the best interests of the Company.
Prior to this Offering, there has been no public trading market for the
Common Stock. Consequently, the initial public offering price will be
determined by negotiations among the Company and the Representatives of the
Underwriters. Among the factors to be considered in such negotiations will be
the history of, and the prospects for, the Company and the industry in which
it competes, an assessment of the Company's management, its past and present
earnings and the trend of such earnings, the prospects for future earnings of
the Company, the present state of the Company's development, the general
condition of securities markets at the time of the Offering and the market
price of publicly traded stocks of comparable companies in recent periods.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Latham & Watkins, Los Angeles, California. Matters of Maryland law
will be passed upon for the Company by Ballard, Spahr, Andrews & Ingersoll,
Baltimore, Maryland. Limited matters of California real estate law will be
passed upon for the Company by Paul, Hastings, Janofsky & Walker, Los Angeles,
California and limited matters of Florida real estate law will be passed upon
for the Company by Schreeder, Wheeler & Flint, Atlanta, Georgia. Certain
partners of Paul, Hastings, Janofsky & Walker, members of their families and
related persons following consummation of the Consolidation Transactions and
the Offering will own approximately 1% of the Common Stock of the Company.
Certain matters will be passed upon for the Underwriters by O'Melveny & Myers
LLP, San Francisco, California in reliance, as to matters of Maryland law, on
the opinion of Ballard, Spahr, Andrews & Ingersoll.
EXPERTS
The combined financial statements of Signature Resorts, Inc. at December 31,
1994 and 1995 and for each of the three years in the period ended December 31,
1995, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports appearing elsewhere herein, which, as to the years 1993, 1994, and
1995, are based in part on the reports of Coopers & Lybrand LLP, independent
accountants. The information under the caption "Selected Combined Historical
Financial Information" for each of the three years in the period ended
December 31, 1995, included elsewhere herein, have been derived from combined
financial statements audited by Ernst & Young LLP, as set forth in their
report appearing elsewhere herein. The financial statements and the selected
combined historical financial information referred to above are included in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
The financial statements (not presented separately herein) of AKGI-Flamingo
C.V.o.a. and AKGI-Royal Palm C.V.o.a. at December 31, 1995 and for the year
then ended and of Cypress Pointe Resort, L.P. and Fall Creek Resort, L.P. at
December 31, 1994 and for each of the two years in the period ended December
31, 1994, have been audited by Coopers & Lybrand L.L.P., independent
accountants, as set forth in their reports appearing elsewhere herein, and are
included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
80
<PAGE>
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 1,269,035 2,166,178
Intangible assets, net...... 3,856,571 4,223,834 3,746,867 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........... -- -- $ 0.63 -- $ 0.14
Pro forma weighted
average common shares
outstanding............ -- -- 11,354,705 -- 11,354,705
</TABLE>
See accompanying notes to the combined financial statements.
F-8
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
COMBINED STATEMENTS OF EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------
RETAINED MEMBERS'
EARNINGS EQUITY GENERAL LIMITED
SHARES AMOUNT (DEFICIT) (DEFICIT) PARTNERS PARTNERS TOTAL
------ -------- ---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1993................... -- $ -- $ -- $ -- $ 77,124 $ 7,361,649 $ 7,438,773
Issuance of common
stock................. -- -- -- -- -- -- --
Contributions.......... -- -- -- -- 1,010 2,500,890 2,501,900
Distributions.......... -- -- -- -- (154,488) (240,890) (395,378)
Net income............. -- -- -- -- 17,269 2,275,628 2,292,897
--- -------- ---------- ----------- ---------- ----------- -----------
Balance at December 31,
1993................... -- -- -- -- (59,085) 11,897,277 11,838,192
Issuance of common
stock................. -- -- -- -- -- -- --
Contributions.......... -- -- -- -- 3,204,997 12,315,000 15,519,997
Distributions.......... -- -- -- -- -- (870,000) (870,000)
Net (loss) income...... -- -- (271,475) -- 183,363 4,379,521 4,291,409
--- -------- ---------- ----------- ---------- ----------- -----------
Balance at December 31,
1994................... -- -- (271,475) -- 3,329,275 27,721,798 30,779,598
Issuance of common
stock................. 200 22,000 -- -- -- -- 22,000
Contributions.......... -- 155,000 656,133 1,000 374,000 -- 1,186,133
Distributions.......... -- -- -- (2,438,000) (42,467) (1,950,000) (4,430,467)
Net income............. -- -- 2,050,680 1,004,385 515,536 7,342,187 10,912,788
--- -------- ---------- ----------- ---------- ----------- -----------
Balance at December 31,
1995................... 200 177,000 2,435,338 (1,432,615) 4,176,344 33,113,985 38,470,052
Issuance of common
stock................. -- -- -- -- -- -- --
Contributions.......... -- -- -- -- -- -- --
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) (1,047,172) (361,124)
Expenditures for
intangible assets...... (722,923) (3,146,546) (1,705,012) (47,607) (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/OPENED
--------------- --------------------
<C> <S> <C>
Signature Resorts, Inc.
Cypress Pointe Resorts, L.P. Cypress Pointe Resort November 1992
Vacation Ownership Marketing Company Cypress Pointe Resort November 1992
Fall Creek Resort, L.P. Plantation at Fall Creek July 1993
Vacation Resort Marketing of Missouri,
Inc. Plantation at Fall Creek July 1993
Port Royal Resort, L.P. Royal Dunes Resort April 1994
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 Vacation
Intervals currently available for sale. Obligations related to such
improvements are insignificant.
F-13
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The activity in the mortgages receivable allowance for doubtful accounts is
as follows:
<TABLE>
<CAPTION>
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 Koloa, Kauai, Hawaii (the "Property"). The sole purpose of
the venture is to hold the Property for sale in phases as Vacation Intervals
while generating revenues from transient rentals as the Vacation Intervals are
being sold. As managing general partner, the Company holds a 0.5% partnership
interest for purposes of distributions, profits and losses. The Company is
also a limited partner of the Poipu Partnership and holds a 29.93% partnership
interest for purposes of distributions, profits and losses, for a total
partnership interest of 30.43%. In addition, following repayment of any
outstanding partner loans, the Company is entitled to receive a 10% per annum
return on the Founders' and certain former limited partners' initial capital
investment of approximately $4.6 million in the Poipu Partnership. After
payment of such preferred return and the return of approximately $4.6 million
of capital to the Company on a pari passu basis with the other partner in the
partnership, the Company is entitled to receive approximately 50% of the net
profits of the Poipu Partnership. In the event certain internal rates of
return specified under the partnership agreement are achieved, the Company is
entitled to receive approximately 55% of the net profits of the Poipu
Partnership.
Summarized financial information as of December 31 relating to the Company's
investment is as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Mortgages receivable........................................ $ -- $ 3,474
Timeshare inventory......................................... -- 3,248
Net property and equipment.................................. 42,188 39,287
Total assets................................................ 45,553 50,696
Notes payable............................................... 30,300 35,494
Advances from partners...................................... -- 4,000
Partners' capital........................................... 14,108 8,688
Revenues.................................................... 491 10,119
Net loss.................................................... 892 5,419
</TABLE>
7. INTANGIBLE ASSETS
Intangible assets and accumulated amortization consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
----------------------- ------------------------
1994 1995 1995 1996
---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Organizational costs........ $3,200,510 $ 3,884,581 $ 3,210,510 $ 3,904,119
Start-up costs.............. 538,364 713,319 538,364 713,319
Loan origination fees....... 349,380 522,378 591,181 422,380
Financing fees.............. 698,229 1,444,242 873,557 1,437,731
---------- ----------- ----------- -----------
Total intangible assets..... 4,786,483 6,564,520 5,213,612 6,477,549
Less accumulated
amortization............... (929,912) (2,340,686) (1,466,745) (2,593,016)
---------- ----------- ----------- -----------
Net intangible assets....... $3,856,571 $ 4,223,834 $ 3,746,867 $ 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 following photos and charts are depicted:
Photo 7 Plantation at Fall Creek - Branson, Missouri
- ------- Photo of exterior resort structure from parking area of Plantation at
Fall Creek - Branson, Missouri
Photo 8 Photo of riverboat near plantation at Fall Creek - Branson, Missouri
- -------
Photo 9 Flamingo Beach Club - St. Maarten, Netherlands, Antilles
- ------- Interior photo from living room at kitchen and balcony --
overlooking ocean
Photo 10 Flamingo Beach Club - St. Maarten, Netherlands, Antilles
- -------- Beach perspective photo of resort set against ocean
Photo 11 Embassy Vacation Resort Grand Beach - Orlando, Florida
- -------- Balcony perspective photo overlooking water
Photo 12 Embassy Vacation Resort Grand Beach - Orlando, Florida
- -------- Pier perspective photo of resort set adjacent to water
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or by any of the
Underwriters. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the registered
securities to which this Prospectus relates or any offer to any person in any
jurisdiction where such an offer would be unlawful. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that the information herein is correct as of any time
subsequent to the date hereof.
------------------
TABLE OF CONTENTS
------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 12
Use of Proceeds........................................................... 24
Dividend Policy........................................................... 24
Consolidated Capitalization............................................... 25
Dilution.................................................................. 26
Selected Combined Historical Financial Information........................ 27
Selected Combined Pro Forma Financial Information......................... 29
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 32
Business.................................................................. 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. 2 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 31, 1996.
SIGNATURE RESORTS, INC.
By: /s/ Andrew J. Gessow
-----------------------------------
Name: Andrew J. Gessow
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board and July 30, 1996
____________________________________ Chief Executive Officer
Osamu Kaneko (Principal Executive
Officer)
/s/ Andrew J. Gessow Director and President July 30, 1996
____________________________________
Andrew J. Gessow
* Director, Chief Operating July 30, 1996
____________________________________ Officer and Secretary
Steven C. Kenninger
/s/ Charles C. Frey Chief Financial Officer and July 30, 1996
____________________________________ Treasurer (Principal
Charles C. Frey Financial and Accounting
Officer)
* Executive Vice President and July 30, 1996
____________________________________ Director
James E. Noyes
* Director July 30, 1996
____________________________________
Juergen Bartels
* Director July 30, 1996
____________________________________
Sanford R. Climan
* Director July 30, 1996
____________________________________
Joshua S. Friedman
* Director July 30, 1996
____________________________________
W. Leo Kiely III
* Power of Attorney by
/s/ Andrew J. Gessow
____________________________________
Andrew J. Gessow
President
</TABLE>
II-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement among Signature Resorts, Inc.,
Montgomery Securities and Goldman, Sachs & Co. dated as of
, 1996
3.1 Charter of Signature Resorts, Inc.+
3.2 Bylaws of Signature Resorts, Inc.+
4.1 Form of Stock Certificate of Signature Resorts, Inc.+
5.1 Form of Opinion of Ballard, Spahr, Andrews & Ingersoll
regarding the validity of the Common Stock being registered
(including consent)+
10.1 Form of Registration Rights Agreement among Signature Resorts,
Inc. and the persons named therein
10.2.1 Form of Employment Agreements between Signature Resorts, Inc.
and each of Osamu Kaneko, Andrew J. Gessow and Steven C.
Kenninger
10.2.2 Employment Agreement between Signature Resorts, Inc. and James
E. Noyes+
10.3 1996 Equity Participation Plan of Signature Resorts, Inc.+
10.4 Agreement of Limited Partnership of Pointe Resort Partners,
L.P. (subsequently renamed Poipu Resort Partners L.P.) dated
October 11, 1994+
10.5 Signature Resorts, Inc. Employee Stock Purchase Plan+
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 1.1
5,250,000 SHARES
SIGNATURE RESORTS, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
_____________, 1996
MONTGOMERY SECURITIES
GOLDMAN, SACHS & CO.
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Dear Sirs:
SECTION 1. Introductory. Signature Resorts, Inc., a Maryland
------------
corporation (the "Company"), proposes to issue and sell 5,250,000 shares of its
authorized but unissued common stock, $.01 par value (the "Common Stock"), to
the several underwriters named in Schedule A annexed hereto (the
"Underwriters"), for whom you are acting as representatives (the
"Representatives"). Said aggregate of 5,250,000 shares are herein called the
"Firm Common Shares." In addition, the Company proposes to grant to the
Underwriters an option to purchase up to 787,500 additional shares (the "Option
Common Shares") as provided in Section 5 hereof. The Firm Common Shares and, to
the extent such option is exercised, the Option Common Shares are hereinafter
collectively referred to as the "Common Shares."
You have advised the Company that the Underwriters propose to make a
public offering of their respective portions of the Common Shares on the
effective date of the Registration Statement hereinafter referred to, or as soon
thereafter as in your judgment is advisable.
On or prior to the First Closing Date (as hereinafter defined), the
Company will complete a series of transactions described in the Prospectus (as
hereinafter defined) under the
1
<PAGE>
caption "The Consolidation Transactions and Corporate Background" (the
"Consolidation Transactions"). For the purposes hereof, the "Consolidation
Transactions" include the following transactions which are designed to enable
the Company to acquire directly or indirectly through one or more wholly-owned
entities fee simple title (or a ground lease interest, as applicable) from the
ultimate owners thereof (the "Property Owners") in eight (8) timeshare resorts
and to acquire an ownership interest in entities which hold a general
partnership interest in a ninth (9th) resort (collectively, the "Resorts") and
to permit the Company to acquire certain affiliated corporate, limited liability
company and partnership interests in companies providing various services with
respect to the Resorts (the "Affiliated Companies", and together with the
Property Owners and the Poipu Partnership (as hereinafter defined), the
"Property Partnerships"). The Resorts are subject to certain mortgage and other
indebtedness as more particularly set forth in the Prospectus. The Consolidation
Transactions include the following:
(i) Pursuant to a Private Placement Memorandum dated as of May 28,
1996 (the "Private Placement Memorandum"), the Company solicited and
received on or before June 13, 1996 the consent and agreements of all or
substantially all of the ultimate owners of interests in the Property
Owners and the Affiliated Companies and the holders of certain debt
obligations to exchange their interests or shares in, and obligations of,
the Property Owners or Affiliated Companies (or the direct or indirect
interests in the owners thereof), as applicable, for 11,416,667 shares of
Common Stock in the Company (the "Private Placement Shares") (the "Consent
Solicitation") (and those who did not consent will be receiving cash and
not Private Placement Shares);
(ii) Following the consummation of the Consolidation Transactions and
the Offering (as hereinafter defined), the Company will hold, directly or
indirectly, all of the ownership interests in the Resorts (other than the
Embassy Vacation Resort at Poipu Beach) from the Property Partnerships;
(iii) The Company will use approximately $56.6 million of the
estimated net proceeds of the Offering to repay outstanding mortgage and
other indebtedness and accrued interest (including approximately [$31.5]
million of indebtedness and accrued interest outstanding under short-term
loans from affiliates of the Company, including affiliates of the Founders
(as hereinafter defined)) and approximately [$7.3] million to fund the cash
paid to third parties in the Consolidation Transactions. The balance of
2
<PAGE>
the estimated net proceeds of approximately [$7.3] million is intended to
be used for working capital and other general corporate purposes; and
(iv) Following the consummation of the Consolidation Transactions and
the offering of the Common Shares, the Owners will, in the aggregate, own
approximately [68.5%] of the outstanding Common Shares of the Company with
approximately [44.1%] of the outstanding Common Shares being held by
certain individuals listed in the Prospectus, who together are defined as
the Founders, or affiliates thereof.
"Consolidation Transactions" shall also include the other transactions set forth
in the Prospectus under the caption "The Consolidation Transactions and
Corporate Background" and any actions needed to effectuate such transactions.
The Company hereby confirms its agreement with respect to the purchase
of the Common Shares by the Underwriters as follows:
SECTION 2. Representations and Warranties of the Company. The
---------------------------------------------
Company hereby represents and warrants to the several Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-06027) with
respect to the Common Shares has been prepared by the Company in conformity
with the requirements of the Securities Act of 1933, as amended (the
"Act"), and the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") thereunder, and has
been filed with the Commission. The Company has prepared and has filed an
amendment or amendments to such registration statement. There have been
delivered to you two signed copies of such registration statement and
amendments, together with two copies of each exhibit filed therewith.
Conformed copies of such registration statement and amendments (but without
exhibits) and of the related preliminary prospectus have been delivered to
you in such reasonable quantities as you have requested for each of the
Underwriters. The Company will next file with the Commission one of the
following: (i) prior to effectiveness of such registration statement, a
further amendment thereto, including the form of final prospectus, or (ii)
a final prospectus in accordance with Rules 430A and 424(b) of the Rules
and Regulations. As filed, such amendment and form of final prospectus, or
such final prospectus, shall include all Rule 430A Information (as
hereinafter defined) and, except to the extent that you shall agree in
writing to a modification, shall be in all
3
<PAGE>
substantive respects in the form furnished to you prior to the date and
time that this Agreement was executed and delivered by the parties hereto,
or, to the extent not completed at such date and time, shall contain only
such specific additional information and other changes (beyond that
contained in the latest Preliminary Prospectus) as the Representatives
shall have approved.
The term "Registration Statement" as used in this Agreement shall mean
such registration statement at the time such registration statement becomes
effective and, in the event any post-effective amendment thereto becomes
effective prior to the First Closing Date, shall also mean such
registration statement as so amended; provided, however, that such term
shall also include all Rule 430A Information deemed to be included in such
registration statement at the time such registration statement becomes
effective as provided by Rule 430A of the Rules and Regulations. The term
"Preliminary Prospectus" shall mean any preliminary prospectus referred to
in the preceding paragraph and any preliminary prospectus included in the
Registration Statement at the time it becomes effective that omits Rule
430A Information. The term "Prospectus" as used in this Agreement shall
mean the prospectus relating to the Common Shares in the form in which it
is first filed with the Commission pursuant to Rule 424(b) of the Rules and
Regulations or, if no filing pursuant to Rule 424(b) of the Rules and
Regulations is required, shall mean the form of final prospectus included
in the Registration Statement at the time such registration statement
becomes effective. The term "Rule 430A Information" means information with
respect to the Common Shares and the offering thereof permitted to be
omitted from the Registration Statement when it becomes effective pursuant
to Rule 430A of the Rules and Regulations.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus, and each Preliminary Prospectus has
conformed in all material respects to the requirements of the Act and the
Rules and Regulations and, as of its date, has not included any untrue
statement of a material fact or omitted to state a material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading; and at the time the Registration
Statement becomes effective, and at all times subsequent thereto up to and
including each Closing Date (as hereinafter defined), the Registration
Statement and the Prospectus, and any amendments or supplements thereto,
will contain all material statements and information required to be
included therein
4
<PAGE>
by the Act and the Rules and Regulations and will in all material respects
conform to the requirements of the Act and the Rules and Regulations, and
neither the Registration Statement nor the Prospectus, nor any amendment or
supplement thereto, will include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, however, no
representation or warranty contained in this Section 2(b) shall be
applicable to information contained in or omitted from any Preliminary
Prospectus, the Registration Statement, the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished pursuant to Section 3 of this Agreement to the
Company by or on behalf of any Underwriter, directly or through the
Representatives, specifically for use in the preparation thereof.
(c) The Company has been duly formed and is validly existing as a
corporation, is in good standing under the laws of the State of Maryland,
with full power and authority (corporate and other) to conduct its business
as currently conducted or as described in the Prospectus. Except as set
forth in the Prospectus, the Company does not own or control, or after the
Consolidation Transactions will own or control, directly or indirectly, any
corporation, partnership, association or other entity.
(d) Each of the Property Partnerships has been duly formed and is
validly existing as a partnership, limited liability company or
corporation, as applicable, in good standing under the laws of its
jurisdiction of formation, with full power and authority (partnership and
other) to own and lease its properties and conduct its respective
businesses as currently conducted or as described in the Prospectus.
(e) The Company and each of the Property Partnerships are, and after
the consummation of the Consolidation Transactions the Company, the Poipu
Partnership, or entities all of the ownership interests which are directly
or indirectly owned by the Company, will be, in possession of and operating
in compliance with all authorizations, licenses, permits, consents,
certificates and orders material to the conduct of their respective
businesses, all of which are valid and in full force and effect; the
Company and each of the Property Partnerships are, and after the
consummation of the Consolidation Transactions the Company will be, duly
qualified to do business and in good standing as a foreign corporation,
partnership or limited liability
5
<PAGE>
company, as applicable, in each jurisdiction in which the conduct of their
respective businesses requires such qualification, except where the failure
to be so qualified and in good standing would not have a material adverse
effect on the condition (financial or otherwise), business, properties,
results of operations or property of the Company and the Property
Partnerships, considered as one entity following the consummation of the
Consolidation Transactions (a "Material Adverse Effect"); and to the
Company's knowledge no proceeding has been instituted or threatened in any
such jurisdiction revoking, limiting or curtailing, or seeking to revoke,
limit or curtail, such power and authority or qualification.
(f) Immediately prior to the First Closing Date, the Company will have
an authorized and outstanding capital stock as set forth under the heading
"Capitalization" in the Prospectus; the issued and outstanding shares of
Common Stock will have been duly authorized and validly issued, will be
fully paid and nonassessable, and will have been issued in compliance with
all federal and state securities laws, will not have been issued in
violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities, and will conform to the description
thereof contained in the Registration Statement and the Prospectus. The
form of certificate, if any, evidencing the Common Stock complies with all
applicable requirements of Maryland law. The issued and outstanding shares,
partnership units or limited liability company interests, as applicable, of
each of the Property Partnerships have been validly issued and are fully
paid and nonassessable and have been issued in compliance with all federal
and state securities laws. Except as disclosed in or contemplated by the
Prospectus and the financial statements of the Company and the related
notes thereto, as of the First Closing Date neither the Company nor any of
the Property Partnerships have outstanding any options to purchase, or any
preemptive rights or other rights to subscribe for or to purchase such
securities or obligations convertible into, or any contracts or commitments
to issue or sell, shares of its capital stock, partnership interests or
limited liability company interests, as the case may be, or any such
options, rights, convertible securities or obligations. The offer, issue,
sale and delivery of the Private Placement Shares in connection with the
Formation Transactions constitutes a valid private placement exempt from
registration under Section 4(2) of the Act, does not require registration
under any state securities or Blue Sky laws, and will not be integrated
with the public sale of the Common Shares, and the registration of such
Private Placement Shares under the
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Act is not required in connection with any such offer, issue, sale,
delivery or grant of such Units or Warrants, and further provided, in
accordance with Rule 152 of the Rules and Regulations, the private
placement exemption is not lost based on the public sale of the Common
Shares. Neither the Consent Solicitation nor the issuance of any Private
Placement Shares to any of the Property Owners shall violate any laws or
regulations of any governmental body with regard to roll-up transactions as
such term is defined in Item 901(c) of Regulations S-K of the Rules and
Regulations or the Roll-Up rules of Release 33-6922 (17 CFR Parts 231 and
241) (the "Roll-Up Rules"). The Property Owners received all of the
information which they were entitled to receive in connection with the
issuance of Private Placement Shares in the Company to such Property Owners
and such information, to the extent applicable, did not contain an untrue
statement of a material fact or omit to state a material fact necessary in
order to made the statements therein, in light of the circumstances under
which they were made, not misleading.
(g) The Common Shares to be sold by the Company in the public offering
contemplated by this Agreement, when issued, delivered and paid for in the
manner set forth in this Agreement, will be duly authorized and validly
issued, fully paid and nonassessable, will be registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), have been duly authorized for quotation by the Nasdaq
National Market upon official notice of issuance and will conform to the
description thereof contained in the Prospectus. No preemptive rights or
other rights to subscribe for or purchase Common Stock exist with respect
to the issuance and sale of the Common Shares by the Company pursuant to
this Agreement. No shareholder of the Company has any right which has not
been waived to require the Company to register the sale of any Common Stock
owned by such shareholder under the Act in the public offering contemplated
by this Agreement. No further approval or authority of the shareholders or
the Board of Directors of the Company will be required for the issuance and
sale of the Common Shares to be sold by the Company as contemplated herein.
The description of the Company's share option, share bonus and other share
plans or arrangements, and the options or other rights granted and
exercised thereunder, set forth in the Prospectus accurately and fairly
presents the information required to be shown with respect to such plans,
arrangements, options and rights.
(h) The Company has full legal right, power and authority to enter
into this Agreement and perform the
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transactions contemplated hereby. This Agreement has been duly authorized,
executed and delivered by the Company and constitutes a valid and binding
obligation of the Company in accordance with its terms. The making and
performance of this Agreement by the Company and the consummation of the
transactions herein contemplated, including the Consolidation Transactions,
will not violate any provisions of any partnership agreement, certificate
of partnership, charter, bylaws or other organizational documents, as
applicable, of the Company or any of the Property Partnerships (as such
provisions may have been waived or modified in connection with the
Consolidation Transactions) and will not conflict with, result in the
breach or violation of, or constitute, either by itself or upon notice or
the passage of time or both, a default under (i) any agreement, mortgage,
deed of trust, lease, franchise, license, indenture, permit or other
instrument to which the Company or any of the Property Partnerships is a
party or by which the Company or any of the Property Partnerships or any of
the Resorts may be bound or affected or (ii) any statute or any
authorization, judgment, decree, order, rule or regulation of any court or
any regulatory body, administrative agency or other governmental body
applicable to the Company, any of the Property Partnerships or any of the
Resorts, in each case except as would not have a Material Adverse Effect.
No consent, approval, authorization or other order of any court, regulatory
body, administrative agency or other governmental body is required,
including the satisfaction of any requirements pursuant to the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended, for the execution
and delivery of this Agreement or the consummation of the transactions
contemplated by this Agreement, except for compliance with the Act and the
Blue Sky and Canadian securities laws applicable to the public offering of
the Common Shares by the several Underwriters and except for any such
consent, approval, authorization or other order as has been or will be
obtained prior to the First Closing Date.
(i) Ernst and Young LLP ("E & Y") and Coopers & Lybrand L.L.P.
("Coopers & Lybrand"), who have expressed their opinion with respect to the
financial statements and schedules filed with the Commission as a part of
the Registration Statement and included in the Prospectus and in the
Registration Statement, are independent accountants as required by the Act
and the Rules and Regulations.
(j) The combined financial statements of the Company, together with
the related notes thereto, set forth in the Registration Statement and the
Prospectus fairly present the
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financial condition of such entities as of the dates indicated and the
results of operations and changes in financial position for the periods
presented. The pro forma financial statements included in the Registration
Statement and the Prospectus comply in all material respects with the
applicable requirements of Rule 11-02 of Regulation S-X of the Commission
and the pro forma adjustments have been properly applied to the historical
amounts in the compilation of such statements. Such statements, schedules
and related notes have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis as certified by the
independent accountants named in Section 2(i). No other financial
statements or schedules are required to be included in the Registration
Statement. The selected financial data set forth in the Prospectus under
the captions "Consolidated Capitalization", "Selected Combined Historical
Financial Information" and "Selected Combined Pro Forma Financial
Information" fairly present the information set forth therein on the basis
stated in the Registration Statement.
(k) There are no contracts or other documents required to be described
in the Registration Statement or to be filed as exhibits to the
Registration Statement by the Act or by the Rules and Regulations which
have not been described or filed as required. Each of the agreements set
forth in this agreement, in the Prospectus or as exhibits to the
Registration Statement in connection with the Consolidation Transactions
(the "Consolidation Agreements"), has been, or prior to the consummation of
the Consolidation Transactions will be, duly authorized, executed and
delivered by the Company or by the Founders, as the case may be, and
assuming due authorization and execution by the other parties thereto, each
Consolidation Agreement constitutes a valid and binding agreement; and
neither the Company or any of the Property Partnerships, nor to the best of
the Company's knowledge, any other party, is, or upon the consummation of
the Consolidation Transactions will be, in breach of or default under any
Consolidation Agreement. The Company, the Founders and the Poipu
Partnership have full legal right, power and authority to enter into each
of the Consolidation Agreements to which it is a party and to consummate
the transactions contemplated therein.
(l) Except as disclosed in the Prospectus, there are no legal or
governmental actions, suits or proceedings pending or threatened to which
the Company or any of the Property Partnerships are or may be, or upon the
consummation of the Consolidation Transactions will be, a party or of which
any Resort owned or leased by any of the
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Property Partnerships, is or may be, or upon the consummation of the
Consolidation Transactions will be, the subject, or related to
environmental or discrimination matters, which actions, suits or
proceedings might, individually or in the aggregate, prevent or adversely
affect the transactions contemplated by this Agreement or if adversely
determined would have a Material Adverse Effect on the Company. Neither the
Company or any of the Property Partnerships is a party or subject to the
provisions of any material injunction, judgment, decree or order of any
court, regulatory body, administrative agency or other governmental body.
(m) Upon the consummation of the Consolidation Transactions, the
Company, or entities all of the ownership interests in which are directly
or indirectly owned by the Company, will have good and marketable title to
all of the Resorts (except with respect to the resort located at Poipu
Beach, Kauai, Hawaii (the "Poipu Resort"), where the Company will own a
general partnership interest and certain limited partnership interests in
Poipu Resort Partners, L.P. (the "Poipu Partnership") and except with
respect to approximately [130] vacation intervals at the San Luis Bay Inn
which the Company is in the process of acquiring through foreclosure or
deed-in-lieu of foreclosure (the "San Luis Bay Intervals"), subject to no
lien, mortgage, pledge, charge or encumbrance of any kind except those
reflected in the financial statements or elsewhere in the Prospectus.
Except as disclosed in the Prospectus, each of the Property Partnerships
owns or leases and, upon the consummation of the Consolidation
Transactions, the Company, or entities all of the ownership interests in
which are directly or indirectly owned by the Company, will own or lease
all such properties as are necessary to operate the Resorts as now
conducted or as proposed to be conducted, except with respect to the Poipu
Resort and the San Luis Bay Intervals.
(n) From [March 31,] 1996 through the date hereof, and except as
described in or contemplated by the Prospectus: (i) neither the Company nor
any of the Property Partnerships has incurred any material liabilities or
obligations, indirect, direct or contingent, or entered into any material
verbal or written agreement or other transaction which is not in the
ordinary course of business or which could result in a material reduction
in the future earnings of the Company; (ii) neither the Company nor any of
the Property Partnerships has sustained any material loss or interference
with its respective businesses or properties from fire, flood, windstorm,
accident or other calamity, whether or not covered by insurance; (iii)
neither the Company nor any of
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the Property Partnerships has paid or declared any dividends or other
distributions with respect to its capital stock, shares or interests, as
applicable, and neither the Company nor any of the Property Partnerships is
in arrears or default in the payment of principal or interest on any
outstanding material debt obligations; (iv) there has not been any change
in the capital stock (other than upon the issuance of the Private Placement
Shares and the sale of the Common Shares under this Agreement) of the
Company, the ownership interests in any of the Property Partnerships or
indebtedness material to the Company or any of the Property Partnerships
(other than in the ordinary course of business); and (v) there has not been
any material adverse change in the condition (financial or otherwise),
business, properties, results of operations or prospects of the Company and
the Property Partnerships, considered as one enterprise following the
consummation of the Consolidation Transactions (a "Material Adverse
Change").
(o) Except as specifically disclosed in or specifically contemplated
by the Prospectus, and upon the consummation of the Consolidation
Transactions, the Company will have sufficient trademarks, trade names,
patent rights, copyrights, licenses or other similar rights and proprietary
knowledge (collectively, "Intangibles"), approvals and governmental
authorizations to conduct its businesses; the expiration of any
Intangibles, approvals or governmental authorizations will not have a
Material Adverse Effect; and the Company has no knowledge of any material
infringement by any of the Property Partnerships of any Intangibles, and
there is no claim being made against the Company or any of the Property
Partnerships regarding any Intangible or other infringement which could
have a Material Adverse Effect.
(p) Neither the Company nor any of the Property Partnerships has been
advised, or has reason to believe, that the Company or any of the Property
Partnerships are not conducting, and after the consummation of the
Consolidation Transactions the Company will not be conducting, their
businesses in compliance with all applicable laws, rules and regulations of
the jurisdictions in which any of them is, or upon the consummation of the
Consolidation Transactions the Company will be, conducting business,
including, without limitation, all applicable local, state and federal
environmental laws and regulations, in each case except as would not have a
Material Adverse Effect.
(q) The Company and each of the Property Partnerships have filed all
necessary federal, state and foreign income and franchise tax returns and
have paid all taxes shown as
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due thereon; and neither the Company nor any of the Property Partnerships
has any knowledge of any tax deficiency which has been or might be, whether
in connection with the consummation of the Consolidation Transactions or
otherwise, asserted or threatened against the Company or any of the
Property Partnerships, in each case except as would not have a Material
Adverse Effect.
(r) Neither the Company nor any of the Property Partnerships has
distributed or will distribute prior to the First Closing Date any offering
material in connection with the offering and sale of the Common Shares
other than the Prospectus, the Registration Statement and other materials
permitted or not prohibited by the Act and the Rules and Regulations.
(s) Neither the Company nor any of the Property Partnerships has at
any time during the last five years (i) made any unlawful contribution to
any candidate for foreign office or failed to disclose fully any
contribution in violation of law or (ii) made any payment to any federal or
state governmental officer or official, or other person charged with
similar public or quasi-public duties, other than payments required or
permitted by the laws of the United States or any jurisdiction thereof.
(t) Neither the Company nor any of the Property Partnerships has taken
or will take, directly or indirectly, any action designed to or that might
be reasonably expected to cause or result in stabilization or manipulation
of the price of the Common Shares to facilitate the sale or resale of the
Common Shares.
(u) Upon consummation of the Consolidation Transactions, the Company,
or entities all of the ownership interests in which are directly or
indirectly owned by the Company, will have and will maintain liability,
property and casualty insurance (insured by insurers of recognized
financial responsibility) in favor of the Company, or entities all of the
ownership interests in which are directly or indirectly owned by the
Company, with respect to each of the Resorts (except with respect to the
Poipu Resort, such insurance therefor being obtained and/or maintained by
the Poipu Partnership), in an amount and on such terms as is reasonable and
customary for businesses of the type proposed to be conducted by the
Company, including, among other things, insurance against theft, damage,
destruction and acts of vandalism. Neither the Company nor any of the
Property Partnerships has received from any
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insurance company notice of any material defects or deficiencies affecting
the insurability of any such Resort.
(v) Upon consummation of the Consolidation Transactions, title
insurance in favor of the Company, or entities all of the ownership
interests in which are directly or indirectly owned by the Company, will be
in force with respect to each of the Resorts in an amount reasonably
acceptable to the Representatives (except with respect to the St. Maarten
Resorts where there shall be issued a legal opinion in form and substance
satisfactory to the Representatives opining on the Company's interest in
such Resorts).
(w) The mortgages and deeds of trust encumbering the Resorts are not
convertible nor, upon the consummation of the Consolidation Transactions
will the Company hold a participating interest therein and such mortgages
and deeds of trust are not cross-defaulted or cross-collateralized to any
Resort not to be owned directly or indirectly by the Company and the
Company's acquisition of any Resort subject to such mortgage shall not
cause an acceleration of the underlying indebtedness.
(x) The consents received pursuant to the Private Placement Memorandum
and Consent Solicitation have been duly authorized, executed and delivered
by the parties thereto, have been continuously in full force and effect
since the original execution thereof and continually binding against each
of the parties thereto, and give the Company the right upon the terms set
forth therein to acquire the direct and indirect ownership interests in the
Property Owners and the Affiliated Companies and other assets specified
therein. Other than set forth in the Private Placement Memorandum, Consent
Solicitation and the consent received pursuant thereto, the Company will
not be required to make any direct or indirect payments to, or on behalf
of, the Property Partnerships or any of the Owners in connection with the
acquisition of direct and indirect ownership interests in the Property
Owners and the Affiliated Companies.
(y) The Company and each of the Property Partnerships (i) are or will
be, as of the First Closing Date and after giving effect to the
Consolidation Transactions, as the case may be, in compliance with any and
all applicable foreign, federal, state and local rules, laws and
regulations relating to the protection of human health and safety, the
environment or any Hazardous Material (as hereinafter defined)
("Environmental Laws"), (ii) have received, or will have received, as of
the Closing Date and after giving effect to the Consolidation Transactions,
as the case may be, all permits, licenses or other approvals required of
them under applicable Environmental Laws to conduct their respective
businesses and (iii) are, or will be, as of the Closing Date and after
giving
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effect to the Consolidation Transactions, as the case may be, in compliance
with all terms and conditions of any such permit, license or approval, in
each case except as would not have a Material Adverse Effect. As used
herein, "Hazardous Material" shall mean (a) any "hazardous substance" as
defined by the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended ("CERCLA"), (b) any "hazardous waste" as
defined by the Resource Conservation and Recovery Act, as amended, (c) any
petroleum or petroleum product, (d) any polychlorinated biphenyl and (e)
any pollutant or contaminant or hazardous, dangerous, or toxic chemical,
material, waste or substance regulated under or within the meaning of any
other Environmental Law.
(z) To the Company's knowledge, there is no liability, alleged
liability or potential liability (including, without limitation, liability,
alleged liability or potential liability for investigatory costs, cleanup
costs, governmental response costs, natural resources damages, property
damages, personal injuries or penalties), of the Company or any of the
Property Partnerships arising out of, based on or resulting from (a) the
presence or release into the environment of any Hazardous Material at any
location, whether or not owned by the Company or any of the Property
Partnerships or (b) any violation or alleged violation of any Environmental
Law, which liability, alleged liability or potential liability is required
to be disclosed in the Registration Statement, other than as disclosed
therein.
(aa) The Company will not become, as a result of the consummation of
the Consolidation Transactions, or will conduct its business in a manner in
which it would become an "investment company" or an entity "controlled" by
an "investment company" as such terms are defined in the Investment Company
Act of 1940, as amended (the "1940 Act").
(bb) Neither the assets of the Company nor any of the Property
Partnerships constitutes, nor will such assets, as of the Closing Date,
constitute "plan assets" under the Employee Retirement Income Security Act
of 1974, as amended ("ERISA").
(cc) Each of the Property Partnerships have maintained and currently
maintain, and upon consummation of the Consolidation Transactions, the
Company will maintain, a
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system of internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
accountability for assets; (iii) access to financial and corporate books
and records is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(dd) None of the Company nor any of the Property Partnerships has
incurred any liability for a fee, commission or other compensation on
account of the employment of a broker or finder in connection with the
transactions contemplated by this Agreement other than as disclosed in the
Registration Statement.
(ee) No environmental engineering firm which prepared Phase I
environmental assessment reports (or other similar reports) with respect to
the Resorts as set forth in the Registration Statement was employed for
such purpose on a contingent basis or has any substantial interest in the
Company or any of the Property Partnerships.
(ff) To the Company's knowledge, no labor problem exists or is
imminent with respect to the employees of any of the Resorts, the Company
or any of the Property Partnerships. All applicable notification
requirements in connection with the Worker Adjustment and Retraining
Notification Act ("WARN") have been fulfilled in connection with the
Consolidation Transactions.
(gg) Each certificate signed by any officer of the Company and
delivered to the Representatives or counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company, as the case may
be, as to the matters covered thereby.
(hh) The Consolidation Transactions and all agreements, deeds,
assignments of leases and other documents delivered in connection therewith
are sufficient to effect the transfer to the Company, or entities all of
the ownership interests in which are directly or indirectly owned by the
Company, of all right, title and interest in and to all personal property
of the Resorts (other than the Poipu Resort) and other assets specified
therein held by the
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Property Owners or the Affiliated Companies upon payment of the
consideration therefor.
(ii) Each of the Property Partnerships has and, upon consummation of
the Consolidation Transactions, the Company will be, in compliance with all
federal, state, local and foreign laws and regulations regarding the
marketing, offers to sell and sales of vacation intervals in each state in
which the Company is doing business, including but not limited to the
Federal Trade Commission Act, Regulation Z (the truth-in-lending act),
Equity Opportunity Credit Act and Regulation B, 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 Civil Rights Acts of 1964 and 1968, in each case
except as would not have a Material Adverse Effect. Each of the Property
Partnerships has filed and, upon consummation of the Consolidation
Transactions, the Company will file, all required documents and supporting
information in compliance with federal, state, local and foreign laws and
regulations, and each of the Property Partnerships is and, upon
consummation of the Consolidation Transactions, the Company will be, in
compliance with all licensure, anti-fraud, telemarketing, price, gift and
sweepstakes and labor laws to which it is or may become subject, in each
case except as would not have a Material Adverse Effect. The Company, or
entities all of the ownership interests in which are directly or indirectly
owned by the Company, has, or upon the First Closing Date will have, all
permits and licenses which are required to sell vacation intervals in each
state and foreign jurisdiction where it conducts business, in each case
except as would not have a Material Adverse Effect.
(jj) After giving effect to the Consolidation Transactions, no person
has an option or right of first refusal to purchase all or part of any of
the Resorts (other than the Poipu Resort) or any interest therein. Each of
the Resorts complies will all applicable codes, laws and regulations
(including, without limitation, building and zoning codes and laws relating
to handicapped access), except as would not have a Material Adverse Effect.
The Company has no knowledge of any pending or threatened condemnation
proceedings, zoning changes, or other proceedings or actions that will in
any manner affect the size of, number of vacation intervals planned for,
the use of any improvements on, or access to, the Resorts.
(kk) To the Company's knowledge, no dispute exists or is imminent
between the Company and Promus Hotels, Inc. or
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between the Company and Westin Hotels & Resorts and no officer or director
of the Company has any agreement or understanding (verbally or in writing)
with Westin Hotels & Resorts except as set forth in the Prospectus.
SECTION 3. Representations and Warranties of the Underwriters. The
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Representatives, on behalf of the several Underwriters, represent and warrant to
the Company that the information set forth (i) on the cover page of the
Prospectus with respect to price, underwriting discounts and commissions and
terms of offering and (ii) under "Underwriting" in the Prospectus was furnished
to the Company by and on behalf of the Underwriters for use in connection with
the preparation of the Registration Statement and the Prospectus and is correct
in all material respects. The Representatives represent and warrant that they
have been authorized by each of the other Underwriters as the Representatives to
enter into this Agreement on their behalf and to act for each Underwriter in the
manner herein provided.
SECTION 4. Purchase, Sale and Delivery of Common Shares. On the
--------------------------------------------
basis of the representations, warranties and agreements set forth herein, and
subject to the terms and conditions set forth herein, the Company agrees to
issue and sell to the Underwriters 5,250,000 of the Firm Common Shares. The
Underwriters agree, severally and not jointly, to purchase from the Company the
number of Firm Common Shares described below. The purchase price per share to
be paid by the several Underwriters to the Company shall be $____ per share.
Delivery of certificates for the Firm Common Shares to be purchased by
the Underwriters and payment therefor shall be made at such place as set forth
below at such time and date, not later than the third (or, if the Firm Common
Shares are priced as contemplated by Rule 15c6-1(c) of the Securities Exchange
Act of 1934, after 4:30 p.m. Washington, D.C. time, the fourth) full business
day following the first date that any of the Common Shares are released by you
for sale to the public, as you shall designate by at least 48 hours prior notice
to the Company (or at such other time and date, not later than one week after
such third full business day as may be agreed upon by the Company and the
Representatives) (the "First Closing Date"); provided, however, that if the
Prospectus is at any time prior to the First Closing Date recirculated to the
public, the First Closing Date shall occur upon the later of the third or
fourth, as the case may be, full business day following the later of the first
date that any of the Common Shares are released by you for sale to the public
and the date that is 48 hours after the date that the Prospectus has been so
recirculated.
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Delivery of certificates for the Firm Common Shares shall be made by
or on behalf of the Company to you, for the respective accounts of the
Underwriters against payment by you, for the accounts of the several
Underwriters, by wire transfer of immediately available funds to the order of a
title company designated by the Company to facilitate the repayment of the debt
as described in the Prospectus, with the balance to the Company. The
certificates for the Firm Common Shares shall be registered in such names and
denominations as you shall have requested at least two full business days prior
to the First Closing Date, and shall be made available for checking and
packaging on the business day preceding the First Closing Date at a location in
New York, New York or such other location, as may be designated by you. Time
shall be of the essence, and delivery at the time and place specified in this
Agreement is a further condition to the obligations of the Underwriters.
In addition, on the basis of the representations, warranties and
agreements set forth herein, and subject to the terms and conditions set forth
herein, the Company hereby grants an option to the several Underwriters to
purchase, severally and not jointly, up to an aggregate of 787,500 Option Common
Shares at the purchase price per share to be paid for the Firm Common Shares,
for use solely in covering any over-allotments made by you for the account of
the Underwriters in the sale and distribution of the Firm Common Shares. The
option granted hereunder may be exercised at any time (but not more than once)
within 30 days after the first date that any of the Common Shares are released
by you for sale to the public, upon written notice by you to the Company setting
forth the aggregate number of Option Common Shares as to which the Underwriters
are exercising the option, the names and denominations in which the certificates
for such shares are to be registered and the time and place at which such
certificates will be delivered. Such time of delivery (which may not be earlier
than the First Closing Date), being herein referred to as the "Second Closing
Date," shall be determined by you, but if at any time other than the First
Closing Date shall not be earlier than three nor later than five full business
days after delivery of such notice of exercise. References herein to "Closing
Date" shall mean the First Closing Date and/or the Second Closing Date, as the
context requires. The number of Option Common Shares to be purchased by each
Underwriter shall be determined by multiplying the number of Option Common
Shares to be sold by the Company pursuant to such notice of exercise by a
fraction, the numerator of which is the number of Firm Common Shares to be
purchased by such Underwriter as set forth opposite its name in Schedule A and
the denominator of which is 5,250,000 (subject to such adjustments to eliminate
any fractional share purchases as you in your discretion may make). Certificates
for the Option Common Shares will be made
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available for checking and packaging on the business day preceding the Second
Closing Date at a location in New York, New York or such other location, as may
be designated by you. Payment for the Option Common Shares shall be made
directly to the Company, or such other party as designated by the Company, by
wire transfer of immediately available funds and delivery of the Option Common
Shares shall be the same as for the Firm Common Shares purchased from the
Company as specified in the two preceding paragraphs. At any time before lapse
of the option, you may cancel such option by giving written notice of such
cancellation to the Company.
You have advised the Company that each Underwriter has authorized you
to accept delivery of its Common Shares, to make payment and to issue a receipt
therefor. You, individually and not as the Representatives of the Underwriters,
may (but shall not be obligated to) make payment for any Common Shares to be
purchased by any Underwriter whose funds shall not have been received by you by
the First Closing Date or the Second Closing Date, as the case may be, for the
account of such Underwriter, but any such payment shall not relieve such
Underwriter from any of its obligations under this Agreement.
Subject to the terms and conditions hereof, the Underwriters propose
to make a public offering of their respective portions of the Common Shares as
soon after the effective date of the Registration Statement as in the judgment
of the Representatives is advisable and at the public offering price set forth
on the cover page of and on the terms set forth in the Prospectus.
SECTION 5. Covenants of the Company. The Company covenants and
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agrees that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date
that this Agreement is executed and delivered by the parties hereto, to
become effective. If the Registration Statement has become or becomes
effective pursuant to Rule 430A of the Rules and Regulations, or the filing
of the Prospectus is otherwise required under Rule 424(b) of the Rules and
Regulations, the Company will file the Prospectus, properly completed,
pursuant to the applicable paragraph of Rule 424(b) of the Rules and
Regulations within the time period prescribed and will provide evidence
satisfactory to you of such timely filing. The Company will promptly
advise you in writing (i) of the receipt of any comments of the Commission,
(ii) of any request of the Commission for amendment of or supplement to the
Registration Statement (either before or after it becomes effective), any
Preliminary Prospectus or the Prospectus or for additional information,
(iii) when the Registration Statement shall have become effective and (iv)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the institution of any
proceedings for that purpose. If the Commission shall enter any such stop
order at any time, the Company will use its best efforts to obtain the
lifting of such order at the earliest possible moment. The Company will not
file any amendment or supplement to the Registration Statement (either
before or
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after it becomes effective), any Preliminary Prospectus or the Prospectus
or for additional information, (iii) when the Registration Statement shall
have become effective and (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or of
the institution of any proceedings for that purpose. If the Commission
shall enter any such stop order at any time, the Company will use its best
efforts to obtain the lifting of such order at the earliest possible
moment. The Company will not file any amendment or supplement to the
Registration Statement (either before or after it becomes effective), any
Preliminary Prospectus or the Prospectus of which you have not been
furnished with a copy a reasonable time prior to such filing or to which
you reasonably object or which is not in compliance with the Act and the
Rules and Regulations.
(b) The Company will prepare and file with the Commission, promptly
upon your request, any amendments or supplements to the Registration
Statement or the Prospectus which in your judgment may be necessary or
advisable to enable the several Underwriters to continue the distribution
of the Common Shares and will use its best efforts to cause the same to
become effective as promptly as possible. The Company will fully and
completely comply with the provisions of Rule 430A of the Rules and
Regulations with respect to information omitted from the Registration
Statement in reliance upon such Rule.
(c) If at any time within the applicable period referred to in Section
10(a)(3) of the Act or Rule 174 of the Rules and Regulations during which a
prospectus relating to the Common Shares is required to be delivered under
the Act any event occurs, as a result of which the Prospectus, including
any amendments or supplements, would include an untrue statement of a
material fact, or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, or if
it is necessary at any time to amend the Prospectus, including any
amendments or supplements, to comply with the Act or the Rules and
Regulations, the Company will promptly advise you thereof and will promptly
prepare and file with the Commission, at its own expense, an amendment or
supplement which will correct such statement or omission or an amendment or
supplement which will effect such compliance and will use its best efforts
to cause the same to become effective as soon as possible; and, in case any
Underwriter is required to deliver a prospectus after the applicable time
period, the Company upon request, but at the expense of such Underwriter,
will promptly prepare such amendment or
20
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amendments to the Registration Statement and such Prospectus or
Prospectuses as may be necessary to permit compliance with the requirements
of Section 10(a)(3) of the Act and Rule 174 of the Rules and Regulations,
as applicable.
(d) As soon as practicable, but not later than 45 days (or 90 days if
such quarter is the fiscal year end) after the end of the first quarter
ending after one year following the effective date of the Registration
Statement (as defined in Rule 158(c) of the Rules and Regulations), the
Company will make generally available to its security holders an earnings
statement (which need not be audited) covering a period of 12 consecutive
months beginning after the effective date of the Registration Statement
which will satisfy the provisions of the last paragraph of Section 11(a) of
the Act.
(e) During such period as a prospectus is required by law to be
delivered in connection with sales by an Underwriter or dealer, the
Company, at its expense, but only for the applicable period referred to in
Section 10(a)(3) of the Act or Rule 174 of the Rules and Regulations, will
furnish to you or mail to your order copies of the Registration Statement,
the Prospectus, the Preliminary Prospectus and all amendments and
supplements to any such documents in each case as soon as available and in
such quantities as you may reasonably request, for the purposes
contemplated by the Act and the Rules and Regulations.
(f) The Company shall cooperate with you and your counsel in order to
qualify or register the Common Shares for sale under (or obtain exemptions
from the application of) the Blue Sky and Canadian securities laws of such
jurisdictions as you designate, will comply with such laws and will
continue such qualifications, registrations and exemptions in effect so
long as reasonably required for the distribution of the Common Shares. In
connection with the property and operations of the Company immediately
following the Consolidation Transactions, the Company will not be required
to qualify as a corporation or to file a general consent to service of
process in any such jurisdiction where it is not presently qualified or
where it would be subject to taxation as a corporation. The Company will
advise you promptly of the suspension of the qualification or registration
of (or any such exemption relating to) the Common Shares for offering; sale
or trading in any jurisdiction or any initiation or threat of any
proceeding for any such purpose, and in the event of the issuance of any
order suspending such qualification, registration or
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exemption, the Company, with your cooperation, will use its best efforts to
obtain the withdrawal thereof.
(g) During the period of five years after the date of this Agreement,
the Company will furnish to the Representatives and their counsel and, upon
request of the Representatives, to each of the other Underwriters: (i) as
soon as practicable after the end of each fiscal year, copies of the Annual
Report of the Company containing the balance sheet of the Company as of the
close of such fiscal year and statements of income, shareholders' equity
and cash flows for the year then ended and the opinion thereon of the
Company's independent public accountants; (ii) as soon as practicable after
the filing thereof, copies of each proxy statement, Annual Report on Form
10-K, Quarterly Report on Form 10-Q, Report on Form 8-K or other report
filed by the Company with the Commission, the National Association of
Securities Dealers, Inc. ("NASD") or any securities exchange; and (iii) as
soon as available, copies of any report or communication of the Company
mailed generally to holders of its Common Shares.
(h) During the period of 180 days after the first date that any of the
Common Shares are released by you for sale to the public, without the prior
written consent of Montgomery Securities (which consent may be withheld at
the sole discretion of Montgomery Securities), the Company will not, other
than as disclosed in the Prospectus, issue, offer, sell, grant options to
purchase or otherwise dispose of any of the Company's equity securities or
any other securities convertible into or exchangeable with its Common Stock
or other equity security of the Company, except to grant options or to sell
shares of Common Stock pursuant to the Company's 1996 Equity Participation
Plan or the Company's Employee Stock Option Plan, each as described in the
Prospectus.
(i) The Company will apply the net proceeds of the sale of the Common
Shares sold by it in accordance with the statements under the caption "Use
of Proceeds" in the Prospectus.
(j) As necessary, the Company will use its best efforts to qualify or
register its Common Shares for sale in non-issuer transactions under (or
obtain exemptions from the application of) the Blue Sky laws of the State
of California and the provincial laws of Canada as specified by the
Representatives (and thereby permit market making transactions and
secondary trading in the Company's Common Shares in California and such
Canadian provinces as
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<PAGE>
specified by the Representatives), will comply with such Blue Sky or
Canadian provincial laws and continue such qualifications, registrations
and exemptions in effect for a period of five years after the date hereof.
(k) The Company will use its best efforts to continue the quotation
of the Common Shares as a national market system security on the Nasdaq
National Market.
(l) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of formation of the Company, a registrar (which may
be the same entity as the transfer agent).
(m) The Company will receive from Messrs. Kaneko, Gessow and
Kenninger (collectively, the "Founders") an indemnification agreement (the
"Indemnity Agreement") with respect to certain representations respecting
the condition of the Resorts and consents in the Consolidation Transactions
in a form previously approved by the Representatives and shall in good
faith enforce the terms and conditions thereof and shall not amend or
terminate such agreement.
You, on behalf of the Underwriters, may, in your sole discretion,
waive in writing the performance by the Company of any one or more of the
foregoing covenants or extend the time for their performance.
SECTION 6. Payment of Expenses. Whether or not the transactions
-------------------
contemplated hereunder are consummated or this Agreement becomes effective or is
terminated, the Company agrees to pay all costs, fees and expenses incurred in
connection with the performance of its obligations hereunder and in connection
with the transactions contemplated hereby, including without limiting the
generality of the foregoing, (i) all expenses incident to the issuance and
delivery of the Common Shares (including all printing and engraving costs), (ii)
all fees and expenses of the registrar and transfer agent of the Common Shares,
(iii) all necessary issue, transfer and other stamp taxes in connection with the
issuance and sale of the Common Shares to the Underwriters, (iv) all fees and
expenses of the Company's counsel and the Company's independent accountants, (v)
all costs and expenses incurred in connection with the preparation, printing,
filing, shipping and distribution of the Registration Statement, each
Preliminary Prospectus and the Prospectus (including all exhibits and financial
statements) and all amendments and supplements provided for herein, this
Agreement, the Agreement Among Underwriters, the Selected Dealers Agreement,
23
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the Underwriters' Questionnaire, the Underwriters' Power of Attorney and the
preliminary and final Blue Sky memoranda, (vi) all filing fees, attorneys' fees
and expenses incurred by the Company or the Underwriters in connection with
qualifying or registering (or obtaining exemptions from the qualification or
registration of) all or any part of the Common Shares for offer and sale under
the Blue Sky laws or the provincial securities laws of Canada, (vii) the filing
fee of the NASD and the fees and expenses related to the inclusion of the Common
Shares on the Nasdaq National Market, and (viii) all other fees, costs and
expenses referred to in Item 13 of Part II of the Registration Statement.
Except as provided in this Section 7, Section 9 and Section 11 hereof, the
Underwriters shall pay all of their own expenses, including the fees and
disbursements of their counsel (excluding those relating to qualification,
registration or exemption under the Blue Sky and Canadian provincial securities
laws and the preliminary and final Blue Sky memoranda, which fees shall be paid
on the First Closing Date or the Second Closing Date, as applicable).
SECTION 7. Conditions of the Obligations of the Underwriters. The
-------------------------------------------------
obligations of the several Underwriters to purchase and pay for the Firm Common
Shares on the First Closing Date and the Option Common Shares on the Second
Closing Date shall be subject to the accuracy of the representations and
warranties on the part of the Company set forth herein as of the date hereof and
as of the First Closing Date or the Second Closing Date, as the case may be, to
the accuracy of the statements of the Company's officers made pursuant to the
provisions hereof, to the performance of the Company of its obligations
hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 P.M. (or, in the case of a registration statement filed pursuant
to Rule 462(b) of the Rules and Regulations relating to the Common Shares,
not later than 10:00 P.M.), Washington, D.C. Time, on the date of this
Agreement, or at such later time as shall have been consented to by you; if
the filing of the Prospectus, or any supplement thereto, is required
pursuant to Rule 424(b) of the Rules and Regulations, the Prospectus shall
have been filed in the manner and within the time period required by Rule
424(b) of the Rules and Regulations; and prior to such Closing Date, no
stop order suspending the effectiveness of the Registration Statement shall
have been issued and no proceedings for that purpose shall have been
instituted or shall be pending or, to the knowledge of the Company or you,
shall be contemplated by the Commission; and any request of the Commission
for inclusion of additional information in
24
<PAGE>
the Registration Statement, or otherwise, shall have been complied with to
your satisfaction.
(b) There shall have been furnished to you, as Representatives of the
Underwriters, on each Closing Date, in form and substance satisfactory to
you, except as otherwise expressly provided below:
(i) An opinion of Latham & Watkins, counsel for the Company (or
with respect to matters of Maryland law in paragraphs 1, 3, 5 and 6,
Ballard, Spahr, Andrews & Ingersoll, or with respect to matters of
Hawaii law in paragraph 2, _________________) addressed to the
Underwriters and dated the First Closing Date, or the Second Closing
Date, as the case may be, to the effect that:
(1) The Company [list each subsidiary or other entity that
is remaining in existence as a subsidiary or affiliate of the
Company] has been duly formed and is validly existing as a
corporation, is in good standing under the laws of the State of
Maryland, and is duly qualified to do business as a foreign
corporation and is in good standing in [list jurisdictions] and
has the requisite corporate power and authority to own its
Resorts and conduct its business as described in the Registration
Statement; and that, except as described in the Registration
Statement, the Company does not own or control, directly or
indirectly, any corporation, association, partnership or other
entity.
(2) The Poipu Partnership has been duly formed and is
validly existing as a partnership under the laws of the state of
_______________, is in good standing as a foreign limited
partnership under the laws of the State of Hawaii and the Company
has been duly admitted as a general partner in such partnership.
The Poipu Partnership has the requisite partnership power and
authority to own its property and conduct its business as
described in the Registration Statement;
(3) Prior to the First Closing Date (and giving effect to
the issuance of the Private Placement Shares), the Company has a
total of 11,416,667 issued and outstanding shares of Common
Stock; all necessary and proper corporate
25
<PAGE>
proceedings were taken by the Company in order to duly and
validly authorize such shares; all such outstanding shares of
Common Stock were fully paid and nonassessable; and the
description thereof contained in the section entitled
"Description of Capital Stock" in the Prospectus is an accurate
summary in all material respects of the information required
therein by Form S-1;
(4) The certificates representing the Private Placement
Shares, when issued, will have been issued in compliance with a
valid exemption from registration under the Act and in
compliance with a valid exemption from registration or
qualification under applicable California securities laws;
(5) The certificates representing the Common Shares to be
delivered hereunder are in due and proper form under Maryland
law, and when duly countersigned by the Company's transfer agent
and registrar, and delivered to you or upon your order against
payment of the agreed consideration therefor in accordance with
the provisions of this Agreement, the Common Shares represented
thereby will be duly authorized and validly issued, fully paid
and nonassessable, will not have been issued in violation of or
subject to any preemptive rights or other rights to subscribe for
or purchase securities of which such counsel is aware and will
conform in all material respects to the description thereof
contained in the Registration Statement;
(6) Except as disclosed in or specifically contemplated by
the Prospectus, such counsel is not aware of any outstanding
options, warrants or other rights calling for the issuance of,
and no commitments, plans or arrangements to issue, any shares of
capital stock of the Company or any security convertible into or
exchangeable for capital stock of the Company;
(7)(a)(i) The Registration Statement has become effective
under the Act; (ii) to such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement or
preventing the use of the Prospectus has been issued; (iii) to
such counsel's knowledge, no proceedings for that purpose have
been instituted
26
<PAGE>
or are pending or contemplated by the Commission; and (iv) any
required filing of the Prospectus and any supplement thereto
pursuant to Rule 424(b) of the Rules and Regulations has been
made in the manner and within the time period required by such
Rule 424(b);
(b) The Registration Statement and the Prospectus comply as
to form in all material respects with the applicable requirements
for registration statements on Form S-1 under the Act and the
Rules and Regulations, it being understood that such counsel need
not express any opinion with respect to the financial
statements, schedules and other financial and statistical data
included in the Registration Statement;
(c) To such counsel's knowledge, there are no contracts,
agreements, documents, franchises, leases or licenses of a
character required to be disclosed in the Registration Statement
or Prospectus or to be filed as exhibits to the Registration
Statement which are not disclosed or filed, as required; and
(d) To such counsel's knowledge, there are no legal or
governmental actions, suits or proceedings pending or threatened
against the Company or the Property Partnerships which are
required to be described in the Prospectus which are not
described as required;
(8) The Company has the corporate power and authority to
enter into this Agreement, to sell and deliver the Common Shares
to be sold by it to the several Underwriters and to consummate
the other transactions contemplated herein; this Agreement has
been duly and validly authorized by all necessary action by the
Company, has been duly and validly executed and delivered by and
on behalf of the Company, and is a valid and binding agreement of
the Company, enforceable in accordance with its terms, except as
enforceability may be limited by general equitable principles,
bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally and except as to those
provisions relating to indemnity or contribution for liabilities
arising under the Act as to which no opinion need be expressed;
and no approval,
27
<PAGE>
authorization, order, consent, registration, filing,
qualification, license or permit of or with any court,
regulatory, administrative or other governmental body is required
for the execution and delivery of this Agreement by the Company
or the consummation of the transactions contemplated by this
Agreement, except (i) such as have been obtained and are in full
force and effect under the Act, (ii) such as may be required
under applicable Blue Sky or Canadian securities laws in
connection with the purchase and distribution of the Common
Shares by the Underwriters; and (iii) such as to which the
failure to so obtain would not have a Material Adverse Effect;
(9) The execution and performance of this Agreement and the
consummation of the transactions herein contemplated will not
conflict with, result in the breach of, or constitute, either by
itself or upon notice or the passage of time or both, a default
under, any agreement, mortgage, deed of trust, lease, franchise,
license, indenture, permit or other instrument known to such
counsel to which the Company or any of the Property Partnerships
is a party or by which the Company or any of the Property
Partnerships or any of their property may be bound or affected
which is material to the Company or any of the Property
Partnerships or any Resort; violate any of the provisions of the
partnership certificate, partnership agreement, charter or
bylaws, or other organizational documents, as applicable, of the
Company or any Property Partnership; or to violate any statute,
judgment, decree, order, rule or regulation of any court or
governmental body having jurisdiction over the Company or any
Property Partnership or any of their properties, in each case
except as would not have a Material Adverse Effect;
(10) To such counsel's knowledge, no holders of securities
of the Company have rights to register shares of Common Stock or
other securities because of the filing of the Registration
Statement by the Company or the offering or other transactions
contemplated hereby;
28
<PAGE>
(11) The Company (after giving effect solely to the
Consolidation Transactions and the offering of Common Shares
pursuant to the Registration Statement) will not be an
"investment company" within the meaning of the 1940 Act;
(12) The Company has duly authorized, executed and
delivered each of the Consolidation Agreements to which it is a
party and each of such agreements constitutes a valid and binding
agreement of the Company, enforceable in accordance with its
terms, except as enforceability may be limited by general
equitable principles, bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally
and except with respect to those provisions relating to
indemnities or contributions for liabilities under the Act, as to
which no opinion need be expressed; and to such counsel's
knowledge neither of the Company nor any of the Property
Partnerships are, or upon the consummation of the Consolidation
Transactions will be, in breach of or default under any of such
agreements;
(13) The Indemnity Agreement has been duly executed by each
party thereto and constitutes a valid and binding agreement in
favor of the Company, enforceable against each party thereto,
except as enforceability may be limited by general equitable
principles, bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally; and
(14) The information set forth in the Prospectus under the
headings "Description of Capital Stock", "Certain Provisions of
Maryland Law and of the Company's Charter and Bylaws" and "Shares
Eligible for Future Sale" to the extent that such information
constitutes matters of law or legal conclusions, has been
reviewed by such counsel and is correct in all material respects.
Such counsel shall also state that it has been advised by the
Nasdaq National Market that the Common Stock has been duly authorized
for quotation as a national market system security, subject to
official notice of issuance, on the Nasdaq National Market.
29
<PAGE>
In rendering such opinion, such counsel may rely as to matters of
local law, on opinions of local counsel, and as to matters of fact, on
certificates of officers of the Company or the Property Partnerships,
as applicable, and of governmental officials, in which case their
opinion is to state that they are so doing and that the Underwriters
are justified in relying on such opinions or certificates and copies
of each of said opinions or certificates are to be attached to the
opinion. Such counsel shall also include a statement to the effect
that nothing has come to such counsel's attention that would lead such
counsel to believe that either at the effective date of the
Registration Statement or at the applicable Closing Date the
Registration Statement or the Prospectus, or any amendment or
supplement thereto, contains any untrue statement of a material fact
or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, it being
understood that such counsel express no belief as to the financial
statements, schedules and other financial and statistical data
included in the Registration Statement or Prospectus or in the
exhibits to the Registration Statement.
(ii) An opinion of Paul, Hastings, Janofsky & Walker, special
timeshare compliance counsel for the Company, addressed to the
Underwriters and dated as of the First Closing Date, or the Second
Closing Date, as the case may be, to the effect that:
(1) Each of the Property Partnerships has and, upon
consummation of the Consolidation Transactions, the Company and
the Poipu Partnership will be, in compliance with all federal,
state, local and foreign laws and regulations regarding the
marketing, offers to sell and sales of vacation intervals in each
state in which the Company is doing business, including but not
limited to the Federal Trade Commission Act, Regulation Z (the
truth-in-lending act), Equity Opportunity Credit Act and
Regulation B, 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 Civil Rights Acts of 1964 and 1968, in each
case except as would not have a Material Adverse Effect;
30
<PAGE>
(2) Each of the Property Partnerships has filed and, upon
consummation of the Consolidation Transactions, the Company will
file, all required documents and supporting information in
compliance with federal, state, local and foreign laws and
regulations, and each of the Property Partnerships is and, upon
consummation of the Consolidation Transactions, the Company will
be, in compliance with all licensure, anti-fraud, telemarketing,
price, gift and sweepstakes and labor laws to which it is or may
become subject, in each case except as would not have a Material
Adverse Effect; and
(3) The Company has, or upon the First Closing Date will
have, all permits and licenses which are required to offer to
sell and sell vacation intervals in each jurisdiction where it
owns property or conducts business, in each case except as would
not have a Material Adverse Effect.
(iii) Such opinion or opinions of O'Melveny & Myers LLP,
counsel for the Underwriters, dated the First Closing Date or the
Second Closing Date, as the case may be, with respect to the formation
of the Company and other legal matters relating to this Agreement, the
validity of the Common Shares, the Registration Statement and the
Prospectus and other related matters as you may reasonably require,
and the Company shall have furnished to such counsel such documents
and shall have exhibited to them such papers and records as they may
reasonably request for the purpose of enabling them to pass upon such
matters. In connection with such opinions, such counsel may rely on
representations or certificates of officers of the Company and
governmental officials, as applicable.
(iv) A certificate of the Company, executed by the Chairman of
the Board or President and the chief financial or accounting officer
of the Company, dated the First Closing Date or the Second Closing
Date, as the case may be, to the effect that:
(1) The representations and warranties of the Company set
forth in Section 2 of this Agreement are true and correct as of
the date of this Agreement and as of the First Closing Date or
the Second Closing Date, as the case may be, and the Company and
each of the Property Partnerships
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has complied with each of the agreements and satisfied all of the
conditions on its part to be performed or satisfied on or prior
to such Closing Date;
(2) The Commission has not issued any order preventing or
suspending the use of the Prospectus or any Preliminary
Prospectus filed as a part of the Registration Statement or any
amendment thereto; no stop order suspending the effectiveness of
the Registration Statement has been issued; and to his knowledge
no proceedings for that purpose have been instituted or are
pending or contemplated under the Act;
(3) Each of the respective signers of each certificate has
carefully examined the Registration Statement and the Prospectus;
in his opinion and to the best of his knowledge, the Registration
Statement and the Prospectus and any amendments or supplements
thereto contain all statements required to be stated therein; and
neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto includes any untrue statement of
a material fact or omits to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading, provided, however, that such certificate does not
require any representation concerning statements in, or omissions
from, the Registration Statement or Prospectus, which are based
upon and conform to information furnished by the Underwriters
pursuant to Section 4 hereof.
(4) Since the initial date on which the Registration
Statement was filed, no agreement, written or oral, transaction
or event has occurred which should have been set forth in an
amendment to the Registration Statement or in a supplement to or
amendment of any prospectus which has not been disclosed in such
a supplement or amendment;
(5) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, and
except as specifically disclosed in or contemplated by the
Prospectus, there has not been any Material Adverse Change or a
development involving a Material Adverse Change; and no legal or
governmental action, suit or
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proceeding is pending or threatened against the Company, or, to
the best of such officer's knowledge, any of the Resorts which is
material to the Company or any of the Resorts, as applicable,
whether or not arising from transactions in the ordinary course
of business, or which may adversely affect the transactions
contemplated by this Agreement; since such dates and except as so
disclosed, the Company has not entered into any verbal or written
agreement or other transaction which is not in the ordinary
course of business or which is reasonably expected to result in a
material reduction in the future earnings of the Company or any
of the Property Partnerships or incurred any material liability
or obligation, direct, contingent or indirect, made any change in
it capital stock, made any material adverse change in its short-
term debt or funded debt or repurchased or otherwise acquired any
of the Company's capital stock or any of the Property
Partnerships' interests; and the Company has not declared or paid
any dividend, or made any other distribution, upon its capital
stock payable to shareholders of record on a date prior to the
First Closing Date or the Second Closing Date; and
(6) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus and except
as disclosed in or contemplated by the Prospectus, none of the
Resorts has sustained a material loss or damage by strike, fire,
flood, windstorm, hurricane, typhoon, accident or other calamity
(whether or not insured).
(v) On the date that this Agreement is executed and also on the
First Closing Date and the Second Closing Date a letter addressed to
you, as Representatives of the Underwriters, from E & Y and Coopers &
Lybrand, as applicable, independent accountants, the first one to be
dated the day of this Agreement, the second one to be dated the First
Closing Date and the third one (in the event of a Second Closing) to
be dated the Second Closing Date, in form and substance satisfactory
to the Representatives, to the effect that:
(1) E & Y and Coopers & Lybrand are independent certified
public accountants with respect to the Company and each of the
Property
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Partnerships within the meaning of the Act and the Rules and
Regulations;
(2) It is their opinion that the financial statements,
historical summaries and any supplementary financial information
and supporting schedule included in the Registration Statement
and the Prospectus examined by them comply as to form in all
material respects with the applicable accounting requirements of
the Act and the Rules and Regulations;
(3) The financial statements of each of the Resorts for the
three years ended December 31, 1995 and the three months ended
March 31, 1996 and the three months ended March 31, 1995, to the
extent applicable, were reviewed by them in accordance with the
standards established by the American Institute of Certified
Public Accountants and based upon their review they are not aware
of any material modifications that should be made to such
financial statements or historical summaries for them to be in
conformity with generally accepted accounting principles
currently in effect in the United States and such financial
statements comply as to form in all material respects with the
applicable requirements of the Act and the Rules and Regulations;
(4) Based upon procedures set forth in detail in such
letter, including a reading of the latest available interim
financial statements of the Company and inquiries of officials of
the Company responsible for financial and accounting matters,
nothing has come to their attention which causes them to believe
that:
(A) the unaudited financial information with respect to the
results of operations for and at the end of each of the three
years (or such lesser period, if applicable) in the period ended
December 31, 1995 and any subsequent quarters included in the
Registration Statement under the captions "Summary" and "Summary
Combined Historical and Pro Forma Financial Information",
"Selected Combined Historical Financial Information" and
"Selected Combined Pro Forma Financial Information" do not comply
as to form in all material respects with the applicable
accounting requirements of the Act and the Rules
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and Regulations or are not presented in conformity with generally
accepted accounting principles currently in effect in the United
States applied on a basis substantially consistent with that of
the audited financial statements included in the Registration
Statement, or do not agree with the corresponding amounts in the
audited financial statements for each of the years then ended, or
that with respect to the unaudited pro forma financial
statements, such financial statements do not comply as to form in
all material respects with the applicable accounting requirements
of the Act and the Rules and Regulations and the pro forma
adjustments have not been properly applied to the historical
amounts in the compilation of such statements, or
(B) at a specified date not more than five days prior to
the date of this Agreement, (i) there has been any change in the
assets or shareholders' equity of the Company as compared with
the amounts shown in the March 31, 1996 balance sheet of the
Company included in the Registration Statement, (ii) there has
been any increase in indebtedness or other liabilities related to
the Resorts as compared with the amounts shown in the March 31,
1995 historical or pro forma balance sheets related to the
Resorts or during the period March 31, 1996 to a specified date
not more than five days prior to the date of this Agreement, or
(iii) there were any decreases, as compared with the
corresponding period in the preceding year, in combined revenues
or net income of the Resorts, except in all instances for
changes, increases or decreases which the Registration Statement
and the Prospectus disclose have occurred or may occur; and
(5) In addition to the examination referred to in their
opinions and the procedures referred to above, they have carried
out certain specified procedures, not constituting an audit, with
respect to certain amounts, percentages and financial information
which are included in the Registration Statement and Prospectus
and which were specified by you, and have found such amounts,
percentages and financial information to be in agreement with, or
derived from, the relevant accounting, financial and other
records
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of the Company and each of the Property Partnerships.
(vi) On or before the First Closing Date, lock-up agreements
from the Company, officers of the Company and the holders of the
Private Placement Shares to the effect that such parties will not
transfer, pledge, hypothecate, sell, offer to sell, contract to sell
or otherwise sell or dispose of any shares of Common Stock or options
or warrants to acquire shares of Common Stock held by them for a
period of 180 days following the First Closing Date (one year for the
Founders) except the Company may (i) grant options or sell shares of
Common Stock pursuant to the Company's 1996 Equity Participation Plan
or the Company's Employee Stock Option Plan, each as described in the
Prospectus, and (ii) the Founders have the limited right to pledge a
portion of the Private Placement Shares as described in the
Prospectus.
(c) The Consolidation Transactions shall have been consummated or
shall occur simultaneously with the closing of the purchase and sale of the
Firm Common Shares.
(d) The Company shall have received and delivered to the
Representatives a copy of the Indemnity Agreement.
(e) The Firm Common Shares and the Option Common Shares shall have
been approved for listing on the Nasdaq National Market, subject to
official notice of issuance, and the NASD, upon review of the terms of the
public offering, shall not have objected to such offering, such terms or
the Underwriters' participation in the same.
(f) The Company shall have furnished to you such further certificates
and documents as you shall have reasonably requested.
(g) On or before the First Closing Date, the Company or the Poipu
Partnership, as applicable, shall have made available to you or your
counsel with respect to each Resort:
(i) A standard ALTA Owner's Title Insurance Policy naming the
Company (or the Poipu Partnership) as named insured and insuring that
the appropriate entity owns fee title (or ground lease interest, as
applicable) to the real Property and fixtures comprising such Resort
in an amount not less than the amount reasonably specified by the
Representatives to
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reflect the value of such property, which policy shall be issued by a
title company approved by the Representatives (the "Title Company"),
and contain as exceptions to title only the material exceptions
described in the Prospectus, and such exceptions which do not
adversely affect the current or potential use to be made of the Resort
(the "Permitted Exceptions");
(ii) An ALTA survey of the Resort in form satisfactory to you;
(iii) Policies or certificates of insurance relating to the
Resort evidencing coverages and in amounts customarily obtained by
owners of similar Resorts;
(iv) UCC, judgment and tax lien searches confirming that the
personal property comprising a part of the Resort is subject to no
liens other than Permitted Exceptions;
(v) Such affidavits, certificates and instruments of
indemnification as shall reasonably be required to induce the Title
Company to issue the policy contemplated in item (i) above;
(vi) Checks payable to the appropriate public officials in
payment of all recording costs and transfer taxes (or checks or wire
transfers to the Title Company in respect of such amounts) due in
respect of the recording of any instruments to be recorded in
connection with the Consolidation Transactions, together with a check
or wire transfer for the Title Company in payment of the Title
Company's premium, search and examination charges, survey costs and
any other amounts due in connection with the issuance of its policy;
provided that, such payment may be made out of the proceeds of the
offering of the Firm Common Shares;
(vii) An engineering (structural) report from an engineer or
engineers and in a form satisfactory to you;
(viii) All documentation necessary to affect the transfer of all
personal property in connection with the Consolidation Transactions,
together with checks payable to the appropriate public officials in
payment of all recording costs and transfer taxes (including sales
taxes) due in respect of the transfer of such
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personal property, if any; provided that, such payment may be made out
of the proceeds of the offering of the Firm Common Shares; and
(ix) If such Resort is subject to an mortgage, deed of trust or
similar financing (an "Existing Mortgage") which, as described in the
Prospectus, is to remain of record and not be repaid with the proceeds
of the offering), a letter dated not earlier than 10 days prior to the
First Closing Date from the holder of such Existing Mortgage
indicating that the mortgagor or grantor under such Existing Mortgage
is not then in default and indicating the principal amount required to
satisfy all amounts then secured by such Existing Mortgage and the
additional amount required for each day after the date of such letter
necessary to satisfy all obligations secured thereby, together with
all documentation and consents necessary to permit the repayment of
all amounts owed and the release of the Existing Mortgage.
(h) There shall have been delivered to you the Firm Common Shares
and, if any Option Common Shares are purchased, the Option Common Shares in
the manner required pursuant to Section 5 hereof.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory to you and
to O'Melveny & Myers LLP, counsel for the Underwriters. The Company shall
furnish you with such manually signed or conformed copies of such opinions,
certificates, letters and documents as you request. Any certificate signed by
any officer of the Company and delivered to the Representatives or to counsel
for the Underwriters shall be deemed to be a representation and warranty by the
Company to the Underwriters as to each of the statements made therein.
If any condition to the Underwriters' obligations hereunder to be
satisfied prior to or at the First Closing Date is not so satisfied, this
Agreement at your election will terminate upon notification by you as
Representatives to the Company without liability on the part of any Underwriter
or the Company, except for the expenses to be paid or reimbursed by the Company
pursuant to Sections 6 and 8 hereof and except to the extent provided in Section
10 hereof.
SECTION 8. Reimbursement of Underwriters' Expenses. Notwithstanding
---------------------------------------
any other provisions hereof, if this Agreement shall be terminated by you
pursuant to Section 7, or if the sale to the Underwriters of the Common Shares
at the First Closing is
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not consummated because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or to comply with any provision hereof,
the Company agrees to reimburse you and the other Underwriters upon demand for
all out-of-pocket expenses that shall have been reasonably incurred by you and
them in connection with the proposed purchase and the sale of the Common Shares,
including but not limited to fees and disbursements of counsel relating directly
to the offering contemplated by the Prospectus. Any such termination shall be
without liability of any party to any other party except that the provisions of
this Section 8, Section 6 and Section 10 shall at all times be effective and
shall apply.
SECTION 9. Effectiveness of Registration Statement. You and the
---------------------------------------
Company will use your and its best efforts to cause the Registration Statement
to become effective, to prevent the issuance of any stop order suspending the
effectiveness of the Registration Statement and, if such stop order be issued,
to obtain as soon as possible the lifting thereof.
SECTION 10. Indemnification. (a) The Company agrees to indemnify
---------------
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of the Act against any losses, claims, damages,
liabilities or expenses, joint or several, to which such Underwriter or such
controlling person may become subject, under the Act, the Exchange Act, or other
federal, state or Canadian statutory laws or regulations, or at common law or
otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of the Company), insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof as
contemplated below) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, the Private Placement
Memorandum, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state in any of them a material fact
required to be stated therein or necessary to make the statements in any of them
not misleading, or arise out of or are based in whole or in part on any
inaccuracy in the representations and warranties of the Company contained herein
or any failure of the Company to perform its obligations hereunder or under law,
or as a result of any claim brought by Stephen C. Perry arising out of the
transactions described herein; and will reimburse each Underwriter and each such
controlling person for any legal and other expenses as such expenses are
reasonably incurred by such Underwriter or such controlling person in connection
with investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action; provided, however, that the Company
will not be liable in
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any such case to the extent that any such loss, claim, damage, liability or
expense arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
any Preliminary Prospectus, the Prospectus, or the Private Placement Memorandum,
or as a result of or any amendment or supplement thereto in reliance upon and in
conformity with the information furnished to the Company pursuant to Section 4
hereof. In addition to its other obligations under this Section 11(a), the
Company agrees that it will reimburse expenses as provided in this Section 11(a)
as incurred, but no less frequently than quarterly, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of the
Company's obligation to reimburse each Underwriter for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, each Underwriter shall
promptly return it to the Company, together with interest, compounded daily,
determined on the basis of the prime rate (or other commercial lending rate for
borrowers of the highest credit standing) announced from time to time by Bank of
America NT&SA, San Francisco, California (the "Prime Rate"). Any such interim
reimbursement payments which are not made to an Underwriter within 30 days of a
request for reimbursement shall bear interest at the Prime Rate from the date of
such request. This indemnity agreement will be in addition to any liability
which the Company may otherwise have.
(b) Each Underwriter will severally indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of the Act, against any losses, claims, damages, liabilities or expenses to
which the Company, or any such director, officer or controlling person may
become subject under the Act, the Exchange Act, or other federal or state
statutory laws or regulations, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of such Underwriter), insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof as contemplated below)
arise out of or are based upon any untrue or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, any Preliminary
40
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Prospectus, the Prospectus, or any amendment or supplement thereto, in reliance
upon and in conformity with the information furnished to the Company pursuant to
Section 4 hereof; and will reimburse the Company, or any such director, officer
or any controlling person of the Company for any legal and other expense
reasonably incurred by the Company, or any such director, officer or controlling
person of the Company in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action. In addition to its other obligations under this Section 11(b), each
Underwriter severally agrees that it will reimburse expenses as provided in this
Section 11(b) as incurred, but no less frequently than quarterly,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Underwriters, obligation to reimburse the Company (and, to
the extent applicable, each officer, director or controlling person of the
Company) for such expenses and the possibility that such payments might later be
held to have been improper by a court of competent jurisdiction. To the extent
that any such interim reimbursement payment is so held to have been improper,
the Company (and, to the extent applicable, each officer, director or
controlling person of the Company) shall promptly return it to the Underwriters
together with interest, compounded daily, determined on the basis of the Prime
Rate. Any such interim reimbursement payments which are not made within 30 days
of a request for reimbursement, shall bear interest at the Prime Rate from the
date of such request. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section, notify the indemnifying party in writing of the commencement thereof;
but the omission to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party for contribution or
otherwise under the indemnity agreement contained in this Section or to the
extent it is not prejudiced as a proximate result of such failure. In case any
such action is brought against any indemnified party and such indemnified party
seeks or intends to seek indemnity from an indemnifying party, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with all other indemnifying parties similarly notified, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be a conflict between the
41
<PAGE>
positions of the indemnifying party and the indemnified party in conducting the
defense of any such action or that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall have
the right to select separate counsel to assume such legal defenses and to
otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying party
to such indemnified party of its election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
such counsel in connection with the assumption of legal defenses in accordance
with the proviso to the next preceding sentence (it being understood, however,
that the indemnifying party shall not be liable for the expenses of more than
one separate counsel representing all indemnified parties who are parties to
such action or set of related actions) or (ii) the indemnifying party shall not
have employed counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action, in each of which cases the fees and expenses of
counsel shall be at the expense of the indemnifying party.
(d) If the indemnification provided for in this Section is required by
its terms, but is for any reason held to be unavailable to or otherwise
insufficient to hold harmless an indemnified party under Sections 10 (a), 10 (b)
or 10 (c) hereof in respect of any losses, claims, damages, liabilities or
expenses referred to herein, then each applicable indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of any losses, claims, damages, liabilities or expenses referred to herein (i)
in such proportion as is appropriate to reflect the relative benefits received
by the Company and the Underwriters from the offering of the Common Shares or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company and the Underwriters in connection with the statements or omissions
or inaccuracies in the representations and warranties herein which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The respective relative benefits received by
the Company and the Underwriters shall be deemed to be in the same proportion,
in the case of the Company as the total price paid to the Company, for the
Common Shares sold by the Company to the
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Underwriters (net of underwriting commissions, but before deducting expenses),
and in the case of the Underwriters as the underwriting commissions received by
them bears to the total of such amounts paid to the Company and received by the
Underwriters as underwriting commissions. The relative fault of the Company and
the Underwriters shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact or the inaccurate or the
alleged inaccurate representation and/or warranty relates to information
supplied by the Company or any of the Property Partnerships, or the Underwriters
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid or
payable by a party as a result of the losses, claims, damages, liabilities and
expenses referred to above shall be deemed to include, subject to the
limitations set forth in Section (c) of this Section, any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim. The provisions set forth in Section (c) of this
Section with respect to notice of commencement of any action shall apply if a
claim for contribution is to be made under this Section (d); provided, however,
that no additional notice shall be required with respect to any action for which
notice has been given under Section (c) of this Section for purposes of
indemnification. The Company and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section were determined
solely by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. Notwithstanding the provisions of this Section, no
Underwriter shall be required to contribute any amount in excess of the amount
of the total underwriting commissions received by such Underwriter in connection
with the Common Shares underwritten by it and distributed to the public. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section are several in proportion to their
respective underwriting commitments and not joint.
(e) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Sections 11(a) or 11(b)
hereof, including the amounts of any requested reimbursement payments and the
method of determining such amounts, shall be settled by arbitration conducted
under the provisions of the Constitution and Rules of the Board of Governors of
the New York Stock Exchange, Inc. or pursuant to the
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<PAGE>
Code of Arbitration Procedure of the NASD. Any such arbitration must be
commenced by service of a written demand for arbitration or written notice of
intention to arbitrate, therein electing the arbitration tribunal. In the event
the party demanding arbitration does not make such designation of an arbitration
tribunal in such demand or notice, then the party responding to said demand or
notice is authorized to do so. Such an arbitration would be limited to the
operation of the interim reimbursement provisions contained in Sections 11(a)
and 11(b) hereof and would not resolve the ultimate propriety or enforceability
of the obligation to reimburse expenses which is created by the provisions of
such Sections 11(a) or 11(b) hereof.
SECTION 11. Default of Underwriters. It shall be a condition to this
-----------------------
Agreement and the obligation of the Company to sell and deliver the Common
Shares hereunder, and of each Underwriter to purchase the Common Shares in the
manner as described herein, that, except as hereinafter in this Section
provided, each of the Underwriters shall purchase and pay for all the Common
Shares agreed to be purchased by such Underwriter hereunder upon tender to the
Representatives of all such shares in accordance with the terms hereof. If any
Underwriter or Underwriters default in its or their obligations to purchase
Common Shares hereunder on either the First or Second Closing Date and the
aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed to purchase on such Closing Date does not exceed
10% of the total number of Common Shares which the Underwriters are obligated to
purchase on such Closing Date, the non-defaulting Underwriters shall be
obligated severally, in proportion to their respective commitments hereunder, to
purchase the Common Shares which such defaulting Underwriters agreed but failed
to purchase on such Closing Date. If any Underwriter or Underwriters so default
and the aggregate number of Common Shares with respect to which such default
occurs is more than 10% of the total number of Common Shares which the
Underwriters are obligated to purchase on such Closing Date and arrangements
satisfactory to the Representatives and the Company for the purchase of such
Common Shares by other persons are not made within 48 hours after such default,
this Agreement will terminate without liability on the part of any non-
defaulting Underwriter or the Company except for the expenses to be paid by the
Company pursuant to Section 6 hereof and except to the extent provided in
Section 12 hereof.
In the event that Common Shares to which a default relates are to be
purchased by the non-defaulting Underwriters or by another party or parties, the
Representatives or the Company shall have the right to postpone the First
Closing Date or the Second Closing Date, as the case may be, for not more than
five business days in order that the necessary changes in the
44
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Registration Statement, Prospectus and any other documents, as well as any other
arrangements, may be effected. As used in this Agreement, the term "Underwriter"
includes any person substituted for an Underwriter under this Section. Nothing
herein will relieve a defaulting Underwriter from liability for its default.
SECTION 12. Effective Date. This Agreement shall become effective
--------------
immediately as to Sections 6, 8, 10, 13 and 14 and, as to all other provisions,
(i) if at the time of execution of this Agreement the Registration Statement has
not become effective, at 2:00 P.M., California time, on the first full business
day following the effectiveness of the Registration Statement, or (ii) if at the
time of execution of this Agreement the Registration Statement has been declared
effective, at 2:00 P.M., California time, on the first full business day
following the date of execution of this Agreement; but this Agreement shall
nevertheless become effective at such earlier time after the Registration
Statement becomes effective as you may determine on and by notice to the Company
or by release of any of the Common Shares for sale to the public. For the
purposes of this Section 12, the Common Shares shall be deemed to have been so
released upon the release for publication of any newspaper advertisement
relating to the Common Shares or upon the release by you of telegrams (i)
advising Underwriters that the Common Shares are released for public offering or
(ii) offering the Common Shares for sale to securities dealers, whichever may
occur first.
SECTION 13. Termination. Without limiting the right to terminate
-----------
this Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company by notice to you
or by you by notice to the Company at any time prior to the time this
Agreement shall become effective as to all its provisions, and any such
termination shall be without liability on the part of the Company to any
Underwriter (except for the expenses to be paid or reimbursed by the
Company pursuant to Sections 6 and 8 hereof and except to the extent
provided in Section 10 hereof) or of any Underwriter to the Company (except
to the extent provided in Section 10 hereof).
(b) This Agreement may also be terminated by you prior to the First
Closing Date by notice to the Company (i) if additional material
governmental restrictions, not in force and effect on the date hereof,
shall have been imposed upon trading in securities generally or minimum or
maximum prices shall have been generally established on the New York Stock
Exchange or on the American Stock Exchange or in the over
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the counter market by the NASD, or trading in securities generally shall
have been suspended on either such Exchange or in the over the counter
market by the NASD, or a general banking moratorium shall have been
established by federal, New York or California authorities; (ii) if an
outbreak of major hostilities or other national or international calamity
or any substantial change in political, financial or economic conditions
shall have occurred or shall have accelerated or escalated to such an
extent, as, in the judgment of the Representatives, to affect adversely the
marketability of the Common Shares; (iii) if any adverse event shall have
occurred or shall exist which makes untrue or incorrect in any material
respect any statement or information contained in the Registration
Statement or Prospectus or which is not reflected in the Registration
Statement or Prospectus but should be reflected therein in order to make
the statements or information contained therein not misleading in any
material respect; or (iv) if there shall be any action, suit or proceeding
pending or threatened, or there shall have been any development involving
particularly the business or properties or securities of the Company, any
of the Property Partnerships or the transactions contemplated by this
Agreement, which, in the reasonable judgment of the Representatives, may
materially and adversely affect the Company's business or earnings and
makes it impracticable or inadvisable to offer or sell the Common Shares.
Any termination pursuant to this Section 13(b) shall be without liability
on the part of any Underwriter to the Company or on the part of the Company
to any Underwriter (except for expenses to be paid or reimbursed by the
Company pursuant to Sections 6 and 8 hereof and except to the extent
provided in Section 10 hereof).
SECTION 14. Representations and Indemnities to Survive Delivery. The
---------------------------------------------------
respective indemnities, agreements, representations, warranties and other
statements of the Company, the Company's officers and of the several
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation made by or on behalf of any
Underwriter or the Company or any of its or their partners, officers or
directors or any controlling person, as the case may be, and will survive
delivery of and payment for the Common Shares sold hereunder and any termination
of this Agreement.
SECTION 15. Notices. All communications hereunder shall be in
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writing and, if sent to the Representatives shall be mailed, delivered,
telecopied or telegraphed and confirmed to Montgomery Securities at 600
Montgomery Street, San Francisco,
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California 94111, Telecopier: (415) 249-5513, Attention: Karl L. Matthies, and
Goldman, Sachs & Co. at 85 Broad Street, New York, New York 10044, Telecopier:
(212) 902-3000, Attention: John S. Barakat with a copy to O'Melveny & Myers LLP,
Embarcadero Center West 275 Battery Street, San Francisco, California 94111,
Telecopier: (415) 984-8701, Attention: Peter T. Healy, Esq.; and if sent to the
Company shall be mailed, delivered or telegraphed and confirmed to the Company
at 911 Wilshire Boulevard, Suite 2250, Los Angeles, California 90017 Telecopier:
(213) 622-0429 Attention: Steven C. Kenninger with a copy to Latham & Watkins,
633 W. Fifth Street, Suite 4000, Los Angeles, California 90071 Telecopier: (213)
891-8763, Attention: Edward Sonnenschein, Jr., Esq. The Company or you may
change the address for receipt of communications hereunder by giving notice to
the others.
SECTION 16. Successors. This Agreement will inure to the benefit of
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and be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 12 hereof, and to the benefit of the officers and directors
and controlling persons referred to in Section 11, and in each case their
respective successors, personal representatives and assigns, and no other person
will have any right or obligation hereunder. No such assignment shall relieve
any party of its obligations hereunder. The term "successors" shall not include
any purchaser of the Common Shares as such from any of the Underwriters merely
by reason of such purchase.
SECTION 17. Underwriters' Representatives. You will act as
-----------------------------
Representatives for the several Underwriters in connection with all dealings
hereunder, and any action under or in respect of this Agreement taken by you, as
Representatives, will be binding upon all of the Underwriters.
SECTION 18. Partial Unenforceability. The invalidity or
------------------------
unenforceability of any section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other section, paragraph or
provision hereof. If any section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 19. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the internal laws (and not the laws pertaining to
conflicts of laws) of the State of California.
SECTION 20. Knowledge. As used in this Agreement, the term knowledge
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or best knowledge on the part of an entity shall include the knowledge of such
entity's officers and any other
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<PAGE>
employees with managerial responsibilities and such entity shall only make
such statement after conducting a diligent investigation on the subject matter
thereof.
SECTION 21. General. This Agreement constitutes the entire agreement
-------
of the parties to this Agreement and supersedes all prior written or oral and
all contemporaneous oral agreements, understandings and negotiations with
respect to the subject matter hereof. This Agreement may be executed in several
counterparts, each one of which shall be an original, and all of which shall
constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company and you.
48
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed copies hereof, whereupon it
will become a binding agreement among the Company and the several Underwriters,
including you, all in accordance with its terms.
Very truly yours,
SIGNATURE RESORTS, INC.
By:____________________________
Its______________________
The foregoing Underwriting Agreement is hereby
confirmed and accepted by us in San Francisco,
California as of the date first above written.
MONTGOMERY SECURITIES
GOLDMAN, SACHS & CO.
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
By: MONTGOMERY SECURITIES
By: __________________________
Managing Director
49
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Amount of
Securities
to be
Underwriter Purchased
----------- ---------
<S> <C>
Montgomery Securities...............
Goldman, Sachs & Co.................
Total.......................... 5,250,000
</TABLE>
50
<PAGE>
EXHIBIT 10.1
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (the "Agreement") is made and entered
into as of _____________, 1996 (the "Issue Date"), by and among the holders set
forth on Schedule A hereto (the "Holders") and Signature Resorts, Inc., a
Maryland corporation (the "Company").
This Agreement is made in connection with the consolidation by the Holders
of their interests in certain vacation ownership resort properties or related
service entities affiliated with Argosy/KOAR Group, Inc. (the "Consolidation")
and the exchange of such interests for an aggregate of ________ shares of common
stock, $0.01 par value per share (the "Common Stock"), of the Company. As used
herein the term "Registrable Shares" shall refer to such ______ shares of Common
Stock upon original issuance thereof, and at all times subsequent thereto, until
a registration statement of the Company that covers such Registrable Shares has
been declared effective and any such Registrable Shares have been disposed of in
accordance with such effective registration statement.
The parties hereby agree as follows:
1. Shelf Registration.
------------------
(a) The Company shall prepare and file with the Securities and Exchange
Commission (the "Commission"), a registration statement for an offering to be
made on a continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") covering all of the Registrable Shares
(the "Shelf Registration"). The Shelf Registration shall be on Form S-1 or
another appropriate form (e.g. Form S-3 after having established eligibility
----
therefor) permitting registration of the Registrable Shares for resale by the
Holders in the manner or manners designated by them (including, without
limitation, one or more underwritten offerings). The Company shall use its best
efforts (subject in all cases to any procedures and limitations which may be
imposed by the staff of the Commission) to (i) cause the Shelf Registration to
be declared effective under the Securities Act as soon as practicable following
the date that is 180 days following the Issue Date (the "Effectiveness Date")
and (ii) keep the Shelf Registration continuously effective under the Securities
Act for a period (the "Effectiveness Period") of the shorter of (A) 18 months
from the Effectiveness Date and (B) such shorter period that will terminate when
all Registrable Shares covered by the Shelf Registration have been disposed of
in accordance with the Shelf Registration.
(b) The Company may include in any such Shelf Registration referred to
in this Section 1 other shares of Common Stock of the Company held by other
security holders of the Company who have registration rights.
2. Incidental Registration. If, at any time or from time to time during a
-----------------------
period of three years following the Issue Date, the Company shall propose to
file a registration statement (a "Registration Statement") with the Commission
with respect to the proposed sale by the Company of shares of its Common Stock
(or securities exchangeable or convertible therefor) to an underwriter(s) for
reoffering to the public (an "Underwritten Offering") (other than in connection
with an offering on Form S-4 or Form S-8 or successor forms of such registration
statements under the Act), then the Company shall in each case give written
notice (the "Notice") of such proposed filing to the Holders not less than 30
days before the
<PAGE>
anticipated filing date, which shall offer to the Holders the opportunity to
include in such Registration Statement such number of Registrable Shares as each
Holder may request. Upon written request by any Holder given within 15 days
after the giving of the Notice, the Company shall include in any Registration
Statement relating to the Common Stock of the Company all or such portion of the
Registrable Shares as the Holders may request. Neither the delivery of the
Notice by the Company nor of such request by the Holders shall obligate the
Company to file such Registration Statement and, notwithstanding the filing of
such Registration Statement, the Company may, at any time prior to the effective
date thereof, determine not to offer the securities to which such Registration
Statement relates, without liability or obligation to the Holders. As a
condition to any Holder including any Registrable Shares in any Registration
Statement pursuant to this Section 2, such Holder agrees to effect sales of such
Registrable Shares thereunder solely under the plan of distribution established
by the Company and set forth therein.
3. Holdback Agreements.
-------------------
(a) Neither the Company nor the Holders shall offer to sell, sell,
contract to sell, pledge, hypothecate or otherwise sell or dispose of shares of
Common Stock (including the Registrable Shares), or options or warrants to
acquire shares of Common Stock (including the Registrable Shares) for a period
of 180 days following the Issue Date (one year following the Issue Date with
respect to each of Osamu Kaneko, Andrew J. Gessow and Steven C. Kenninger and
their respective affiliates (as defined in Rule 144 pursuant to the Securities
Act)), unless the Company or any Holder, as the case may be, shall have first
notified Montgomery Securities of its intention to do so and Montgomery
Securities shall have consented thereto in writing.
(b) Each Holder agrees that it will not (and it shall be a condition
to the rights of each Holder under this Agreement that such Holder does not) at
any time during any period in which such Holder is entitled to the registration
rights granted by this Agreement sell or offer for sale any Registrable
Securities in excess of any then-applicable volume limitations imposed on such
Holder by Rule 144 under the Securities Act, as if such rule were applicable to
such sale.
(c) If requested by the underwriter(s) in any Underwritten Offering
undertaken pursuant to Section 2 and upon receipt of written notice by the
Company or such underwriter(s) to the Holders not less than 15 days before the
anticipated filing date of the related Registration Statement, each Holder
agrees that it shall not effect any public sale or distribution of any
Registrable Shares during the 10 day period prior to, and during the 90 day
period beginning on, the date of effectiveness of such Underwritten Offering.
(d) Notwithstanding anything set forth in Sections 3(a) through 3(c),
Messrs. Kaneko, Gessow and Kenninger and/or their affiliates (i) may (A) pledge
up to an aggregate of $50 million of Registrable Shares to a third-party lender
to secure a margin loan in a maximum amount of $10 million and (B) pledge up to
an aggregate of $5.8 million of Registrable Shares in connection with the
purchase of by them of certain interests of a former
2
<PAGE>
partner effected concurrently with the Consolidation and (ii) at any time
following the date that is 180 days following the Issue Date, Messrs. Kaneko,
Gessow and Kenninger and/or their affiliates may pledge Common Stock registered
pursuant to the Shelf Registration in such amounts and for such purposes set
forth in (i) above.
4. Company's Obligations. In connection with the Company's obligation to
---------------------
effect a Shelf Registration pursuant to Section 1, or in the event the Company
files a Registration Statement in connection with an Underwritten Offering
pursuant to Section 2, it shall:
(a) Notify the Holders as to the filing thereof and of all amendments
or supplements thereto filed prior to the effective date of such Shelf
Registration or Registration Statement;
(b) Notify the Holders, promptly after the Company shall receive notice
thereof, of the time when such Shelf Registration or Registration Statement
became effective or any amendment or supplement to any prospectus forming a part
of such Shelf Registration or Registration Statement has been filed;
(c) Notify the Holders promptly of any request by the Commission for
the amending or supplementing of such Shelf Registration or Registration
Statement or prospectus or for additional information;
(d) Prepare and file with the Commission any amendments or supplements
to such Shelf Registration or Registration Statement or prospectus which may be
necessary or advisable to keep such Registration Statement effective and to
comply with the provisions of the Securities Act with respect to the offer of
the Registrable Shares covered by such Registration Statement during the period
required for the distribution of such securities, which, in the case of a
Registration Statement filed pursuant to Section 2 in connection with an
Underwritten Offering, such period shall not be in excess of 120 days from the
effective date of the Registration Statement or post-effective amendment
pursuant to which such Registrable Shares may be sold;
(e) Prepare and promptly file with the Commission and promptly notify
the Holders of the filing of such amendment or supplement to such Shelf
Registration or Registration Statement or prospectus as may be necessary to
correct any statements therein or omission therefrom if, at any time when a
prospectus relating to such Registrable Shares is required to be delivered under
the Securities Act, any event with respect to the Company shall have occurred as
a result of which any prospectus would include an untrue statement of material
fact or omit to state any material fact necessary to make the statements therein
not misleading;
(f) In case the Holders or any underwriter(s) for the Holders are
required to deliver a prospectus, prepare promptly upon request such amendment
or amendments to such Shelf Registration or Registration Statement and such
prospectus or
3
<PAGE>
prospectuses as may be necessary to permit compliance with the requirements of
Section 9(a)(3) of the Securities Act;
(g) Advise the Holders promptly after the Company shall receive notice
or obtain knowledge of the issuance of any stop order by the Commission
suspending the effectiveness of any such Shelf Registration or Registration
Statement or amendment thereto or of the initiation or threatening of any
proceedings for that purpose, and promptly use its best efforts to prevent the
issuance of any stop order or to obtain its withdrawal if such stop order should
be issued;
(h) Use its best efforts to qualify such Registrable Shares for sale
under the securities or blue sky laws of such states within the United States as
the Holders may reasonably designate, except that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business in any such state or to take any action which would subject it to
general service of process in any such jurisdiction where it is not then so
subject; and
(i) Furnish to the Holders, as soon as available, copies of any such
Shelf Registration or Registration Statement and each preliminary or final
prospectus, or supplement or amendment required to be prepared thereto, all in
such quantities required as they may from time to time reasonably request.
Each Holder of Registrable Shares agrees by acquisition of such
Registrable Shares that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 4(e) hereof, such Holder
will forthwith discontinue disposition of Registrable Shares until such Holder's
receipt of the copies of the supplemented or amended prospectus contemplated by
Section 4(e) hereof, or until it is advised in writing by the Company that the
use of the prospectus may be resumed, and has received copies of any additional
or supplemental filings that are incorporated by reference in the prospectus,
and, if so directed by the Company, such Holder will deliver to the Company all
copies, other than permanent file copies, then in such Holder's possession of
the prospectus covering such Registrable Shares current at the time of receipt
of such notice.
5. Holders' Obligation to Furnish Information. In connection with the
------------------------------------------
Company's obligation to effect a Shelf Registration pursuant to Section 1, or in
the event the Company files a Registration Statement in connection with an
Underwritten Offering pursuant to Section 2, each Holder shall furnish
information to the Company concerning such Holder's holdings of securities of
the Company and the proposed method of sale or other disposition of the
Registrable Shares and such other information and undertakings as shall be
required in connection with the preparation and filing of the Shelf
Registration, any Registration Statement or any post-effective amendment
covering all or part of the Registrable Shares in order to insure full
compliance with the Securities Act and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Each Holder further agrees to enter into such
undertakings and take such other action relating to the conduct of the proposed
offering which the Company or the underwriter(s) may reasonably request as being
necessary to ensure compliance with the
4
<PAGE>
federal and state securities laws and the rules or other requirements of the
National Association of Securities Dealers, Inc. ("NASD") or otherwise to
effectuate the offering.
6. Expenses. The Company shall pay all expenses (the "Registration
--------
Expenses") incident to each registration of the Registrable Shares under
Sections 1 and 2, including, without limitation, all registration, filing and
NASD fees, all fees and expenses of complying with state securities or blue sky
laws, all word processing, duplicating and printing expenses, messenger and
delivery expenses, the fees and disbursements of counsel for the Company and of
its independent public accountants, including the expenses of any special audits
or "cold comfort" letters required by or incident to such performance and
compliance, premiums and other costs of policies of insurance purchased by the
Company at its option against liabilities arising out of the public offering of
such Registrable Shares and any fees and disbursements of underwriter(s)
customarily paid by issuers or sellers of securities (including fees paid to a
"qualified independent underwriter" required by the rules of the NASD in
connection with a distribution), but excluding underwriting discounts and
commissions and fees of underwriter(s), selling brokers, dealer managers or
similar securities industry professionals relating to the distribution of the
Registrable Shares, transfer taxes, fees and disbursements of counsel for any
shelling shareholder(s) and other selling expenses, if any.
7. Selection of Underwriter. In the event of any Registration Statement
------------------------
filed in connection with an Underwritten Offering pursuant to Section 2 and in
the event any of the Registrable Shares covered by the Shelf Registration
effected pursuant to Section 1 are to be sold in an Underwritten Offering, the
investment banker or investment bankers and manager or managers that will manage
the offering will be selected by the Company. In addition, the Company may
require in its sole discretion that Registrable Shares sold pursuant to the
Shelf Registration effected pursuant to Section 1 be sold in block trades
through underwriter(s) or broker-dealers selected by the Company.
8. Priority in Incidental Registration. If in connection with an
-----------------------------------
Underwritten Offering registered pursuant to Section 2, the managing
underwriter(s) of such Underwritten Offering informs the Company and the Holders
by letter of its belief that the number of securities requested to be included
in such Registration Statement exceeds the number which should be sold in such
Underwritten Offering, then the Company will include in such Registration
Statement, to the extent of the number which the Company is so advised should be
sold in such Underwritten Offering, (i) first, all shares of Common Stock
proposed to be sold by the Company for its own account and (ii) second, the
number of Registrable Shares proposed by the Holders to be included in the
registration that, in the opinion of such managing underwriter(s), can be sold
without adversely affecting the price or probability of success of such
Underwritten Offering, allocated pro rata among such Holders, on the basis of
the relative amount of Registrable Shares requested to be included in such
Registration Statement; provided that in all cases the Holders of Registrable
--------
Shares shall be entitled to include in any such registration an aggregate of up
to 25% of the total number of shares sold in any such Underwritten Offering.
5
<PAGE>
9. Underwritten Offerings. In the event that Registrable Shares are to be
----------------------
distributed through an Underwritten Offering, each Holder offering Registrable
Shares in such Underwritten Offering shall be a party to the underwriting
agreement between the Company and such underwriter(s) and may, at its option,
require that any or all of the representations and warranties by, and the other
agreements on the part of, the Company to and for the benefit of such
underwriter(s) shall also be made to and for the benefit of such Holder.
Holders shall not be required to make any representations or warranties to or
agreements with the Company or the underwriter(s), other than representations,
warranties or agreements regarding the Holders, the Registrable Shares, and the
Holders' intended method of distribution and any other representations required
by law. Any representations or warranties to or agreements with the
underwriter(s) made by the Holders shall also be made to and for the benefit of
the Company.
10. Indemnification.
---------------
(a) By the Company. In the event of any registration of the Registrable
--------------
Shares of the Company under the Securities Act, the Company will, and hereby
does, indemnify and hold harmless the Holders with respect to the Registrable
Shares included in such registration, its directors, officers, underwriters and
each other person, if any, who controls any Holder within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which the Company or such Holder or any such director or officer or
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any Registration Statement under which such
securities were registered under the Securities Act, any preliminary prospectus,
final prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances in which they were made not misleading,
and the Company will reimburse such Holder and each such director, officer,
underwriter and controlling person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding; provided that the Company
--------
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such Registration Statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with written information furnished
to the Company by or on behalf of such underwriter or such Holder, as the case
may be, specifically for use in the preparation thereof and; provided further
-------- -------
that the Company shall not be liable to any person in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of such person's failure to send or give
a copy of the final prospectus, as the same may be then supplemented or amended,
to the person asserting an untrue statement or alleged untrue statement or
omission or alleged omission at or prior to written confirmation of the sale of
the Registrable Shares to such person if such statement or omission was
corrected in such final prospectus as amended
6
<PAGE>
or supplemented. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such underwriter or such
Holder or any such director, official, underwriter or controlling person and
shall survive the transfer of such securities by such Holder.
(b) Indemnification by the Holders. Each Holder agrees that, as a
------------------------------
condition to including any Registrable Shares in any Registration Statement
filed pursuant to Section 1 or 2, that each such Holder with Registrable Shares
included in such Registration Statement will and hereby does, indemnify and hold
harmless (in the same manner and to the same extent as set forth in paragraph
(a) of this Section 10) the Company, each director of the Company, each officer
of the Company, each other person who participates as an underwriter in the
offering or sale of such securities and each other person, if any, who controls
the Company or any such underwriter within the meaning of the Securities Act,
with respect to any statement or alleged statement in or omission or alleged
omission from such registration statement, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, if such statement or alleged statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such Holder specifically
for use in the preparation of such registration statement, preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement. Such
indemnity shall remain in full force and effect, regardless of any investigation
made by or on behalf of the Company or any such director, officer or controlling
person and shall survive the transfer of such securities by such Holder.
The Company shall be entitled to receive indemnities from underwriters,
selling brokers, dealer managers and similar securities industry professionals
participating in the distribution, to the same extent as provided above with
respect to information so furnished in writing by such persons specifically for
inclusion in any prospectus or registration statement or any amendment or
supplement thereto, or any preliminary prospectus.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified party
----------------------
of notice of the commencement of any action or proceeding involving a claim
referred to in the preceding subdivisions of this Section 10, such indemnified
party will, if a claim in respect thereof is to be made against an indemnifying
party, give written notice to the latter of the commencement of such action;
provided that the failure of any indemnified party to give notice as provided
- --------
herein shall not relieve the indemnifying party of its obligations under the
preceding paragraphs of this Section 10, except to the extent that the
indemnifying party is actually prejudiced by such failure to give notice. In
case any such action is brought against an indemnified party, unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such claim, the
indemnifying party shall be entitled to participate in and to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses subsequently
incurred by the party in connection with the defense thereof other than
7
<PAGE>
reasonable costs of investigation. No indemnifying party shall, without the
consent of the indemnified party, consent to entry of any judgment or enter into
any settlement which does not include as an unconditional term thereof, the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect to such claim or litigation.
(d) Other Indemnification. Indemnification similar to that specified in
---------------------
paragraphs (a) through (c) of this Section 10 (with appropriate modifications)
shall be given by the Company and the Holders with respect to any required
registration or other qualification of securities under any Federal or state law
or regulation or any governmental authority other than the Act.
(e) Indemnification Payment. The indemnification required by this Section
-----------------------
10 shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred.
(f) Contribution. If the indemnification provided for in this Agreement
------------
shall for any reason be unavailable or insufficient (other than by reason of
exceptions provided in those sections) to an indemnified party under paragraphs
(a), (b) and (d) of this Section 10 in respect to any loss, claim, damage or
liability, or any action in respect thereof, or referred to therein, then each
indemnifying party shall, in lieu of indemnifying such party, contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability, or action in respect thereof, in such proportion as
shall be appropriate to reflect the relative fault of the Company on the one
hand and any Holder on the other, with respect to the statements or omissions
which resulted in such loss, claim, damage or liability, or action in respect
thereof, as well as any other relevant equitable considerations. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the Company
or such Holder, the intent of the parties and their relative knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Company and the Holders agree that it would not be just and equitable if
contribution pursuant to this Section 10 were to be determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to in this Section 10 shall be deemed to
include, for purposes of this Section 10, any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any action or claim. No person guilty of fraudulent misrepresentation (within
the meaning of Section 10(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
11. Rule 144. So long as the Company has any securities registered under
--------
Section 12 of the Exchange Act, the Company will file the reports required to be
filed by it under the Exchange Act and the rules and regulations adopted by the
Commission thereunder (or, if the Company is not required to file such reports,
will upon the request of Holders of a
8
<PAGE>
majority of the Registrable Shares, make publicly available other information
for a period of up to four months) and will take such further action as such
Holders may reasonably request, all to the extent required from time to time to
enable the Holders to sell Registrable Shares without registration under the
Securities Act within the limitation of the exemptions provided by (a) Rule 144
under the Securities Act, as such Rule may be amended from time to time, or (b)
any similar rule or regulation hereafter adopted by the Commission. Upon the
request of such Holders, the Company will deliver to such Holders a written
statement as to whether it has complied with such requirements.
12. Amendments and Waivers. This Agreement may be amended and the Company
----------------------
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of Holders of a
majority of the Registrable Shares.
13. Notices. Any notice from one party to the other shall be in writing
-------
and either delivered personally or by certified or registered mail, postage
prepaid, or by telegram, telecopier, or by overnight mail delivery by a
nationally recognized courier, and shall be deemed given when so delivered
personally or, if mailed or given by telegram or telecopier or overnight mail,
upon receipt thereof by the addressees, as follows:
If to the Company:
Signature Resorts, Inc.
911 Wilshire Boulevard, 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
Attention: Edward Sonnenschein, Jr.
If to any Holder:
At its address as it appears on the register of holders of Common
Stock maintained by the Company.
14. Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of and be enforceable by the parties hereto and their respective
successors and permitted assigns as hereinafter set forth in this Section 14.
In addition, and whether or not any express assignment shall have been made, the
provisions of this Agreement which are for the benefit of the Holders shall also
be for the benefit of and enforceable by any subsequent holder ("Subsequent
Holders") of any Registrable Shares, except any Subsequent Holder with
9
<PAGE>
respect to Registrable Shares acquired in a public offering pursuant to a
Registration Statement or an exemption from registration under Rule 144 under
the Securities Act.
15. Descriptive Headings. The descriptive headings of the several
--------------------
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
16. Governing Law. The validity of this Agreement and all matters
-------------
relating to its interpretation and performance shall be interpreted in
accordance with the laws of the State of California applicable to contracts made
and fully performed therein, but without regard to principles of conflicts of
law. The courts in Los Angeles, California shall have exclusive jurisdiction
over any controversy arising under this Agreement and venue in Los Angeles is
appropriate.
17. Counterparts. This Agreement may be executed simultaneously in any
------------
number of counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
18. Entire Agreement; Amendment. This Agreement contains all of the terms
---------------------------
agreed upon by the parties with respect to the subject matter herein and there
are no representations or understandings between the parties except as provided
in this Agreement. This Agreement may not be amended or modified in any way
except by a written amendment duly executed by each of the parties.
19. Registrable Shares Held by the Company or its Affiliates. Whenever
--------------------------------------------------------
the consent or approval of Holders of a specified percentage of Registrable
Shares is required hereunder, Registrable Shares held by the Company or its
affiliates (as defined pursuant to Rule 144 under the Securities Act) shall not
be counted in determining whether such consent or approval was given by the
Holders of such required percentage.
10
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be executed and delivered as of the date first above written.
SIGNATURE RESORTS, INC.
By__________________________
Title:
HOLDERS
Power of Attorney By:
_____________________________
Steven C. Kenninger
11
<PAGE>
SCHEDULE A
J.C. Investment & Realty, Inc.
Shinko Sangyou Co. Ltd.
Peachtree, Ltd.
Kenpoh, Inc.
KPI Realty, Inc.
MBK Realty, Inc.
Centaur Corp.
Ethan Lipsig
Susan K. Kenninger
Gigi Giannoni
Charles Frey
Michael C. Ross
Michael C. Ross Pension Plan
Linda H. Vaughn
James A. Hamilton
James W. Geisz
James W. Geisz Keogh Plan
William S. Waldo
Dennis H. Vaughn IRA
Osamu Kaneko
Steven C. Kenninger
Andrew J. Gessow
Timothy Levin
James W. Geisz SEP-IRA
The Vaughn Family Trust
Kenninger & Jaquish Living Trust
MLPF&S, Inc. Cust FPO Steven Kenninger Keogh
KOAR Group Inc. Profit Sharing & Savings Plan FPO Steven Kenninger
Brains-Heart, Ltd.
Arai Development Co., Inc.
Kumagai El Paseo, Inc.
Tadaaka Chigusa
EKC Corporation
Sook Ja Kim
Trustee of Ethan Lipsig Pension Plan
Linda Hadley Vaughn, Trustee
MLPF&S, Cust FPO James Geisz Keogh
Trustee, Charles V. Thornton Pension Plan
Paul Grossman
David M. Roberts
Ruth L. Kenninger
Centaur, Inc.
12
<PAGE>
James C. Anderson
Michael Reeves, Trustee
Charles Reeves
Michael Reeves
Raymond M. Bukaty
Charles Thornton
Grace Investments, Ltd.
Randall Wooster
Canyon Partners Investments II, L.P.
Canyon Partners Investments V, L.P.
First Capital
13
<PAGE>
EXHIBIT 10.2.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is dated as of August ___,
---------
1996, between Signature Resorts, Inc., a Maryland corporation (the "Company"),
-------
and [OSAMU KANEKO] [ANDREW J. GESSOW] [STEVEN C. KENNINGER] (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 August 15, 1996 and will terminate at 12:01 a.m. on
August 14, 1996 (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 July 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 May 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 [CHAIRMAN OF THE
--------
BOARD AND CHIEF EXECUTIVE OFFICER] [PRESIDENT] [CHIEF OPERATING OFFICER AND
SECRETARY] of the Company. 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 shall 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 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 substantially full
business time and attention to the performance of services to the Company in his
capacity as an officer thereof and as may reasonably be requested by the Board.
The Company shall retain full direction and control of the means and methods by
which the Executive performs 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 Los Angeles, California or San Francisco, California
metropolitan area; provided, however, that the Company will require the
Executive to travel extensively to other locations on the Company's business.
<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
(or affiliates of the Executive) shall be permitted (i) to undertake the
activities set forth in Section 8 and (ii) to make any other passive personal
investment that is not in a business activity that is directly or indirectly
competitive with the Company.
4. Compensation and Related Matters.
--------------------------------
(a) Salary. During the Employment Period, the Company shall pay the
------
Executive a salary of not less than $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. 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"). 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 have the opportunity to be considered
-----
for performance-based bonus compensation at the sole and absolute discretion of
the Board, upon
2
<PAGE>
notification to the Executive; however, the Company makes no commitment to the
Executive that any such performance-based bonus compensation will be paid to the
Executive.
(e) Fringe Benefits. The Executive will be entitled to fringe benefits
---------------
as may be determined or granted from time-to-time by the Board.
(f) Vacation. The Executive shall be entitled to four vacation weeks
--------
(20 days) in each calendar year on a pro-rated basis. The Executive will be
entitled to all Company holidays.
(g) Performance Reviews. At the end of each fiscal year, the 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.
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
3
<PAGE>
(whether written or oral) of the Company relating to the employment or
termination of its employees, or (ii) to any statements made to the Executive,
whether made orally or contained in any document, pertaining to the Executive's
relationship with the Company. Notwithstanding anything to the contrary
contained herein, including Sections 2 and 4, the Executive's employment with
the Company is not for any specified term, is at will and may be terminated by
the Company at any time by delivery of a notice of termination to the Executive,
for any reason, with or without cause, without liability except with respect to
the payments provided for by Section 6.
(e) Voluntary Resignation. The Executive may voluntarily resign his
---------------------
position and terminate his employment with the Company at any time by delivery
of a written notice of resignation to the Company (the "Notice of Resignation").
---------------------
The Notice of Resignation shall set forth the date such resignation shall become
effective (the "Date of Resignation"), which date shall, in any event, be at
-------------------
least ten (10) days and no more than thirty (30) days from the date the Notice
of Resignation is delivered to the Company. At its option, the Company may
reduce such notice period to any length, upon thirty (30) days written notice to
the Executive.
(f) Notice. Any termination of the Executive's employment by the
------
Company shall be communicated by written Notice of Termination to the Executive.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
---------------------
that shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated.
(g) "Date of Termination" shall mean (i) if the Executive's employment
-------------------
is terminated by his death, the date of his death, (ii) if the Executive's
employment is terminated by reason of his disability, the date of the opinion of
the physician referred to in Section 5(b), above, (iii) if the Executive's
employment is terminated by the Company for Cause pursuant to subsection 5(c)
above, or without Cause by the Company pursuant to subsection 5(d) above, the
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.
4
<PAGE>
(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. 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.
5
<PAGE>
(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:
(i) Any material alteration, reduction or diminution in the
duties, responsibilities and status of Executive's
position;
(ii) a material breach by the Company of any provision of this
Agreement; and
(iii) the occurrence of a "Change in Control."
As used in this Agreement, "Change of Control" means the occurrence of
any of the following: (i) the adoption of a plan relating to the liquidation or
dissolution of the Company, (ii) the consummation of any transaction (including,
without limitation, any merger or consolidation) the result of which is that any
person or group, other than any of Osamu Kaneko, Andrew J. Gessow and Steven C.
Kenninger or their affiliates (the "Principals"), becomes the "beneficial owner"
(as such term is defined in Rule 13d-3 and Rule 13d-5 under the Securities
Exchange Act of 1934), directly or indirectly, of more than 50% of the total
voting power of the total outstanding voting stock of the Company on a fully
diluted basis or (iii) the consummation of the first transaction (including,
without limitation, any merger or consolidation) the result of which is that any
person or group, other than the Principals, becomes the beneficial owner (as
defined above), directly or indirectly, of more than 50% of the total voting
power of the total outstanding voting stock of the Company.
The Executive understands that any voluntary resignation by him as a
result of any personal or family reasons not otherwise set forth in this Section
6(e) (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
6
<PAGE>
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.
(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
7
<PAGE>
Employment Period has been or is a customer of or in the habit of dealing with
the Company in its business, (ii) endeavor directly or indirectly to canvas or
solicit in competition with Company or to interfere with the supply of orders
for goods or services from or by any person, firm or corporation which during
the Employment Period has been or is a supplier of goods or services to Company
or (iii) directly or indirectly solicit or attempt to solicit away from Company
any of its officers or employees or offer employment to any person who, on or
during the 6 months immediately preceding the date of such solicitation or
offer, is or was an officer or employee of Company.
8. Covenant Not to Compete.
-----------------------
(a) The Executive agrees that during the Employment Period he will
devote substantially full-time to the business of the Company and not engage in
any competitive businesses. Subject to such full-time requirement and the
restrictions set forth below in this Section 8 and Section 3(c) above, the
Executive shall be permitted to continue his existing business investments and
activities and may pursue additional business investments; provided that the
Executive not serve as officer of any public company resulting from such
business investments. The Executive agrees that he shall not (i) invest in,
manage, consult or participate in any way in any other timeshare business (in
either an active or passive manner), (ii) participate in or advise any business
wherein timeshare is a relevant business segment or (iii) act for or on behalf
of any business that intends to enter or participate in the timeshare business,
in each case unless the independent members of the Company's Board of Directors
determine that such action is in the best interest of the Company.
Notwithstanding the foregoing, the Executive may purchase stock as a stockholder
in any publicly traded company, including any company which is involved in the
timeshare business; provided that the Executive does not own (together or
separately or through his affiliates) more than 5% of any company (other than
the Company) in the timeshare business. In addition, the Executive shall not
invest (directly or indirectly) in any timeshare property in the hospitality
business (including any condominium project) or any property where the business
plan therefor includes an intention to convert the property to timeshare, unless
the independent members of the Company's Board of Directors determine that such
an investment is in the best interest of the Company.
(b) Notwithstanding anything to the contrary in this Section 8 or
elsewhere in this Agreement, the Executive and/or affiliates thereof is
permitted to acquire, directly or indirectly, an interest in certain property
located on Harbor Island in San Diego, California, developed for use as a hotel
or condominium facility and that may be converted for use as a timeshare
property. In the event the Executive or affiliate thereof so acquires such an
interest, the Company has the option, at its election (which the Company may
exercise at any time), to require the Executive or affiliate thereof to sell
such interest to the Company at a price not to exceed 50% of the actual, direct
cost of such interest. In addition, at the direction of the independent members
of the Company's Board of Directors, at any time following the decision by the
Company not to acquire such interest, the Executive agrees to sell his or his
affiliate's interest in such property, or to divest himself or any affiliate of
any controlling or managing interest therein, within six months after receipt of
notice from the Company to do so, unless the independent members of the Board
determine that such investment by or interest held by the Executive is in the
best interest of the Company.
8
<PAGE>
(c) [TO BE INCLUDED IN KANEKO AND KENNINGER EMPLOYMENT AGREEMENTS]
Further, notwithstanding anything to the contrary in this Section 8 or elsewhere
in this Agreement, and without limiting the rights of the Executive otherwise
applicable under this Agreement, the Executive or affiliates thereof is
permitted to continue to meet its duties (i) as managing general partner with
respect to (A) 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 affiliates of the Executive (the
"KOAR Interests") currently own the unsold units in such project, the balance
having been sold to third parties) and (B) several retail centers and a proposed
office development project and (ii) as constituent general partner of a number
of partnerships, which partnerships include five Embassy Suites hotels which are
owned by partnerships controlled by affiliates of the Executive (the "Prior
Partnerships"). Such duties with respect to the KOAR Interests and the Prior
Partnerships may include the sale, refinancing, restructuring and packaging
thereof, and the formation of public or private entities for such purpose,
including the formation of a public real estate investment trust ("REIT") for
any or all of the properties owned by the KOAR Interests or Prior Partnerships;
provided the Executive not serve as an officer or employee of such REIT. The
Executive agrees, however, to continue to retain third party management
companies to manage the properties owned by the KOAR Interests and the Prior
Partnerships and to employ personnel not employed by the Company to carry out
the day-to-day responsibilities of managing and overseeing such properties.
(d) 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,
9
<PAGE>
or one day after delivery to an overnight air courier guaranteeing next day
delivery, addressed as follows:
If to the Executive: [Osamu Kaneko
519 Meadow Grove Street
La Canada, California 91011]
[Andrew J. Gessow
540 Moore Road
Woodside, California 94062]
[Steven C. Kenninger
213 Avenue D
Redondo Beach, California 90277]
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.
10
<PAGE>
14. Headings. The headings contained herein are for reference purposes
--------
only and shall not in any way affect the meaning or interpretation of this
Agreement.
15. Choice of Law. This Agreement shall be construed, interpreted and the
-------------
rights of the parties determined in accordance with the laws of the State of
Maryland (without reference to the choice of law provisions of Maryland), except
with respect to matters of law concerning the internal corporate affairs of any
corporate entity which is a party to or the subject of this Agreement, and as to
those matters the law of the jurisdiction under which the respective entity
derives its powers shall govern.
16. Mediation. Subject to any irreparable injury being suffered by the
---------
Company giving rise to the right of the Company to seek injunctive relief
against the Executive pursuant to Section 9 hereof, in the event that there
shall be a dispute among the parties arising out of or 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.
11
<PAGE>
19. Entire Agreement. This Agreement contains the entire agreement and
----------------
understanding between the Company and the Executive with respect to the
employment of the Executive by the Company as contemplated hereby, and no
representations, promises, agreements or understandings, written or oral, not
herein contained shall be of any force or effect. This Agreement shall not be
changed unless in writing and signed by both the Executive and the Board of
Directors of the Company.
20. The Executive's Acknowledgment. The Executive acknowledges (a) that
------------------------------
he has had the opportunity to consult with independent counsel of his own choice
concerning this Agreement, and (b) that he has read and understands the
Agreement, is fully aware of its legal effect, and has entered into it freely
based on his own judgment.
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement as of the date and year first above written.
SIGNATURE RESORTS, INC.
----------------------------------------
Name:
Title:
EXECUTIVE
----------------------------------------
12
<PAGE>
Exhibit A
Form of Option Agreement
13
<PAGE>
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement"), dated as of August ___,
1996, is made by and between Signature Resorts, Inc., a Maryland corporation
hereinafter referred to as "Company," and [OSAMU KANEKO] [ANDREW J. GESSOW]
[STEVEN C. KENNINGER], 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 21.
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 (a) - Board
- ----------- -----
"Board" shall mean the Board of Directors of the Company.
Section (b) - Code
- ----------- ----
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section (c) - Committee
- ----------- ---------
"Committee" shall mean the Compensation Committee of the Board, or
a subcommittee of the Board, appointed as provided in Section 9.1 of the Plan.
1
<PAGE>
Section (d) - 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 (e) - Company
- ----------- -------
"Company" shall mean Signature Resorts, Inc., a Maryland
corporation.
Section (f) - Director
- ----------- --------
"Director" shall mean a member of the Board.
Section (g) - 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 (h) - Exchange Act
- ----------- ------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
Section (i) - 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 (j) - Option
- ----------- ------
"Option" shall mean a non-qualified stock option granted under
this Agreement and Article III of the Plan.
Section (k) - Optionee
- ----------- --------
"Optionee" shall mean an Employee or consultant granted an Option
under this Agreement and the Plan.
2
<PAGE>
Section (l) - Plan
- ----------- ----
"Plan" shall mean The 1996 Equity Participation Plan of Signature
Resorts, Inc.
Section (m) - 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 (n) - Secretary
- ----------- ---------
"Secretary" shall mean the Secretary of the Company.
Section (o) - Securities Act
- ----------- --------------
"Securities Act" shall mean the Securities Act of 1933, as
amended.
Section (p) - 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 (q) - 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 (r) - Termination of Employment
- ----------- -------------------------
"Termination of Employment" shall mean the time when the employee-
employer relationship between the Optionee and the Company or any Subsidiary is
terminated for any reason, including, but not by way of limitation, a
termination by resignation, discharge, death, disability or retirement; but
excluding (i) terminations where there is a simultaneous reemployment,
continuing employment of an Optionee by the Company or any Subsidiary, (ii) at
3
<PAGE>
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 22.
GRANT OF OPTION
---------------
Section (a) - 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 one hundred fifty
thousand (150,000) shares of its $.01 par value Common Stock upon the terms and
conditions set forth in this Agreement.
Section (b) - Purchase Price
- ----------- --------------
The purchase price of the shares of stock covered by the Option
shall be $[PRICE PER SHARE IN PUBLIC OFFERING] per share without commission or
other charge.
Section (c) - 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 (d) - Adjustments in Option
- ----------- ---------------------
(i) In the event that the outstanding shares of the stock
subject to the Option are changed into or exchanged for a different number or
kind of shares of the Company or other securities of the Company, or of another
corporation, by reason of reorganization, merger,
4
<PAGE>
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.
(ii) 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.
(iii) 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 23.
PERIOD OF EXERCISABILITY
------------------------
Section (a) - Commencement of Exercisability
- ----------- ------------------------------
(i) Subject to Section 5.6, the Option shall become exercisable
in three (3) cumulative installments as follows:
The first installment shall consist of fifty thousand
(50,000) of the shares covered by the Option and shall become exercisable on the
first anniversary of the date of execution of this Agreement.
The second installment shall consist of fifty
thousand (50,000) of the shares covered by the Option and shall become
exercisable on the second anniversary of the date of execution of this
Agreement.
The third installment shall consist of fifty thousand
(50,000) of the shares covered by the Option and shall become exercisable on the
third anniversary of the date of execution of this Agreement.
5
<PAGE>
(ii) No portion of the Option which is unexercisable at
Termination of Employment or Termination of Consultancy, as applicable, shall
thereafter become exercisable.
Section (b) - 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 (c) - Expiration of Option
- ----------- --------------------
The Option may not be exercised to any extent by anyone after the
first to occur of the following events:
(i) The expiration of ten (10) years from the date the Option
was granted; or
(ii) 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
(iii) 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
(iv) 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
(v) The expiration of one (1) year from the date of the
Optionee's death; or
(vi) The effective date of either the merger or consolidation of
the Company with or into another corporation, the exchange of all or
substantially all of the assets of the Company for the securities of another
corporation, the acquisition by another corporation or person of all or
substantially all of the Company's assets or eighty percent (80%) or more of the
Company's then outstanding voting stock, or the liquidation or dissolution of
the Company, unless the Committee waives this provision in connection with such
transaction. At least ten (10) days prior to the effective date of such merger,
consolidation, exchange, acquisition, liquidation or dissolution, the Committee
shall give the Optionee notice of such event if the Option has then neither been
fully exercised nor become unexercisable under this Section 3.3.
Section (d) - 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
6
<PAGE>
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:
(i) This Option becomes unexercisable under Section 3.3 prior
to said effective date; or
(ii) 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 24.
EXERCISE OF OPTION
------------------
Section (a) - 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 (b) - Partial Exercise
- ----------- ----------------
Any exercisable portion of the Option or the entire Option, if
then wholly exercisable, may be exercised in whole or in part at any time prior
to the time when the Option or portion thereof becomes unexercisable under
Section 3.3; provided, however, that each partial exercise shall be for not less
than one thousand (1,000) shares and shall be for whole shares only.
7
<PAGE>
Section (c) - 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:
(i) 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
(ii) Full payment (in cash) for the shares with respect to
which such Option or portion is exercised;
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
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
With the consent of the Committee, property of any
kind which constitutes good and valuable consideration; or
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
With the consent of the Committee, any combination of
the consideration provided in the foregoing subparagraphs (iii), (iv) and (v);
and
(iii) A bona fide written representation and agreement, in a form
satisfactory to the Committee or the Board, signed by the Optionee or other
person then entitled to exercise such Option or portion, stating that the shares
of stock are being acquired for his own account, for investment and without any
present intention of distributing or reselling said shares or any of them except
as may be permitted under the Securities Act and then applicable rules and
regulations thereunder, and that the Optionee or other person then entitled to
exercise such Option or portion will indemnify the Company against and hold it
free and harmless from any loss, damage, expense or liability resulting to the
Company if any sale or distribution of the shares by such person is contrary to
the representation and agreement referred to above. The
8
<PAGE>
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
(iv) 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
(v) 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 (d) - 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 (e) - Conditions to Issuance of Stock Certificates
- ----------- --------------------------------------------
The shares of stock deliverable upon the exercise of the Option,
or any portion thereof, may be either previously authorized but unissued shares
or issued shares which have then been reacquired by the Company. Such shares
shall be fully paid and nonassessable. The Company shall not be required to
issue or deliver any certificate or certificates for shares of stock purchased
upon the exercise of the Option or portion thereof prior to fulfillment of all
of the following conditions:
9
<PAGE>
(i) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed; and
(ii) 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
(iii) 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
(iv) 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
(v) 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 (f) - 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 25.
OTHER PROVISIONS
----------------
Section (a) - 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 (b) - 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 (c) - 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 (d) - 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 (e) - Titles
- ----------- ------
Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of this Agreement.
Section (f) - Construction
- ----------- ------------
This Agreement shall be administered, interpreted and enforced
under the laws of the State of Maryland.
Section (g) - Conformity to Securities Laws
- ----------- -----------------------------
The Optionee acknowledges that the Plan is intended to conform to
the extent necessary with all provisions of the Securities Act and the Exchange
Act and any and all regulations and rules promulgated by the Securities and
Exchange Commission thereunder, including without limitation Rule 16b-3.
Notwithstanding anything herein to the contrary, the
11
<PAGE>
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
----------------------------
President
By
----------------------------
Secretary
- -------------------------
Optionee
- -------------------------
- -------------------------
Address
Optionee's Taxpayer
Identification Number:
- -------------------------
12
<PAGE>
Exhibit B
1996 Equity Participation Plan of Signature Resorts, Inc.
13
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF SIGNATURE RESORTS, INC.
<TABLE>
<CAPTION>
NAME JURISDICTION OF ORGANIZATION
---- ----------------------------
<S> <C>
Premier Resort Management, Inc. .......... Georgia
KGI Port Royal, Inc. ..................... California
Argosy Hilton Head, Inc. ................. Georgia
Argosy/KGI Port Royal Partners............ South Carolina (general partnership)
Port Royal Resort, L.P. .................. South Carolina
KGI Grand Beach Investments, Inc. ........ California
Argosy Grand Beach........................ Georgia (corporation)
Argosy Partners Inc. ..................... Georgia
Argosy/KGI Grand Beach Investment Partner-
ship..................................... California (general partnership)
Grand Beach Partners, L.P. ............... California
Grand Beach Resort, Limited Partnership... Georgia
AKGI Lake Tahoe Investments, Inc. ........ California
KGK Lake Tahoe Development, Inc. ......... California
Lake Tahoe Resort Partners, LLC........... California
Resort Marketing International, Inc. ..... California
AKGI - St. Maarten NV..................... Delaware/Netherlands Antilles
(dually incorporated)
Resort Management International, Inc. .... Georgia
</TABLE>
<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. 2 to the
Registration Statement (Form S-1 No. 333-06027) and related Prospectus of
Signature Resorts, Inc. dated July 31, 1996.
Ernst & Young LLP
Los Angeles, California
July 26, 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 30, 1996
