<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 18, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
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 95-4582157
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
6552
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
----------------
5933 WEST CENTURY BOULEVARD, SUITE 210
LOS ANGELES, CALIFORNIA 90045
(310) 348-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ANDREW D. HUTTON, ESQ.,
VICE PRESIDENT AND GENERAL COUNSEL
SIGNATURE RESORTS, INC.
5933 WEST CENTURY BOULEVARD, SUITE 210
LOS ANGELES, CALIFORNIA 90045
(310) 348-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPY TO:
<TABLE>
<S> <C>
EDWARD H. BROWN, ESQ. THOMAS J. MORGAN, ESQ.
SCHROEDER, WHEELER & FLINT, LLP GALLAGHER & KENNEDY, P.A.
1600 CANDLER BUILDING 2600 NORTH CENTRAL AVENUE
127 PEACHTREE STREET, N.E. PHOENIX, ARIZONA 85004-3020
ATLANTA, GEORGIA 30303-1845
</TABLE>
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the merger of AVCOM International, Inc. and Signature Resorts,
Inc. pursuant to an Agreement and Plan of Merger, dated as of September 22,
1996, described in the enclosed Proxy Statement/Prospectus have been satisfied
or waived. dated as of September 22, 1996, described in the enclosed Proxy
Statement/Prospectus have been satisfied or waived.
----------------
IF THE SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED IN
CONNECTION WITH THE FORMATION OF A HOLDING COMPANY AND THERE IS COMPLIANCE
WITH GENERAL INSTRUCTION G, CHECK THE FOLLOWING BOX: [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE(2)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par 1,494,957
value................. shares $N/A $27,264,221.00 $8,261.89
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Based upon the assumed maximum number of shares of Signature Resorts, Inc.
Common Stock that may be issued in the Merger described herein. An
additional, presently indeterminate number of shares of Signature Resorts,
Inc. Common Stock may be issued in the event the Conversion Share Value
(as defined) is less than $15.55 per share.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f)(1) and Rule 457(c) and based upon the average
of the bid and asked price of the common stock of AVCOM International,
Inc. (the securities cancelled in the Merger) on November 12, 1996 on the
NASDAQ over-the-counter market.
----------------
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 COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
AVCOM INTERNATIONAL, INC.
561 HIGHWAY 179
SEDONA, ARIZONA 86336
, 1996
Dear Shareholder:
This booklet contains the Notice of Meeting and Proxy Statement/Prospectus
for a Special Meeting of the Shareholders (the "SPECIAL MEETING") of AVCOM
International, Inc. ("AVCOM") to be held on , 199 ,
commencing at .m., local time, at Poco Diablo Resort, 1736 Highway 179,
Sedona, Arizona 86336.
The purpose of the Special Meeting is to consider and vote upon the
Agreement and Plan of Merger as amended (as amended, the "MERGER AGREEMENT")
described in the accompanying Proxy Statement/Prospectus pursuant to which ASP
Acquisition Corp. ("ASP"), a subsidiary of Signature Resorts, Inc.
("SIGNATURE"), would be merged with and into AVCOM (the "MERGER"). If the
Merger Agreement is approved, each outstanding share of common stock of AVCOM
("AVCOM STOCK") will be converted into and exchanged for the right to receive
shares of common stock of Signature (the "SIGNATURE STOCK"). The accompanying
Proxy Statement/Prospectus includes a description of the terms and conditions
of the proposed Merger, a description of the business of the parties and their
respective subsidiaries, and information regarding management and certain
other information, including a description of the appraisal rights of
shareholders.
Notwithstanding the foregoing, ten percent (10%) of the aggregate shares of
Signature Stock to be received by the shareholders of AVCOM upon consummation
of the proposed Merger, will be held and made subject to an escrow established
as a procedure for the satisfaction of any claims by Signature for
indemnification pursuant to the Merger Agreement. See "THE PROPOSED MERGER--
Escrow Agreement" in the Proxy Statement/Prospectus.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS FAIR TO, AND IS IN THE
BEST INTERESTS OF AVCOM AND ITS SHAREHOLDERS AND RECOMMENDS THAT YOU VOTE IN
FAVOR OF APPROVAL AND FOR ADOPTION OF THE MERGER AGREEMENT.
The affirmative vote of the holders of a majority of the outstanding AVCOM
Stock is required to approve the Merger Agreement. All of the directors and
executive officers of AVCOM, who, as of , 1996, in the aggregate
beneficially owned approximately % of the outstanding shares of AVCOM Stock,
have indicated that they intend to vote in favor of approval and adoption of
the Merger Agreement. A form of proxy is enclosed, and you are urged to
complete, sign and return it to AVCOM as soon as possible in the enclosed,
stamped envelope. If you attend the Special Meeting you may revoke your proxy
at that time simply by requesting the right to vote in person.
Should you have any questions concerning the merger or the accompanying
Proxy Statement/Prospectus, or require any assistance in completing your proxy
card, please feel free to contact the undersigned at 561 Highway 179, Sedona,
Arizona 86336, (520) 282-1983.
Sincerely,
Gary L. Hughes
Chairman of the Board of Directors
<PAGE>
AVCOM INTERNATIONAL, INC.
561 HIGHWAY 179
SEDONA, ARIZONA 86336
---------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON ,
199
---------------------------------------------
Notice is hereby given that a Special Meeting of Shareholders (the "SPECIAL
MEETING") of AVCOM International, Inc. ("AVCOM") will be held on
, 199 , commencing at .m., local time, at Poco
Diable Resort, 1736 Highway 179, Sedona, Arizona 86336, for the purpose of
considering and voting upon:
(1) An Agreement and Plan of Merger as amended (as amended, the "MERGER
AGREEMENT") providing for the merger (the "MERGER") of ASP Acquisition
Corp. ("ASP"), a subsidiary of Signature Resorts, Inc. ("SIGNATURE")
with and into AVCOM, with the result being AVCOM becoming a wholly
owned subsidiary of Signature; and
(2) Such other business as may lawfully come before the meeting or any
adjournment thereof.
In connection with the Merger, each outstanding share of common stock of
AVCOM ("AVCOM STOCK") will be converted into the right to receive $5.00
(subject to adjustment) of Merger consideration to be delivered in the form of
shares of common stock of Signature ("SIGNATURE STOCK"). The initial
conversion ratio is .26 shares of Signature Stock for each share of AVCOM
Stock. The conversion ratio is subject to adjustments which could permit the
value of the Merger consideration to fluctuate between a maximum of $6.00 and
a minimum of $4.00 for each share of AVCOM Stock. In lieu of the issuance of
fractional shares of Signature Stock, there will be paid in cash an amount
(computed to the nearest cent) equal to the value of any fractional share. The
Merger Agreement and the Merger are described in detail in the accompanying
Proxy Statement/Prospectus. Notwithstanding the foregoing, ten percent (10%)
of the aggregate shares of Signature Stock to be received by the shareholders
of AVCOM, will be held and made subject to an escrow established as a
procedure for the satisfaction of any claims by Signature for indemnification
pursuant to the Merger Agreement. See "THE PROPOSED MERGER--Escrow Agreement"
in the Proxy Statement/Prospectus.
If the Merger is consummated, shareholders dissenting therefrom will be
entitled to be paid the "fair value" of their shares in cash, provided that
they shall have filed a written notice of intent to demand payment for their
shares before the vote of shareholders is taken thereon, have not voted their
shares in favor of the Merger and have complied with the further provisions of
Section 262 of the Delaware General Corporation Law, regarding the rights of
dissenting shareholders, all as more fully set forth under "THE PROPOSED
MERGER--Appraisal Rights of Shareholders" and in Appendix C to the attached
Proxy Statement/Prospectus.
The Board of Directors of AVCOM unanimously recommends that shareholders
vote FOR the approval and adoption of the Merger, the Merger Agreement, and
the transactions contemplated thereby.
Only shareholders of record at the close of business on ,
1996, which the Board of Directors of AVCOM has fixed as the record date for
the Special Meeting, will be entitled to notice of and to vote at the Special
Meeting or any adjournment thereof. A complete list of such shareholders will
be available for examination at the offices of AVCOM in Sedona, Arizona,
during normal business hours by any AVCOM shareholder, for any purpose germane
to the Special Meeting, for a period of ten days prior to the Special Meeting.
<PAGE>
A form of proxy and a Proxy Statement/Prospectus are enclosed. The approval
of the Merger requires the affirmative vote of the holders of a majority of
the AVCOM Stock. To assure representation at the Special Meeting, you are
requested to sign, date and return the proxy promptly in the enclosed, stamped
envelope. If you attend the Special Meeting you may revoke your proxy at that
time simply by requesting the right to vote in person. Prior to the Special
Meeting you may withdraw a previously submitted proxy by notifying the
Secretary of AVCOM, in writing or by submitting an executed, later dated proxy
to AVCOM as more fully described under "INFORMATION REGARDING THE SPECIAL
MEETING."
By Order of the Board of Directors,
Gary L. Hughes, President
, 199
2
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 18, 1996
PROXY STATEMENT/PROSPECTUS
AVCOM INTERNATIONAL, INC.
PROXY STATEMENT
FOR A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 199
-----------------------------
SIGNATURE RESORTS, INC.
PROSPECTUS
SHARES OF COMMON STOCK
-----------------------------
This Proxy Statement/Prospectus is being furnished to the shareholders of
AVCOM International, Inc., a Delaware corporation ("AVCOM") in connection with
the solicitation of proxies by the AVCOM Board of Directors for use at a
special meeting of shareholders to be held at p.m., local time, on
, 199 (the "SPECIAL MEETING"). The purpose of the Special Meeting
is to consider and vote upon a proposal to approve an Agreement and Plan of
Merger, dated September 22, 1996 as amended November 15, 1996 (as amended, the
"MERGER AGREEMENT") by and among AVCOM and Signature Resorts, Inc.
("SIGNATURE"), which when consummated will result in the merger of ASP
Acquisition Corp., a subsidiary of Signature ("ASP"), into AVCOM, with AVCOM
then becoming a wholly owned subsidiary of Signature (the "MERGER"). See
"SUMMARY--Terms of the Merger."
This Proxy Statement/Prospectus also serves as a prospectus of Signature
relating to up to 1,494,957 shares of Signature common stock, $.01 par value
(the "SIGNATURE STOCK") to be issued to the shareholders of AVCOM upon
consummation of the proposed Merger. Upon consummation of the Merger, each
outstanding share of AVCOM common stock (the "AVCOM STOCK") (excluding
treasury shares and shares held by shareholders who perfect their appraisal
rights) will be converted into the right to receive $5.00 (subject to
adjustment to a maximum of $6.00 or a minimum of $4.00 based upon the market
value of Signature Stock at the time of consummation of the Merger), to be
paid in the form of shares of Signature Stock. The value of each share of
Signature Stock, for the purposes of determining the number of shares issuable
upon conversion, will equal the mean average of the high and low trading
prices of Signature Stock as reported on the NASDAQ National Market System,
for each of the ten consecutive days immediately preceding ten days prior to
the closing date of the Merger (the "CLOSING DATE"). The initial conversion
rate is .26 shares of Signature Stock for each share of AVCOM Stock. This
conversion rate is fixed unless the value of Signature Stock as of the Closing
Date is greater than $23.33, or less than $15.55, in which case the conversion
rate will be adjusted to insure that each share of AVCOM Stock is converted
into consideration of not more than $6.00, nor less than $4.00, respectively,
in shares of Signature Stock.
SEE "RISK FACTORS" COMMENCING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHAREHOLDERS SHOULD CONSIDER PRIOR TO VOTING ON THE MERGER.
THE SHARES OF SIGNATURE STOCK TO BE RECEIVED IN THIS MERGER HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Proxy Statement/Prospectus is November 18, 1996
<PAGE>
Signature Stock is traded and its quotations are reported on the National
Market System of the National Association of Securities Dealers Automated
Quotations System (the "NASDAQ NATIONAL MARKET SYSTEM") under the symbol
"SIGR." AVCOM Stock is traded on the over-the-counter market under the symbol
"AVMI." On November 12, 1996, the closing sale price for Signature Stock, as
reported on the NASDAQ National Market System, was $38 3/8 per share and the
closing bid price per share for AVCOM Stock was $4 3/4.
The transaction is intended to qualify as a reorganization under Section 368
of the Internal Revenue Code of 1986, as amended (except to the extent of any
cash payments that AVCOM shareholders receive upon conversion of their shares
of AVCOM Stock or upon the exercise of any shareholder's appraisal rights).
See "SUMMARY--Federal Income Tax Consequences," and "CERTAIN FEDERAL INCOME
TAX CONSEQUENCES OF THE MERGER."
NO ASSURANCE CAN BE GIVEN THAT THE SIGNATURE STOCK VALUE WILL REFLECT THE
MARKET VALUE OF THE SHARES OF SIGNATURE STOCK ON THE DATE SUCH STOCK IS
RECEIVED BY A SHAREHOLDER OR AT ANY OTHER TIME. THE VALUE OF A SHARE OF
SIGNATURE STOCK RECEIVED BY A SHAREHOLDER MAY BE GREATER OR LESS THAN THE
SIGNATURE STOCK VALUE DUE TO NUMEROUS MARKET FORCES.
The Board of Directors of AVCOM (the "AVCOM Board") recommend that
shareholders vote FOR the approval and adoption of the Merger, the Merger
Agreement and the transactions contemplated thereby.
The information contained in this Proxy Statement/Prospectus with respect to
AVCOM has been supplied by AVCOM, and the information contained herein with
respect to Signature and ASP Acquisition Corp. has been supplied by Signature.
This Proxy Statement/Prospectus, the Notice of Special Meeting of
Shareholders and a form of proxy were first mailed to the shareholders of
AVCOM on or about , 199 .
AVAILABLE INFORMATION
Signature is subject to the information and requirements of the Securities
and Exchange Act of 1934, as amended (the "EXCHANGE ACT") and, in accordance
therewith, files reports and other information with the Securities and
Exchange Commission ("COMMISSION"). Such reports and other information filed
by Signature with the Commission can be inspected and copied at the Public
Reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, DC 20549 and at the Commission's regional offices located at Seven
World Trade Center, 13th Floor, New York, NY 10048, and 500 West Madison
Street, Suite 1400, Chicago, IL 60661-2511. Copies of such materials can also
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, DC 20549, at prescribed rates. The Commission also
maintains a Web Site that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission. The address of the Web Site is http://www.sec.gov.
Signature's Common Stock is quoted on the NASDAQ National Market System
(Symbol: SIGR), and reports and other information concerning Signature can be
inspected at the National Association of Securities Dealers, Report Section,
1735 "K" Street, N.W., Washington, D.C. 20006.
Signature has filed with the Commission a Registration Statement on Form S-4
(the "REGISTRATION STATEMENT") (of which this Proxy Statement/Prospectus is
part) under the Securities Act of 1933, as amended (the "SECURITIES ACT"),
with respect to the shares of Signature Stock which may be issued in
connection with the Merger. This Proxy Statement/Prospectus ("PROXY
STATEMENT/PROSPECTUS") does not contain all of the information set forth in
the Registration Statement and exhibits thereto covering the securities
offered hereby which has been filed by Signature with the Commission. As
permitted by the rules and regulations of the Commission, this Proxy
Statement/Prospectus omits certain information contained or incorporated by
reference
ii
<PAGE>
in the Registration Statement. Statements contained in this Proxy
Statement/Prospectus as to the contents of any contract or other document
filed as an exhibit to the Registration Statement are not necessarily complete
and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement. For such further
information, reference is made to the Registration Statement.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/ PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY AVCOM OR SIGNATURE. NEITHER THE DE-
LIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURI-
TIES OFFERED HEREBY SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT
THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF AVCOM OR SIGNATURE SINCE THE
DATE HEREOF OR THAT THE INFORMATION SET FORTH HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF A PROXY IN ANY JURISDICTION IN WHICH, OR
TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN
OFFER OR PROXY SOLICITATION.
iii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION.................................................... ii
INTRODUCTION............................................................. 1
SUMMARY.................................................................. 2
Business of Signature.................................................... 2
Business of AVCOM........................................................ 3
Terms of the Merger...................................................... 3
Examples of Conversion Ratio............................................. 4
Reasons for Merger....................................................... 4
Escrow Agreement......................................................... 6
The Special Meeting of Shareholders; Vote Required; Record Date.......... 6
Appraisal Rights of AVCOM Shareholders................................... 7
Federal Income Tax Consequences.......................................... 7
Accounting Treatment..................................................... 7
Markets and Market Prices................................................ 7
Conditions, Termination and Termination Fee.............................. 8
Effect of Merger on Shareholders......................................... 9
Risk Factors............................................................. 9
Regulatory Approvals..................................................... 9
Summary Financial Information............................................ 9
RISK FACTORS............................................................. 11
Conversion Ratio......................................................... 11
Escrow Agreement......................................................... 11
Competition.............................................................. 11
Dividend Policy.......................................................... 12
Potential Volatility in Signature Stock.................................. 12
Potential Dilutive Effect of Signature Stock............................. 12
Acquisition Strategy and Risks Related to Rapid Growth................... 13
Risks of Development and Construction Activities......................... 13
Risk of Increasing Leverage; Restrictive Covenants....................... 14
Limited Operating History................................................ 14
General Economic Conditions; Concentration in Timeshare Industry......... 14
Risks Associated With Customer Default................................... 14
Dependence on Vacation Interval Exchange Networks; Risks of Inability to
Qualify Resorts......................................................... 15
Dependence on Key Personnel.............................................. 15
Seasonality and Variability of Quarterly Results......................... 15
Effective Voting Control by Existing Shareholders; Westin Director
Designation............................................................. 16
Anti-takeover Effect of Certain Provisions of Maryland Law and
Signature's Charter and Bylaws.......................................... 16
INFORMATION REGARDING THE SPECIAL MEETING................................ 17
Special Meeting.......................................................... 17
Date, Time and Place..................................................... 17
Record Date; Vote Required............................................... 17
Voting and Revocation of Proxies......................................... 17
Solicitation of Proxies.................................................. 18
THE PROPOSED MERGER...................................................... 19
General Description of Merger............................................ 19
Escrow Agreement......................................................... 21
Conditions of the Merger................................................. 22
Signature Loan to AVCOM.................................................. 23
Termination of Merger Agreement.......................................... 24
</TABLE>
iv
<PAGE>
TABLE OF CONTENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reasons for the Merger................................................... 24
Background of the Merger................................................. 27
Management After the Merger.............................................. 28
Conduct of Business of AVCOM Pending Closing............................. 36
Interest of Certain Persons in the Transaction........................... 37
Accounting Treatment..................................................... 37
Resales of Stock After the Merger........................................ 37
Regulatory Approvals..................................................... 37
Appraisal Rights of Shareholders......................................... 38
Surrender of Stock Certificates and Receipt of Merger Consideration...... 38
INFORMATION REGARDING SIGNATURE RESORTS, INC. ........................... 40
Business................................................................. 40
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 54
Principal Shareholders................................................... 61
Description of Capital Stock............................................. 61
Shares Eligible for Future Sale.......................................... 62
Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure.............................................................. 63
INFORMATION REGARDING AVCOM INTERNATIONAL, INC. ......................... 65
Business................................................................. 65
Management............................................................... 70
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 73
Dividend Policy.......................................................... 80
Principal Shareholders................................................... 81
Description of Capital Stock............................................. 82
SELECTED FINANCIAL DATA.................................................. 84
AVCOM International, Inc................................................. 84
Signature Resorts, Inc................................................... 85
Pro Forma Data........................................................... 87
MARKET PRICE DATA........................................................ 95
Signature Resorts, Inc................................................... 95
AVCOM International, Inc................................................. 95
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER.................... 96
COMPARISON OF RIGHTS OF SHAREHOLDERS..................................... 97
EXPERTS.................................................................. 103
LEGAL MATTERS............................................................ 104
OTHER MATTERS............................................................ 104
INDEX TO FINANCIAL STATEMENTS............................................ F-1
APPENDICES
Agreement and Plan of Merger as amended.................................. A-1
Escrow Agreement......................................................... B-1
Appraisal Rights--Section 262 of the Delaware General Corporation Law.... C-1
</TABLE>
v
<PAGE>
INTRODUCTION
This Proxy Statement/Prospectus is furnished in connection with the
solicitation by the Board of Directors of AVCOM of proxies for use at the
Special Meeting of shareholders to be held on , 199 at the
time and place set forth in the accompanying Notices of Special Meeting and at
any adjournments thereof. The Special Meeting has been called for the purpose
of considering and acting upon the proposed Merger. Unless otherwise stated
herein, capitalized terms shall have the same meaning as defined in the Merger
Agreement.
HOLDERS OF AVCOM STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE POSTAGE PAID ENVELOPE
PROVIDED.
Any proxy given pursuant to this solicitation may be revoked at any time
before it is voted by so notifying the Secretary of AVCOM in writing or by
submitting an executed later dated proxy to: AVCOM International, Inc., by
mail: P. O. Box 1243, Sedona, Arizona 86339, or if in person: 561 Highway 179,
Sedona, Arizona 86336, Attention: Corporate Secretary, prior to the Special
Meeting or by appearance at the Special Meeting and requesting the right to
vote in person, without compliance with any other formalities. If the proxy is
properly signed and returned by a shareholder and is not revoked, it will be
voted at the Special Meeting in the manner specified therein. If no
instructions are indicated, such proxies will be voted FOR approval of the
Merger Agreement, and in the discretion of the proxy holder, as to any other
matter which may properly come before the Special Meeting. If necessary, the
proxy holder may vote in favor of a proposal to adjourn the Special Meeting in
order to permit further solicitation of proxies in the event there are not
sufficient votes to approve the proposal regarding the Merger Agreements at
the time of the Special Meeting.
Whether or not the Merger is consummated, all expenses of this solicitation,
including the cost of preparing, printing and mailing this Proxy
Statement/Prospectus (which will include fees and expenses of counsel and
accountants), will be paid by each party to the extent of their respective
expenses. In addition to solicitation by mail, directors, officers and regular
employees of AVCOM may solicit proxies by telephone, facsimile transmission,
telegram or personal meeting, for which they will receive no compensation in
addition to their regular compensation.
As of November 1, 1996, AVCOM had authorized capital stock of 10,000,000
shares of common stock of which 5,274,636 shares were issued and outstanding,
including 12,000 shares held in treasury which will be canceled prior to the
Merger. AVCOM also has authorized 1,400,000 shares of preferred stock (the
"AVCOM PREFERRED"). As a condition to the consummation of the Merger, all
1,310,700 shares of the AVCOM Preferred were converted into AVCOM Stock at a
conversion rate of one share of AVCOM Stock for each share of AVCOM Preferred.
The conversion of the AVCOM Preferred into common shares was approved on
October 24, 1996. There are, in the aggregate, 750,000 shares of AVCOM Stock
reserved for issuance pursuant to an AVCOM stock option plan, of which stock
options for 300,000 shares of AVCOM Stock are outstanding. Options granted
outside of the AVCOM stock option plan to acquire an additional 100,000 shares
of AVCOM Stock are also outstanding. In addition, there is an option to
acquire 350,000 shares of AVCOM Stock, the validity of which is being
challenged by AVCOM. All valid options outstanding at the Closing Date to
acquire AVCOM Stock will be converted into the right to receive shares of
Signature Stock based upon the value of the option at the effective time of
the Merger. See "THE PROPOSED MERGER--General Description of the Merger."
Only shareholders of record at the close of business on ,
1996, which the Board of Directors of AVCOM has set as the record date for the
Special Meeting, are entitled to notice of and to vote at the Special Meeting
or any adjournments thereof.
1
<PAGE>
SUMMARY
The following is a summary of certain information contained in this Proxy
Statement/Prospectus, which is qualified in its entirety by reference to the
more detailed textual information and financial data set forth elsewhere in
this Proxy Statement/Prospectus (including the appendix items), and the
documents referenced herein.
BUSINESS OF SIGNATURE
Signature Resorts, Inc., is one of the largest developers and operators of
timeshare resorts in North America, based on the number of resorts in sales.
Signature is devoted exclusively to timeshare operations and directly or
through wholly-owned affiliates owns eight timeshare resorts, including one
under construction, and a ninth resort in which Signature holds a partial
interest (the "EXISTING RESORTS"). The Existing Resorts are located in a
variety of resort destinations including Hilton Head Island, South Carolina;
Koloa, Kauai, Hawaii; the Orlando, Florida area (two resorts); St. Maarteen,
Netherlands Antilles (two resorts); Branson, Missouri; South Lake Tahoe,
California; and Avila Beach, California. Signature's principal operations
currently consist of (i) acquiring, developing and operating timeshare resorts,
(ii) marketing and selling timeshare interests in its resorts, which typically
entitle the buyer to use a fully-furnished vacation residence, generally for a
one-week period each year ("VACATION INTERVALS") and (iii) providing financing
for the purchase of Vacation Intervals at its resorts.
Signature expects that its resorts will operate in the following three general
categories, each differentiated by price range, brand affiliation and quality
of accommodations:
. Non-Branded Resorts. Vacation Intervals at Signature's six non-branded
resorts, which are not affiliated with any hotel chain, generally sell
for $6,000 to $15,000 and are targeted to buyers with annual incomes
ranging from $35,000 to $80,000. Signature believes its non-branded
resorts offer buyers an economical alternative to branded timeshare
resorts (such as Embassy Vacation Resorts and Westin Vacation Club
resorts) or traditional vacation lodging alternatives.
. Embassy Vacation Resorts. Vacation Intervals at Signature'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 more than 120 Embassy Suites hotels throughout North America.
. Westin Vacation Club Resorts. Through its recent agreement with Westin
Hotels & Resorts ("WESTIN"), Signature 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"). Signature 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.
In addition, Signature's resorts participate in the Vacation Interval
exchange network operated by Resort Condominiums International, Inc. ("RCI").
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.
Signature's objective is to become North America's leading developer and
operator of timeshare resorts. To meet this objective, Signature intends to (i)
acquire, convert and develop additional resorts to be operated as Embassy
Vacation Resorts, Westin Vacation Club resorts and non-branded resorts,
capitalizing on the acquisition and marketing opportunities to be provided
through its relationships with Promus Hotels Corporation ("PROMUS"), Westin and
selected financial institutions, (ii) increase sales and financings of Vacation
Intervals
2
<PAGE>
at the Existing Resorts through broader-based marketing efforts and in certain
instances through the construction of additional Vacation Interval inventory,
and (iii) acquire additional Vacation Interval inventory, management contracts,
Vacation Interval mortgage portfolios, and properties or other timeshare-
related assets that may be integrated into Signature's operations.
Signature is a Maryland corporation incorporated in May 1996. Its executive
offices are located at 5933 West Century Boulevard, Suite 210, Los Angeles,
California 90045, and its telephone number is (310) 348-1000. ASP Acquisition
Corp. ("ASP") is a Delaware corporation incorporated in October 1996.
BUSINESS OF AVCOM
AVCOM International, Inc. (referred to hereinafter with its subsidiaries as
"AVCOM") develops, markets and finances timeshare resort properties in Arizona,
California and Texas. In addition, AVCOM provides property management services
to the homeowners' association of each of its developed resorts and services or
monitors timeshare sales and receivables generated at its resorts. AVCOM's
operations are primarily conducted through its wholly-owned subsidiaries,
particularly All Seasons Resorts, Inc. ("ASR"), RPM Management, Inc. ("RPM
MANAGEMENT"), All Seasons Realty, Inc. ("ALL SEASONS REALTY") and All Seasons
Construction, Inc. ("AS CONSTRUCTION"). See "INFORMATION REGARDING AVCOM
INTERNATIONAL, INC.--Business."
AVCOM's timeshare resorts are typically comprised of furnished condominium-
style units, consisting of a two bedroom unit separable into two, one bedroom
suites. Timeshare ownership at AVCOM's resorts typically provides an owner with
the exclusive and perpetual right to use a vacation interval and are typically
sold in intervals of one or more weeks. Additionally, AVCOM generally includes
a one year membership in an international vacation interval exchange company
and a vacation travel club, together with various other amenities. A
homeowners' association, established at each AVCOM resort, manages the resort
and provides for ongoing maintenance, repairs and major replacements. In
addition to its primary sales of timeshare interests, AVCOM maintains an active
resale program at all of its resorts in order to remarket timeshare interests
for owners desiring to sell their interests and for AVCOM to sell its interests
reacquired due to trade-in or purchaser default. See "INFORMATION REGARDING
AVCOM INTERNATIONAL, INC.--Business."
AVCOM is a Delaware corporation incorporated in August 1993. Its executive
offices are located at 561 Highway 179, Sedona, Arizona 86336 and its telephone
number is (520) 282-1983.
TERMS OF MERGER
General. The Merger Agreement provides that ASP, which has recently been
formed as a wholly-owned subsidiary of Signature for purposes of effecting this
Merger, shall be merged with and into AVCOM, which shall be the surviving
corporation in the Merger. Thereafter, AVCOM shall be a wholly-owned subsidiary
of Signature. At the time the Merger becomes effective, each outstanding share
of AVCOM Stock (excluding treasury shares and shares held by shareholders who
perfect their appraisal rights) shall be converted into the right to receive
shares of Signature Stock. If the Merger Agreement is approved at the Special
Meeting, all required governmental and other consents and approvals are
obtained, and all other conditions to the obligations of the parties to
consummate the Merger are either satisfied or waived (as permitted), the Merger
will be consummated. A copy of the Merger Agreement is set forth in Appendix A
to this Proxy Statement/Prospectus. See "THE PROPOSED MERGER--General
Description of Merger."
Conversion Ratio. The Merger Agreement provides that, at the effective time
of the Merger, each outstanding share of AVCOM Stock (excluding treasury shares
and shares held by shareholders who perfect their appraisal rights) shall be
converted into the right to receive shares of Signature Stock. The Merger
Agreement provides that each share of AVCOM Stock shall be converted into
consideration of $5.00 (subject to adjustment
3
<PAGE>
to a maximum of $6.00 or a minimum of $4.00), based upon the market value of
Signature Stock at the time of the consummation of the Merger. The initial
conversion ratio of .26 shares of Signature Stock for each share of AVCOM Stock
is fixed unless the Conversion Share Value of a share of Signature Stock at the
effective time of the Merger exceeds $23.33 or is less than $15.55. In the
event that the Conversion Share Value of Signature Stock should exceed $23.33,
the conversion ratio shall then be adjusted so that a share of AVCOM Stock
would be converted into Merger consideration (in the form of Signature Stock)
of $6.00; while should the Conversion Share Value of Signature Stock be less
than $15.55, the conversion ratio shall then be adjusted so that a share of
AVCOM Stock would be converted into Merger consideration of $4.00. The final
conversion ratio will be based upon the Conversion Share Value of the Signature
Stock at the effective time of the Merger. The "CONVERSION SHARE VALUE" shall
be equal to the mean average of the high and low trading prices of Signature
Stock as reported on the NASDAQ National Market System for each of the ten
consecutive days immediately preceding ten days prior to the Closing Date of
the Merger.
EXAMPLES OF CONVERSION RATIO
So long as the Conversion Share Value of Signature Stock does not exceed
$23.33 or is not less than $15.55, the conversion ratio of .26 shares of
Signature Stock for each share of AVCOM Stock shall remain fixed. The
conversion ratio was based upon a value of $19.44 for a share of Signature
Stock as of the first business day immediately preceding the date that the
Merger Agreement was executed (being the average of the high and low trading
prices on such date). Consequently, should the Conversion Share Value of the
Signature Stock be $23.33 or more, the effective Merger consideration for a
share of AVCOM Stock shall be $6.00 per share ($23.33 X .26). Likewise, should
the Conversion Share Value of the Signature Stock be $15.55 or less, the
effective Merger consideration for each share of AVCOM Stock shall be $4.00 per
share ($15.55 X .26).
In the event that the Conversion Share Value of the Signature Stock should
be, for example, $30, then the conversion ratio would be adjusted from .26 to
.20 shares of Signature Stock for each share of AVCOM Stock in order to reduce
the effective Merger consideration for each share of AVCOM Stock to $6.00
($30.00 X .20). Likewise, in the event that the Conversion Share Value should
be $14 per share, the conversion ratio would be increased from .26 to .2857
shares of Signature Stock for each share of AVCOM Stock in order to increase
the effective Merger consideration per share of AVCOM Stock to $4.00 ($14.00 X
.2857).
REASONS FOR THE MERGER
Joint Reasons for the Merger
Both the AVCOM Board and the Board of Directors of Signature believe that the
Merger represents a strategic combination of two companies in the timeshare
resort industry, offering enhanced opportunities to better service this market.
The Merger is viewed by both management teams as providing both short and
long-term potential benefits to shareholders resulting from economies of scale
and other operating synergies made possible by the Merger. Signature's
management expects a positive impact of the Merger in the future on its
earnings per share based upon the combined companies. Both AVCOM and Signature
believe the Merger to be an appropriate combination due to several factors,
including: (i) AVCOM's strength in the southwestern United States combines well
with Signature's broad presence in Florida, Missouri, California, South
Carolina, Hawaii and St. Maarteen, Netherlands Antilles, (ii) the management
strengths of the two companies are generally complementary, allowing the
combined companies to benefit from an enhanced overall level of management
experience and operating leverage, and (iii) the similarity in development and
operation of the two companies should allow for a relatively smooth combination
of the two companies.
4
<PAGE>
AVCOM Reasons for the Merger
In deciding to approve the Merger and Merger Agreement, the AVCOM Board
considered many factors, including, but not limited to, the terms of the Merger
Agreement, management's knowledge of the respective businesses of AVCOM and
Signature, the general financial circumstances of each respective company and
current and potential future cash flows, earnings and capital needs.
Furthermore, the Merger was considered by AVCOM's management in view of
available alternatives, and the AVCOM Board believes that the Merger could
result in the following strategic benefits:
. Access to Greater Financial Resources. Under the terms of the Merger
Agreement, Signature provided AVCOM a $2.5 million working capital loan
which allows it to satisfy certain obligations and to continue
operations at current levels. The Merger is also expected to provide
AVCOM with an increased access to capital that it may not otherwise have
available, which will be necessary to complete projects currently
planned for development. In addition, the AVCOM Board believes that the
combined company will have access to greater financial resources at
lower borrowing costs. The AVCOM Board believes that the lower borrowing
costs should contribute to lower development costs for AVCOM.
. Shareholder Value. The AVCOM Board considered the benefits that could
reasonably be expected to accrue to AVCOM shareholders from the Merger,
including the premium offered over both AVCOM's then-current stock price
and AVCOM's stock price unaffected by the speculation of a possible
acquisition. In addition, the AVCOM Board considered the likelihood that
the value of Signature Stock received by AVCOM shareholders will be
greater than the value of AVCOM operating on an independent basis
unaffected by acquisition speculation. The AVCOM Board determined that a
combination with Signature could result in greater value to the
shareholders of AVCOM than by either remaining independent or merging or
being acquired by another entity. Factors considered in reaching this
conclusion include the increased liquidity provided to shareholders,
Signature's overall performance historically and on a prospective basis,
and the value of the consideration being paid as compared to various
other alternatives. Specifically, the value of the Merger consideration
between $4.00 and $6.00 per share compared favorably to the book value
share of AVCOM Stock of $1.05 as of June 30, 1996, after giving effect
to the conversion of AVCOM Preferred and convertible debt into AVCOM
Stock.
. Enhanced Marketing Capabilities. The AVCOM Board believes that the
Merger will allow AVCOM to increase its presence in additional
geographical markets, increase attraction to its resorts and increase
exchange demand for its Vacation Interval products.
. Merge With a Leader in the Timeshare Industry. The AVCOM Board believes
that Signature is a leading developer and operator of timeshare resorts
and, as such, is well positioned for further growth and profitability in
the future.
. Improved Operating Practices. The AVCOM Board believes that the
combination of AVCOM's operations with Signature will create operating
synergies in that the companies can draw upon the operating experience
and knowledge of each entity which could result in more efficient
operations.
. Obtain Shares of a More Liquid, Publicly Traded Company. The Merger will
be a means by which the shareholders will be able to obtain shares of a
more liquid, publicly held company.
. Tax Ramifications. The Merger is expected to constitute a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of
1986, as amended, and, as a result, the AVCOM shareholders should
recognize no gain or loss upon the conversion of shares of AVCOM Stock
into shares of Signature Stock, except for gain or loss recognized in
receipt of cash in lieu of any fractional share interest in Signature
Stock. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
5
<PAGE>
THE BOARD OF DIRECTORS OF AVCOM UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER, THE MERGER AGREEMENT AND CONSUMMATION OF
THE TRANSACTIONS CONTEMPLATED THEREBY.
Signature Reasons for the Merger
The Board of Directors of Signature (the "SIGNATURE BOARD") believes that the
terms of the Merger are fair to, and in the best interests of, Signature and
its shareholders. Furthermore, the of Signature Board believes that the Merger
could result in the following strategic benefits:
. Addition of New Development Opportunities. The Signature Board believes
that the Merger may allow Signature to enhance its sales potential by
adding AVCOM's existing resorts to Signature's existing portfolio of 9
resorts from which the combined company will be able to sell. In
particular, the Signature Board believes that the Merger may allow
Signature to have greater access to customers by way of AVCOM's strong
sales and marketing organization in the southwestern U.S., in addition
to benefiting from AVCOM's current owner base of approximately 15,000.
. Lower Cost of Borrowing. The Signature Board believes that the combined
company will have access to greater financial resources and lower
borrowing costs. The Signature Board believes that this lower cost of
borrowing may contribute to lower interest expense and lower development
costs for Signature going forward.
. Significant Operating Synergies. The Merger is expected to provide
Signature certain administrative benefits and opportunities for cost
reductions. AVCOM has certain development, sales and marketing expertise
that may enable Signature to function more efficiently. The Signature
Board believes that beyond cost savings and efficiencies there is also a
long term potential benefit to shareholders from leveraging the
operating experiences of both management teams to improve operations of
resorts and, thereby, increasing the profitability of the combined
entity.
ESCROW AGREEMENT
In order to establish a procedure for the satisfaction of any claims by
Signature for indemnification pursuant to the Merger Agreement, the parties to
the Merger Agreement agreed that 10% of the aggregate shares of Signature Stock
to be received by AVCOM shareholders upon consummation of the Merger, will be
held for a period of time. The parties have further agreed that the mechanism
for holding such shares shall be subject to and governed by the Escrow
Agreement described herein. See "THE PROPOSED MERGER--Escrow Agreement."
THE SPECIAL MEETING OF SHAREHOLDERS; VOTE REQUIRED; RECORD DATE
The Special Meeting of AVCOM shareholders will be held on ,
199 , at p.m., local time, at Poco Diablo Resort, 1736 Highway 179,
Sedona, Arizona 86336. Approval by the AVCOM shareholders of the Merger
Agreement requires the affirmative vote of the holders of a majority of the
issued and outstanding shares of AVCOM Stock. Only holders of record of AVCOM
Stock at the close of business on , 199 (the "RECORD
DATE"), will be entitled to notice of, and to vote at, the Special Meeting. At
the record date, there were shares of AVCOM Stock outstanding, of which
shares were owned beneficially by directors and executive officers of
AVCOM and their affiliates (excluding shares subject to unexercised stock
options which will be converted in the Merger) or approximately % of the
shares entitled to vote at the Special Meeting. All directors and the executive
officers and the affiliates have indicated their intention to vote their shares
for the approval of the Merger Agreement.
ALL OF THE DIRECTORS OF AVCOM PRESENT AT THE DIRECTORS MEETING HELD TO
CONSIDER THE MERGER CAREFULLY CONSIDERED AND UNANIMOUSLY APPROVED THE
6
<PAGE>
TERMS OF THE MERGER AGREEMENT AS BEING IN THE BEST INTEREST OF AVCOM AND ITS
SHAREHOLDERS. THE AVCOM BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
PROPOSAL TO APPROVE AND ADOPT THE MERGER, THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
APPRAISAL RIGHTS OF AVCOM SHAREHOLDERS
AVCOM shareholders have the right under Delaware General Corporation Law to
seek an appraisal of their shares of AVCOM Stock. Any deviation from the
requirements of the Delaware General Corporation Law may result in forfeiture
of such rights. See "THE PROPOSED MERGER--Appraisal Rights of Shareholders."
FEDERAL INCOME TAX CONSEQUENCES
The Merger has been structured with the intent to permit qualification as a
reorganization under Section 368 of the Internal Revenue Code of 1986, as
amended. Provided that the Merger qualifies as a reorganization thereunder,
AVCOM shareholders who exchange shares of AVCOM Stock for shares of Signature
Stock will recognize gain, if any, up to but not in excess of any cash received
in the Merger as a result of payment for fractional shares. The shareholders
should be aware that no tax ruling from the Internal Revenue Service has been
sought in connection with the Merger. Depending upon AVCOM shareholders'
intentions and the number of shares of Signature Stock, in the aggregate,
actually sold by AVCOM shareholders following the Merger, it is possible that
the Merger could be treated as a taxable transaction by the Internal Revenue
Service, and in which event all AVCOM shareholders would recognize gain, if
any, to the extent the fair market value of shares of the Signature Stock plus
the cash received in lieu of fractional shares in the Merger exceeded a
shareholder's basis in the shares of AVCOM Stock surrendered in exchange
therefor. HOLDERS OF SHARES OF AVCOM STOCK SHOULD CONSULT WITH THEIR OWN TAX
ADVISORS REGARDING THE TAX CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE
POSSIBILITY THAT THE SHARES OF THE SIGNATURE STOCK RECEIVED BY THEM WILL BE
TAXABLE TO THEM AS INDICATED ABOVE, AS WELL AS THE APPLICABILITY OF VARIOUS
STATE AND LOCAL TAX LAWS. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER."
ACCOUNTING TREATMENT
The Merger will be accounted for as a "pooling-of-interests" transaction in
accordance with generally accepted accounting principles, provided that AVCOM
shareholders holding less than 10% of the AVCOM Stock assert their appraisal
rights (it being a condition to the Merger that the Merger be accounted for as
a "pooling-of-interests"). As a result, financial statements of Signature
issued before consummation of the Merger will be restated retroactively to
reflect the consolidated operations of AVCOM and Signature as if the Merger had
taken place prior to the periods covered by the financial statements. See "THE
PROPOSED MERGER--Accounting Treatment."
MARKETS AND MARKET PRICES
Signature Resorts, Inc.
Signature Stock has been listed on the NASDAQ National Market System ("NASDAQ
NATIONAL MARKET SYSTEM") under the symbol "SIGR" since its initial public
offering which was completed in August 1996. The following table sets forth the
high and low sales prices for Signature Stock as reported on NASDAQ National
Market System since Signature's initial public offering.
<TABLE>
<CAPTION>
1996 HIGH LOW
---- ---- ----
<S> <C> <C>
Third Calendar Quarter (beginning August 15, 1996).......... $24 5/8 $13 5/8
Fourth Calendar Quarter (through November 12, 1996)......... $38 1/2 $25 3/4
</TABLE>
7
<PAGE>
On September 20, 1996, the last trading day before announcement of the
execution of the Merger Agreement, the closing bid price of Signature Stock, as
reported on the NASDAQ National Market System, was $20 1/4 per share.
Because the market price of Signature Stock is subject to fluctuation, the
market value of the shares of Signature Stock that AVCOM shareholders will
receive in the Merger may increase or decrease prior to the Merger. Holders of
shares of AVCOM Stock should obtain current market quotations for shares of
Signature Stock.
AVCOM International, Inc
AVCOM Stock is traded over-the-counter market and its quotations are reported
on the OTC Bulletin Board Display under the symbol "AVMI." The following sets
forth the high and low per share bid price for AVCOM Stock:
<TABLE>
<CAPTION>
1994 HIGH LOW
---- ---- ---
<S> <C> <C>
Second Calendar Quarter (beginning April 11, 1994)........... 4 11/16 1 1/2
Third Calendar Quarter....................................... 3 3
Fourth Calendar Quarter...................................... 4 2 1/4
<CAPTION>
1995
----
<S> <C> <C>
First Calendar Quarter....................................... 3 5/8 2 3/4
Second Calendar Quarter...................................... 4 3 1/2
Third Calendar Quarter....................................... 4 3
Fourth Calendar Quarter...................................... 3 1/8 2 3/4
<CAPTION>
1996
----
<S> <C> <C>
First Calendar Quarter....................................... 3 2 1/8
Second Calendar Quarter...................................... 3 2 1/4
Third Calendar Quarter (through November , 1996)........... 4 3/4 4 1/4
</TABLE>
On September 20, 1996, the last trading day before announcement of the
execution of the Merger Agreement, the last price of AVCOM Stock, as reported
on the over-the-counter market, was $3 7/8 per share.
CONDITIONS, TERMINATION AND TERMINATION FEE
The consummation of the Merger is subject to various conditions, which are
more fully set out herein. The conditions to closing include, but are not
limited to, completion of the due diligence investigation by Signature of
AVCOM, (ii) the conversion of all outstanding AVCOM Preferred into AVCOM Stock,
(iii) AVCOM shareholders holding less than 10% of the shares of AVCOM Stock
dissenting from the Merger, (iv) obtaining appropriate and necessary lenders'
consents and state agency approvals, and (v) receipt by Signature of a letter
from its accountants to the effect that the Merger will qualify for the pooling
of interest accounting treatment. See "THE PROPOSED MERGER--General Description
of the Merger." If the Merger Agreement is terminated by AVCOM under certain
circumstances, Signature would be required to pay AVCOM a fee of $900,000, plus
expenses incurred in connection with the transaction. If the Merger Agreement
is terminated by Signature under certain other circumstances, AVCOM would be
required to pay Signature a fee of $1,800,000, plus expenses incurred in
connection with the transaction. See "THE PROPOSED MERGER--Termination of
Merger Agreement."
8
<PAGE>
EFFECT OF MERGER ON SHAREHOLDERS
The rights and privileges of holders of AVCOM Stock are governed by the
provisions of the Delaware General Corporate Law, while the rights and
privileges of holders of Signature Stock are governed by Maryland law. AVCOM
shareholders should review the discussion of a comparison of rights included in
this Proxy Statement/Prospectus under the headings. See "COMPARISON OF RIGHTS
OF SHAREHOLDERS."
RISK FACTORS
Certain Risk Factors that AVCOM shareholders should consider prior to voting
on the Merger are included herein under the heading "RISK FACTORS" beginning at
page 12 of this Proxy Statement/Prospectus.
REGULATORY APPROVALS
The Merger is subject to regulatory approval of various state agencies which
monitor the sale of timeshare intervals. The fulfillment of any such approval
processes is a condition to the consummation of the Merger.
COMPARATIVE PER SHARE DATA
Under the terms of the Merger Agreement, AVCOM shareholders will receive .26
shares of Signature Stock for each share of AVCOM Stock subject to adjustment
in the event the Conversion Share Value (as defined) of a share of Signature
Stock exceeds $23.33 per share or is less than $15.55. As stated in the Merger
Agreement, if the Conversion Share Value of a share of Signature Stock is less
than $15.55 per share, then Signature is not required to consummate the Merger.
The final conversion ratio will be based upon the Conversion Share Value of the
Signature Stock (as defined) at the Closing Date. Assuming a minimum Conversion
Share Value of Signature Stock of $15.55 per share and a maximum Conversion
Share Value of $34, a recent 52-week high, the conversion ratios would be .26
and .18, respectively, and AVCOM shareholders would receive 1,448,040 shares
and 1,002,489 shares, respectively, of Signature Stock.
The following table presents, on an unaudited basis, at the dates and for the
periods indicated (i) historical per share data for Signature and AVCOM, (ii)
pro forma combined per share data giving effect to the merger with AVCOM and
(iii) pro forma equivalent per share data for AVCOM Stock. The pro forma
financial data and equivalent per share data assume conversion ratios of .26
and .18 for AVCOM as discussed above.
<TABLE>
<CAPTION>
SIX MONTHS FOR THE YEARS ENDED DECEMBER 31,
ENDED ---------------------------------
JUNE 30, 1996 1995 1994 1993
------------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
HISTORICAL DATA
Signature Resorts, Inc.(a)
Weighted average shares
outstanding............ 11,354,705 11,354,705 -- --
Earnings per share...... $ 0.35 $ 0.56 -- --
Book value per share.... $ 3.91 $ 3.39 -- --
Cash dividends per
share.................. -- -- -- --
AVCOM International, Inc.
Weighted average shares
outstanding............ 4,952,636 5,554,089 4,942,759 4,682,507
Earnings per share...... $ (0.05) $ 0.17 $ 0.16 $ 0.27(b)
Book value per share.... $ .98 $ 1.05 $ 0.59 $ 0.36
Cash dividends per
share.................. -- -- -- --
</TABLE>
- --------
(a) Historical information for Signature Resorts, Inc. is presented on a pro
forma basis, assuming the shares issued in connection with the initial
public offering to the existing general and limited partners (and certain
stockholders) were outstanding since January 1, 1995. Per share amounts
prior to 1995 are not presented.
9
<PAGE>
(b) Pro forma earnings per share for the year ended December 31, 1993 gives
effect to the reorganization, as if it occurred at the beginning of the
period and is based on income before income taxes, adjusted for cumulative
and unpaid dividends on convertible preferred stock and adjusted for a pro
forma income tax provision at the rate of forty percent, and on the
outstanding weighted average shares (less treasury stock), common stock
equivalents and convertible preferred stock.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SIX MONTHS DECEMBER 31,
ENDED ------------------------
JUNE 30, 1996 1995 1994 1993
------------- ---------- ------ ------
<S> <C> <C> <C> <C>
PRO FORMA COMBINED DATA
Pro Forma combined at a conversion
ratio of .26
Weighted average shares
outstanding........................ 12,817,018 12,802,745 -- --
Earnings per share.................. $ 0.29 $ 0.63 -- --
Book value per share................ $ 8.18 -- -- --
Cash dividends per share............ -- -- -- --
Pro Forma combined at a conversion
ratio of .18
Weighted average shares
outstanding........................ 12,367,075 12,357,194 -- --
Earnings per share.................. $ 0.30 $ 0.66 -- --
Book value per share................ $ 8.46 -- -- --
Cash dividends per share............ -- -- -- --
PRO FORMA EQUIVALENT PER SHARE DATA
Equivalent AVCOM per share amounts at
a conversion ratio of .26
Weighted average shares
outstanding........................ 4,952,636 5,554,089 -- --
Earnings per share.................. $ 0.07 $ 0.16 -- --
Book value per share................ $ 2.13 -- -- --
Cash dividends per share............ -- -- -- --
Equivalent AVCOM per share amounts at
a conversion ratio of .18
Weighted average shares
outstanding........................ 4,952,636 5,554,089 -- --
Earnings per share.................. $ 0.05 $ 0.12 -- --
Book value per share................ $ 1.52 -- -- --
Cash dividends per share............ -- -- -- --
</TABLE>
10
<PAGE>
RISK FACTORS
In addition to the other information contained in this Proxy
Statement/Prospectus, the following risk factors should be considered
carefully by the holders of AVCOM Stock in connection with the matters to be
voted on at the Special Meeting.
CONVERSION RATIO
The conversion ratio was determined by the parties such that AVCOM
shareholders (and holders of options to acquire AVCOM Stock) would receive
merger consideration of $5.00 per share of AVCOM Stock (subject to
adjustment), payable in the form of Signature Stock, based upon the $19.44
price of Signature Stock immediately prior to the execution of the Merger
Agreement (which was the average price of the high and low trades on the first
business day preceding the execution of the Merger Agreement). Based upon such
$19.44 price of Signature Stock, a conversion ratio of .26 shares of Signature
Stock for each share of AVCOM Stock was agreed to among the parties ($19.44 X
.26 = $5.00). Pursuant to the Merger Agreement, the actual consideration to be
received at closing for each share of AVCOM Stock could be as high as $6.00
per share or as low as $4.00 per share, based upon the Conversion Share Value
of the Signature Stock at the Closing Date. The Conversion Share Value of the
Signature Stock for purposes of determining the conversion ratio will be equal
to the mean average of the high and low trading prices of Signature Stock as
reported on the NASDAQ National Market System for each of the ten consecutive
trading days immediately preceding ten days prior to the Closing Date. In the
event that the Conversion Share Value should exceed $23.33, the conversion
ratio shall be reduced so that the consideration being received for a share of
AVCOM Stock is $6.00. In the event that the Conversion Share Value shall be
less than $15.55, the conversion ratio shall be adjusted so that a share of
AVCOM Stock shall receive $4.00 per share in Merger consideration. All Merger
consideration shall be paid in the form of Signature Stock, with the exception
of cash to be paid for fractional shares. See "THE PROPOSED MERGER--General
Description of the Merger."
ESCROW AGREEMENT
In order to establish a procedure for the satisfaction of any claims by
Signature for indemnification pursuant to the Merger Agreement, ten percent of
the aggregate shares of Signature Stock to be received by AVCOM shareholders
upon consummation of the Merger will be deposited into escrow and governed by
the Escrow Agreement. The Signature Stock held in the escrow will be
deliverable to the AVCOM shareholders only upon termination of the Escrow
Agreement and satisfaction of the indemnification obligations contained in the
Merger Agreement. See "THE PROPOSED MERGER--Escrow Agreement."
COMPETITION
Although major lodging and hospitality companies such as Marriott, Disney,
Hilton, Hyatt, Four Seasons and Inter-Continental, as well as Promus and
Westin, have established or declared an intention to establish timeshare
operations in the past decade, the industry remains highly fragmented, with a
vast majority of North America's approximately 2,000 timeshare resorts being
owned and operated by smaller, regional companies. Of Signature's major brand
name lodging company competitors, Signature believes, based on published
industry data and reports, that Marriott currently sells Vacation Intervals at
nine resorts which it also owns and operates (Kauai, Hawaii; Palm Desert,
California; Park City, Utah; Breckenridge, Colorado; Williamsburg, Virginia;
Hilton Head Island, South Carolina; Orlando, Florida; Boston, Massachusetts;
and Marbella, Spain) and directly competes with Signature's Poipu Point,
Hilton Head Island and Orlando area resorts; Disney currently sells Vacation
Intervals at three resorts which it also owns and operates (Lake Buena Vista
and Vero Beach, Florida; and Hilton Head Island, South Carolina) and directly
competes with Signature's Orlando area and Hilton Head Island resorts; Hilton
currently sells Vacation Intervals at two resorts which it also owns and
operates (Las Vegas, Nevada; and Orlando, Florida) and directly competes with
Signature's Orlando area resorts; Hyatt owns and operates one resort in Key
West, Florida but does not directly compete in any of Signature's existing
markets (although Hyatt has announced an intention to develop a timeshare
resort in Orlando, Florida); Four Seasons
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currently is developing its first timeshare resort in Carlsbad, California but
is not yet in sales of Vacation Intervals at any resorts; and Inter-
Continental announced its entry into the timeshare market in 1996, but has yet
to announce any specific projects and is not yet in sales of Vacation
Intervals at any resorts. Many of these entities possess significantly greater
financial, marketing, personnel and other resources than those of Signature
and may be able to grow at a more rapid rate as a result.
Signature also competes against companies with unbranded resorts such as
Westgate, Vistana and Vacation Break, each of which competes with Signature's
Orlando area resorts, and Fairfield, which competes with Signature's Orlando
area and Branson resorts. Signature believes, based on published industry data
and reports, that its experience and exclusive focus on the timeshare
industry, together with its portfolio of resorts located in a wide range of
resort destinations and at a variety of price points, distinguish it from each
of its competitors and that Signature is uniquely positioned for future
growth.
Direct competition in the Sedona, Arizona area currently is from ILX
Incorporated which is converting the Los Abrigados Resort Hotel to a timeshare
resort and selling various product configurations. ILX's product is a
combination of studios, one bedroom and two bedroom units. AVCOM competes
directly with The Ridge at Lake Tahoe for timeshare sales in the Lake Tahoe
market. The Ridge is a large condominium development with extensive on-site
amenities. AVCOM competes with the Orange Tree Resort, located in Scottsdale,
Arizona and developed by the Shell Group, with respect to its Scottsdale Villa
Mirage project. At present, the only timeshare resort in competition with
AVCOM's planned Lake Conroe project is a project located 15 miles away
developed by Silverleaf Corporation.
DIVIDEND POLICY
Signature has never declared or paid any cash dividends on its capital stock
and does not anticipate paying cash dividends on its common stock in the
foreseeable future. Signature currently intends to retain future earnings to
finance its operations and fund the growth of its business. Any payment of
future dividends will be in the discretion of the Signature Board and will
depend upon, among other things, Signature's earnings, financial condition,
capital requirements, level of indebtedness, contractual restrictions in
respect of the payment of dividends and other factors that the Signature Board
deems relevant.
POTENTIAL VOLATILITY IN SIGNATURE STOCK
The market price for Signature Stock may be subject to significant
fluctuations, may be volatile in the future and may be affected by factors
such as actual or anticipated fluctuations in Signature's operating results,
seasonality, announcements of new resorts or acquisitions, or in the
operations of its competitors, as well as other events or factors. In
addition, the stock market has from time to time experienced significant price
and volume fluctuations. These broad market fluctuations may adversely affect
the market price of Signature Stock in future periods including prior to the
consummation of the Merger, and these market fluctuations could affect the
conversion ratio and adversely affect the number of shares of Signature Stock
to be received by the AVCOM shareholders in the Merger. See "THE PROPOSED
MERGER--General Description of the Merger."
POTENTIAL DILUTIVE EFFECT OF SIGNATURE STOCK
Although the Signature and AVCOM Boards believe that beneficial synergies
will result from the Merger, there can be no assurance that the combining of
the two companies' businesses, even if achieved in an efficient and effective
manner, will result in combined results of operations and financial conditions
superior to what would have been achieved by each company independently, or as
to the period of time required to achieve such result. Furthermore, the
issuance of Signature Stock in connection with the Merger may have a dilutive
effect on Signature's earnings per share. There can be no assurance that AVCOM
shareholders would not achieve greater returns on their investment if AVCOM
would remain an independent company.
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ACQUISITION STRATEGY AND RISKS RELATED TO RAPID GROWTH
A principal component of Signature's strategy is to continue to grow by
acquiring additional resorts. Signature's future growth and financial success
will depend upon a number of factors, including its ability to identify
attractive resort acquisition opportunities, consummate the acquisitions of
such resorts on favorable terms, convert such resorts to use as timeshare
resorts and profitably sell Vacation Intervals at such resorts. There can be
no assurance that Signature will be successful with respect to such factors.
Signature's ability to execute its growth strategy depends to a significant
degree on the existence of attractive resort acquisition opportunities (which,
in the past, have included completed or nearly completed resort properties),
its ability both to consummate acquisitions on favorable terms and to obtain
additional debt and equity capital and to fund such acquisitions and any
necessary conversion and marketing expenditures. Currently, there are numerous
potential buyers of resort real estate which are better capitalized than
Signature competing to acquire resort properties which Signature may consider
attractive resort acquisition opportunities. There can be no assurance that
Signature will be able to compete against such other buyers successfully or
that Signature will be successful in consummating any such future financing
transactions or equity offerings on terms favorable to Signature. Signature's
ability to obtain and repay any indebtedness at maturity may depend on
refinancing, which could be adversely affected if Signature cannot effect the
sale of additional debt or equity through public offerings or private
placements on terms favorable to Signature. Factors which could affect
Signature's access to the capital markets, or the cost of such capital,
include changes in interest rates, general economic conditions, the perception
in the capital markets of the timeshare industry and Signature's business,
results of operations, leverage, financial condition and business prospects.
In addition, an important part of Signature's growth strategy is to acquire
and develop Westin Vacation Club resorts through the Westin Agreement. See
"INFORMATION REGARDING SIGNATURE RESORTS, INC.--Business." Westin has not
previously been active in the timeshare market and may not devote the
corporate resources to such projects at levels which will make the projects
successful. Moreover, there can be no assurance that Promus Hotels Corporation
("PROMUS") will elect to continue licensing the Embassy Vacation Resort name
to Signature with respect to possible future resorts.
RISKS OF DEVELOPMENT AND CONSTRUCTION ACTIVITIES
Signature intends to actively continue development, construction,
redevelopment/conversion and expansion of timeshare resorts. There can be no
assurance that Signature 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 Signature's Cypress Pointe,
Plantation at Fall Creek and Embassy Vacation Resort Grand Beach resorts,
undertake the additional expansion plans set forth in "INFORMATION REGARDING
SIGNATURE RESORTS, INC.--Business" or undertake to develop other resorts or
complete such development if undertaken. Risks associated with Signature's
development, construction and redevelopment/conversion activities, including
activities relating to the Lake Tahoe and 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 resort may exceed original estimates, possibly making
the resort uneconomical or unprofitable; sales of Vacation Intervals at a
newly completed resort may not be sufficient to make the property profitable;
financing may not be available on favorable terms for development of, or the
continued sales of Vacation Intervals at, a resort; and construction may not
be completed on schedule, resulting in decreased revenues and increased
interest expense. In addition, Signature's construction activities typically
are performed by third-party contractors, the timing, quality and completion
of which cannot be controlled by Signature. Nevertheless, construction claims
may be asserted against Signature for construction defects and such claims may
give rise to liabilities. New development activities, regardless of whether or
not they are ultimately successful, typically require a substantial portion of
management's time and attention. Development activities are also subject to
risks relating to the inability to obtain, or delays in obtaining, all
necessary zoning, land-use, building, occupancy and other required
governmental permits and authorizations, the ability of Signature to
coordinate construction activities with the process of obtaining such permits
and authorizations, and the ability of Signature to obtain the financing
necessary to complete the necessary acquisition, construction, and/or
conversion work. The ability of Signature to expand its business to include
new resorts will in part depend upon the availability of
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suitable properties at reasonable prices and the availability of financing for
the acquisition and development of such properties. In addition, certain
states and local laws may impose liability on property developers with respect
to construction defects, discovered or repairs made by future owners of such
property. Pursuant to such laws, future owners may recover from Signature
amounts in connection with any repairs made to the developed property. See
"INFORMATION REGARDING SIGNATURE RESORTS, INC.--Business" and "INFORMATION
REGARDING SIGNATURE RESORTS, INC.--Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RISK OF INCREASING LEVERAGE; RESTRICTIVE COVENANTS
Future development by Signature at its Existing Resorts likely will be
financed with indebtedness obtained pursuant to Signature's existing credit
facilities or credit facilities obtained by Signature in the future. The
agreements with respect to such facilities contain, or in the future could
contain, restrictive covenants, possibly including covenants limiting capital
expenditures, incurrence of debt and sales of assets and requiring Signature
to achieve certain financial ratios, some of which could become more
restrictive over time. Subsequent acquisition activities likely will be
financed primarily by new financing arrangements. Signature's pro forma
indebtedness as well as the indebtedness to be incurred under such facilities
likely will be secured by mortgages on Signature's resort properties as well
as other assets of Signature. Among other consequences, the leverage of
Signature and such restrictive covenants and other terms of Signature's debt
instruments could impair Signature's ability to obtain additional financing in
the future, to make acquisitions and to take advantage of significant business
opportunities that may arise. In addition, Signature's leverage may increase
its vulnerability to adverse general economic and timeshare industry
conditions and to increased competitive pressures.
LIMITED OPERATING HISTORY
Although predecessors of Signature have operating history in the timeshare
and hospitality industries, Signature has only limited operating history as an
integrated entity with respect to the Existing Resorts, which could have an
adverse impact on Signature's operations and future profitability.
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 Signature's business.
Any such economic conditions, including recession, may also adversely affect
the future availability of attractive financing rates for Signature or its
customers and may materially adversely affect Signature's business.
Furthermore, adverse changes in general economic conditions may adversely
affect the collectibility of Signature's loans to Vacation Interval buyers.
Because Signature's operations are conducted solely within the timeshare
industry, any adverse changes affecting the timeshare industry such as an
oversupply of timeshare units, a reduction in demand for timeshare units,
changes in travel and vacation patterns, changes in governmental regulations
of the timeshare industry and increases in construction costs or taxes, as
well as negative publicity for the timeshare industry, could have a material
adverse effect on Signature's operations. See "INFORMATION REGARDING SIGNATURE
RESORTS, INC.--Management's Discussion and Analysis of Financial Condition and
Results of Operations."
RISKS ASSOCIATED WITH CUSTOMER DEFAULT
Signature bears the risk of defaults by buyers who finance the purchase of
their Vacation Intervals. If a buyer of a Vacation Interval defaults on the
loan made by Signature to finance the purchase of such Vacation Interval
during the early part of the repayment schedule, Signature generally must take
back the mortgage with respect to such Vacation Interval and replace it with a
performing mortgage. In connection with Signature taking back any such
Vacation Interval, the associated marketing costs other than certain sales
commissions will not have been recovered by Signature and they must be
incurred again after their Vacation Interval has been returned to Signature's
inventory for resale (commissions paid in connection with the sale of Vacation
Intervals may be
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recoverable from Signature's sales personnel and from independent contractors
upon default in accordance with contractual arrangements with Signature,
depending upon the amount of time that has elapsed between the sale and the
default and the number of payments made prior to such default). Although
private mortgage insurance or its equivalent is available to cover Vacation
Intervals, Signature has never purchased such insurance. In addition, although
Signature in many cases may have recourse against Vacation Interval buyers,
sales personnel and independent contractors for the purchase price paid and
for commissions paid, respectively, no assurance can be given that the
Vacation Interval purchase price or any commissions will be fully or partially
recovered in the event of buyer defaults under such financing arrangements.
Signature purchased defaulted mortgage notes with respect to 900 Vacation
Intervals at the San Luis Bay Resort on which Signature is in the process of
foreclosing. Signature will be subject to the costs and delays associated with
such foreclosure process. See "INFORMATION REGARDING SIGNATURE RESORTS, INC.--
Business."
DEPENDENCE ON VACATION INTERVAL EXCHANGE NETWORKS; RISK OF INABILITY TO
QUALIFY RESORTS
The attractiveness of Vacation Interval ownership is enhanced significantly
by the availability of exchange networks that allow Vacation Interval owners
to exchange in a particular year the occupancy right in their Vacation
Interval for an occupancy right in another participating network resort.
Several companies, including RCI, provide broad-based Vacation Interval
exchange services, and Signature's Existing Resorts are currently qualified
for participation in the RCI exchange network. However, no assurance can be
given that Signature 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 Signature's resorts are not accepted as
exchanges for other desirable resorts, Signature's sales of Vacation Intervals
could be materially adversely effected. See "INFORMATION REGARDING SIGNATURE
RESORTS, INC.--Business."
DEPENDENCE ON KEY PERSONNEL
Signature's success depends to a large extent upon the experience and
abilities of Osamu Kaneko, Andrew J. Gessow and Steven C. Kenninger, who will
serve as Signature's Chief Executive Officer, President and Chief Operating
Officer, respectively (the "FOUNDERS"). The loss of the services of any one of
these individuals could have a material adverse effect on Signature, its
operations and its business prospects. Signature's success is also dependent
upon its ability to attract and maintain qualified development, acquisition,
marketing, management, administrative and sales personnel for which there is
keen competition among Signature's competitors. In addition, the cost of
retaining such key personnel could escalate over time. There can be no
assurance that Signature will be successful in attracting and/or retaining
such personnel.
SEASONALITY AND VARIABILITY OF QUARTERLY RESULTS
Signature has historically experienced and expects to continue to experience
seasonal fluctuations in its gross revenues and net income from the sale of
Vacation Intervals. This seasonality may cause significant variations in
quarterly operating results. If sales of Vacation Intervals are below seasonal
norms during a particular period, Signature's annual operating results could
be materially adversely affected. In addition, the combination of (i) the
possible delay in generating revenue after the acquisition by Signature of
additional resorts prior to the commencement of Vacation Interval sales and
(ii) the expenses associated with start-up unit or room-rental operations,
interest expense, amortization and depreciation expenses from such
acquisitions may materially adversely impact earnings. 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
Signature's resort locations (e.g., hurricanes in Hawaii and St. Maarten and
earthquakes in California). Additional material variability in operating
results may occur.
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EFFECTIVE VOTING CONTROL BY EXISTING SHAREHOLDERS; WESTIN DIRECTOR DESIGNATION
The Founders hold substantial amounts of shares of Signature Stock (Messrs.
Kaneko, Gessow and Kenninger currently hold 15.6%, 17.8% and 8.0%,
respectively) which may allow them, collectively, to exert substantial
influence over the election of directors and the management and affairs of
Signature. Accordingly, if such persons vote their shares of stock in the same
manner, they will have sufficient voting power, in general, to determine the
outcome of various matters submitted to the shareholders for approval,
including mergers, consolidations and the sale of substantially all of
Signature's assets. Pursuant to the Westin Agreement, during the term thereof
Westin generally will have the right to designate one member of the Signature
Board, irrespective of its share ownership in Signature. See "INFORMATION
REGARDING SIGNATURE RESORTS, INC.--Principal Shareholders," "INFORMATION
REGARDING SIGNATURE RESORTS, INC.,--Description of Capital Stock" and
"INFORMATION REGARDING SIGNATURE RESORTS, INC.--Business." Such control may
result in decisions which are not in the best interest of Signature.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND SIGNATURE'S
CHARTER AND BYLAWS
Certain provisions of Signature's articles of incorporation (the "CHARTER")
and bylaws (the "BYLAWS"), as well as Maryland corporate law, may be deemed to
have anti-takeover effects and may delay, defer or prevent a takeover attempt
that a stockholder might consider to be in the stockholder's best interest.
For example, such provisions may (i) deter tender offers for Signature Stock,
which offers may be beneficial to shareholders or (ii) deter purchases of
large blocks of Signature Stock, thereby limiting the opportunity for
shareholders to receive a premium for their Signature Stock over then-
prevailing market prices. These provisions include the following:
Preferred Shares. The Charter authorizes the Signature Board to issue
preferred stock in one or more classes and to establish the preferences and
rights (including the right to vote and the right to convert into common
stock) of any class of preferred stock issued. No preferred stock will be
issued or outstanding as of the closing of the Merger. See "INFORMATION
REGARDING SIGNATURE RESORTS, INC.--Description of Capital Stock."
Staggered Board. The Signature Board will have three classes of directors.
The terms of the first, second and third classes will expire in 1997, 1998 and
1999, respectively. Directors for each class will be chosen for a three-year
term upon the expiration of the term of the current class, beginning in 1997.
The affirmative vote of two-thirds of the outstanding common stock is required
to remove a director.
Maryland Business Combination Statute. Under the Maryland General
Corporation Law ("MGCL"), certain "business combinations" (including the
issuance of equity securities) between a Maryland corporation and any person
who owns, directly or indirectly, 10% or more of the voting power of the
corporation's shares of capital stock (an "INTERESTED STOCKHOLDER") must be
approved by a supermajority (i.e., 80%) of voting shares. In addition, an
Interested Stockholder may not engage in a business combination for five years
following the date he or she became an Interested Stockholder.
Maryland Control Share Acquisition. Maryland law provides that "Control
Shares" of a corporation acquired in a "Control Share Acquisition" have no
voting rights except to the extent approved by a vote of two-thirds of the
votes eligible under the statute to be cast on the matter. "Control Shares"
are voting shares of beneficial interest which, if aggregated with all other
such shares of beneficial interest previously acquired by the acquiror, would
entitle the acquiror directly or indirectly to exercise voting power in
electing directors within one of the following ranges of voting power: (i)
one-fifth or more but less than one-third, (ii) one-third or more but less
than a majority or (iii) a majority of all voting power. Control Shares do not
include shares of beneficial interest the acquiring person is then entitled to
vote as a result of having previously obtained stockholder approval. A
"Control Share Acquisition" means the acquisition of Control Shares, subject
to certain exceptions.
If voting rights are not approved at a meeting of shareholders then, subject
to certain conditions and limitations, the issuer may redeem any or all of the
Control Shares (except those for which voting rights have previously been
approved) for fair value. If voting rights for Control Shares are approved at
a shareholders meeting and the acquiror becomes entitled to vote a majority of
the shares of beneficial interest entitled to vote, all other shareholders may
exercise appraisal rights. See "COMPARISON RIGHTS OF SHAREHOLDERS."
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INFORMATION REGARDING THE SPECIAL MEETING
SPECIAL MEETING
This Proxy Statement/Prospectus is being furnished to the holders of AVCOM
Stock in connection with the solicitation of proxies by the AVCOM Board for
use at a Special Meeting and the adjournments thereof at which the
shareholders of AVCOM will consider and vote upon a proposal to approve the
Merger Agreement and vote upon any other business which may properly be
brought before the Special Meeting or any adjournments thereof. Each copy of
this Proxy Statement/Prospectus which is being mailed or delivered to AVCOM
shareholders is accompanied by a proxy card and the Notice of Special Meeting
of Shareholders.
This Proxy Statement/Prospectus is being furnished by Signature to each
holder of AVCOM Stock as a prospectus in connection with the issuance by
Signature of shares of Signature stock upon the consummation of the Merger.
This Proxy Statement/Prospectus and the Notice of Special Meeting and proxy
card is being first mailed to shareholders of AVCOM on , 199 .
DATE, TIME AND PLACE
The Special Meeting will be held at Poco Diablo Resort, 1736 Highway 179,
Sedona, Arizona 86336 on , 199 at p.m., local time.
RECORD DATE; VOTE REQUIRED
The AVCOM Board has fixed the close of business on , 199 , as the record
date for the termination of the shareholders of AVCOM entitled to notice and
to vote at the Special Meeting (the "RECORD DATE"). On the Record Date there
were shares of AVCOM Stock outstanding entitled to vote at the Special
Meeting. Each share is entitled to one vote on each matter properly brought
before the Special Meeting. The affirmative vote of the holders of at least a
majority of outstanding shares of AVCOM Stock is required to approve the
Merger Agreement. As of the Record Date there were holders of AVCOM Stock.
As of the Record Date, directors and executive officers of AVCOM and their
affiliates owned beneficially an aggregate shares of AVCOM Stock
(excluding shares which may be received upon the exercise of stock options) or
approximately % of the outstanding shares entitled to vote at the Special
Meeting. All such directors and executive officers and their affiliates have
indicated their intention to vote their shares for the approval and adoption
of the Merger, the Merger Agreement and the transactions contemplated thereby
at the Special Meeting.
VOTING AND REVOCATION OF PROXIES
Shares of AVCOM Stock which are represented by proxy properly executed and
received prior to the vote at the Special Meeting will be voted at the Special
Meeting in the manner directed on the proxy card, unless such proxy is revoked
in advance of such vote. Any AVCOM shareholder who has given a proxy may
revoke such proxy at any time prior to its exercise at the Special Meeting by
(i) giving written notice of revocation bearing a later date than the proxy to
the secretary of AVCOM, (ii) properly submitting to AVCOM a duly executed
proxy card relating to the same shares bearing a later date, or (iii)
attending the Special Meeting and voting in person. Attendance at the Special
Meeting will not, in and of itself, revoke a proxy. All written notices of
revocation and other communications with respect to revocation of proxies by a
shareholder should be addressed as follows:
AVCOM International, Inc.
P. O. Box 1243
Sedona, Arizona 86339
or hand delivered to Mr. Doug Wills at 561 Highway 179, Sedona, Arizona 86339,
before the vote is taken at the Special Meeting.
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AVCOM shareholders returning a blank executed proxy card will be deemed to
have approved the Merger Agreement, thereby waiving any appraisal rights they
may have. The AVCOM Board is not currently aware of any business to be brought
before the Special Meeting other than that described herein. If, however,
other matters are properly brought before the Special Meeting, or any
adjournments thereof, the persons appointed as proxies will have discretion to
vote the shares represented by duly executed proxies in accordance with their
discretion and judgment as to the best interest of AVCOM.
Shareholders should NOT send any stock certificates with the enclosed proxy
card. If the Merger is consummated, AVCOM shareholders will be sent a letter
of transmittal with instructions for surrendering their certificates
representing shares of AVCOM Stock.
SOLICITATION OF PROXIES
AVCOM will bear its own cost of soliciting proxies. Proxies will be
solicited by mail, but directors, officers and selected other employees of
AVCOM may also solicit proxies in person or by telephone or telegraph.
Directors, executive officers and other employees of AVCOM who solicit proxies
will not be specially compensated for such services. Brokerage firms,
nominees, fiduciaries and other custodians will be requested to forward
soliciting materials to beneficial owners and will be reimbursed for the
reasonable expenses incurred in sending proxy material to beneficial owners.
AVCOM does not currently intend to employ any other party to assist in the
solicitation process.
HOLDERS OF AVCOM STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED, POSTAGE
PREPAID ENVELOPE.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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THE PROPOSED MERGER
The following information describes certain information pertaining to the
Merger. This description does not purport to be complete and is qualified in
its entirety by reference to the other information contained in this Proxy
Statement/Prospectus or the appendices hereto, including the Merger Agreement,
a copy of which is set forth in Appendix "A" to this Proxy
Statement/Prospectus and is incorporated herein by reference. All shareholders
are urged to read the appendices in their entirety.
GENERAL DESCRIPTION OF MERGER
Pursuant to the Merger Agreement, on the Closing Date, ASP Acquisition
Corp., a Delaware corporation and a wholly owned subsidiary of Signature, will
merge with and into AVCOM, a Delaware corporation. Upon consummation of the
Merger, each share of AVCOM Stock, except shares held in treasury and shares
owned by shareholders who have taken all required steps to exercise their
appraisal rights under Delaware law, will be converted into consideration of
$5.00, subject to adjustment to a maximum of $6.00 or a minimum of $4.00. The
consideration will consist of shares of Signature Stock. The value of
Signature Stock for purposes of determining the number of shares issuable as
the merger consideration will be equal to the mean average of the high and low
trading prices of Signature Stock as reported on the NASDAQ National Market
System for each the ten consecutive trading days immediately preceding the ten
days prior to the Closing Date.
If stock options granted by AVCOM are outstanding as of the Closing Date and
converted into shares of Signature Stock, the holders thereof will receive
Merger consideration calculated on the basis of the number of shares
underlying options having the same exercise price multiplied by a fraction,
the denominator of which is $5.00 (subject to adjustment, as described below)
and the numerator of which is the excess of the denominator over the exercise
price of the underlying options. For example, if as of the Closing Date an
individual holds unexercised options to purchase 40 shares of AVCOM Stock at
an exercise price of $2.50 per share, the merger consideration to be paid to
the option holder by Signature would be calculated as follows: $2.50/$5.00 X
40 = 20 shares; and the options holder would receive in the Merger the per
share merger consideration with respect to the 20 shares. A similar
calculation would be made with respect to each additional group of options
held by the option holder which had an identical exercise price. As of
November 1, 1996, there were outstanding options to purchase 750,000 shares of
AVCOM Stock, 400,000 of which are held by employees of AVCOM. There was also
an option to acquire 350,000 shares claimed to be held by William C. Needham,
Jr., which claim is being disputed by AVCOM. All valid outstanding options
will, as of the effective time of the Merger be converted into the right to
receive shares of Signature Stock in accordance with the foregoing
calculation. See "INFORMATION REGARDING AVCOM INTERNATIONAL, INC.--Description
of Capital Stock."
The Merger Agreement provides that the consideration of $5.00 per share of
AVCOM Stock to be received by AVCOM shareholders is subject to adjustment to a
maximum of $6.00 or a minimum of $4.00, based upon the Conversion Share Value
of the Signature Stock as of the Closing Date. As of the last trading day
immediately preceding the date of the execution of the Merger Agreement, the
average sale price of a share of Signature Stock was $19.44. The parties
agreed to a value of $5.00 per share for AVCOM Stock, yielding the initial
conversion ratio of .26. This initial conversion ratio is fixed, and will not
adjust, unless the market price of the Signature Stock as of the Closing Date
is in excess of $23.33, or less than $15.55. The "Conversion Share Value"
pursuant to the Merger Agreement of a share of Signature Stock shall be equal
to the mean average of the high and low trading prices of Signature Stock as
reported on the NASDAQ National Market System for each of the ten consecutive
trading days immediately preceding ten days prior to the Closing Date.
Consequently, in the event that the Conversion Share Value should equal
$23.33, the effective Merger consideration received by a holder of a share of
AVCOM Stock would be $6.00 based upon the conversion ratio of .26. If the
Conversion Share Value is $15.55, a holder of a share of AVCOM Stock would
receive Merger consideration of $4.00, based upon the conversion ratio of .26.
In the event, however, that the Conversion Share Value should exceed $23.33,
the conversion ratio would be reduced so as to reduce the Merger consideration
per share of AVCOM Stock to $6.00. Likewise, should the Conversion Share Value
be less than $15.55, the conversion ratio would be increased so as to insure
that a share of AVCOM Stock would receive Merger consideration of $4.00.
19
<PAGE>
The following chart indicates the value to be received by the shareholders
of AVCOM for each share of AVCOM Stock based upon various assumed Conversion
Share Values of Signature Stock:
<TABLE>
<CAPTION>
THEN EACH SHARE OF AVCOM
IF THE CONVERSION STOCK WOULD BE CONVERTED
SHARE VALUE INTO THE FOLLOWING
OF SIGNATURE NUMBER OF SHARES OF AND THE VALUE OF SIGNATURE
STOCK IS: SIGNATURE STOCK: STOCK TO BE RECEIVED IS:
----------------- ------------------------ --------------------------
<S> <C> <C>
$14.00............. .2857 $4.00
15.55............. .26 4.00
18.00............. .26 4.68
19.44............. .26 5.00
22.00............. .26 5.72
23.33............. .26 6.00
30.33............. .20 6.00
</TABLE>
No fractional shares of Signature Stock will be issued in the conversion,
but cash will be paid in lieu of such fractional shares. The shares of
Signature Stock to be issued pursuant to the Merger will be freely
transferable except by certain shareholders of AVCOM who are deemed to be
"affiliates" of AVCOM. The shares of Signature Stock issued to such affiliates
will be restricted in their transferability in accordance with the rules and
regulations promulgated by the Securities and Exchange Commission. See "THE
PROPOSED MERGER--Resales of Stock After the Merger."
As of , 1996, the record date established by the AVCOM Board for
purposes of determining the shares entitled to vote at the Special Meeting,
there were shares of AVCOM Stock outstanding, which includes the
recent conversion of 1,310,700 shares of AVCOM Preferred into the same number
of shares of common stock which was approved on October 24, 1996, and the
conversion of certain debt of AVCOM into 310,000 shares of common stock which
was completed on August 31, 1996. In addition, there were on such date options
to purchase 750,000 shares of AVCOM Stock at various exercise prices. Valid
options will convert into shares of Signature Stock upon the effectiveness of
the Merger. The 750,000 options include an option to acquire 350,000 shares of
AVCOM Stock held by William H. Needham, Jr., although AVCOM is disputing the
validity of the underlying option to Mr. Needham. Based upon the foregoing, it
is anticipated that at a conversion ratio of .26 share of Signature Stock for
each share of AVCOM Stock, Signature will issue not more than 1,494,957 shares
of Signature Stock in exchange for all outstanding shares of AVCOM Stock,
assuming that no options are converted in the Merger into shares of Signature
Stock. The exact number of shares, however, is indeterminable due to the fact
that the number of shares of Signature Stock delivered at the Closing Date may
vary in the event that the Conversion Share Value of Signature Stock is
greater than $23.33, or is less than $15.55. Signature also has the right,
pursuant to the Merger Agreement, to terminate the Merger Agreement if at any
time prior to the Closing Date the Conversion Share Value of Signature Stock
would be less than $15.55.
The aggregate amount of the Merger consideration to be received by AVCOM
shareholders is also subject to adjustment in the event that AVCOM incurs in
excess of $250,000 in fees and expenses with consultants, attorneys,
accountants and the like in connection with the Merger and the due diligence
conducted in regard to the Merger, unless a higher amount is agreed to by
Signature, such agreement not to be unreasonably withheld. Adjustment also can
occur if any amount is paid by AVCOM or a subsidiary of AVCOM in excess of
certain projected litigation expenses. Any adjustments arising out of these
provisions would be borne pro rata by all shares of AVCOM Stock being
converted in the Merger.
NO ASSURANCE CAN BE GIVEN THAT THE SIGNATURE CONVERSION SHARE VALUE WILL
REFLECT THE MARKET VALUE OF A SHARE OF SIGNATURE STOCK ON THE DATE SUCH STOCK
IS RECEIVED BY AN AVCOM SHAREHOLDER OR AT ANY OTHER TIME. THE VALUE OF A SHARE
OF SIGNATURE STOCK RECEIVED BY AN AVCOM SHAREHOLDER MAY BE GREATER OR LESS
20
<PAGE>
THAN THE SIGNATURE CONVERSION SHARE VALUE DUE TO NUMEROUS MARKET FORCES
INCLUDING THE OPERATION OF THE CONVERSION FORMULA.
ESCROW AGREEMENT
In order to establish a procedure for the satisfaction of any claims by
Signature for indemnification pursuant to the Merger Agreement, AVCOM has
agreed in the Merger Agreement that 10% of the aggregate shares of Signature
Stock to be received by AVCOM shareholders upon consummation of the Merger
will be deposited into escrow and governed by the Escrow Agreement. Pursuant
to the Escrow Agreement, all stock splits or dividends payable in stock or
other securities of Signature that are made by Signature with respect to the
escrowed shares, will be deposited into escrow and governed by the Escrow
Agreement. The escrowed shares and such stock or other dividends deposited in
escrow are collectively referred to herein as the "ESCROW DEPOSIT."
AVCOM, along with Gary L. Hughes and John R. Stevens, the Chief Executive
Officer and Director of Marketing and New Products of AVCOM, respectively, has
agreed to indemnify Signature from and against all expenses and damages
(including, without limitation, all related counsel and paralegal fees and
expenses) arising out of any breach of a representation or warranty made by
AVCOM in the Merger Agreement, any breach of the covenants or agreements made
by AVCOM in the Merger Agreement, or any inaccuracy in any certificate
delivered by AVCOM pursuant to the Merger Agreement. Signature shall have a
right, pursuant to the indemnification provisions, to be put in the same pre-
tax consolidated financial condition as it would have been in had each of the
representations and warranties of AVCOM been true and correct and had the
covenants and agreements of AVCOM been performed in full. The Merger Agreement
and the Escrow Agreement provide that the Escrow Deposit shall be held by
Signature for a period of one year following the Closing Date, unless there
remains any unresolved claim for indemnifiable damages in which event any
Escrow Deposit remaining after such claim shall have been satisfied shall be
returned to shareholders promptly after the time of satisfaction; provided,
however, that if any litigation or disputes disclosed in the Merger Agreement
has not been settled and dismissed with prejudice, the Escrow Deposit (or as
much as does not exceed Signature's claims with respect to such
indemnification) shall be held until the earlier of the settlement of all such
litigation or five years following the Closing Date. Partial releases of the
Escrow Deposit occur upon determination that the remaining Escrow Deposit
exceeds the estimated litigation exposure. No claim may be made by Signature
under the indemnification provisions of the Merger Agreement unless the amount
of the individual claim exceeds $25,000, or the aggregate of all claims made
from the Closing Date shall exceed $100,000. Once such limitations are met,
however, whether individually or in the aggregate, the entire claim shall be
subject to indemnification. This limitation provision does not provide for a
deductible and shall not apply, in any event that the claim arises out of
fraud or intentional or willful misconduct on the part of the breaching party.
Pursuant to the Escrow Agreement, Gary L. Hughes and John R. Stevens are
designated as the "STOCKHOLDER REPRESENTATIVES." Any claims made under the
indemnification provisions upon the escrowed funds, shall be made by Signature
to the Escrow Agent and the Stockholder Representatives in a written notice (a
"CLAIM NOTICE"). The Escrow Deposit will be disbursed by the Escrow Agent to
Signature with respect to any claim on the escrowed funds following delivery
of a Final Instruction to the Escrow Agent (a "FINAL INSTRUCTION") in
accordance with the following procedures:
(a) If the Stockholder Representatives dispute either the validity,
amount or calculation of such claim from Escrow Deposit, the Stockholder
Representatives shall give written notice of such a dispute to Signature,
with a copy to the Escrow Agent, within 10 business days after the delivery
of the Claim Notice by Signature to the Stockholder Representatives. In
such circumstances, no final instruction may be given to the Escrow Agent
except as provided in (c) or (d) below.
(b) If the Stockholder Representatives fail to respond to the Claim
Notice within 10 business days after delivery to the Stockholder
Representatives and the Escrow Agent of the Claim Notice, or if the
Stockholder
21
<PAGE>
Representatives notify the Escrow Agent that there is no dispute with
respect to such claim, Signature shall have the right to deliver to the
Escrow Agent a Final Instruction, signed only by Signature, with respect to
such claim.
(c) If the Stockholder Representatives and Signature reach an agreement
with respect to the proper determination of such claim, the Stockholder
Representatives and Signature shall give to the Escrow Agent a Final
Instruction, signed by each of the Stockholder Representatives and
Signature, with respect to such claim.
(d) If an arbitration award pursuant to the terms of the Escrow Agreement
is entered with respect to such claim, either the Stockholder
Representatives or Signature shall have the right to deliver to the Escrow
Agent a Final Instruction with respect to such claim based on and in
compliance with such award, signed only by the Stockholder Representatives
or by Signature, as the case may be, and accompanied by a copy of such
award.
The Escrow Agent shall be Chicago Title Insurance Company (the "ESCROW
AGENT").
Following the Closing Date, each shareholder of AVCOM will be required to
surrender to Wells Fargo Bank, the transfer agent and registrar for the
Signature Stock who will serve as the exchange agent, the certificate(s)
representing the shares of AVCOM Stock converted pursuant to the Merger prior
to the issuance of the stock certificate evidencing the shares of Signature
Stock to which such shareholder is entitled. No fractional shares of Signature
Stock will be issued in the conversion, but cash will be paid in lieu of such
fractional shares.
The shares of Signature Stock to be issued pursuant to the Merger, other
than those deposited in the Escrow Deposit, will be freely transferable except
by certain shareholders of AVCOM who are deemed to be "affiliates" of AVCOM.
The shares of Signature Stock issued to such affiliates will be restricted in
their transferability in accordance with the Securities Exchange Act of 1934,
as amended (the "EXCHANGE ACT") and the rules and regulations promulgated
thereunder by the Securities and Exchange Commission. Shares of Signature
Stock will not be transferable while they remain in the Escrow Deposit. See
"THE PROPOSED MERGER--Resales of Stock After the Merger."
CONDITIONS OF THE MERGER
The respective obligations of Signature and AVCOM to consummate the Merger
are subject to the satisfaction or waiver of certain conditions, including the
following:
(a) All required governmental, regulatory and third party approvals,
consents and/or waiting periods shall have been obtained or shall have
expired;
(b) There shall be no injunction, restraining order or decree of any
nature of any court or governmental agency or body in effect that restrains
or prohibits the consummation of transactions contemplated by the Merger;
and
(c) The Merger Agreement is approved by the holders of a majority of the
outstanding shares of AVCOM Stock at the Special Meeting.
AVCOM's obligations to consummate the Merger are subject to the
satisfaction, unless waived, of certain other conditions, including the
following:
(a) The representations and warranties of Signature contained in the
Merger Agreement shall be true and correct in all material respects as of
the Closing Date, and Signature shall have performed and complied with all
covenants and agreements in all material respects and satisfied all
conditions required by the Merger Agreement to be performed or complied
with or satisfied by Signature at or prior to the Closing Date;
(b) Signature and its representatives shall have provided reasonable
cooperation to AVCOM's tax professionals and supplied information and
representations reasonably necessary in preparing a tax opinion to the
AVCOM shareholders with respect to the tax treatment of the Merger;
22
<PAGE>
(c) AVCOM's lenders shall have consented to the Merger to the extent that
proceeding without such consent would allow any such lender to accelerate
its indebtedness; and
(d) Signature shall have made all required deliveries at closing,
including, but not limited to, necessary corporate certificates, employment
agreements for certain AVCOM personnel, and a legal opinion of counsel to
Signature in form and substance described in the Merger Agreement.
Signature's obligations to consummate the Merger are subject to the
satisfaction, unless waived, of certain other conditions, including the
following:
(a) The representations and warranties of AVCOM contained in the Merger
Agreement shall be true and correct in all material respects as of the
Closing Date, and AVCOM and each of its subsidiaries shall have performed
and complied with all the covenants and agreements in all material respects
and satisfied all of the conditions required by the Merger Agreement to be
performed or complied with or satisfied by it or them at, or prior to, the
Closing Date;
(b) AVCOM shareholders holding more than 10% of the AVCOM Stock shall not
have dissented or exercised appraisal rights under applicable law in
connection with the transactions contemplated by the Merger Agreement;
(c) Signature's lender shall have consented to the transactions
contemplated by the Merger Agreement, and such lender shall have received
such documents and instruments as it may reasonably require;
(d) Each person who is or may be an Affiliated Person of AVCOM shall have
entered into an agreement with Signature in the form customarily given in
similar transactions;
(e) Signature shall have received a letter, dated as of the Closing Date,
in a form and substance reasonably acceptable to Signature, from its
independent certified public accountants to the effect that the Merger
shall qualify for a pooling of interest accounting treatment;
(f) Signature shall have completed its due diligence investigation in
regard to AVCOM and shall have resolved to its full satisfaction any issue
which arises in the course of the investigation;
(g) The Conversion Share Value for a share of Signature Stock shall not
be less than $15.55, subject to appropriate adjustment;
(h) There shall not have occurred any material adverse change in the
assets, business, condition or prospects of AVCOM or any of its
subsidiaries;
(i) AVCOM shall have delivered such corporate certificates as may be
reasonably required in this type of transaction;
(j) AVCOM shall have delivered a legal opinion of its counsel, reasonably
satisfactory to Signature, regarding certain legal matters described in the
Merger Agreement;
(k) All outstanding shares of AVCOM Preferred shall have been converted
into shares of common stock of AVCOM; and
(l) AVCOM shall have delivered such other documents and instruments as
Signature may reasonably request in connection with the Merger.
SIGNATURE LOAN TO AVCOM
The Merger Agreement includes an agreement by Signature to lend $2,500,000
to AVCOM which will be used for working capital purposes for AVCOM and its
subsidiaries. The proceeds of such loan will be used by AVCOM to fund, by way
of illustration, accounts payable, release fees due to construction lenders
and payments of assessments or subsidies to timeshare associations. Interest
accrues at twelve percent (12%) per annum. The loan is secured by (i) a second
priority pledge of approximately 38% of the AVCOM Stock, (ii) a negative
pledge of all the ASR common stock with an obligation to grant a security
interest in the ASR stock upon receipt of
23
<PAGE>
any applicable third party consents, (iii) an assignment of (a) ASR's interest
in Tunlii, L.L.C. and (b) ASR's rights to distributions from the sale of
property owned by Tunlii, L.L.C., (iv) an assignment of ASR's right to acquire
timeshare intervals at the Sedona Summit Resort, and (v) a second priority
deed of trust on ASR's interest in the Sedona Summit Resort. The loan will be
paid from the proceeds of sale of the Tunlii, L.L.C. property and release
prices paid from the sale of intervals at the Sedona Summit Resort. The loan
has been funded and has a maturity date of not later than December 31, 1997
but can mature sooner if, e.g., Signature validly terminates the Merger
Agreement.
TERMINATION OF MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Closing Date
by the mutual consent of the parties. In addition, either of the parties may
terminate the Merger Agreement in the event that the Merger has not been
consummated by June 30, 1997, or if any court of competent jurisdiction or
governmental body shall have issued an order, decree or ruling or taken any
other final action restraining, enjoining or otherwise prohibiting the Merger
with the acceptance and payment for the AVCOM Stock and such order, decree,
ruling or other action is or shall have become non-appealable. The Merger
Agreement may also be terminated by Signature for various other reasons,
including, but not limited to, the AVCOM Board materially modifying its
authorization, approval or recommendation with respect to the Merger, if any
party shall have commenced a tender offer for a majority of the outstanding
shares of AVCOM Stock at a price in excess of $5.00 per share, if Signature
shall not have resolved to its full satisfaction any issues arising in its due
diligence investigation, or if the Conversion Share Value shall at any time
subsequent to the date of the Merger Agreement be less than $15.55, subject to
appropriate adjustments. The Merger Agreement is also terminable by AVCOM for
certain events, including, but not limited to, the Signature Board having
materially modified its authorization or approval of the Merger.
If the Merger is not consummated or the Merger Agreement is terminated by
Signature due to a change in control of AVCOM, a material breach of the Merger
Agreement by AVCOM, or certain events described in the Merger Agreement, AVCOM
shall be required to reimburse Signature for all expenses incurred, plus the
payment to Signature of a cancellation fee of $1,800,000, as liquidated
damages. In addition, Signature would have the right to acquire shares of
AVCOM Stock equal to 19.9% of the total outstanding AVCOM shares, on a fully-
diluted basis at an option price of $5.00 per share. If the Merger is not
consummated or the Merger Agreement is terminated by AVCOM pursuant to a
material breach by Signature, or in the event of a withdrawal or material
modification of approval by the Signature Board, then Signature shall
reimburse AVCOM for all expenses incurred, and shall pay to AVCOM a
cancellation fee of $900,000, as liquidated damages. The Merger Agreement,
including all material terms thereof, may be amended or modified in writing by
the parties at any time before or after the Special Meeting.
REASONS FOR THE MERGER
Joint Reasons for the Merger
Management of AVCOM and Signature believe that the Merger represents a
strategic combination of two companies in the timeshare resort industry,
offering enhanced opportunities to better service this market.
The Merger is viewed by both management teams as providing both short and
long-term potential benefits to shareholders resulting from economies of scale
and other operating synergies made possible by the Merger. Signature's
management expects a positive impact of the Merger in the future on its
earnings per share based upon the combined companies. Both AVCOM and Signature
believe the Merger to be an appropriate combination due to several factors,
including: (i) AVCOM's strength in the southwestern United States combines
well with Signature's broad presence in Florida, Missouri, California, South
Carolina, Hawaii and St. Maarteen, Netherlands Antilles, (ii) the management
strengths of the two companies are generally complementary, allowing the
combined companies to benefit from an enhanced overall level of management
experience and operating leverage, and (iii) the similarity in development and
operation of the two companies should allow for a relatively smooth
combination of the two companies.
24
<PAGE>
AVCOM Reasons for the Merger
In deciding to approve the Merger and Merger Agreement, the AVCOM Board
considered many factors, including but not limited to, the terms of the Merger
Agreement, management's knowledge of the respective businesses of AVCOM and
Signature, the general financial circumstances of each respective company and
current and potential future cash flows, earnings and capital needs.
Furthermore, the Merger was considered by AVCOM's management in view of
available alternatives, and AVCOM's management believes that the Merger could
result in the following strategic benefits:
. Access to Greater Financial Resources. Under the terms of the Merger
Agreement, Signature provided AVCOM a $2.5 million working capital loan
which allows it to satisfy certain current obligations and continue its
operations at current levels. If such working capital loan or a similar
loan had not been obtained, AVCOM may have been required to take certain
steps to operate within available cash flow. The Merger is also expected
to provide AVCOM with increased access to additional capital that may
not have otherwise been available. In order for AVCOM to successfully
complete the projects it has planned for development through 1997, the
majority of which are currently under construction, significant new
capital resources must be obtained. While AVCOM traditionally has met
its capital needs through various sources, including cash flow from
operations, private and bank lenders and debt and equity financings, the
AVCOM Board determined that these sources may not be sufficient to meet
AVCOM's capital needs in the future. The AVCOM Board considered various
methods to obtain additional capital, including public and private debt
and equity financings and private and bank loans, and determined that
while possible to obtain, there was no assurance such capital could be
obtained on a timely or on a cost-effective basis. The AVCOM Board
believes that the combined company will have greater access to
significant financial resources which could lower its borrowing costs,
particularly acquisition and construction borrowing costs, and provide
it capital, on a timely basis which is sufficient to meet its current
development schedules. The AVCOM Board believes that lower borrowing
costs should contribute overall to greater profitability for its
operations.
. Shareholder Value. The AVCOM Board considered the benefits that could
reasonably be expected to accrue to AVCOM shareholders from the Merger.
These benefits include the premium offered over both AVCOM's then-
current stock price or stock price unaffected by the acquisition
speculation and the likelihood of a higher stock price for Signature
Stock than would be achieved by AVCOM operating on an independent basis
unaffected by acquisition speculation. The AVCOM Board determined that a
combination with Signature could result in greater value to the
shareholders of AVCOM than by either remaining independent or merging or
being acquired by another entity. The AVCOM Board considered various
factors in reaching this conclusion, including the increased liquidity
provided to shareholders, Signature's overall performance historically
and on a prospective basis, the potential for interruption of its
development and sales operations if additional capital could not be
obtained on a timely basis, and the value of the consideration being
paid. Specifically, the value of the Merger consideration, between $4.00
and $6.00 per share, compared favorably to the book value of a share of
AVCOM common stock of $1.05 as of June 30, 1996. Alternatives to the
Merger considered by the AVCOM Board included a merger with another
developer with operations solely in one state, public debt or equity
offering, venture capital funding and a leveraged buy-out by management.
Upon consideration of these alternatives, the AVCOM Board determined the
Merger to have the highest probability of allowing shareholders to
maximize the value of their AVCOM Stock.
. Enhanced Marketing Capabilities. The AVCOM Board believes that the
Merger will quickly enhance AVCOM's marketing capabilities through
increased presence in additional geographical markets, attraction to its
resorts due to national name brand recognition and exchange demand for
its Vacation Interval products. The AVCOM Board believes that it will
have greater cross-selling opportunities with the geographic diversity
of the sales centers of the combined companies and will benefit from
Signature's current customer base through cross-marketing its products
directly to such customers at lower costs. The AVCOM Board also believes
that the Merger will benefit its marketing capabilities by associating
AVCOM with the nationally recognized brand names of Westin Vacation Club
Resorts
25
<PAGE>
and Embassy Vacation Resorts. Additionally, the combined resources of
the companies will enhance the attractiveness of its products for
exchange purposes, both intra-company and through international exchange
companies.
. Obtain Shares of a More Liquid, Publicly Traded Company. Due to the
Signature Stock being listed on the NASDAQ National Market System, the
Merger will be a means by which the AVCOM shareholders will be able to
obtain shares of a more liquid, publicly held company.
. Merge With a Leader in the Timeshare Industry. The AVCOM Board believes
that Signature is a leading developer and operator of timeshare resorts
and, as such, is well positioned for further growth and profitability in
the future. The AVCOM Board believes that its combination with Signature
will enhance its ability to acquire larger and potentially more
profitable resorts due to the anticipated greater capital resources and
greater sales volume generated from the joint marketing efforts.
. Improved Operating Practices. The AVCOM Board believes that the
combination of AVCOM's operations with Signature will create operating
synergies in that the companies can draw upon the operating experience
and knowledge of each such entity's operations which could result in
more efficient development, marketing and financing (both development
and consumer) business practices and in reduced general and
administrative overhead.
. Tax Ramifications. The Merger is expected to constitute a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of
1986, as amended, and, as a result, the AVCOM shareholders should
recognize no gain or loss upon the conversion of shares of AVCOM Stock
into shares of Signature Stock, except for gain or loss recognized in
receipt of cash in lieu of any fractional share interest in Signature
Stock. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
THE BOARD OF DIRECTORS OF AVCOM UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER, THE MERGER AGREEMENT AND CONSUMMATION OF
THE TRANSACTIONS CONTEMPLATED THEREBY.
Signature Reasons for the Merger
The Board of Trustees of Signature (the "SIGNATURE BOARD") believes that the
terms of the Merger are fair to, and in the best interests of, Signature and
its shareholders. Furthermore, the of Signature Board believes that the Merger
could result in the following strategic benefits:
. Addition of New Development Opportunities. The Signature Board believes
that the Merger may allow Signature to enhance its sales potential by
adding AVCOM's existing 6 resorts to Signature's existing portfolio of 9
resorts (for a total of 15 resorts) from which the combined company will
be able to sell. In particular, the Signature Board believes that the
Merger may allow Signature to have greater access to customers by way of
AVCOM's strong sales and marketing organization in the southwestern
U.S., in addition to benefiting from AVCOM's current owner base of
approximately 15,000.
. Lower Cost of Borrowing. The Signature Board believes that the combined
company will have access to greater financial resources and lower
borrowing costs. The Signature Board believes that this lower cost of
borrowing may contribute to greater interest income and lower
development costs for Signature going forward.
. Significant Operating Synergies. The Merger is expected to provide
Signature certain administrative benefits and opportunities for cost
reductions. AVCOM has certain development, sales and marketing expertise
that may enable Signature to function more efficiently. The Signature
Board believes that beyond cost savings and efficiencies there is also a
long term potential benefit to shareholders from leveraging the
operating experiences of both management teams to improve operations of
resorts and, thereby, increasing the profitability of the combined
entity.
26
<PAGE>
BACKGROUND OF THE MERGER
Material Contacts and Board Deliberations
On September 10, 1996, Andrew J. Gessow, President, and Steven C. Kenninger,
Chief Operating Officer, of Signature met with Gary L. Hughes, Chairman, John
R. Stevens, Director of Marketing and Robert M. Eckenroth, Chief Financial
Officer and a Director of AVCOM to discuss the possibility of forming a
relationship between the two companies' timeshare resort operations.
On September 17, 1996, Mr. Gessow, Mr. Kenninger, Mr. Hughes, Mr. Stevens,
Mr. Eckenroth and other members of Signature and AVCOM's senior management met
in Sedona, Arizona, and had further discussions regarding a strategic
alliance.
On September 18, 19, 20, 21 and 22, 1996, Mr. Gessow, Mr. Kenninger, Mr.
Hughes, Mr. Stevens and other members of AVCOM's and Signature's senior
management participated from time to time in meetings in San Francisco,
California to discuss the possible merger of the two companies.
At a September 20, 1996 meeting of the AVCOM Board, the proposal to enter
into a possible merger transaction with Signature was discussed extensively.
As a result of these discussions, AVCOM agreed to proceed with negotiations
with representatives of Signature.
On September 21 and 22, 1996, Signature and AVCOM's senior management met to
determine that a merger involving AVCOM and Signature would be strategically
sound from a business point of view if the parties involved could mutually
agree to acceptable terms for such merger.
On September 22, 1996, Mr. Hughes, Mr. Stevens and other members of AVCOM's
and Signature's senior management reconvened in San Francisco, California to
negotiate the terms for a Merger Agreement. At a meeting held on September 22,
1996, the Signature Board approved the Merger, the Merger Agreement and the
transactions contemplated thereby, and during a meeting held on September 22,
1996, the AVCOM Board approved and ratified the Merger, the Merger Agreement
and the transactions contemplated thereby. The Merger Agreement was executed
on September 22, 1996.
27
<PAGE>
MANAGEMENT AFTER THE MERGER
Directors and Executive Officers
The following table sets forth certain information concerning each person
who is (or has consented to be) a director or executive officer of Signature.
Following consummation of the Merger it is not anticipated that any current
directors of AVCOM will become members of the Signature Board. It is, however,
anticipated that certain officers of AVCOM will remain in their current
positions.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Osamu Kaneko................ 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
Michael A. DePatie.......... 43 Proposed Executive Vice President and
Chief Financial Officer
Charles C. Frey............. 40 Chief Financial Officer and Treasurer
Genevieve Giannoni.......... 33 Senior Vice President of Operations
Andrew D. Hutton............ 31 Vice President and General Counsel
Timothy D. Levin............ 39 Vice President-Architecture
Juergen Bartels............. 55 Director
Sanford R. Climan........... 40 Director
Joshua S. Friedman.......... 40 Director
W. Leo Kiely III............ 49 Director
</TABLE>
Osamu Kaneko has served as Director, Chairman of the Board and Chief
Executive Officer of Signature and its predecessor 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. 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 Signature and its
predecessor 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 Signature and its predecessor since its inception. Mr. Kenninger
co-founded KOAR with Mr. Kaneko in 1985 and served as its President. Mr.
Kenninger was a practicing attorney at the law firm of Paul, Hastings,
Janofsky & Walker, Los Angeles, California from 1977 through 1981 and at the
law firm of Riordan & McKinzie, Los Angeles, California from 1981 through
1985, where he was a partner. Mr. Kenninger graduated with highest distinction
from Purdue University with a B.S. degree in Mechanical Engineering in 1974,
and received a J.D. degree from Stanford Law School in 1977. Mr. Kenninger is
a licensed real estate broker in California and has been a member of the State
Bar of California since 1977.
James E. Noyes has served as Director and Executive Vice President of
Signature since June 1996. Prior to joining Signature, from 1989 through June
1996 Mr. Noyes served as President of The Trase Miller Group, the parent
company of MTI Vacations, Inc., with interests in vacation packaging, travel
technology and specialized
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<PAGE>
teleservices, and had served in various executive positions in the Trase
Miller organization since 1980. Mr. Noyes served in various executive
positions for the Golf Division of Wilson Sporting Goods from 1976 to 1980.
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.
Michael A. DePatie has served as Executive Vice President and Chief
Financial Officer of Signature commencing November 1996, and has served as a
consultant to Signature since September 10, 1996. Prior to joining Signature,
Mr. DePatie was Senior Vice President of Finance and Chief Financing Officer
of La Quinta Inns, Inc. from July 1992 to August 1996. From April 1989 through
June 1992, Mr. DePatie was co-founder and Senior Vice President of Finance of
Summerfield Hotel Corporation. From April 1988 through April 1989, Mr. DePatie
was founder and Managing General Partner of Pacwest Capital Partners. From
June 1984 through April 1988, Mr. DePatie served as Senior Vice President of
Finance and Development of The Residence Inn Company. Mr. DePatie received a
B.A. degree with highest honors from Michigan State University in 1979 and a
M.B.A. degree from Harvard Business School in 1983.
Charles C. Frey has served as Senior Vice President of Administration and
Treasurer of Signature and its predecessor since 1992 and served as Chief
Financial Officer of Signature between July and November 1996. Following the
commencement of Mr. DePatie's employment with Signature on or before November
18, 1996, Mr. Frey will become Senior Vice President and Treasurer of
Signature. Prior to joining Signature, Mr. Frey was Vice President and Chief
Financial Officer of Trammell Crow Residential Services-Florida from 1986 to
1992. Mr. Frey is a Certified Public Accountant, is a licensed real estate
broker in Florida and received a B.S. degree in Accounting and Economics from
the Indiana University of Pennsylvania in 1977.
Genevieve Giannoni has served as Senior Vice President of Operations of
Signature since 1995. Ms. Giannoni joined Argosy in May 1992 as Director of
Marketing and became a Vice President of Signature's predecessor in 1993.
Prior to joining Argosy, Ms. Giannoni was a marketing director at Trammell
Crow Residential Services-Florida from 1987 to 1992. Ms. Giannoni is a
licensed real estate agent in Florida. She received her B.A. degree from
Rollins College in 1985 and graduated from the Crummer Management Program at
Rollins College in 1990.
Andrew D. Hutton has served as Vice President and General Counsel of
Signature since October 1996. Prior to joining Signature, Mr. Hutton practiced
corporate securities and finance law with the law firm of Latham & Watkins,
located in Los Angeles, California. Mr. Hutton had been a practicing attorney
with Latham & Watkins since receiving a J.D. degree with honors from the
University of Minnesota Law School in 1991. Mr. Hutton received both B.S. and
B.A. degrees from the University of Kansas in 1988. Mr. Hutton has been a
member of the State Bar of California since 1990.
Timothy D. Levin has served as Vice President-Architecture of Signature
since its inception and of Signature's predecessor since December 1995. From
1989 through December 1995, Mr. Levin was the President of Sevelex
Consultants, Inc., a project management and design consulting firm affiliated
with Messrs. Kaneko and Kenninger. Prior thereto, Mr. Levin was the senior
design and production manager at Carl Wahlquist AIA Architects, Inc. from 1983
through 1988. Mr. Levin is a member of the American Institute of Architects.
Mr. Levin received his Bachelor of Architecture degree from Southern
California Institute of Architecture in 1986. Mr. Levin has been a licensed
General Contractor in the State of California since 1980.
Juergen Bartels has been a Director of Signature since August 1996. Mr.
Bartels has been Chairman and Chief Executive Officer of Westin Hotels &
Resorts since May 1995. From 1983 through April 1995, Mr. Bartels was
President and Chief Executive Officer of Carlson Hospitality Group, Inc.
("CARLSON"), where he directed Carlson's Radisson Hotels International,
Radisson Seven Seas Cruises and several restaurant companies, including the
T.G.I. Friday's chain. Prior to joining Carlson, Mr. Bartels held executive
positions with Holiday Inn and Ramada and was the founder of Ramada
Renaissance Hotels.
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<PAGE>
Sanford R. Climan has been a Director of Signature since August 1996. Mr.
Climan has been Executive Vice President of MCA Inc. ("MCA") since October
1995. Prior to joining MCA, Mr. Climan was a member of the senior executive
team at Creative Artists Agency, Inc., a leading literary and talent agency,
from June 1986 to September 1995. From 1979 to 1986, Mr. Climan held various
positions in the entertainment industry. Mr. Climan also serves as a director
of PointCast Inc. Mr. Climan received a B.A. degree from Harvard College in
1977, a M.B.A. degree from Harvard Business School in 1979 and a Master of
Science in Health Policy and Management from the Harvard School of Public
Health in 1979.
Joshua S. Friedman has been a Director of Signature since August 1996. Mr.
Friedman is a founder of Canyon Partners Incorporated, a private merchant
banking firm and an affiliate of Canpartners Incorporated, and has been a
Managing Partner of Canyon Partners Incorporated since its inception in 1990.
From 1984 through 1990, Mr. Friedman was Executive Vice President and Co-
Director, Capital Markets of Drexel Burnham Lambert Incorporated. Mr. Friedman
also serves as a director of Yale International, Inc., a publicly traded
diversified industrial company, and several privately held companies and
charitable organizations. Mr. Friedman received a B.A. degree from Harvard
College in 1976, a M.A. degree from Oxford University in 1978, a J.D. degree
from Harvard Law School in 1982 and a M.B.A. degree from Harvard Business
School in 1982.
W. Leo Kiely III has been a Director of Signature since August 1996. Mr.
Kiely has been President and Chief Operating Officer of Coors Brewing Company
since 1993. From 1982 through 1993, Mr. Kiely held various executive positions
with Frito-Lay Inc. ("FRITO-LAY"), a subsidiary of PepsiCo, most recently
serving as President of Frito-Lay's Central Division since 1991. Prior to
joining Frito-Lay, Mr. Kiely was President of Ventura Coastal Corporation, a
division of Seven-Up Corporation, from 1979 through 1982 and prior thereto
held various positions with the Wilson Sporting Goods Company and with the
Proctor & Gamble Company. Mr. Kiely also serves as a director of Bell Sports,
Inc. He is also on the advisory boards of the National Association of
Manufacturers and several educational and charitable organizations. Mr. Kiely
received a B.A. degree from Harvard College in 1969 and a M.B.A. degree from
the Wharton School of Business at the University of Pennsylvania in 1971.
On August 5, 1996, an action was filed in California state court against
KEN/KOAR LAX Partners, L.P. (the "LAX PARTNERSHIP"), the owner of the Embassy
Suites hotel located at Los Angeles International Airport, by the secured
lender on the hotel. The complaint seeks judicial foreclosure of the loan,
appointment of a receiver and certain other relief. On August 7, 1996, the
court set a hearing on a motion for the appointment of a receiver for August
26, 1996 and entered a temporary restraining order restricting certain actions
pending such hearing. On August 26, 1996, prior to the scheduled hearing, the
LAX Partnership filed for protection under Chapter 11 of the United States
Bankruptcy Code. An affiliate of Messrs. Kaneko and Kenninger controls and is
the co-general partner of the LAX Partnership, with an approximately 5%
profits and capital interest therein. The hotel is managed by Promus Hotels.
Signature has no interest in the hotel or the LAX Partnership.
Committees of the Signature Board of Directors
Executive Committee. The Signature Board has established an executive
committee (the "EXECUTIVE COMMITTEE"), which will be granted such authority as
may be determined from time to time by a majority of the Signature Board. The
Executive Committee consists of the Founders and at least one independent
director. All actions by the Executive Committee require the unanimous vote of
all of its members.
Audit Committee. The Signature Board has established an audit committee (the
"AUDIT COMMITTEE"), which will consist of two or more independent directors.
The Audit Committee makes recommendations concerning the engagement of
independent public accountants, review with the independent public accountants
the plans and results of the audit engagement, approve professional services
provided by the independent public accountants, review the independence of the
independent public accountants, consider the range of audit and non-audit fees
and review the adequacy of Signature's internal accounting controls.
Compensation Committee. The Signature Board has established a compensation
committee (the "COMPENSATION COMMITTEE"), which consists of two or more non-
employee or independent directors to the
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<PAGE>
extent required by Rule 16b-3 under the Exchange Act, to determine
compensation for Signature's senior executive officers, determine awards under
Signature's 1996 Equity Participation Plan and administer Signature's Employee
Stock Purchase Plan.
The Signature Board does not have a nominating committee.
Classified Board of Directors
The Charter provides for the Signature Board to be divided into three
classes serving staggered terms so that directors' initial terms will expire
either at the 1997, 1998 or 1999 annual meeting of shareholders. Starting with
the 1997 annual meeting of shareholders, one class of directors will be
elected each year for three-year terms. The classification of directors makes
it more difficult for a significant stockholder to change the composition of
the Signature Board in a relatively short period of time and, accordingly,
provides the Signature Board and shareholders time to review any proposal that
a significant stockholder may make and to pursue alternative courses of action
which are fair to all the shareholders of Signature.
Director Compensation
Signature pays its directors who are not officers of Signature ("INDEPENDENT
DIRECTORS") a fee of $1,000 per meeting of the Signature Board and any
committee thereof (including telephonic meetings) for their services as
directors. In addition, Signature has granted options to purchase 15,000
shares of common stock at $14.00 per share (the price per share in Signature's
initial public offering) to each such Independent Director to vest in equal
portions over a term of three years. Each Independent Director who is still a
member of the Signature Board at the end of the three year vesting period of
the initial grant of options will receive a grant of additional options to
purchase 15,000 shares of common stock at the fair market value of the common
stock on the date of the grant, with such options to vest over an additional
three year period. In addition to such option grants, the Independent
Directors will be reimbursed for expenses of attending each meeting of the
Signature Board. Officers of Signature who are directors will not be paid any
director fees but will be reimbursed for expenses of attending meetings of the
Signature Board.
Directors and Officers Insurance
Signature has obtained a directors and officers liability insurance policy
with coverage typical for a publicly traded company such as Signature. The
directors and officers liability insurance policy insures (i) the officers and
directors of Signature from any claim arising out of an alleged wrongful act
by such person while acting as officers and directors of Signature, (ii)
Signature to the extent it has indemnified the officers and directors for such
loss and (iii) Signature for losses incurred in connection with claims made
against Signature for covered wrongful acts.
Indemnification
Signature's Charter provides for the indemnification of Signature's officers
and directors against certain liabilities to the fullest extent permitted
under applicable law. The Charter also provides that the directors and
officers of Signature be exculpated from monetary damages to the fullest
extent permitted under applicable law. It is the position of the Securities
and Exchange Commission that indemnification of directors and officers for
liabilities arising under the Securities Act is against public policy and
unenforceable pursuant to Section 14 of the Securities Act.
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<PAGE>
Executive Compensation
Summary Compensation Table. Signature was incorporated as a Maryland
corporation in May 1996. Accordingly, Signature did not pay any cash
compensation to its executive officers for the year ended December 31, 1995.
The following table sets forth the annual base salary and other annual
compensation which
Signature expects to pay in 1996 to Signature's chief executive officer and
each of the other four most highly compensated executive officers whose cash
compensation on an annualized basis is expected to exceed $100,000 (salary and
bonus) (the "NAMED EXECUTIVE OFFICERS").
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------------- ---------------
SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING
POSITION YEAR(1) SALARY BONUS(2) COMPENSATION(3) OPTIONS/SARS(4)
------------------ ------- -------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Osamu Kaneko............ 1996 $280,000 $ -- $2,500 150,000
Chairman of the Board
and
Chief Executive Officer
Andrew J. Gessow........ 1996 280,000 -- 2,500 150,000
Director and President
Steven C. Kenniger...... 1996 280,000 -- 2,500 150,000
Director, Chief
Operating Officer
James E. Noyes.......... 1996 280,000 120,000 14,500 375,000
Director and Executive
Vice President
Michael A. DePatie...... 1996 280,000 -- 2,500 375,000
Executive Vice
President and
Proposed Chief
Financial Officer
</TABLE>
- --------
(1) Amounts given are annualized projections for the year ending December 31,
1996.
(2) See "Incentive Compensation Plan" and "Employment Agreements" below for a
discussion of annual performance bonuses payable to key employees and
executive officers.
(3) Represents automobile lease payments and insurance premiums.
(4) Options to purchase an aggregate of 1,394,000 shares of Common Stock have
been granted to directors, executive officers and other employees of
Signature pursuant to the 1996 Equity Participation Plan. See "1996 Equity
Participation Plan."
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<PAGE>
Option Grants in 1996. The following table contains information concerning
the grant of stock options under Signature's 1996 Equity Participation Plan
expected to be made for the year ended December 31, 1996 to the Named
Executive Officers. The table also lists potential realizable values of such
options on the basis of assumed annual compounded stock appreciation rates of
5% and 10% over the life of the options which are set for a maximum of ten
years.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
ANNUAL RATES
OF SHARE
PRICE
APPRECIATION
FOR OPTION
INDIVIDUAL GRANTS TERM
------------------------------------------------ -------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED(1) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ---------- ------------- -------- -------------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Osamu Kaneko............ 150,000 8.6% $14 August 2006 $1,321 $3,347
Andrew J. Gessow........ 150,000 8.6% $14 August 2006 $1,321 $3,347
Steven C. Kenninger..... 150,000 8.6% $14 August 2006 $1,321 $3,347
James E. Noyes.......... 375,000 21.4% $12 June 2006 $2,830 $7,172
Michael A. DePatie...... 110,000 6.3% $18.13 September 2006 $1,247 $3,148
Michael A. DePatie...... 265,000 15.1% $24.13 November 2006 $2,499 $6,296
</TABLE>
OPTION GRANTS IN 1996
- --------
(1) The options granted to Messrs. Kaneko, Gessow, and Kenninger will vest in
three equal installments on the first, second, and third anniversaries of
the date of the grant. The options granted to Mr. DePatie will vest with
respect to 22,000 shares at $18.13 per share and with respect to 53,000
shares at $24.13 per share upon the date of the respective grant, with the
balance of such shares vesting in four equal annual installments beginning
on the first anniversary of the date of grant. The options granted to Mr.
Noyes vested with respect to 75,000 shares on the date of the grant and
with respect to the remaining 300,000 shares will vest in forty-eight
equal installments at the end of each of the first forty-eight months that
Mr. Noyes is employed by Signature.
(2) The expiration date of the options will be ten years after the date of
grant.
(3) The potential realizable value (in thousands of dollars) is reported net
of the option price, but before income taxes associated with exercise.
These amounts represent assumed annual compounded rates of appreciation at
5% and 10% only from the date of grant to the expiration date of the
option.
Incentive Compensation Plan
Signature has established an incentive compensation plan for officers and
key employees of Signature. This plan provides for payment of a cash bonus to
participating officers and key employees if certain performance objectives
established for each individual are achieved. Pursuant to such plan, each of
Messrs. Kaneko, Gessow, Kenninger and DePatie shall be entitled to receive a
cash bonus of up to 100% of their respective base compensation, respectively,
upon the achievement by Signature of specified targets of growth in revenues,
earnings per share and other key operating factors as determined by the
Compensation Committee. Pursuant to his employment agreement, Mr. Noyes shall
be entitled to receive a cash bonus of $30,000 per quarter for each quarter
that he is employed by Signature. The amount of the bonus to other
participating officers and key employees will be based on a formula to be
determined for each employee by the Compensation Committee, and is expected to
be based on growth in earnings per share and other factors.
1996 Equity Participation Plan
Signature has established an equity participation plan (the "1996 EQUITY
PARTICIPATION PLAN") to enable executive officers, other key employees,
Independent Directors and consultants of Signature to participate in the
ownership of Signature. The 1996 Equity Participation Plan is designed to
attract and retain executive officers, other key employees, Independent
Directors and consultants of Signature and to provide incentives to such
persons to maximize Signature's performance. The 1996 Equity Participation
Plan provides for the award to
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<PAGE>
executive officers, other key employees, Independent Directors and consultants
of Signature of a broad variety of stock-based compensation alternatives such
as nonqualified stock options, incentive stock options, restricted stock and
performance awards and provides for the grant to executive officers, other key
employees, Independent Directors and consultants of nonqualified stock
options. Awards under the 1996 Equity Participation Plan may provide
participants with rights to acquire shares of Signature Stock.
The 1996 Equity Participation Plan is administered by the Compensation
Committee, which is authorized to select from among the eligible participants
the individuals to whom options, restricted stock purchase rights and
performance awards are to be granted and to determine the number of shares to
be subject thereto and the terms and conditions thereof. The members of the
Compensation Committee who are not affiliated with Signature will select from
among the eligible participants the individuals to whom nonqualified stock
options are to be granted, except as set forth below, and will determine the
number of shares to be subject thereto and the terms and conditions thereof.
The Compensation Committee is also authorized to adopt, amend and rescind
rules relating to the administration of the 1996 Equity Participation Plan.
Nonqualified stock options will provide for the right to purchase Signature
Stock at a specified price which may be less than fair market value on the
date of grant (but not less than par value), and usually will become
exercisable in installments after the grant date. Nonqualified stock options
may be granted for any reasonable term.
Incentive stock options will be designed to comply with the provisions of
the Internal Revenue Code of 1986, as amended (the "CODE") and will be subject
to restrictions contained in the Code, including exercise prices equal to at
least 100% of fair market value of Signature Stock on the grant date and a ten
year restriction on their term, but may be subsequently modified to disqualify
them from treatment as an incentive stock option.
Restricted stock may be sold to participants at various prices (but not
below par value) and made subject to such restrictions as may be determined by
the Compensation Committee. Restricted stock, typically, may be repurchased by
Signature at the original purchase price if the conditions or restrictions are
not met. In general, restricted stock may not be sold, or otherwise
transferred or hypothecated, until restrictions are removed or expire.
Purchasers of restricted stock, unlike recipients of options, will have voting
rights and will receive dividends prior to the time when the restrictions
lapse.
Performance awards may be granted by the Compensation Committee on an
individual or group basis. Generally, these awards will be based upon specific
agreements and may be paid in cash or in Common Stock or in a combination of
cash and Signature Stock. Performance awards may include "phantom" stock
awards that provide for payments based upon increases in the price of
Signature's Stock over a predetermined period. Performance awards may also
include bonuses which may be granted by the Compensation Committee on an
individual or group basis and which may be payable in cash or in Signature
Stock or in a combination of cash and Signature Stock.
There are 1,750,000 shares of Signature Stock reserved for issuance pursuant
to the 1996 Equity Participation Plan. Signature estimates that in 1996 it
will issue to executive officers, other key employees, Independent Directors
and consultants of Signature options to purchase 1,750,000 restricted shares
of common stock pursuant to the 1996 Equity Participation Plan.
Employee Stock Purchase Plan
Signature has established the Signature Resorts, Inc. Employee Stock
Purchase Plan (the "EMPLOYEE STOCK PURCHASE PLAN") to assist employees of
Signature in acquiring a stock ownership interest in Signature and to
encourage them to remain in the employment of Signature. The Employee Stock
Purchase Plan is neither a
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<PAGE>
qualified pension, profit sharing or stock bonus plan under Section 401(a) of
the Code, nor an "employee benefit plan" subject to the provisions of the
Employee Retirement Income Security Act of 1974, as amended. The following
discussion is a general summary of the material U.S. federal income tax
consequences to U.S. participants in the Employee Stock Purchase Plan. The
discussion is based on the Code, regulations thereunder, rulings and decisions
now in effect, all of which are subject to change. The summary does not
discuss all aspects of federal income taxation that may be relevant to a
particular participant in light of such participant's personal investment
circumstances.
The Employee Stock Purchase Plan is intended to meet the requirements of an
"employee stock purchase plan" under Section 423 of the Code. Neither the
grant of the right to purchase shares, nor the purchase of shares, under the
Employee Stock Purchase Plan has a federal income tax effect on employees or
Signature. Any United States tax liability to the employee and the tax
deductions to Signature are deferred until the employee sells the shares,
disposes of the shares by gift or dies. Under the Employee Stock Purchase
Plan, shares are generally purchased for 85% of the fair market value thereof,
as permitted by the Code.
In general, if shares are held for more than one year after they are
purchased and for more than two years from the beginning of the enrollment
period in which they are purchased or if the employee dies while owning the
shares, gain on the sale or other disposal of the shares constitutes ordinary
income to an employee (with no corresponding deduction to Signature) to the
extent of the lesser of (i) 15% of the fair market value of the shares at the
beginning of the enrollment period or (ii) the gain on sale of the amount by
which the market value of the shares on the date of sale, gift or death,
exceeds the purchase price. Any additional gain is capital gain. If the shares
are sold or disposed of within either or both of the holding periods, an
employee recognizes ordinary income (and Signature receives a corresponding
deduction subject to Section 162(m) of the Code) to the extent that the fair
market value of the shares at the date of exercise of the option exceeds the
option price. Any appreciation or depreciation after the date of purchase is
capital gain or loss. A maximum of 500,000 shares of Signature Stock will be
reserved for issuance under the Employee Stock Purchase Plan. The Employee
Stock Purchase Plan will be administered by the Compensation Committee.
401(k) Plan
Signature intends to establish a qualified retirement plan, with a salary
deferral feature designed to qualify under Section 401 of the Code (the
"401(K) PLAN"). The 401(k) Plan will permit the employees of Signature to
defer a portion of their compensation in accordance with the provisions of
Section 401(k) of the Code. The 401(k) Plan will allow participants to defer
up to ten percent of their eligible compensation on a pre-tax basis subject to
certain maximum amounts. Matching contributions may be made in amounts and at
times determined by Signature. The 401(k) Plan provides for company matching
contributions, if determined by Signature to be made, in an amount equal to
fifty-cents for each one dollar of participant contributions up to a maximum
of three percent of the participant's salary per year. No other company
matching contributions are contemplated at this time. Certain other statutory
limitations with respect to Signature's contribution under the 401(k) Plan
also apply. Participants will receive service credit for employment with the
predecessors of Signature and affiliates. Amounts contributed by Signature for
a participant will vest over five years and will be held in trust until
distributed pursuant to the terms of the 401(k) Plan.
Employees of Signature will be eligible to participate in the 401(k) Plan if
they meet certain requirements concerning minimum age and period of credited
service. All contributions to the 401(k) Plan will be invested in accordance
with participant elections among certain investment options. Distributions
from participant accounts will not be permitted before age 59 1/2, except in
the event of death, disability, certain financial hardships or termination of
employment.
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<PAGE>
Employment Agreements
Messrs. Kaneko, Gessow, Kenninger, Noyes and DePatie have each entered into
an employment agreement with Signature for a term of two years. The terms and
conditions of such agreements include 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 Signature). In
addition, each of Messrs. Kaneko, Gessow, Kenninger, Noyes and DePatie shall
receive severance payments equal to base compensation and bonus at the most
recent annual amount for the longer of the balance of the employment term or
two years upon the death, disability, termination or resignation of such
executive, unless such executive resigns without "good cause" or unless
Signature terminates such executive as a result of gross negligence, willful
misconduct, fraud or a material breach of the employment agreement. Each such
executive will have "good cause" to terminate his employment with Signature in
the event of any reduction in his compensation or benefits, material breach or
material default by Signature under his employment agreement or following the
merger or change in control of Signature.
Covenants Not To Compete
Messrs. Kaneko, Gessow, Kenninger, Noyes and DePatie have agreed to devote
substantially full time to the business of Signature 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 Signature determine that such investment is in the
best interest of Signature. Such noncompetition provisions shall survive for
two years following any termination of employment. The Founders are not,
however, prohibited from acquiring hotels, including hotels which may compete
directly with properties of Signature.
CONDUCT OF BUSINESS OF AVCOM PENDING CLOSING
AVCOM generally has agreed in the Merger Agreement, unless the prior consent
of Signature is obtained, and except as otherwise contemplated by the Merger
Agreement, to operate its business only in the ordinary course, to preserve
its business organizations and assets and to maintain its rights and
franchises and to take no action that would adversely affect either the
ability of either party to perform its covenants and agreements under the
Merger Agreement or the ability of either party to obtain any consents or
approvals pursuant to any contract, law, order or permit that are required for
the transactions contemplated in the Merger Agreement. In addition, the Merger
Agreement contains certain other restrictions applicable to the conduct of the
business of AVCOM prior to the consummation of the Merger, as described below.
AVCOM has agreed in the Merger Agreement not to take certain actions
relating to the operations of its business pending consummation of the Merger
without the prior approval of Signature. These actions include, but are not
limited to: (a) borrowing any sums or entering into any financial guaranties
or otherwise incur any indebtedness or liability in excess of $10,000
individually or $50,000, in the aggregate; (b) sell, assign, transfer, lease,
mortgage, pledge or subject to lien, or otherwise encumber, any of its assets,
with the exception of interval sales made in the ordinary course of business;
(c) issue or sell any shares of capital stock or any other securities, or
warrants or options or other rights to acquire any shares of its capital stock
of any class; (d) directly or indirectly solicit or negotiate with respect to
any inquiries or proposals to merge or to sell the assets or beneficial
ownership of AVCOM or any Subsidiary; (e) enter into an employment, consulting
or similar agreement or authorize any compensation increase for any executive
officer, director or key employee of AVCOM or any Subsidiary; (f) declare, pay
or set aside for payment any dividend, distribution or return of capital in
respect to its capital stock or other equity securities or, directly or
indirectly, redeem, purchase or otherwise acquire any of its shares of capital
stock, options, warrants or securities convertible into equity securities; (g)
make or commit to make any capital expenditures in excess of $10,000
individually or $50,000 when aggregated with all such expenditures by AVCOM
and all subsidiaries during any 30 day period; or (h) otherwise enter into any
transaction or take other action not in the ordinary course of business.
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<PAGE>
INTEREST OF CERTAIN PERSONS IN THE TRANSACTION
In considering whether to vote in favor of the Merger, a shareholder should
be aware that both Gary L. Hughes, the chairman of the AVCOM Board and Chief
Executive Officer, and John R. Stevens, the Director of Marketing for AVCOM,
will serve as Stockholder Representatives with respect to the Signature Stock
to be held pursuant to the Escrow Agreement. Further, Signature intends to
enter into Employment Agreements with Messrs. Hughes and Stevens to which they
will be employed by Signature after the Merger pursuant to employment
agreements and will receive options to purchase up to 250,000 shares of
Signature Stock, in the aggregate, the exact number to be based upon various
factors, including job performance and operational results. In addition,
Robert Eckenroth, a Director, Vice-President and Chief Financial Officer, will
also be employed by Signature subsequent to the Merger and will receive a
portion of such 250,000 Signature options.
Other than as described herein, no director or executive officer of
Signature or AVCOM, and no associate of such person, has any substantial
interest, direct or indirect, in the Merger, other than an interest arising
from the ownership of AVCOM Stock, in which case the director or officer
receives no extra or special benefit not shared on a pro rata basis by all
other holders of AVCOM Stock.
ACCOUNTING TREATMENT
The parties intend to account for the Merger using the pooling of interest
method of accounting pursuant to Opinion No. 16 of the Financial Accounting
Principles Board. The pooling of interest method of accounting is intended to
present as a single interest two or more common shareholder interests which
were previously independent. It is a condition of Signature's obligations to
effect the Merger as presented at the Special Meeting that they shall have
received a letter from their independent certified public accountant that the
Merger will qualify for pooling of interest treatment.
RESALES OF STOCK AFTER THE MERGER
The shares of Signature Stock issued in connection with the Merger will be
freely transferable under the Securities Act and the Exchange Act, except for
shares issued to any shareholder who may be deemed to be an "affiliate"
(generally including, without limitation, directors, certain executive
officers, and beneficial owners of 10% or more of any class of capital stock)
of AVCOM for purposes of Rule 145 under the Securities Act as of the date of
the Special Meeting or for purposes of applicable interpretations regarding
pooling of interest accounting treatment. Such affiliates may not sell their
shares of Signature Stock acquired in connection with the Merger except
pursuant to an effective Registration Statement under the Securities Act or
other applicable exemption from the registration requirements of the
Securities Act and until such time as financial results covering at least
thirty days of combined operations of the parties after the consummation of
the Merger have been published. Signature will place restrictive legends on
certificates representing Signature Stock issued to all persons who are deemed
to be "affiliates" of AVCOM under Rule 145. In addition, AVCOM has agreed to
use its reasonable efforts to cause each person or entity that is an
"affiliate" to enter into a written agreement in substantially the form
attached to the Merger Agreement relating to such restrictions on sale or
other transfer. Sangar Investments Company, L.L.C., an entity which holds
AVCOM Stock beneficially for Gary L. Hughes and John R. Stevens has agreed not
to sell any Signature Stock for a one year period following the Merger
(although they may pledge their Signature Stock to secure loans). Shares of
Signature Stock deposited under the Escrow Agreement may not be sold or
transferred while they remain subject to the Escrow Agreement. This Proxy
Statement/Prospectus does not cover resales of Signature Stock received by any
person who may be deemed to be an affiliate of AVCOM.
REGULATORY APPROVALS
The consummation of the transactions contemplated in the Merger Agreement
are conditioned upon all necessary regulatory approvals. The parties have
filed the appropriate applications for these approvals and presently
anticipate that such approval be obtained in a timely manner.
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<PAGE>
APPRAISAL RIGHTS OF SHAREHOLDERS
If the Merger is consummated, a holder of record of AVCOM Stock on the date
of the making of a demand pursuant to the provisions of Section 262 of the
Delaware General Corporation Law ("GCL"), a copy of which is attached hereto
as Appendix C, who continuously holds such shares through the Closing Date,
who has otherwise complied with Section 262 and who has not voted in favor of
the Merger will be entitled to have his or her shares of AVCOM Stock appraised
by the Delaware Court of Chancery (the "Chancery Court") and entitled to
receive payment of the "fair value" of such shares at the Closing Date
(exclusive of any element of value arising from the accomplishment or
expectation of the Merger as determined by such court). Section 262 represents
the exclusive statutory remedy available under the Delaware GCL to holders of
AVCOM Stock who elect to seek appraisal of the fair value of their shares.
This Proxy Statement/Prospectus constitutes the notice to the holders of AVCOM
Stock that appraisal rights are available to them. Exercise of appraisal
rights may result in a judicial determination of a fair value less than or
more than the per share amount otherwise to be received in the Merger.
Each holder of AVCOM Stock electing to demand the appraisal of his or her
shares must deliver to AVCOM a written demand for appraisal prior to the
Special Meeting. Such written demand must reasonably inform AVCOM of the
identity of the shareholder of record and of such shareholder's intention to
demand the appraisal of his or her shares of AVCOM Stock. This written demand
is in addition to the requirement that the holder vote against approval of the
Merger Agreement or abstain from voting. A vote against approval of the Merger
Agreement or abstention from such vote, by itself, will not constitute a
demand for appraisal within the meaning of Section 262.
Any holder of AVCOM Stock who has duly demanded appraisal in compliance with
Section 262 will not, after the Closing Date, be entitled to vote his or her
shares of AVCOM Stock for any purpose or receive payment of dividends or other
distributions on the shares, except for dividends or distributions payable to
such shareholder as of a date prior to the Closing Date.
A holder of AVCOM Stock will lose his or her right to appraisal if no
petition for appraisal is filed within 120 days after the Closing Date or if
the holder of AVCOM Stock effectively withdraws his or her demand for an
appraisal. In such case, all shares shall thereupon be deemed to have been
converted into and to have become exchangeable for, as of the Closing Date,
the right to receive the number of shares of Signature Stock in accordance
with the Merger Agreement as described in "THE PROPOSED MERGER--General
Description of the Merger" of this Proxy Statement/Prospectus. Inasmuch as
AVCOM has no obligation to file a petition for appraisal, and has no present
intention to do so, any holder of AVCOM Stock who desires such a petition to
be filed is advised to file it on a timely basis. Failure by a holder of AVCOM
Stock to follow precisely all of the steps required by Section 262 for
perfecting appraisal rights, including filing the petition, will result in the
loss of those rights.
In the event an appraisal proceeding is properly instituted, such proceeding
may not be dismissed as to any holder of AVCOM Stock who has established his
or her right of appraisal under the provisions of Section 262 without the
approval of the Chancery Court, and any such approval may be conditioned on
such terms as the Chancery Court deems just.
The foregoing is a summary of the rights of the holders of AVCOM Stock
seeking appraisal under the Delaware GCL, does not purport to be a complete
statement of the Delaware GCL and is qualified in its entirety by reference to
the applicable statutory provisions of Section 262.
SURRENDER OF STOCK CERTIFICATES AND RECEIPT OF MERGER CONSIDERATION
Except for the shares of AVCOM Stock which are the subject of the exercise
of appraisal rights, on the Closing Date, each outstanding share of AVCOM
Stock will be converted into the number of shares of Signature Stock plus, if
applicable, cash as described above. Each holder of AVCOM Stock, upon
surrender of a stock
38
<PAGE>
certificate, will be entitled to receive a stock certificate evidencing shares
of Signature Stock (together with payment for any fractional shares, if
applicable) to which such shareholder is entitled. As soon as practicable
after the Closing Date, Exchange Agent will mail to each former holder of
AVCOM Stock notification of the consummation of the Merger and instructions as
to the procedure for the surrender of stock certificates. The Exchange Agent
will accept documentation acceptable to it in lieu of lost or destroyed
certificates and may also require the shareholder of a lost or destroyed
certificate to post an insurance bond acceptable to the Exchange Agent.
No dividends or other distribution will be paid to a former shareholder of
AVCOM with respect to shares of Signature Stock until such shareholders'
certificate(s) representing AVCOM Stock are remitted to the Exchange Agent (or
documentation in lieu of a lost or destroyed certificate is delivered). Any
dividends declared between the Closing Date and the date of the surrender of
the AVCOM stock certificate(s) will be held by the Exchange Agent for the
benefit of the shareholder and will be paid to the shareholder, without
interest thereon, upon surrender of such stock certificate(s) (or
documentation in lieu thereof).
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
39
<PAGE>
INFORMATION REGARDING SIGNATURE RESORTS, INC.
BUSINESS
Overview
Signature is one of the largest developers and operators of timeshare
resorts in North America, based on number of resorts in sales. Signature is
devoted exclusively to timeshare operations and directly or through wholly-
owned affiliates owns eight timeshare resorts, including one under
construction, and a ninth resort with respect to which Signature holds a
partial interest. Signature's Existing Resorts are located in a variety of
popular resort destinations including Hilton Head Island, South Carolina;
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. Signature's principal
operations currently consist of (i) acquiring, developing and operating
timeshare resorts, (ii) marketing and selling Vacation Intervals at its
resorts and (iii) providing financing for the purchase of Vacation Intervals
at its resorts.
For the twelve month period ended June 30, 1996, Signature sold 6,128
Vacation Intervals at the Existing Resorts, compared to 2,869 and 5,219 for
the same periods ended in 1994 and 1995, respectively. Total revenue from
Vacation Interval sales at the Existing Resorts for the same periods increased
from $30.9 million in 1994 to $50.6 million in 1995 to $74.8 million in 1996.
As of June 30, 1996, there was an existing inventory of 21,142 Vacation
Intervals at the Existing Resorts, and Signature is in the process of
developing or has current plans to develop an additional 66,069 Vacation
Intervals on land which Signature owns or has an option to acquire at the
Existing Resorts. Signature anticipates that the existing inventory at its
Existing Resorts (except Signature's Hilton Head Island resort), including the
planned expansion at these resorts, will provide sufficient inventory for
between three and ten years of Vacation Interval sales at such resorts.
The Timeshare Industry
The Market. The resort component of the leisure industry primarily is
serviced by two separate alternatives for overnight accommodations: commercial
lodging establishments and timeshare or "vacation ownership" resorts.
Commercial lodging consists of hotels and motels in which a room is rented on
a nightly, weekly or monthly basis for the duration of the visit and is
supplemented by rentals of privately-owned condominium units or homes. For
many vacationers, particularly those with families, a lengthy stay at a
quality commercial lodging establishment can be very expensive, and the space
provided to the guest relative to the cost (without renting multiple rooms) is
not economical for vacationers. In addition, room rates and availability at
such establishments are subject to change periodically. Timeshare presents an
economical alternative to commercial lodging for vacationers.
The timeshare industry traditionally has been highly fragmented and
dominated by a very large number of local and regional resort developers and
operators, each with small resort portfolios generally of differing quality.
Signature believes that one of the most significant factors contributing to
the current success of the timeshare industry is the entry into the market of
some of the world's major lodging, hospitality and entertainment companies.
Such major companies which now operate or are developing Vacation Interval
resorts include Marriott, Disney, Hilton, Hyatt, Four Seasons and Inter-
Continental, as well as Promus and Westin. Unlike Signature, however, the
timeshare operations of each of Marriott, Disney, Hilton, Hyatt, Four Seasons
and Inter-Continental comprise only a small portion of such companies' overall
operations. Moreover, brand name lodging companies are believed by Signature
to have less than ten percent of the worldwide Vacation Interval market in
1994.
The Economics. Signature believes that national lodging and hospitality
companies are attracted to the timeshare concept because of the industry's
relatively low product cost and high profit margins and the recognition that
Vacation Intervals provide an attractive alternative to the traditional hotel-
based vacation and allow the hotel companies to leverage their brands into
additional resort markets where demand exists for accommodations beyond
traditional hotels.
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The Consumer. According to information compiled by the American Resort
Development Association for the year ended December 31, 1994, the prime market
for Vacation Intervals is customers in the 40-55 year age range who are
reaching the peak of their earning power and are rapidly gaining more leisure
time. The median age of a Vacation Interval buyer at the time of purchase is
46. The median annual household income of current Vacation Interval owners in
the United States is approximately $63,000, with approximately 35% of all
Vacation Interval owners having annual household income greater than $75,000
and approximately 17% of such owners having annual household income greater
than $100,000. Despite the growth in the timeshare industry as of December 31,
1994, Vacation Interval ownership has achieved only an approximate 3.0% market
penetration among United States households with income above $35,000 per year
and 3.9% market penetration among United States households with income above
$50,000 per year.
Business Strategy
Signature's objective is to become North America's leading developer and
operator of timeshare resorts. To meet this objective, Signature intends to
(i) acquire, convert and develop additional resorts to be operated as Embassy
Vacation Resorts, Westin Vacation Club resorts and non-branded resorts,
capitalizing on the acquisition and marketing opportunities to be provided as
a result of its relationships with Promus, Westin, selected financial
institutions and its position in certain markets and the timeshare industry
generally, (ii) increase sales and financings of Vacation Intervals at the
Existing Resorts through broader-based marketing efforts and in certain
instances through the construction of additional Vacation Interval inventory,
and (iii) acquire additional Vacation Interval inventory, management
contracts, Vacation Interval mortgage portfolios, and properties or other
timeshare-related assets that may be integrated into Signature's operations.
The key elements of Signature's strategy are described below.
Acquisition and Development of New Resorts. Signature intends to acquire and
develop additional resorts to be operated as branded Embassy Vacation Resorts,
Westin Vacation Club resorts and as non-branded resorts. To implement its
growth strategy, Signature intends to pursue acquisitions and developments in
a number of vacation markets, concentrating on the California and Hawaii
markets in which Signature has experience and that are subject to barriers to
entry as a result of limited land availability and local land use regulations.
Signature believes that its relationships with Promus, Westin and selected
financial institutions that control resort properties located in Hawaii and
California will provide it with acquisition, development and hotel-to-
timeshare conversion opportunities and will allow it to take advantage of
currently favorable market opportunities to acquire resort and condominium
properties to be operated as timeshare resorts. In addition to acquiring
existing resort and hotel-to-timeshare conversion properties, Signature also
seeks to develop resorts located in destinations where it discerns a strong
demand, which Signature anticipates will enable it to achieve attractive rates
of return. Signature considers the potential acquisition or development of
timeshare resorts in locations based on existing timeshare competition in the
area as well as existing overall demand for accommodations. In evaluating
whether to acquire, convert or develop a timeshare resort in a particular
location, Signature analyzes relevant demographic, economic and financial
data.
Signature believes that its relationships with Promus and Westin will
provide it with attractive acquisition, conversion, development and marketing
opportunities and uniquely position Signature to offer Vacation Intervals at a
variety of attractive resort destinations to multiple demographic groups in
the timeshare market. Capitalizing on two of its Founders' relationship with
Promus as a developer and owner of Embassy Suites hotels, in 1994 Signature
and Promus established Embassy Vacation Resorts, and Signature is currently
the only licensee of the Embassy Vacation Resorts name. However, Signature has
no ownership of or rights to the "Embassy Vacation Resorts" name or
servicemark, both of which are owned exclusively by Promus, except as set
forth in Signature's license agreements with Promus with respect to
Signature's Embassy Vacation Resorts. Through the Westin Agreement, Signature
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. Signature's rights also cover the conversion of Westin hotels to
timeshare resorts. In addition, pursuant to the Westin Agreement, it is
expected that Westin will provide Signature with lead generation assistance
and marketing support and Promus currently provides such assistance
41
<PAGE>
at Embassy Vacation Resorts. Through its Embassy Vacation Resorts and Westin
Vacation Club resorts Signature believes it will be able to provide Vacation
Interval buyers with quality and consistency in their timeshare purchases. In
addition, through its non-branded resorts Signature will be able to appeal to
the value-conscious consumer who seeks the best value for his or her money and
does not seek affiliation with brand-name lodging companies.
Sales and Expansion at Existing Resorts. Signature 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.
Acquisition of Timeshare Assets, Management Contracts and Operating
Companies. As a result of Signature's relationships in the timeshare and
financial communities, the size and geographic diversity of its portfolio of
properties and position in the timeshare industry, Signature has access to a
variety of acquisition opportunities related to Signature's business.
Signature's business strategy includes pursuing growth by expanding or
supplementing Signature's existing timeshare business through acquisitions.
Acquisitions which Signature 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 Signature's operations.
Description of Signature's Resorts
Since the inception of the timeshare development and acquisition business of
Signature's predecessors, Signature has developed or acquired eight resorts,
including one under construction, and a ninth resort in which Signature holds
a partial interest, located in a variety of popular resort destinations
including Lake Buena Vista (Orlando area), Florida (developed in 1992);
Branson, Missouri (developed in 1993); Hilton Head Island, South Carolina
(developed in 1994); Koloa, Hawaii (acquired in 1994 and in which Signature
holds an approximately 30% interest); Orlando, Florida (developed in 1995);
two resorts located in St. Maarten, Netherlands Antilles (each acquired in
1995); Avila Beach, California (acquired in 1996); and South Lake Tahoe,
California (currently under construction). Signature's resorts operate in the
following three general categories, each differentiated by price range, brand
affiliation and quality of accommodations:
. Non-Branded Resorts. Vacation Intervals at Signature's six non-branded
resorts, which are not affiliated with any hotel chain, generally sell for
$6,000 to $15,000 and are targeted to buyers with annual incomes ranging from
$35,000 to $80,000. Signature believes its non-branded resorts offer buyers an
economical alternative to branded timeshare resorts (such as Embassy Vacation
Resorts and Westin Vacation Club resorts) or traditional vacation lodging
alternatives.
. Embassy Vacation Resorts. Vacation Intervals at Signature'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, Signature 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. Signature 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.
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<PAGE>
The following table sets forth certain information as of June 30, 1996
regarding each of the Existing Resorts, including location, date acquired by
Signature, 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 Signature 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 Signature, may differ from estimates based on future land
planning and site layout considerations.
<TABLE>
<CAPTION>
VACATION
INTERVALS
UNITS AT RESORT SOLD
--------------- --------------- AVERAGE
DATE SALES PRICE
RESORT LOCATION ACQUIRED(A) CURRENT PLANNED TOTAL 1995 IN 1995
------ -------- ----------- ------- ------- ------ ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
NON-BRANDED RESORTS:
Cypress Pointe Resort.. Lake Buena Vista, November 1992 184 500(b) 7,786 1,824 $10,734
Florida
Plantation at Fall
Creek................. Branson, Missouri July 1993 98 400(c) 3,842 1,094 9,519
Royal Dunes Resort..... Hilton Head Island, April 1994 40 55(d) 1,319 577 10,862
South Carolina
Royal Palm Beach Club.. St. Maarten,
Netherlands Antilles July 1995 140 140(e) 622 272 8,124
Flamingo Beach Club.... St. Maarten, August 1995 172 247(f) 342 104 6,885
Netherlands Antilles
San Luis Bay Resort.... Avila Beach,
California June 1996 68 130(g) 20(h) (h) (h)
EMBASSY VACATION
RESORTS:
Poipu Point(j)......... Koloa, Kauai, November 1994 219 219(k) 852 281 19,074
Hawaii
Grand Beach............ Orlando, Florida January 1995 72 370(l) 2,168 1,523 13,063
Lake Tahoe............. South Lake Tahoe, May 1996(m) 0 210(n) (o) (o) (o)
California
--- ----- ------ -----
TOTAL.................. 993 2,271 16,951 5,675
=== ===== ====== =====
<CAPTION>
VACATION
INTERVALS AT RESORT
-----------------------
CURRENT PLANNED
RESORT INVENTORY EXPANSION
------ ----------- -----------
<S> <C> <C>
NON-BRANDED RESORTS:
Cypress Pointe Resort.. 1,598 16,116(b)
Plantation at Fall
Creek................. 1,156 16,218(c)
Royal Dunes Resort..... 721 765(d)
Royal Palm Beach Club.. 2,171 0(e)
Flamingo Beach Club.... 2,665 3,900(f)
San Luis Bay Resort.... 1,010(i) 3,162(g)
EMBASSY VACATION
RESORTS:
Poipu Point(j)......... 10,317(k) 0
Grand Beach............ 1,504 15,198(l)
Lake Tahoe............. (o) 10,710(n)
----------- -----------
TOTAL.................. 21,142 66,069
=========== ===========
</TABLE>
- -------
(a) The dates listed represent the date of acquisition or, if later, the date
of completion of development of the first phase of the applicable resort
by Signature. The Embassy Vacation Resort Poipu Point was acquired by
Signature in November 1994 as a traditional hotel. As units at the Embassy
Vacation Resort Poipu Point are sold as Vacation Intervals, Signature no
longer rents such units on a nightly basis.
(b) Includes 40 units, which will accommodate 2,040 Vacation Intervals, which
were completed in September 1996. Also includes an additional estimated
276 units, which will accommodate an additional estimated 14,076 Vacation
Intervals, which Signature plans to construct on land which it owns at the
Cypress Pointe Resort and for which all necessary governmental approvals
and permits (except building permits) have been obtained. Should Signature
elect to construct a higher percentage of three bedroom units, rather than
its current planned mix of one, two and three bedroom units, the actual
number of planned units and Vacation Intervals will be lower than is
indicated above.
(c) Includes 16 units, which will accommodate an additional 816 Vacation
Intervals, on which Signature commenced construction in June 1996 and for
which all necessary governmental approvals and permits have been received
by Signature. Also includes an additional estimated 286 units, which will
accommodate an additional estimated 14,586 Vacation Intervals, which 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 1997 for which all necessary
governmental approvals and permits have been received by Signature.
(e) Signature has not committed to any expansion of the Royal Palm Beach Club.
Signature is considering the acquisition of additional land adjacent to
the Royal Palm Beach Club for the addition of an estimated 60 units, which
will accommodate an estimated 3,060 Vacation Intervals, but has yet to
enter into an agreement with respect to such additional land or to obtain
the necessary permits for such expansion.
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<PAGE>
(f) In May 1996 Signature acquired a five-acre parcel of land adjacent to the
Flamingo Beach Club on which Signature plans to develop an estimated 75
units which will accommodate an estimated 3,900 Vacation Intervals.
Signature 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 Signature. Signature has not yet applied
for or obtained the required building permits to construct such additional
units. Signature plans to commence construction of the first 31 units in
the fourth quarter of 1996. In addition, Signature is considering the
acquisition of additional land near the San Luis Bay Resort for the
addition of an estimated 100 units which will accommodate an estimated
5,100 Vacation Intervals, but has yet to enter into an agreement with
respect to such land or to obtain the necessary governmental approvals and
permits for such proposed expansion.
(h) Signature commenced sales of Vacation Intervals at the San Luis Bay Resort
in June 1996.
(i) Signature in June 1996 acquired approximately 130 Vacation Intervals at
the San Luis Bay Resort out of the bankruptcy estate of Glen Ivy Resorts,
Inc. In addition, Signature acquired promissory notes in default that are
secured by approximately 900 Vacation Intervals. Signature intends to
foreclose upon and acquire clear title to such Vacation Intervals and
intends to complete such foreclosure procedures (or deed-in-lieu
procedures) in due course following acquisition of the resort.
(j) Signature owns, directly or indirectly, 100% of the partnership interests
in the managing general partner of Poipu Resort Partners L.P., a Hawaii
limited partnership (the "POIPU PARTNERSHIP"), the partnership which owns
the Embassy Vacation Resort Poipu Point. The managing general partner
holds a 0.5% partnership interest for purposes of distributions, profits
and losses. Signature also holds, directly or indirectly, a 29.93% limited
partnership interest in the Poipu Partnership for purposes of
distributions, profits and losses, for a total partnership interest of
30.43%. In addition, following repayment of any outstanding partner loans,
Signature, directly or indirectly, is entitled to receive a 10% per annum
return on the Founders' and certain former limited partners' initial
capital investment of approximately $4.6 million in the Poipu Partnership.
After payment of such preferred return and the return of approximately
$4.6 million of capital to Signature, directly or indirectly, on a pari
passu basis with the other general partner in the partnership, Signature,
directly or indirectly, is entitled to receive approximately 50% of the
net profits of the Poipu Partnership. In the event certain internal rates
of return specified in the Poipu Partnership Agreement are achieved,
Signature, directly or indirectly, is entitled to receive approximately
55% of the net profits of the Poipu Partnership.
(k) Includes 191 units that Signature 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, which
were completed in September 1996. Also includes at least 24 units, which
will accommodate an additional 1,224 Vacation Intervals, on which
Signature plans to commence construction in the first quarter of 1997 and
for which all necessary discretionary governmental approvals and permits
(excluding building permits which have not yet been applied for by
Signature) have been received by Signature. Signature has also received
all necessary discretionary governmental approvals and permits to
construct an additional estimated 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 Signature). Signature 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 February 1997 and 35
units, which will accommodate 1,785 Vacation Intervals, are scheduled for
completion in May 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
44
<PAGE>
Signature. Twenty-seven units, which will accommodate 1,377 Vacation
Intervals, are scheduled for completion in February 1997 and 35 units,
which will accommodate 1,785 Vacation Intervals, are scheduled for
completion in May 1997. Of this total, Signature is obligated to convey
four Vacation Intervals to the former owners of the land on which the
Embassy Vacation Resort Lake Tahoe is being developed. Such conveyance will
be made upon completion of the first phase of development. Signature has
also received all
necessary discretionary governmental approvals and permits to construct an
additional estimated 148 units (excluding building permits which have not
yet been applied for by Signature and which will be applied for and
obtained on a phase-by-phase basis) on land that it owns at the Embassy
Vacation Resort Lake Tahoe, which will accommodate an estimated 7,548
Vacation Intervals, and, subject to market demand, currently plans to
construct 40 of such units commencing in May of each year from 1997 through
1999 and the remaining 28 units commencing in May 2000.
(o) Signature commenced sales of Vacation Intervals at the Embassy Vacation
Resort Lake Tahoe in June 1996, although Signature will not be able to
close any of such sales until the completion of the first units, currently
scheduled to occur in February 1997.
Non-Branded Resorts
The Cypress Pointe Resort. Cypress Pointe Resort, Signature's first
timeshare resort, opened in November 1992 and is located in Lake Buena Vista,
Florida, approximately one-half mile from the entrance of Walt Disney World.
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.
Upon completion of Phases I and II, the resort will contain approximately
500 units. Upon completion of seven buildings in Phase II, Phase II will
contain a total of approximately 308 units consisting of one, two and three
bedroom units of up to 1,850 square feet and accommodating up to ten people.
Phase I consists of 168 existing units, with 24 units scheduled to be built
upon the completion of Phase II.
The resort currently contains 9,384 total Vacation Intervals of which 1,598
remained for sale as of June 30, 1996. Vacation Intervals at the Cypress
Pointe Resort are currently priced from $6,000 to $16,000 for one-week
Vacation Intervals, 1,824 of which were sold in 1995. Vacation Intervals at
the resort can be exchanged for Vacation Intervals at other locations through
RCI, which awarded the resort its Gold Crown Resort Designation.
The Plantation at Fall Creek. The Plantation at Fall Creek, which opened in
March 1993, is located on the shores of Lake Taneycomo, near Branson,
Missouri, a popular country music theater destination. The resort currently
contains 98 units each consisting of 2 bedrooms and 2 baths and up to 1,417
square feet, built on approximately 130 acres of land. Signature currently
plans to continue to expand the resort to accommodate a total of 400 units.
As of June 30, 1996, the resort contained 4,488 total Vacation Intervals of
which 1,156 remained for sale. Vacation Intervals at the Plantation at Fall
Creek are currently priced from $7,295 to $10,295 for one-week Vacation
Intervals, 1,094 of which were sold in 1995. Vacation Intervals at the resort
can be exchanged for Vacation Intervals at other locations through RCI, which
awarded the resort its Gold Crown Resort Designation.
The Royal Dunes Resort at Port Royal Plantation. The Royal Dunes Resort at
Port Royal Plantation opened in April 1994 and is located in Port Royal
Plantation on Hilton Head Island, South Carolina, approximately 400 yards from
the beach. The resort presently contains 40 units consisting of three bedrooms
and three bath units and upon completion scheduled for late 1997, will be
expanded to include a total of 55 units. The units can accommodate eight
people and contains 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.
The resort currently contains 2,040 total Vacation Intervals of which 721
remained for sale as of June 30, 1996. Vacation Intervals at the Royal Dunes
are currently priced from $8,250 to $13,250 for one-week Vacation
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Intervals, 577 of which were sold in 1995. Vacation Intervals at the resort
can be exchanged for Vacation Intervals at other locations through RCI, which
awarded the resort its Gold Crown Resort Designation.
The Royal Palm Beach Club. The Royal Palm Beach Club, originally opened in
1990 and acquired by Signature in July 1995, is located at Simpson Bay in St.
Maarten, Netherlands Antilles. Located approximately one mile from the
island's major airport and ten minutes from local shopping and dining, the
resort is surrounded by the Caribbean on three sides. The resort contains 140
units consisting either of two bedrooms, two baths or three bedrooms, three
baths.
The resort currently contains 7,280 total Vacation Intervals of which 2,171
remained for sale as of June 30, 1996. Units at the Royal Palm Beach Club, are
currently priced from $9,450 to $12,900 for one-week Vacation Intervals, 272
of which were sold by Signature in 1995. Vacation Intervals at the resort can
be exchanged for Vacation Intervals at other locations through RCI, which
awarded the resort its Gold Crown Resort Designation and through Interval
International ("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 Signature in July 1995, is located on "the Point"
of the Pelican Key Peninsula in St. Maarten, Netherlands Antilles, directly on
the beach of the Caribbean. The resort is located approximately two miles from
the island's major airport and is within walking distance of shopping and
dining facilities. The resort is surrounded by the Caribbean Ocean on three
sides and contains 172 units consisting of beachfront studio and one bedroom,
one bath units.
The resort currently contains 8,994 total Vacation Intervals of which 2,665
remained for sale as of June 30, 1996. Vacation Intervals at the Flamingo
Beach Club are currently priced from $6,500 to $8,900 for one-week Vacation
Intervals, 104 of which were sold in 1995. Vacation Intervals at the resort
can be exchanged for Vacation Intervals at other locations through RCI, which
awarded the resort its Gold Crown Resort Designation.
The San Luis Bay Resort. The San Luis Bay Resort, located on 16 oceanview
acres in Avila Beach, California, near San Luis Obispo, was originally opened
in 1969 as a hotel club and in June 1996 was acquired by Signature from the
bankruptcy estate of Glen Ivy Resorts, Inc., which had converted the property
to a timeshare resort in 1989. The resort is adjacent to a championship golf
course and is well located for visiting local wineries and historical
attractions. At present, a total of 68 studio and one bedroom units are
completed at the resort. Upon completion of an 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.
Signature's inventory at the resort contains 1,010 available Vacation
Intervals (including Vacation Intervals which Signature is in the process of
acquiring through foreclosure). Vacation Intervals at the San Luis Bay Inn are
currently priced from $8,500 to $16,000 for one-week Vacation Intervals.
Vacation Intervals at the resort can be exchanged for Vacation Intervals at
other locations through RCI.
Embassy Vacation Resorts
The Embassy Vacation Resort Grand Beach. The Embassy Vacation Resort Grand
Beach opened in January 1995 and is located along nearly 2,000 feet of the
south shore of Lake Bryan, a 450-acre spring-fed lake in Lake Buena Vista,
Florida. The 1920's Florida architectural style resort sits on 18 acres and
upon its projected completion by the year 2000 will offer approximately 370
units in 14 four and five story buildings. 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 kitchen. With two
master suites, a third bedroom, and a sleeper sofa in the living room, units
can accommodate four couples.
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The resort currently contains 3,672 total Vacation Intervals of which 1,504
remained for sale as of June 30, 1996. Vacation Intervals at the Embassy
Vacation Resort Grand Beach are currently priced from $12,500 to $14,000 for
one-week Vacation Intervals, 1,523 of which were sold in 1995. Vacation
Intervals at the resort can be exchanged for Vacation Intervals at other
locations through RCI, which awarded the resort its Gold Crown Resort
Designation.
The Embassy Vacation Resort Poipu Point. The Embassy Vacation Resort Poipu
Point was reconstructed in 1993 after being substantially destroyed by
Hurricane Iniki and was acquired by Signature in November 1994. The resort is
located at the most southern point on the Poipu Sun Coast of Kauai, Hawaii.
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.
The resort currently contains 11,169 total Vacation Intervals of which
10,317 remained for sale as of June 30, 1996. Units at the Embassy Vacation
Resort Poipu Point are currently priced from $13,700 (one bedroom) to $25,600
(three bedrooms) for one-week Vacation Intervals, 281 of which were sold in
1995. Vacation Intervals at the resort can be exchanged for Vacation Intervals
at other locations through RCI, which featured the resort in RCI Perspective
Magazine in 1995 and awarded it the RCI, Gold Crown Resort Designation.
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." 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.
Upon completion, Signature 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
Signature and Westin have entered into the Westin Agreement pursuant to
which Signature has acquired the exclusive right to jointly acquire, develop
and sell with Westin "four-star" and "five-star" Westin Vacation Club resorts
in North America, Mexico and the Caribbean for a five year term expiring May
3, 2001. Pursuant to the Westin Agreement, each of Signature and Westin will
own a 50% equity interest in such resorts and have an equal voice in their
management. The primary focus of the Westin Agreement is (i) developing
vacation ownership villas surrounding existing Westin hotel resort properties
and (ii) acquiring or developing hotels which can be operated under the Westin
hotel brand while at the same time being converted to vacation ownership
properties. Pursuant to the Westin Agreement, each of Signature and Westin has
agreed that, subject to certain exceptions, including certain Embassy Vacation
Resort acquisition and development opportunities, it will present to the other
party all "four-star" and "five-star" hotel and resort acquisition and
development opportunities (e.g., properties that are flagged by brands such as
Disney, Marriott, Omni, Ritz Carlton, Four Seasons/Regent, Inter-Continental
and Meridien) that it has determined to pursue and such other party has a
right of first refusal to determine whether to jointly develop such
opportunities with the other party subject to the foregoing exclusions.
Pursuant to the Westin Agreement, Westin and Signature will form a separate
partnership, limited liability company or similar entity to develop and
operate each Westin Vacation Club resort, of which Westin and Signature shall
be co-general partners or co-managers, as applicable. Each of Signature and
Westin will contribute 50% of the equity needed to develop and operate each
Westin Vacation Club resort. Pursuant to the Westin Agreement, Westin has the
right to manage all Westin Vacation Club resorts and Signature and Westin will
share the profits from such management activity. In addition, Westin will
promote the Westin Vacation Club concept by utilizing its customer base for
sales and marketing programs, arranging for on-site sales desks and
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other in-house marketing programs, in exchange for which Signature has agreed
to reimburse Westin predetermined marketing and advertising costs incurred by
Westin. Under certain circumstances, either party may terminate the Westin
Agreement upon failure to reach specified development goals.
Pursuant to the Westin Agreement, Signature has agreed to make available to
Westin one voting seat on the Signature Board and has agreed to use maximum
reasonable efforts to cause the nomination and election of Westin's designee.
Westin has agreed to make available to Signature one non-voting seat on its
Board of Directors which will be filled by one of the Founders. Following any
public offering of equity securities by Westin, Signature's seat on Westin's
board will become a voting seat, entitled to all reciprocal provisions granted
by Signature to Westin. See "RISK FACTORS--Effective Voting Control by
Existing Shareholders."
Sales and Marketing
Signature's primary means of selling Vacation Intervals is through on-site
sales forces at each of its Existing Resorts. A variety of marketing programs
are employed to generate prospects for these sales efforts, which include
targeted mailings, overnight mini-vacation packages, certificate programs,
seminars and various destination-specific local marketing efforts.
Additionally, incentive premiums are offered to guests to encourage resort
tours, in the form of entertainment tickets, hotel stays, gift certificates or
free meals. Signature's sales process is tailored to each prospective buyer
based upon the marketing program that brought the prospective buyer to the
resort for a sales presentation. Prospective target customers are identified
through various means of profiling, and either include or will include Westin
and Embassy Suites hotel guests and current owners of timeshare. Cross-
marketing targets current owners of intervals at Signature's existing resorts,
both to sell additional intervals at the owner's home resort, or to sell an
interval at another of Signature's resorts.
Signature seeks to attract potential Vacation Interval buyers at its Embassy
Vacation Resorts by targeting past and present Embassy Suites' hotel guests
with in-hotel marketing and direct marketing programs. These marketing efforts
offer this target audience of Embassy Suites hotel guests value priced
vacation packages which include resort tours and the opportunity to purchase
complete vacations, including accommodations, airfare and other vacation
components such as car rental. Additionally, Signature has the ability to
generate resort tours through Embassy Suites' central reservation system (and
through the five Embassy Suites hotels owned affiliates of Messrs. Kaneko and
Kenninger) by offering a premium for a resort tour at the time a consumer
books an Embassy Suites hotel in the vicinity of an Embassy Vacation Resort
property. Signature believes its access to the Embassy Suites customer base
allows it to generate Vacation Interval sales from these prospective customers
at a lower cost than through other lead generation methods. Because a high
percentage of such customers already have a preference for the Embassy brand,
Signature believes it achieves relatively high sales closing percentages among
these customers. Pursuant to the Westin Agreement, Signature intends to use
similar marketing strategies at its Westin Vacation Club resorts. Signature's
six non-branded resorts also provide it the opportunity to cross-market
customers among resorts and give owners and prospective buyers the ability to
visit and own Vacation Intervals in multiple destinations. These cross-
marketing programs may also help to create a meaningful identity for the non-
branded properties.
Customer Financing
A typical Vacation Interval entitles the buyer to a one-week per year stay
at one of Signature's resorts and ranges in price from approximately $4,000 to
$8,000 for a studio residence to approximately $12,000 to $26,000 for a three
bedroom residence. Signature offers financing to the purchasers of Vacation
Intervals in Signature's resort properties who make a down payment generally
equal to at least 10% of the purchase price. This financing generally bears
interest at fixed rates and is collateralized by a first mortgage on the
underlying Vacation Interval. A portion of the proceeds of such financing is
used to obtain releases of the Vacation Interval unit from any underlying
debt. Signature has entered into agreements with lenders for the financing of
customer receivables. These agreements provide an aggregate of up to
approximately $176 million of available financing to Signature bearing
interest at variable rates tied to either the prime rate or LIBOR of which
Signature currently has approximately $121 million of additional borrowing
capacity available. Under these arrangements, Signature
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pledges as security qualified purchaser promissory notes to these lenders, who
typically lend Signature 80% to 90% of the principal amount of such notes.
Payments under these promissory notes are made by the purchaser borrowers
directly to a payment processing center and such payments are credited against
Signature's outstanding balance with the respective lenders. Signature does
not presently have binding agreements to extend the terms of such existing
financing or for any replacement financing upon the expiration of such funding
commitments, and there can be no assurance that alternative or additional
arrangements can be made on terms that are satisfactory to Signature.
Accordingly, future sales of Vacation Intervals may be limited by both the
availability of funds to finance the initial negative cash flow that results
from sales that are financed by Signature and by reduced demand which may
result if Signature is unable to provide financing to purchasers of Vacation
Intervals. If Signature is required to sell its customer receivables,
discounts from the face value of such receivables may be required by buyers,
if buyers are available at all.
At June 30, 1996, Signature had a portfolio of approximately 11,500 loans to
Vacation Interval buyers amounting to approximately $78 million with respect
to Signature's consolidated resorts (all Existing Resorts except the Embassy
Vacation Resort Poipu Point). Signature's consumer loans had a weighted
average maturity
of approximately seven years and a weighted average cost of funds of 15.0%. At
such date Signature had borrowings secured by such loans of approximately
$61.5 million, which borrowings bear interest at variable rates with a
weighted average of 10.75%. As of June 30, 1996, approximately 8.3% of
Signature's consumer loans were considered by Signature to be delinquent (past
due by 60 or more days) and Signature has completed or commenced foreclosure
or deed-in-lieu of foreclosure on approximately 2.4% of its consumer loans.
Signature has historically derived income from its financing activities.
However, because Signature's borrowings bear interest at variable rates and
Signature's loans to purchasers of Vacation Intervals bear interest at fixed
rates, Signature bears the risk of increases in interest rates with respect to
the loans it has from its lenders. Signature intends to continue to engage in
interest rate hedging activities from time to time in order to reduce the risk
and impact of increases in interest rates with respect to such loans, but
there can be no assurance that any such hedging activity will be adequate at
any time to fully protect Signature from any adverse changes in interest
rates.
Signature also bears the risk of purchaser default. Signature's practice has
been to continue to accrue interest on its loans to purchasers of Vacation
Intervals until such loans are deemed to be uncollectible, at which point it
expenses the interest accrued on such loan, commences foreclosure proceedings
and, upon obtaining title, returns the Vacation Interval to Signature's
inventory for resale. Signature closely monitors its loan accounts and
determines whether to foreclose on a case-by-case basis.
Other Operations
Room Rental Operations. In order to generate additional revenue at certain
of the Existing Resorts that have an excess inventory of Vacation Intervals,
Signature rents units with respect to such unsold or unused Vacation Intervals
for use as a hotel. Signature offers these unoccupied units both through
direct consumer sales, travel agents or package vacation wholesalers. In
addition to providing Signature with supplemental revenue, Signature believes
its room-rental operations provide it with a good source of lead generation
for the sale of Vacation Intervals. As part of the management services
provided by Signature to Vacation Interval owners, Signature receives a fee
for services provided to rent an owner's Vacation Interval in the event the
owner is unable to use or exchange the Vacation Interval. In addition, the
Embassy Vacation Resort Poipu Point 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,
Signature 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 "INFORMATION REGARDING SIGNATURE RESORTS, INC.--
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Resort Management. Signature's Existing Resorts are (i) generally managed by
Signature itself pursuant to management agreements with homeowner associations
with respect to each of Signature's non-branded resorts, (ii) managed by
Promus pursuant to management agreements with Signature with respect to
Signature's Grand
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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 Signature's non-branded resorts, Signature enters into a
management agreement with an association comprised of owners of vacation
interests at the resort to provide for management and maintenance of the
resort. Pursuant to each such management agreement Signature is paid a monthly
management fee equal to 10% to 12% of monthly assessment fees. Pursuant to
each management agreement Signature has sole responsibility and exclusive
authority for all activities necessary for the day-to-day operation of the
non-branded resorts, including administrative services, procurement of
inventories and supplies and promotion and publicity. With respect to each
resort Signature also obtains comprehensive and general public liability
insurance, all-risk property insurance, business interruption insurance and
such other insurance as is customarily obtained for similar properties.
Signature also provides all managerial and other employees necessary for the
non-branded resorts, including review of the operation and maintenance of the
resorts, preparation of reports, budgets and projections, employee training,
and the provision of certain in-house legal services. At Signature's Grand
Beach and Lake Tahoe Embassy Vacation Resorts, Promus provides (or will
provide with respect to Lake Tahoe), and at the Embassy Vacation Resort Poipu
Point, Aston provides management and maintenance services to Signature
pursuant to a management agreement and assumes responsibility of such day-to-
day operation of the Embassy Vacation Resorts.
Participation in Vacation Interval Exchange Networks
Signature's resorts participate in Vacation Interval exchange networks
operated by RCI and II with respect to the Royal Palm Beach Club. Membership
in RCI allows Signature's customers to exchange in a particular year their
occupancy right in the unit in which they own a Vacation Interval for an
occupancy right at the same time or a different time in another participating
resort, based upon availability and the payment of a variable exchange fee. A
member may exchange his Vacation Interval for an occupancy right in another
participating resort by listing his Vacation Interval as available with the
exchange organization and by requesting occupancy at another participating
resort, indicating the particular resort or geographic area to which the
member desires to travel, the size of the unit desired and the period during
which occupancy is desired. RCI assigns a rating to each listed Vacation
Interval, based upon a number of factors, including the location and size of
the unit, the quality of the resort and the period during which the Vacation
Interval is available, and attempts to satisfy the exchange request by
providing an occupancy right in another Vacation Interval with a similar
rating.
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. It was announced in
October 1996 that RCI has agreed to become a wholly-owned subsidiary of HFS,
Inc., a major owner of hotels throughout the United States. 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.
Future Acquisitions
Signature intends to expand its timeshare business by acquiring or
developing resorts located in attractive resort destinations, including Hawaii
and California, and is in the process of evaluating strategic acquisitions in
a variety of locations. Such future acquisition and development of resorts
could have a substantial and material impact on Signature's operations and
prospects. Signature currently is evaluating possible acquisitions of resorts
and development opportunities, including opportunities located in California
(including San Diego, the greater Los Angeles area, northern California, Napa
County, Sonoma County, the Palm Desert area, the central and southern Pacific
coast, and the Big Bear/Lake Arrowhead area), Las Vegas, Nevada, on the
Hawaiian islands of Kauai, Hawaii, Maui and Oahu, the Caribbean, Mexico and in
various existing and potential Westin resorts throughout North America.
Signature has not entered into any definitive acquisition agreement with
respect to any such resort or development opportunity and there can be no
assurance that such an agreement will be negotiated or that any such
acquisition will be consummated. In addition, Signature has also explored the
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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.
Competition
Although major lodging and hospitality companies such as Marriott, Disney,
Hilton, Hyatt, Four Seasons and Inter-Continental, as well as Promus and
Westin, have established or declared an intention to establish timeshare
operations in the past decade, the industry remains highly fragmented, with a
vast majority of North America's approximately 2,000 timeshare resorts being
owned and operated by smaller, regional companies. Of Signature's major brand
name lodging company competitors, Signature believes, based on published
industry data and reports, that Marriott currently sells Vacation Intervals at
nine resorts which it also owns and operates (Kauai, Hawaii; Palm Desert,
California; Park City, Utah; Breckenridge, Colorado; Williamsburg, Virginia;
Hilton Head Island, South Carolina; Orlando, Florida; Boston, Massachusetts;
and Marbella, Spain) and directly competes with Signature's Poipu Point,
Hilton Head Island and Orlando area resorts; Disney currently sells Vacation
Intervals at three resorts which it also owns and operates (Lake Buena Vista
and Vero Beach, Florida; and Hilton Head Island, South Carolina) and directly
competes with Signature's Orlando area and Hilton Head Island resorts; Hilton
currently sells Vacation Intervals at two resorts which it also owns and
operates (Las Vegas, Nevada; and Orlando, Florida) and directly competes with
Signature's Orlando area resorts; Hyatt owns and operates one resort in Key
West, Florida but does not directly compete in any of Signature's existing
markets (although Hyatt has announced an intention to develop a timeshare
resort in Orlando, Florida); Four Seasons currently is developing its first
timeshare resort in Carlsbad, California but is not yet in sales of Vacation
Intervals at any resorts; and Inter-Continental announced its entry into the
timeshare market in 1996, but has yet to announce any specific projects and is
not yet in sales of Vacation Intervals at any resorts. Many of these entities
possess significantly greater financial, marketing, personnel and other
resources than those of Signature and may be able to grow at a more rapid rate
as result.
Signature also competes with companies with unbranded resorts such as
Westgate, Vistana and Vacation Break, each of which competes with Signature's
Orlando area resorts, and Fairfield, which competes with Signature's Orlando
area and Branson resorts.
Governmental Regulation
General. Signature's Vacation Interval marketing and sales are subject to
extensive regulations by the federal government and the states and foreign
jurisdictions in which its resort properties are located and in which Vacation
Intervals are marketed and sold. On a federal level, the Federal Trade
Commission has taken the most active regularity role through the Federal Trade
Commission Act, which prohibits unfair or deceptive acts or competition in
interstate commerce. Other federal legislation to which Signature is or may be
subject includes on the Truth-in-Lending Act and Regulation Z, the Equal
Credit Opportunity Act and Regulation B, the Interstate and Land Sales Full
Disclosure Act, Real Estate Standards Practices Act, Telephone Consumer
Protection Act, Telemarketing and Consumer Fraud and Abuse Prevention Act,
Fair Housing Act and the Civil Rights Act of 1964 and 1968. In addition, many
states have adopted specific laws and regulations regarding the sale of
interval ownerships programs. The laws of most states, including Florida,
South Carolina and Hawaii require Signature to file with a designated state
authority for its approval a detailed offering statement describing Signature
and all material aspects of the project and sale of Vacation Intervals. The
laws of California require Signature to file numerous documents and supporting
information with the California Department of Real Estate, the agency
responsible for the regulation of Vacation Intervals. When the California
Department of Real Estate determines that a project has complied with
California law, it will issue a public report for the project. Signature is
required to deliver an offering statement or public report to all prospective
purchaser of a Vacation Interval, together with certain additional information
concerning the terms of the purchase. The laws of Illinois, Florida and Hawaii
impose similar requirements. Laws in each state where Signature sells Vacation
Intervals generally grant the purchaser of a Vacation Interval the right to
cancel a contract of purchase at any time within a period ranging
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from three to 15 calendar days following the earlier of the date the contract
was signed or the date the purchaser has received the last of the documents
required to be provided by Signature.
Most states have other laws which regulate Signature's activities such as
real estate licensure; sellers of travel licensure; anti-fraud laws;
telemarketing laws; price gift and sweepstakes laws; and labor laws. Signature
believes that it is in material compliance with all federal, state, local and
foreign laws and regulations to which it is currently or may be subject.
However, no assurance can be given that the cost of qualifying under interval
ownership regulations in all jurisdictions in which Signature desires to
conduct sales will not be significant. Any failure to comply with applicable
laws or regulations could have material adverse effects on Signature.
Environmental Matters. Under various federal, state and local environmental
laws, ordinances and regulations, a current or previous owner or operator of
real estate may be required to investigate and clean up hazardous or toxic
substances or petroleum product releases at such property, and may be held
liable to a governmental entity or to third parties for property damage and
for investigation and clean-up costs incurred by such parties in connection
with the contamination. Such laws typically impose clean-up responsibility and
liability without regard to whether the owner knew of or caused the presence
of the contaminants, and the liability under such laws has been interpreted to
be joint and several unless the harm is divisible and there is a reasonable
basis for allocation of responsibility. The cost of investigation, remediation
or removal of such substances may be substantial, and the presence of such
substances, or the failure to properly remediate the contamination on such
property, may adversely affect the owner's ability to sell or rent such
property or to borrow using such property as collateral. Persons who arrange
for the disposal or treatment of hazardous or toxic substances at a disposal
or treatment facility also may be liable for the costs of removal or
remediation of a release of hazardous or toxic substances at such disposal or
treatment facility, whether or not such facility is owned or operated by such
person. In addition, some environmental laws create a lien on the contaminated
site in favor of the government for damages and costs it incurs in connection
with the contamination. Finally, the owner of a site may be subject to common
law claims by third parties based on damages and costs resulting from
environmental contamination emanating from a site. In connection with its
ownership and operation of its properties, Signature may be potentially liable
for such costs.
Certain Federal, state and local laws, regulations and ordinances govern the
removal, encapsulation or disturbance of asbestos-containing materials
("ACMS") when such materials are in poor condition or in the event of
construction, remodeling, renovation or demolition of a building. Such laws
may impose liability for release of ACMs and may provide for third parties to
seek recovery from owners or operators of real properties for personal injury
associated with ACMs. In connection with its ownership and operation of its
properties, Signature may be potentially liable for such costs.
In addition, recent studies have linked radon, a naturally-occurring
substance, to increased risks of lung cancer. While there are currently no
state or federal requirements regarding the monitoring for, presence of, or
exposure to, radon in indoor air, the EPA and the Surgeon General recommend
testing residences for the presence of radon in indoor air, and the EPA
further recommends that concentrations of radon in indoor air be limited to
less than 4 picocuries per liter of air (Pci/L) (the "RECOMMENDED ACTION
LEVEL"). The presence of radon in concentrations equal to or greater than the
Recommended Action Level in one or more of Signature's properties may
adversely affect Signature's ability to sell Vacation Intervals at such
properties and the market value of such property. Recently enacted federal
legislation will require Signature to disclose to potential purchasers of
Vacation Intervals at Signature's resorts that were constructed prior to 1978
any known lead-paint hazards and will impose treble damages for failure to so
notify.
Electric transmission lines are located in the vicinity of Signature's
properties. Electric transmission lines are one of many sources of electro-
magnetic fields ("EMFS") to which people may be exposed. Research into
potential health impacts associated with exposure to EMFs has produced
inconclusive results. Notwithstanding the lack of conclusive scientific
evidence, some states now regulate the strength of electric and magnetic
fields emanating from electric transmission lines, while others have required
transmission facilities to measure for levels of EMFs. In addition, Signature
understands that lawsuits have, on occasion, been filed (primarily against
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electric utilities) alleging personal injuries resulting from exposure as well
as fear of adverse health effects. In addition, fear of adverse health effects
from transmission lines has been a factor considered in determining property
values in obtaining financing and in condemnation proceedings in eminent
domain brought by power companies seeking to construct transmission lines.
Therefore, there is a potential for the value of a property to be adversely
affected as a result of its proximity to a transmission line and for Signature
to be exposed to damage claims by persons exposed to EMFs.
Signature has conducted Phase I assessments at each of its Existing Resorts
in order to identify potential environmental concerns. These Phase I
assessments have been carried out in accordance with accepted industry
practices and consisted of non-invasive investigations of environmental
conditions at the properties, including a preliminary investigation of the
sites and identification of publicly known conditions concerning properties in
the vicinity of the sites, physical site inspections, review of aerial
photographs and relevant governmental records where readily available,
interviews with knowledgeable parties, investigation for the presence of above
ground and underground storage tanks presently or formerly at the sites, a
visual inspection of potential lead-based paint and suspect friable ACMs where
appropriate, a radon survey, and the preparation and issuance of written
reports. Signature's assessments of its properties have not revealed any
environmental liability that Signature believes would have a material adverse
effect on Signature's business, assets or results of operations, nor is
Signature aware of any such material environmental liability. Nevertheless, it
is possible that Signature's assessments do not reveal all environmental
liabilities or that there are material environmental liabilities of which
Signature is unaware. Signature does not believe that compliance with
applicable environmental laws or regulations will have a material adverse
effect on Signature or its financial condition or results of operations.
In connection with the acquisition and development of the Embassy Vacation
Resort Lake Tahoe and the San Luis Bay Resort, Signature's environmental
consultant has identified several areas of environmental concern. The areas of
concern at the Embassy Vacation Resort Lake Tahoe relate to possible
contamination that originated on the resort site due to prior uses and to
contamination that may migrate onto the resort site from upgradient sources.
California regulatory agencies have been monitoring the resort site and have
required or are in the process of requiring the responsible parties (presently
excluding Signature) to effect remediation action. Signature has been
indemnified by certain of the responsible parties for certain costs and
expenses in connection with contamination at the Embassy Vacation Resort Lake
Tahoe (including Chevron (USA), Inc.) and does not anticipate incurring
material costs in connection therewith, however, there is no assurance that
the indemnitor(s) will meet their obligations in a complete and timely manner.
In addition, Signature's San Luis Bay Resort is located in an area of Avila
Beach, California which has experienced underground contamination resulting
from leaking pipes at a nearby oil refinery. California regulatory agencies
have required the installation of groundwater monitoring wells on the beach
near the resort site, and no demand or claim in connection with such
contamination has been made on Signature, however, there is no assurance that
claims will not be asserted against Signature with respect to this
environmental condition.
Signature believes that its properties are in compliance in all material
respects with all federal, state and local laws, ordinances and regulations
regarding hazardous or toxic substances. Except as described above with
respect to the Embassy Vacation Resort Lake Tahoe and the San Luis Bay Resort,
Signature has not been notified by any governmental authority or any third
party, and is not otherwise aware, of any material noncompliance, liability or
claim relating to hazardous or toxic substances or petroleum products in
connection with any of its present properties.
Other Regulations. Under various state and federal laws governing housing
and places of public accommodation Signature is required to meet certain
requirements related to access and use by disabled persons. Many of these
requirements did not take effect until after January 1, 1991. Although
management of Signature believes that its facilities are substantially in
compliance with present requirements of such laws, and Signature may incur
additional costs of compliance. Additional legislation may impose further
burdens or restriction on owners with respect to access by disabled persons.
The ultimate amount of the cost of compliance with such legislation is not
currently ascertainable, and, while such costs are not expected to have a
material effect on
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Signature, such costs could be substantial. Limitations or restrictions on the
completion of certain renovations may limit application of Signature's growth
strategy in certain instances or reduce profit margins on Signature's
operations.
Employees
As of September 30, 1996, Signature employed approximately 700 full-time
employees. Signature believes that its employee relations are good. Except for
certain employees located in the St. Maarten, Netherland Antilles properties,
none of Signature's employees is represented by a labor union. Signature sells
Vacation Intervals at its resorts through independent sales agents. Such
independent sales agents provide services to Signature under contract and are
not employees of Signature.
Insurance; Legal Proceedings
Signature carries comprehensive liability, fire, hurricane, storm,
earthquake and business interruption insurance with respect to Signature's
resorts, with policy specifications, insured limits and deductibles
customarily carried for similar properties which Signature believes are
adequate. In September 1995 and July 1996, Signature's St. Maarten resorts
were damaged by a hurricane. With respect to such September 1995 damage,
Signature has recovered amounts from its insurance carriers sufficient to
cover 100% of the property damage losses and is in the process of recovering
amounts for business interruption. Signature has agreed to provide
approximately 2,700 replacement weeks to owners who were unable to use their
Vacation Interval as a result of such September 1995 hurricane. Such provision
of replacement Vacation Intervals will have the short term effect of reducing
the number of Vacation Intervals available for sale or alternative rental as
hotel rooms at the St. Maarten resorts. Additionally, the St. Maarten resorts
sustained relatively minor damage in 1996 as the result of Hurricane Bertha;
management estimates that such damage is approximately $100,000, which is less
than the applicable insurance deductibles and, accordingly, the expense to
repair the damage will be borne by Signature. There are, however, certain
types of losses (such as losses arising from acts of war) that are not
generally insured because they are either uninsurable or not economically
insurable. Should an uninsured loss or a loss in excess of insured limits
occur, Signature could lose its capital invested in a resort, as well as the
anticipated future revenues from such resort and would continue to be
obligated on any mortgage indebtedness or other obligations related to the
property. Any such loss could have a material adverse effect on Signature.
Signature is currently subject to litigation and claims respecting
employment, tort, contract, construction and commissions, disputes, among
others. In the judgment of management, none of such lawsuits or claims against
Signature is likely to have a material adverse effect on Signature or its
business.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Signature Resorts, Inc. was formed in May 1996 to combine the ownership of
the Existing Resorts and the timeshare acquisition and development business of
Signature's predecessors. Signature generates revenues from the sale and
financing of 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. Signature generates additional revenues from room
rental operations, rentals of Vacation Intervals in company inventory and from
fees associated with managing the timeshare resorts.
Signature recognizes sales of Vacation Intervals on an accrual basis after a
binding sales contract has been executed between Signature and the proposed
buyer, a 10% minimum down payment has been received, the rescission period has
expired, construction is substantially complete, and certain minimum sales
levels are achieved. If all the criteria are met, 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.
Signature's investment in the Embassy Vacation Resort Poipu Point is accounted
for using the equity method
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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 Signature on a combined historical basis. The results of operations
only reflect operations of entities in existence for each respective reporting
year. The following table sets forth certain operating information for the
entities comprising Signature.
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
----------------------- ----------------
1993 1994 1995 1995 1996
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
AS A PERCENTAGE OF TOTAL REVENUES
Vacation Interval sales............ 91.0% 90.9% 81.4% 89.0% 73.9%
Interest........................... 7.5% 8.3% 9.5% 9.0% 10.8%
Other.............................. 1.5% 0.8% 9.1% 2.0% 15.3%
------ ------ ------- ------- -------
Total Revenues................. 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ======= ======= =======
AS A PERCENTAGE OF VACATION
INTERVAL SALES
Vacation Interval cost of sales.... 25.7% 30.8% 26.5% 28.7% 23.7%
Advertising, sales and marketing... 48.6% 46.5% 48.2% 49.5% 51.2%
AS A PERCENTAGE OF INTEREST INCOME
Loan Portfolio:
Interest expense-treasury.......... 36.9% 44.2% 51.8% 54.3% 59.3%
Other expenses..................... 11.4% 23.1% 17.2% 15.0% 15.7%
AS A PERCENTAGE OF TOTAL REVENUES
Provision for doubtful accounts.... 2.5% 2.1% 2.5% 2.8% 1.8%
General and administrative......... 13.2% 8.4% 9.0% 6.5% 11.9%
Depreciation and amortization...... 1.6% 1.1% 2.3% 2.3% 2.8%
Interest expense--other............ 2.1% 2.2% 0.7% 0.6% 3.5%
Equity loss on investment in joint
venture........................... -- 0.6% 2.3% 3.1% 0.2%
------ ------ ------- ------- -------
Total costs and operating
expenses...................... 90.6% 90.3% 84.1% 91.1% 83.5%
====== ====== ======= ======= =======
SELECTED OPERATING DATA:
Vacation Intervals sold at non-
consolidated resorts(1)........... -- -- 281 -- 571
Vacation Intervals sold at
consolidated resorts(2)........... 2,442 4,482 5,394 2,615 2,498
Vacation Intervals sold at all
resorts(3)........................ 2,442 4,482 5,675 2,615 3,069
Average sales price per Vacation
Interval at consolidated
resorts(4)........................ $9,106 $8,985 $10,953 $11,013 $11,511
Average sales price per Vacation
Interval at non-consolidated
resorts(5)........................ -- -- $19,074 -- $19,728
Number of Vacation Intervals in
inventory at period-end(6)........ 1,233 2,401 9,917 2,040 21,142
</TABLE>
- --------
(1) Reflects Vacation Intervals sold at the Embassy Vacation Resort Poipu
Point.
(2) Reflects Vacation Intervals sold at consolidated resorts (Cypress Pointe
Resort, Plantation at Fall Creek, Royal Dunes Resort, Royal Palm Beach
Club, Flamingo Beach Club, San Luis Bay Resort, Embassy Vacation Resort
Grand Beach and Embassy Vacation Resort Lake Tahoe).
(3) Reflects Vacation Intervals sold at consolidated and non-consolidated
resorts.
(4) Reflects average price achieved on sales of Vacation Intervals at
consolidated resorts.
(5) Reflects Vacation Interval inventory at non-consolidated resorts.
(6) Reflects Vacation Interval inventory at consolidated resorts and non-
consolidated resorts.
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<PAGE>
Comparison of the Six Months Ended June 30, 1996 to Six Months Ended June 30,
1995.
For the six months ended June 30, 1996 Signature achieved total revenue of
$38.9 million compared to $32.3 million for the six months ended June 30,
1995, an increase of $6.6 million or 20%. This increase was primarily due to a
44% increase in interest revenue and a $5.3 million increase in other revenue.
Interest revenue primarily grew due to a $21.9 million increase in mortgage
receivables, which grew from $57.7 million as of June 30, 1995 to $79.6
million as of June 30, 1996, an increase of 38%. Other revenue increased due
to the realization of a $1.7 million gain related to the repayment of note
receivable obtained in connection with the purchase of the Flamingo Beach
Club, $1.4 million in revenues from a mortgage receivables portfolio acquired
with the two St. Maarten properties, and a $1.7 million increase in rental
revenue. The number of Vacation Intervals sold at the Existing Resorts
increased 17.4% from 2,615 for the six months ended June 30, 1995 to 3,069 for
the same period in 1996. The average price of Vacation Intervals sold at the
Existing Resorts, including the Embassy Vacation Resort Poipu Point, grew from
$11,013 to $13,040, an increase of 18.4%. Vacation Interval sales at the
Existing Resorts, including Embassy Vacation Resort Poipu Point, grew from
$28.8 million to $40.0 million, an increase of 39%. Vacation Interval sales,
which reflects revenues at only the consolidated resorts, were flat at $28.8
million for the first six months of both 1995 and 1996. The number of Vacation
Intervals sold at the consolidated resorts decreased 4.4% from 2,615 to 2,498,
while the average price per Vacation Interval sold at the consolidated resorts
increased from $11,013 to $11,511. Management attributes the decrease in the
number of Vacation Intervals sold at the consolidated resorts to (i) its
decision made during the fourth quarter of 1995 to cease active marketing
efforts at the Royal Dunes Resort to preserve inventory until the resort can
be marketed through a nearby Westin Resort as contemplated by the Westin
Agreement in order to increase Vacation Interval sales prices and reduce
marketing costs; and (ii) Signature's strategic decision, made at the end of
1995 in response to competitive pressures in the Orlando, Florida area, to
transition its marketing efforts at the Embassy Vacation Resort Grand Beach
and Cypress Pointe Resort from predominantly externally generated tours to
predominantly internally generated tours which resulted in temporarily lower
Vacation Interval sales volume at such resorts and (iii) increased competition
in Orlando, Florida.
While operating costs increased from $29.5 million for the six months ended
June 30, 1995 to $32.5 million for the six months ended June 30, 1996, an
increase of 10%, as a percentage of revenues operating costs decreased from
91% in 1995 to 84% in 1996. Relative decreases in Vacation Interval cost of
sales, advertising sales and marketing costs, provision for doubtful accounts,
and equity loss on investment in joint venture as a percentage of revenues
more than offset relative increases in interest expense-treasury, general and
administrative, depreciation and amortization, other expenses, and interest
expense-other. Signature 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. This is reflected in a
proportionate decrease in cost of Vacation Intervals sold from 29% of interval
sales in 1995 to 24% of Vacation Interval sales in 1996. Advertising, sales
and marketing costs decreased as a percentage of total revenues from 44% to
38%, while as a percentage of Vacation Interval sales, advertising sales and
marketing increased from 50% in 1995 to 51% in 1996. This was primarily the
result of the allocation of advertising, sales and marketing costs over a
lower number of Vacation Intervals sold at consolidated resorts and additional
costs relating to research and development associated with national marketing
strategies.
Loan portfolio expenses consisting of interest expense, other expenses and
provision for doubtful accounts increased from $2.9 million for the six months
ended June 30, 1995 to $3.8 million for the same period during 1996, an
increase of 31%. This increase reflects the 63% increase in mortgage payables
due to Vacation Interval sales growth and acquisitions of certain Existing
Resorts made by Signature in 1996.
General and administrative expenses increased from $2.1 million for the
first six months of 1995 to $4.6 million for the first six months of 1996. The
increase in general and administrative expenses was the result of increased
salary expenses and overhead due to the acquisition of additional Existing
Resorts and growth in the size of Signature.
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<PAGE>
Depreciation and amortization increased from $0.7 million for the six months
ended June 30, 1995 to $1.1 million for the same period in 1996. This increase
was the result of additional capital expenditures and intangible assets.
Equity loss on investment in joint venture decreased from $1.0 million for
the six months ended June 30, 1995 to $0.1 million for the six months ended
June 30, 1996 due to the initiation of Vacation Interval sales at the Embassy
Vacation Resort Poipu Point during the third quarter of 1995 and higher
occupancy at the hotel. For the six months ended June 30, 1996, 571 Vacation
Intervals were sold at the Embassy Vacation Resort Poipu Point at an average
price of $19,728.
Pre-tax net income increased 124% to $6.4 million, or 16.5% of total
revenues for the six months ended June 30, 1996.
Comparison of the Year Ended December 31, 1995 to Year Ended December 31,
1994.
For the year ended December 31, 1995 Signature achieved total revenue of
$72.6 million compared to $44.3 million for the year ended December 31, 1994,
an increase of $28.3 million or 64%. Total revenue grew due to a 47% increase
in Vacation Interval sales from $40.3 million to $59.1 million, an 86%
increase in interest income from $3.7 million to $6.9 million, and a $6.3
million increase in resort operations and other income. The commencement of
sales of Vacation Intervals at Royal Palm, Flamingo Beach Club, and Embassy
Vacation Resort Grand Beach drove Vacation Interval sales volume at the
consolidated resorts from 4,482 sold in 1994 to 5,394 sold in 1995, an
increase of 20%. These higher volumes, combined with price growth, drove the
47% increase in Vacation Interval sales revenue. Interest income increased due
to a $34.9 million increase in mortgage receivables, which grew from $33.4
million at the end of 1994 to $68.3 million at the end of 1995, an increase of
104%. Other income increased $6.3 million from $0.3 million in 1994 to $6.6
million in 1995. This increase was the result of rental income at the resorts
increasing from $0.2 million to $1.3 million from 1994 to 1995, and the
acquisition of a mortgage receivable portfolio of approximately $10.2 million
acquired with the two St. Maarten resorts on which Signature earned $2.2
million. In addition, Signature accrued $2.0 million of business interruption
insurance claims to compensate for loss revenues and profits related to
damages sustained from Hurricane Luis at the two St. Maarten resorts.
While operating costs increased from $40.0 million for the year ended
December 31, 1994 to $61.1 million for the year ended December 31, 1995, an
increase of 53%, as a percentage of revenues operating costs decreased from
90.3% in 1994 to 84.1% in 1995. Relative decreases in Vacation Interval cost
of sales and other expenses, as a percentage of revenues were offset by
relative increases in interest expense-treasury, provision for doubtful
accounts, depreciation and amortization and equity loss on investment in joint
venture. Signature was able to purchase and construct Vacation Intervals at a
relative discount to historical development costs, reducing the unit cost on
average of each Vacation Interval sold. This is reflected in a proportionate
decrease in cost of Vacation Intervals sold from 30.8% of Vacation Interval
sales in 1994 to 26.5% of Vacation Interval sales in 1995. Although
advertising, sales and marketing costs decreased as a percentage of total
revenues from 42.3% to 39.2%, these costs increased as a percentage of
Vacation Interval sales from 46.5% in 1994 to 48.2% in 1995. This was
primarily the result of $2.0 million in expenses in 1995 relating to research
and development associated with national marketing strategies and programs
related to "branded" and "non-branded" resorts. Excluding these expenses,
advertising, sales and marketing costs in 1995 were 44.8% of Vacation Interval
sales, slightly less than in 1994.
Loan portfolio expenses consisting of interest expense, other expenses and
provision for doubtful accounts increased from $3.4 million in total in 1994
to $6.6 million in total in 1995, an increase of 94%. This increase reflects
the 104% increase in mortgage receivables due to interval sales growth and
acquisitions of resorts made by Signature in 1995.
General and administrative expenses increased 78% 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
57
<PAGE>
the acquisition of additional resorts and growth in the size of Signature.
Relative to revenues, general and administrative expenses were slightly higher
in 1995 at 9.0% of revenues versus 8.4% of revenues in 1994.
Depreciation and amortization increased from $0.5 million in 1994 to $1.7
million in 1995, reflecting increased depreciation resulting from an increase
in capital expenditures of $1.8 million and acquisitions resulting in a $1.8
million increase in intangible assets.
Signature made its investment in the Embassy Vacation Resort Poipu Point
during the last quarter of 1994. The Embassy Vacation Resort Poipu Point has
experienced losses associated with the start-up operations of the related
resort, which is being converted to timeshare. Equity loss on joint venture
increased from $0.3 million in 1994 to $1.6 million in 1995 reflecting a full
year's operations at the resort in 1995.
Pre-tax net income increased 170% to $11.6 million, or 15.9% of total
revenue, in 1995 from $4.3 million, or 9.7% of total revenues, in 1994.
Comparison of the Year Ended December 31, 1994 to Year Ended December 31,
1993.
For the year ended December 31, 1994 Signature generated total revenue of
$44.3 million compared to $24.4 million in 1993, an increase of 82%. This
increase was due to an 82% growth in Vacation Interval sales revenues from
$22.2 million in 1993 to $40.3 million in 1994. The first full year of sales
at the Plantation at Fall Creek Resort and the addition of the Royal Dunes
Resort drove higher volume Vacation Interval sales from 2,442 Vacation
Intervals sold in 1993 to 4,482 Vacation Intervals sold in 1994. This volume
growth of 84% more than offset the 5.2% decrease in the average price of
Vacation Intervals sold to drive the 82% increase in Vacation Interval sales
revenues. Interest income increased due to a $16.0 million increase in
mortgage receivables from $17.4 million at the end of 1993 to $33.4 million at
the end of 1994, an increase of 92%.
Operating costs increased from $22.1 million for the year ended December 31,
1993 to $40.0 million for the year ended December 31, 1993, an increase of
81%. However, as a percentage of revenues, operating costs decreased slightly
from 90.6% in 1993 to 90.3% in 1994. Increases in Vacation Interval cost of
sales as a percentage of revenue from 23.4% in 1993 to 28.0% in 1994 were more
than offset by decreases in other operating costs. From 1993 to 1994,
advertising, sales and marketing decreased from 44.2% of revenues to 42.3% of
revenues, general and administrative decreased from 13.2% of revenues to 8.4%
of revenues, and depreciation and amortization decreased from 1.6% of revenues
to 1.1% of revenues. Vacation Interval cost of sales increased as a percentage
of revenues due to relatively higher Vacation Interval cost associated with
the first year of operations at Royal Dunes. Advertising, sales and marketing
costs decreased as a percentage of Vacation Interval sales from 48.6% in 1993
to 46.5% in 1994. This reflects increased Vacation Interval sales volume at
Cypress Pointe, which increased from 1,784 Vacation Intervals in 1993 to 2,061
Vacation Intervals in 1994. Although decreasing in terms of a percentage of
revenue, due to expansion in the administrative costs necessary to support a
growing business, general and administrative expenses increased in absolute
terms from $3.2 million in 1993 to $3.7 in 1994, a 16.0% increase.
Depreciation and amortization was approximately consistent between 1993 and
1994 at $0.4 million and $0.5 million respectively reflecting capital
expenditures of $0.2 million, and the recording of intangibles at Grand Beach
in late 1994 with no related amortization. Equity loss on investment in joint
venture of $0.3 million in 1994 reflects Signature's share of losses
associated with the start-up operations at the Embassy Vacation Resort Poipu
Point.
Loan portfolio expenses consisting of interest expense, loan portfolio and
provision for doubtful accounts increased from $1.5 million in 1993 to $3.4
million in 1994, an increase of 127%. This reflects the increase in Vacation
Intervals sold in 1994 and a relative increase in borrowings made by Signature
secured by interval inventory. While loan portfolio expenses were consistent
as a percentage of total revenue, interest expense treasury increased from
36.9% of interest income to 44.2%. Provision for doubtful accounts decreased
slightly from 2.5% of revenues to 2.1% of revenues. Other loan portfolio
expenses increased from $0.2 million in 1993 (0.9% of revenues) to $0.9
million in 1994 (1.9% of revenues) reflecting additional costs from portfolio
management services started in 1994.
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<PAGE>
Pre-tax net income increased 87% from $2.3 million in 1993 to $4.3 million
in 1994.
Liquidity and Capital Resources
Signature generates cash for operations from the sale of Vacation Intervals,
the financing of the sales of Vacation Intervals, the rental of unsold
Vacation Interval units, and the receipt of management fees. With respect to
the sale of Vacation Intervals, Signature generates cash for operations from
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. Signature generates cash related to
the financing of Vacation Interval sales on the difference between the
interest charged on the mortgage receivables, which averaged 15.0% in 1995,
and the interest paid on the notes payable secured by such mortgage
receivables.
During the six months ended June 30, 1996 and 1995, respectively, and the
years ended December 31, 1995, 1994, and 1993 cash (used in) provided by
operating activities was ($17.3 million), $14.1 million, $5.5 million, ($11.0
million) and $3.3 million, respectively. While net income was higher for the
six months ended June 30, 1996 when compared to the same period in 1995, cash
generated from operating activities decreased due to increases in real estate
and development activities. Cash generated from operating activities was
higher for the year ended December 31, 1995 when compared to the same period
in the prior year primarily due to higher net income, decreases in the amount
spent on acquisition and development activities, and increases in payables
outstanding at the end of 1995 when compared to at the end of 1994. Cash
generated from operating activities was lower for the year ended December 31,
1994 when compared to the same period in the prior year primarily due to
accelerated acquisition and development activities during the year of 1994
when compared to the prior year.
Net cash used in investing activities for the six months ended June 30,
1996, and 1995 and the years ended December 31, 1995, 1994 and 1993 was
($11.2) million, ($24.4) million, ($40.1) million, ($24.9) million, and
($10.8) million, respectively. For the six months ended June 30, 1995, the
change in net mortgage receivables was higher than in the comparable period in
1996 due to higher sales of Vacation Intervals. In addition, Signature
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 in investing activities was higher for the year ended December 31, 1994
when compared to the same period in the prior year due to both expenditures
for the investment in Embassy Vacation Resort Poipu Point and increases in the
mortgage receivables portfolio which resulted from higher Vacation Interval
sales in 1994.
For the six months ended June 30, 1996 and 1995, and for the years ended
December 31, 1995, 1994 and 1993, net cash provided by financing activities
was $28.4 million, $11.6 million, $37.1 million, $36.1 million and $15.3
million, respectively. These net cash figures were affected by Signature's
increased borrowings secured by mortgage receivables to fund operations and
increased payments on these borrowings due to amortizations on a larger
portfolio. In addition, year to year net cash provided by investing activities
fluctuates as a result of borrowing activities for acquisition and
development, and from equity investments as a result of resort acquisitions.
Signature requires funds to finance the future acquisition and development
of timeshare resorts and properties and to finance customer purchases of
Vacation Intervals. Such capital has been provided by secured financings on
Vacation Interval inventory, secured financings on mortgage receivables,
partner loans generally funded by third party lenders and capital
contributions. As of June 30, 1996, Signature had $30.5 million outstanding
under its notes payable secured by Vacation Interval inventory, and $61.5
million outstanding under its notes payable secured by mortgage receivables.
Upon consummation of Signature's initial public offering in August 1996, and
the application of proceeds therefrom, the majority of notes payable secured
by Vacation
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<PAGE>
Interval inventory were paid down. In order to finance anticipated development
costs at Existing Resorts, Signature intends to rely on cash from operations
and borrowing capacity available on existing credit facilities.
Over the next twelve months, Signature anticipates spending approximately
$38.0 million for expansion and development activities at the Existing
Resorts. Signature plans to fund these expenditures with the net proceeds of
its initial public 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.
Signature intends to pursue a growth-oriented strategy. From time to time,
Signature may acquire, among other things, additional timeshare properties,
resorts and completed Vacation Intervals; land upon which additional timeshare
resorts may be built; management contracts (which may from time to time
require capital expenditures by Signature); loan portfolios of Vacation
Interval mortgages; portfolios which include properties or assets which may be
integrated into Signature's operations; and operating companies providing or
possessing management, sales, marketing, development, administration and/or
other expertise with respect to Signature's operations in the timeshare
industry.
Signature has entered into the Westin Agreement whereby Signature will
jointly develop with Westin the newly developed Westin Vacation Clubs concept.
See "INFORMATION REGARDING SIGNATURE RESORTS, INC.--Business." Currently,
Signature is evaluating several properties for potential acquisition and
development, but currently has no binding material contracts or capital
commitments relating to hotels pursuant to the Westin Agreement.
Signature is currently evaluating the acquisition of several resort
properties to be branded as an Embassy Vacation Resort and several development
opportunities to be developed as an Embassy Vacation Resort, but currently has
no binding material contracts or capital commitments relating to any potential
Embassy Vacation Resorts. Signature is also currently evaluating the
acquisition of several resort properties and of completed Vacation Intervals
to be non-branded timeshare resorts or inventory, but currently has no binding
material contracts or capital commitments relating to any such potential
property or inventory acquisitions. In addition, Signature is currently
evaluating several asset and operating company acquisitions to integrate into
or to expand the operations of Signature, but currently has no binding
material contracts or capital commitments relating to any such potential asset
or operating company acquisitions.
In the future, Signature intends to negotiate additional credit facilities
or issue corporate debt or equity securities to finance its acquisition
activities. Any debt incurred or issued by Signature may be secured or
unsecured, fixed or variable rate interest and may be subject to such terms as
management deems prudent.
Signature believes that, with respect to its current operations, the net
proceeds to Signature from its August 1996 initial public offering together
with cash generated from operations and future borrowing, will be sufficient
to meet Signature's working capital and capital expenditure needs for the near
future. However, depending upon conditions in the capital and other financial
markets, other factors and Signature's aggressive growth and expansion plans,
Signature may from time to time consider the issuance of debt or other
securities, the proceeds of which would be used to finance acquisitions, to
refinance debt or for other purposes. Signature believes that Signature's
properties are adequately covered by insurance. See "INFORMATION REGARDING
SIGNATURE RESORTS, INC.--Business."
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PRINCIPAL SHAREHOLDERS
The information in the following table sets forth information regarding the
beneficial ownership of the common stock of Signature with respect to (i) each
person known by Signature to beneficially owns 5% or more of the outstanding
shares of Signature common stock, (ii) each person who is a director, proposed
director or Named Executive Officer of Signature and (iii) all directors,
proposed directors and executive officers of Signature as a group and with
respect to each individual or entity listed includes shares purchaseable upon
the exercise of options exercisable within sixty (60) days of the date of this
Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
-----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(A) SHARES PERCENTAGE
--------------------------------------- --------- ----------
<S> <C> <C>
Osamu Kaneko(b)................................. 2,710,753 15.6%
Andrew J. Gessow(c)............................. 3,099,554 17.8%
Steven C. Kenninger(b)(d)....................... 1,393,279 8.0%
James E. Noyes.................................. 93,750(f) *
Michael A. DePatie.............................. 75,000(f) *
Charles C. Frey................................. 81,000(g) *
Genevieve Giannoni.............................. 78,000(g) *
Andrew D. Hutton................................ 10,000(f) *
Timothy D. Levin................................ 6,348 *
Juergen Bartels................................. -- --
Sanford R. Climan............................... 3,250 *
Joshua S. Friedman(e)........................... -- --
W. Leo Kiely, III............................... -- --
Canpartners Incorporated(e)..................... 2,379,575 13.7%
9665 Wilshire Boulevard
Suite 200
Beverly Hills, California 90210
All directors, proposed directors and executive
officers as a group (13 persons)(e)............ 7,550,934 43.4%
</TABLE>
- --------
* Less than 1%
(a) Except as otherwise indicated, each beneficial owner has the sole power to
vote, as applicable, and to dispose of all shares of Common Stock owned by
such beneficial owner.
(b) The address of such person is 5933 West Century Boulevard, Suite 210, Los
Angeles, California 90045.
(c) The address of such person is 2934 Woodside Road, Woodside, California
94062.
(d) The shares indicated are held by Mr. Kenninger through trusts, pension
plans and profit sharing plans, under which Mr. Kenninger may be deemed to
have, or to share, beneficial ownership of such shares.
(e) Canpartners Incorporated ("CANYON") is the sole general partner of limited
partnerships that hold the shares indicated. Mr. Friedman (a proposed
director of Signature) and Mitchell R. Julis and R. Christian B. Evensen
are the sole shareholders and directors of Canyon and may be deemed to
share beneficial ownership of the shares shown as owned by Canyon. Such
persons disclaim beneficial ownership of such shares.
(f) Represents presently exercisable options to acquire shares of Signature
Stock.
(g) Includes options to acquire 75,000 shares of Signature Stock which are
presently exercisable.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Signature consists of (i) 50,000,000 shares
of common stock, par value $0.01 per share, 17,392,205 shares of which are
outstanding as of October 18, 1996, and (ii) 25,000,000 shares of Preferred
Stock, par value $0.01 per share, none of which are currently outstanding. The
following summary description of the capital stock of Signature is qualified
in its entirety by reference to the Charter and Bylaws of
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Signature, copies of which are filed as exhibits to the Registration Statement
of which this Prospectus/Proxy Statement is a part. See "Additional
Information."
Common Stock
The holders of Signature common stock are entitled to one vote per share on
all matters voted on by shareholders, including elections of directors, and,
except as otherwise required by law or provided in any resolution adopted by
the Signature Board with respect to any series of Preferred Stock establishing
the designation, powers, preferences and relative, participating, option or
other special rights and powers of such series of Preferred Stock, the holders
of shares of Signature common stock exclusively possess all voting power. The
Charter does not provide for cumulative voting in the election of directors.
Subject to any preferential rights of any outstanding series of Preferred
Stock, the holders of Signature common stock are entitled to such
distributions as may be declared from time to time by the Signature Board from
funds available therefor, and upon liquidation are entitled to receive pro
rata all assets of Signature available for distribution to such holders. All
shares of common stock issued in the recent public offering, and, in the
Merger, will be fully paid and nonassessable and the holders thereof will not
have preemptive rights.
Preferred Stock
Preferred Stock may be issued from time to time, in one or more classes, as
authorized by the Signature Board. Prior to issuance of shares of each class,
the Board of Directors is required by the MGCL and Signature's Charter to fix
for each such class, the terms, preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption, as are
permitted by Maryland law. The Signature Board could authorize the issuance of
Preferred Stock with terms and conditions which could have the effect of
discouraging a takeover or other transaction which holders of some, or a
majority, of Signature's outstanding shares might believe to be in their best
interests or in which holders of some, or a majority, of shares might receive
a premium for their shares over the market price of such shares. No Preferred
Stock will be outstanding at the time of the closing of the Merger.
Transfer Agent and Registrar
Signature has appointed Wells Fargo Bank as its transfer agent and
registrar.
Dividend Policy
Signature has never declared or paid any cash dividends on its capital stock
and does not anticipate paying cash dividends on its common stock in the
foreseeable future. Signature currently intends to retain future earnings to
finance its operations and fund the growth of its business. Any payment of
future dividends will be at the discretion of the Board of Directors of
Signature and will depend upon, among other things, Signature's earnings,
financial condition, capital requirements, level of indebtedness, contractual
restrictions in respect of the payment of dividends and other factors that
Signature's Board of Directors deems relevant.
SHARES ELIGIBLE FOR FUTURE SALE
As of November 12, 1996 Signature has outstanding, on a fully-diluted basis,
17,392,205 shares of common stock. Of these shares, 6,037,500 shares were sold
in the recent public offering or are registered pursuant to an effective
registration statement covering shares issued under the 1996 Equity
Participation Plan and are freely tradable in the public market without
restriction or further registration under the Securities Act.
The remaining 11,354,705 outstanding shares of Signature common stock were
issued to holders of interests in predecessor companies to Signature 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
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the later of the date of acquisition of shares of common stock from Signature
or the date of acquisition of shares of common stock from any "affiliate" of
Signature, as that term is defined under the Securities Act, the acquiror or
subsequent holder is entitled to sell within any three-month period a number
of shares of common stock that do not exceed the greater of 1% of the then-
outstanding shares of common stock or the average weekly trading volume of
shares of common stock on all exchanges and reported through the automated
quotation system of a registered securities association during the four
calendar weeks preceding the date on which notice of the sale is filed with
the Commission. Sales under Rule 144 are also subject to certain restrictions
on the manner of sales, notice requirements and the availability of current
public information about Signature. If three years have elapsed since the date
of acquisition of shares of common stock from Signature or from any
"affiliate" of Signature, and the acquiror or subsequent holder thereof is
deemed not to have been an affiliate of Signature at any time during the 90
days preceding a sale, such person would be entitled to sell such shares of
common stock in the public market under Rule 144(i) without regard to the
volume limitations, manner of sale provisions, public information requirements
or notice requirements.
Each stockholder who holds restricted securities has agreed, with certain
exceptions, not to offer, sell, contract to sell or otherwise dispose
(collectively "dispose") of any Signature common stock, for a period of 180
days after the closing of the initial public offering which was August 20,
1996 (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") Signature has agreed to file and use its best efforts to have
declared effective within six months following the Offering, a shelf
registration statement with the Commission for the purpose of registering the
shares of Signature common stock (the "REGISTRABLE SHARES") issuable to
holders of restricted shares. Signature will use its best efforts to have the
shelf registration statement kept effective for a period of 18 months. Upon
the effectiveness of such shelf registration statement, and as provided in the
Registration Rights Agreement, the holders of the Registrable Shares will be
subject to the volume restrictions of Rule 144. Signature will bear the
expenses incident to the registration requirements of the Registrable Shares,
except that such expenses shall not include any underwriting discounts or
commissions, Securities and Exchange Commission or state securities
registration fees or transfer taxes relating to such shares.
Under the Registration Rights Agreement, the holders of the Registrable
Shares will also be entitled to include within any registration statement
under the Securities Act filed by Signature with respect to any underwritten
public offering of Common Stock (either of its own account or the account of
other security holders) at any time within three years following August 20,
1996, the shares of Registrable Shares held by such holders, subject to
certain conditions and restrictions. The existence of the Registration Rights
Agreement may adversely affect the terms upon which Signature can obtain
additional equity financing in the future.
Signature may require in its sole discretion that the Registrable Shares be
sold in block trades through underwriters or broker-dealers or that the
Registrable Shares be underwritten by investment banking firms selected by
Signature.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On September 12, 1996, Ernst & Young LLP advised Signature that it was
resigning as independent auditors for the Registrant. Ernst & Young LLP had
been retained since Signature's inception and there have been no disagreements
between Signature and Ernst & Young LLP with respect to accounting principles
or practices, financial statement disclosure, auditing scope or procedures,
which if not resolved to Ernst & Young LLP's satisfaction, would have resulted
in a reference to the subject matters of the disagreement in its audit report.
Since Signature's inception, Ernst & Young LLP's report on Signature's
financial statements did not contain an adverse opinion or a disclaimer of
opinion, nor were the opinions qualified or modified as to uncertainty, audit
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scope, or accounting principles, nor were there any events of the type
requiring disclosure under Item 304(a)(l)(v) of Regulation S-K under the
Securities Act.
On September 17, 1996, Signature retained the accounting firm of Arthur
Andersen LLP as auditors for the fiscal year ending December 31, 1996
following Board approval, which was obtained on September 16, 1996. The
decision to retain Arthur Andersen LLP was based upon the prior relationship
with a predecessor of Signature as auditors for the fiscal year ending
December 31, 1994 and Arthur Andersen LLP's experience in Signature's
industry, and was not motivated by any disagreements between Signature and
Ernst & Young LLP concerning any accounting principles and/or policy matters.
From Signature's inception to September 17, 1996, Signature did not consult
with Arthur Andersen LLP with respect to the matters described in Item
304(a)(2) of Regulation S-K.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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INFORMATION REGARDING AVCOM INTERNATIONAL, INC.
BUSINESS
Overview
AVCOM develops and markets interests in timeshare resorts, finances and
services timeshare sales and receivables at its timeshare resorts, provides
homeowners' association and property management services and produces
marketing data for itself and third parties. AVCOM currently owns properties
in Scottsdale and Sedona, Arizona, South Lake Tahoe, California and Lake
Conroe, Texas (near Houston), held for the purpose of developing, marketing,
selling, financing and managing timeshare interests. AVCOM's businesses are
conducted through its wholly-owned subsidiary, All Seasons Resorts, Inc.
("ASR"). ASR has several wholly-owned subsidiaries of which RPM Management,
Inc. ("RPM"), All Seasons Realty, Inc. ("ALL SEASONS REALTY"), All Seasons
Construction, Inc. ("AS CONSTRUCTION") and The Ridge Spa and Racquet Club,
Inc. ("RSR CLUB") have employees or significant activities. ASR conducts the
executive, management, accounting, consumer financing and development
activities. RPM directs the resort homeowners associations and resort
management, housekeeping, maintenance, guest services and other resort
operations. All Seasons Realty engages licensed real estate agents as
independent contractors who sell timeshare interests to consumers and conduct
the marketing, sales and administrative functions in Sedona and South Lake
Tahoe. In addition to timeshare interests at resorts developed by AVCOM, All
Seasons Realty markets timeshare interests in other resort properties not
developed by AVCOM from the marketing centers located at its developed
resorts. AS Construction performs development and construction activities for
certain of AVCOM's projects. RSR Club operates The Ridge Spa and Racquet Club
at Sedona, Arizona, which serves as an amenity to AVCOM's developments in
Sedona and is also open to the public.
Description of AVCOM's Resorts
AVCOM has completed sales at three resorts and provides homeowners'
association management and resale services at these locations. AVCOM actively
seeks new properties for development and currently has four developments in
sales and four additional properties in various stages of development or
acquisition. In the opinion of AVCOM management, each of the properties is
adequately covered by insurance, and is suitable and adequate for its intended
use.
Completed Resorts
Villas at Poco Diablo. The Villas at Poco Diablo resort is a 33 unit
condominium conversion of studios and one-bedroom units located in Sedona,
Arizona. The one-bedroom units have frontage to Oak Creek and the studio units
have frontage to the golf course owned by the Poco Diablo Resort. During the
period 1988 through 1992, the resort was renovated by AVCOM. The units were
refurbished with new furniture, fixtures and equipment, fresh paint, new roofs
and interiors and a remodeled outdoor pool and spa area. The condominium
interests were converted to 1,683 timeshare interests. The resort is on 3.64
acres of land leased through 2078. Upon expiration of the underlying lease,
the property and all improvements revert to the record owner of such property.
Villas of Sedona. The Villas of Sedona resort is a 40 unit townhouse
conversion of one and two bedroom units located in west Sedona, Arizona. The
property was purchased in 1992 and remodeled by AVCOM. The land was purchased
by AVCOM in fee simple and converted to 2,040 timeshare interests. The resort
has new furniture, fixtures and equipment, fresh paint, a new outdoor pool and
custom spa area and major landscaping. In addition, a new building encloses an
outdoor pool which adjoins a 4,000 square foot clubhouse and fitness center.
Sedona Springs Resort. Sedona Springs is a 40-unit, two bedroom suite resort
located in Sedona, Arizona on four acres adjacent to the Villas of Sedona
resort. Common areas include a 5,000 sq. ft. clubhouse, two outdoor spas, a
pool facility and spa area. This resort was the first "purpose built"
development construction by
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AVCOM and consists of 2,040 timeshare interests. Construction of this project
commenced in the first quarter of 1994. Phase one consisted of 13 units and
was completed in the third quarter of 1994. Phase two, consisting of 14 units
and common areas, was completed in the second quarter of 1995. Phase three
consisting of 13 units was completed in November 1995. The clubhouse is
completed and being used temporarily as a sales center. Sales at this project
were substantially completed by January 1996.
Resorts in Current Sales
Tahoe Beach & Ski Club. The Tahoe Beach & Ski Club is a beach front resort
located in the City of South Lake Tahoe, California on approximately eight
acres at the end of Ski Run Boulevard. Tahoe Beach & Ski Club was purchased by
AVCOM in March 1994 for approximately $6,400,000. The project includes a total
of 140 units, of which 110 were renovated as timeshare units at the date
acquired. Thirty units have since been renovated for sale as timeshare units
and are being marketed. At the time of purchase, 4,533 timeshare interests
related to the 110 renovated units of the resort had been previously sold. The
homeowners' association engaged RPM to operate the property. AVCOM provided
approximately $875,000 to the homeowners' association reserves for current and
future renovation and refurbishing as a part of the terms of purchase. As of
June 30, 1996, there were approximately 1,285 unsold timeshare interests in
AVCOM's inventory for sale. The purchase of this resort was financed by a
$2,500,000 acquisition loan and $3,900,000 subordinated seller financing. As
of June 30, 1996, the outstanding balances of these obligations were
$1,046,000 and $1,115,000, respectively.
In the process of remodeling the Carson Building at the Tahoe Beach & Ski
Club, AVCOM's contractor informed AVCOM of the possible presence of asbestos
containing materials. AVCOM has given governmental and private notification to
various agencies and persons whom AVCOM determined, after consulting with
counsel, should receive notice. While various civil and criminal penalties
could be assessed, it is the present belief of AVCOM, after conferring with
counsel, that such penalties are unlikely. Civil liability for personal injury
is also possible, but AVCOM does not believe that the asbestos posed a
substantial health hazard and that the environmental concern has been
remediated. The total additional cost to AVCOM for the asbestos remediation,
including all professional fees, was $325,000.
Sedona Summit Resort. In May 1995, AVCOM purchased approximately three acres
in Sedona, Arizona for $1,067,000, planned for development of a 60 unit
timeshare resort. Additionally, in May, 1996, AVCOM exercised an option to
acquire an adjacent parcel consisting of approximately four acres for
$1,220,000. Development of the property includes the start-up and operation of
a private waste water treatment facility, which has been leased by AVCOM. The
start-up costs of the waste water treatment facility are estimated at
approximately $30,000.
The land purchase for the original parcel was financed by a private
placement offering of $1,500,000 through a limited partnership entity--Sedona
Summit Development Limited partnership ("SSDLP"). In March 1996, AVCOM entered
into an agreement with SSDLP for the sale of all rights in the parcels to
SSDLP. ASR is the sole general partner of SSDLP. The offering was fully funded
on May 31, 1996. ASR has secured a revolving construction loan of
approximately $2,500,000 which is guaranteed by SSDLP for the development of
the project. AVCOM has contracted to purchase units from SSDLP which it will
market. Timeshare interest sales commenced in February 1996.
Scottsdale Villa Mirage Resort. The Scottsdale Villa Mirage Resort is a
planned 168 unit resort located on 10 acres in Scottsdale, Arizona at the
Scottsdale Princess Resort development, within proximity of the Scottsdale
Princess Hotel. The units will be two bedroom condominium type units
consisting of approximately 1,200 square feet. AVCOM has a revolving
construction loan in the amount of $4,350,000 and a take-out commitment in the
amount of $8,000,000 for Phase I of 64 units and common facilities.
Construction and sales of Phase I began in March 1996. Amenities are
anticipated to include a clubhouse with an exercise facility, swimming pool
and spas and tennis and volleyball courts.
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AVCOM had advanced approximately $1,000,000 as of December 31, 1995 in
construction and development costs and in January 1996 paid an additional
$1,600,000 to pay off prior encumbrances. On February 28, 1996, AVCOM
purchased substantially all of the outstanding interests in Desert Princess,
L.L.C., the property owner and development entity for a total of $550,000. The
purchase price consists of $285,000 paid at closing, and a note payable of
$265,000 payable in 12 monthly installments.
Desert Princess, L.L.C. has a construction contract for Phase I of
$8,389,000. The construction contractor has a right to $500,000 of the
profits, as defined, and the construction lender has a right to 15% of the
profits, as defined.
Villas on the Lake. AVCOM acquired an existing condominium project adjacent
to Lake Conroe in Montgomery County, Texas in April 1996. The project consists
of 37 completed units and existing approvals and land for the construction of
48 additional units. AVCOM obtained a $2,400,000 loan to cover the costs of
acquisition and renovation. AVCOM has contracted with the April Sound Country
Club for use of its facilities by the project's homeowner's association.
Renovation of existing units began in February 1996 and sales began in June
1996.
Anticipated Future Developments
The Ridge on Sedona Golf Resort. AVCOM has acquired an approximate 12 acre
parcel in Sedona, Arizona for $5,500,000. The facility comprising The Ridge
Spa & Racquet Club has been acquired as a portion of this development. The
parcel is located on the 18th fairway of the golf course at the Sedona Golf
Resort. AVCOM anticipates developing the property into a 120 unit timeshare
resort in phases. Amenities are anticipated to include a 12,000 square foot
club house, three swimming pools, six spas in addition to privileges at The
Ridge Spa and Racquet Club. AVCOM has paid $1.7 million with $500,000 due in
October 1996 and the remaining $3,300,000 to be paid in quarterly installments
through February 1999. AVCOM has obtained a short-term loan of $1,557,000 to
fund the acquisition payment. AVCOM has obtained construction loan commitments
of $1,600,000 and $500,000 for the first phase of 12 timeshare units and the
common facilities, respectively.
Tunli (formerly known as Cherry Creek Country Club). In February 1996, AVCOM
acquired a 68.4 acre parcel of land in Camp Verde, Arizona, approximately 100
miles north of Phoenix. This parcel is contiguous to a 127 acre tract owned by
an independent party with cooperative intent to jointly develop the
properties. At the same time, AVCOM contracted to purchase an additional 99.2
acres and 263 acres adjacent to the development parcels. The purchase of the
99.2 acre tract closed in May 1996. The acquisition cost of the 68.4 acres and
the 99.2 acres was $547,000 and $843,000, respectively, which includes seller
financing of $447,000 and $632,000, respectively. The 263 acre tract is under
contract for $790,000 with an earnest money deposit of $40,000, and seller
financing of $552,000.
During September 1996, AVCOM entered into a limited liability company
operating agreement with the independent land owner whereby the respective
parties will contribute their respective land holdings (approximately 557
acres) and liabilities related to this project into a limited liability
company in exchange for an 82.5% and 17.5% ownership, respectively. Also
during September 1996, AVCOM entered into an agreement to sell the entire land
assemblage for approximately $6,900,000 subject to various contingencies. In
such a bulk sale, AVCOM's allocation of profits is reduced to approximately
76%.
Other Significant Properties
North Bay Resort at Lake Arrowhead. The North Bay Resort at Lake Arrowhead,
located in San Bernadino County, California, is the first "affiliated
property" of AVCOM. AVCOM entered into a series of agreements in January 1996
whereby AVCOM provided guarantees for $12,650,000 of the developer's financing
in return for a fee of $450,000 (evidenced by a note payable), a right of
first refusal to offer timeshare receivable financing to the developer after
expiration of the developer's present $10,000,000 financing commitment,
received an option to assume property management for the project's homeowners
association and purchased a 40% equity position in Trion Capital Corporation,
the corporate general partner of the developer partnership. The equity
position was
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acquired for $600,000, of which $550,000 is financed by a note payable due in
installments of $150,000 in May 1996 (which has been paid) and $400,000 in
January 1998. The proposed resort contemplates the consolidation of two
adjacent developments. One development consists of two completed condominium
buildings converted to timeshare and additional undeveloped land. The second
parcel consists of a combination of three existing condominium buildings in
various stages of construction and pads for two additional condominium
buildings. The developer has been provided with a $2,650,000 construction and
operating loan commitment and a $10,000,000 commitment for timeshare
receivable financing from a financing company, subject to operational
involvement and financial guarantees of AVCOM.
Tahoe Seasons Resort. During February 1996, AVCOM acquired a portfolio of
approximately 1,057 non-performing timeshare receivables generated from the
sale of timeshare intervals at Tahoe Seasons Resort in South Lake Tahoe,
California. The purchase price of $1,548,000 was funded by a loan. AVCOM has
also agreed to purchase other receivables generated from sales at Tahoe
Seasons Resort that subsequently become delinquent. AVCOM will convert non-
performing loans into timeshare inventory which will be sold by AVCOM's
marketing group at Lake Tahoe.
Sales and Marketing
Since June 1995, AVCOM's Arizona and Tahoe marketing and sales operations
have been conducted through All Seasons Realty. Texas and Lake Arrowhead
marketing and sales are conducted through other AVCOM affiliates. All Seasons
Realty performs all marketing functions and operates all of AVCOM's on site
sales centers. Most of AVCOM's sales are made at the on site sales center at
the resort in which the purchaser is acquiring a timeshare interest. A sales
center located in Sedona Springs Resort is used for all existing Sedona,
Arizona resorts. AVCOM also frequently cross-sells its products. For example,
a purchaser may purchase a timeshare interest in AVCOM's Lake Tahoe property
as part of a sales presentation at one of AVCOM's Sedona resorts.
Additionally, AVCOM may sell timeshare interests at resorts not developed by
AVCOM, which were acquired for resales. AVCOM has in the past and may in the
future, either directly or with a third party, sell timeshare or other resort
property interests at an off site sales center. An off site sales center may
either be located at another party's resort, in a major metropolitan area
independent of the resort's location or at a free standing location in a high
traffic vacation area.
Administrative and Operating Facilities
AVCOM's administrative offices are located in Sedona, Arizona. The main
facility is owned by AVCOM, has approximately 9,000 square feet of space and
is encumbered by an approximate $1,043,000 debt as of June 30, 1996 due March
2001. In addition to AVCOM's main administrative office, in January 1996,
AVCOM purchased an additional office building in Sedona, Arizona. This
facility has approximately 9,000 square feet of space and is encumbered by a
debt of approximately $796,000 as of June 30, 1996, due January 1999.
AVCOM utilizes additional facilities for its marketing and sales activities,
including sales facilities located at its developments at Sedona, Arizona and
South Lake Tahoe, California and marketing centers located at the Village of
Oak Creek (in proximity to Sedona), Phoenix and Scottsdale, Arizona. The
facilities at the Village of Oak Creek, Phoenix and Scottsdale, Arizona are
leased by AVCOM under short-term leases and the sales facilities at Sedona and
South Lake Tahoe are a part of AVCOM's developments at such locations.
AVCOM owns an approximate 19,000 square foot facility which is operated as
The Ridge Spa & Racquet Club. The facility is located at the Sedona Golf
Resort development.
Employees
As of September 30, 1996, AVCOM had approximately 430 full time employees.
AVCOM's employees are not represented by a labor union and AVCOM has no
knowledge of any current organization activities. AVCOM has never suffered a
work stoppage and considers its relations with employees to be good.
Additionally, AVCOM primarily utilizes independent contractors as its sales
representatives. As of September 30, 1996, AVCOM engaged approximately 190
independent contractors in this capacity.
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Legal Proceedings
AVCOM or its affiliates are presently involved in the following litigation
that AVCOM management has deemed material:
AVCOM International, Inc., et al. v. Needham, et al., filed January 13, 1995
in the United States District Court of the District of Arizona. AVCOM filed
this action against its former director, William C. Needham, Jr. and Cannon
Time for damages and rescission of the merger of Cannon Time into AVCOM and
cancellation of AVCOM stock and options claimed by Mr. Needham. The action is
based upon allegations of breach of contract, fraud, securities fraud, breach
of fiduciary duty, and other alleged wrongful conduct of Mr. Needham based
upon allegations of misrepresentation and omissions to disclose material facts
in connection with the merger of Cannon Time into AVCOM. This suit is also
based upon allegations that Mr. Needham failed to perform certain services on
behalf of AVCOM. Mr. Needham has filed a counter-claim against AVCOM, ASR,
Gary L. and Sandra G. Hughes and John R. Stevens alleging defamation,
interference with business relations, breach of contract and indemnification.
AVCOM intends to vigorously prosecute this litigation for the benefit of
AVCOM. Additionally, AVCOM intends to vigorously defend the counter-claim on
behalf of AVCOM and its officers and directors.
All Seasons Development, Inc., et al. v. Eng-Chye Low, et ux., filed on
February 24, 1995 in Maricopa County Superior Court; Eng-Chye Low v.
Villashare Partners Limited Partnership, et al., filed on April 7, 1995 in the
Verde Valley Judicial District of the Yavapai County, Arizona Superior Court.
ASR and Gary L. and Sandra G. Hughes filed the initial action against Eng-Chye
and Vivian Low seeking damages for conversion, breach of fiduciary duty and
breach of contract. The suit arises out of a claim by ASR and Mr. Hughes
related to a loan to or investment with Mr. Low. In response to the suit, Mr.
Low sued ASR under two promissory notes issued by VPLP, of which ASR was the
sole general partner, to Mr. Low under a separate obligation which was secured
by certain consumer receivables, alleging breach of contract under the
promissory notes and breach of the implied covenant of good faith and fair
dealing and sought the appointment of a receiver. Additionally, Mr. Low has
demanded 200,000 shares of AVCOM Stock which he claims were promised in
connection with a previous business arrangement, although no suit has been
filed on this claim. On June 2, 1995, the Court denied Low's request for
appointment of a receiver without prejudice to reassert such motion. AVCOM
intends to vigorously defend this action and, in all likelihood, will file a
counter-claim based on the claims contained in the initial action described
above.
Success Marketing, Inc., et al. v. All Seasons Resorts, Inc., filed on
August 3, 1995 in the Maricopa County, Arizona Superior Court; Success
Marketing, Inc., et al. v. All Seasons Resorts, Inc., filed on August 3, 1995
with the American Arbitration Association in Phoenix, Arizona. Success
Marketing, Inc. and its affiliate Success Ventures, Inc. (collectively
"Success") filed suit, made demand for arbitration against ASR alleging breach
of contract, loss of compensation, failure to negotiate in good faith and
promissory fraud. Success seeks contract and punitive damages. The suit is a
result of a prior marketing and sales agreement between the parties and
negotiations for a new agreement which were not consummated. AVCOM has filed a
counter-claim for damages and intends to vigorously defend these actions.
AVCOM is presently advancing legal fees on behalf of the Messrs. Hughes and
Stevens with respect to the defense of the counter-claim asserted by Mr.
Needham in the AVCOM International, Inc., et al. litigation, and on behalf of
Mr. Hughes with respect to prosecution of the All Seasons Development, Inc.,
et al. v. Eng-Chye Low, et ux. litigation.
69
<PAGE>
MANAGEMENT
The following sets forth information with respect to the executive
management of AVCOM as of September 30, 1996.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Gary L. Hughes.............. 56 Chairman of the Board of Directors, Chief
Executive Officer and President
Robert M. Eckenroth......... 48 Senior Vice President, Chief Financial
Officer, and Member of the Board of
Directors
John R. Stevens............. 44 Director of Marketing and New Projects
</TABLE>
Gary L. Hughes, has been Chief Executive Officer and Chairman of the Board
of AVCOM since September 1993 and President since September 1996. Prior to
that time, Mr. Hughes had been the President of ASR and was responsible for
overall management and public relations at both ASR and Villashare Partners
Limited Partnership ("VPLP"), the predecessor to AVCOM. From July 1989 to July
1991, Mr. Hughes was the managing partner of Villashare Partners, the
predecessor of VPLP. Mr. Hughes had also been the president of RPM, a position
he has held since September 1992. In addition to the positions set forth
above, Mr. Hughes is a member of the board and an officer of several of
AVCOM's subsidiaries.
Robert M. Eckenroth, has been a Director, the Senior Vice President and
Chief Financial Officer of AVCOM since January 3, 1995. Prior to this
position, Mr. Eckenroth was employed for over fifteen years with Marriott
International, Inc. and its subsidiaries in various capacities, most recently
as a Vice President at Marriott International, Inc. and member of the
Executive Committee of Marriott Ownership Resorts, Inc., the timeshare
development subsidiary of Marriott International, Inc. In addition to the
positions set forth above, Mr. Eckenroth is a director and an officer of
several of AVCOM's subsidiaries.
John R. Stevens, has been Director of Marketing and New Projects of AVCOM
since September 1996. Prior to that time Mr. Stevens has been the President
and a Director of AVCOM since September 1, 1993, and Executive Vice President
of ASR, where he was responsible for sales and general operations, since July
1991. From July 1989 through July 1991, Mr. Stevens was employed by Villashare
Partners, the predecessor of VPLP. Mr. Stevens had also been the Vice
President of RPM since September 1992 and Vice President of ASR since January
1993.
70
<PAGE>
Executive Compensation
Summary Compensation Table. Compensation paid by AVCOM for fiscal years
1995, 1994 and 1993 to the named individuals and all officers and directors as
a group for services rendered in all capacities to AVCOM is set forth below.
No other officers of AVCOM received compensation (salary and bonus) in excess
of $100,000 in any of fiscal years 1995, 1994 and 1993.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------- ---------------------
NAME AND PRINCIPAL OTHER ANNUAL SECURITIES UNDERLYING
POSITION YEAR SALARY COMPENSATION OPTIONS (#)
------------------ ---- -------- ------------ ---------------------
<S> <C> <C> <C> <C>
Gary L. Hughes............ 1995 $120,192 (1) 150,000
Chief Executive Officer 1994 $ 96,000 (1) --
1993(2) $ 96,000 $130,186(3) --
Robert M. Eckenroth....... 1995 $120,000 (1) 100,000
Vice President and Chief 1994 -- -- --
Financial Officer 1993 -- -- --
John R. Stevens........... 1995 $120,192 (1) 100,000(4)
Director of Marketing and 1994(2) $ 96,000 (1) --
New Projects 1993(2) $ 96,000 $130,186(3) --
</TABLE>
- --------
(1) Less than 10% of aggregate of salary and bonus for the given year.
(2) Because AVCOM was not incorporated until August 1993, the position
reflected was not in effect until such incorporation, but is equivalent to
the position in effect since incorporation.
(3) Compensation in form of a distribution from ASR prior to its acquisition
by AVCOM.
(4) Options to acquire an additional 50,000 shares of AVCOM Stock were granted
to Mr. Stevens in July 1996.
Option Grants in 1995. The following table contains information concerning
the grant of stock options to the executive officers of AVCOM during the
fiscal year ended December 31, 1996. The table also lists potential realizable
values of such options on the basis of assumed annual compounded stock
appreciation rates of 5% and 10% over the life of the options which are not
for a maximum of ten years.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK
PRICE
APPRECIATION FOR
OPTION TERM
-----------------
INDIVIDUAL GRANTS
--------------------------------------------------------
NUMBER OF
SECURITIES PERCENT OF TOTAL EXERCISE
UNDERLYING OPTIONS GRANTED OR BASE
OPTIONS TO EMPLOYEES IN PRICE
NAME GRANTED FISCAL YEAR ($/SH) EXPIRATION DATE 5% 10%
- ---- ---------- ---------------- -------- ----------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Gary L. Hughes.......... 150,000 42.8% $3.44 December 19, 2000 $658,561 $831,023
John R. Stevens......... 100,000(1) 28.6% $3.44 December 19, 2000 $439,041 $554,015
Robert M. Eckenroth..... 100,000 28.6% $2.75 January 4, 2005 $447,946 $713,279
</TABLE>
- --------
(1) Options to acquire an additional 50,000 shares of AVCOM Stock were granted
to Mr. Stevens in July 1996.
71
<PAGE>
Employment Contracts
Effective August 1993, AVCOM entered into an employment agreement with Gary
L. Hughes and John R. Stevens with a five-year term. Under such agreements,
Messrs. Hughes and Stevens' initial base compensation was $96,000 annually,
with adjustments and bonuses as approved by the AVCOM Board. AVCOM also
provides each with a vehicle and all employee benefits provided to AVCOM's
executive officers. In 1996, the base salary of Messrs. Hughes and Stevens is
$190,000. The AVCOM Board may terminate the employment agreement, with or
without cause. As a condition to obtaining a financing facility, Messrs.
Hughes and Stevens were required to personally guaranty AVCOM's obligations
and pledge 50% of their AVCOM Stock held through Sangar Investment, L.L.C. to
secure AVCOM's obligations related to the financing. In connection with the
guaranty, AVCOM agreed to cause the individuals' guaranty and pledge to be
terminated as a condition of termination of employment of either Mr. Hughes or
Mr. Stevens. Messrs. Hughes and Stevens have subsequently pledged 100% of
their AVCOM Stock held through Sangar Investment, L.L.C. in connection with
the guaranty of an additional financing.
Effective January 1, 1995, AVCOM entered into an employment agreement with
Mr. Eckenroth for a five-year term. Under this agreement, Mr. Eckenroth's
initial base compensation was $120,000 annually, with a bonus of up to 35% of
base salary subject to annual review and adjustment. Mr. Eckenroth was also
granted non-statutory options to acquire 100,000 shares of AVCOM's common
stock at $2.75 per share. AVCOM also provides Mr. Eckenroth with a vehicle and
all employee benefits. AVCOM may terminate the employment agreement, with or
without cause.
These employment agreements will be terminated in connection with the
consummation of the Merger. Messrs. Hughes and Stevens will execute new
employment agreements with Signature or a Signature Subsidiary upon the
consummation of the Merger.
Stock Option Plan
Effective October 1, 1995, the AVCOM Board adopted a non-statutory stock
option plan and an incentive stock option plan under a single stock option
plan (the "STOCK OPTION PLAN"). The Stock Option Plan was approved by the
shareholders at the 1996 annual meeting. Under the terms of the Stock Option
Plan, both qualified incentive stock options ("ISOS"), which are intended to
meet the requirements of Section 422 of the Internal Revenue Code and non-
qualified stock options may be granted. ISOs may be granted to the officers
and key personnel of AVCOM. Non-qualified stock options may be granted to
AVCOM's directors and key personnel, and to providers of various services to
AVCOM. The purpose of the Stock Option Plan is to provide a means of
performance-based compensation in order to attract and retain qualified
personnel and to provide an incentive to others whose job performance or
services affects AVCOM.
Under the Stock Option Plan, options to purchase a maximum of 750,000 shares
of AVCOM's common stock may be granted to AVCOM's directors, officers, key
personnel and service providers. The exercise price for any option granted
under the Stock Option Plan may not be less than 100% (110% if the option is
granted to a shareholder who at the time the option is granted owns stock
comprising more than 10% of the total combined voting power of all classes of
stock of AVCOM) of the fair market value of the common stock at the time the
option is granted. The option holder may pay the exercise price in cash or by
delivery of previously acquired shares of AVCOM Stock.
The Stock Option Plan is administered by the AVCOM Board which will
determine whether such options will be granted, whether such options will be
ISOs or non-qualified options, which directors, officers, key personnel and
service providers will be granted options and the restrictions upon the
forfeitability of such options. The number of options to be granted, subject
to the aggregate maximum number set forth above, is determined by the AVCOM
Board. Each option granted must terminate no more than 10 years from the date
it is granted. Under current law, ISOs cannot be granted to directors who are
not also employees of AVCOM.
72
<PAGE>
The AVCOM Board may amend the Stock Option Plan at any time, except that
approval by AVCOM's shareholders is required for any amendment that increases
the aggregate number of shares which may be issued pursuant to the Stock
Option Plan, changes the class of persons eligible to receive such options,
modifies the period within which the options may be granted, modifies the
period within which the options may be exercised or the terms upon which
options may be exercised, or increases the material benefits accruing to the
participants under the Stock Option Plan. Unless previously terminated by the
Board of Directors, the Stock Option Plan will terminate in September 2005,
but any option granted thereunder will continue throughout the term of such
option.
As of September 30, 1996, 300,000 options had been issued under the Stock
Option Plan.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
AVCOM acquires and converts or develops resort properties for timeshare
sales, finances ownership interests in such properties, and manages the
operations of the resort properties and their related homeowners'
associations. AVCOM currently has properties in Scottsdale and Sedona,
Arizona, Lake Conroe, Texas and South Lake Tahoe, California for these
purposes.
Generally, timeshare interests are sold under contracts which provide a cash
down payment and a deferred payment balance evidenced by a promissory note
secured by a deed of trust or mortgage on the timeshare interest. Sales of
timeshare interests are recognized using the percentage of completion method
after a binding sales contract has been executed, a ten percent minimum down
payment has been received, and certain minimum sales and construction levels
have been obtained. Under the percentage of completion method, the portion of
revenue applicable to costs incurred, as compared to total estimated
development costs, is recognized in the period of sale. Sales which do not
meet these criteria are deferred using the deposit method. The deferred
revenue resulting from the percentage of completion method of accounting was
approximately $80,000, $0, $0 and $2,852,000 at December 31, 1994, June 30,
1995, December 31, 1995 and June 30, 1996, respectively. Capitalized costs
associated with timeshare interests developed by AVCOM include direct
construction costs and indirect product costs, such as interest expense and
real estate taxes. The average capitalized cost of the respective timeshare
interests by project is amortized to cost of sales, including an estimate of
future completion costs related to construction as the related sales revenues
are recognized.
The following analysis should be read in conjunction with the consolidated
financial statements and accompanying notes for the years ended December 31,
1995, 1994 and 1993 and for the six months ended June 30, 1996 and 1995.
Results Of Operations
The following tables set forth certain consolidated operating information
for AVCOM.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED JUNE
DECEMBER 31 30
------------------- ------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
AS A PERCENTAGE OF TOTAL REVENUES
Sales of timeshare interests............ 95.3% 94.9% 94.3% 92.8% 94.4%
Timeshare management.................... 3.0% 2.6% 3.6% 3.6% 3.2%
Gain on sale of notes receivable........ 1.1% 2.2% 1.6% 2.9% --
Other................................... .6% .3% .5% .7% 2.4%
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
73
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF TIMESHARE
SALES
Cost of timeshare interests
sold.......................... 24.5% 28.1% 33.3% 29.3% 28.5%
Marketing and selling.......... 48.0% 50.7% 41.9% 48.3% 43.7%
AS A PERCENTAGE OF TIMESHARE
MANAGEMENT REVENUES
Timeshare management expense... 121.0% 114.3% 125.1% 115.5% 217.3%
AS A PERCENTAGE OF TOTAL
REVENUES
General and administrative..... 10.7% 11.9% 13.6% 12.6% 18.3%
TIMESHARE NOTES SOLD AND HELD
(000'S)
Timeshare notes receivable
held.......................... $ 2,893 $ 2,751 $15,357 $ 5,133 $ 27,549
Timeshare notes receivable
sold.......................... $14,898 $32,844 $32,449 $ 36,853 $ 28,561
AS A PERCENTAGE OF TIMESHARE
NOTES HELD
Interest and financing costs... 11.6% 29.4% 11.8% 14.3% 6.4%
Interest income................ 8.2% 6.5% 3.9% 1.3% 5.3%
AS A PERCENTAGE OF TIMESHARE
NOTES SOLD AND HELD
Allowance for doubtful
accounts...................... 1.4% 1.0% 1.7% 0.7% 2.0%
SELECTED OPERATING DATA:
Timeshare intervals sold....... 1,061 1,987 2,304 1,199 1,216
Average sales price per
interval sold................. $13,650 $12,140 $14,420 $ 13,530 $ 15,440
Number of Timeshare intervals
in inventory at end of
period........................ 4,263 9,170 9,675 9,306 18,335
</TABLE>
Comparison of the Six Months Ended June 30, 1996 to the Six Months Ended June
30, 1995
Sales of timeshare interest increased $2,679,000 (16.5%) from $16,220,000 in
1995 to $18,899,000 in 1996. This increase was primarily due to a 14.1%
increase in the average sales price between periods. During January 1996,
AVCOM substantially sold-out of its Sedona Springs Resort project and began
sales at its new Sedona Summit Resort project. The new project introduced
additional product variations which resulted in an accompanying higher average
sales price which substantially accounted for the overall sales price
increase.
Timeshare management revenue increased $27,000 (4.4%) from $621,000 in 1995
to $648,000 in 1996 due to the increased number of timeshare units under
management as the result of ongoing sales by AVCOM.
Gain on sale of notes receivable decreased from $513,000 in 1995 to $0 in
1996 due to a change in the manner in which AVCOM finances its notes
receivable portfolio. Prior to July 1995, AVCOM exclusively sold all notes
receivable originated through the sale of timeshare interests. The gain on
sale of notes receivable reflects the present value of the difference between
the stated interest rate of notes receivable sold and the yield to the
purchaser (interest rate differential). Commencing in July 1995, AVCOM
primarily financed its notes receivable through the hypothecation of the
notes. As such, the notes receivable, together with the related financing,
remain on AVCOM's balance sheet and the interest rate differential is
recognized as the notes receivable are amortized and collected and the
interest expense is incurred.
Health club revenue increased from $0 in 1995 to $230,000 in 1996 as it was
a new line of business in 1996 when AVCOM purchased and refurbished an
existing inactive health club facility. The facility will be utilized as an
amenity for AVCOM's forthcoming The Ridge on Sedona Golf Resort project
commencing in late 1996 or early 1997.
74
<PAGE>
Cost of timeshare interests sold increased $624,000 (13.1%) in 1996 from
1995 primarily as the result of the 16.5% increase in sales revenues. As a
percentage of timeshare sales, cost of timeshare interests sold decreased from
29.3% in 1995 to 28.5% in 1996. The slight variance is due to a change in
product sales mix which included a higher mix of sales from less costly
projects.
Marketing and selling expenses as a percentage of sales of timeshare
interests decreased from 48.3% in 1995 to 43.7% in 1996. Prior to July 1995,
AVCOM contracted all sales and marketing functions with an independent vendor.
This relationship was severed in June 1995 and AVCOM internalized the sales
and marketing functions resulting in a cost savings. At June 30, 1996 and
1995, $3.2 million and $0 of marketing and selling expenses have been deferred
related to the percentage of completion and the deposit methods of accounting
for sales, respectively.
Timeshare management expenses increased $691,000 in 1996 from 1995 primarily
as the result of a one-time charge associated with the May 1996 cancellation
of a third-party management services contract. Pursuant to this contract, the
vendor was to provide certain proprietary computer systems and equipment
through December 1996 and consulting services and resort property management
and reservation services for certain resorts through December 1998. In
conjunction with its planned conversion to an integrated management and
reservation computer system, AVCOM assumed responsibility for the management
of its resort properties upon termination of the contract.
General and administrative expenses increased $1,458,000 (66.2%) in 1996
from 1995. As a percentage of total revenues, general and administrative
expenses increased from 12.6% in 1995 to 18.3% in 1996. As the result of the
percentage of completion accounting for sales revenues, $2.9 million of sales
revenues were deferred at June 30, 1996 compared with no deferral at June 30,
1995. For the six months ended June 30, 1996, the percentage would have been
reduced to 16.0% had the deferred revenues been recognized. The additional
increase is the result of increased corporate infrastructure, including office
space and personnel, in conjunction with increasing the number of active
selling resorts from two as of June 30, 1995 to four in 1996.
The provision for doubtful accounts increased from $282,000 in 1995 to
$719,000 in 1996 primarily as the result of the increase in receivables
originated through the sale of timeshare interests.
Interest and financing costs increased by $1,030,000 in 1996 to $1,763,000
from $733,000 in 1995. The increase is primarily due to a change in the manner
in which AVCOM finances its notes receivable portfolio. Prior to July 1995,
AVCOM exclusively sold all notes receivable originated through the sale of
timeshare interests. Commencing in July 1995, AVCOM primarily financed its
notes receivable through the hypothecation of the notes. As such, the notes
receivable, together with the related financing, remain on AVCOM's balance
sheet and the interest rate differential is recognized as the notes receivable
are amortized and collected and the interest expense incurred, thereby
increasing interest and financing costs.
Interest income increased from $67,000 in 1995 to $1,466,000 in 1996
primarily due to a change in the manner in which AVCOM finances its notes
receivable portfolio as more fully described above.
Comparison of the Year Ended December 31, 1995 to the Year Ended December 31,
1994
Sales of timeshare interest increased $9,101,000 (37.7%) from $24,130,000 in
1994 to $33,231,000 in 1995. The primary reasons for the increase were the
combined affect of an 18.8% increase in average sales price per interval sold,
together with a 16.0% increase in the number of intervals sold. The increase
in intervals sold resulted primarily from the inclusion of a full year of
sales at Tahoe Beach & Ski Club and Sedona Springs Resort in 1995, compared
with a partial sales year in 1994 at Tahoe Beach & Ski Club which was acquired
in March 1994 and Sedona Springs Resort where sales commenced in June 1994.
The average sales price increase reflects an increase in the mix of Sedona
Springs Resort sales in 1995 with a higher average sales price.
75
<PAGE>
Timeshare management revenue increased $606,000 (93.2%) from $650,000 in
1994 to $1,256,000 in 1995 due to the increase in the number of interval
owners at the Tahoe Beach & Ski Club and Sedona Springs Resort that are
charged management fees. The increase is also due to increased room rentals at
the completed projects.
Cost of timeshare interests sold increased $4,289,000 (63.2%) in 1995 from
1994. As a percentage of timeshare sales, cost of timeshare interests sold
increased from 28.1% in 1994 to 33.3% in 1995. These increases reflect overall
increased sales volumes of 37.7%, together with a change in product sales mix.
In 1994, sales were predominantly at the Villas of Sedona project with a lower
product cost resulting from its acquisition as a distressed property. In 1995,
the sales mix predominantly included sales at the Tahoe Beach & Ski Club and
Sedona Springs Resort projects which were newly acquired or constructed
projects with higher costs per interval.
Marketing and selling expenses as a percentage of sales of timeshare
interests decreased from 50.7% in 1994 to 41.9% in 1995. Prior to July 1995,
AVCOM contracted all sales and marketing functions with an independent vendor.
This relationship was severed in June 1995 and AVCOM internalized the sales
and marketing functions resulting in a cost savings during the second half of
1995.
General and administrative expenses increased $1,746,000 (57.6%) in 1995
from 1994. As a percentage of total revenues, general and administrative
expenses increased from 11.9% of sales in 1994 to 13.6% in 1995. The increase
is the result of increased corporate infrastructure, including office space
and personnel, in conjunction with the anticipated start up of two new resorts
in 1996, together with the overall increase in sales volume.
The provision for doubtful accounts increased from $371,000 in 1994 to
$792,000 in 1995 primarily as the result of the increase in receivables
originated through the sale of timeshare interests.
Interest and financing costs increased by $1,009,000 in 1995 to $1,818,000
from $809,000 in 1994. The increase is primarily due to a change in the manner
in which AVCOM finances its notes receivable portfolio. Prior to July 1995,
AVCOM exclusively sold all notes receivable originated through the sale of
timeshare interests. Commencing in July 1995, AVCOM primarily financed its
notes receivable through the hypothecation of the notes. As such, the notes
receivable, together with the related financing, remain on AVCOM's balance
sheet and the interest rate differential is recognized as the notes receivable
are amortized and collected and the interest expense incurred, thereby
increasing interest and financing costs.
Interest income increased from $180,000 in 1994 to $594,000 in 1995
primarily due to a change in the manner in which AVCOM finances its notes
receivable portfolio as more fully described above.
Comparison of the Year Ended December 31, 1994 to the Year Ended December 31,
1993
Sales of timeshare interests increased $9,649,000 (66.6%) from $14,481,000
to $24,130,000 in 1994. The number of timeshare intervals sold increased 87.3%
primarily as the result of the addition of the Tahoe Beach & Ski Club project
acquired by AVCOM in March 1994, the commencement of sales at the Sedona
Springs Resort project in June 1994 and an increase in sales at the Villas of
Sedona compared with 1993 as the result of a mature marketing effort in 1994.
The average sales price decreased by 11.1% as the result of this change in
product mix which included lower price intervals at the Tahoe Beach & Ski Club
project initially.
Timeshare management revenue increased 43.8% from $452,000 in 1993 to
$650,000 in 1994. This represents daily room rentals and fees for management
of the resorts. The increase is primarily due to the addition of the Tahoe
Beach & Ski Club Resort.
Gain on sale of notes receivable increased by 242% from $167,000 in 1993 to
$571,000 in 1994 as the result of an increase in the dollar volume of
receivables sold, together with an increase in the interest differential as
the result of more favorable financing terms.
76
<PAGE>
Cost of timeshare interests sold increased from 24.5% of timeshare sales in
1993 to 28.1% in 1994. In 1993, sales were limited to the Villas of Sedona and
the Villas at Poco Diablo projects with a lower product cost resulting from
their acquisition as distressed properties. In 1994, the sales mix included
sales at the Tahoe Beach & Ski Club and Sedona Springs Resort projects which
were newly acquired or constructed projects with higher costs per interval.
Marketing and selling expenses increased from 48.0% of timeshare sales in
1993 to 50.7% of timeshare sales in 1994 as the result of increased costs
pursuant with AVCOM's independent sales and marketing services vendor.
General and administrative expenses increased by $1,413,000 in 1994 to
$3,034,000 from $1,621,000 in 1993. As a percentage of total revenues, general
and administrative expenses increased from 10.7% in 1993 to 11.9% in 1994.
These increases were attributed to the start up of two new resorts in 1994 and
the expansion of the corporate administration group in Sedona, Arizona.
The provision for doubtful accounts increased from $251,000 in 1993 to
$371,000 in 1994 primarily as the result of the increase in receivables
originated through the sale of timeshare interests.
Interest and financing costs increased by $474,000 in 1994 to $809,000 from
$335,000 in 1993. The increase is attributable to additional borrowings used
for the renovation of the Tahoe Beach & Ski Club, the acquisition of the
corporate administrative facility, construction related to the Sedona Springs
Resort, additional end-loan financing for receivables and various working
capital financings.
Interest income decreased from $236,000 in 1993 to $180,000 in 1994 as a
result of loan processing efficiencies gained in the financing of customer
receivables with financial institutions thereby shortening the income earning
holding period of the notes by AVCOM before their sale.
The provision for income taxes decreased by $1,275,000 from $1,970,000 in
1993 to $695,000 in 1994. As a percentage of income before taxes, the
provision for income taxes decreased from 90.2% in 1993 to 43% in 1994. The
higher provision in 1993 was due to the merger of Villashare Partners into
AVCOM on September 1, 1993. Deferred income taxes were established at that
time as a result of the merger for temporary differences between the financial
reporting basis and the tax basis of the assets and liabilities.
Liquidity And Capital Resources
AVCOM generates cash for operations from the sale of timeshare intervals,
the financing of the sales of timeshare intervals, the rental of unsold
timeshare interval units, and the receipt of management fees for property
management services rendered on behalf of AVCOM s resort s respective
homeowners associations. With respect to the sale of timeshare intervals
financed by AVCOM, AVCOM generates cash for operations from the receipt of
down payments from customers and the sale or hypothecation of the related
mortgage receivables generally equal to 85% to 90% of the amount financed.
AVCOM also generates cash for operations in those instances where the
timeshare interval is purchased for cash. With respect to notes receivable
sold or hypothecated, AVCOM generates cash related to the difference between
the interest charged on the customer mortgages and the interest paid to the
end-loan financier.
77
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31 30
-------------------------------------- -----------------------
1993 1994 1995 1995 1996
----------- ----------- ------------ --------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Cash Provided From
(Used By)
Operating Activities.. $ 2,907,000 $ 291,000 $ 3,564,000 $ 252,000 $ 404,000
Investing Activities.. $(2,197,000) $(1,926,000) $(13,413,000) $(132,000) $(11,401,000)
Financing Activities.. $ (183,000) $ 1,046,000 $ 11,378,000 $ 123,000 $ 9,774,000
</TABLE>
Cash flow provided by operating activities for the six months ended June 30,
1996 compared with the same period in 1995, increased primarily as the result
of an increase in accounts payable and other accrued liabilities in 1996, the
deferral of revenues and related costs resulting from the percentage of
completion method of accounting in 1996, offset by an increase in resort
property held for timeshare sales in 1996. Cash flow provided by operating
activities for the year ended December 31, 1995 compared with the same period
in 1994, increased primarily as the result of the reduction in restricted cash
in 1995, an increase in the level of commissions payable and accounts payable
and accrued liabilities in 1995 and the leveling-off of resort property held
for timeshare sales in 1995. Cash flow provided by operating activities for
the year ended December 31, 1994 compared with the same period in 1993,
decreased primarily as the result of an increase in restricted cash in 1994,
an increase in resort property held for timeshare sales in 1994 contrasted to
a reduction in 1993 and increases in the level of commissions payable and
accounts payable and accrued liabilities in 1994 contrasted with reductions in
1993.
Cash flow provided by investing activities for the six months ended June 30,
1996 compared with the same period in 1995, decreased primarily due to a
change in the manner in which AVCOM finances its notes receivable portfolio.
Prior to July 1995, AVCOM exclusively sold all notes receivable originated
through the sale of timeshare interests. Commencing in July 1995, AVCOM
primarily financed its notes receivable through the hypothecation of the
notes. As such, the proceeds from the sale of notes receivable are presented
as cash flow from investing activities, whereas, the proceeds from the
hypothecation of notes receivable are presented as cash flow from financing
activities. Cash flow provided by investing activities for the year ended
December 31, 1995 compared with the same period in 1994, decreased primarily
due to a change in the manner in which AVCOM finances its notes receivable
portfolio as more fully described above. Cash flow provided by investing
activities for the year ended December 31, 1994 compared with the same period
in 1993, increased primarily as the result of an overall increase in the
advance rate on notes receivable sold.
Cash flow provided by financing activities for the six months ended June 30,
1996 compared with the same period in 1995, increased primarily due to a
change in the manner in which AVCOM finances its notes receivable portfolio.
Prior to July 1995, AVCOM exclusively sold all notes receivable originated
through the sale of timeshare interests. Commencing in July 1995, AVCOM
primarily financed its notes receivable through the hypothecation of the
notes. As such, the proceeds from the hypothecation of notes receivable are
presented as cash flow from financing activities, whereas, the proceeds from
the sale of notes receivable are presented as cash flow from investing
activities. Cash flow provided by financing activities for the year ended
December 31, 1995 compared with the same period in 1994, increased primarily
due to a change in the manner in which AVCOM finances its notes receivable
portfolio as more described above. Cash flow provided by financing activities
for the year ended December 31, 1994 compared with the same period in 1993,
increased primarily as the result of an increase in the hypothecation of non-
conforming notes receivable and an increase in unsecured borrowings.
AVCOM's primary source of end-loan or timeshare receivables financing and
sales of receivables has been and continues to be through institutional
lenders. AVCOM's financing sources include banks, insurance companies,
specialized financing affiliates of major corporations and independent finance
companies. As of June 30, 1996, AVCOM had credit facility commitments totaling
approximately $49,100,000 of which approximately $24,900,000 remained
available for financing consumer receivables. Additionally, AVCOM has entered
into an agreement with an affiliate of one of its warehouse facility providers
to place up to $75 million of securities collateralized by AVCOM's note
receivables.
78
<PAGE>
Management intends to pursue additional credit facilities as needed by
AVCOM. AVCOM's obligations pursuant to the credit facility agreements are
generally guaranteed by Messrs. Hughes and Stevens. Additionally, a $5 million
commitment has been guaranteed by a company owned by a shareholder of AVCOM.
AVCOM is generally subject to various restrictive financial covenants pursuant
to the commitments, which include covenants prohibiting the payment of
dividends and requiring the maintenance of at least $3 million of tangible net
worth and no more than a 15-to-1 debt-to-equity ratio. AVCOM was in compliance
with all such financial covenants as of June 30, 1996 and December 31, 1995.
While the terms of AVCOM's receivables financing facilities have varied and
have become increasingly more favorable to AVCOM, the conditions to such
facilities have generally included requirements regarding borrower
qualification and credit underwriting, minimum yields, receivables aging and
minimum obligation terms. AVCOM's sales occasionally generate receivables that
do not meet one or more of these criteria, on either a temporary or a
permanent basis. Receivables resulting from non-standard sales are not
suitable for immediate placement with AVCOM's existing credit facilities. To
finance these non-standard receivables, AVCOM has obtained various loans from
private parties which are secured by the receivables. Most private financing
has been obtained from major shareholders, individuals familiar with AVCOM or
prior business associates of officers of AVCOM. As of June 30, 1996, there was
approximately $3.1 million outstanding in private financing of timeshare
receivables generated by AVCOM.
AVCOM's capital requirements related to the development of future projects
and the financing of notes receivables have been and will continue to be
significant. In addition, AVCOM's level of general and administrative costs is
based on the level of sales and development activity which occurred in 1995
and which is anticipated in 1996. Further, AVCOM has and will continue to
incur initial start-up sales and marketing costs in anticipation of future
projects and transactions. To date, AVCOM has been substantially dependent
upon loans from banks and private lenders and the sale or pledge of notes
receivable to finance its developments and operations. AVCOM will be required
to seek significant amounts of additional debt and/or equity capital to
continue to finance or sell its notes receivable, develop its proposed
projects and carry the current level of overhead. There is no assurance that
AVCOM can continue to obtain adequate financing from lenders for its financing
or sale of notes receivable or its project developments and operations if and
when required, or on terms acceptable to AVCOM. In the event AVCOM is
unsuccessful in obtaining additional funds necessary for these purposes,
management may need to take steps to continue to operate within the available
cash flow. Such steps may include, among others, postponement or abandonment
of certain timeshare projects and transactions, reduction of general and
administrative costs, or reduction of selling and marketing costs.
At December 31, 1995, AVCOM has a minimum tax credit carryforward of
approximately $592,000 for income tax purposes available to offset future
income taxes payable to the extent regular income taxes payable exceeds
alternative minimum taxes payable. Minimum tax credits can be carried forward
indefinitely. AVCOM has a net operating loss carryforward at December 31, 1995
of approximately $3,211,000 for state and federal income tax purposes. The
state net operating loss carryforward will begin to expire in 1999 and the
federal net operating loss carryforward will begin to expire in 2009.
Impact Of Market Conditions, Interest Rates And Regulations
The sale of timeshare intervals may be effected by fluctuating market
conditions which may be effected by national, regional or local economic
conditions. Changing demographics in particular areas will affect timeshare
development operations in such areas. The development of timeshare properties
by competitors of AVCOM in regions where AVCOM operates may reduce the
potential market for AVCOM's timeshare interests and adversely affect AVCOM's
timeshare interests and adversely affect AVCOM's operating results.
AVCOM's operations are sensitive to interest rates and to inflation.
Increased borrowing costs resulting from increases in interest rates may not
be immediately recoverable from prospective purchasers. AVCOM's notes
receivable are fixed rate with terms of primarily seven years with some
financing extended to ten years, and do not increase or decrease as a result
of interest rates charged to AVCOM. The notes receivable sold, upon
79
<PAGE>
which AVCOM has recourse, were sold at fixed rates. Inflationary increases may
be difficult to pass on to customers since increases in sales prices may
result in lower sales closing rates and higher cancellations. In addition,
delinquency and cancellation rates may be affected by changes in the nation's
economy.
Government regulation may also have a substantial impact on timeshare sales
and profitability of timeshare sales operations. Changes in the tax law,
including federal, state and local income and property taxes, could have an
impact on the operation, appreciation and profitability of AVCOM's projects.
Changes in interest and inflation rates may affect the demand for timeshare
interests. Changes in environmental laws related to products used in the
timeshare developments could affect the viability of AVCOM's current or
planned projects. Changes in previously restrictive zoning ordinances fostered
by a recessionary environment could create added competitive pressures on
AVCOM's timeshare development properties due to such projects having to
compete with newly zoned, more attractive projects.
Recent Developments
On April 30, 1996, AVCOM paid down the principal balance of its convertible
subordinated note payable from $930,000 to $580,000 and received an extension
until August 31, 1996. An additional extension was granted until December 31,
1996 following a principal payment of $94,000 made in September 1996 and
$86,000 due in December 1996. The remaining $400,000 principal balance has
been converted into 310,000 shares of AVCOM Stock.
AVCOM had 1,310,700 shares of issued and outstanding preferred stock as of
September 30, 1996. As a condition of the Merger, all shares of AVCOM
Preferred have been converted into AVCOM Stock at a conversion rate of one for
one. The AVCOM Preferred was converted into AVCOM Stock on October 24, 1996.
On September 22, 1996, AVCOM entered into the Merger Agreement with
Signature whereby AVCOM's shareholders are to receive newly issued shares of
Signature Stock in exchange for their shares of AVCOM Stock in the Merger. See
"THE PROPOSED MERGER--General Description of the Merger" for a detailed
discussion of the exchange terms and criteria. As a part of the Merger,
Signature agreed to make a working capital loan to AVCOM to accommodate
AVCOM's working capital needs in lieu of AVCOM otherwise continuing its
capital raising activities during the due diligence period contemplated by the
Merger. The outstanding loan amount is $2.5 million with an interest rate of
12%. The loan will be paid from the proceeds of sale of the Tunlii, L.L.C.
property and release prices paid from the sale of intervals at the Sedona
Summit Resort with a maturity date of not later than December 31, 1997 but can
mature sooner if, e.g., Signature validity terminates the Merger Agreement.
Separately, should the Merger fail to be consummated, AVCOM will grant
Signature an irrevocable option exercisable through December 31, 1998 to
acquire a number of shares of AVCOM Stock equal to 19.9% of the total issued
and outstanding AVCOM Stock, on a fully diluted basis, at an exercise price of
$5.00 per share. Additionally, if the Merger Agreement is terminated by
Signature under certain circumstances, AVCOM would be required to pay
Signature a termination fee of $1,800,000 plus certain expenses.
DIVIDEND POLICY
AVCOM has never declared or paid cash dividends on its common stock.
Although dividends have not been declared on AVCOM Preferred, dividends in the
aggregate amount of $105,000 per year, or $.08 per share, were accrued in
1994, 1995 and 1996.
80
<PAGE>
PRINCIPAL SHAREHOLDERS
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of November 1, 1996, certain information
regarding the shares of AVCOM's outstanding common stock beneficially owned by
AVCOM's executive management, its directors, all executive management and
directors as a group, and each person who is known by AVCOM to own
beneficially more than 5% of AVCOM's common stock. On October 24, 1996 all
previously outstanding shares of AVCOM Preferred were converted into shares of
AVCOM Stock at a ratio of one share of AVCOM Stock for each share of AVCOM
Preferred outstanding.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
-----------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(A) SHARES PERCENTAGE
--------------------------------------- --------- ----------
<S> <C> <C>
Gary L. Hughes(b).......................... 1,096,225(c) 20.6%
John R. Stevens(b)......................... 1,031,225(d) 19.4%
Robert M. Eckenroth(b)..................... 105,000(e) 2.0%
Harry B. Haisfield(f)...................... 400,000 7.0%
William C. Needham, Jr.(g)................. 721,500(h) 12.9%
Lane Overstreet(i)......................... 310,000 5.9%
Sangar Investment Company, L.L.C.(j)....... 2,011,250 38.2%
All executive management and directors as a
group (3 persons)......................... 2,232,450(c)(d)(e) 40.7%
</TABLE>
- --------
(a) Unless otherwise noted, the named persons have sole investment and voting
power with respect to the shares indicated.
(b) The mailing address for Messrs. Hughes, Stevens and Eckenworth is c/o
AVCOM International, Inc., P.O. Box 10118, Sedona, Arizona 86339.
(c) Includes 150,000 shares subject to options, of which the right to acquire
29,000 have vested, and 1,038,125 shares beneficially owned through Sangar
Investment Company, L.L.C., an Arizona limited liability company. Two
Hundred Fifty Thousand shares of AVCOM Stock are subject to an escrow
arrangement and will be released if AVCOM has attained earnings per share
of $0.20 per share on a fully diluted basis for two consecutive fiscal
years prior to December 31, 2000 or redeemed by AVCOM at $0.02 per share
if such per share earnings do not occur.
(d) Includes 150,000 shares subject to options, of which the right to acquire
29,000 have vested, and 973,125 beneficially owned through Sangar
Investment Company, L.L.C., an Arizona limited liability company. Two
Hundred Fifty Thousand shares of AVCOM Stock are subject to an escrow
arrangement and will be released if AVCOM has attained earnings per share
of $0.20 per share on a fully diluted basis for two consecutive fiscal
years prior to December 31, 2000 or redeemed by AVCOM at $0.02 per share
if such per share earnings do not occur.
(e) Includes 100,000 shares subject to immediately exercisable options.
(f) Mr. Haisfield's address is 600 South Barrocks, #105, Pensacola, Florida
32501.
(g) Mr. Needham's address is 400 East 58th Street, New York, New York 10022.
All information regarding Mr. Needham's stock ownership is based upon
information as of September 1, 1993.
(h) Includes 350,000 shares pursuant to disputed options. AVCOM has made claim
against Mr. Needham for damages and rescission of his outstanding common
stock and options. See "INFORMATION REGARDING AVCOM INTERNATIONAL, INC.--
Legal Proceedings."
(i) Mr. Overstreet's address is 1615 Quartz Valley Drive, Carefree, Arizona
85377.
(j) Sangar Investment Company, L.L.C. is 100% beneficially owned by Gary L.
Hughes and John R. Stevens.
81
<PAGE>
DESCRIPTION OF CAPITAL STOCK
AVCOM's Certificate of Incorporation authorizes issuance of 10,000,000
shares of $.01 par value common stock, of which 5,274,636 were issued and
outstanding on November 1, 1996 (the "AVCOM STOCK"), including 12,000 shares
held as treasury stock. The Certificate of Incorporation also authorizes the
issuance of 1,400,000 shares of $.01 par value shares of Preferred Stock (the
"AVCOM PREFERRED") none of which were issued and outstanding on November 1,
1996.
Common Stock
The holders of AVCOM Stock are entitled to one vote per outstanding share on
all matters submitted to a vote of the shareholders. Shareholders have no
preemptive or other rights to subscribe for or purchase additional shares of
any class of stock or other securities of AVCOM. Shareholders are not entitled
to cumulate their votes for the election of directors. Dividends may be paid
to the holders of AVCOM Stock out of funds legally available for dividends
when and if declared by the Board of Directors. No dividends may be declared
on the AVCOM Stock unless all cumulative dividends on the AVCOM Preferred have
been declared and paid as of the declaration date. In the event of any
liquidation, dissolution or winding up of the affairs of AVCOM, the holders of
AVCOM Stock will be entitled to share ratably in the assets remaining after
provisions for payment of creditors and the liquidation preference on the
AVCOM Preferred outstanding at that time.
Preferred Stock
The authorized and unissued AVCOM Preferred may be issued by action of the
AVCOM Board without further shareholder approval. Holders of AVCOM Preferred
do not have preemptive rights. The holders of the AVCOM Preferred are entitled
to one vote per outstanding share on all matters submitted to a vote of
shareholders, including the election of directors. The holders of AVCOM
Preferred also vote and must approve as a class any material changes to
AVCOM's Articles of Incorporation or to the rights and preferences of the
AVCOM Preferred. Dividends may be paid to the holders of AVCOM Preferred out
of funds legally available for dividends when and if declared by the Board of
Directors. Each share of AVCOM Preferred is entitled to a cumulative dividend
of $.08 per share per annum, which shall be declared and paid before any
dividend is payable to holders of AVCOM Stock. The $.08 dividend shall accrue
on July 1, 1994 and each July 1st thereafter. In the event of a liquidation,
dissolution or winding-up of the affairs of AVCOM, the holders of the AVCOM
Preferred will be entitled to receive $1.00 per share plus all accrued but
unpaid dividends before any liquidation proceeds are distributed to the
holders of any other class of AVCOM Stock. The AVCOM Preferred is convertible
into common stock as a class, by affirmative vote of the holders of 66 2/3% of
the AVCOM Preferred, on a one-for-one basis, subject to adjustment for stock
dividends, stock splits, mergers and similar changes of AVCOM's capital
structure. Any unpaid dividends are voided upon conversion.
On October 24, 1996, at a special meeting of the holders of the AVCOM
Preferred, holders of 83% of the outstanding shares voted to convert the AVCOM
Preferred as a class into shares of AVCOM Stock. With such vote, each
outstanding share of AVCOM Preferred was converted into one share of AVCOM
Stock. AVCOM's transfer agent has been instructed to issue certificates
representing shares of AVCOM's Stock to the holders of the AVCOM Preferred
upon surrender and cancellation of the AVCOM Preferred certificates. All
holders of the AVCOM Preferred have been directed to forward the certificates
representing their AVCOM Preferred to AVCOM's transfer agent for cancellation
and issuance of a certificate representing shares of AVCOM Stock in an amount
equal to the previously outstanding shares of AVCOM Preferred.
Options and Warrants
AVCOM issued an option to purchase up to 350,000 shares of AVCOM common
stock with an exercise price of $.02 per share to William C. Needham, Jr. The
option is currently exercisable and expires August 31, 1998. The option
becomes forfeitable if the common stock does not trade in a public market for
at least $4.00 for 120 consecutive trading days. If the option is exercised
prior to the expiration date and the common stock
82
<PAGE>
does not trade in a public market for at least $4.00 for 120 consecutive
trading days, shares issued upon exercise of the option may be repurchased by
AVCOM for $0.02 per share. AVCOM is making claim against Mr. Needham for
cancellation of this option, and Mr. Needham has claimed to exercise the
option. See "INFORMATION REGARDING AVCOM INTERNATIONAL, INC.--Legal
Proceedings."
AVCOM has granted partially vested options to acquire a total of 300,000
shares of common stock to Messrs. Hughes and Stevens under its Stock Option
Plan at an exercise price of $3.44 per share. These options are intended to
qualify as incentive stock options under Section 422 of the Internal Revenue
Code of 1986, as amended. Additionally, AVCOM granted Mr. Eckenroth options to
purchase 100,000 shares of common stock at $2.75 per share. These options were
granted under Mr. Eckenroth's employment agreement and are non-qualified
options and are fully vested. These options are to be converted prior to the
Merger.
83
<PAGE>
SELECTED FINANCIAL DATA
AVCOM INTERNATIONAL, INC.
The operating data for the years ended December 31, 1993, 1994 and 1995 and
the balance sheet data as of December 31, 1994 and 1995 are derived from
AVCOM's consolidated financial statements and notes thereto which have been
audited by Ernst & Young LLP, independent public accountants and are included
elsewhere in this Proxy Statement/Prospectus. Balance sheet data as of
December 31, 1993, is derived from AVCOM's consolidated financial statements
which have been audited by Ernst & Young LLP, independent public accountants,
which are not included in this Proxy Statement/Prospectus. The operating data
and the balance sheet data as of and for the six months ended June 30, 1995
and 1996 and the operating data and balance sheet data as of December 31, 1991
and December 31, 1992 have been derived from unaudited financial statements
that in the opinion of AVCOM's management reflects all adjustments, consisting
of normal recurring adjustments, necessary to present fairly the financial
information for such periods and of such dates. The selected consolidated
financial data presented below should be read in conjunction with "INFORMATION
REGARDING AVCOM INTERNATIONAL, INC.--Management's Discussion and Analysis of
Financial Condition and Results of Operations" and with AVCOM's consolidated
financial statements, appearing elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data (in
thousands, except per
share data)
Revenues
Sale of timeshare
interests............ $14,481 $24,130 $33,231 $ 16,220 $ 18,899
Total Revenues........ $15,199 $25,417 $35,246 $ 17,471 $ 20,034
Operating Income...... $ 2,282 $ 2,245 $ 3,102 $ 1,676 $ 214
Net Income (Loss)..... $ 213 $ 921 $ 1,040 $ 585 $ (184)
Earnings (Loss) Per
Share(1)............. -- $ 0.16 $ 0.17 $ 0.10 $ (0.05)
Pro Forma
Earnings Per
Share(1)............. $ 0.27 -- -- -- --
Dividends............. -- -- -- -- --
Balance Sheet Data (in
thousands)
Total Assets............ $2,658 $7,385 $ 8,459 $20,852 $35,934 $ 24,495 $ 68,004
Notes payable........... $ 82 $4,477 $ 3,281 $12,582 $22,692 $ 13,425 $ 45,571
Capitalized leases pay-
able................... -- -- $ 173 $ 378 $ 761 $ 463 $ 1,521
Stockholders' Equi-
ty(2).................. $1,078 $1,724 $ 2,514 $ 3,415 $ 5,340 $ 5,253 $ 5,156
</TABLE>
- --------
(1) See Footnote 1 to AVCOM's consolidated financial statements.
(2) Partners' Equity 1991 and 1992.
84
<PAGE>
SIGNATURE RESORTS, INC.
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 Signature which have been audited by Ernst &
Young LLP. The information presented for 1992 was derived from Signature's
records. The following selected combined historical financial information at
or for the six month periods ended June 30, 1995 and June 30, 1996 has been
derived from unaudited financial statements that, in the opinion of management
of Signature, reflects all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the financial information for such
periods and as of such date. The combined historical results for the six
months ended June 30, 1995 and June 30, 1996 are not necessarily indicative of
results for a full year. The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the combined financial information for
Signature and the notes thereto which are contained elsewhere herein. All
dollar amounts are in thousands.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30,
------------------------------------- ------------------
1992 1993 1994 1995 1995 1996
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations:
Revenue:
Vacation Interval
Sales................ $11,328 $ 22,238 $ 40,269 $ 59,071 $ 28,799 $ 28,754
Interest.............. 402 1,825 3,683 6,929 2,921 4,202
Other................. 115 373 338 6,608 640 5,975
------- -------- -------- -------- -------- --------
Total Revenue......... 11,845 24,436 44,290 72,608 32,360 38,931
Costs and operating
expenses:
Vacation Interval cost
of sales............. 2,999 5,708 12,394 15,650 8,260 6,803
Advertising, sales and
marketing............ 4,734 10,809 18,745 28,488 14,247 14,730
Loan portfolio
Interest expense--
treasury........... 168 674 1,629 3,586 1,585 2,491
Other............... 50 208 851 1,189 437 659
Provision for
doubtful accounts.. 555 619 923 1,787 921 688
General and
administrative
Resort-level........ 665 2,346 2,864 4,947 1,443 3,019
Corporate........... 375 877 874 1,607 653 1,604
Depreciation and
amortization......... 209 384 489 1,675 742 1,109
Interest expense--
other................ -- 518 959 476 183 1,347
Equity loss on
investment in joint
venture.............. -- -- 271 1,649 1,018 63
------- -------- -------- -------- -------- --------
Total costs and
operating expenses... 9,755 22,143 39,999 61,054 29,489 32,513
Pre-tax income.......... 2,090 2,293 4,291 11,554 2,871 6,418
Provision for taxes .. -- -- -- 641 -- 53
------- -------- -------- -------- -------- --------
Net Income.............. $ 2,090 $ 2,293 $ 4,291 $ 10,913 $ 2,871 $ 6,365
======= ======== ======== ======== ======== ========
Cash Flow Data:
EBITDA.................. $ 2,467 $ 3,869 $ 7,368 $ 17,291 $ 5,381 $ 11,365
Cash flow provided by
(used in):
Operating activities.. (6,166) (3,262) (10,964) 5,460 14,063 (17,294)
Investing activities.. (51) (10,776) (24,940) (40,075) (24,404) (11,206)
Financing activities.. 5,146 15,341 36,134 37,102 11,627 28,366
</TABLE>
85
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30,
-------------------------------- -----------------
1992 1993 1994 1995 1995 1996
------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Operating Data:
Number of Existing Resorts
at
period end............... 1 3 4 7 5 9
Number of Vacation
Intervals sold(b)........ 1,284 2,442 4,482 5,675 2,615 3,069
Number of Vacation
Intervals in
inventory(b)............. 1,164 1,233 2,401 9,917 2,040 21,142
Average price of Vacation
Intervals sold(b)........ $ 8,822 $ 9,106 $ 8,985 $ 11,353 $ 11,013 $ 13,040
Balance sheet data (at end
of period):
Cash, including cash in
escrow................... $ 850 $ 2,567 $ 4,282 $ 6,288 $ 4,190 $ 5,367
Total assets.............. 18,739 38,230 82,454 141,241 103,744 175,641
Long-term debt............ 9,696 22,931 44,415 84,740 56,334 110,050
Equity.................... 7,439 11,838 30,780 38,470 33,359 47,890
</TABLE>
- --------
(a) As shown below, EBITDA represents net income before interest expense,
income taxes and depreciation and amortization. EBITDA is presented because
it is a widely accepted financial indicator of a company's ability to
service and/or incur indebtedness. However, EBITDA should not be construed
as an alternative to net income as a measure of Signature's operating
results or to operating cash flow as a measure of liquidity. The following
table reconciles EBITDA to net income:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30,
---------------------------- ----------------
1992 1993 1994 1995 1995 1996
------ ------ ------ ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net income....................... $2,090 $2,293 $4,291 $10,913 $ 2,871 $ 6,365
Interest expense--treasury....... 168 674 1,629 3,586 1,585 2,491
Interest expense--other.......... -- 518 959 476 183 1,347
Taxes............................ -- -- -- 641 -- 53
Depreciation and amortization.... 209 384 489 1,675 742 1,109
------ ------ ------ ------- ------- --------
EBITDA........................... $2,467 $3,869 $7,368 $17,291 $ 5,381 $ 11,365
====== ====== ====== ======= ======= ========
</TABLE>
- --------
(b) Includes the effect of sales or inventory at Signature's non-consolidated
resort.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
86
<PAGE>
PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The unaudited pro forma combined Signature and AVCOM balance sheet as of
June 30, 1996, and unaudited pro forma combined statements of income for the
six months ended June 30, 1996, and for the years ended December 31, 1995,
1994 and 1993, give effect to the proposed merger of Signature and AVCOM.
Signature completed an S-1 registration filing on August 15, 1996 (the
"FILING"). Prior to the Filing, Signature's resorts were owned and operated by
partnerships, each affiliated with the Founders. In connection with the
Filing, Signature's interest in each of the 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 partnerships and affiliates (and, as a result,
ownership of each of the resorts), were transferred to Signature and in
exchange the holders of such partnership interests and certain of such stock
received shares of common stock in Signature. The unaudited pro forma combined
Signature and AVCOM balance sheet as of June 30, 1996, gives effect to the
exchange of partnership interests for shares of common stock in Signature and
the sale of 5,250,000 shares of common stock at $14.00 per share offered by
Signature after deducting underwriting discounts and estimated offering
discounts.
The proposed merger of Signature and AVCOM is presented using the pooling of
interests method of accounting, whereby Signature will issue .26 shares of
Signature Stock for each one share of AVCOM Stock in accordance with Article
I, Paragraph 1.3 of the Agreement and Plan of Merger by and among Signature
Resorts, Inc. and AVCOM International, Inc. as amended (as amended, the
"MERGER AGREEMENT"). At June 30, 1996, AVCOM had options outstanding for
750,000 shares of common stock of which options for 129,000 shares were
vested. Upon consummation, valid options will be converted into the right to
receive shares of Signature stock at a rate of .26 shares for each one share
of AVCOM stock.
The pro forma combined statements of income for the six months ended June
30, 1996, and for the years ended December 31, 1995, 1994 and 1993, give
effect to the proposed mergers as if they had been in effect throughout the
periods presented. The information shown is based upon numerous assumptions
and estimates and is not necessarily indicative of the results of future
operations of the combined entity or the actual results that would have
occurred had the mergers been consummated during the periods indicated. These
statements should be read in conjunction with the consolidated financial
statements of Signature and the consolidated financial statements of AVCOM
which are included herein.
87
<PAGE>
COMPARATIVE PER SHARE DATA
Under the terms of the Merger Agreement, AVCOM shareholders will receive .26
shares of Signature Stock for each share of AVCOM Stock subject to adjustment
in the event the Conversion Share Value (as defined) of a share of Signature
Stock exceeds $23.33 per share or is less than $15.55. As stated in the Merger
Agreement, if the Conversion Share Value of a share of Signature Stock is less
than $15.55 per share, then Signature Resorts, Inc. is not required to
consummate the combination. The final conversion ratio will be based upon the
Conversion Share Value of the Signature Stock (as defined) at the Closing
Date. Assuming a minimum Conversion Share Value of Signature Stock of $15.55
per share and a maximum Conversion Share Value of $34, a recent 52-week high,
the conversion ratios would be .26 and .18, respectively, and AVCOM
shareholders would receive 1,448,040 shares and 1,002,489 shares,
respectively, of Signature Stock.
The following table presents, on an unaudited basis, at the dates and for
the periods indicated (i) historical per share data for Signature and AVCOM,
(ii) pro forma combined per share data giving effect to the merger with AVCOM
and (iii) pro forma equivalent per share data for AVCOM Stock. The pro forma
financial data and equivalent per share data assume conversion ratios of .26
and .18 for AVCOM as discussed above.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SIX MONTHS DECEMBER 31,
ENDED ------------------------------
JUNE 30, 1996 1995 1994 1993
------------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Historical Data
Signature Resorts, Inc.(a)
Weighted average shares
outstanding............... 11,354,705 11,354,705 -- --
Earnings per share......... $ 0.35 0.56 -- --
Book value per share....... $ 3.91 $ 3.39 -- --
Cash dividends per share... -- -- -- --
AVCOM International, Inc.
Weighted average shares
outstanding............... 4,952,636 5,554,089 4,942,759 4,682,507
Earnings (Loss) per share.. $ (0.05) $ 0.17 $ 0.16 $ 0.27(b)
Book value per share....... $ .98 $ 1.05 $ 0.59 $ 0.36
Cash dividends per share... -- -- -- --
</TABLE>
- --------
(a) Historical information for Signature is presented on a pro forma basis,
assuming the shares issued in connection with the initial public offering
to the existing general and limited partners (and certain stockholders)
were outstanding since January 1, 1995. Per share amounts prior to 1995
are not presented.
(b) Pro forma earnings per share for the year ended December 31, 1993 gives
effect to the reorganization, as if it occurred at the beginning of the
period and is based on income before income taxes, adjusted for cumulative
and unpaid dividends on convertible preferred stock and adjusted for a pro
forma income tax provision at the rate of forty percent, and on the
outstanding weighted average shares (less treasury stock), common stock
equivalents and convertible preferred stock.
88
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
SIX MONTHS 31,
ENDED ------------------------------
JUNE 30, 1996 1995 1994 1993
------------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Pro Forma Combined Data
Pro Forma combined at a
conversion ratio of .26
Weighted average shares
outstanding.................. 12,817,018 12,802,745 -- --
Earnings per share............ $ 0.29 $ 0.63 -- --
Book value per share.......... $ 8.18 -- -- --
Cash dividends per share...... -- -- -- --
Pro Forma combined at a
conversion ratio of .18
Weighted average shares
outstanding.................. 12,367,075 12,357,194 -- --
Earnings per share............ $ 0.30 $ 0.66 -- --
Book value per share.......... $ 8.46 -- -- --
Cash dividends per share...... -- -- -- --
Pro Forma Equivalent Per Share
Data
Equivalent AVCOM per share
amounts at a conversion ratio
of .26
Weighted average shares
outstanding.................. 4,952,636 5,554,089 -- --
Earnings per share............ $ 0.07 $ 0.16 -- --
Book value per share.......... $ 2.13 -- -- --
Cash dividends per share...... -- -- -- --
Equivalent AVCOM per share
amounts at a conversion ratio
of .18
Weighted average shares
outstanding.................. 4,952,636 5,554,089 -- --
Earnings per share............ $ 0.05 $ 0.12 -- --
Book value per share.......... $ 1.52 -- -- --
Cash dividends per share...... -- -- -- --
</TABLE>
89
<PAGE>
COMBINED PRO FORMA BALANCE SHEET
JUNE 30, 1996
(UNAUDITED AND IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
(A) ADJUSTMENTS PRO
INCREASE PRO FORMA INCREASE FORMA
SIGNATURE (DECREASE) SIGNATURE AVCOM (DECREASE) COMBINED
--------- ----------- --------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash................... $ 4,208 66,100 (b) $ 2,638 $ 306 $ 2,944
(2,668)(c)
(9,200)(d)
(53,466)(e)
(2,336)(h)
Escrow................. 1,159 1,159 -- 1,159
Mortgages receivable.... 76,959 76,959 30,351 107,310
Due from affiliates.... 3,039 3,039 754 3,793
Other receivables, net.. 5,292 5,292 936 6,228
Notes receivable from
related parties........ 2,668 (c) 2,668 -- 2,668
Prepaid expenses and
other assets........... 1,904 1,904 4,980 6,884
Investment in joint
venture................ 2,582 5,076 (f) 7,658 -- 7,658
Real estate and
development costs..... 73,705 73,705 24,282 97,987
Property and equipment,
net.................... 2,332 2,332 5,795 8,127
Intangible assets....... 4,461 4,461 -- 4,461
Investment in common
stock................. -- -- 600 600
-------- -------- ------- --------
Total assets....... $175,641 $181,815 $68,004 $249,819
======== ======== ======= ========
LIABILITIES AND EQUITY:
Accounts payable........ $ 8,153 $ 8,153 $ 6,235 $ 14,388
Accrued liabilities..... 8,717 8,717 5,032 (20)(k) 13,729
Due to affiliates....... 831 831 468 1,299
Deferred taxes.......... -- 5,697 (g) 5,697 2,346 8,043
Notes payable to
financial
institutions........... 89,718 (29,694)(e) 60,024 47,092 (580)(k) 106,536
Notes payable to related
parties................ 23,772 (23,772)(e) -- -- --
-------- -------- ------- --------
Total liabilities.. 131,191 83,422 61,173 143,995
======== ======== ======= ========
Minority interest in
limited partnership.... -- -- 1,675 1,675
SIGNATURE EQUITY:
Common Stock............ -- 53 (b) 166 14 (m) 180
113 (i)
Additional paid-in
capital................ 66,047 (b) 94,327 2,406 (m) 96,733
(9,200)(d)
5,076 (f)
32,404 (i)
Retained
earnings/Partner's
capital................ 44,450 (5,697)(g) 3,900 3,316 (m) 7,236
(2,336)(h)
(32,517)(i) 20 (k)
AVCOM EQUITY:
Preferred Stock......... -- 13 (13)(j) --
Common Stock............ -- 38 13 (j) --
3 (k)
54 (m)
Additional paid-in
capital................ 1,819 (30)(l) --
577 (k)
(2,366)(m)
Retained
earnings/Partner's
capital................ 3,316 (13,316)(m) --
Treasury stock.......... (30) 30 (l) --
-------- -------- ------- --------
Total equity............ 44,450 98,393 5,156 104,149
-------- -------- ------- --------
Total liabilities and
equity................. $175,641 $181,815 $68,004 $249,819
======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of this combined pro forma balance
sheet.
90
<PAGE>
- --------
Signature pro forma adjustments for initial public offering (the "Offering")
on August 15, 1996
(a) The consolidation transactions for the Offering have been accounted for at
historical cost as Signature is comprised of affiliates which are under
common control.
(b) Reflects the proceeds of the Offering of 5,250,000 shares of Signature
Stock ($73,500) net of related expenses ($7,400).
(c) Reflects the purchase of loans from certain combining interests ($2,668)
relating to loans made by such combining interests to the joint venture.
(d) Reflects the acquisition of equity interests ($9,200).
(e) Reflects the repayment of notes payable to financial institutions
($29,694) and notes payable to related parties ($23,772).
(f) Reflects the purchase of joint venture interest ($5,076).
(g) Represents the establishment of deferred taxes for the difference between
the book and tax bases of assets and liabilities at June 30, 1996
($5,697).
(h) Represents distribution for income taxes accrued by certain property
partnerships prior to the consummation of the consolidation transactions
($2,336).
(i) Reflects 11,354,705 shares of common stock ($113) issued in connection
with the consolidation transactions.
Pro forma adjustments for proposed merger of Signature and AVCOM
(j) Reflects the conversion of 1,310,700 shares AVCOM preferred stock
($13,000) to 1,310,700 shares of AVCOM Stock ($13,000) in accordance with
preexisting conversion rights.
(k) Reflects the conversion of AVCOM convertible subordinated note payable
($580,000) to 310,000 shares of AVCOM Stock ($3,000), and elimination of
related accrued interest at June 30, 1996 ($20,000).
(l) Reflects the cancellation of 12,000 shares of AVCOM treasury stock
($30,000)
(m) Reflects the issuance of 1,371,405 shares of Signature common stock
($14,000) in exchange for all outstanding AVCOM Stock ($54,000), and the
merger of AVCOM equity into Signature.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
91
<PAGE>
NOTES TO PRO FORMA COMBINED BALANCE SHEET
(UNAUDITED)
NOTE A
Pro forma adjustments for Signature reflect the effects of the exchange of
partnership interests (and certain stockholder interests) for shares of common
stock in Signature and the sale of 5,250,000 shares of common stock offered by
Signature during its initial public offering on August 15, 1996, after
deducting underwriting discounts and estimated offering discounts. The
adjustments are described in the combined pro forma balance sheet.
NOTE B
Pro forma adjustments to combine Signature and AVCOM assume the pooling
occurred on June 30, 1996. Stockholders' equity of AVCOM has been eliminated to
reflect the merger.
NOTE C
The conversion ratio assumed in the pro forma balance sheet is the initial
conversion ratio described in Article I, Paragraph 1.3 of the Agreement and
Plan of Merger by and among Signature Resorts, Inc. and AVCOM International,
Inc. as amended (as amended, the "Merger Agreement"). This conversion ratio
would result in .26 shares of Signature common stock being exchanged for each
share of AVCOM's common stock. The conversion ratio may be adjusted as
described in Article I, Paragraph 1.3 of the Merger Agreement.
92
<PAGE>
COMBINED PRO FORMA STATEMENTS OF INCOME
(UNAUDITED AND IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED ------------------------
6/30/96 1995 1994 1993
---------- -------- ------- -------
<S> <C> <C> <C> <C>
REVENUES:
Vacation interval sales................. $47,653 $ 92,302 $64,399 $36,719
Interest income......................... 5,668 7,523 3,863 2,061
Other income............................ 7,110 8,623 1,625 1,091
------- -------- ------- -------
Total revenues........................ $60,431 $108,448 $69,887 $39,871
======= ======== ======= =======
COST OF SALES AND OPERATING EXPENSES:
Vacation interval cost of sales......... $12,182 $ 26,731 $19,186 $ 9,256
Advertising, sales and marketing........ 22,990 42,408 30,977 17,759
Loan portfolio--
Interest expense--treasury............ 3,370 4,104 1,982 866
Other................................. 659 1,189 851 208
Provision for doubtful accounts....... 1,407 2,579 1,294 870
General and administrative--
Resort-level.......................... 3,019 4,947 2,864 2,346
Corporate............................. 5,103 6,202 3,762 2,442
Depreciation and amortization........... 1,271 1,860 635 440
Interest expense--other................. 2,194 1,713 1,415 661
Timeshare management & other............ 1,801 1,571 743 547
Equity in loss on investment in joint
venture................................ 63 1,649 271 --
Minority interest in profits of limited
partnership............................ 223 -- -- --
------- -------- ------- -------
Total costs and operating expenses.... $54,282 $ 94,953 $63,980 $35,395
======= ======== ======= =======
INCOME BEFORE TAXES....................... 6,148 13,495 5,907 4,476
Provision for income taxes.............. 2,459 5,398 2,363 2,887
------- -------- ------- -------
NET INCOME.............................. $ 3,689 $ 8,097 $ 3,544 $ 1,589
======= ======== ======= =======
PRO FORMA EARNINGS PER SHARE BASED UPON
CONVERSION RATIO OF .26.................. $ 0.29 $ 0.63 -- --
======= ======== ======= =======
</TABLE>
93
<PAGE>
NOTES TO PRO FORMA COMBINED STATEMENTS OF INCOME
(UNAUDITED)
NOTE A
The pro forma combined statements of income present the proposed merger as
if it occurred on December 31, 1992. The combined pro forma adjustments
reflect the elimination of the interest expense on AVCOM's convertible
subordinated note payable since it was converted to 310,000 shares of AVCOM
Stock. The effect is a reduction of interest expense in the amount of $37,000
and $63,000 for the six months ended June 30, 1996 and the year ended December
31, 1995, respectively. There is no effect in 1994 or 1993, since the note was
issued in 1995. The combined pro forma adjustments also reflect conversion of
AVCOM Preferred to 1,310,700 shares of AVCOM Stock. The effect is an increase
in net income available for common stockholders of $53,000 and $105,000, and
an increase in earnings per share of $0.01 and $0.02, for the six months ended
June 30, 1996 and December 31, 1995, respectively.
NOTE B
Prior to Signature's initial public offering on August 15, 1996, it
consisted of nine separate limited partnerships. Therefore, its historical
combined financial statements do not include a provision for income taxes. The
accompanying pro forma combined income statements include pro forma
adjustments to adjust the combined effective income tax rate to 40 percent,
except for 1993, which includes a higher tax rate due to the establishment of
deferred taxes for AVCOM. This adjustment was made to present Signature as if
it had been a C-corporation in prior years. The pro forma adjustment resulted
in recording an income tax provision related to Signature of $2,528,000,
$3,919,000, $1,668,000 and $917,000 for the six months ended June 30, 1996,
and the years ended December 31, 1995, 1994 and 1993, respectively.
NOTE C
If the merger with AVCOM is consummated, there will be nonrecurring charges
of approximately $ which will be an expense of the combined entity.
Such charges have not been reflected in the pro forma combined statements of
income.
94
<PAGE>
MARKET PRICE DATA
SIGNATURE RESORTS, INC.
Signature's Stock has been listed on the NASDAQ National Market System under
the symbol "SIGR" since its initial public offering which was completed in
August 1996. The following table sets forth the high and low sales prices of
Signature Stock as reported on the NASDAQ National Market System since
Signature's initial public offering.
<TABLE>
<CAPTION>
1996 HIGH LOW
---- ------- -------
<S> <C> <C>
Third Calendar Quarter (beginning August 15, 1996)....... $24 5/8 $13 5/8
Fourth Calendar Quarter (through November 12, 1996)...... $38 1/2 $25 3/4
</TABLE>
On September 20, 1996, the last trading day before announcement of the
execution of the Merger Agreement, the closing price of Signature Stock, as
reported on the NASDAQ National Market System, was $20 1/4 per share.
Because the market price of Signature Stock is subject to fluctuation, the
market value of the shares of Signature Stock that AVCOM shareholders will
receive in the Merger may increase or decrease prior to the Merger. Holders of
shares of AVCOM Stock should obtain current market quotation for shares of
Signature Stock.
AVCOM INTERNATIONAL, INC.
AVCOM Stock is traded over-the-counter and its quotations are reported on
the OTC Bulletin Board Display under the symbol "AVMI". The following sets
forth the high and low per share bid price for the AVCOM Stock:
<TABLE>
<CAPTION>
1994 HIGH LOW
---- -------- ------
<S> <C> <C>
Second Calendar Quarter (beginning April 11, 1994)....... $4 11/16 $1 1/2
Third Calendar Quarter................................... 3 3
Fourth Calendar Quarter.................................. 4 2 1/4
1995
----
First Calendar Quarter................................... $3 5/8 $2 3/4
Second Calendar Quarter.................................. 4 3 1/2
Third Calendar Quarter................................... 4 3
Fourth Calendar Quarter.................................. 3 1/8 2 3/4
1996
----
First Calendar Quarter................................... $3 $2 1/8
Second Calendar Quarter.................................. 3 2 1/4
Third Calendar Quarter .................................. 4 3/4 2
Fourth Calendar Quarter (through November 12, 1996)...... 4 7/8 4 1/4
</TABLE>
On September 20, 1996, the last trading day before announcement of the
execution of the Merger Agreement, the last sale price of AVCOM Stock, as
reported on the over-the-counter market, was $3 7/8 per share.
95
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a discussion of the material federal income tax
consequences of the Merger. This discussion is based on the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the regulations
thereunder promulgated by the United States Treasury Department, federal court
decisions and Internal Revenue Service rulings as of the date hereof, all of
which are subject to change, possibly retroactively.
This discussion applies only to AVCOM shareholders who hold their stock as a
capital asset. This discussion does not consider all of the tax consequences
that may be relevant to AVCOM Shareholders entitled to special treatment under
the Code, such as insurance companies, dealers in securities, tax-exempt
organizations, foreign persons or to AVCOM shareholders who acquired their
shares of AVCOM Stock pursuant to the exercise of employee stock options or
otherwise as compensation. This discussion also does not consider the tax
consequences of the assumption by Signature of any outstanding AVCOM stock
options. IN VIEW OF THE INDIVIDUAL NATURE OF THE TAX CONSEQUENCES OF THE
MERGER, AVCOM SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO
THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE
APPLICABILITY OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
Neither Signature nor AVCOM has requested a ruling from the Internal Revenue
Service (the "Service"). The opinions of counsel are not binding on the
Service or the courts and do not preclude the Service from adopting a position
contrary to the opinions. Moreover, these opinions are subject to modification
by future legislative, judicial and administrative actions on a prospective
and, possibly, a retroactive basis.
Subject to the qualifications of this discussion, in the opinion of
Gallagher & Kennedy, P.A., assuming that the Merger is treated as a
reorganization as defined in Section 368(a) of the Code, the principal federal
income tax consequences of the Merger to the AVCOM shareholders will be as
follows:
1. No gain or loss will be recognized for federal income tax purposes by
the AVCOM shareholders upon the receipt in the Merger of Signature Stock in
exchange for their shares of AVCOM Stock (except to the extent of cash
received in lieu of fractional shares of Signature Stock.).
2. The aggregate tax basis of the Signature Stock received by the AVCOM
shareholders pursuant to the Merger will be the same as the aggregate tax
basis of the shares of AVCOM Stock exchanged therefor, less any portion of
such tax basis allocated to shares of AVCOM Stock for which cash is
received in lieu of fractional shares of Signature Stock.
3. The holding period of the shares of Signature Stock received by the
AVCOM shareholders will include the period during which the AVCOM
shareholders held the AVCOM Stock surrendered and exchanged therefor,
provided the AVCOM Stock constitutes a capital asset in the hands of the
AVCOM shareholders on the date of the Merger.
4. An AVCOM shareholder who exercises appraisal rights and receives
solely cash in exchange for his or her shares of AVCOM Stock will recognize
capital gain or capital loss measured by the difference between the amount
of cash received and the AVCOM shareholder's basis in such shares, provided
that such shares are a capital asset in the hands of such shareholder on
the date of the exchange and that the payment received by such shareholder
is neither essentially equivalent to a dividend nor has the effect of a
dividend distribution.
An AVCOM shareholder who receives a cash payment in lieu of a fractional
share of Signature Stock will be treated as if such shareholder received the
fractional share, which Signature then redeemed for cash. As a result of this
treatment, an AVCOM shareholder who receives a cash payment in lieu of a
fractional share of Signature Stock will recognize capital gain or capital
loss measured by the difference between the amount of cash received and the
AVCOM shareholder's basis in the fractional share (which will be a pro-rata
portion of the AVCOM shareholder's basis in the Signature Stock received in
the Merger), provided such shareholder holds
96
<PAGE>
his or her AVCOM Stock as a capital asset on the date of the exchange and that
the payment received by such shareholder in lieu of a fractional share is
neither essentially equivalent to a dividend nor has the effect of a dividend
distribution.
The opinions set forth above are subject to certain assumptions and
qualifications and are based on the truth and accuracy of the representations
delivered to Gallagher & Kennedy, P.A. in letters from Signature, ASP, AVCOM,
the officers and directors of Signature, ASP and AVCOM and certain
shareholders of AVCOM. Of particular importance to the tax opinions is the
assumption that the Merger will satisfy the "continuity of interest"
requirement.
In order for the AVCOM shareholders to satisfy the "continuity of interest"
requirement, the AVCOM shareholders must not have a plan or intention at the
time of the Merger to sell or otherwise dispose of an amount of Signature
Stock to be received in the Merger that will reduce their aggregate ownership
of Signature Stock to a number of shares having in the aggregate a value at
the time of the Merger of less than fifty percent of the total value of AVCOM
Stock outstanding immediately prior to the Merger (the "50% Test"). For
purposes of this determination, AVCOM Stock disposed of in connection with the
exercise of appraisal rights or exchanged for cash in lieu of the receipt of a
fractional share will be treated as outstanding AVCOM Stock immediately prior
to the Merger. In certain circumstances, pre-merger dispositions of AVCOM
stock will also be considered for purposes of determining whether the 50% Test
has been satisfied. Signature, ASP, AVCOM, officers and directors of
Signature, ASP, AVCOM and certain shareholders of AVCOM have all represented
that they are not aware of any plan or intention that would result in the 50%
Test not being satisfied. If these representations are not correct and the
"continuity of interest" requirement is not satisfied, the Merger would not
qualify as a reorganization and the federal tax consequences of the Merger to
the AVCOM shareholders described above would not apply.
If the Merger does not qualify as a reorganization, the AVCOM shareholders
would recognize gain or loss with respect to each share of AVCOM Stock
surrendered equal to the difference between the AVCOM shareholder's basis in
the share and the fair market value of the Signature Stock received in
exchange therefor. In such event, an AVCOM shareholder's aggregate basis in
the shares of Signature Stock received in the exchange would equal the fair
market value of such shares, and the AVCOM shareholder's holding period for
such shares would not include the period during which the AVCOM shareholder
held such shareholder's AVCOM Stock.
COMPARISON OF RIGHTS OF SHAREHOLDERS
Upon consummation of the Merger, the AVCOM shareholders will become
shareholders of Signature and their rights will be governed by Signature's
Charter, as amended, and By-Laws, which differ in certain material respects
from AVCOM's Certificate of Incorporation and By-Laws. As shareholders of
Signature, the rights of the AVCOM shareholders will be governed by the MGCL
instead of the Delaware GCL.
The following comparison of the MGCL, and Signature's Charter and By-Laws,
on the one hand, and the Delaware GCL, and AVCOM's Certificate of
Incorporation and By-Laws, on the other hand, is not intended to be complete
and is qualified in its entirety by reference to Signature's Charter and By-
Laws, and AVCOM's Certificate of Incorporation and Bylaws. Copies of
Signature's Charter and By-Laws are available for inspection at the principal
executive offices of Signature and copies will be sent to the AVCOM
shareholders upon request. Copies of AVCOM's Certificate of Incorporation and
By-Laws are available for inspection at the principal executive offices of
AVCOM and copies will be sent to AVCOM shareholders upon request.
Although it is impractical to note all of the differences between the
corporation statues of Delaware and Maryland, the most significant differences
in the judgment of the management of Signature are summarized below. The
summary is not intended to be complete and reference should be made to the
Delaware GCL and the MGCL.
97
<PAGE>
DIRECTORS
Both the Delaware GCL and the MGCL permit classified boards of directors.
AVCOM does not have a classified board of directors. Signature's Charter
does provide for a classified board. The number of directors of Signature
shall be established by the Bylaws but shall not be less than the minimum
number required by the MGCL, which in the case of Signature is three. The
Bylaws currently provide that the Board of Directors will consist of not fewer
than seven nor more than 13 members. The Charter provides for a staggered
Board of Directors consisting of three classes as nearly equal in size as
practicable. One class will hold office initially for a term expiring at the
annual meeting of shareholders to be held in 1997, another class will hold
office initially for a term expiring at the annual meeting of shareholders to
be held in 1998 and another class will hold office initially for a term
expiring at the annual meeting of shareholders to be held in 1999. As the term
of each class expires, directors in that class will be elected for a term of
three years and until their successors are duly elected and qualify. Signature
believes that classification of the Board of Directors will help to assure the
continuity and stability of Signature's business strategies and policies as
determined by the Board of Directors.
The classified director provision could have the effect of making the
removal of incumbent directors more time-consuming and difficult, which could
discourage a third party from making a tender offer or otherwise attempting to
obtain control of Signature, even though such an attempt might be beneficial
to Signature and its shareholders. At least two annual meetings of
shareholders, instead of one, will generally be required to effect a change in
a majority of the Board of Directors. Thus, the classified board provision
could increase the likelihood that incumbent directors will retain their
positions. Holders of shares of Signature Stock will have no right to
cumulative voting for the elections of directors. Consequently, at each annual
meeting of shareholders, the holders of a majority of outstanding shares of
Signature Stock will be able to elect all of the successors of the class of
directors whose term expires at that meeting.
Under AVCOM's By-Laws, the number of directors which shall constitute the
whole board shall not be less than one or more than nine. The directors shall
be elected at the annual meeting of the shareholders and each director elected
shall hold office until his successor is elected and qualified. AVCOM's By-
Laws provide that vacancies may be filled by a majority of the directors then
in office, though less than a quorum, or by a sole remaining director, and the
directors so chosen shall hold office until the next annual election and until
their successors are duly elected and shall qualify.
Any vacancy on the Signature Board of Directors will be filled, at any
regular meeting or at any special meeting called for that purpose, by a
majority of the remaining directors, except that a vacancy resulting from an
increase in the number of directors will be filled by a majority of the entire
board of directors.
REMOVAL OF DIRECTORS
Signature's Charter provides that a director may be removed with or without
cause by the affirmative vote of at least two-thirds of the votes entitled to
be cast in the election of directors, and by the vote required to elect a
director, the shareholders may fill a vacancy on the Board of Directors
resulting from removal. This provision, when coupled with the provision in the
Bylaws authorizing the Board of Directors to fill vacant directorships, could
preclude shareholders from removing incumbent directors except upon a
substantial affirmative vote and filling the vacancies created by such removal
with their own nominees.
Under the Delaware GCL, any one or all of the directors of a corporation
without a classified board of directors may be removed, with or without cause,
by the holders of a majority of shares then entitled to vote in an election of
directors. Although neither AVCOM's Certificate of Incorporation nor its By-
Laws provide for a classified board, its By-Laws provide that a director may
be removed from the Board of Directors with or without cause by the holders of
a majority of shares entitled to vote at an election of directors.
98
<PAGE>
LIMITATION ON PERSONAL LIABILITY OF DIRECTORS
Delaware corporations are permitted to adopt charter provisions limiting, or
even eliminating, the liability of a director of a company and its
shareholders for monetary damages for breach of fiduciary duty as a director,
provided that such liability does not arise from certain proscribed conduct,
including breach of the duty of loyalty, acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law or
liability to the corporation based on unlawful dividends or distributions or
improper personal benefit. Unlike Delaware, Maryland permits such limitations
to extend to officers as well as directors.
AVCOM's Certificate of Incorporation provides that a director of AVCOM is
not personally liable to AVCOM or its shareholders for monetary damages for
breach of fiduciary duty as a director, except for liability (a) for any
breach of the director's duty of loyalty to AVCOM or its shareholders, (b) for
acts or omissions not in good faith or which involved intentional misconduct
or a knowing violation of law, (c) under Section 174 of the Delaware GCL, or
(d) for any transaction from which the director derived any improper personal
benefit.
Signature's Charter limits the liability of Signature's directors and
officers to Signature and its shareholders to the fullest extent permitted
from time to time by Maryland law. Maryland law presently permits the
liability of directors and officers to a corporation or its shareholders for
money damages to be limited, except (i) to the extent that it is proved that
the director or officer actually received an improper benefit or profit, or
(ii) if a judgment or other final adjudication is entered in a preceding based
on a finding that the director's or officers' action, or failure to act, was
the result of active and deliberate dishonesty and was material to the cause
of action adjudicated in the proceeding. This provision does not limit the
ability of Signature or its shareholders to obtain other relief, such as an
injunction or rescission.
INDEMNIFICATION OF OFFICERS AND DIRECTORS AND ADVANCEMENT OF EXPENSES
Delaware and Maryland have similar provisions regarding indemnification by a
corporation of its officers, directors, employees and agents. However, the
Delaware GCL permits a court to allow indemnification where the person seeking
indemnification has been found liable to the corporation, whereas the MGCL
does not permit indemnification in that circumstance.
Delaware and Maryland law differ in their provisions for advancement of
expenses incurred by an officer or director in defending a civil or criminal
action, suit or proceeding. Both give the corporation discretion to advance
expenses incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding prior to the final
disposition of the action, suit or proceeding upon receipt of an undertaking
by or on behalf of the director or officer to repay the amount if it is
ultimately determined that he is not entitled to be indemnified by the
corporation. However, the MGCL does not require security for the undertaking
to repay or verification of financial ability to repay, which would be
required by the Delaware GCL.
There is no provision in AVCOM's Certificate of Incorporation or By-Laws
regarding indemnification of directors or officers.
Signature's Charter and Bylaws require Signature to indemnify its directors,
offices and certain other parties to the fullest extent permitted from time to
time by Maryland law. The MGCL presently permits a corporation to indemnity
its directors, officers and certain other parties against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by
them in connection with any proceeding to which they may be made a party by
reason of their service to the corporation, unless it is established that (i)
the act or omission of the indemnified party was material to the matter giving
rise to the proceeding, and (1) was committed in bad faith or (2) was the
result of active and deliberate dishonest; or (ii) the indemnified party
actually received an improper personal benefit in money, property or services;
or (iii) in the case of any criminal proceeding, the indemnified party had
reasonable cause to believe that the act or omission was unlawful.
Indemnification may be made against judgments, penalties, fines, settlements
and reasonable expenses actually incurred by the director or officer in
connection with the proceeding; provided, however, that if the proceeding is
one by or in the right of
99
<PAGE>
the corporation, indemnification may not be made with respect to any
proceeding in which the director or officer has been adjudged to be liable to
the corporation. In addition, a director or officer may not be indemnified
with respect to any proceeding charging improper personal benefit to the
director or officer in which the director or officer was adjudged to be liable
on the basis that personal benefit was improperly received. The termination of
any proceeding by conviction, or upon a plea of nolo contendere or its
equivalent, or an entry of any order of probation prior to judgment, creates a
rebuttable presumption that the director or officer did not meet the requisite
standard of conduct required for indemnification to be permitted. Signature
has directors and officers insurance.
SHAREHOLDER INSPECTION; ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
Delaware permits any shareholder to inspect the stockholder list of the
corporation for certain permitted purposes. Maryland limits such right to
shareholders who own in the aggregate five percent of the outstanding stock of
any class and have been shareholders for at least six months.
Under the Delaware GCL, unless otherwise provided in the certificate or
articles of incorporation, shareholders may take action without a meeting,
without prior notice and without a vote, upon the written consent of
shareholders having not less than the minimum number of votes that would be
necessary to authorize the proposed action at a meeting at which all shares
entitled to vote were present and voted.
The Signature Bylaws provide that any action required or permitted to be
taken at a meeting of shareholders may be taken without a meeting by unanimous
written consent, if such consent sets forth such action and is signed by each
stockholder entitled to vote on the matter and a written waiver of any right
to dissent is signed by each shareholders entitled to notice of the meeting
but not entitled to vote at it. Such right has little practical utility in a
public company.
In order for Signature shareholders to call special meetings, the Signature
Bylaws require the written request of holders of shares entitled to cast not
less than 25% of all votes entitled to be cast at such meeting. Such
provisions do not, however, affect the ability of shareholders to submit a
proposal to the vote of all shareholders of Signature in accordance with the
Bylaws, which provide for the additional notice requirements for stockholder
nominations and proposals at the annual meetings of shareholders as described
above.
AVCOM's By-Laws provide that special meetings of the shareholders may be
called by the president, and shall be called by the president or secretary at
the request of a majority of the Board of Directors, or at the request of
shareholders owning a majority in amount of the entire capital stock of the
corporation issued and outstanding and entitled to vote. AVCOM's By-Laws also
provide that any action required to be taken at any annual or special meeting
of the shareholders, or any action which may be taken at any annual or special
meeting of shareholders, may be taken without a meeting, without prior notice
and without a vote, upon the written consent of the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote were present and voted.
CUMULATIVE VOTING
Under both the Delaware GCL and the MGCL cumulative voting of stock applies
only when so provided in the certificate or articles of incorporation of a
corporation. Neither Signature's Charter nor AVCOM's Certificate of
Incorporation provide for cumulative voting.
DIVIDENDS
Under the Delaware GCL, unless otherwise provided in the certificate of
incorporation, a corporation may declare and pay dividends, out of surplus, or
if no surplus exists, out of net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year (provided that the
amount of capital of the corporation following the declaration and payment of
the dividends is not less than the aggregate amount of the capital represented
by the issued and outstanding stock of all classes having a preference upon
the distribution of assets). In addition, the Delaware GCL provides that a
corporation may redeem or repurchase its shares only out of surplus.
100
<PAGE>
The MGCL permits payment of dividends unless the corporation would not be
able to pay its debts as they become due in the usual course of business or
the corporation's total assets would be less than the sum of the corporation's
total liabilities plus, unless the charter permits otherwise, the amount that
would be needed, if the corporation were to be dissolved at the time of such
dividends, to satisfy the preferential rights upon dissolution of shareholders
whose preferential rights on dissolution are superior to those receiving the
dividends.
Signature does not currently intend to declare or pay any dividends or make
any other distributions on its capital stock. Nevertheless, the difference
between the Delaware GCL and the MGCL, with respect to amounts available for
dividends or other distributions could conceivably effect future dividends or
other distributions, if any are declared.
AMENDMENT OR REPEAL OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS
Under the Delaware GCL, unless the certificate of incorporation or bylaws
otherwise provide, amendments of the certificate of incorporation generally
require the approval of the holders of a majority of the outstanding stock
entitled to vote thereon, and if such amendments would increase or decrease
the number of authorized shares of any class or series or the par value of
such shares or would adversely affect the shares of such class or series, a
majority of the outstanding stock of such class or series would have to
approve the amendment. AVCOM has not altered those provisions in its
Certificate of Incorporation or By-Laws.
Signature's Charter, including its provisions on classification of the Board
of Directors and removal of directors, may be amended only by the affirmative
vote of the holders of at least 66 2/3% of the capital stock entitled to vote.
Signature's Bylaws may be amended by the affirmative vote of holders of at
least 66 2/3% of the capital stock entitled to vote on the matter. Subject to
the right of shareholders to adopt, alter and repeal the Bylaws, the Board of
Directors is authorized to adopt, alter or repeal the Bylaws.
The MGCL requires a two-thirds shareholder approval of a charter amendment
that changes or reclassifies or cancels stock and provides certain appraisal
rights to shareholders whose contract rights are adversely affected by such
amendment.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws of Signature provide that (i) with respect to an annual meeting
of shareholders, nominations of persons for election to the Board of Directors
and the proposal of business to be considered by shareholders may be made only
(a) pursuant to Signature's notice of the meeting, (b) by the Board of
Directors, or (c) by a stockholder who is entitled to vote at the meeting and
has complied with the advance notice procedures set forth in the Bylaws, and
(ii) with respect to special meetings of shareholders, only the business
specified in Signature's notice of meeting may be brought before the meeting
of shareholders, or provided that the Board of Directors has determined that
directors shall be elected at such meeting, nominations of persons for
election to the Board of Directors may be brought by a stockholder who is
entitled to vote at the meeting and has complied with the advance notice
provisions set forth in the Bylaws.
AVCOM's Certificate of Incorporation and By-Laws do not contain procedures
regarding stockholder nominations of directors.
RESTRICTIONS ON BUSINESS COMBINATIONS/CORPORATE CONTROL
Both the Delaware GCL and the MGCL contain provisions restricting the
ability of a corporation to engage in business combinations with an interested
stockholder.
Under the Delaware GCL, except under certain circumstances, a corporation is
not permitted to engage in a business combination with any interested
stockholder for a three-year period following the time such stockholder became
an interest stockholder. The Delaware GCL defines an interested stockholder,
generally, as a person who owns 15% or more of the outstanding shares of such
corporation's voting stock.
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Under the MGCL, certain "Business Combinations" (including a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns ten percent or more of the
voting power of the corporation's shares or an affiliate of the corporation
who, at any time within the two-year period prior to the date in question, was
the beneficial owner of ten percent or more of the voting power of the then-
outstanding voting stock of the corporation (an "INTERESTED STOCKHOLDER") or
an affiliate thereof are prohibited for five years after the most recent date
on which the Interested Stockholder became an Interested Stockholder.
Thereafter, any such Business Combination must be recommended by the Board of
Directors of such corporation and approved by the affirmative vote of at least
(i) 80% of the votes entitled to be cast by holders of outstanding voting
shares of the corporation and (ii) 66 2/3% of the votes entitled to be cast by
holders of outstanding voting shares of the corporation other than shares held
by the Interested Stockholder with whom the Business Combination is to be
effected, unless, among other things, the corporation's shareholders receive a
minimum price (as defined in the MGCL) for their shares and the consideration
is received in cash or in the same form as previously paid by the Interested
Stockholder for its shares. These provisions of Maryland law do not apply,
however, to Business Combinations that are approved or exempted by the Board
of Directors of the corporation prior to the time that the Interested
Stockholder becomes an Interested Stockholder. The Board of Directors of
Signature has exempted from these provisions of the MGCL any Business
Combination involving the Executive Officers and certain persons and entities
affiliated therewith.
CONTROL SHARE ACQUISITIONS
The MGCL provides that "Control Shares" of a Maryland corporation acquired
in a "Control Share Acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares of stock owned by the acquiror or by officers or
directors who are employees of the corporation. "Control Shares" are voting
shares of stock which, if aggregated with all other such shares of stock
previously acquired by such person, or in respect of which such person is able
to exercise or direct the exercise of voting power, would entitle the acquiror
to exercise voting power in electing directors within one of the following
ranges of voting power: (i) one-fifth or more but less than one-third, (ii)
one-third or more but less than a majority, or (iii) a majority of all voting
power. Control Shares do not include shares the acquiring person is then
entitled to voter as a result of having previously obtained stockholder
approval. A "Control Share Acquisition" means the acquisition of Control
Shares, subject to certain exceptions.
A person who has made or proposes to make a Control Share Acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may under the MGCL compel the Board of Directors to call a special meeting of
shareholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the corporation may itself
present the question at any shareholders meeting.
The MGCL provides that, if voting rights are not approved at the meeting or
if the acquiring person does not deliver an acquiring person statement as
required by the statute, then, subject to certain conditions and limitations,
the corporation may redeem any or all of the Control Shares (except those for
which voting rights have previously been approved) for fair value determined,
without regard to the absence of voting rights for control shares, as of the
date of the last Control Share Acquisition or of any meeting of shareholders
at which the voting rights of such shares are considered and not approved. If
voting rights for Control Shares are approved at a shareholders meeting and
the acquiror becomes entitled to vote a majority of the shares entitled to
vote, all other shareholders may exercise appraisal rights. The fair value of
the shares are determined for purposes of such appraisal rights may not be
less than the highest price per share paid in the Control Share Acquisition,
and certain limitations and restrictions otherwise applicable to the exercise
of dissenters' rights do not apply in the context of a Control Share
Acquisition.
The MGCL control share acquisition statute does not apply to shares acquired
in a merger, consolidation or share exchange if the corporation is a party to
the transaction, or to acquisitions approved or exempted by the
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Charter or Bylaws of the corporation. Signature in its Bylaws has exempted
from the Control Share Acquisition statute the Executive Officers and certain
persons and entities affiliated therewith.
SHAREHOLDER VOTE FOR MERGERS
Except with respect to certain mergers with subsidiary corporations, both
the Delaware GCL and the MGCL generally require the affirmative vote of the
outstanding shares of the constituent corporations in a merger. The Delaware
GCL requires a majority vote, and the MGCL requires a two-thirds vote. Under
the Delaware GCL and the MGCL, holders of stock which is not by its terms
entitled to vote on such a transaction are entitled to notice of the meeting
at which the proposed transaction is considered. Neither the Delaware GCL nor
the MGCL require a shareholder vote of the surviving corporation in a merger
if (a) the merger agreement does not amend the existing certificate or
articles of incorporation, (b) the merger agreement does not reclassify or
change its stock, and (c) the number of shares to be issued by the surviving
corporation in a merger does not exceed 20% (Delaware GCL) or 15% (MGCL) of
the shares outstanding immediately prior to such issuance.
DISSENTERS' RIGHTS IN MERGERS
Both the Delaware GCL and the MGCL provide that shareholders have the right,
in some circumstances, to dissent from certain corporate reorganizations and
to instead demand payment of the fair cash value of their shares. Unless a
corporation's certificate or articles of incorporation provides otherwise,
neither the Delaware GCL nor the MGCL provides for presently applicable
dissenters' rights of appraisal. In the case of the Delaware GCL, dissenters'
rights of appraisal do not apply to a merger or consolidation or by a
corporation, the shares of which are either listed on a national securities
exchange or widely-held (by more than 2,000 shareholders), if such
shareholders receive shares of the surviving corporation or of such a listed
or widely-held corporation. Dissenters' rights are not available under the
MGCL for shares registered on a securities exchange on the record date for the
meeting at which the transaction is considered by the shareholders.
Additionally, the Delaware GCL does not provide for such dissenters' rights of
appraisal with respect to a sale-of-assets reorganization. Like the Delaware
GCL, the MGCL generally does not provide for dissenters' rights if no vote of
the shareholders of the surviving corporation is required in a merger.
EXPERTS
The 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 Proxy Statement/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.
The consolidated financial statements of AVCOM International, Inc. at
December 31, 1995 and 1994, and for each of the three years in the period
ended December 31, 1995, appearing in this Proxy Statement/Prospectus
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and the related Registration Statement, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters in connection with the share of Signature Stock to be
issued in the Merger shall be passed upon for Signature by Schreeder, Wheeler
& Flint, LLP, Atlanta, Georgia. Certain partners of Schreeder, Wheeler &
Flint, L.L.P., and members of their families own less than 1% of the
outstanding shares of Signature Stock. Certain legal matters for AVCOM shall
be passed upon for AVCOM by Gallagher & Kennedy, P.A., Phoenix, Arizona and
DeConcini McDonald Brammer Yetwin & Lacy, P.C., Phoenix, Arizona. Gallagher &
Kennedy, P.A. will also pass upon the tax consequences of the Merger.
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, the AVCOM Board knows of
no matters that will be presented for consideration of the special meeting
other than as described in this Proxy Statement/Prospectus. However, if any
other matters shall come before the special meeting or any adjournments or
postponements thereof and shall be voted upon, the proposed Proxy will be
deemed to confer authority to the individuals named as authorized therein to
vote the shares represented by such Proxy as to any such matters that fall
within the purposes set forth in the Notice of Special Meeting as determined
by a majority of the AVCOM Board.
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___________________________________________________
INDEX TO FINANCIAL STATEMENTS
- ---------------------------------------------------
AVCOM International, Inc.
- -------------------------
Report of Independent Auditors............................................. F-1
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1994 and 1995,
and June 30, 1996 (Unaudited)............................................. F-2
Consolidated Statements of Operations for the years ended December 31,
1993, 1994 and 1995, and for the six months ended June 30, 1995 and
1996 (Unaudited).......................................................... F-3
Consolidated Statements of Stockholders Equity for the years ended
December 31, 1993, 1994 and 1995, and for the six months ended
June 30, 1995 and 1996 (Unaudited)........................................ F-4
Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1994 and 1995, and for the six months ended June 30, 1995 and
1996 (Unaudited).......................................................... F-5
Notes to Consolidated Financial Statements................................. F-6
Signature Resorts, Inc.
- -----------------------
PAGE
----
Reports of Independent Auditors............................................ F-32
Financial Statements (Amounts as of June 30, 1995 and 1996
and for the six month periods then ended are unaudited)
Combined Balance Sheets at December 31, 1994 and 1995 and June 30, 1995
and 1996................................................................ F-37
Combined Statements of Income for each of the three years ended December
31, 1995 and for the six months ended June 30, 1995 and 1996............ F-38
Combined Statements of Equity for each of the three years ended December
31, 1995 and for the six months ended June 30, 1996..................... F-39
Combined Statements of Cash Flows for each of the three years ended
December 31, 1995 and for the six months ended June 30, 1995 and 1996... F-40
Notes to Combined Financial Statements..................................... F-41
<PAGE>
Report of Independent Auditors
Board of Directors
AVCOM International, Inc.
We have audited the accompanying consolidated balance sheets of AVCOM
International, Inc. (Company) as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders equity, and cash flows for
each of the three years in the period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company s
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of AVCOM
International, Inc. as of December 31, 1995 and 1994, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Phoenix, Arizona
May 31, 1996, except for
Note 12, as to which the
date is July 1, 1996
F-1
<PAGE>
AVCOM International, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
1994 1995 1996
------------------------------------------
ASSETS (Unaudited)
<S> <C> <C> <C>
Cash ($1,026,000, $278,000 and $0
restricted at December 31, 1994 and $ 1,026,000 $ 1,807,000 $ 306,000
1995 and June 30, 1996, respectively)
Notes receivable, net 5,939,000 18,659,000 30,351,000
Receivables from related parties 734,000 690,000 754,000
Other receivables 386,000 626,000 936,000
Resort property held for timeshare 10,643,000 10,827,000 24,282,000
sales and under development
Property and equipment, net 1,906,000 2,188,000 5,795,000
Prepaid loan commitment fees - 199,000 410,000
Deferred marketing and selling costs 40,000 759,000 3,197,000
Capitalized start-up costs, net - - 775,000
Investment in common stock - - 600,000
Other assets 178,000 179,000 598,000
------------------------------------------
Total assets $20,852,000 $35,934,000 $68,004,000
==========================================
LIABILITIES AND STOCKHOLDERS EQUITY
Accounts payable and other accrued $ 989,000 $ 2,524,000 $ 6,235,000
liabilities
Deferred revenue 80,000 - 3,023,000
Commissions payable 442,000 1,009,000 1,741,000
Amounts due to related parties 387,000 484,000 468,000
Income taxes payable 403,000 500,000 268,000
Deferred income taxes payable 2,176,000 2,624,000 2,346,000
Capitalized leases payable 378,000 761,000 1,521,000
Notes payable 12,582,000 22,692,000 45,571,000
------------------------------------------
Total liabilities 17,437,000 30,594,000 61,173,000
==========================================
Minority interest in consolidated - - 1,675,000
limited partnership
Commitments and contingencies
Stockholders equity:
Convertible preferred stock, $.01
par value; 1,400,000 shares
authorized, 1,310,700 shares
issued and outstanding; 13,000 13,000 13,000
liquidation preference of
$1,521,000 at December 31, 1995
and $1,574,000 at June 30, 1996
Common stock, $.01 par value;
10,000,000 shares authorized,
3,290,300 and 3,653,936 shares
issued and outstanding at
December 31, 1994 and 1995,
respectively and 3,653,936 shares
at June 30, 1996 33,000 38,000 38,000
Paid-in capital 939,000 1,819,000 1,819,000
Retained earnings 2,460,000 3,500,000 3,316,000
------------------------------------------
3,445,000 5,370,000 5,186,000
Less treasury stock, 12,000 shares of
common stock, at cost (30,000) (30,000) (30,000)
------------------------------------------
Total stockholders equity 3,415,000 5,340,000 5,156,000
------------------------------------------
Total liabilities and stockholders
equity $20,852,000 $35,934,000 $68,004,000
==========================================
</TABLE>
See accompanying notes.
F-2
<PAGE>
AVCOM International, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 SIX MONTHS ENDED JUNE 30
1993 1994 1995 1995 1996
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Unaudited)
REVENUES
Sales of timeshare interests $14,481,000 $24,130,000 $33,231,000 $16,220,000 $18,899,000
Timeshare management 452,000 650,000 1,256,000 621,000 648,000
Gain on sale of notes receivable 167,000 571,000 566,000 513,000 -
Health club revenue - - - - 230,000
Other 99,000 66,000 193,000 117,000 257,000
---------------------------------------------------------------------
15,199,000 25,417,000 35,246,000 17,471,000 20,034,000
COST OF SALES AND OPERATING EXPENSES
Cost of timeshare interests sold 3,548,000 6,792,000 11,081,000 4,755,000 5,379,000
Marketing and selling 6,950,000 12,232,000 13,920,000 7,838,000 8,260,000
Timeshare management 547,000 743,000 1,571,000 717,000 1,408,000
Health club expenses - - - - 393,000
General and administrative 1,621,000 3,034,000 4,780,000 2,203,000 3,661,000
Provision for doubtful accounts 251,000 371,000 792,000 282,000 719,000
---------------------------------------------------------------------
12,917,000 23,172,000 32,144,000 15,795,000 19,820,000
---------------------------------------------------------------------
Operating income 2,282,000 2,245,000 3,102,000 1,676,000 214,000
Minority interest in consolidated
limited partnership - - - - (223,000)
Interest and financing costs (335,000) (809,000) (1,818,000) (733,000) (1,763,000)
Interest income 236,000 180,000 594,000 67,000 1,466,000
---------------------------------------------------------------------
Income (loss) before income taxes 2,183,000 1,616,000 1,878,000 1,010,000 (306,000)
Provision for (benefit from) income
taxes 1,970,000 695,000 838,000 425,000 (122,000)
---------------------------------------------------------------------
Net income (Loss) $ 213,000 921,000 1,040,000 585,000 (184,000)
=============
Cumulative preferred stock dividends 105,000 105,000 53,000 53,000
-----------------------------------------------------
Net income (loss) available for common
stockholders $ 816,000 $ 935,000 $ 532,000 $ (237,000)
=====================================================
Earnings (loss) per share $.16 $.17 $.10 $(.05)
=====================================================
Pro forma earnings per share (unaudited) $.27
=============
Weighted average common shares and
common share equivalents (pro forma in
1993 - unaudited) 4,682,507 4,942,759 5,554,089 5,479,189 4,952,636
=====================================================================
</TABLE>
See accompanying notes.
F-3
<PAGE>
AVCOM International, Inc.
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
---------------------------------------------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1992 1,310,700 $13,000 2,890,300 $29,000 $ 451,000 $1,326,000 $ - $1,819,000
Issuance of common
stock - - 400,000 4,000 496,000 - - 500,000
Redemption of part-
nership - - - -
interests (18,000) - - (18,000)
Net income - - - - - 213,000 - 213,000
--------------------------------------------------------------------------------------------------------
Balance at December
31, 1993 1,310,700 13,000 3,290,300 33,000 929,000 1,539,000 - 2,514,000
Repurchase of common
stock - - - - - - (30,000) (30,000)
Payment for stock
held in escrow - - - - 10,000 - - 10,000
Net income - - - - - 921,000 - 921,000
--------------------------------------------------------------------------------------------------------
Balance at December 31,
1994 1,310,700 13,000 3,290,300 33,000 939,000 2,460,000 (30,000) 3,415,000
Issuance of common
stock, net of
issuance costs of - - 363,636 5,000 880,000 - - 885,000
$114,999
Net income - - - - 1,040,000 - 1,040,000
--------------------------------------------------------------------------------------------------------
Balance at December
31, 1995 1,310,700 13,000 3,653,936 38,000 1,819,000 3,500,000 (30,000) 5,340,000
Net income (Loss)
(unaudited) - - - - - (184,000) - (184,000)
--------------------------------------------------------------------------------------------------------
Balance at June 30,
1996 (unaudited) 1,310,700 $13,000 3,653,936 $38,000 $1,819,000 $3,316,000 $(30,000) $5,156,000
========================================================================================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
AVCOM International, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 SIX MONTHS ENDED JUNE 30
1993 1994 1995 1995 1996
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Unaudited)
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (Loss) $ 213,000 $ 921,000 $ 1,040,000 $ 587,000 $ (184,000)
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Gain on sale of notes receivable (167,000) (571,000) (566,000) (513,000) -
Deferred income taxes 1,658,000 506,000 448,000 407,000 (278,000)
Provision for doubtful accounts 251,000 371,000 792,000 282,000 719,000
Depreciation and amortization 56,000 146,000 185,000 91,000 465,000
Changes in operating assets and
liabilities:
Restricted cash - (1,026,000) 748,000 1,026,000 278,000
Receivables from related parties (382,000) (328,000) 44,000 219,000 (64,000)
Other receivables (71,000) (195,000) (240,000) (502,000) (310,000)
Resort property held for timeshare
sales 1,684,000 (1,013,000) (184,000) (1,712,000) (3,361,000)
Prepaid loan commitment fee - - - - (447,000)
Deferred marketing and selling
costs - - (719,000) - (2,438,000)
Capitalized start-up costs - - - - (775,000)
Other assets 139,000 - (200,000) (56,000) (419,000)
Accounts payable and other accrued
liabilities (402,000) 720,000 1,455,000 228,000 3,711,000
Commissions payable (463,000) 361,000 567,000 (41,000) 732,000
Amounts due to related parties 79,000 308,000 97,000 134,000 (16,000)
Deferred revenue 3,023,000
Income taxes payable 312,000 91,000 97,000 102,000 (232,000)
-------------------------------------------------------------------------
Net cash provided by operating
activities 2,907,000 291,000 3,564,000 252,000 404,000
CASH FLOWS FROM INVESTING
ACTIVITIES
Additions to notes receivable (9,472,000) (20,539,000) (26,843,000) (12,608,000) (16,024,000)
Proceeds from sales of notes
receivable 7,211,000 18,425,000 11,645,000 12,216,000 1,465,000
Collections of notes receivable 300,000 740,000 2,252,000 299,000 3,980,000
Purchases of property and equipment (236,000) (552,000) (467,000) (39,000) (772,000)
Investment in common stock - - - - (50,000)
-------------------------------------------------------------------------
Net cash used by investing
activities (2,197,000) (1,926,000) (13,413,000) (132,000) (11,401,000)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from notes payable 1,115,000 4,413,000 22,410,000 6,828,000 18,195,000
Principal payments on notes payable (1,874,000) (3,542,000) (12,301,000) (7,675,000) (9,890,000)
Proceeds from capitalized leases
payable 238,000 315,000 604,000 188,000 -
Principal payments on capitalized
leases payable (65,000) (110,000) (220,000) (103,000) (206,000)
Minority interest in limited
partnership 1,675,000
Redemptions of partners (18,000) - - - -
Payments to redeeming partners (79,000) - - - -
Purchase of treasury stock - (30,000) - - -
Issuance of common stock, net of
issuance costs 500,000 - 885,000 885,000 -
-------------------------------------------------------------------------
Net cash provided (used) by
financing activities (183,000) 1,046,000 11,378,000 123,000 9,774,000
-------------------------------------------------------------------------
Net increase (decrease) in cash 527,000 (589,000) 1,529,000 243,000 (1,223,000)
Cash, excluding restricted cash,
at beginning of period 62,000 589,000 - - 1,529,000
-------------------------------------------------------------------------
Cash, excluding restricted cash,
at end of period $ 589,000 $ - $ 1,529,000 $ 243,000 $ 306,000
=========================================================================
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Income taxes paid $ - $ 127,000 $ 367,000 $ 20,000 $ 353,000
=========================================================================
SUPPLEMENTAL DISCLOSURE OF NONCASH
ACTIVITY
Acquisition of resort property
through origination of notes
payable $ - $ 7,275,000 $ 805,000 $ 805,000 $ 10,094,000
Acquisition of office building and
land through origination of note
payable - 1,165,000 - - 2,098,000
Payment received for stock held in
escrow through forgiveness of
note payable to stockholder - 10,000 - - -
Acquisition of stock in Trion
through origination of note
payable 550,000
Acquisition of notes receivable
through origination of note
payable 1,832,000
Acquisition of equipment through
origination of capitalized leases 966,000
</TABLE>
See accompanying notes.
F-5
<PAGE>
AVCOM International, Inc.
Notes to Consolidated Financial Statements
December 31, 1995
(Information at June 30, 1996 and for the periods ended
June 30, 1995 and 1996 is unaudited)
1. Organization and Significant Accounting Policies
Organization and Business Combination
American Vacation Company, Inc., a Delaware Corporation, was incorporated on
August 16, 1993. On August 20, 1993, Cannon Time Corp. (Cannon) was merged with
and into the Company. Cannon was formed on March 16, 1988 and had not conducted
business operations since 1990. On September 27, 1993, American Vacation
Company, Inc. changed its name to AVCOM International, Inc. (Company).
Effective September 1, 1993, the Company exchanged 1,531,300 shares of common
stock and 1,310,700 shares of preferred stock for 100 percent of the partners
equity of Villashare Partners Limited Partnership (Villashare Partners) and the
common stock of its general partner, All Seasons Resorts, Inc. (formerly All
Seasons Development, Incorporated) (ASR). The merger has been accounted for as
a reverse merger with Villashare Partners as the acquirer for accounting
purposes.
On September 30, 1995, the Company purchased all of the outstanding stock of All
Seasons Properties, Inc. (ASP) and Great Western Financial, Inc. (GWFI) for
$100,000, by issuing promissory notes to the shareholders of ASP and GWFI. ASP
and GWFI were wholly-owned by the chief executive officer and the president of
the Company and had liabilities in excess of assets on an historical cost basis
of approximately $177,000 at the date of the acquisition. ASP s assets, which
aggregated approximately $580,000, consisted primarily of resort property held
for timeshare sales and timeshare notes receivable at the date of acquisition.
The acquisition has been accounted for as a purchase and the results of the
operations of ASP and GWFI are included in the Company s consolidated financial
statements from the date of acquisition.
Prior to June 20, 1995, the Company utilized one company at its projects to
provide all marketing and selling services which were paid solely on a
commission basis. The Company terminated its relationship with the marketing
company and acquired All Seasons Realty, Inc. in June 1995, for $1,000. As a
result, the Company is currently performing the selling and marketing of its
projects through All Seasons Realty, Inc. All Seasons Realty, Inc. did not have
material activity prior to the acquisition, which has been accounted for as a
purchase.
In January 1996, the Company purchased 40 percent of the common stock of Trion
Capital Corporation, the general partner of Arrowhead Capital Partners
developing North Bay Resort at Lake Arrowhead (see Note 3).
Business Activities
The Company develops resort properties for timeshare sales, finances ownership
interests in such properties, and manages the operations of the resort
properties and their related homeowners associations. The Company s capital
requirements related to the development of future projects and the financing of
notes receivables have been and will continue to be significant. In addition,
the Company s level of general and
F-6
<PAGE>
AVCOM International, Inc.
Notes to Consolidated Financial Statements
1. Organization and Significant Accounting Policies (continued)
administrative costs is based on the level of sales and development activity
which occurred in 1995 and which is anticipated in 1996. Further, the Company
has and will continue to incur initial start-up sales and marketing costs in
anticipation of future projects and transactions. To date, the Company has been
substantially dependent upon loans from banks and private lenders and the sale
or pledge of notes receivable to finance its developments and operations. The
Company will be required to seek significant amounts of additional debt and/or
equity capital to continue to finance or sell its notes receivable, develop its
proposed projects and carry the current level of overhead. There is no assurance
that the Company can continue to obtain adequate financing from lenders for its
financing or sale of notes receivable or its project developments and operations
if and when required, or on terms acceptable to the Company.
In the event the Company is unsuccessful in obtaining additional funds necessary
for these purposes, management may need to take steps to continue to operate
within the available cash flow. Such steps may include, among others,
postponement or abandonment of certain timeshare projects and transactions,
reduction of general and administrative costs, or reduction of selling and
marketing costs.
Principles of Consolidation
The consolidated financial statements include the accounts of AVCOM
International, Inc. and its wholly-owned subsidiaries and a majority owned
limited partnership. All significant intercompany transactions and balances
have been eliminated in consolidation. Investments in joint ventures and the
Company s investment in 40 percent of the common stock of Trion Capital
Corporation are accounted for on the equity method.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
These estimates and assumptions include expected default rates on notes
receivable, resale value of the timeshare interests received through
foreclosure, total construction and other costs to develop projects and the
resulting cost per interval, and recoverability of costs incurred on projects,
particularly those projects which are in the early stages. Actual results
could differ from those estimates.
F-7
<PAGE>
AVCOM International, Inc.
Notes to Consolidated Financial Statements
1. Organization and Significant Accounting Policies (continued)
Resort Property Held for Timeshare sales and Underdevelopment
Resort property held for timeshare sales and under development is recorded at
historical cost less amounts charged to cost of sales for timeshare sales. As
timeshare interests are sold, the Company amortizes to cost of sales the average
carrying cost of the respective timeshare interest, which includes an estimate
of future completion costs related to remodeling and/or construction. Timeshare
interests received in exchange for timeshare interests in property which were
not developed by the Company are recorded at the fair value of the timeshare
interest received. Timeshare interests received in exchange for timeshare
interests at properties developed by the Company or through foreclosure are
recorded at the average carrying cost of timeshare interests for the related
project, which management believes approximates fair value.
In addition to direct construction costs, interest and indirect product costs
are capitalized as part of the cost of the property during the periods of
qualifying activities. Indirect product costs include the allocation of certain
payroll and administrative costs attributed to personnel directly involved with
the development and construction of the respective properties and estimated
subsidies of the homeowners association related to the property.
Recognition of Revenue
Generally, timeshare interests are sold under contracts which provide a cash
down payment and a deferred payment balance evidenced by a promissory note
secured by a deed of trust or mortgage on the timeshare interest. Sales of
timeshare interests are recognized using the percentage of completion method
after a binding sales contract has been executed, a 10 percent minimum down
payment has been received, and certain minimum sales and construction levels
have been obtained. Under the percentage of completion method, the portion of
revenue applicable to costs incurred, as compared to total estimated development
costs, is recognized in the period of sale. Sales which do not meet these
criteria are deferred using the deposit method.
Until a contract for sale qualifies for revenue recognition, all payments
received are accounted for as deposits. Commissions and other selling costs,
attributable to the sale, are deferred until the sale is recorded. If a
contract is canceled before qualifying as a sale, nonrecoverable selling
expenses are charged to expense and deposits forfeited are credited to income.
The deferred revenue resulting from the percentage of completion method was
approximately $80,000, $0 and $2,852,000 at December 31, 1994 and 1995, and June
30, 1996, respectively.
Timeshare management revenue represents daily room rentals and fees for
management of the resorts. Such revenues are net of amounts due to timeshare
interval owners, if any, and are recorded as the rooms are rented or the
services are performed.
Health club initiation fees are deferred and amortized to revenue over three
years.
F-8
<PAGE>
AVCOM International, Inc.
Notes to Consolidated Financial Statements
1. Organization and Significant Accounting Policies (continued)
The present value of the difference between the stated interest rate of notes
receivable sold and the yield to the purchaser (interest rate differential) is
recognized as a gain at the time the notes receivable are sold, less an
allowance for estimated prepayments and notes receivable repurchased pursuant to
the recourse provisions.
Allowances for Losses
The Company provides for losses on notes receivable, including notes receivable
owned by the Company and notes sold with recourse, by a charge against earnings
at the time of sale, at a rate based on historical default experience.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation and
amortization. Depreciation and amortization are calculated using the straight-
line method based on the following estimated lives:
Equipment 5 years
Furniture and fixtures 7 years
Building improvements 10 years
Buildings 40 years
Income Taxes
Prior to the merger, Villashare Partners was taxed as a partnership.
Accordingly, Villashare Partners did not pay federal or state income taxes on
its income. Instead, the partners were liable for individual federal and state
income taxes based on their respective partnership interests.
On September 1, 1993, the assets, liabilities and operations of Villashare
Partners were transferred to ASR as a result of the merger. Deferred income
taxes were established at that time for temporary differences between the
financial reporting basis and the tax basis of the assets and liabilities.
The Company follows Statement of Financial Accounting Standard No. 109
"Accounting for Income Taxes," which uses the liability method in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax basis of
assets and liabilities, and are measured using the enacted tax rates and laws
that will be in effect when differences are expected to reverse.
F-9
<PAGE>
AVCOM International, Inc.
Notes to Consolidated Financial Statements
1. Organization and Significant Accounting Policies (continued)
Capitalized Start-Up Costs
It is the Company's policy to capitalize as start-up costs all marketing and
selling expenses incurred at new resort projects up to sixty days after sales
begin. Capitalized start-up costs are then amortized over one year.
Advertising Expense
The cost of advertising is expensed as incurred. The Company did not incur any
significant amounts of advertising costs during the years ended December 31,
1993, 1994 and 1995, and the six months ended June 30, 1995 and 1996,
respectively.
Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees with
an exercise price equal to the fair value of the shares at the date of grant.
The Company accounts for stock option grants in accordance with APB Opinion No.
25, Accounting for Stock Issued to Employees, and, accordingly, recognizes no
compensation expense for the stock option grants.
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, which provides an alternative to APB Opinion No. 25 in accounting
for stock-based compensation issued to employees. Statement No. 123 allows for
a fair value based method of accounting for employee stock options and similar
equity instruments. The Company applies the recognition and measurement
provisions of APB Opinion No. 25 to all employee stock options and similar
equity instruments awarded after December 31, 1995.
Fair Value of Financial Instruments
The carrying value of cash, receivables, and accounts payable and other accrued
liabilities approximate fair value due to the short-term nature of these assets
and liabilities. The fair value of notes receivable held with a carrying value
of $15,357,000 is approximately $15,900,000 at December 31, 1995. The fair
value of debt approximates its carrying value since the current rates reflect
the rates at which the Company could borrow funds with similar maturities.
Concentration of Credit Risks
Most of the Company s notes receivable held and notes receivable sold on a
recourse basis originated from sales of timeshare interests of Tahoe Beach and
Ski Club in Lake Tahoe, California, Sedona Springs Resort, Villas of Sedona or
Villas at Poco Diablo resorts in Sedona, Arizona. The sales have been primarily
made to residents of California and Arizona. The Company performs credit
evaluations prior to timeshare sales. The timeshare deed of trust serves as
collateral on the note receivable.
F-10
<PAGE>
AVCOM International, Inc.
Notes to Consolidated Financial Statements
1. Organization and Significant Accounting Policies (continued)
The Company s development of timeshare projects through June 30, 1996 has been
limited to Sedona, Arizona, Lake Tahoe, California and Houston, Texas. This
lack of geographic diversification results in a high correlation between the
profitability of such operations and the local market, economy and legislative
conditions of such locations and generally the states of Arizona, California and
Texas.While management of the Company intends to expand operations and to engage
in timeshare development projects at other locations, there is no assurance that
significant geographic diversification of the timeshare operations can be
achieved.
Earnings (Loss) Per Share and Pro Forma Earnings Per Share
Earnings (loss) per share for the years ended December 31, 1994 and 1995 and the
six months ended June 30, 1995 and 1996 is based on net income (loss), adjusted
for cumulative and unpaid dividends on convertible preferred stock, and on the
outstanding weighted average shares (less treasury shares), common stock
equivalents and convertible preferred stock outstanding. Common stock held in
escrow has been considered to be outstanding and stock options are considered
common stock equivalents. Common Stock equivalents, which are antidilutive,
were not included in the computation of the net loss per share for the six
months ended June 30, 1996.
Pro forma earnings per share for the year ended December 31, 1993 gives effect
to the reorganization, as if it occurred at the beginning of the period and is
based on income before income taxes, adjusted for cumulative and unpaid
dividends on convertible preferred stock and adjusted for a pro forma income tax
provision at the rate of 40 percent, and on the outstanding weighted average
shares (less treasury stock), common stock equivalents and convertible preferred
stock.
Impact of Recently Issued Accounting Standards
In March 1995, the FASB issued Statement of Financial Accounting Standards No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets carrying amount. Statement No. 121 also addresses the
accounting for long-lived assets that are expected to be disposed of, including
resort property held for timeshare sales. The Company adopted Statement No.
121 in 1996 which did not have a material effect.
Interim Financial Information
The financial information at June 30, 1996 and for the six month periods ended
June 30, 1995 and 1996 is unaudited, but includes all adjustments (consisting
only of normal recurring adjustments) that the Company considered necessary for
a fair presentation of the financial information set forth therein, in
accordance with generally accepted accounting principles. The results for the
six months ended June 30, 1996 are not considered indicative of the results to
be expected for any future period or for the entire year.
Reclassifications
Certain prior year amounts in the consolidated financial statements have been
reclassified to conform them to the current year presentation.
2. Notes Receivable
F-11
<PAGE>
AVCOM International, Inc.
Notes to Consolidated Financial Statements
Notes receivable consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
1994 1995 1996
------------------------------------------
<S> <C> <C> <C>
Timeshare notes receivable $2,751,000 $15,357,000 $27,549,000
Holdbacks on notes receivable sold 3,177,000 3,197,000 2,852,000
Accrued interest rate differential 678,000 921,000 823,000
Other notes receivable - 202,000 252,000
------------------------------------------
6,606,000 19,677,000 31,476,000
Less allowance for possible losses (667,000) (1,018,000) (1,125,000)
------------------------------------------
$5,939,000 $18,659,000 $30,351,000
==========================================
</TABLE>
Notes receivable from the sale of timeshare interests bear interest at annual
rates ranging generally from 9.9 percent to 14.9 percent and have terms of
generally seven years. The notes are collateralized by first deeds of trust on
the timeshare interests sold.
The Company has outstanding commitments under which the Company may sell its
notes receivable under certain terms and conditions. At June 30, 1996, the
remaining commitments aggregated approximately $4,100,000, expiring primarily in
1996. In connection with one commitment, Fletcher Financial, Inc. (Fletcher
Financial), which is owned by one of the stockholders of the Company (see Note
9), has guaranteed $5,000,000 of notes receivable sold. In exchange, therefore,
the Company has agreed to share 50 percent of the interest rate differential
with Fletcher Financial resulting from the sale of these notes receivable.
The Company s obligations pursuant to these agreements are generally guaranteed
by the Company s president and chief executive officer, and are secured by the
related holdbacks. The commitments also contain various restrictive financial
covenants which the Company must meet. Among the most restrictive are covenants
prohibiting the payment of dividends and requiring the maintenance of at least
$3,000,000 of tangible net worth and no more than a 15-to-1 debt-to-equity
ratio.
The agreements which provide for sales of the notes receivable are on a recourse
basis with a percentage (generally 10 percent) of the amount sold held back by
the purchaser as additional collateral, which is released to the Company as the
notes receivable are paid down. The Company is paid interest on the holdback at
generally a money market rate. At December 31, 1994 and 1995 and June 30, 1996,
the Company had approximately $32,844,000, $32,449,000 and $28,561,000,
respectively, of outstanding notes receivable sold on a recourse basis.
F-12
<PAGE>
AVCOM International, Inc.
Notes to Consolidated Financial Statements
2. Notes Receivable (continued)
The activity in the allowance for possible losses consisted of the following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
1993 1994 1995 1995 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning of period $ 300,000 $ 300,000 $ 667,000 $ 667,000 $ 1,018,000
Provisions 251,000 371,000 792,000 282,000 719,000
Charge offs (251,000) (4,000) (441,000) (277,000) (612,000)
----------------------------------------------------------------
Balance, end of period $ 300,000 $ 667,000 $1,018,000 $ 672,000 $ 1,125,000
================================================================
</TABLE>
3. RESORT PROPERTY HELD FOR TIMESHARE SALES AND UNDER DEVELOPMENT
Resort property held for timeshare sales and under development consists
of the following projects:
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
1994 1995 1996
--------------------------------------------
<S> <C> <C> <C>
Held for timeshares sales:
Villas of Sedona/ Poco Diablo $ 458,000 $ 301,000 $ 277,000
Sedona Springs Resort 1,287,000 233,000 107,000
Tahoe Beach & Ski Club 7,635,000 6,367,000 5,635,000
Villas on The Lake - 56,000 2,341,000
Other 91,000 573,000 490,000
Tahoe Seasons - - 316,000
Under development:
Scottsdale Villa Mirage Resort 238,000 1,095,000 4,558,000
Sedona Summit - 1,220,000 2,742,000
Park Plaza Resort 833,000 833,000 836,000
Sedona Golf Resort - 62,000 4,470,000
Tunlii - 61,000 2,334,000
Other 101,000 26,000 176,000
--------------------------------------------
$10,643,000 $ 10,827,000 $24,282,000
============================================
</TABLE>
Completed Developments
The Villas at Poco Diablo and Villas of Sedona resorts are 33-unit and 40-unit
townhouse projects, respectively, located in Sedona, Arizona.
Sales were substantially complete at the Villas at Poco Diablo in October 1992
and at Villas of Sedona in June 1994. The current balance consists of timeshare
interests available for sale that were received in trade for timeshare interests
at other developments of the Company.
F-13
<PAGE>
AVCOM International, Inc.
Notes to Consolidated Financial Statements
3. Resort Property Held for Timeshare Sales and Under Development (continued)
Sedona Springs Resort. Sedona Springs Resort (Sedona Springs) is a 40-unit
resort located in Sedona, Arizona adjacent to the Villas of Sedona resort. Sales
at the project began in 1994 and were substantially completed in January 1996.
Current Developments
Tahoe Beach & Ski Club. The Tahoe Beach & Ski Club is located in South Lake
Tahoe, California and was purchased in March 1994 for approximately $6,400,000.
The project includes a total of 140 units of which 110 were renovated as
timeshare units at the date acquired. Renovation of the remaining 30 units was
completed in April 1996. At the time of purchase by the Company, 4,533 timeshare
interests related to the 110 renovated units of the resort had been sold. As
part of the purchase, the Company acquired approximately $9,245,000 of notes
receivable related to these prior sales, which were concurrently resold.
Further, the Company provided approximately $875,000 to the homeowners
association for reserves for current and future renovation and refurbishing,
which was recorded as part of the acquisition cost.
Under Development
Scottsdale Villa Mirage Resort. The Scottsdale Villa Mirage Resort is a planned
176 unit resort located in Scottsdale, Arizona. The Company entered into an
agreement with Desert Princess Resort L.L.C. (Princess) to develop the project
for the Company in three phases of 64, 48, and 64 units, respectively. The
Company has a construction loan commitment for $4,350,000 and a take-out
commitment for $8,800,000. Construction of phase one and sales began in March
1996.
The Company had advanced approximately $1,000,000 as of December 31, 1995 in
construction and development costs and in January 1996 paid an additional
$1,600,000 to pay off prior encumbrances. The Company purchased on February 28,
1996 substantially all of the outstanding interests in Princess for a total of
$550,000. The purchase price consists of $285,000 paid at closing, and a note
payable of $265,000 payable in 12 monthly installments.
Princess has a construction contract for Phase I of $8,389,000 and for Phases II
and III of $9,563,000. The construction contractor has a right to $500,000 of
the profits, as defined, and the construction lender has a right to 15% of the
profits, as defined.
Park Plaza Resort. In October 1993, the Company acquired the timeshare
development rights for approximately 195 units in South Lake Tahoe. The project
is a component of a major area redevelopment program sponsored in part by the
South Lake Tahoe Redevelopment Agency (Agency). The purchase price is
$2,500,000, of which the Company has made a deposit of $750,000 and the balance
of $1,750,000 is due upon issuance of certain building permits. The Company is
required to pay a developers fee to be determined
F-14
<PAGE>
AVCOM International, Inc.
Notes to Consolidated Financial Statements
3. Resort Property Held for Timeshare Sales and Under Development (continued)
by the Agency, but not to exceed $1,500,000. Of the Company s deposit, $250,000
is nonrefundable. In the event that the Company does not secure the necessary
permits, the balance of the remaining deposit of $500,000 which has not been
otherwise spent by the seller toward development of the project would be
refunded. The seller has a right to 9% of the gross project sales as additional
acquisition consideration. The Company entered into negotiations during August
1996 for termination of this agreement and the recovery of its advances and does
not anticipate proceeding with this project.
Sedona Summit. In May, 1995, the Company purchased approximately three acres in
Sedona, Arizona for $1,067,000, which is planned for development of 26 timeshare
units. The Company made additional payments of $52,000 through December 31,
1995 and $52,000 thereafter, which does not apply toward the purchase price.
Additionally, the Company purchased in May 1996 an adjacent parcel consisting of
approximately four acres for $1,220,000, which is planned for development of 34
timeshare units. Development of the property includes the start-up and
operation of a private waste water treatment facility, which has been leased by
the Company. The start-up costs of the waste water treatment facility is
estimated at approximately $30,000.
The Company is developing the property through an affiliated entity, Sedona
Summit Development Limited Partnership (SSDLP), which was formed on May 1, 1996
and ASR is the sole general partner. The activities of SSDLP are consolidated
in the financial statements. SSDLP sold limited partnership interests in March
1996 of approximately $1,500,000 representing a 99% ownership interest. The
Company has secured a revolving construction loan of $2,500,000 which has been
guaranteed by SSDLP for the development of the project. The Company has
contracted to purchase completed units in phases from SSDLP for an aggregate of
$14,084,000. Sales and construction commenced in February 1996.
Tahoe Seasons Resort. In February 1996, the Company acquired a portfolio of
1,057 non-performing timeshare receivables generated from the sale of timeshare
interests at Tahoe Seasons Resort in South Lake Tahoe, California. The purchase
price of $1,548,000 was funded by a loan. The Company has also agreed to
purchase other receivables generated from sales at Tahoe Seasons Resort that
subsequently become delinquent. The Company will convert non-performing loans
into timeshare interest inventory which will be sold by the Company s marketing
group at Lake Tahoe.
Villas on the Lake. In February 1996, the Company acquired an existing
condominium project in Lake Conroe, Texas for $1,860,000. The project consists
of 37 completed units and existing approvals and land for the construction of 48
additional units. The Company obtained a $2,400,000 loan for acquisition and
renovation of the project. Renovation of existing units began in February 1996
and sales commenced in June 1996.
F-15
<PAGE>
AVCOM International, Inc.
Notes to Consolidated Financial Statements
FUTURE DEVELOPMENTS
The Ridge on Sedona Golf Resort. In October 1995, the Company entered into a
purchase agreement to acquire an approximately 12 acre parcel in Sedona, Arizona
for $5,500,000, including the Ridge Spa & Racquet Club, an existing, though
inactive facility. The Company anticipates developing the property into a 120
unit timeshare resort in phases. The Company closed this transaction in
February 1996 with a $1,000,000 cash payment and notes payable of $700,000 due
on March 15, 1996 which was paid, and $500,000 due on October 31, 1996. The
remaining purchase price of $3,300,000 is payable in quarterly installments of
principal and interest of $79,800 with the balance due in February 1999. The
Company obtained a short-term loan of $1,307,000 to fund the acquisition
payment.
Main Street Pier. The Company entered into a letter of intent in November 1995
whereby the Company agreed to purchase 80 condominium units located in
Huntington Beach, California for a total cost not to exceed $17,176,000. The
seller is to acquire the property and construct the condominium units. The
Company has deposited $50,000 earnest money in escrow. An additional $450,000 is
due in increments upon the occurrence of certain events anticipated to occur
before October 1996. The Company has also agreed to advance to the seller out-
of-pocket "soft costs" of the project up to $300,000. All advances and deposits
will be credited toward the final purchase price of the condominium units. The
Company plans to commence off-site sales of timeshare interest at the Huntington
Beach site from its other projects in advance of construction of the
condominiums.
Tunlii (formerly known as Cherry Creek Country Club). In February 1996, the
Company acquired a 68.4 acre parcel of land in Camp Verde, Arizona,
approximately 100 miles north of Phoenix. This parcel is contiguous to a 127
acre tract owned by an independent party with cooperative intent to jointly
develop the properties. At the same time, the Company contracted to purchase an
additional 99.2 acres and 263 acres adjacent to the development parcels. The
purchase of the 99.2 acre tract closed in May 1996. The acquisition cost of the
68.4 acres and the 99.2 acres was $547,000 and $843,000, respectively, which
includes seller financing of $447,000 and $632,000, respectively. The 263 acre
tract is under contract for $790,000 with an earnest money deposit of $40,000,
and seller financing of $552,000.
During March 1996, the Company entered into a limited liability company
operating agreement (LLC) with the independent land owner whereby the respective
parties will contribute their respective land holdings (approximately 557 acres)
and liabilities related to this project into a limited liability company in
exchange for an 82.5% and 17.5% ownership, respectively. During September 1996,
the LLC entered into a sale agreement for the bulk sale of the LLC's land
holdings contingent upon certain land use approvals being obtained. The LLC
Operating Agreement provides for a 76.5% and 23.5% allocation, respectively, in
the event of a bulk sale.
F-16
<PAGE>
AVCOM International, Inc.
Notes to Consolidated Financial Statements
3. RESORT PROPERTY HELD FOR TIMESHARE SALES AND UNDER DEVELOPMENT (CONTINUED)
North Bay Resort at Lake Arrowhead. The North Bay Resort at Lake Arrowhead,
located in San Bernadino County, California, is the first "affiliated property"
of the Company. The Company entered into a series of agreements in January 1996
whereby the Company provided guarantees for $12,650,000 of the developer s
financing for a fee of $450,000 (evidenced by a note payable), received a right
of first refusal to offer timeshare receivable financing to the developer after
expiration of the developer s present $10,000,000 financing commitment, received
an option to assume property management for the project s homeowners association
and purchased a 40% equity position in the corporate general partner of the
developer partnership. The equity position was acquired for $600,000, of which
$550,000 is financed by a note payable due in installments of $150,000 in May
1996 (which has been paid) and $400,000 in January 1998. The proposed project
contemplates the consolidation of two adjacent developments. One development
consists of two completed condominium buildings converted to timeshare use and
additional undeveloped land. The second parcel consists of a combination of
three existing condominium buildings in various stages of construction and pads
for two additional condominium buildings. The developer has been provided with
a $2,650,000 construction and operating loan commitment and a $10,000,000
commitment for timeshare receivable financing from a financing company, subject
to operational involvement and financial guarantees of the Company.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
1994 1995 1996
----------------------------------------
<S> <C> <C> <C>
Land and building $1,200,000 $1,200,000 $3,403,000
Building improvements 172,000 430,000 948,000
Computer equipment 335,000 464,000 888,000
Office equipment, furniture and fixtures 306,000 330,000 977,000
Sales center 104,000 91,000 135,000
---------------------------------------
2,117,000 2,515,000 6,351,000
Accumulated depreciation and
amortization (211,000) (327,000) (556,000)
---------------------------------------
$1,906,000 $2,188,000 $5,795,000
========================================
</TABLE>
F-17
<PAGE>
AVCOM International, Inc.
Notes to Consolidated Financial Statements
5. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
Term Notes 1994 1995 1996
--------------------------------------
<S> <C> <C> <C>
Warehouse note payable secured by
timeshare notes receivable,
interest at LIBOR plus 3 percent,
personally guaranteed by the
president and chief executive
officer. $ - $12,277,000 $24,153,000
Notes payable secured by unsold
timeshare interests and common
area of Tahoe Beach & Ski Club:
Interest at 13.5 percent, payable
through a release price of the
greater of 10 percent of the
selling price of the timeshare
interest or $1,200, plus 5
percent of net profits, as
defined, due in April 1997. 2,246,000 1,408,000 1,046,000
Interest at 10 percent payable
monthly, principal payable at the
greater of 13 percent of the
selling price of the timeshare
interest or $1,200, balance due
in March 1997, personally
guaranteed by the president and
the chief executive officer,
subordinate to the 13.5 percent
note payable. 3,677,000 1,921,000 1,115,000
Construction notes payable,
secured by unsold timeshare
interests and common area of
Sedona Springs, principal payable
by release prices of $2,375 per
annual sale and $1,188 per
biannual sale, interest at the
prime rate (8.8 percent at
December 31, 1995) plus 3.5
percent payable monthly, due
April, 1996. The loan is
guaranteed by the president and
chief executive officer. 1,654,000 174,000 -
</TABLE>
F-18
<PAGE>
AVCOM International, Inc.
Notes to Consolidated Financial Statements
5. NOTES PAYABLE (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
1994 1995 1996
---------------------------------
<S> <C> <C> <C>
Notes payable, secured by deed of
trust on Sedona Summit land:
Interest at 15.0 percent, monthly
installments of interest only,
due June , 1996. - 307,000 -
Interest of 13.0 percent,
quarterly installments of
interest only, due June, 1996. - 500,000 -
Unsecured note payable, interest
at 5 percent, due in equal
monthly principal and interest
installments of $1,946, due June,
1997. - 33,000 22,000
Convertible subordinated note
payable, monthly installments of
interest only, interest at 9.0
percent, convertible into 310,000
shares of common stock at $3 per
share. On April 30, 1996, the
Company paid down the principal
balance to $580,000 and received
an extension until August 31,
1996. As part of the extension
agreement, interest changed to
$10,000 per month. An additional
extension was granted until
December 31, 1996 when a
principal payment of $94,000 was
made in September, 1996 and
$86,000 is due in December, 1996.
The remaining $400,000 principal
balance shall be converted into
310,000 shares of the Company s
common stock. - 930,000 580,000
Note payable, secured by office
building, interest at 8.5
percent, due in equal monthly
principal and interest
installments of $8,112, balance
due March, 2001. 1,054,000 1,046,000 1,043,000
Note payable, secured by unsold
timeshare interests, principal
payable by release price of
$1,000 per timeshare interval
sold, and monthly installments of
interest only, interest at 17.5
percent. - 185,000 146,000
</TABLE>
F-19
<PAGE>
AVCOM International, Inc.
Notes to Consolidated Financial Statements
5. NOTES PAYABLE (CONTINUED)
DECEMBER 31 JUNE 30
1994 1995 1996
-----------------------------
Unsecured note payable with
Fletcher Financial, Inc.,
interest at 20.0 percent due
monthly, principal due December
1996, personally guaranteed by
the president and chief executive
officer. 650,000 650,000 650,000
Unsecured notes payable to chief
executive officer and president,
interest at 12.5 percent, due
September 2000. - 100,000 100,000
Note payable to Glaser Capital,
interest at prime plus 1 percent,
paid January 1995. 500,000 - -
Note payable, secured by office
building, interest at 12.0
percent, due in equal monthly
principal and interest
installments of $8,239, balance
due January, 1999. - - 796,000
Note payable secured by stock in
Trion Capital Corporation,
interest at 10.0 percent,
interest payable in quarterly
installments. Principal balance
due January, 1998. - - 400,000
Note payable secured by deed of
trust, interest at 15.0 percent,
principal installments of $16,000
plus interest due monthly,
principal balance due July, 1997. - - 985,000
Note payable secured by deed of
trust, interest at 9.0 percent,
principal payment of $500,000
plus accrued and unpaid interest
due August, 1996 thereafter
interest and principal
installments of $79,774 due
quarterly, balance due May, 1999. - - 3,800,000
Note payable secured by deed of
trust, due in monthly principal
payments of $4,500 plus interest
at 9.0 percent, balance due
March, 2001. - - 444,000
5. NOTES PAYABLE (CONTINUED)
F-20
<PAGE>
AVCOM International, Inc.
Notes to Consolidated Financial Statements
DECEMBER 31 JUNE 30
1994 1995 1996
-----------------------------
Construction note payable, secured
by unsold timeshare interests and
common area of Scottsdale Villa
Mirage, principal payable by
release price, interest at prime
rate (8.5 percent at June 30,
1996) plus 3 percent payable
monthly, due April, 1997. - - 869,000
Construction note payable, secured
by unsold timeshare interests and
common area of Sedona Summit,
principal payable by release
price, interest at prime (8.5
percent at June 30, 1996) plus 3
percent payable monthly, due
September, 1997. - - 1,045,000
Note payable, secured by unsold
timeshare interests, principal payable
by release price, interest at prime
plus 4.5 percent payable monthly, due
February, 1999. - - 1,681,000
Note payable secured by deed of trust,
due in monthly installments of $5,000
including interest at 10.0 percent,
balance due February, 1997. - - 185,000
Other 231,000 - -
Notes payable secured by deed of
trust on Tunlii land:
Interest at 8.0 percent,
monthly installments of
principal and interest of
$6,052. $315,000 due December
15, 2000 and remaining balance
due January, 2001. - - 629,000
F-21
<PAGE>
AVCOM International, Inc.
Notes to Consolidated Financial Statements
5. NOTES PAYABLE (CONTINUED)
DECEMBER 31 JUNE 30
1994 1995 1996
---------------------------------------
Interest at 6.8 percent,
quarterly installments of
$9,320, due June, 1999. - - 552,000
Note payable secured by deed of
trust on Sedona Golf Resort land,
interest at 15.0 percent, monthly
installments of principal and
interest of $4,952, due April,
1997. - - 306,000
Note payable secured by deed of
trust and lien on real property
and improvements, due in monthly
installments of principal and
interest at prime rate (8.5
percent at June 30, 1996) plus
2.5 percent, balance due August,
1997. - - 1,830,000
---------------------------------------
Total term notes 10,012,000 19,531,000 42,377,000
Demand Notes
Subordinated notes payable secured
by notes receivable from sales of
timeshare interests, interest
ranging from 12.5 percent to 15.5
percent:
Stockholders, due on demand 1,557,000 1,742,000 1,776,000
Others, due on demand or five
years from origination 1,013,000 1,356,000 1,355,000
Notes payable, secured by a
collateral assignment of
beneficial interest, monthly
installments of interest only,
interest at 15 percent, due on 60
day demand or June 1998. - 63,000 63,000
---------------------------------------
$12,582,000 $22,692,000 $45,571,000
=======================================
F-22
<PAGE>
AVCOM International, Inc.
Notes to Consolidated Financial Statements
5. NOTES PAYABLE (CONTINUED)
The warehouse loan agreement provides for borrowings up to an aggregate of
$25,000,000 and in September 1996 it was increased to $40,000,000 and was
extended to September 1997. The Company has an additional warehouse line of
credit available up to an aggregate of $5,000,000 which is unused at June 30,
1996. These loan agreements and certain other of the notes payable contain
various restrictive covenants prohibiting the payment of dividends and requiring
the maintenance of at least $3,000,000 of tangible net worth and no more than a
15-to-1 debt to equity ratio.
The following is a schedule by year of principal payments of the term notes
payable as of December 31, 1995 and June 30, 1996:
December 31, JUNE 30,
1995 1996
(unaudited)
------------ ------------
1996 $16,988,000 $27,500,000
1997 1,416,000 7,227,000
1998 10,000 1,098,000
1999 11,000 4,521,000
2000 and thereafter 1,106,000 2,031,000
----------------------------
Total term notes $19,531,000 $42,377,000
============================
Interest and finance costs capitalized and expensed for the years ended December
31 and for the six months ended June 30, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
1993 1994 1995 1995 1996
-----------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Capitalized, beginning of period
$ 142,000 $ 227,000 $ 508,000 $ 508,000 $ 597,000
Capitalized 411,000 755,000 745,000 551,000 539,000
Expensed as cost of sales (326,000) (474,000) (656,000) (185,000) (340,000)
-----------------------------------------------------------
Capitalized, end of period $ 227,000 $ 508,000 $ 597,000 $ 874,000 $ 796,000
===========================================================
</TABLE>
Interest and finance costs paid aggregated $766,000, $1,406,000 and $2,563,000
during the years ended December 31, 1993, 1994 and 1995, respectively and
$1,357,000 and $2,359,000 for the six months ended June 30, 1995 and 1996,
respectively. Included in interest and finance costs paid is interest paid to
related parties of $128,000, $192,000, and $232,000 for the years ended December
31, 1993, 1994 and 1995, respectively and $131,000 and $120,000 for the six
months ended June 30, 1995 and 1996, respectively.
F-23
<PAGE>
AVCOM International, Inc.
Notes to Consolidated Financial Statements
6. Income Taxes
The income tax provision consists of the following:
YEARS ENDED DECEMBER 31
1993 1994 1995
---------------------------------
Current
Federal $ 262,000 $183,000 $360,000
State 50,000 6,000 30,000
Deferred
Federal 1,409,000 430,000 381,000
State 249,000 76,000 67,000
---------------------------------
$1,970,000 $695,000 $838,000
=================================
A reconciliation of the provision for income taxes with the expected income
taxes based on the statutory federal and state income tax rate is as follows:
YEAR ENDED DECEMBER 31
1993 1994 1995
---------------------------------
Expected federal income tax
provision $ 743,000 $549,000 $639,000
State income taxes 131,000 97,000 113,000
Other 95,000 49,000 86,000
Establishment of deferred tax
liability at September 1, 1993 1,380,000 - -
Reduction in allowance (40,000) - -
Villashare Partners Limited
Partnership income taxed to
partners (339,000) - -
---------------------------------
$1,970,000 $695,000 $838,000
=================================
F-24
<PAGE>
AVCOM International, Inc.
Notes to Consolidated Financial Statements
6. INCOME TAXES (CONTINUED)
The net deferred tax liability results from the tax effects of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes are shown below:
DECEMBER 31
1994 1995
------------------------
Deferred tax assets
Allowance for losses $ 267,000 $ 407,000
Net operating loss carryforward 514,000 1,383,000
Prepaid interest 182,000 62,000
Uniform capitalization costs 94,000 94,000
Credit carryforwards 319,000 592,000
------------------------
Total deferred tax assets 1,376,000 2,538,000
------------------------
Deferred tax liabilities
Other 368,000 371,000
Percentage of completion 271,000 -
Deferred sales expense - 304,000
Interest rate differential 272,000 368,000
Installment sales 2,161,000 3,879,000
Cash to accrual adjustment 480,000 240,000
------------------------
Total deferred tax liabilities 3,552,000 5,162,000
------------------------
Net deferred tax liability $2,176,000 $2,624,000
========================
At December 31, 1995, the Company has a minimum tax credit carryforward of
approximately $592,000 for income tax purposes available to offset future income
taxes payable to the extent regular income taxes payable exceeds alternative
minimum taxes payable. Minimum tax credits can be carried forward indefinitely.
The Company has a net operating loss carryforward at December 31, 1995 of
approximately $3,211,000 for state and federal income tax purposes. The state
net operating loss carryforward will begin to expire in 1999 and the federal net
operating loss carryforward will begin to expire in 2009.
F-25
<PAGE>
AVCOM International, Inc.
Notes to Consolidated Financial Statements
7. Leases
Capital Leases
The Company leases furnishings and equipment under capital leases with a cost of
approximately $284,000, $470,000 and $1,350,000 at December 31, 1994 and 1995
and June 30, 1996, respectively, and accumulated amortization of approximately
$48,000, $119,000 and $187,000, respectively, and such amounts are included with
property and equipment. The amortization of the costs of the furnishings and
equipment is included with depreciation expense.
The Company also leases furniture and equipment under capital leases which it
subleases to the homeowner associations at the projects under financing leases.
The balance of the lease receivables from the homeowners associations are
included in receivables from related parties and were $275,000, $675,000 and
$514,000 at December 31, 1994 and 1995 and June 30, 1996, respectively.
The following is a schedule by year of future minimum lease payments under the
capital leases together with the present value of the payments as of June 30,
1996.
1996 $ 353,000
1997 647,000
1998 478,000
1999 234,000
2000 116,000
2001 14,000
------------
Total minimum lease payments 1,842,000
Less interest (321,000)
------------
Present value of net minimum
lease payments $1,521,000
============
The scheduled future sublease receivables related to the furniture and equipment
subleased to the homeowners associations approximates the following at June 30,
1996 (including interest of $152,000): 1996 - $63,000; 1997- $153,000; 1998 -
$153,000; 1999 - $153,000; and 2000 and thereafter $144,000. These sublease
receivables vary in amount from the future minimum lease payments under the
capital leases as the result of differing lease maturities and lease
commencement dates.
7. LEASES (CONTINUED)
F-26
<PAGE>
AVCOM International, Inc.
Notes to Consolidated Financial Statements
OPERATING LEASES
The Company leases offices and equipment under operating leases expiring at
various dates through 2001. Future minimum annual rental payments required
under operating leases with initial or remaining noncancelable terms of one year
or more consisted of the following at June 30, 1996:
1996 $ 273,000
1997 367,000
1998 339,000
1999 207,000
2000 50,000
2001 6,000
----------
$1,242,000
==========
Total rental expense, including short-term rentals, was approximately $35,000,
$167,000, and $279,000, for the years ended December 31, 1993 1994, and 1995,
respectively and $138,000 and $540,000 for the six months ended June 30, 1995
and 1996.
8. STOCKHOLDERS EQUITY
COMMON STOCK
The Company has 10,000,000 shares of $.01 par value common stock authorized, of
which 3,653,936 are outstanding at December 31, 1995, including 12,000 shares
held as treasury stock. On all matters voted upon by stockholders, each
outstanding share of common stock is entitled to one vote. No dividends may be
declared on the common stock unless all cumulative dividends on preferred stock
have been declared and paid as of the declaration date. The terms of certain of
the agreements for the sale or financing of notes receivable prohibit payment of
dividends (see Note 2). Substantially all of the Company s operations and
assets are held by its wholly-owned subsidiary ASR, which is also prohibited
from paying dividends by virtue of these agreements.
In connection with the stock exchange discussed in Note 1, 500,000 shares of
common stock issued to Sangar Investment Company, L.L.C. (jointly owned by the
chief executive officer and the president) and 65,000 shares issued to an
individual are subject to the terms of an escrow agreement which provides that
the shares are to be released upon the Company attaining earnings per share on a
fully diluted basis of at least $0.20. If the shares are not released prior to
December 31, 2000, the shares shall be redeemed by the Company at $0.02 per
share.
During 1993, the Company issued 400,000 shares of common stock pursuant to Rule
504 of Regulation D for $1.25 per share.
F-27
<PAGE>
AVCOM International, Inc.
Notes to Consolidated Financial Statements
8. STOCKHOLDERS EQUITY (CONTINUED)
During 1994, the Company repurchased 12,000 shares of its common stock, to be
held as treasury stock, from stockholders for $30,000.
In January 1995, the Company issued 363,636 shares of common stock pursuant to
Rule 504 of Regulation D at $2.75 per share for net proceeds of approximately
$885,000.
CONVERTIBLE PREFERRED STOCK
The Company has 1,400,000 shares of convertible preferred stock authorized of
which 1,310,700 shares are issued and outstanding at December 31, 1995 and June
30, 1996. The preferred stock may be issued by action of the board of directors
without further shareholder approval. Holders of preferred stock do not have
preemptive rights. Each share of preferred stock is entitled to one vote on all
matters submitted to a vote of shareholders, including the election of
directors. The holders of the preferred stock also vote and must approve as a
class any material changes to the Company s articles of incorporation or to the
rights and preferences of the preferred stock. Dividends may be paid to the
holders of preferred stock out of funds legally available for dividends when and
if declared by the board of directors. Each share of preferred stock is
entitled to a cumulative dividend of $.08 per share per annum, which shall be
declared and paid before any dividend is payable to holders of the common stock.
The $.08 dividend shall accrue on July 1, 1994 and each July 1/st/ thereafter.
In the event of a liquidation, dissolution or winding-up of the affairs of the
Company, the holders of the preferred stock will be entitled to receive $1.00
per share plus all accrued but unpaid dividends before any liquidation proceeds
are distributed to the holders of any other class of Company stock. The
preferred stock is convertible into common stock as a class, by affirmative vote
of the holders of 66.67 percent of the preferred stock, on a one-for-one basis,
subject to adjustment for stock dividends, stock splits, mergers and similar
changes of the Company s capital structure. The Company has no obligation to
pay accrued but unpaid dividends on the shares of preferred stock converted.
The accumulated but unpaid and undeclared dividends on preferred stock was
$210,000 at December 31, 1995 and $263,000 at June 30, 1996. The terms of
certain of the agreements for the sale or financing of notes receivable prohibit
payment of dividends (see Note 2).
STOCK OPTIONS
In connection with the merger with Cannon described in Note 1, the Company
issued an option to purchase up to 350,000 shares of common stock with an
exercise price of $.02 per share to an individual. The option is currently
exercisable and expires August 1998. The option (or the common stock received
upon exercise of the option) vests and becomes nonforfeitable if the common
stock trades in a public market for at least $4.00 for 120 consecutive trading
days prior to the expiration date. If the option is exercised prior to vesting
and the vesting criteria is not met prior to the expiration date of the option,
the shares issued upon exercise of the option shall be repurchased by the
Company for $0.02 per share. The option has not vested and has not been
exercised as of June 30, 1996. The Company has made a claim against the
individual for cancellation of the 371,500 outstanding shares of common stock
held by the individual and of this option
F-28
<PAGE>
AVCOM International, Inc.
Notes to Consolidated Financial Statements
8. STOCKHOLDERS EQUITY (CONTINUED)
(see Note 10) which, if successful, would reduce the number of outstanding
shares and impact the calculation of earnings per share.
The Company granted 100,000 options on January 5, 1995 to an employee to
purchase common stock at $2.75 per share exercisable for up to 10 years.
Although the options are immediately exercisable, the employee is restricted
from selling any shares in 1995 and shares in excess of 25,000 in 1996. No
options have been exercised as of June 30, 1996.
Effective October 1, 1995, the Company s Board of Directors adopted a non-
statutory stock option plan and an incentive stock option plan under a single
stock option plan (Stock Option Plan). The Stock Option Plan was approved by
the stockholders in June 1996. Under the terms of the Stock Option Plan, both
qualified incentive stock options (ISOs) and non-qualified stock options may be
granted. ISOs may be granted to the officers and key personnel of the Company.
Non-qualified stock options may be granted to the Company s directors and key
personnel, and to providers of various services to the Company.
Under the Stock Option Plan, options to purchase a maximum of 750,000 shares of
the Company s common stock may be granted. The exercise price for any option
granted under the Stock Option Plan may not be less than 100% (110% if the
option is granted to a stockholder who at the time the option is granted owns
stock comprising more than 10% of the total combined voting power of all classes
of stock of the Company) of the fair market value of the common stock at the
time the option is granted. The option holder may pay the exercise price in
cash or by delivery of previously acquired shares of common stock of the
Company. Each option granted must terminate no more than 10 years from the date
it is granted.
The Stock Option Plan will terminate in September 2005, but any option granted
thereunder will continue throughout the terms of such option.
Pursuant to the Stock Option Plan, 250,000 options were issued on December 19,
1995 at an exercise price of $3.44, and vest ratably over five years. No
options had been exercised through June 30, 1996.
9. Related Party Transactions
At December 31, 1994, ASP owed the Company $454,000 in advances, including
accrued interest, to facilitate resale of timeshare interests which is included
in receivables from related parties. At December 31, 1994, the Company owed the
executive officers of ASP $78,000, included in amounts due to related parties,
and $130,000 included in notes payable to stockholders relating to the issuance
of subordinated notes payable (see Note 5).
As discussed in Note 1, the Company purchased all of the outstanding stock of
ASP and GWFI on September 30, 1995 from the chief executive officer and the
president of the Company. The Company
F-29
<PAGE>
AVCOM International, Inc.
Notes to Consolidated Financial Statements
9. RELATED PARTY TRANSACTIONS (CONTINUED)
received commissions of $37,000 from ASP through September 30, 1995 related to
the sale of ASP timeshare interests.
Fletcher Financial, a company owned by one of the stockholders of the Company,
has guaranteed up to $5,000,000 of timeshare notes receivable sold (see Note 2).
In addition, Fletcher Financial has an unsecured note payable (see Note 5).
The Company provides management services to the homeowners associations of its
developments. Certain officers of the Company are members of the board of
directors and officers of the homeowners associations. The homeowners
associations board of directors is responsible for presenting the annual budget
to each homeowners association and supervising the daily operations of each
resort. The Company has provided covenants in its debt agreements and note
receivable sale and financing agreements that it will support the operations of
the homeowners associations, if required, until substantially sold-out. The
Company has receivables, including lease receivables (Note 7), from the
homeowners association of $280,000, $675,000 and $514,000 at December 31, 1994
and 1995 and June 30, 1996, respectively, and payables of $309,000, $484,000 and
$277,000, respectively, included in receivables from and amounts due to related
parties.
10. Contingencies
The stockholders approved the removal of one of the Company s directors in
February 1995. The Company has initiated litigation against this former
director and Cannon for damages and rescission of the merger of Cannon into the
Company based upon breach of contract, fraud, securities fraud and violations of
the Arizona Racketeering Act. The director has filed a counter-claim alleging
defamation, interference with business relations, breach of contract and
indemnification.
The Company is a defendant in several lawsuits filed by its former marketing
company, Success Marketing, Inc. (Success). On June 20, 1995 Success gave the
Company notice of termination of their sales agreement. On August 3, 1995
Success filed suit and made demand for arbitration alleging breach of contract,
loss of compensation, failure to negotiate in good faith and promissory fraud.
Success seeks contract and punitive damages. The suit is a result of a prior
marketing and sales agreement between the parties and negotiations of a new
agreement which was not consummated. The Company is vigorously defending these
actions and has filed counterclaims. The Company has withheld commissions
related to sales prior to termination of the sales agreement and has paid
various costs subsequent to termination of the sales agreement which it believes
are recoverable through offset against the commissions and has established a
receivable. The ultimate resolution of this commission payable and receivable
is dependent upon the resolution of the litigation.
The Company is a defendant in other litigation arising in the course of the
operations. Management intends to vigorously defend these and the foregoing
actions and does not believe such lawsuits will have a material effect on the
Company's consolidated financial position, results or operations or cash flows.
F-30
<PAGE>
AVCOM International, Inc.
Notes to Consolidated Financial Statements
11. Defined Contribution Plan
The Company adopted a 401(k) defined contribution plan (Plan) covering all
employees who elect to participant in the Plan effective January 1, 1995. Each
participant may make pretax contributions to the Plan up to 10 percent of such
participant s earnings with a maximum of approximately $9,240 in 1995.
12. Subsequent Event
The Company received an extension and modification of the warehouse loan
agreement (Note 5) on July 1, 1996. The loan was extended to August 13, 1996
and the aggregate maximum amount of advances was increased to $28,000,000. The
loan was further modified as discussed in Note 5.
F-31
<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-32
<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-33
<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-34
<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-35
<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-36
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
------------------------ -------------------------
1994 1995 1995 1996
----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents... $ 1,854,572 $ 4,341,591 $ 3,140,087 $ 4,208,130
Cash in escrow.............. 2,427,190 1,945,856 1,049,712 1,158,606
Mortgages receivable, net of
an allowance of $1,570,886
and $2,433,361 at December
31, 1994 and 1995,
respectively, $2,459,252
and $2,714,498 at June 30,
1995 and 1996,
respectively............... 33,437,116 68,255,778 55,266,879 76,958,751
Due from affiliates......... -- 2,700,820 270,817 3,038,987
Other receivables, net...... 1,019,673 6,383,134 1,829,801 5,292,482
Prepaid expenses and other
assets..................... 1,676,348 2,125,118 1,306,204 1,903,931
Investment in joint
venture.................... 4,293,525 2,644,449 3,275,471 2,581,567
Real estate and development
costs...................... 33,452,751 46,757,151 31,938,689 73,705,265
Property and equipment,
net........................ 437,092 1,863,579 1,650,661 2,331,919
Intangible assets, net...... 3,856,571 4,223,834 4,015,545 4,461,352
----------- ------------ ------------ ------------
Total assets................ $82,454,838 $141,241,310 $103,743,866 $175,640,990
=========== ============ ============ ============
LIABILITIES AND EQUITY
Accounts payable............ $ 1,190,072 $ 4,599,000 $ 735,200 $ 8,152,493
Accrued liabilities......... 5,931,911 12,010,938 13,103,371 8,717,443
Due to affiliates........... 138,245 1,422,098 213,249 831,220
Notes payable to financial
institutions............... 34,439,558 72,395,704 45,208,896 89,718,091
Notes payable to related
parties.................... 9,975,454 12,343,518 11,124,608 23,771,948
----------- ------------ ------------ ------------
Total liabilities........... 51,675,240 102,771,258 70,385,324 131,191,195
Commitment..................
Equity...................... 30,779,598 38,470,052 33,358,542 44,449,795
----------- ------------ ------------ ------------
Total liabilities and
equity..................... $82,454,838 $141,241,310 $103,743,866 $175,640,990
=========== ============ ============ ============
</TABLE>
See accompanying notes to the combined financial statements.
F-37
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED JUNE 30
----------------------------------- -----------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Interval sales.......... $22,237,812 $40,269,401 $59,070,917 $28,798,744 $28,753,881
Interest income......... 1,825,483 3,683,302 6,928,862 2,920,778 4,201,915
Other income............ 372,697 337,487 6,607,999 639,958 5,975,052
----------- ----------- ----------- ----------- -----------
Total revenues.......... 24,435,992 44,290,190 72,607,778 32,359,480 38,930,848
COSTS AND OPERATING
EXPENSES
Interval cost of sales.. 5,707,542 12,393,647 15,649,805 8,260,182 6,802,918
Advertising, sales, and
marketing.............. 10,808,680 18,744,828 28,488,178 14,247,580 14,730,314
Loan portfolio:
Interest expense--
treasury............. 673,706 1,629,283 3,585,927 1,584,778 2,491,143
Other expenses........ 208,258 850,661 1,188,502 436,820 659,020
Provision for doubtful
accounts............. 618,650 923,129 1,786,811 920,508 688,132
General and
administrative:
Resort-level.......... 2,346,043 2,863,833 4,946,525 1,443,035 3,019,353
Corporate............. 877,134 874,137 1,607,413 653,114 1,603,718
Depreciation and
amortization........... 384,470 489,160 1,675,515 741,887 1,109,210
Interest expense--
other.................. 518,612 958,628 475,693 182,771 1,346,615
Equity loss on
investment in joint
venture................ -- 271,475 1,649,076 1,018,054 62,882
----------- ----------- ----------- ----------- -----------
Total costs and
operating expenses..... 22,143,095 39,998,781 61,053,445 29,488,729 32,513,305
----------- ----------- ----------- ----------- -----------
Net income before
taxes.................. 2,292,897 4,291,409 11,554,333 2,870,751 6,417,543
Income taxes............ -- -- 641,545 -- 53,287
----------- ----------- ----------- ----------- -----------
Net income.............. $ 2,292,897 $ 4,291,409 $10,912,788 $ 2,870,751 $ 6,364,256
=========== =========== =========== =========== ===========
PRO FORMA INCOME DATA
(UNAUDITED)
Net income before
taxes.................. $ 2,292,897 $ 4,291,409 $11,554,333 $ 2,870,751 $ 6,417,543
Pro forma provision for
income taxes........... 878,966 1,617,913 4,348,822 1,084,120 2,434,358
----------- ----------- ----------- ----------- -----------
Pro forma net income.... $ 1,413,931 $ 2,673,496 $ 7,205,511 $ 1,786,631 $ 3,983,185
=========== =========== =========== =========== ===========
Pro forma net income per
common share........... -- -- $ 0.63 -- $ 0.35
Pro forma weighted
average common shares
outstanding............ -- -- 11,354,705 -- 11,354,705
</TABLE>
See accompanying notes to the combined financial statements.
F-38
<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.......... -- -- -- 4,000 -- -- 4,000
Distributions.......... -- -- -- (388,513) -- -- (388,513)
Net income............. -- -- 1,464,203 3,187,949 (73,613) 1,785,717 6,364,256
--- -------- ---------- ----------- ---------- ----------- -----------
Balance at June 30,
1996................... 200 $177,000 $3,899,541 $ 1,370,821 $4,102,731 $34,899,702 $44,449,795
=== ======== ========== =========== ========== =========== ===========
</TABLE>
See accompanying notes to the combined financial statements.
F-39
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED JUNE 30
---------------------------------------- --------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.............. $ 2,292,897 $ 4,291,409 $ 10,912,788 $ 2,870,751 $ 6,364,256
Adjustments to reconcile
net income to net cash
(used in) provided by
operating activities:
Depreciation and
amortization.......... 384,470 489,160 1,675,515 741,887 1,109,210
Provision for bad debt
expense............... 618,650 923,129 1,786,811 460,254 688,132
Equity loss on
investment in joint
venture............... -- 271,475 1,649,076 1,018,054 62,882
Changes in operating
assets and
liabilities:
Cash in escrow....... (413,591) (1,484,501) 481,334 1,377,478 787,250
Due from affiliates.. -- -- (2,700,820) (270,817) (338,167)
Prepaid expenses and
other assets........ (642,680) (1,033,668) (448,770) 370,144 221,187
Real estate and
development costs... (7,270,978) (17,671,125) (13,304,400) 1,514,062 (26,948,114)
Other receivables.... (87,870) (549,041) (5,363,461) (810,128) 1,090,652
Accounts payable..... 358,896 24,486 3,408,928 (454,872) 3,553,493
Accrued liabilities.. 1,451,996 3,682,475 6,079,027 7,171,460 (3,293,495)
Due to affiliates.... 45,730 92,515 1,283,853 75,004 (590,878)
------------ ------------ ------------ ------------ ------------
Net cash (used in)
provided by operating
activities............. (3,262,480) (10,963,686) 5,459,881 14,063,277 (17,293,592)
INVESTING ACTIVITIES
Expenditures for
investment in joint
venture................ -- (4,565,000) -- -- --
Expenditures for
property and
equipment.............. (255,156) (221,248) (1,764,253) (1,646,354) (593,075)
Expenditures for
intangible assets...... (722,923) (3,146,546) (1,705,012) (468,076) (1,221,993)
Mortgages receivable.... (9,797,740) (17,007,472) (36,605,473) (22,290,017) (9,391,105)
------------ ------------ ------------ ------------ ------------
Net cash used in
investing activities... (10,775,819) (24,940,266) (40,074,738) (24,404,447) (11,206,173)
FINANCING ACTIVITIES
Proceeds from notes
payable................ 16,478,302 35,266,249 71,062,122 26,983,627 40,792,878
Payments on notes
payable................ (7,591,261) (16,358,188) (33,105,976) (16,214,289) (23,470,491)
Proceeds from notes
payable to related
parties................ 6,120,971 5,145,454 3,711,005 1,992,095 12,269,930
Payments on notes
payable to related
parties................ (1,773,209) (2,569,224) (1,342,941) (842,941) (841,500)
Equity contributions.... 2,501,900 15,519,997 1,208,133 621,312 4,000
Equity distributions.... (395,378) (870,000) (4,430,467) (913,119) (388,513)
------------ ------------ ------------ ------------ ------------
Net cash provided by
financing activities... 15,341,325 36,134,288 37,101,876 11,626,685 28,366,304
Net increase (decrease)
in cash and cash
equivalents............ 1,303,026 230,336 2,487,019 1,285,515 (133,461)
Cash and cash
equivalents, beginning
of period.............. 321,210 1,624,236 1,854,572 1,854,572 4,341,591
------------ ------------ ------------ ------------ ------------
Cash and cash
equivalents, end of
period................. $ 1,624,236 $ 1,854,572 $ 4,341,591 $ 3,140,087 $ 4,208,130
============ ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION
Cash paid during the
period for interest.... $ 1,352,000 $ 3,646,117 $ 5,413,502 $ 2,843,039 $ 4,729,859
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to the combined financial statements.
F-40
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. NATURE OF BUSINESS
Signature Resorts, Inc. and its combined affiliates (the Company) are
comprised of certain entities under common control. The Company generates
revenues from the sale and financing of timeshare interests in its resorts,
which typically entitle the owner to use a fully furnished vacation resort in
perpetuity, typically for a one-week period each year (each, a Vacation
Interval). The Company's principal operations consist of (1) developing and
acquiring vacation ownership resorts, (2) marketing and selling Vacation
Intervals at its resorts, (3) providing consumer financing for the purchase of
Vacation Intervals at its resorts, and (4) managing the operations of its
resorts. The entities comprising the combined Company consist of entities with
ownership interest in a resort property, entities providing services to a
resort property, and other entities not related to a particular resort
property. At December 31, 1995, the entities comprising the combined
affiliates are as follows:
<TABLE>
<CAPTION>
RESORT PROPERTY DATE ACQUIRED/OPENED
--------------- --------------------
<C> <S> <C>
Signature Resorts, Inc.
Cypress Pointe Resorts, L.P. Cypress Pointe Resort November 1992
Vacation Ownership Marketing Company Cypress Pointe Resort November 1992
Fall Creek Resort, L.P. Plantation at Fall Creek July 1993
Vacation Resort Marketing of Missouri,
Inc. Plantation at Fall Creek July 1993
Port Royal Resort, L.P. Royal Dunes Resort April 1994
Grand Beach Resort, Limited Embassy Vacation Resort
Partnership Grand Beach January 1995
Resort Marketing International-- Embassy Vacation Resort
Orlando Grand Beach January 1995
AKGI-Royal Palm, C.V.o.a. Royal Palm Beach Club July 1995
AKGI-Flamingo, C.V.o.a. Flamingo Beach Club August 1995
Premier Resort Management, Inc.
Resort Telephone & Cable of Orlando,
Inc.
USA Vacation Investors, L.P.
Kabushiki Gaisha Kei, LLC
Argosy/KOAR Group, Inc.
</TABLE>
For the year ended December 31, 1994, AKGI-Royal Palm, C.V.o.a., AKGI-
Flamingo, C.V.o.a., Premier Resort Management, Inc., Resort Telephone & Cable
of Orlando, Inc., USA Vacation Investors, L.P., Argosy/KOAR Group, Inc. and
Kabushiki Gaisha Kei, LLC had not been formed and, accordingly, did not form
part of the combined 1994 financial statements. For the year ended December
31, 1993, Grand Beach Resort, Limited Partnership, and Vacation Resort
Marketing of Missouri, Inc. had not been formed and, accordingly, did not form
part of the combined 1993 financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination
The combined financial statements include the accounts of Signature Resorts,
Inc. and the companies listed in Note 1, which are wholly-owned by common
interests. All significant intercompany transactions and balances have been
eliminated from these combined financial statements.
Quarterly Financial Statements
The unaudited quarterly combined financial statements at June 30, 1995 and
1996 and for the six months ended June 30, 1995 and 1996 do not include all
disclosures provided in the annual combined financial statements. These
quarterly statements should be read in conjunction with the accompanying
annual audited combined financial statements and the footnotes thereto.
Results for the 1996 quarterly period are not necessarily
F-41
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
indicative of the results to be expected for the year ending December 31,
1996. However, the accompanying quarterly financial statements reflect all
adjustments which are, in the opinion of management, of a normal and recurring
nature necessary for a fair presentation of the financial position and results
of operations of the Company. Unless otherwise stated, all information
subsequent to December 31, 1995 is unaudited.
Cash and Cash Equivalents
Cash and cash equivalents consist of all highly liquid investments purchased
with an original maturity of three months or less. Cash and cash equivalents
consist of cash and money market funds.
Cash in Escrow
Cash in escrow is restricted cash consisting of deposits received on sales
of Vacation Intervals that are held in escrow until a certificate of occupancy
is obtained or the legal recission period has expired.
Real Estate and Development Costs
Real estate is valued at the lower of cost or net realizable value.
Development costs include both hard and soft construction costs and together
with real estate costs are allocated to Vacation Intervals based upon their
relative sales values. Interest, taxes, and other carrying costs incurred
during the construction period are capitalized. The amount of interest
capitalized during 1994 and 1995 was $2,040,544 and $2,088,382, respectively.
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company adopted Statement 121
in the first quarter of 1996 and there has been no material impact on the
Company's operations or financial position.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful life of 3 to 7 years.
Depreciation and amortization expense related to property and equipment was
$25,562, $59,710 and $337,765 in 1993, 1994, and 1995, respectively. For the
six months ended June 30, 1995 and 1996, depreciation and amortization expense
was $432,785 and $124,735, respectively.
Intangible Assets
Start-up costs and organizational costs incurred in connection with the
formation of the Company have been capitalized and are being amortized on a
straight-line basis over a period of one year. Start-up costs relate to costs
incurred to develop a marketing program prior to receiving regulatory approval
to market the related property.
Financing and loan origination fees incurred in connection with obtaining
funding for the Company have been capitalized and are being amortized on a
straight-line basis over the life of the respective loans.
Revenue Recognition
The Company recognizes sales of Vacation Intervals on an accrual basis after
a binding sales contract has been executed, a 10% minimum down payment has
been received, the recision period has expired, construction is substantially
complete, and certain minimum sales levels have been achieved. If all the
criteria are met except that construction is not substantially complete, then
revenues are recognized on the percentage-of-completion
F-42
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(cost to cost) basis. For sales that do not qualify for either accrual or
percentage-of-completion accounting, all revenue is deferred using the deposit
method.
Revenues from resort management and maintenance services are recognized on
an accrual basis as earned.
Income Taxes
The Company and its combined affiliates include entities taxed as regular
corporations at the corporate level, as S corporations taxable at the
shareholder level, or as partnerships taxable at the partner level.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. ACCOUNTS RECEIVABLE
The Company has accrued insurance claims as a result of hurricane damage to
the Royal Palm and Flamingo properties in St. Maarten of $3.8 million at
December 31, 1995. The receivable consists of property insurance claims of
$1.8 million and business interruption insurance claims of $2 million. The
Company has submitted additional claims above the $2.0 million accrued for
business interruption insurance and is in negotiations regarding these claims.
4. MORTGAGES RECEIVABLE
The Company provides financing to the purchasers of Vacation Intervals which
are collateralized by their interest in such Vacation Intervals. The mortgages
receivable bear interest at the time of issuance of between 12% and 17% and
remain fixed over the term of the loan, which is seven to ten years. The
weighted average rate of interest on outstanding mortgages receivable is 15%.
At December 31, 1994 and 1995, mortgages in the amount of $823,251 and
$1,796,060, respectively, are noninterest bearing. These mortgages have not
been discounted as management has determined that the effect would not be
material on the combined financial statements.
Additionally, the Company has accrued interest receivable related to
mortgages receivable of $415,127 and $860,776 at December 31, 1994 and 1995,
respectively, and $552,768 and $1,065,114 at June 30, 1995 and June 30, 1996,
respectively. The accrued interest receivable at December 31, 1995 and June
30, 1996 is net of an allowance for doubtful accounts of $151,201 and
$200,891, respectively.
The following schedule reflects the principal maturities of mortgages
receivable:
<TABLE>
<S> <C>
Year ended December 31:
1996...................................................... $ 6,347,717
1997...................................................... 7,230,664
1998...................................................... 8,422,516
1999...................................................... 9,778,920
2000...................................................... 11,315,961
Thereafter................................................ 27,593,361
-----------
Total principal maturities of mortgages receivable........ 70,689,139
Less allowance for doubtful accounts...................... (2,433,361)
-----------
Net principal maturities of mortgages receivable.......... $68,255,778
===========
</TABLE>
The Company considers all mortgages receivable past due more than 60 days to
be delinquent. At December 31, 1995, $4,670,000 of mortgages receivable were
delinquent.
At December 31, 1995, the Company estimated that $1,560,000 of additional
costs would be incurred related to Vacation Intervals sold or Vacation
Intervals currently available for sale. Obligations related to such
improvements are insignificant.
F-43
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The activity in the mortgages receivable allowance for doubtful accounts is
as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
----------------------
1994 1995 1995 1996
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance, beginning of the
period........................ $ 798,441 $1,570,886 $1,570,886 $2,433,361
Provision...................... 923,129 1,786,811 920,508 688,132
Receivables charged off........ (150,684) (924,336) (32,142) (406,995)
---------- ---------- ---------- ----------
Balance, end of the period..... $1,570,886 $2,433,361 $2,459,252 $2,714,498
========== ========== ========== ==========
</TABLE>
5. REAL ESTATE AND DEVELOPMENT COSTS
Real estate and development costs and accumulated cost of sales consist of
the following:
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
-------------------------- --------------------------
1994 1995 1995 1996
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Land.................... $ 18,102,052 $ 19,734,459 $ 18,252,019 $ 21,293,881
Development costs, ex-
cluding capitalized
interest............... 33,718,050 57,969,594 39,368,099 88,801,956
Capitalized interest.... 2,730,363 5,300,400 4,279,538 6,471,875
------------ ------------ ------------ ------------
Total real estate and
development costs...... 54,550,465 83,004,453 61,899,656 116,567,712
Less accumulated cost of
sales.................. (21,097,714) (36,247,302) (29,960,967) (42,862,447)
------------ ------------ ------------ ------------
Net real estate and de-
velopment costs........ $ 33,452,751 $ 46,757,151 $ 31,938,689 $ 73,705,265
============ ============ ============ ============
</TABLE>
F-44
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. INVESTMENT IN JOINT VENTURE
The Company is the managing general partner of the Poipu Partnership, the
partnership which directly owns the Embassy Vacation Resort at Poipu Point, a
venture that acquired a 219 unit condominium project situated on 22 acres of
oceanfront land at Koloa, Kauai, Hawaii (the "Property"). The sole purpose of
the venture is to hold the Property for sale in phases as Vacation Intervals
while generating revenues from transient rentals as the Vacation Intervals are
being sold. As managing general partner, the Company holds a 0.5% partnership
interest for purposes of distributions, profits and losses. The Company is
also a limited partner of the Poipu Partnership and holds a 29.93% partnership
interest for purposes of distributions, profits and losses, for a total
partnership interest of 30.43%. In addition, following repayment of any
outstanding partner loans, the Company is entitled to receive a 10% per annum
return on the Founders' and certain former limited partners' initial capital
investment of approximately $4.6 million in the Poipu Partnership. After
payment of such preferred return and the return of approximately $4.6 million
of capital to the Company on a pari passu basis with the other partner in the
partnership, the Company is entitled to receive approximately 50% of the net
profits of the Poipu Partnership. In the event certain internal rates of
return specified under the partnership agreement are achieved, the Company is
entitled to receive approximately 55% of the net profits of the Poipu
Partnership.
Summarized financial information as of December 31 relating to the Company's
investment is as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Mortgages receivable........................................ $ -- $ 3,474
Timeshare inventory......................................... -- 3,248
Net property and equipment.................................. 42,188 39,287
Total assets................................................ 45,553 50,696
Notes payable............................................... 30,300 35,494
Advances from partners...................................... -- 4,000
Partners' capital........................................... 14,108 8,688
Revenues.................................................... 491 10,119
Net loss.................................................... 892 5,419
</TABLE>
7. INTANGIBLE ASSETS
Intangible assets and accumulated amortization consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
----------------------- ------------------------
1994 1995 1995 1996
---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Organizational costs........ $3,200,510 $ 3,884,581 $ 3,384,338 $ 4,332,426
Start-up costs.............. 538,364 713,319 672,837 1,170,173
Loan origination fees....... 349,380 522,378 499,380 522,378
Financing fees.............. 698,229 1,444,242 894,413 1,517,914
---------- ----------- ----------- -----------
Total intangible assets..... 4,786,483 6,564,520 5,450,968 7,542,891
Less accumulated
amortization............... (929,912) (2,340,686) (1,435,423) (3,081,539)
---------- ----------- ----------- -----------
Net intangible assets....... $3,856,571 $ 4,223,834 $ 4,015,545 $ 4,461,352
========== =========== =========== ===========
</TABLE>
Amortization expense related to intangible assets was $358,908, $429,450,
and $1,337,750 in 1993, 1994 and 1995, respectively. For the six months ended
June 30, 1995 and 1996, amortization expense was $309,102 and $984,475,
respectively.
F-45
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
8. NOTES PAYABLE
Notes payable to financial institutions consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
----------------------- -----------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Construction loans payable not
to exceed $53 million in the
aggregate, interest payable
monthly at prime plus 2%
(10.5% and 10.65% at December
31, 1994 and 1995,
respectively, and 11% and
10.25% at June 30, 1995 and
1996, respectively),
principal and all accrued
interest due on dates ranging
from February 1996 to May
1998, collateralized by
substantially all the assets
of the certain combined
entities..................... $ 4,573,849 $ 9,267,391 $ 4,540,795 $13,573,841
Construction and acquisition
loan payable, due October
31,1998 with interest payable
monthly at LIBOR plus 4.25%
(9.94% at December 31, 1995
and 10.38% and 9.75% at June
30, 1995 and 1996,
respectively), secured by
land, improvements and
timeshare interests.......... -- 1,897,716 619,034 2,418,228
Revolving lines of credit not
to exceed $145 million in the
aggregate (limited by
eligible collateral), with
interest payable monthly at
rates ranging from prime plus
2% to prime plus 3% (10.5% to
11.5% and 10.65% to 11.65% at
December 31, 1994 and 1995,
respectively, and 11% to 12%
and 10.25% to 11.25% at
June 30, 1995 and 1996,
respectively), payable in
monthly installments of
principal and interest equal
to 100% of all proceeds of
the receivables collateral
collected during the month
but not less than the accrued
interest, with any remaining
principal due seven to ten
years after the date of the
last advance related to
mortgages receivable,
collateralized by specific
mortgages receivable......... 19,357,724 37,858,352 26,132,002 44,555,029
Revolving line of credit of
$10 million, collateralized
by certain mortgages
receivable with interest
payable at LIBOR plus 4.25%
(9.94% at December 31, 1995
and 10.38% and 9.75% at
June 30, 1995 and 1996,
respectively), payable in
monthly installments of
principal and interest equal
to 100% of all proceeds of
the receivables collateral
collected during the month
but not less than the accrued
interest, with any remaining
principal due
October 31, 2003............. -- 1,571,070 3,218,000 3,064,278
</TABLE>
F-46
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
----------------------- -----------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revolving line of credit of
$15 million, with interest
payable at prime plus 2.5%
(11% and 11.5% at
December 31, 1994 and June
30, 1995, respectively), and
prime plus 2% (10.65% and
10.75% at December 31, 1995
and June 30, 1996,
respectively), secured by
specific mortgages
receivable, due ten years
after the date on which the
last advance related to the
mortgages receivable is made. $ 2,287,245 $ 4,058,306 $ 4,079,688 $ 3,655,013
Revolving line of credit of
$6.0 million, with interest
payable at prime plus 3%
(11.65% and 11.25% at
December 31, 1995 and June
30, 1996, respectively),
maturing seven years after
the date of the last advance,
secured by mortgages
receivable................... -- 3,873,513 -- 3,249,659
Working capital loan payable,
due September 30, 1995, with
interest payable monthly at
prime plus 2.5% (11% and
11.5% at December 31, 1994
and June 30, 1995,
respectively), secured by
time-share interests and with
total borrowings allowable of
$2,425,000................... 1,046,080 -- -- --
Working capital notes payable
of $5.5 million, with
interest payable at rates
ranging from prime plus 2% to
prime plus 2.5%, (10.65% to
11.15% at December 31, 1995),
due on dates ranging from
July 1997 to November 1997,
collateralized by certain
mortgage receivables......... -- 521,397 -- --
Acquisition loans payable of
$9.85 million, with interest
payable at prime plus 3%
(11.65% and 11.25% at
December 31, 1995 and June
30, 1996, respectively), due
on dates ranging from January
1998 to April 1998, payable
with a portion of the
proceeds received on the sale
of Vacation Intervals,
collateralized by specific
mortgages receivable......... -- 5,998,283 -- 7,012,650
Acquisition/construction loan
payable of $9 million, with
interest payable at prime
plus 2% (10.25% at June 30,
1996), due by June 13, 1999,
payable with a portion of the
proceeds received on the sale
of Vacation Intervals........ -- -- -- 2,576,545
Land loan payable of $2.3
million, $1.8 million with
interest payable at 18% and
$0.5 million at a 0% interest
rate, payable with a portion
of the proceeds received on
the sale of Vacation
Intervals.................... -- -- -- 2,300,000
Land purchase obligation at
the Fall Creek Plantation
property (see note 9 for
further discussion).......... -- 1,500,000 -- 714,535
Noninterest bearing purchase
money mortgage note, payable
in annual installments of $2
million with final payment
due November 5, 1997, net of
a discount of $825,340 and
$411,577 at December 31, 1994
and 1995, respectively....... 7,174,660 5,588,423 6,500,000 5,000,000
Other notes payable........... -- 261,253 119,377 1,598,313
----------- ----------- ----------- -----------
Total notes payable........... $34,439,558 $72,395,704 $45,208,896 $89,718,091
=========== =========== =========== ===========
</TABLE>
F-47
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Under the terms of the revolving lines of credit agreements, the Company may
borrow from 85% to 90% of the balances of the pledged mortgages receivable. Of
the aggregate of $97 million borrowings available under these certain
agreements, the borrowing capacity expires seven to ten years after the date
on which the last advance related to mortgages receivable was executed.
Of the aggregate of $25 million available in construction loans payable,
$2.1 million of availability expires on February 28, 1996, $5.9 million
expires on March 31, 1996, $2.8 million expires on January 31, 1997,
$8.0 million expires January 14, 1998, $6.2 million expires on May 9, 1998,
and $28 million expires on April 30, 2000.
The loans contain certain covenants, the most restrictive of which requires
certain of the combined affiliates to maintain a minimum net worth, as defined
in the related loan agreement. In addition, the loan agreements contain
certain covenants restricting distributions to partners and additional
borrowings. At December 31, 1995, $18.4 million of equity was specifically
restricted from payment of distributions.
At December 31, 1995, contractual maturities of mortgages and other notes
payable over the next five years and thereafter, excluding first mortgage
notes payable and revolving lines of credit totaling $54,859,524 as these
amounts are payable based on established release prices or from excess cash
flows related to certain timesharing week sales, are as follows:
<TABLE>
Due in fiscal year
<S> <C>
1996....................................................... $ 8,906,686
1997....................................................... 4,886,527
1998....................................................... 3,655,080
1999....................................................... 29,129
2000....................................................... 32,227
Thereafter................................................. 26,531
-----------
$17,536,180
===========
</TABLE>
9. LAND PURCHASE AGREEMENT AND RELATED DEBT
The Company has entered into an agreement to purchase approximately 140
acres of land (the Property) at its Fall Creek Resort in Branson, Missouri,
upon which it intends to construct Vacation Intervals. The property is to be
acquired in four phases in four separate closings at a total purchase price of
$6 million. The first closing has occurred with the Company acquiring the land
for its first stage of development for $2 million. The second closing will
occur upon the settlement of a noninterest bearing land purchase obligation of
$1.5 million which will be paid as units are sold. The Company has the right
but not the obligation to acquire the other two phases under similar land
purchase obligations totaling $2.5 million.
10. RELATED-PARTY TRANSACTIONS
The Company has accrued $652,164 and $1,418,022 as a receivable and payable,
respectively, at December 31, 1995 with the condominium associations of the
various resorts. The related party payable to the condominium associations at
December 31, 1995 included $1,029,900 of a special assessment fee charged to
the Company. At December 31, 1994, the Company had accrued a payable of
$138,245 to the various condominium associations of the resorts. At June 30,
1995 and 1996, the Company has accrued a receivable of $26,641 and $1,682,437
and a payable of $158,445 and $815,536, respectively.
The Company has recorded a receivable of $1,153,829 and $120,697 from AKGI
Ski Run and AKGI San Luis Bay, properties to be acquired by the Company,
respectively, at December 31, 1995 for start-up costs at the properties
incurred by the Company.
F-48
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
In May of 1996 the Company purchased the land at Lake Tahoe (AKGI Ski Run)
for $8,715,382. The Company also purchased 1,018 Vacation Intervals, land and
defaulted promissory notes of the San Luis Bay Inn for $2,854,000 in June
1996.
Included in due from affiliates at December 31, 1995 and June 30, 1996 is
approximately $310,000 and $1,356,600 respectively, relating to expenses paid
on behalf of related parties to be subsequently reimbursed.
The Company also made payments of $925,122 and $295,011 during the twelve
months ended December 31, 1994 and 1995, respectively, to Sevelex Consultants,
Inc., an affiliate of the Company, for construction consulting and expense
reimbursement. For the six months ended June 30, 1995 and 1996, payments of
$261,782 and $-0-, respectively, were made to Sevelex Consultants, Inc.
Notes payable to related parties consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
---------------------- -----------------------
1994 1995 1995 1996
---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Notes payable to CPI
Securities, L.P., an affiliate
of a limited partner, with
interest at 10%, payable
monthly and the entire
principal balance and all
accrued interest due on
January 4, 1995............... $ 182,513 $ -- $ -- $ --
Notes payable to CPI
Securities, L.P., an affiliate
of a limited partner, with
interest at 12%, payable
monthly and the entire
principal balance and all
accrued interest due on
December 31, 1996 [see (a)
below]........................ 2,722,250 2,722,250 2,722,250 3,277,800
Notes payable to Grace
Investments, Ltd. one of the
limited partners, with
interest at 12% payable
monthly, due on December 31,
1996 [see (a) below].......... 1,666,650 1,666,650 1,666,650 2,222,200
Notes payable to Dickstein &
Company, L.P., a limited
partner, with interest payable
monthly at 12%, due on
December 31, 1996 [see (a)
below]........................ 1,111,100 1,111,100 1,111,100 --
Notes payable to certain
employees, investors, and
partners, with monthly
principal payments of
$100,000, plus interest at
12%, with additional interest
of $325 per interval sold..... 4,000,000 2,900,000 3,500,000 2,300,000
Acquisition loan payable with
interest payable at 12%, due
on December 31, 1996.......... -- 1,495,000 -- 1,495,000
Notes payable to partners, with
interest accrued at 16%,
payable on demand............. -- 2,157,018 2,124,608 2,167,751
Notes payable to partners, with
interest accrued at 12%, any
unpaid interest and all
principal due by June 30,
1997.......................... -- -- -- 3,440,320
Notes payable to partners, with
interest payable monthly at
18%, any unpaid interest and
all principal due by June 30,
1997.......................... -- -- -- 8,500,000
Other.......................... 292,941 291,500 -- 368,877
---------- ----------- ----------- -----------
Total notes payable to related
parties....................... $9,975,454 $12,343,518 $11,124,608 $23,771,948
========== =========== =========== ===========
</TABLE>
F-49
<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-50
<PAGE>
SIGNATURE RESORTS, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31:
<TABLE>
<CAPTION>
1994 1995
----------------------- -----------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents... $ 1,854,572 $ 1,854,572 $ 4,341,591 $ 4,341,591
Cash in escrow.............. 2,427,190 2,427,190 1,945,856 1,945,856
Mortgages receivable........ 33,437,116 33,437,116 68,255,778 68,255,778
Notes payable............... 34,439,558 34,439,558 72,395,704 72,395,704
Notes payable to related
parties.................... 9,975,454 9,975,454 12,343,518 12,343,518
</TABLE>
13. OTHER INCOME
Other income for the year ended December 31, 1995 primarily consists of
business interruption insurance proceeds of $2,000,000, income from purchased
mortgages receivable of $2,180,000, rental income of $1,293,000 and management
fees of $841,000. Included in other income for the six months ended June 30,
1996 is $2,067,056 of income from purchased mortgages receivable, $828,651 of
rental income and $517,901 of management fees.
14. PRO FORMA DISCLOSURES (UNAUDITED)
The Company has a pending public offering for the sale of common stock (the
"Offering"). Upon consummation of the Offering, the Company will be subject to
federal, state and foreign income taxes from the effective date of the sale of
the common stock. In addition, the Company will be required to provide a
deferred tax liability for cumulative temporary differences between financial
reporting and tax reporting by recording a provision for such deferred taxes
in its statement of income for the period following the effective date of the
Offering. Such deferred taxes will be based on the cumulative temporary
differences at the date of restructuring.
The unaudited pro forma provision for income taxes represents the estimated
income taxes that would have been reported had the Company filed federal,
state and foreign income tax returns as a regular corporation. The following
summarizes the unaudited pro forma provision for income taxes:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31 JUNE 30
------------------------------- ---------------------
1993 1994 1995 1995 1996
-------- ---------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal............... $405,552 $ 361,290 $ 1,579,424 $ 636,360 $1,199,789
States................ 41,148 -- 4,934 -- 87,708
Foreign............... -- -- 662,288 -- 68,270
-------- ---------- ----------- ---------- ----------
446,700 361,290 2,246,646 636,360 1,355,767
Deferred:
Federal............... 346,393 1,018,602 1,476,865 288,265 825,588
States................ 85,873 238,021 633,808 159,495 267,986
Foreign............... -- -- (8,497) -- (14,983)
-------- ---------- ----------- ---------- ----------
432,266 1,256,623 2,102,176 447,760 1,078,591
-------- ---------- ----------- ---------- ----------
Unaudited pro forma
provision for income
taxes.................. $878,966 $1,617,913 $ 4,348,822 $1,084,120 $2,434,358
======== ========== =========== ========== ==========
</TABLE>
F-51
<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-52
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
A - 1
<PAGE>
APPENDIX A
================================================================================
AGREEMENT AND PLAN OF MERGER
By and Among
SIGNATURE RESORTS, INC. (SIGR")
and
AVCOM INTERNATIONAL, INC. ("AVCOM")
Dated
September 22,1996
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I TERMS OF THE MERGER
1.1 Merger................................................................... 1
1.2 Time and Place of Closing................................................ 1
1.3 Effects of Merger........................................................ 1
1.4 Method of Carrying Merger into Effect.................................... 6
1.5 Registration Statement/Prospectus/Proxy Statement........................ 7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SIGR
2.1 Organization............................................................. 9
2.2 Articles of Incorporation, Bylaws and Agreements......................... 10
2.3 Authorization............................................................. 10
2.4 Reporting................................................................. 10
2.5 Disclosure................................................................ 10
2.6 Reaffirmation of Prospectus............................................... 11
ARTICLE III REPRESENTATIONS AND WARRANTIES OF AVCOM
3.1 Organization............................................................. 11
3.2 Articles of Incorporation, Bylaws and Agreements......................... 12
3.3 Capital Structure and Ownership.......................................... 13
3.4 Authorization............................................................ 13
3.5 Financial Statements and Absence of Changes.............................. 13
3.6 Title to and Condition of Assets and Property............................ 14
3.7 Insurance................................................................ 18
3.8 Environmental Matters.................................................... 18
3.9 Minute and Stock Books; Records.......................................... 22
3.10 Liabilities.............................................................. 23
3.11 Contracts................................................................ 23
3.12 Litigation and Compliance................................................ 25
3.13 Non-Contravention........................................................ 25
3.14 Licenses, Permit and Required Consents................................... 26
3.15 Labor Matters............................................................ 26
3.16 Employee Benefit Plans................................................... 27
3.17 Taxes and Returns........................................................ 28
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
3.18 Changes.................................................................. 31
3.19 Accounts Receivable...................................................... 31
3.20 No Adverse Actions....................................................... 31
3.21 Reporting................................................................ 32
3.22 Disclosure............................................................... 32
3.23 Updating of Exhibits and Disclosure Documents............................ 32
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE IV ADDITIONAL AGREEMENTS OF THE PARTIES
4.1 Ordinary Course.......................................................... 33
4.2 Access Prior to Closing.................................................. 34
4.3 Regulatory and Other Authorizations...................................... 34
4.4 Further Assurances....................................................... 35
4.5 Payment of Taxes......................................................... 35
4.6 Delivery................................................................. 35
4.7 Employees................................................................ 35
4.8 Continued Relationships.................................................. 35
4.9 Confidentiality.......................................................... 35
4.10 Options.................................................................. 36
4.11 No Solicitation.......................................................... 36
4.12 Option to Acquire AVCOM Shares........................................... 37
4.13 SIGR Loan................................................................ 37
4.14 Agreement of Affiliates.................................................. 37
4.15 Conversion of Preferred Stock............................................ 38
ARTICLE V CONDITIONS TO CLOSING
5.1 Closing Conditions of AVCOM.............................................. 38
5.2 Closing Conditions of SIGR............................................... 39
ARTICLE VI THE CLOSING
6.1 Deliveries by AVCOM...................................................... 41
6.2 SIGR's Deliveries........................................................ 43
ARTICLE VII TERMINATION
7.1 Termination.............................................................. 44
7.2 Effect of Termination.................................................... 46
7.3 Cancellation Payments and Expenses....................................... 46
ARTICLE VIII INDEMNIFICATION
8.1 Agreement to Indemnify................................................... 48
8.2 Survival of Representations and Warranties............................... 48
8.3 Security for Indemnification Obligation.................................. 49
8.4 Delivery of Holdback Shares.............................................. 50
8.5 No Bar................................................................... 51
8.6 Limitation on Claims..................................................... 51
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE IX MISCELLANEOUS
9.1 Governing Law and Consent to Jurisdiction................................ 51
9.2 Notices.................................................................. 51
9.3 Assignment............................................................... 53
9.4 Section Headings......................................................... 53
9.5 Counterparts............................................................. 53
9.6 Amendment................................................................ 53
9.7 Entire Agreement......................................................... 53
9.8 Binding Effect........................................................... 53
9.9 Survival................................................................. 53
9.10 Severability............................................................. 53
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
This Agreement and Plan of Merger ("AGREEMENT") is made as of September 22,
1996, by and among Signature Resorts, Inc., a Maryland corporation ("SIGR"), and
AVCOM International, Inc., a Delaware corporation ("AVCOM").
WITNESSETH:
In consideration of the premises and the mutual covenants and agreements
hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
TERMS OF THE MERGER
1.1 MERGER.
------
(a) SIGR and AVCOM acknowledge and agree that their representations,
covenants, warranties, agreements, indemnities and other undertakings contained
in this Agreement are made and given to induce the other party to enter into
this Agreement and consummate the transactions contemplated by this Agreement
and that each party in reliance thereon has agreed to execute this Agreement and
consummate the transactions contemplated by this Agreement. Subject to the
satisfaction or waiver of the conditions set forth in this Agreement, on the
Closing Date (as hereinafter defined), pursuant to the terms and provisions of
this Agreement and all relevant laws, AVCOM shall merge with a subsidiary of
SIGR to be formed or designated by SIGR prior to Closing (the "MERGER"). The
corporation which will survive the Merger shall be determined by SIGR. The
parties shall prepare and execute a plan of merger, articles of merger and any
other related documents in order to comply in all respects with the requirements
of the corporate laws of the state(s) having jurisdiction over the Merger and
with the terms and provisions of this Agreement.
1.2 TIME AND PLACE OF CLOSING. The closing of the Merger (the "CLOSING")
-------------------------
shall occur on such date (the "CLOSING DATE") at
<PAGE>
such time and at such place as SIGR shall determine as soon as practicable after
all of the conditions to the obligations of the parties hereto shall have been
satisfied or waived. SIGR shall give AVCOM not less than five days' prior notice
of the place and time of Closing.
1.3 EFFECTS OF MERGER. Upon consummation thereof, the Merger shall have
-----------------
the effects described below:
(a) Conversion of Shares and Merger Consideration. Subject to adjustment
---------------------------------------------
as hereinafter provided, the issued and outstanding shares of common stock of
AVCOM (the "AVCOM SHARES") and the outstanding and unexercised options (the
"OPTIONS") to acquire shares of common stock of AVCOM, if any, on the Closing
Date shall be converted into and become, and there shall be paid and issued, in
exchange for the AVCOM Shares and the Options (subject to the provisions of this
Agreement, any applicable withholding requirements, applicable statutory
provisions with respect to appraisal rights and adjustment pursuant to this
Section, Sections 4.7 and 8.1, below) a number of shares of common stock of SIGR
------------ ---
("SIGR STOCK") determined as follows:
(i) Subject to adjustments required herein, the aggregate
consideration to be received by the shareholders of AVCOM (the "AVCOM
SHAREHOLDERS" or, individually, an "AVCOM SHAREHOLDER") in connection with the
Merger (the "MERGER CONSIDERATION"), results in each share of AVCOM Shares and
Option Shares issued and outstanding at the Closing Date (with the exception of
shares held in treasury which shall be canceled), by virtue of the merger and
without any action on the part of the holder thereof, being converted into and
exchanged for .26 shares of SIGR Stock [$5.00 / $19.44] (the "INITIAL CONVERSION
RATIO"), the shares of SIGR Stock required for such purpose being drawn from the
authorized but unissued shares of SIGR Stock. The conversation ratio determined
after taking into consideration any adjustments shall be referred to herein as
the "FINAL CONVERSION RATIO" which shall be the same as the Initial Conversion
Ratio if there are no adjustments. The Merger Consideration (subject to the
provisions of this Agreement, any applicable withholding requirements,
applicable statutory provisions with respect to appraisal
2
<PAGE>
rights or other adjustments required herein), prior to the adjustments described
in subsection (d), shall be not less than $4.00 multiplied by the number of
AVCOM Shares and Option Shares (the "MINIMUM PRE-ADJUSTMENT MERGER
CONSIDERATION"), nor more than $6.00 multiplied by the number of Option Shares
(as hereinafter defined) and AVCOM Shares (the "MAXIMUM PRE-ADJUSTMENT MERGER
CONSIDERATION"). In the event that there are any adjustments to the Pre-
Adjustment Merger Consideration pursuant to subsection (ii) hereof, the result
will be referred to herein as the "Final Merger Consideration" which will be the
same as the Pre-Adjustment Merger Consideration if no adjustments are required.
The Final Merger Consideration will be payable in shares of SIGR Stock,
delivered in accordance with Section 1.3(d) of this Agreement. The value of each
share of SIGR Stock (the "CONVERSION SHARE VALUE" or "SHARE VALUE") for purposes
of determining the number of shares issuable hereunder shall be equal to the
mean average high and low trades of SIGR Stock as reported on the NASDAQ
National Market System for each of the ten (10) consecutive trading days
immediately preceding ten (10) days prior to the Closing Date.
To determine the Final Conversion Ratio,
(1) First determine the Pre-Adjustment Merger Consideration by
multiplying the Initial Conversion Ratio by the number of AVCOM Shares and
Option Shares, with the result then being multiplied by the Conversion
Share Value. In the event that the result is less than the Minimum Pre-
Adjustment Merger Consideration or greater than the Maximum Pre-Adjustment
Merger Consideration, the Initial Conversion Ratio shall be adjusted in an
amount necessary to increase or decrease the result to the Minimum or
Maximum amount, as appropriate.
(2) Second, determine the Final Merger Consideration by adjusting the
Pre-Adjustment Merger Consideration as required in subsection (ii).
3
<PAGE>
(3) Third, and finally, adjust the Initial Conversion Ratio
(after taking into consideration the adjustments already made in (i)
above so that the product of the Final Conversion Ratio times the
number of AVCOM Shares and Option Shares times the Conversion Share
Value equals the Final Merger Consideration.
(ii) The Final Merger Consideration, shall be reduced, if and as
necessary, in an amount equal to the sum of the following: (i) Any amount
paid by AVCOM or a Subsidiary in excess of $800,000 as part of a final
settlement between AVCOM and each Subsidiary and Success Marketing, Inc.,
Success Companies, Inc., Success Ventures, Inc., and their affiliates
arising out of a dispute concerning the relationship between Success and
AVCOM and its Subsidiaries, and (ii) all amounts in excess of $250,000 paid
or to be paid by AVCOM for the fees and expenses of consultants, attorneys,
accountants and the like by AVCOM in connection with the Merger and the due
diligence conducted in regard to the Merger, unless a higher amount is
agreed to by SIGR, such agreement not to be unreasonably withheld.
The Share Value for the SIGR Stock referenced above shall be subject to
appropriate adjustment in the event of a stock split, stock dividend or
recapitalization applicable to shares of SIGR Stock held of record prior to the
Closing to the extent not reflected in such prices. No fractional shares of SIGR
Stock shall be issued. In lieu thereof, any AVCOM Shareholder who would
otherwise be entitled to a fractional share of SIGR Stock pursuant to the
provisions hereof shall receive an amount in cash equal to the value of such
fractional share. The value of such fractional share shall be the product of
such fraction multiplied by the Share Value per whole share determined pursuant
to the foregoing provisions.
The Merger Consideration shall be paid to the holders of the AVCOM Shares
and the Options outstanding on the Closing Date based upon the number of AVCOM
Shares and Option Shares owned by each such holder on the Closing Date. For
purposes hereof, "OPTION SHARES" shall mean the sum of the Separate Option
4
<PAGE>
Shares, rounded down to the nearest whole share. The term "SEPARATE OPTION
SHARES" means, as to Options having the same exercise price, the number of AVCOM
Shares issuable pursuant to Options outstanding and unexercised on the Closing
Date which have the same exercise price multiplied by a fraction (rounded to the
nearest thousandth), the denominator of which is $5.00 (subject to reduction for
adjustments pursuant to this Agreement) and the numerator of which is the excess
in the amount of the denominator referenced above over the exercise price of the
Options involved, rounded down to the nearest whole share. By way of example, if
there are fifteen (15) shares underlying Options with an exercise price of $2.00
per share and forty (40) shares underlying Options with an exercise price of
$2.50 per share all held by one person, the number of Option Shares would be
twenty-nine (29), determined as follows:
Separate Option Shares for 15 Option Shares at $2.00
----------------------------------------------------
1. $5.00 - $2.00 = 3.00 (numerator)
2. $3.00 / $5.00 = .60 (multiplicand)
3. 15 shares x .60 = 9 shares
Separate Option Shares for 40 Option Shares at $2.50
----------------------------------------------------
1. $5.00 - $2.50 = $2.50 (numerator)
2. $2.50 / $5.00 = .50 (multiplicand)
3. 40 shares x .50 = 20 shares
Option Shares
-------------
9 shares + 20 shares = 29 shares
The aggregate Merger Consideration shall be reduced by the amount otherwise
payable or issuable to AVCOM Shareholders who exercise appraisal rights in
connection with the Merger based upon such holders' ownership of AVCOM Shares
and Option Shares outstanding on the Closing Date.
5
<PAGE>
Each share of common stock of AVCOM held in the treasury of AVCOM or wholly
owned subsidiary of AVCOM shall be canceled as of the effective time of the
Merger. From and after the effective time of the Merger, there shall be no
further transfers on the stock transfer books of AVCOM of any of the AVCOM
Shares.
(b) Shareholders' Rights upon Merger. Upon confirmation of the Merger (i)
--------------------------------
all unvested options granted pursuant to AVCOM's 1995 stock option plan (i.e.
options for 150,000 shares to each of the Principal Shareholders) and options to
acquire 100,000 shares of AVCOM stock granted to Robert M. Eckenroth shall vest
and be nonforfeitable and (ii) the requirements for release of 500,000 shares of
AVCOM common stock to Sangar Investments, LLC and 65,000 shares of AVCOM common
stock to Robert Fletcher pursuant to that certain Escrow Agreement between such
parties and AVCOM shall be waived and such shares released.Upon consummation of
the Merger, the holders of all certificates which theretofore represented AVCOM
Shares and the holders of all Options shall cease to have any rights with
respect thereto, and, subject to applicable law, shall only have the right (i)
in the case of holders who do not exercise appraisal rights, to receive the
number of shares of SIGR Stock into which their Shares or Options have been
converted pursuant to this Agreement and the Merger, or (ii) in the case of
holders who do exercise appraisal rights in accordance with the Delaware General
Corporation Law (the "DELAWARE ACT"), to receive the fair value of their AVCOM
Shares in accordance with the Delaware Act. Holders of AVCOM Shares or Options
who exercise appraisal rights shall not be entitled to any dividends or other
distributions payable after the Closing Date to holders of SIGR Stock,
regardless of whether such holders of AVCOM Shares or Options who exercise
appraisal rights have received payment of the fair value of their AVCOM Shares
or Options at the time any such dividend or distribution is declared or paid by
SIGR.
(c) Corporate Existence, Rights and Obligations. Upon consummation of the
-------------------------------------------
Merger and pursuant to this Agreement, the surviving corporation shall possess
all the rights, privileges, immunities and franchises, as well as of a public as
of a private nature, of each of the merging corporations; and all property,
whether real, personal or mixed, and all debts due on
6
<PAGE>
whatever account, including subscriptions to shares and all other choses in
action, and all and every other interest, of or belonging or due to each of the
merging corporations, shall be taken and deemed to be transferred to and vested
in the corporation which survives the Merger without further act or deed; and
the title to any real estate, or any interest therein, vested in either of such
corporations shall not revert or be in any way impaired by reason of the Merger.
The Merger shall have all further effects as specified in all applicable
corporate laws of the State of Delaware and such other state, if any, the laws
of which shall govern the Merger.
(d) Payment of Merger Consideration. Immediately upon consummation of the
-------------------------------
Merger and receipt by SIGR of (i) certificates representing the AVCOM Shares and
cancellation of any Options, (ii) the federal taxpayer identification number of
each holder of such stock certificates and Options, (iii) duly executed
transmittal letters in form and substance acceptable to SIGR, and (iv) the other
documents and instruments required pursuant to this Agreement, SIGR immediately
shall cause to be paid by SIGR's check and issued to each holder of AVCOM Shares
or Options, the amount of cash and a certificate representing 90% of the number
of shares of SIGR Stock which such holder is entitled to receive pursuant to
subsection (a) hereof (less the amount of any required withholding), with the
remaining SIGR stock due to each AVCOM Shareholder (the "HOLDBACK STOCK") to be
retained by SIGR and delivered in accordance with the holdback provisions of
Article VIII hereof. As soon as practicable after Closing, SIGR will send or
cause to be sent a notice and transmittal materials to each AVCOM Shareholder
and holder of Options of record at the effective time of the Merger advising of
the effectiveness of the Merger and the procedure for delivering the above-
referenced documents and instruments in order to receive the Merger
Consideration. If any certificate evidencing shares of SIGR Stock is to be
issued in a name other than that in which the certificate(s) surrendered in
exchange therefor is registered, it shall be a condition of the issuance thereof
that the certificate surrendered in exchange shall be properly endorsed and
otherwise in proper form for transfer and that the person requesting such
transfer pay any transfer or other taxes required by reason of the issuance of a
certificate for shares of SIGR Stock in any name other than that of the
7
<PAGE>
registered holder of the certificate surrendered, or establish to the
satisfaction of SIGR that such tax has been paid or is not payable.
(e) Tax-Free Reorganization. The parties intend that the Merger will
-----------------------
qualify as a tax-free reorganization pursuant to Section 368 of the Internal
Revenue Code, as amended (the "CODE").
1.4 METHOD OF CARRYING MERGER INTO EFFECT. SIGR and AVCOM shall cooperate
-------------------------------------
in effecting the transactions contemplated by this Agreement, including without
limitation, taking, or causing to be taken, such actions as may be required in
order to cause the Merger to become effective, subject to and in accordance with
the provisions hereof. The Chief Executive Officers of SIGR and AVCOM shall
mutually agree on the specific time, date and place for a meeting of the AVCOM
Shareholders for the purpose of voting upon the Merger and on the information
and documents to be provided in connection therewith. Costs required to be paid
during the course of proceeding with the actions to implement the Merger shall
be advanced by AVCOM or SIGR based upon whichever is taking the actions required
to be taken. Costs advanced or incurred by AVCOM (or by SIGR in the event that
SIGR shall advance any costs properly chargeable to AVCOM under the preceding
sentence) shall be charged against the adjustment factor (the "SALE EXPENSE
CAP") in clause (ii) of paragraph (ii) of Section 1.3(a) above based upon the
following:
(i) The entirety of any cost or expense shall be charged against
the Sale Expense Cap if the cost or expense is incurred solely to reduce
the likelihood of imposing any liabilities on the pre-Merger officers,
directors or shareholders of AVCOM, to satisfy any obligation that AVCOM is
required under this Agreement to perform in order to satisfy any condition
to Closing or any condition to Closing that is outside the control of SIGR
or that SIGR does not have the responsibility to accomplish under this
Agreement or that is required to assure that AVCOM (or its Subsidiary)
retains good and marketable title to the assets that this Agreement
provides for SIGR to control after the Merger.
8
<PAGE>
(ii) None of the cost or expense shall be charged against the
Sale Expense Cap if the cost or expense is incurred solely to reduce the
likelihood of imposing any liabilities on the pre-Merger officers,
directors, or shareholders of SIGR, to satisfy any obligations that SIGR is
required under this Agreement to perform in order to satisfy any condition
to Closing or any condition to Closing that is outside the control of AVCOM
or that AVCOM does not have the responsibility to accomplish under this
Agreement
(iii) Otherwise, fifty percent (50%) of the cost or expense shall
be charged against the Sale Expense Cap.
1.5 REGISTRATION STATEMENT/PROSPECTUS/PROXY STATEMENT.
-------------------------------------------------
(a) For the purposes (i) of registering the SIGR Stock to be issued to
holders of the AVCOM Shares in connection with the Merger with the Securities
and Exchange Commission ("SEC") under the Securities Act of 1933, as amended,
(the "SECURITIES ACT") and the rules and regulations thereunder and complying
with applicable state securities laws, and (ii) of holding the meeting of AVCOM
Shareholders, SIGR and AVCOM will cooperate in the preparation of a registration
statement on Form S-4 (such registration statement, together with any and all
amendments and supplements thereto, being herein referred to as the
"REGISTRATION STATEMENT"), including a prospectus/proxy statement satisfying all
applicable requirements of applicable state securities laws and of the
Securities Act and the Securities Exchange Act of 1934, as amended (the
"SECURITIES EXCHANGE ACT"), and the rules and regulations thereunder (such
prospectus/proxy statement in the form mailed by AVCOM to its shareholders,
together with any and all amendments or supplements thereto, being herein
referred to as the "PROSPECTUS/PROXY STATEMENT").
(b) AVCOM will furnish SIGR with such information concerning AVCOM and the
Subsidiaries as is necessary in order to cause the Prospectus/Proxy Statement,
insofar as it relates to such corporations, to comply with applicable law. AVCOM
agrees promptly to advise SIGR if at any time prior to the meeting of AVCOM
Shareholders any information provided by it in
9
<PAGE>
the Prospectus/Proxy Statement becomes incorrect or incomplete in any material
respect and to provide AVCOM with the information needed to correct such
inaccuracy or omission. AVCOM will furnish SIGR with such supplemental
information as may be necessary in order to cause the Prospectus/Proxy
Statement, insofar as it relates to AVCOM and the Subsidiaries, to comply with
applicable law after the mailing thereof to AVCOM Shareholders.
(c) SIGR will furnish AVCOM with such information concerning SIGR and its
subsidiaries as is necessary in order to cause the Prospectus/Proxy Statement,
insofar as it relates to such corporations, to comply with applicable law. SIGR
agrees promptly to advise AVCOM if at any time prior to the meeting of AVCOM
Shareholders any information provided by it in the Prospectus/Proxy Statement
becomes incorrect or incomplete in any material respect and to provide AVCOM
with the information needed to correct such inaccuracy or omission. SIGR will
furnish AVCOM with such supplemental information as may be necessary in order to
cause the Prospectus/Proxy Statement, insofar as it relates to SIGR and its
subsidiaries, to comply with applicable law after the mailing thereof to AVCOM
Shareholders.
(d) SIGR will, at its expense, as promptly as practicable file the
Registration Statement with the SEC and appropriate materials with applicable
state securities agencies and will use all reasonable efforts to cause the
Registration Statement to become effective under the Securities Act and all such
state filed materials to comply with applicable state securities laws at the
earliest practicable date. AVCOM authorizes SIGR to utilize in the Registration
Statement and in all such state filed materials, the information concerning
AVCOM and the Subsidiaries provided to SIGR in connection with, or contained in,
the Prospectus/Proxy Statement. SIGR will advise AVCOM promptly when the
Registration Statement has become effective and of any supplements or amendments
thereto, and SIGR will furnish AVCOM with copies of all such documents. Prior to
the effective time of Merger or the termination of this Agreement, AVCOM shall
consult with SIGR with respect to any written material (other than the
Prospectus/Proxy Statement) that might constitute a "prospectus" relating to the
Merger within the meaning of the Securities Act.
10
<PAGE>
(e) AVCOM shall determine which of the AVCOM Shareholders may be deemed to
be "affiliates" of AVCOM (herein called "AFFILIATED PERSONS") within the meaning
of Rule 145 of the rules and regulations of the SEC promulgated under the
Securities Act and advise SIGR of the names and addresses of the Affiliated
Persons at least ten (10) days prior to the Closing Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SIGR
SIGR represents and warrants to AVCOM as follows, which representations and
warranties are made as of the date hereof and as of the Closing Date and shall
survive the Closing:
2.1 ORGANIZATION.
------------
(a) SIGR is a corporation duly organized, validly existing and in good
standing under the laws of the State of Maryland, is duly qualified and in good
standing as a foreign corporation in the jurisdictions where the ownership of
its assets or the conduct of its business requires such qualification with full
power and authority to own its properties and assets and to carry on lawfully
its business as currently conducted.
(b) Except as set forth on Exhibit 2.1 attached hereto, SIGR does not have
-----------
any subsidiaries which engage in active operations (hereinafter, any such
subsidiaries are referred to collectively as the "SIGR SUBSIDIARIES" and
individually as an "SIGR SUBSIDIARY"). Each such SIGR Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation (as set forth on said Exhibit 2.1), is duly
-----------
qualified and in good standing as a foreign corporation in the jurisdictions
where the ownership of its assets or the conduct of its business requires such
qualification with full power and authority to own its property and assets and
to carry on lawfully its business as currently conducted.
2.2 ARTICLES OF INCORPORATION, BYLAWS AND AGREEMENTS. A true, complete
------------------------------------------------
and correct copy of the Articles of Incorporation and Bylaws of SIGR as
currently in effect have been delivered to
11
<PAGE>
AVCOM. SIGR has no actual knowledge that there are any agreements by and between
or among SIGR and any or all of their shareholders imposing any restrictions
upon the transfer of or otherwise pertaining to the SIGR Stock to be received by
the AVCOM Shareholders or any Subsidiary or the ownership thereof.
2.3 AUTHORIZATION. SIGR has full legal right, power and authority to
-------------
enter into this Agreement and to carry out the transactions contemplated by this
Agreement. The execution, delivery and performance by SIGR of this Agreement
and the other agreements and documents referred to herein and the actions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action, and this Agreement and such other agreements and
documents constitute valid and binding obligations of SIGR, enforceable in
accordance with their terms, subject to (i) general principles of equity,
regardless of whether enforcement is sought in a proceeding in equity or at law,
and (ii) bankruptcy, reorganization, insolvency, fraudulent conveyance,
moratorium, receivership or other similar laws relating to or affecting
creditors' rights generally.
2.4 REPORTING. SIGR has timely filed (within applicable extension
---------
periods) all reports and documents required to be filed by it on Forms 10-K, 10-
Q and 8-K under the Securities Exchange Act and the rules and regulations
promulgated thereunder. All such reports were appropriately responsive to all
applicable requirements, were complete, correct and proper in form and did not
contain an untrue statement of a fact or omit to state a fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. SIGR shall send to
AVCOM copies of all financial statements and reports as and when sent to the
SIGR shareholders and the SEC, as to which the representations and warranties in
the preceding sentence shall also apply.
2.5 DISCLOSURE. No representation, warranty or statement made by or on
----------
behalf of SIGR in this Agreement or the Exhibits attached hereto or in the
certificates or other materials furnished or to be furnished to AVCOM or its
representatives or lenders in connection with this Agreement and the
transactions contemplated hereby or thereby, contains or will contain any
12
<PAGE>
untrue statement of fact or omits or will omit to state a fact required to be
stated herein or therein or necessary to make the statements contained herein or
therein not misleading. All information and documents provided prior to the date
of this Agreement, and all information and documents subsequently provided, to
AVCOM or its representatives by or on behalf of SIGR are or contain, or will be
or will contain, as to subsequently provided information or documents, true,
accurate and complete information with respect to the subject matter thereof and
are, or will be as to subsequently provide information or documents, fully
responsive to any specific request made by or on behalf of AVCOM or its
representatives. SIGR shall promptly notify AVCOM of any change or event which
could materially adversely affect the assets, operations, business, conditions
or prospects of SIGR or an SIGR Subsidiary.
2.6 REAFFIRMATION OF PROSPECTUS. The information contained in the
---------------------------
prospectus issued by SIGR with respect to an offering of its common stock dated
August 15, 1996 is reaffirmed to be true and correct in all material respects as
of the date hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF AVCOM
AND PRINCIPAL SHAREHOLDERS
AVCOM, Gary Hughes ("HUGHES"), and John Stevens ("STEVENS") (Hughes and
Stevens being referred to herein as the "PRINCIPAL SHAREHOLDERS") do hereby
jointly and severally represent and warrant to SIGR as follows, which
representations and warranties are made as of the date hereof and as of the
Closing Date and shall survive the Closing:
3.1 ORGANIZATION.
------------
(a) AVCOM is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, is duly qualified and in good
standing as a foreign corporation in the states set forth on Exhibit 3.1(a)
--------------
attached hereto (which list of states includes all states in which the Real
Properties (as defined below) are located and all states in which AVCOM is
advertising, soliciting or consummating the sale
13
<PAGE>
of Intervals (as defined below)) the sale, with full power and authority to own
its properties and assets and to carry on lawfully its business as currently
conducted in the states so indicated on said Exhibit 3.1(a), and, to the best of
--------------
AVCOM's and the Principal Shareholders' knowledge, is not required to be
qualified to do business as a foreign corporation in any other jurisdiction.
(b) Except as set forth on Exhibit 3.1(b) attached hereto, AVCOM does not
--------------
have any wholly or partially owned subsidiaries (hereinafter, any such
subsidiaries are referred to collectively as the "SUBSIDIARIES" and individually
as a "SUBSIDIARY") and neither it nor any Subsidiary owns or holds any
securities of, or any ownership interest (whether directly or indirectly or
whether beneficial or otherwise) in, any other person or entity other than the
Related Parties (as defined below). Each such Subsidiary is a corporation,
partnership, or limited liability company duly organized, validly existing and
in good standing under the laws of the state of its organization), is duly
qualified and in good standing as a foreign corporation, partnership, or limited
liability company in the states so indicated on said Exhibit 3.1(b), with full
--------------
power and authority to own its property and assets and to carry on lawfully its
business as currently conducted, and, to the best of AVCOM's and the Principal
Shareholders' knowledge is not required to be qualified to do business as a
foreign corporation, partnership, or limited liability company in any other
jurisdiction.
(c) Except as set forth on Exhibit 3.1(c) attached hereto, there are no
--------------
condominium, timeshare or other homeowner associations (hereinafter, any such
Associations are referred to collectively as the "ASSOCIATIONS" and individually
as a "ASSOCIATION") for any of the Real Properties and neither AVCOM nor any
Association owns or holds any securities of, or any material interest in, any
other person or entity. Each such Association is a non-profit corporation or
other non-profit entity duly organized, validly existing and in good standing
under the laws of the state of its organization, and is duly qualified and in
good standing, with full power and authority to own its property and assets and
to carry on lawfully its business as currently conducted.
14
<PAGE>
(d) The ownership structure of each of the Related Parties (as defined
below) and any Subsidiary in which AVCOM does not own 100% of ownership
interests therein (whether beneficial or otherwise) is set forth on Exhibit
-------
3.1(d) and, except as set forth on Exhibit 3.1(d), there are no constituent
- ------ --------------
ownership interests (whether beneficial or otherwise) in any of the Subsidiaries
or the Related Parties which is owned by any party not described on Exhibit
-------
3.1(d).
- ------
3.2 ARTICLES OF INCORPORATION, BYLAWS AND AGREEMENTS. A true, complete
------------------------------------------------
and correct copy of the organizational documents (e.g. charter, articles of
incorporation, bylaws, partnership certificate and agreement, limited liability
company certificate and operating agreement) of AVCOM and each Subsidiary, each
Association and each Related Party together with all amendments thereto have
been delivered to SIGR, as set forth on Exhibit 3.2(a) attached hereto. Except
--------------
as set forth on Exhibit 3.2(b) attached hereto, AVCOM and the Principal
--------------
Shareholders have no actual knowledge that there are any agreements by and
between or among AVCOM, any Subsidiary, any Association, any Related Party or
any or all of their respective shareholders, whether or not AVCOM or a
Subsidiary, an Association or a Related Party is a party thereto, imposing any
restrictions upon the transfer of or otherwise pertaining to the securities of
AVCOM (including but not limited to the AVCOM Shares) or any Subsidiary or the
ownership thereof. Any and all such restrictions shall be duly complied with or
effectively waived as of the Closing.
3.3 CAPITAL STRUCTURE AND OWNERSHIP. AVCOM and each Subsidiary has
-------------------------------
authorized, issued and outstanding the number of shares of stock and other
securities so indicated on Exhibit 3.3 attached hereto. It is expressly
-----------
represented and warranted that as of September 22, 1996 the number of shares of
outstanding stock and options to acquire stock of AVCOM do not exceed the
preliminary Exhibit 3.3 attached to this Agreement and initialed by AVCOM for
identification. All such outstanding securities have been duly and validly
issued, are fully paid and nonassessable and have not been issued in violation
of the preemptive rights of any person or applicable federal or state securities
laws. No shares of any other class of capital stock or security of AVCOM or any
Subsidiary are outstanding. There are no outstanding options, warrants or other
rights to acquire securities of AVCOM or any Subsidiary, nor are there
securities outstanding which are convertible into securities of AVCOM or any
Subsidiary, except as set forth on said Exhibit 3.3. Except
-----------
15
<PAGE>
pursuant to applicable corporate, partnership or limited liability company laws,
there are no restrictions, including but not limited to self-imposed
restrictions, on the retained earnings of AVCOM or any Subsidiary or on the
ability of AVCOM or any Subsidiary to declare and pay dividends or distributions
that are not disclosed on Exhibit 3.3. The name and residence address of each of
-----------
the record holders of the AVCOM Shares and the Options of AVCOM and the
securities of each Subsidiary and the respective number and description of
outstanding securities held by each holder are set forth on Exhibit 3.3 attached
-----------
hereto.
3.4 AUTHORIZATION. AVCOM has full legal right, power and authority to
-------------
enter into this Agreement and to carry out the transactions contemplated by this
Agreement. The execution, delivery and performance by AVCOM of this Agreement
and the other agreements and documents referred to herein and the actions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action, and this Agreement and such other agreements and
documents constitute valid and binding obligations of AVCOM, enforceable in
accordance with their terms, subject to (i) general principles of equity,
regardless of whether enforcement is sought in a proceeding in equity or at law,
and (ii) bankruptcy, reorganization, insolvency, fraudulent conveyance,
moratorium, receivership or other similar laws relating to or affecting
creditors' rights generally.
Approval of the transactions contemplated by this Agreement requires the
approval of no more than a simple majority of any class of outstanding
securities of AVCOM.
3.5 FINANCIAL STATEMENTS AND ABSENCE OF CHANGES. The consolidated and
-------------------------------------------
separate balance sheets as of December 31, 1995, 1994, and 1993, and the
consolidated and separate income statements and consolidated and separate
statements of changes in financial condition or cash flows for the fiscal years
then ended and the consolidated and separate balance sheets as of the end of
each month from January through June 30, 1996, and the consolidated and separate
income statements for each of the months then ended of AVCOM and the
Subsidiaries (the "FINANCIAL STATEMENTS") have been provided to SIGR except for
the statements for the period January through June 30, 1996 which shall be
provided by AVCOM in final form not later than October 15, 1996. Each of the
Financial Statements fairly presents
16
<PAGE>
(subject to year-end adjustments with respect to interim periods which will be
necessary to present fairly the financial condition and assets and liabilities
or the results of operations of AVCOM and the Subsidiaries on a consolidated
basis as to consolidated Financial Statements and individually as to separate
Financial Statements) the financial condition and assets and liabilities or the
results of operations of AVCOM and the Subsidiaries as of the dates and for the
periods indicated on a consolidated basis as to consolidated Financial
Statements and individually as to separate Financial Statements. The year-end
financial statements and reports on Form 10-K were prepared in accordance with
generally accepted accounting principles applicable to the business of AVCOM and
the Subsidiaries consistently applied in accordance with past accounting
practices, and the interim financial statements have been prepared internally to
fairly present the financial condition of AVCOM and the Subsidiaries, subject to
year-end adjustments. Except as reflected in the Financial Statements, none of
AVCOM or any Subsidiary has any debts, obligations, subsidies or assessment buy-
down, cost sharing or other agreements required by any Authorities or in favor
of any Associations or otherwise, guaranties of obligations of others or
liabilities (contingent or otherwise) of a material nature that would be
required to be disclosed in financial statements prepared as described herein.
Except as set forth in Exhibit 3.5 attached hereto, since December 31, 1995,
-----------
there have been no adverse changes to the business, financial condition, results
of operations or prospects of AVCOM or any Subsidiary from that described and
reflected in the Financial Statements as of that date. All operating budgets and
reserves of the Associations are adequately funded and neither AVCOM nor any
Subsidiary is delinquent in the payment of any regular or special assessments
thereto whether due with respect to Undedicated Units, Inventory or otherwise or
under the terms and conditions of any subsidy agreement or otherwise.
3.6 TITLE TO AND CONDITION OF ASSETS AND PROPERTY.
---------------------------------------------
(a) Exhibit 3.6(a) attached hereto sets forth a (i) list of each of the
--------------
resorts, properties under development and undeveloped real property holdings or
interests therein (collectively, the "RESORTS") in which AVCOM and the
Subsidiaries directly or (through constituent ownership interests in the
entities which do own all or any portion of the
17
<PAGE>
Resorts (such entities being referred to herein as the "RELATED PARTIES" and
each Related Party being included within the term "Subsidiary" except where
specifically excluded) indirectly own real property, (ii) a legal description of
all real property which comprises the Resorts (the "REAL PROPERTY")(which
description includes a legal description of all land comprising the Resorts (the
"LAND"), a legal description of all condominium, undivided interest and other
dwelling units which have been constructed on the Land (the "DWELLING UNITS")
including all Dwelling Units which have been dedicated to timeshare regimes (the
"DEDICATED UNITS") and which have not been dedicated to timeshare regimes (the
"UNDEDICATED UNITS") as well as a list of all timeshare interests therein (the
"INTERVALS") which have been sold (the "SOLD INVENTORY") and which have not been
sold and which are owned by AVCOM, the Subsidiaries and/or the Related Parties
(the "UNSOLD INVENTORY")), and (iii) a list of all leases, licenses or similar
agreements subject to which AVCOM, any Subsidiary and any Related Party uses or
otherwise uses or occupies any portion of the Real Property (the "LEASES"),
true, correct and complete copies of which have been delivered to SIGR. Except
as set forth on Exhibit 3.6(a), neither AVCOM, any Subsidiary nor
--------------
any Related Party owns any real property or any interest therein and has not
entered into any agreement to acquire additional Real Property ("PURCHASE AND
OPTION AGREEMENTS"). AVCOM, the Subsidiaries and/or the Related Parties have
good and marketable title to all Unsold Inventory and all other assets reflected
in the Financial Statements or currently owned and used in the operation of
their businesses, and such Unsold Inventory and other assets are free and clear
of all liens, claims, charges, security interests, options, or other title
defects or encumbrances, except as set forth on the title policies listed on
Exhibit 3.6(a) attached hereto (which liens, claims, charges, security
- --------------
interests, options, or other title defects or encumbrances are collectively
referred to herein as the "TITLE EXCEPTIONS" and such title policies are
referred to herein as the "TITLE POLICIES"). The ownership of all such assets as
among AVCOM and the Subsidiaries is as set forth on said Exhibit 3.6(a). The
--------------
Undedicated Units, the Unsold Inventory and the Sold Inventory and any personal
property owned by any Association (as defined below) collectively comprise 100%
of the Real Property and 100% of the personal property which is used and/or
occupied in the ownership and operation of the Resorts (with such personal
property being referred to herein as the "PERSONAL PROPERTY") and no real
property other than that which
18
<PAGE>
constitutes the Undedicated Units, the Unsold Inventory, and the Sold Inventory
is needed or necessary for the ownership and operation of the Resorts as
currently owned and operated by AVCOM and the Subsidiaries, as contemplated by
SIGR, or as required under the Licenses and Permits (as defined below).
(b) Except as set forth in Exhibit 3.6(b) attached hereto, neither AVCOM
--------------
nor any of the Subsidiaries has any patents, copyrights, trade names,
trademarks, service marks, other such names or marks or applications therefor
and has not conducted business under any corporate, trade or fictitious name
other than their current corporate name. There are no pending, nor to the best
of AVCOM or the Principal Shareholders' knowledge, threatened claims of
infringement upon the rights to any intellectual property referred to on Exhibit
-------
3.6 of others or, except as set forth in Exhibit 3.11 attached hereto, any
- --- ------------
agreements or undertakings with respect to any such rights.
(c) Except as noted on Exhibit 3.11 with respect to the Leases and the
------------
Purchase and Option Agreements, there is (i) no material breach or event of
default on the part of AVCOM or any Subsidiary, (ii) no material breach or event
of default, to the knowledge of AVCOM and the Principal Shareholders, on the
part of any other party thereto, and (iii) no event that, with the giving of
notice or lapse of time or both, would constitute such breach or event of
default on the part of AVCOM or any Subsidiary or, to the knowledge of AVCOM and
the Principal Shareholders, on the part of any other party thereto, has occurred
and is continuing. The Leases and the Purchase and Option Agreements are in
full force and effect and are valid and enforceable against the parties thereto
in accordance with their terms and all rental and other payments due under each
of the Leases and all option and other payments due under each of the Purchase
and Option Agreements have been duly paid in accordance with the terms thereof.
The consummation of the transactions contemplated hereby will not require the
consent of any party to any Lease or Purchase and Option Agreement and will not
terminate or allow any party to terminate any Lease or Purchase and Option
Agreement.
(d) Except as noted on Exhibit 3.11 with respect to any deeds, title
------------
insurance policies, surveys, mortgages, agreements and other documents granting
to AVCOM or any Subsidiary title to or an interest in or otherwise affecting any
real property, there is (i) no material breach or event of default on the part
19
<PAGE>
of AVCOM or any Subsidiary, (ii) no material breach or event of default, to the
knowledge of AVCOM and the Principal Shareholders, on the part of any other
party thereto and (iii) no event that, with the giving of notice or lapse of
time or both, would constitute such material breach or event of default on the
part of AVCOM or any Subsidiary, or to the knowledge of AVCOM and the Principal
Shareholders, on the part of any other party thereto, has occurred and is
continuing.
(e) Except as set forth on Exhibit 3.6(a), the buildings and improvements
--------------
owned or leased by AVCOM or any Subsidiary, and the operation and maintenance
thereof as operated and maintained, do not (and all buildings and improvements
contemplated to be owned, developed and/or operated by AVCOM or any Subsidiary
will not) (i) contravene any zoning or building law or ordinance or other
administrative regulation or (ii) violate any restrictive covenant or any law
(including working conditions and access), and, further, all such buildings and
improvements comply with all applicable federal, state and local laws including,
but not limited to, the Americans with Disabilities Act and similar state laws.
All Dwelling Units are fully furnished with all improvements and furniture,
fixtures and equipment therein are in good operating condition ordinary wear and
tear excepted) and all improvements required to be completed or bonded as a
requirement of any of the Licenses and Permits (as defined below) which has not
been completed or bonded as required therein. All other plants, buildings,
structures and equipment owned or leased by AVCOM and any Subsidiary are in a
state of good maintenance and repair (normal wear and tear excepted) suitable in
all respects for the operation of the Business.
(f) There is no pending or threatened condemnation, eminent domain or
similar proceeding with respect to, or that could affect, any Real Property or
leased property.
(g) The Real Property owned or leased by AVCOM or any Subsidiary (i) has
direct access to public roads or access to public roads by means of a perpetual
access easement, such access being sufficient to satisfy the current and
reasonably anticipated normal transportation requirements of AVCOM or any
Subsidiary of their business as presently conducted at such parcel; and (ii) is
served by all utilities in such quantity and quality as are sufficient to
satisfy the current normal business activities as conducted at such parcel.
AVCOM and the Principal
20
<PAGE>
Shareholders have no notice or knowledge of any fact or condition which would
result in the discontinuation of water, sewage, electric, telephone, drainage or
other utilities or services to such real property which are necessary and
required for the use and operation thereof. All impact fees have been completely
and fully paid with respect to all Real Property owned or leased by AVCOM or any
Subsidiary and all buildings and improvements contemplated to be owned,
developed and/or operated by AVCOM or any Subsidiary.
(h) There are no outstanding options or rights of first refusal to
purchase any of the Real Property, or any portion thereof or interest therein
except as noted in Exhibit 3.6(a).
--------------
(i) The legal descriptions for the parcels of Real Property contained in
the deeds thereof describe such parcels fully and adequately; the buildings and
improvements are located within the boundary lines of the described parcels of
land, are not in violation of applicable setback requirements, local
comprehensive plan provisions, zoning laws and ordinances (and none of the
properties or buildings or improvements thereon are subject to "permitted non-
conforming use" or "permitted non-conforming structure" classifications),
building code requirements, permits, licenses or other forms of approval by any
governmental authority, and do not encroach on any easement which may burden the
land; the land does not serve any adjoining property for any purpose
inconsistent with the use of the land; and, except as noted in Exhibit 3.6(a),
--------------
the Real Properties are not located within any flood plain (such that a
mortgagee would require a mortgagor to obtain flood insurance) or subject to any
similar type restriction for which any permits or licenses necessary to the use
thereof have not been obtained.
(j) Except as set forth on Exhibit 3.6(a), there are no contracts,
--------------
arrangements, licenses, concessions, easements, or other agreements, including,
without limitation, service arrangements and employment agreements, either
recorded or unrecorded, written or oral, which affect or could affect the Real
Property or any portion thereof, or the use thereof, after the Closing Date.
(k) Prior to Closing, no portion of the Real Property or any interest
therein shall be further (after the date hereof) alienated, encumbered, conveyed
or otherwise transferred except for sales of time-share interests ("Intervals")
in the ordinary
21
<PAGE>
course of business. Except as set forth on Exhibit 3.6(a), there are no
--------------
agreements (whether or oral or written) to sell, convey or transfer any
Intervals except sales of Intervals in the ordinary course of business (i.e, for
a price and upon terms which are in the ordinary course of business of AVCOM and
any Subsidiary).
(l) Neither AVCOM, nor any Subsidiary is a "foreign person" within the
meaning of the United States tax laws and to which reference is made in Internal
Revenue Code Section 1445(b)(2). At Closing, AVCOM and each Subsidiary shall
deliver to SIGR an affidavit to such effect, and also stating the employer
identification number of AVCOM and each Subsidiary and the State within the
United States under which each such entity was organized and exists. AVCOM
acknowledges and agrees that SIGR shall be entitled to fully comply with
Internal Revenue Code Section 1445 and all related sections and regulations, as
same may be modified and amended from time to time, and AVCOM shall act in
accordance with all reasonable requirements of SIGR to effect such full
compliance by SIGR.
3.7 INSURANCE. Exhibit 3.7 attached hereto sets forth a list of all
--------- -----------
policies of insurance which insure the properties, business or liability
(including, but not limited to, directors' and officers' liability) of AVCOM and
each of the Subsidiaries, setting forth the types and amounts of coverage, true,
correct and complete copies of which have previously been delivered to SIGR.
Each of such policies is current and in full force and effect and neither AVCOM
nor any of the Subsidiaries has received notice of default under, or intended
cancellation or nonrenewal of, any such policies. AVCOM and each of the
Subsidiaries will keep all current insurance policies in effect through the
Closing. Neither AVCOM nor any of the Subsidiaries has been refused any
insurance by an insurance carrier to which it has applied for insurance.
3.8 ENVIRONMENTAL MATTERS.
---------------------
(a) AVCOM and all Subsidiaries are and have at all times been in compliance
with all Environmental, Health and Safety Laws (as defined herein) governing its
business, operations, properties and assets. Neither AVCOM nor any Subsidiary
is not currently liable for any penalties, fines or forfeitures for failure to
comply with any Environmental, Health and Safety Laws. AVCOM and the
Subsidiaries are in full compliance with
22
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all notice, record keeping and reporting requirements of all Environmental,
Health and Safety Laws, and have complied with all informational requests or
demands arising under the Environmental, Health and Safety Laws.
(b) AVCOM and each Subsidiary has obtained, or caused to be obtained,
and is in full compliance with, all licenses, certificates, permits, approvals
and registrations (collectively "ENVIRONMENTAL LICENSES") required by the
Environmental, Health and Safety Laws for the ownership of its respective
properties and assets and the operation of its business as presently conducted.
AVCOM and each Subsidiary is in full compliance with all the terms, conditions
and requirements of such Environmental Licenses, and copies of such
Environmental Licenses have been provided to SIGR. There are no administrative
or judicial investigations, notices, claims or other proceedings pending or
threatened by any governmental authority or third parties against AVCOM or a
Subsidiary, its businesses, operations, properties, or assets, which question
the validity of or its entitlement to any Environmental License required by the
Environmental, Health and Safety Laws for the ownership of each of the
properties and assets of AVCOM or any Subsidiary and the operation of its
business or wherein an unfavorable decision, ruling or finding could have a
material adverse effect on AVCOM or any Subsidiary.
(c) Neither AVCOM nor any Subsidiary has not received and is not aware
of any non-compliance order, warning letter, notice of violation, claim, suit,
action, judgment, or administrative or judicial proceeding pending against or
involving AVCOM or any Subsidiary, its business, operations, properties, or
assets, issued by any governmental authority or third party with respect to any
Environmental, Health and Safety Laws in connection with the ownership by AVCOM
or any Subsidiary of its properties or assets or the operation of its business,
which has not been resolved to the satisfaction of the issuing governmental
authority or third party in a manner that would not impose any obligation,
burden or continuing liability on SIGR in the event that the merger contemplated
by this Agreement closes, or which could have a material adverse effect on AVCOM
or any Subsidiary.
(d) AVCOM and each Subsidiary is in full compliance with, and is not in
breach of or default under any applicable Order issued pursuant to the
Environmental, Health and Safety Laws and no event has occurred or is continuing
which, with the passage
23
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of time or the giving of notice or both, could constitute such non-compliance,
breach or default thereunder.
(e) Neither AVCOM nor any Subsidiary has generated, manufactured, used,
transported, transferred, stored, handled, treated, spilled, leaked, dumped,
discharged, released or disposed, nor has it allowed or arranged for any third
parties to generate, manufacture, use, transport, transfer, store, handle,
treat, spill, leak, dump, discharge, release or dispose of, Hazardous Substances
or other waste to or at any location other than a site lawfully permitted to
receive such Hazardous Substances or other waste for such purposes, nor has it
performed, arranged for or allowed by any method or procedure such generation,
manufacture, use, transportation, transfer, storage, treatment, spillage,
leakage, dumping, discharge, release or disposal in contravention of any
Environmental, Health and Safety Laws. Neither AVCOM, nor any Subsidiary has
generated, manufactured, used, stored, handled, treated, spilled, leaked,
dumped, discharged, released or disposed of, or allowed or arranged for any
third parties to generate, manufacture, use, store, handle, treat, spill, leak,
dump, discharge, release or dispose of, Hazardous Substances, or other waste
upon property owned or leased by it, except as permitted by law. For purposes of
this Section the term "Hazardous Substances" shall be construed broadly to
include any toxic or hazardous substance, material, or waste, and any other
contaminant, pollutant or constituent thereof, whether liquid, solid, semi-
solid, sludge and/or gaseous, including without limitation, chemicals,
compounds, by-products, pesticides, asbestos containing materials, petroleum or
petroleum products, and polychlorinated biphenyls, the presence of which
requires investigation or remediation under any Environmental, Health and Safety
Laws or which are to become regulated, listed or controlled by, under or
pursuant to any Environmental, Health and Safety Laws, including, without
limitation, the United States Department of Transportation Table (49 CFR 172,
101) or by the Environmental Protection Agency as hazardous substances (40 CFR
Part 302) and any amendments thereto; the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the Superfund Amendment
and Reauthorization Act of 1986, 42 U.S.C. (S) 9601, et seq. (hereinafter
-- ---
collectively "CERCLA"); the Solid Waste Disposal Act, as amended by the Resource
Conservation and Recovery Act of 1976 and subsequent Hazardous and Solid Waste
Amendments of 1984, 42 U.S.C. (S) 6901, et seq. (hereinafter, collectively
-- ---
"RCRA"); the Hazardous
24
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Materials Transportation Act, as amended, 49 U.S.C. (S) 1801, et seq.; the Clean
-- ---
Water Act, as amended, 33 U.S.C. (S) 1311, et seq.; the Clean Air Act, as
-- ---
amended (42 U.S.C. (S) 7401-7642); Toxic Substances Control Act, as amended, 15
U.S.C. (S) 2601, et seq.; the Federal Insecticide, Fungicide, and Rodenticide
-- ---
Act, as amended, 7 U.S.C. (S) 136-136y ("FIFRA"); the Emergency Planning and
Community Right-to-Know Act of 1986, as amended, 42 U.S.C. (S) 11001, et seq.
-- ---
(Title III of SARA) ("EPCRA"); the Occupational Safety and Health Act of 1970,
as amended, 29 U.S.C. (S) 651, et seq. ("OSHA"); any similar state statute, or
-- ---
any future amendments to, or regulations implementing such statutes, laws,
ordinances, codes, rules, regulations, orders, rulings, decrees, or which has
been or shall be determined or interpreted at any time by any governmental
authority to be a hazardous or toxic substance regulated under any other
statute, law, regulation, order, code, rule, or decree. For purposes of this
Section the term "Waste" shall be construed broadly to include agricultural
wastes, biomedical wastes, biological wastes, bulky wastes, construction and
demolition debris, garbage, household wastes, industrial solid wastes, liquid
wastes, recyclable materials, sludge, solid wastes, special wastes, used oils,
white goods, and yard trash.
(f) Neither AVCOM nor any Subsidiary has caused, or allowed to be caused
or permitted, either by action or inaction, a Release or Discharge, or
threatened Release or Discharge, of any Hazardous Substance on, into or beneath
the surface of any such parcel of realty. There has not occurred, nor is there
presently occurring, a Release or Discharge, or threatened Release or Discharge,
of any Hazardous Substance on, into or beneath the surface of any parcel of
realty. For purposes of this Section, the terms "Release" or "Discharge" shall
have the meanings given them in the Environmental, Health and Safety Laws.
(g) Neither AVCOM nor any Subsidiary has generated, handled,
manufactured, treated, stored, used, shipped, transported, transferred, or
disposed of, nor has it allowed or arranged, by contract, agreement or
otherwise, for any third parties to generate, handle, manufacture, treat, store,
use, ship, transport, transfer or dispose of, any Hazardous Substance or other
Waste to or at a site which, pursuant to CERCLA or and similar state law (i) has
been placed on the National Priorities List or its state equivalent; or (ii) the
Environmental Protection Agency or the relevant state agency has notified
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AVCOM or any Subsidiary that it has proposed or is proposing to place on the
National Priorities List or its state equivalent. Neither AVCOM, any Subsidiary
nor the Principal Shareholders has received notice, and neither AVCOM nor the
Principal Shareholders has knowledge of any facts which could give rise to any
notice, that AVCOM or any Subsidiary is a potentially responsible party for a
federal or state environmental cleanup site or for corrective action under
CERCLA, RCRA or any other applicable Environmental, Health and Safety Laws.
Neither AVCOM nor any Subsidiary has submitted or was required to submit any
notice pursuant to Section 103(c) of CERCLA with respect to any realty.
(h) Except as set forth on Exhibit 3.8, neither AVCOM nor any Subsidiary
-----------
uses, nor has it used, any Aboveground Storage Tanks or Underground Storage
Tanks, and there are not now nor have there ever been any Underground Storage
Tanks on any realty. For purposes of this Section, the terms "Aboveground
Storage Tanks" and "Underground Storage Tanks" shall have the meanings given
them in Section 690l et seq., as amended, of RCRA, or any applicable state or
-- ---
local statute, law, ordinance, code, rule, regulation, order ruling, or decree
governing Aboveground Storage Tanks or Underground Storage Tanks.
(i) Exhibit 3.8 identifies (i) all environmental audits, assessments or
-----------
occupational health studies undertaken by AVCOM, any Subsidiary or its agents
or, to the knowledge of AVCOM or the Principal Shareholders, undertaken by any
governmental authority, or any third party, relating to or affecting or any
realty; (ii) the results of any ground, water, soil, air or asbestos monitoring
undertaken by any governmental authority or any third party, relating to or
affecting AVCOM; (iii) all written communications between AVCOM (and its
Subsidiaries) and any governmental authority arising under or related to
Environmental, Health and Safety Laws; and (iv) all citations issued under OSHA,
or similar state or locate statutes, laws, ordinances, codes, rules,
regulations, orders, rulings, or decrees, relating to or affecting AVCOM.
(j) Exhibit 3.8 contains a list of the assets of AVCOM or any Subsidiary
-----------
which contain "asbestos" or "asbestos-containing material" (as such terms are
identified under the Environmental, Health and Safety Laws). AVCOM and each
Subsidiary has operated and continues to operate in compliance with all
Environmental, Health & Safety Laws governing the handling, use and exposure to
26
<PAGE>
and disposal of asbestos or asbestos-containing materials. There are no claims,
actions, suits, governmental investigations or proceedings before any
governmental authority or third party pending, or threatened against or directly
affecting AVCOM, any Subsidiary or any of their assets or operations relating to
the use, handling or exposure to and disposal of asbestos or asbestos-containing
materials in connection with their assets and operations.
(k) As used in this Agreement, "ENVIRONMENTAL, HEALTH AND SAFETY LAWS"
means all federal, state, regional or local statutes, laws, rules, regulations,
codes, orders, plans, injunctions, decrees, rulings and changes or ordinances or
judicial or administrative interpretations thereof, currently in existence, any
of which govern (or purport to govern) or relate to pollution, protection of the
environment, public health and safety, air emissions, water discharges,
hazardous or toxic substances, solid or hazardous waste or occupational health
and safety, as any of these terms are or may be defined in such statutes, laws,
rules, regulations, codes, orders, plans, injunctions, decrees, rulings and
changes or ordinances, or judicial or administrative interpretations thereof,
including, without limitation, RCRA, CERCLA, the Hazardous Materials
Transportation Act, the Toxic Substances Control Act, the Clean Air Act, the
Clean Water Act, FIFRA, EPCRA and OSHA.
3.9 MINUTE AND STOCK BOOKS; RECORDS. The respective minute books of
-------------------------------
AVCOM and each of the Subsidiaries made available to SIGR contain all of the
records of meetings and other corporate or similar actions of the respective
shareholders, directors, partners and members (and committees thereof) to the
extent such records were prepared. The Bylaws contained in or kept with said
minute books are true, complete and correct copies of the Bylaws of AVCOM and
each of the Subsidiaries and all amendments thereto duly adopted and in force.
The stock transfer ledger maintained by AVCOM's transfer agent and made
available to SIGR is complete and accurate. The respective stock or other
interest transfer records maintained by each of the Subsidiaries and made
available to SIGR are complete and accurately disclose all issuances and
transfers of stock or other interest of each of the Subsidiaries. All other
records maintained by AVCOM and each of the Subsidiaries accurately reflect the
information presented therein, including but not limited to records pertaining
to bank accounts and safe deposit boxes. Except as set forth in Exhibit 3.9
-----------
attached
27
<PAGE>
hereto, none of AVCOM or any Subsidiary has any of its records or information
recorded, stored, maintained or held off its premises.
3.10 LIABILITIES. Except as and to the extent reflected or reserved
-----------
against in the Financial Statements, neither AVCOM nor any of the Subsidiaries
had any material liabilities or obligations as of the dates thereof, secured or
unsecured (whether accrued, absolute, contingent or otherwise), including,
without limitation, tax liabilities due or to become due, and neither AVCOM nor
any of the Subsidiaries has incurred, or will incur, any material liabilities or
obligations outside of the ordinary course of business since the date of the
most recent of the Financial Statements, except liabilities permitted by this
Agreement. Except as set forth in Exhibit 3.10 or Exhibit 3.6(a) attached
------------ --------------
hereto, neither AVCOM nor any of the Subsidiaries has any material obligations
or liabilities, whether direct or indirect, joint or several, absolute or
contingent, matured or unmatured, secured or unsecured, which could be affected
by the execution and delivery of this Agreement or consummation of the
transactions contemplated by this Agreement or which could affect the same. For
the purposes of this paragraph, "material" shall be defined as any obligation or
liability individually in excess of $25,000 or in the aggregate in excess of
$100,000.
3.11 CONTRACTS. Except as set forth in Exhibit 3.11 attached hereto or
--------- ------------
in any other Exhibit attached hereto and referenced below, true, correct and
complete copies of which referenced items have previously been delivered to
SIGR, neither AVCOM nor any Subsidiary is a party to or bound by any of the
following (hereinafter, any of the following are referred to collectively as the
"CONTRACTS" and individually as a "CONTRACT"):
(a) any contract outside of the ordinary course of business for the
purchase or sale of services, equipment, inventory, materials, supplies, or any
capital item or items, or supply agreements with the federal government or any
state or local government or any agency thereof;
(b) any collective bargaining agreement or other agreement with any
labor union or labor organization or any employment, consulting, severance,
bonus, deferred compensation, independent contractor, commission or similar
agreement;
28
<PAGE>
(c) any acquisition, development, working capital, receivables or other
loan (whether secured or unsecured) agreement or indenture or other instrument
relating to the borrowing of money or guaranty of any obligation for the
borrowing of money;
(d) any tenancy, lease, license or similar agreement relating to
property except as set forth in Exhibit 3.6(a) attached hereto;
--------------
(e) any license, lease or other agreement outside of the ordinary course
of business to provide or acquire services or equipment related to the timeshare
industry of any kind;
(f) except as noted in Exhibit 3.7, any insurance policies currently in
-----------
force naming AVCOM or a Subsidiary as an insured or beneficiary or as a loss
payee, or for which AVCOM or a Subsidiary has paid all or part of the premium;
(g) any instrument or agreement relating to indebtedness by way of
lease-purchase arrangements, conditional sale, guarantee or other undertakings
on which others rely in extending credit, any joint venture agreements or any
chattel mortgages or other security arrangements;
(h) any agreement or contract with, or any obligation to or from an
affiliate or a shareholder of any of the Principal Shareholders, or to the best
knowledge of AVCOM and the Principal Shareholders, any Affiliate of any
Shareholder. For purposes of this Agreement, "AFFILIATE" shall mean any person
or entity (i) that controls or is controlled by or is under common control with,
the person or entity involved, including, without limitation, officers and
directors, (ii) that beneficially owns or holds 5% or more of any equity
interest in any person or entity involved, or (iii) 5% or more of whose voting
securities (or in the case of a person which is not a corporation, 5% or more of
any equity interest) is owned beneficially by the person or entity involved. As
used herein, the term "CONTROL" shall mean possession of the power to direct or
cause the direction of the management or policies of a person or entity, whether
through ownership of securities, by contract or otherwise;
(i) any marketing and sales agreement, any management agreement, any
exchange agreement, any franchise agreement, any profit interest agreement, any
agreement in favor of any
29
<PAGE>
Association or any Authority, declarations of covenants, conditions and
restrictions, indemnification agreement, or partnership or joint venture
agreement; or
(i) any other plans, agreements, contracts, powers of attorney, bids or
proposals, whether written or oral.
Except as set forth in Exhibit 3.11 attached hereto, none of AVCOM nor any
------------
Subsidiary has committed any material breach of any provisions of, or is in
violation or default under the terms of, or has caused or permitted to exist any
event that without due notice or lapse of time or both would constitute a
default or event of default under, any such Contract. The execution and
delivery of this Agreement by AVCOM and the consummation of the transactions
contemplated by this Agreement will not violate or cause a default or event of
default under any provision of, or result in the acceleration of any obligation
under, or the termination of, any such Contract. To the best knowledge of AVCOM
and the Principal Shareholders, all such Contracts are valid, binding and in
full force and effect and will continue in full force and effect to the benefit
of AVCOM or a Subsidiary, as indicated on said Exhibit 3.11, their respective
------------
successors and assigns, if such party so elects, without change following the
consummation of the transactions contemplated by this Agreement without
obtaining the consent of any other party, except as set forth on Exhibit 3.14(b)
---------------
attached hereto.
3.12 LITIGATION AND COMPLIANCE. Except as set forth on Exhibit 3.12
------------------------- ------------
attached hereto, there is no pending claim, investigation, lawsuit or
administrative proceeding by or against AVCOM or a Subsidiary or the operation
of their business; the business of AVCOM or a Subsidiary is not affected by any
pending or threatened strike or other labor disturbance. AVCOM and each of the
Subsidiaries and the operation of their business are in substantial compliance
with all federal, state and local laws and regulations and administrative orders
applicable thereto including, but not limited to, all federal, state, local and
foreign laws and regulations regarding the advertising, marketing, offer to
sell, or sale of Intervals in each state and local jurisdiction in which AVCOM
and the Subsidiaries are doing business including, but not limited to, the
Federal Trade Commission Act, Regulation Z (the Truth in Lending Act), Equity
Credit Opportunity Act and Regulation B, Interstate and Land Sales Full
Disclosure Act, Real Estate Standards Practices Act, Telephone Consumer
Protection Act,
30
<PAGE>
Telemarketing and Consumer Fraud and Abuse Prevention Act, Fair Housing Act and
Civil Rights Act of 1964 and 1968, and any and all other licensure, anti-fraud,
telemarketing, price, gift, and sweepstakes laws to which AVCOM and the
Subsidiaries are subject (collectively, "Consumer Protection Laws"); and there
is no order, writ, injunction or decree affecting the operations or the business
of AVCOM or any of the Subsidiaries or the transactions contemplated by this
Agreement. No actions are being taken by AVCOM or the Subsidiaries or any other
party in connection with the operation of the Resorts and/or the rental of
Dedicated Units which would constitute a "rental pool" or which would otherwise
constitute a violation of any federal or state securities or other laws.
3.13 NON-CONTRAVENTION. Neither the execution of this Agreement nor
-----------------
the consummation of the transactions contemplated hereby will result in the
breach of any term or provision of, constitute a default under, or accelerate or
augment the performance otherwise required under, any provision of the governing
documents of AVCOM or a Subsidiary, or any agreement (including without
limitation any loan agreement or promissory note), indenture, instrument, order,
law or regulation to which AVCOM or a Subsidiary is a party or by which they are
bound, or will result in the creation of any lien or encumbrance upon any
property of AVCOM or a Subsidiary.
3.14 LICENSES, PERMITS AND REQUIRED CONSENTS. To the best of AVCOM's
---------------------------------------
knowledge and the knowledge of the Principal Shareholders, AVCOM and each of the
Subsidiaries have all federal, state and local franchises, tariffs, licenses,
ordinances, certifications, approvals, authorizations and permits necessary to
the conduct of their business as currently conducted including, but not limited
to, all public reports, brokerage and OPC licenses and other permits required by
federal, state and local laws to sell the Intervals in the states and local
jurisdictions in which the Properties are located as well as all other state and
local jurisdictions in which the Intervals are being advertised, marketed and
sold (collectively, "LICENSES AND PERMITS"). A list of the Licenses and Permits
is set forth on Exhibit 3.14(a) attached hereto, true, correct and complete
---------------
copies of which have previously been delivered to SIGR. To the best of AVCOM's
knowledge and the knowledge of the Principal Shareholders, all Licenses and
Permits are in full force and effect, no material violations have been made in
respect thereof, and no proceeding is pending
31
<PAGE>
which could have the effect of revoking or limiting any such Licenses and
Permits and, except for amendments to Licenses and Permits which will be
necessary as a result of the change in control which will occur as a result of
the transactions contemplated hereby and which can be obtained in due course,
the same will not cease to remain in full force and effect by reason of the
transactions contemplated by this Agreement.
Exhibit 3.14(b) attached hereto sets forth all registrations, filings,
---------------
applications, notices, transfers, consents, approvals, orders, qualifications,
waivers or other actions of any kind known by AVCOM to be required to be made,
filed, given or obtained by or on behalf of AVCOM or any of the Subsidiaries
with, to or from any persons, governmental authorities or private entities in
connection with the consummation of the transactions contemplated by this
Agreement, and, to the best knowledge of the Principal Shareholders, there is no
reason why all registrations, filings, applications, notices, transfers,
consents, approvals, orders, qualifications, waivers and other actions will not
be able to be made and/or granted in a manner that will permit the transactions
contemplated herein within the time frame contemplated herein without the
payment of any fee or other amount and without any material adverse affect on
the business or operations of AVCOM.
3.15 LABOR MATTERS. Neither AVCOM nor any of the Subsidiaries has any
-------------
obligations, contingent or otherwise, under any employment or consulting
agreement (except if and as set forth in Exhibit 3.11 attached hereto),
------------
collective bargaining agreement or other contract with a labor union or other
labor or employee group. To the best of AVCOM's knowledge, there are no efforts
presently being made or threatened by or on behalf of any labor union with
respect to employees of AVCOM or a Subsidiary. To the best of AVCOM's knowledge
and the knowledge of the Principal Shareholders, AVCOM and each of the
Subsidiaries are in compliance with all federal, state or other applicable laws,
domestic or foreign, respecting employment and employment practices, terms and
conditions of employment and wages and hours, and have not and are not engaged
in any unfair labor practice; no unfair labor practice complaint against AVCOM
or any Subsidiary is pending or threatened before the National Labor Relations
Board; there is no labor strike, dispute, slowdown or stoppage pending or
threatened against or involving AVCOM or any Subsidiary; no representation
question exists respecting the employees of AVCOM or any Subsidiary; no
32
<PAGE>
grievance or internal or informal complaint which might have an adverse effect
upon AVCOM or any Subsidiary or the conduct of their respective businesses
exists; no arbitration proceeding arising out of or under any collective
bargaining agreement is pending and no claim therefor has been asserted; and no
collective bargaining agreement is currently being negotiated by AVCOM or any
Subsidiary. There has not been any adverse change in relations with employees
of AVCOM or any Subsidiary as a result of any announcement or consummation of
the transactions contemplated by this Agreement.
3.16 EMPLOYEE BENEFIT PLANS.
----------------------
(a) Exhibit 3.16 attached hereto sets forth a complete list and brief
------------
description of each employee benefit plan ("EMPLOYEE BENEFIT PLAN" or "PLAN"),
as defined in Section 3(3) of the Employee Retirement Income Security Act of
1974 ("ERISA"), maintained for employees of AVCOM or any of the Subsidiaries or
contributed to by AVCOM or any of the Subsidiaries. For purposes of this
Section, AVCOM and the Subsidiaries shall include all trades or businesses
(whether or not incorporated) which are a member of a group of which AVCOM or a
Subsidiary is a member and which are under common control within the meaning of
Section 414 of the Code and the regulations promulgated thereunder.
(b) Each Employee Benefit Plan and any related trust agreement, annuity
contract or any other funding or implementing instrument complies currently and
has complied in the past, as to form, operation and administration, with the
provisions of ERISA, as amended, and all other laws, rules and regulations and
with the Code where required in order to be tax-qualified under Sections 401(a)
or 403(a) and 501(a) of the Code and no event has occurred which will or could
give rise to disqualification of any such Plan under said sections. All
necessary governmental approvals for the Employee Benefit Plans have been
obtained; each Employee Benefit Plan which is an employee pension benefit plan
(as defined in Section 3(2)(A) of ERISA) has been duly authorized by the Board
of Directors of AVCOM or a Subsidiary, as appropriate, and a favorable
determination as to the qualification under the Code of each such employee
pension benefit plan has been made by the Internal Revenue Service. None of the
Plans is a "Multiemployer Plan" within the meaning of Section 3(37) of ERISA.
33
<PAGE>
(c) None of AVCOM, any Subsidiary or any fiduciary or administrator of any
Employee Benefit Plan has engaged in any transaction in violation of Section
406(a) or (b) of ERISA for which no exemption exists under Section 408 of ERISA
or any "prohibited transaction" (as defined in Section 4975(c)(1) of the Code)
for which no exemption exists under Section 4975(c)(2) or 4975(d) of the Code.
No event has occurred which will or could subject any such Plan to income tax
under Section 511 of the Code or to an excise tax under Section 4971 through
4981 of the Code.
(d) No Employee Benefit Plan is subject to the minimum funding standards of
Section 302 of ERISA or Section 412 of the Code. No Employee Benefit Plan is a
defined benefit pension plan subject to Title IV of ERISA.
(e) AVCOM has delivered to SIGR a complete and correct copy of (i) each
Employee Benefit Plan (and related trust agreement, annuity contract or other
funding or implementing instrument), including all amendments thereto; (ii) all
filings (including all attachments thereto) made or required to be made
(including but not limited to annual reports and returns) with the Internal
Revenue Service, Department of Labor or the PBGC relative to any Employee
Benefit Plan for each of the three (3) most recent plan years; (iii) the
actuarial reports as of the last valuation date, balance sheets and consolidated
financial statements as of the last valuation date, and the most recent IRS
determination letters; and (iv) other relevant documents in the possession of
AVCOM, a Subsidiary or their respective employees or agents, with respect to
each Employee Benefit Plan. Such documents fairly present the financial
condition of each of such Plans.
(f) The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby will not result in: (i) a complete or
partial withdrawal from any Employee Benefit Plan, or (ii) any funding
deficiency or lien under ERISA.
3.17 TAXES AND RETURNS.
-----------------
(a) All returns or filings respecting federal, state, county and local, and
all foreign and other, income, franchise, excise, tariff, gross receipts, sales
and use, payroll, real and personal property and other taxes and governmental
charges,
34
<PAGE>
assessments and contributions ("TAXES") which AVCOM or any of the Subsidiaries
is required to make have been filed and all taxes due pursuant to such returns
or filings have been paid or collected or withheld and remitted to the
appropriate governmental agency except for any Taxes which AVCOM or a Subsidiary
is contesting in good faith which have been noted in the Financial Statements,
and except for Taxes not yet payable which AVCOM believes have been adequately
provided for in the Financial Statements. Copies of returns (including, without
limitation, information returns) have been timely filed with the appropriate
governmental agency with respect to all Taxes and the copies thereof which have
been provided to SIGR are true, accurate and complete. None of AVCOM, a
Subsidiary or any group of which AVCOM or any Subsidiary is now or ever was a
member has filed or entered into any currently effective election, consent or
extension agreement that extends any applicable statute of limitations. No
issues have been raised (and are currently pending) by any taxing authority in
connection with any return of AVCOM or any Subsidiary. Exhibit 3.17 sets forth
------------
the years for which examination of any return are presently being conducted.
All deficiencies asserted or assessments made as a result of any examination
have been fully paid, or are being contested and an adequate reserve therefore
has been established and is reflected in the financial statements of the AVCOM.
Except as otherwise indicated on Exhibit 3.1 attached hereto, neither AVCOM nor
-----------
any of the Subsidiaries ever has been an "S" corporation under the Code.
(b) All elections with respect to Taxes affecting AVCOM and the
Subsidiaries are set forth in Exhibit 3.17 attached hereto. None of AVCOM or
------------
the Subsidiaries: (i) has made or will make a deemed dividend election under
Treas. Reg. (S)1.1502-32(f)(2) or a consent dividend election under Section 565
of the Code; (ii) has consented at any time under Section 341(f)(l) of the Code
to have the provisions of Section 341(f)(2) of the Code apply to any disposition
of AVCOM's or the Subsidiaries' assets; (iii) has agreed, or is required, to
make any adjustment under Section 481(a) of the Code by reason of a change in
accounting method or otherwise; (iv) has made an election, or is required, to
treat any asset of AVCOM or the Subsidiaries as owned by another person for
federal income tax purposes or as tax-exempt bond financed property or tax-
exempt use property within the meaning of Section 168 of the Code; or (v) has
made any of the foregoing elections under any comparable state or local income
tax provision.
35
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(c) Except as set forth in Exhibit 3.17 attached hereto, AVCOM and the
------------
Subsidiaries are not and have never been includable corporations in an
affiliated group of corporations, within the meaning of Section 1504 of the
Code, other than in the affiliated group of which AVCOM is the common parent
corporation.
(d) All tax sharing agreements or similar arrangements with respect to or
involving AVCOM and the Subsidiaries are set forth in Exhibit 3.17 attached
------------
hereto.
(e) Neither AVCOM nor any of the Subsidiaries has made an election under
Section 338 of the Code or has taken any action that would result in any tax
liability of AVCOM or any of the Subsidiaries as a result of a deemed election
within the meaning of Section 338 of the Code.
(f) Neither AVCOM nor any of the Subsidiaries has made or become obligated
to make, or will, as a result of the transactions contemplated by this
Agreement, make or become obligated to make, any "excess parachute payment" as
defined in Section 280G of the Code (without regard to subsection (b)(4)
thereof).
(g) Except as set forth in Exhibit 3.17 attached hereto, there are no
------------
outstanding balances of deferred gain or loss accounts related to deferred
intercompany transactions among AVCOM and the Subsidiaries.
(h) The amount of consolidated net operating losses, net capital losses,
foreign tax credits, investment and other tax credits of the consolidated group
of which AVCOM is the common parent allocable to AVCOM and the Subsidiaries
under Treas. Reg. (S)1.1502-79 is set forth in Exhibit 3.17 attached hereto.
------------
(i) AVCOM's basis, and excess loss account, if any, in each Subsidiary is
set forth in Exhibit 3.17 attached hereto. The earnings and profits (and any
------------
adjustment required by Section 1503(e) of the Code) for each Subsidiary is set
forth in Exhibit 3.17 attached hereto.
------------
(j) The amount of investment tax credit of AVCOM and the Subsidiaries
subject to recapture is set forth in Exhibit 3.17 attached hereto. The
------------
aggregate amount of ordinary losses on
36
<PAGE>
$1231 (b) property that has been deducted by AVCOM and the Subsidiaries is set
forth in Section 3.17 attached hereto.
------------
(k) Except as set forth in Exhibit 3.17 or Exhibit 3.1 attached hereto,
------------ -----------
neither AVCOM nor any of the Subsidiaries is subject to any joint venture,
partnership or other arrangement or contract which is or should be treated by
AVCOM or a Subsidiary as a partnership for federal income tax purposes.
(l) Except as set forth on Exhibit 3.17 attached hereto, the consolidated
------------
net operating losses, net capital losses, foreign tax credits, investment and
other tax credits set forth in Exhibit 3.17 attached hereto are not currently
------------
subject to any limitations under Section 382, Section 383 or any Treasury
Regulations (whether temporary, proposed or final) under Section 1502 of the
Code.
(m) All representations and warranties made in this Section 3.17 are being
------------
made by AVCOM and the Principal Shareholders to the extent of its knowledge
after reasonable inquiry and investigation of tax returns.
(n) Except as set forth on Exhibit 3.17 attached hereto, there are no
------------
documentary, stamp or other taxes (exclusive of income taxes) which shall become
due and payable as a result of the transactions contemplated herein.
3.18 CHANGES. Except as otherwise expressly disclosed on the Exhibits
-------
hereto, since December 31, 1995, there has not been:
(a) any damage, destruction, other casualty loss or other occurrence
resulting in a loss individually of $25,000 and in the aggregate of $100,000;
(b) any disposition of any asset of AVCOM or a Subsidiary other than
Intervals in the ordinary course of business;
(c) any amendment, modification or termination of any existing, or entering
into any new, contract, agreement, lease, license, permit or franchise with a
value individually of $25,000 and in the aggregate of $100,000;
(d) any direct or indirect redemption, purchase or other acquisition of, or
any declaration, setting aside or payment of
37
<PAGE>
any dividend or other distribution
on or in respect of, any stock or other securities of AVCOM or a Subsidiary;
(e) any material changes in the accounting methods or practices followed by
AVCOM or any of the Subsidiaries or any change in depreciation or amortization
policies or rates; or
(f) any other materially adverse change in the assets, business, condition
or prospects of AVCOM or a Subsidiary.
3.19 ACCOUNTS RECEIVABLE. The accounts receivable which are reflected in
-------------------
the Financial Statements or which arose subsequent thereto were or will be, as
the case may be, validly obtained in the ordinary course of business of AVCOM
and the Subsidiaries and AVCOM and the Subsidiaries own 100% of the beneficial
interests therein, none of which has been pledged, encumbered or sold (or are
subject to a contract which for the sale, encumbrance or pledge thereof) except
as set forth on Exhibit 3.19. The reserves for doubtful accounts reflected on
------------
the Financial Statements were determined in accordance with generally accepted
accounting principles and past practice consistently applied.
3.20 NO ADVERSE ACTIONS. There is no existing, pending or threatened
------------------
termination, cancellation, limitation, modification or change in the business
relationship of AVCOM or a Subsidiary with any principal supplier, customer or
other person or entity except as are immaterial individually and in the
aggregate and which are in the ordinary course of business. None of AVCOM, a
Subsidiary or, to the best of AVCOM's and the Principal Shareholders' knowledge,
any shareholder, director, officer, agent, employee or other person associated
with or acting on behalf of any of the foregoing has used any corporate funds
for unlawful contributions, payments, gifts, entertainment or other unlawful
expenses relating to political activity, or made any direct or indirect unlawful
payments to governmental officials or others.
3.21 REPORTING. AVCOM and each Subsidiary has timely filed (within
---------
applicable extension periods) all reports and documents required to be filed by
it pursuant to federal and state securities laws and the rules and regulations
promulgated thereunder. All such reports and documents were appropriately
responsive to all applicable requirements, were complete, correct and proper in
form and did not contain an untrue
38
<PAGE>
statement of a fact or omit to state a fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. AVCOM shall send to SIGR copies of all
financial statements and reports as and when sent to the AVCOM Shareholders, the
SEC or any other regulatory authority, as to which the representations and
warranties in the preceding sentence shall also apply.
3.22 DISCLOSURE. No representation, warranty or statement made by or on
----------
behalf of AVCOM in this Agreement or the Exhibits attached hereto or in the
certificates or other materials furnished or to be furnished to SIGR or its
representatives or lenders in connection with this Agreement and the
transactions contemplated hereby or thereby, contains or will contain any untrue
statement of fact or omits or will omit to state a fact required to be stated
herein or therein or necessary to make the statements contained herein or
therein not misleading. AVCOM shall promptly notify SIGR of any change or event
which could materially adversely affect the assets, operations, business,
conditions or prospects of AVCOM or a Subsidiary.
3.23 UPDATING OF EXHIBITS AND DISCLOSURE DOCUMENTS. This Agreement is
---------------------------------------------
being executed without the attachment of all contemplated Exhibits due to
AVCOM's lack of immediate access to the information required to complete the
Exhibits. Notwithstanding anything to the contrary herein, SIGR's due diligence
period described in Section 5.2(o) shall not commence until all Exhibits have
been completed and identified to the reasonable satisfaction of SIGR. SIGR's
approval of information in an exhibit for the purpose of approving the same as
an exhibit to be attached to this Agreement shall not preclude SIGR from
reviewing the information contained therein as part of SIGR's due diligence
investigation. SIGR shall have the right to terminate this Agreement if the
exhibits have not been completed and identified by October 15, 1996. AVCOM shall
notify SIGR of any changes, additions or events which may cause any change in or
addition to any Exhibits delivered by it under this Agreement, promptly after
the occurrence of the same and at the Closing by the delivery of updates of all
Schedules and Exhibits. No notification made pursuant to this Section shall be
deemed to cure any breach of any representation or warranty made in this
Agreement unless SIGR specifically agrees thereto in writing nor shall any such
notification be considered to constitute or give rise to a waiver by SIGR of any
condition set
39
<PAGE>
forth in this Agreement. AVCOM warrants that the Exhibits to be attached shall
be consistent with and in accordance with the Financial Statements provided to
SIGR as referenced in Section 3.5, and the determination of SIGR to proceed with
Closing notwithstanding that the final Exhibits do not satisfy such warranty
shall not preclude SIGR from asserting remedies under Article VIII or otherwise
due to the failure to satisfy such warranty.
ARTICLE IV
ADDITIONAL AGREEMENTS OF THE PARTIES
4.1 ORDINARY COURSE. Except as described on Exhibit 4.1 attached hereto
--------------- -----------
and made a part hereof, prior to the Closing from and after the execution of
this Agreement, without SIGR's written consent, AVCOM represents and warrants
that neither AVCOM nor a Subsidiary shall have:
(a) borrowed any sums or entered into any financial guarantees or otherwise
incurred any indebtedness or liability in excess of $10,000 individually or
$50,000 in the aggregate for AVCOM and all Subsidiaries as a group;
(b) sold, assigned, transferred, leased, mortgaged, pledged or subjected to
lien, or otherwise encumbered, any of its assets, with the exception of interval
sales made in the ordinary course of business;
(c) managed customer accounts, equipment, inventories and other supplies
other than in the ordinary course of business;
(d) issued or sold any shares of its capital stock of any class, or issued
or sold any securities convertible into, or options with respect to, or warrants
to purchase or rights to subscribe to, any shares of its capital stock of any
class, nor made any commitment to issue or sell any such shares or securities;
(e) directly or indirectly through any investment banker or other
representative or otherwise, solicited or negotiated with respect to any
inquiries or proposals from any person relating to: (1) the merger or
consolidation of AVCOM or a Subsidiary with any person or entity, (2) the direct
or indirect acquisition by any person of any of the assets of AVCOM or a
Subsidiary, or (3) the acquisition of direct or indirect
40
<PAGE>
beneficial ownership or control of AVCOM or a Subsidiary or any securities
thereof by any person;
(f) entered into any agreement or transaction not in the ordinary course of
business (i) pursuant to which the aggregate financial obligation of AVCOM or a
Subsidiary may exceed $10,000 individually or $50,000 in the aggregate for AVCOM
and the Subsidiaries as a group, or (ii) which is not terminable by AVCOM or
such Subsidiary without penalty upon no more than 31 days' notice;
(g) entered into any employment, consulting or similar agreement with, or
made or authorized any compensation increase for, any executive officer,
director or key employee of AVCOM or a Subsidiary whether such increase relates
to base compensation, commissions, bonuses or benefits, or otherwise;
(h) declared, paid or set aside for payment any dividend, distribution or
return of capital in respect of its capital stock or other equity securities or,
directly or indirectly, redeemed, purchased or otherwise acquired any shares of
its capital stock, options, warrants or securities convertible into its capital
stock or other equity securities;
(i) made or committed to make any capital expenditures in excess of $10,000
individually or $50,000 when aggregated with all other such expenditures by
AVCOM and all Subsidiaries as a group during any 30-day period;
(j) made any new elections with respect to Taxes or any changes in current
elections with respect to Taxes; or
(k) otherwise entered into any transaction or taken other action not in the
ordinary course of business.
4.2 ACCESS PRIOR TO CLOSING. Upon reasonable notice from the date hereof
-----------------------
through the Closing, AVCOM, SIGR and the respective subsidiaries of each and
their respective directors, officers, agents and employees shall afford the
other party hereto and its representatives (including, without limitation, its
independent public accountants, engineers, consultants, attorneys, lenders and
other representatives) reasonable access to, and opportunity to examine, any and
all of the premises, properties, contracts, books, records, business, data,
personnel, customers and vendors of or relating to AVCOM or SIGR
41
<PAGE>
as the case may be, any of their subsidiaries or their operations. AVCOM, SIGR
and the respective Subsidiaries, and their respective officers, directors,
agents and employees shall cooperate fully in connection with the foregoing.
4.3 REGULATORY AND OTHER AUTHORIZATIONS. AVCOM and each of the
-----------------------------------
Subsidiaries shall obtain, and/or shall cooperate fully in obtaining, all
governmental, regulatory and third-party approvals, consents, filings,
authorizations or certifications necessary in order to consummate the
transactions contemplated hereby. The parties hereto will not take any action
that will have the effect of delaying, impairing or impeding the receipt of any
of the foregoing and will use their best efforts to secure the same as promptly
as possible.
4.4 FURTHER ASSURANCES. At any time and from time to time at or after the
------------------
Closing, the parties agree to cooperate with each other, to execute and deliver
such other documents, instruments of transfer or assignment, files, books and
records and do all such further acts and things as may be reasonably required to
carry out the transactions contemplated hereby.
4.5 PAYMENT OF TAXES. The AVCOM Shareholders shall pay all sales taxes,
----------------
other property transfer taxes, all documentary or other stamp taxes and all
similar taxes, including but not limited to income taxes, if any, arising out of
or related to their receipt of SIGR stock (including the Holdback Stock) or cash
as contemplated by this Agreement.
4.6 DELIVERY. The parties shall cause the delivery of the respective
--------
documents required to be delivered or caused to be delivered by them pursuant to
Article VI below.
- ----------
4.7 EMPLOYEES. Except as otherwise provided herein, AVCOM hereby
---------
acknowledges that SIGR has no obligation to employ, or to continue the
employment by AVCOM or a Subsidiary of, any of the employees of AVCOM or a
Subsidiary. Neither AVCOM nor a Subsidiary shall make any representation to the
contrary to any of such employees; provided, however, SIGR and/or its Affiliates
may interview or otherwise contact such employees regarding any future
employment. If and to the extent SIGR so requests, the respective directors and
officers of AVCOM and each of the Subsidiaries will use their best efforts to
cause employees of AVCOM or a Subsidiary designated by SIGR to remain employees
of AVCOM or a Subsidiary or become employees or consultants of
42
<PAGE>
SIGR, with it being understood and agreed that such employment or engagement
shall be with no contractual obligation on the part of AVCOM, a Subsidiary or
SIGR to continue any such employment or engagement, which employment or
engagement shall be upon terms and conditions satisfactory to SIGR.
4.8 CONTINUED RELATIONSHIPS. AVCOM and each of the Subsidiaries shall
-----------------------
preserve intact the business of AVCOM and each of the Subsidiaries and keep
available the services of their respective officers and employees and maintain
good relationships with suppliers, customers and others having business
relations with AVCOM or any of the Subsidiaries, and shall cause to be taken no
change in the business, condition or results of operations of AVCOM or any of
the Subsidiaries which may have an adverse effect on the assets, business,
condition or prospects of AVCOM or a Subsidiary.
4.9 CONFIDENTIALITY. Except as contemplated by this Agreement, as
---------------
required by law or otherwise expressly consented to in writing by SIGR and
AVCOM, all information or documents furnished hereunder by any party shall be
kept strictly confidential by the party or parties to whom furnished at all
times prior to the Closing Date, and in the event such transactions are not
consummated, each shall return to the other all documents furnished hereunder
and copies thereof upon request and shall continue to keep confidential all
information furnished hereunder and shall not thereafter use the same for its
advantage. Notwithstanding the foregoing, (a) SIGR or AVCOM may, with the
consent of the other, which consent shall not be unreasonably withheld or
delayed, issue or make a press release, announcement or other disclosure
regarding this Agreement and the transactions contemplated hereby which it
reasonably determines necessary or desirable under applicable law, and (b) SIGR
or AVCOM may, at any time after the date of this Agreement, file with the SEC a
Form 8-K pursuant to the Exchange Act with respect to the transactions
contemplated by this Agreement, which Form 8-K may include, among other things,
financial statements and pro forma financial information with respect to AVCOM
and the Subsidiaries, and/or file with the Commission a registration statement
under the Securities Act which includes a prospectus containing any information
required to be included therein with respect to the transactions contemplated by
this Agreement, including but not limited to financial statements and pro forma
financial information with respect to AVCOM and the Subsidiaries, and thereafter
distribute said prospectus in
43
<PAGE>
connection with the offer and sale of securities of SIGR. AVCOM shall cooperate
with SIGR and provide such information and documents as may be required in
connection with any such filings.
In the event the Closing is not consummated, each party hereto will hold in
absolute confidence any information obtained from another party except to the
extent (a) such party is required to disclose such information by law or
regulation, (b) disclosure of such information is necessary in connection with
the pursuit of a claim by such party against another party, (c) such information
was known by such party prior to such disclosure or was thereafter developed or
obtained by such party independent of such disclosure, or (d) such information
becomes generally available to the public or is otherwise no longer
confidential. Prior to any disclosure of information pursuant to the exception
in clause (a) or (b) of the preceding sentence, the party intending to disclose
the same shall so notify the party which provided the same in order that such
party may seek a protective order or other appropriate remedy should it choose
to do so. Notwithstanding the foregoing, SIGR or AVCOM may, with the consent of
the other, which consent shall not be unreasonably withheld or delayed, issue or
make a press release, announcement or other disclosure regarding the termination
of this Agreement and the transactions contemplated hereby which it reasonably
determines necessary or desirable under applicable law.
4.10 OPTIONS. AVCOM shall use its best efforts to cause all holders of the
-------
Options to exercise said Options prior to the Closing and to pay the exercise
price by the delivery of Options.
4.11 NO SOLICITATION. AVCOM and its respective Subsidiaries, and those
---------------
acting on behalf of any of them will not, and AVCOM will use its best efforts to
cause its officers, employees, agents, and representatives (including any
investment banker) not, directly or indirectly, to solicit, encourage, or
initiate any discussions with, or negotiate or otherwise deal with, or provide
any information to, any person or entity other than SIGR and its officers,
employees, and agents, concerning any merger, sale of substantial assets, or
similar transaction involving AVCOM or any Subsidiary or division of AVCOM or
any sale of any of its capital stock or of the capital stock or other securities
or assets of any Subsidiary or division of
44
<PAGE>
AVCOM. AVCOM will notify SIGR immediately upon receipt of any inquiry, offer or
proposal relating to any of the foregoing. None of the foregoing shall prohibit
providing information to others in a manner in keeping with the ordinary conduct
of AVCOM's business, or providing information to government authorities.
4.12 OPTION TO ACQUIRE AVCOM SHARES. AVCOM hereby grants to SIGR an
------------------------------
irrevocable option exercisable in whole or in part at any time or times through
December 31, 1998, following the occurrence of any of the termination events set
forth in Section 7.1(d)-(i) below, to acquire a number of shares of AVCOM common
stock equal to 19.9% of the total issued and outstanding AVCOM Shares, on a
fully diluted basis assuming the exercise of all conversion privileges, at a
exercise price of $5.00 per share (the "STRIKE PRICE"), the Strike Price to be
reasonably adjusted based upon any corporate recapitalizations, reorganizations,
issuances of securities or instruments convertible into securities of AVCOM
subsequent to the date hereof, such that SIGR shall maintain the economic
benefits contemplated herein as of the date of this Agreement. Moreover, such
shares deliverable upon exercise of the option shall constitute 19.9% of both
economic interest in AVCOM as well as 19.9% of the voting power of AVCOM. The
Strike Price will be payable at the sole option of SIGR, in either cash or by
the delivery of common stock of SIGR. In the event payment is by SIGR Stock,
the Strike Price may vary to the maximum of $6.00 per share or a minimum of
$4.00 per share with the Initial Conversion Ratio between the SIGR Stock and the
AVCOM Shares being .26 and subject to adjustment in a manner consistent with the
method described in Section 1.3 hereof (with the exception of the adjustment in
Section 1.3(ii)), and the Share Value being calculated from the date of
- ---------------
exercise.
4.13 SIGR LOAN. SIGR shall proceed with funding of the loan referenced in
---------
Exhibit 4.13 in accordance with the terms of such loan.
- ------------
4.14 AGREEMENT OF AFFILIATES. AVCOM shall use its reasonable efforts to
-----------------------
cause each Person whom it reasonably believes is an "affiliate" of AVCOM for
purposes of Rule 145 of the Securities Act of 1933 to deliver to SIGR the
Affiliate Agreement attached hereto as Exhibit 5.2. If the Merger will qualify
------------
for pooling-of-interests accounting treatment, shares of SIGR Stock issued to
affiliates of AVCOM in exchange for their
45
<PAGE>
AVCOM Shares shall not be transferable until such time as the financial results
covering at least 30 days of combined operations of SIGR and AVCOM have been
published within the meaning of Section 201.01 of the SEC's Codification of
Financial Reporting Policies. SIGR shall be entitled to place a restrictive
legend on certificates issued to AVCOM affiliates to enforce the provisions of
this Section, regardless of whether the affiliate has executed the Affiliate
Agreement.
4.15 CONVERSION OF PREFERRED STOCK. All preferred stock of AVCOM shall,
-----------------------------
prior to Closing, be converted into AVCOM Common Stock. The failure of AVCOM to
complete the conversion of all preferred stock into AVCOM Common Stock by June
30, 1997 shall be a material breach of this Agreement.
ARTICLE V
CONDITIONS TO CLOSING
5.1 CLOSING CONDITIONS OF AVCOM. The obligations of AVCOM under this
---------------------------
Agreement are subject to the reasonable satisfaction at or prior to the Closing
of each of the following conditions, but compliance with any or all of such
conditions may be waived, in writing, by AVCOM:
(a) The representations and warranties of SIGR contained in this Agreement
shall be true and correct in all material respects on the date hereof and on the
Closing Date;
(b) SIGR shall have performed and complied with all of the covenants and
agreements in all material respects and satisfied all of the conditions required
by this Agreement to be performed or complied with or satisfied by SIGR at or
prior to the Closing;
(c) SIGR and its attorneys, accountants and representatives shall have
provided reasonable cooperation to AVCOM's tax professionals in supplying
information and representations reasonably necessary in preparing a tax opinion
to the AVCOM Shareholders with respect to the tax treatment of the Merger;
(d) All required governmental, regulatory and third party approvals,
consents and/or waiting periods shall have been obtained or shall have expired;
46
<PAGE>
(e) On the Closing Date, there shall be no injunction, restraining order or
decree of any nature of any court or governmental agency or body in effect that
restrains or prohibits the consummation of the transactions contemplated by this
Agreement;
(f) The Merger shall have received the requisite approval of the AVCOM
Shareholders, which to the best of AVCOM's knowledge will be timely obtained and
which in any event is represented by AVCOM to require approval by not more than
a simple majority of any class of AVCOM Stock; and
(g) AVCOM's lenders shall have consented to the merger to the extent that
proceeding without such consent would allow such lender to accelerate its
indebtedness; however, (i) AVCOM undertakes to seek such consent and to promptly
provide such lenders with such information as they may require to provide
consent; (ii) SIGR shall have the right (but not the obligation) to negotiate
directly with such lenders to obtain consent; and (iii) SIGR shall have the
right (but not the obligation) to satisfy the loan (on such terms as may be
negotiated by SIGR) for which the lender declines to provide the consent
necessary to satisfy this condition.
5.2 CLOSING CONDITIONS OF SIGR. The obligations of SIGR under this
--------------------------
Agreement are subject to the reasonable satisfaction at or prior to the Closing
of each of the following conditions, but compliance with any or all of any such
conditions may be waived, in writing, by SIGR:
(a) The representations and warranties of AVCOM contained in this Agreement
shall be true and correct in all material respects on the date hereof and on the
Closing Date;
(b) AVCOM and each of the Subsidiaries shall have performed and complied
with all the covenants and agreements in all material respects and satisfied all
the conditions required by this Agreement to be performed or complied with or
satisfied by it or them at or prior to the Closing;
(c) All required governmental, regulatory and third-party approvals,
consents and/or waiting periods shall have been obtained or shall have expired;
47
<PAGE>
(d) No action, suit or proceeding shall have been instituted by any
person or entity, or by any governmental agency or body, before a court or
governmental body, to restrain or prevent the carrying out of the transactions
contemplated by this Agreement or that seeks other material relief with respect
to any of such transactions or that could, individually or in the aggregate,
have a material adverse effect on the business or prospects of AVCOM or any
Subsidiary. On the Closing Date, there shall be no injunction, restraining order
or decree of any nature of any court or governmental agency or body in effect
that restrains or prohibits the consummation of the transactions contemplated by
this Agreement;
(e) AVCOM Shareholders holding more than ten percent (10%) of the AVCOM
Shares shall not have dissented or exercised appraisal rights under applicable
law in connection with the transactions contemplated by this Agreement;
(f) SIGR shall have received "comfort" letters from the independent
certified public accountants for AVCOM, dated the date on which the Registration
Statement, or last amendment thereto, shall become effective, and dated the
Closing Date, and addressed to SIGR and AVCOM, covering such matters as are
customary for such certified public accountants to deliver in connection with
transactions similar to the Merger;
(g) The Registration Statement shall have been declared effective and no
stop order suspending the effectiveness of the Registration Statement shall have
been issued and no proceeding for that purpose shall have been initiated or
threatened by the SEC, and the SIGR Stock to be received by the AVCOM
Shareholders shall be fully registered and freely tradeable, subject to the
provisions of Rules 144 and 145 of the Securities Act of 1933;
(h) SIGR shall have received all state securities laws or blue sky laws
and other authorizations necessary to consummate the transactions contemplated
hereby;
(i) SIGR's lenders shall have consented to the transactions contemplated
by this Agreement;
(j) SIGR's lenders shall have received such documents and instruments as
SIGR's lenders may reasonably require, provided SIGR shall use reasonable
efforts to obtain the same;
48
<PAGE>
(k) Each person who is or may be an Affiliated Person of AVCOM shall
have entered into an agreement with SIGR in the form customarily given in
similar transactions, including the Affiliate Letter, Lock-Up Letter and
Standstill Agreement, copies of which are attached hereto as EXHIBIT 5.2;
-----------
(l) The Merger shall have received the requisite approval of the AVCOM
Shareholders and that all shares of AVCOM preferred stock shall have been
converted into shares of AVCOM Common Stock;
(m) SIGR shall receive, in a form and substance reasonably acceptable to
SIGR estoppel certificates and beneficiary statements from all of AVCOM's and
each Subsidiary's lenders and material parties;
(n) SIGR shall have received a letter, dated as of the Closing Date, in
a form and substance reasonably acceptable to SIGR, from Arthur Anderson & Co.
to the effect that the Merger shall qualify for pooling-of-interest accounting
treatment;
(o) On or before sixty (60) days following the date of this Agreement
(subject to extension pursuant to Section 3.23 hereof), SIGR shall have
completed its due diligence investigation in regard to AVCOM and shall have
resolved to its full satisfaction any issue which arises in the course of the
investigation;
(p) The Conversion Share Value determined pursuant to Section 1.3(a),
--------------
above, shall not be less than 80% of $19.44, subject to appropriate adjustment
in the event of a stock split, stock dividend or recapitalization as referenced
therein;
(q) All consents, permits, approvals, licenses or orders from any
governmental or regulatory body or other third party required to be obtained,
including but not limited to, notification of the proposed transaction to the
Federal Trade Commission and the United States Department of Justice for review
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, shall have
been obtained or the applicable or required waiting periods shall have expired;
and
(r) There shall not have occurred any material adverse change in the
assets, business, condition or prospects of AVCOM or any Subsidiary.
49
<PAGE>
ARTICLE VI
THE CLOSING
6.1 DELIVERIES BY AVCOM. At the Closing, SIGR shall receive from AVCOM
--------------------
the following and AVCOM shall cause the same to be delivered to SIGR:
(a) Certificate of good standing from the Secretary of State of each of
the states in which AVCOM or any of the Subsidiaries is incorporated, organized
or qualified stating that each such entity is a validly existing corporation in
good standing;
(b) A certificate, dated as of the Closing, signed by an officer of,
AVCOM to the effect that the conditions specified in Section 5.1, and Section
----------- -------
5.2(a), (b), (e), (l) and (r) above, have been satisfied;
- ---
(c) An opinion from counsel of AVCOM and the Subsidiaries, in form and
substance satisfactory to counsel for SIGR, to the effect that: (i) AVCOM and
each Subsidiary is a corporation, partnership or limited liability company duly
organized, validly existing and in good standing under the laws of the state of
its incorporation or organization, is duly qualified to do business as a foreign
corporation, partnership or limited liability company and is in good standing in
each jurisdiction in which it has qualified to do business, as known by such
counsel, requires such qualification, has all requisite power and authority to
own all of its properties and assets, and has all required governmental
certifications, licenses, permits, approvals and authorizations and the
foregoing shall not cease to remain in full force and effect in accordance with
their terms by reason of the transactions contemplated by this Agreement; (ii)
the AVCOM Shares and the securities of the Subsidiaries outstanding immediately
prior to the Closing Date have been duly and validly authorized and issued, are
fully paid and nonassessable and were not, to the knowledge of such counsel,
issued in contravention to the preemptive rights of any person and, based upon a
review of the stock or other security transfer records and inquiry of the
officers and directors of AVCOM and the Subsidiaries, constitute all of the
issued and outstanding securities of AVCOM and the Subsidiaries, which
securities of the Subsidiaries are held as set forth in Exhibit 3.3 of this
-----------
Agreement; (iii) all authorizations, consents, approvals, certifications or
notices
50
<PAGE>
of any federal, state, local or foreign regulatory or administrative agency,
commission or other body required to be obtained or given or waiting period
required to expire in order that the transactions contemplated hereby may be
consummated have been satisfied or waived; (iv) this Agreement and the other
agreements and documents contemplated hereby have been duly and validly
authorized, executed and delivered on behalf of AVCOM and constitute (subject to
standard exceptions to enforceability) its valid, binding and enforceable
agreements; (v) except as disclosed in this Agreement or the Exhibits hereto,
and as may be specified by such counsel, to the knowledge of such counsel, there
is no litigation, proceeding, or governmental investigation or labor dispute
pending or threatened against or relating to AVCOM, any of the Subsidiaries or
their properties or business which is material to the business of AVCOM or a
Subsidiary or which may prohibit or inhibit consummation of this Agreement; (vi)
the execution, delivery and performance of this Agreement and the other
agreements and documents contemplated hereby do not (a) violate any provision of
the Certificate and/or Articles of Incorporation or Bylaws of AVCOM or the
governing documents of any Subsidiary, or (b) to the knowledge of such counsel,
violate any provision of, or constitute an event which is or with the passage of
time, or notice or both could result in a violation or acceleration of, or
result in the imposition of any lien upon the AVCOM Shares, any other securities
of AVCOM or a Subsidiary or the assets of AVCOM or a Subsidiary pursuant to, any
mortgage, lien, security agreement, lease, agreement, instrument, order, award,
judgment, decree or other matter to which AVCOM, a Subsidiary or an AVCOM
Shareholder is a party or by which they are bound; and (vii) the Merger has been
duly and validly approved and adopted by the AVCOM Shareholders and the Board of
Directors of AVCOM and all actions on the part of AVCOM necessary to cause the
Merger to become effective have been duly and validly taken;
(d) Copies of duly adopted resolutions approving the execution, delivery
and performance of this Agreement and the other instruments contemplated hereby
certified by the Secretary of AVCOM;
(e) If requested by SIGR, a policy or policies of title insurance or
commitments therefor (with the actual policy or policies to be issued subsequent
to Closing), with all premiums therefor to be paid by AVCOM, from a title
insurance company
51
<PAGE>
acceptable to SIGR in amounts and in form and substance acceptable to SIGR,
insuring all real estate interests of AVCOM and each of the Subsidiaries,
subject only to such exceptions as are reasonably acceptable to SIGR;
(f) A true, correct and complete copy of the Articles of Incorporation
(or similar public record of formation), as amended, of AVCOM and each
Subsidiary, certified by the Secretary of State of its state of incorporation or
formation, and a true, correct and complete copy of the Bylaws, operating
agreement or partnership agreement (as applicable) as amended, of AVCOM and each
Subsidiary, certified by the corporate Secretary;
(g) A list of the AVCOM Shareholders entitled to vote on the Merger as
of the Closing and certified by the transfer agent of AVCOM;
(h) An original or photostatic copy duly certified as accurate and
complete of all requisite governmental or regulatory approvals of the
transactions contemplated hereby; and
(i) Such other documents and instruments as SIGR may reasonably request.
6.2 SIGR'S DELIVERIES. At the Closing, counsel for AVCOM shall receive
-----------------
from SIGR the following:
(a) Certificate of good standing from the Secretary of State of the
State of Maryland stating that SIGR is a validly existing corporation in good
standing;
(b) A certificate, dated as of the Closing, signed by an officer of SIGR
to the effect that the conditions specified in Section 5.1(a) and (b) and (based
-----------
in part on the certificate delivered pursuant to Section 6.1(b) above), Section
----------- -------
5.2, above, have been satisfied;
- ---
(c) Copies of duly adopted resolutions of SIGR's Board of Directors as
well as any necessary shareholder approval or Board resolutions from any other
party to the reorganization affiliated with SIGR approving the execution,
delivery and performance of this Agreement, certified by its Secretary;
52
<PAGE>
(d) An opinion from counsel of SIGR, in form and substance satisfactory
to counsel for AVCOM, to the effect that: (i) SIGR is a corporation, duly
incorporated, validly existing and in good standing under the laws of the State
of Maryland; (ii) the shares of SIGR Stock, when issued pursuant to this
Agreement, will have been duly and validly authorized and issued and will be
fully paid and nonassessable and issued in compliance with all applicable
federal and state securities laws; (iii) this Agreement and the other agreements
and documents contemplated hereby have been duly and validly authorized,
executed and delivered on behalf of SIGR and constitute (subject to standard
exceptions to enforceability) its valid, binding and enforceable agreements; and
(iv) the execution, delivery and performance of this Agreement and other
agreements and documents contemplated hereby do not violate any provision of the
Certificate and/or Articles of Incorporation or By-laws of SIGR or any other
party to the reorganization which is an affiliate with SIGR; and (v) that any
requisite shareholder approvals of SIGR or any other party to the reorganization
affiliated with SIGR have been obtained; and
(e) Employment agreements to be entered into upon Closing between SIGR
or an SIGR subsidiary and Gary Hughes, John Stevens and Bob Eckenroth, in a form
substantially similar to Exhibit 6.2 hereto.
-----------
ARTICLE VII
TERMINATION
7.1 TERMINATION. Notwithstanding anything in this Agreement to the
-----------
contrary, this Agreement may be terminated only:
(a) by mutual consents of the Boards of Directors of SIGR and AVCOM;
(b) by SIGR or AVCOM if, for any reason, the Closing has not occurred on
or before June 30, 1997;
(c) by SIGR or AVCOM if any court of competent jurisdiction in the
United States or other United States governmental body shall have issued an
order, decree or ruling or taken any other final action restraining, enjoining
or otherwise prohibiting the Merger or the acceptance and payment
53
<PAGE>
for the AVCOM Shares and such order, decree, ruling or other action is or shall
have become non-appealable;
(d) by SIGR if AVCOM (or its Board of Directors) shall have (x)
authorized, recommended or filed a Solicitation/ Recommendation Statement on
Schedule 14d-9 not opposing any tender or exchange offer (other than the offer
described in this Agreement), or (y) authorized, recommended or publicly
announced its intention to enter into any merger (other than the Merger),
consolidation, liquidation, dissolution, business combination, recapitalization,
acquisition or disposition of a material amount of assets or securities or any
comparable transaction (each of the transactions described in subclause (x) and
(y) being referred to herein as an "ACQUISITION TRANSACTION") which has not been
consented to in writing by SIGR;
(e) by SIGR if the Board of Directors of AVCOM shall have withdrawn or
materially modified its authorization, approval or recommendation to the
stockholders of AVCOM with respect to the Merger or the Agreement, unless such
withdrawal or modification results solely from a material breach by SIGR of any
material obligation, covenant or agreement of SIGR contained in the Agreement
which SIGR fails to cure within 10 business days after notice thereof is
received from AVCOM, or the failure by AVCOM to complete the conversion of its
preferred stock pursuant to Section 4.15 hereof;
------------
(f) by SIGR if any person, entity or "group" (as that term is used in
Section 13(d)(3) of the Exchange Act) (other than SIGR or any of its affiliates)
shall have commenced a tender offer for at least a majority of the outstanding
AVCOM Shares at a price in excess of $5.00 per Share or shall have become the
"beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange Act)
of a majority of the then outstanding AVCOM Shares;
(g) by either SIGR or AVCOM, if prior to the Closing Date, (i) a person
or group shall have made a bona fide proposal which the Board of Directors of
AVCOM believes, in good faith after consultation with its financial advisor and
special counsel, is for a superior offer, and (ii) the Board of Directors of
AVCOM withdraws its recommendation or changes its recommendation in a manner
adverse to SIGR or the likelihood of the consummation of the Offer and Merger;
54
<PAGE>
(h) by SIGR if any person or group other than an associate or an
affiliate of SIGR presents to AVCOM a proposal for an acquisition or similar
transaction (including, without limitation, a recapitalization), whether or not
it constitutes a superior offer, which the Board of Directors of AVCOM believes
in good faith, after consultation with its financial advisor, should be
presented for approval by AVCOM's shareholders and the Board of Directors
thereafter resolves, without terminating this Agreement pursuant to paragraph
7.1(g) above and (i) without withdrawing or changing the recommendation, to
present to the shareholders for approval both such other transaction or proposal
and the Merger or (ii) withdraws or changes its recommendation;
(i) by SIGR in the event the Board of Directors of AVCOM shall have
failed to reaffirm, following written request by SIGR for such reaffirmation
after AVCOM shall have received any inquiry or proposal with respect to any
proposal for an Acquisition Event, its approval of the Merger (to the exclusion
of any other proposal for an Acquisition Event), or shall have resolved not to
reaffirm the Merger;
(j) by AVCOM if the Board of Directors of SIGR shall have withdrawn or
materially modified its authorization or approval with respect to the Merger or
this Agreement, unless such withdrawal or modification is permitted hereunder or
results from a material breach of AVCOM of any material obligation, covenant or
agreement of AVCOM contained in this Agreement which AVCOM fails to cure within
ten (10) business days after notice thereof is received from SIGR;
(k) by SIGR if, within the period described in Section 5.2(o), as may be
--------------
extended, SIGR shall not have resolved to its full satisfaction any issues
arising in its due diligence investigation; or
(l) by SIGR if, the Conversion Share Value determined pursuant to
Section 1.3(a), above, shall at any time subsequent to the date of this
- -----------
Agreement be less than 80% of $19.44, subject to appropriate adjustment in the
event of a stock split, stock dividend or recapitalization as referenced
therein.
As used herein, "Acquisition Event" shall mean the consummation of any
Acquisition Transaction (or series of transactions) that results in any person,
entity or "group"
55
<PAGE>
(other than SIGR or any of its affiliates) acquiring more than 50% of the
outstanding AVCOM Shares or assets of Avcom (including through any merger or
business combination).
The date on which this Agreement is terminated pursuant to any of the
foregoing paragraphs is herein referred to as the "Termination Date."
7.2 EFFECT OF TERMINATION. Except for the provisions set forth in
---------------------
Sections 4.9, 4.12, 4.13, 7.3, and in this Section 7.2, upon the termination of
this Agreement pursuant to Section 7.1, this Agreement shall forthwith become
null and void. It is expressly agreed and understood that nothing in this
Agreement shall preclude either party from seeking specific performance,
injunctive relief or any other remedies not involving the payment of monetary
damages in the event of any breach or violation of any provision of this
Agreement by the other party (whether or not this Agreement is terminated as a
result of such breach or violation) and each party acknowledges that, in light
of the unique benefit to it of its rights under this Agreement, such remedies
shall be available in respect of any such breach or violation by it in any suit
properly instituted in a court of competent jurisdiction.
7.3 CANCELLATION PAYMENTS AND EXPENSES.
----------------------------------
(a) Expenses and Cancellation Fee to SIGR. If the Merger is not
-------------------------------------
consummated or this Agreement is terminated (i) pursuant to Sections 7.1(d),
(e), (f), (g), (h) or (i), or (ii) if a Change in Control (as defined below)
shall occur prior to December 31, 1998 (other than a change of control pursuant
to the Merger), or (iii) because of a material breach by AVCOM of its
obligations under this Agreement or because the representations and warranties
of AVCOM contained in this Agreement shall be or become inaccurate or incomplete
in any material respects (any of the foregoing constituting an "AVCOM PAYMENT
EVENT"), AVCOM shall, (A) upon demand, reimburse SIGR for all Reimbursable
Expenses (as defined below) and, in addition, (B) pay immediately to SIGR a
cancellation fee (the "AVCOM CANCELLATION FEE") of $1,800,000, as liquidated
damages, and not as a penalty, payable in immediately available funds.
A "CHANGE IN CONTROL" shall be deemed to have occurred on the earliest date
on or by which (i) the beneficial ownership of the equity securities of AVCOM on
the part of any person or
56
<PAGE>
group (other than SIGR or its affiliates or associates), together with the
beneficial ownership thereof on the part of the affiliates and or associates of
such person or group (other than SIGR or its affiliates or associates), together
with the beneficial ownership thereof on the part of the affiliates and or
associates of such person or group, first equals or exceeds 50 percent of the
equity securities of AVCOM then outstanding, or (ii) any person or group (other
than SIGR or its affiliates or associates) acquires assets of AVCOM or its
Subsidiaries which, together with any assets acquired from AVCOM or its
Subsidiaries by any affiliates and or associates or such person or group,
constitute 50 percent of the assets owned by AVCOM and its Subsidiaries on the
Termination Date; provided, however, that if during the Measuring Period (as
defined below), AVCOM enters into an agreement providing for a transaction or
series of transactions that would result in Change in Control, the AVCOM
Cancellation Fee shall become payable on the date such agreement is entered
into, provided further, however, that no payment shall become due in respect of
such Change in Control until the earliest date upon which such transaction or
series of transactions is consummated (whether or not such date occurs during
the Measuring Period).
The "MEASURING PERIOD" shall be the period of time beginning on the
Termination Date and ending on the first anniversary of such date.
(b) Expenses and Cancellation Fee to AVCOM. If the Merger is not
--------------------------------------
consummated or this Agreement is terminated (i) pursuant to Section 7.1(j), or
(ii) because of a material breach by SIGR of its obligations under this
Agreement or because the representations and warranties of SIGR contained in
this Agreement shall be or become inaccurate or incomplete in any material
respect (any of the foregoing constituting a "SIGR PAYMENT EVENT"), SIGR shall
(A) upon demand reimburse AVCOM for all reimbursable expenses (as defined below)
and, in addition, (B) pay immediately to AVCOM a cancellation fee (the "SIGR
CANCELLATION FEE") of $900,000, as liquidated damages, and not as a penalty,
payable in immediately available funds.
(c) Reimbursable Expenses. "REIMBURSABLE EXPENSES" shall mean all
---------------------
reasonable out-of-pocket expenses and fees incurred by the party being
reimbursed hereunder (including, without limitation, legal and accounting fees
and fees payable to banks and other financial institutions and advisors,
including such
57
<PAGE>
party's respective agents) or on their behalf in connection with the Merger and
the consummation of all transactions contemplated by this Agreement, or incurred
by banks, financial institutions or advisors and assumed by the party being
reimbursed hereunder in connection with the negotiation, preparation, execution
and performance of this Agreement or any related financing.
(d) Remedies. The parties acknowledge that the agreements contained in
--------
this Section 7.3 are an integral part of the transactions contemplated by this
Agreement and that, without these agreements, the parties would not enter into
this Agreement. Accordingly, if either party fails to pay any amounts due
pursuant to this Section 7.3, and, in order to obtain such payment, suit is
commenced which results in a judgment against such party therefor, such party
shall pay the plaintiffs' reasonable costs (including attorneys' reasonable fees
and expenses) in connection with such suit, together with interest computed on
any amounts determined to be due pursuant to this Section 7.3 (computed from the
date upon which such amounts were due and payable pursuant to this Section 7.3)
and such costs (computed from the date(s) incurred) at the prime rate of
interest published from time to time by the Wall Street Journal (using the
-------------------
highest if more than one is published for a particular day). The obligations
under this Section 7.3 shall survive any termination of this Agreement. The
provisions for liquidated damages hereunder are acknowledged by the parties to
be reasonable due to the inability to accurately estimate damages for breach
hereunder.
ARTICLE VIII
INDEMNIFICATION AND HOLDBACK SHARES
8.1 AGREEMENT TO INDEMNIFY. AVCOM and the Principal Shareholders agree
----------------------
for themselves and the AVCOM Shareholders jointly and severally to indemnify and
hold SIGR harmless from and against the aggregate of all expenses, losses,
costs, deficiencies, liabilities and damages (including, without limitation,
related counsel and paralegal fees and expenses) incurred or suffered by SIGR
(collectively, "Indemnifiable Damages") resulting from or arising out of (i) any
breach of a representation or warranty made by AVCOM in or pursuant to this
Agreement, (ii) any breach of the covenants or agreements made by AVCOM in this
Agreement, or (iii) any inaccuracy in any certificate delivered by AVCOM
pursuant to this Agreement.
58
<PAGE>
Without limiting the generality of the foregoing, with respect to the
measurement of Indemnifiable Damages, SIGR shall have the right to be put in the
same pre-tax consolidated financial position as it would have been in had each
of the representations and warranties of AVCOM been true and correct and had the
covenants and agreements of AVCOM been performed in full.
8.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each of the
------------------------------------------
representations and warranties made by AVCOM in this Agreement or pursuant
hereto shall survive for a period of one year after the Effective Time,
notwithstanding any investigation at any time made by or on behalf of SIGR and
upon expiration of such one year period, such representations and warranties
shall expire except as follows: (i) the representations and warranties of AVCOM
contained in Section 3.17 shall expire at the time the period of limitations
(including any extensions thereof pursuant to the delivery of waivers of the
applicable period of limitations) expires for the assessment by the taxing
authority of additional Taxes with respect to which the representations and
warranties relate; (ii) the representations and warranties of the Shareholders
contained in Sections 3.8 and 3.14 shall expire at the time the latest period of
limitations expires for the enforcement by an applicable governmental authority
of any remedy with respect to which the particular representations and
warranties of AVCOM related; and (iii) the representations and warranties of
AVCOM contained in Sections 3.1, 3.2, 3.3 and 3.4 shall not expire but shall
continue indefinitely. No claim for the recovery of Indemnifiable Damages may
be asserted by SIGR against AVCOM or the AVCOM Shareholders after such
representations and warranties shall thus expire, provided, however, that claims
for Indemnifiable Damages first asserted within the applicable period shall not
thereafter be barred. Notwithstanding any knowledge of facts determined or
determinable by any party by investigation, each party shall have the right to
fully rely on the representations, warranties, covenants and agreements of the
other parties contained in this Agreement or in any other documents or papers
delivered in connection herewith. Each representations, warranty, covenant and
agreement of the parties contained in this Agreement is independent of each
other representation, warranty, covenant and agreement.
59
<PAGE>
8.3 SECURITY FOR INDEMNIFICATION OBLIGATION. As security for the
---------------------------------------
agreement by AVCOM and the AVCOM Shareholders to indemnify and hold SIGR
harmless as described in Section 8.1, at the Closing, SIGR shall set aside and
hold certificates representing the Holdback Shares issued pursuant to this
Agreement. SIGR may set off against the Holdback Shares any loss, damage, cost
or expense for which AVCOM or the AVCOM Shareholders may be responsible pursuant
to this Agreement (including without limitations, any Indemnifiable Damages for
which AVCOM or the AVCOM Shareholders may be responsible pursuant to this
Agreement) whether or not indemnified pursuant to Section 8.1 of this Agreement,
subject, however, to the following terms and conditions:
(1) SIGR shall give written notice to the AVCOM Shareholders of any
claim for Indemnifiable Damages or any other damages hereunder, which
notice shall set forth (i) the amount of Indemnifiable Damages or other
loss, damage, cost or expense which SIGR claims to have sustained by reason
thereof, and (ii) the basis of the claim therefor;
(2) Such set off shall be effected pro rata against the AVCOM
Shareholders' Holdback Shares on the later to occur on the expiration of 10
days from the date of such notice (the "Notice of Contest Period") or, if
such claim is contested, the date the dispute is resolved, and such set off
shall be charged proportionally against the shares set aside;
(3) If, prior to the expiration of the Notice of Contest Period,
any one or more AVCOM Shareholders due to receive as much as (in the
aggregate) ten percent (10%) of the Holdback Shares shall notify SIGR in
writing of an intention to dispute the claim and if such dispute is not
resolved within 30 days after expiration of such period (the "Resolution
Period"), then SIGR may elect that such dispute shall be resolved by a
committee of three arbitrators (one appointed by a majority in interest of
the AVCOM Shareholders, one appointed by SIGR and one appointed by the two
arbitrators so appointed), which shall be appointed within 60 days after
the expiration of the
60
<PAGE>
Resolution Period. If a majority in interest of the AVCOM Shareholders does
not appoint an arbitrator within such period, then the arbitrator appointed
by SIGR shall arbitrate the dispute. The arbitrators shall abide by the
rules of the American Arbitration Association and their decision shall be
made within 45 days of being appointed and shall be final and binding on
all parties;
(4) Any of the AVCOM Shareholders may instruct SIGR to sell some or
all of such AVCOM Shareholder's Holdback Shares and the net proceeds
thereof shall be substituted for such Holdback Shares in any set off to be
made by SIGR pursuant to any claim hereunder.
Except with respect to shares transferred pursuant to the foregoing right
of setoff (and in the case of such shares, until the same are transferred), all
Holdback Shares shall be deemed to be owned by the AVCOM Shareholders, and the
AVCOM Shareholders shall be entitled to vote the same; provided, however, that,
there shall also be deposited with SIGR subject to the terms of this Section
8.3, all shares of SIGR Stock issued to the Shareholders as a result of any
stock dividend or stock split and all cash issuable to the Shareholders as a
result of any cash dividend, with respect to the Holdback Shares. All stock and
cash issued or paid upon Holdback Shares shall be distributed to the AVCOM
Shareholders together with such Holdback Shares.
8.4 DELIVERY OF HOLDBACK SHARES. SIGR agrees to deliver to the
---------------------------
Shareholders no later than one year following the Effective Time any Holdback
Shares then held by it (or proceeds from the Holdback Shares) unless there then
remains unresolved any claim for Indemnifiable Damages or other damages
hereunder as to which notice has been given, in which event any Holdback Shares
remaining on deposit (or proceeds from the sale of Holdback Shares) after such
claim shall have been satisfied shall be returned to the Shareholders promptly
after the time of satisfaction; provided, however, that any litigation or
disputes between AVCOM or any Subsidiaries and Success Marketing, Inc., Success
Marketing Companies, Inc., Success Ventures, Inc., or any of their affiliates,
as described in Exhibit 3.12 to be settled for not more than $800,000, must have
------------
in fact been
61
<PAGE>
settled for not more than $800,000, and dismissed with prejudice prior to any
release of the Holdback Shares sooner than five years following the Effective
Date.
8.5 NO BAR. If the Holdback Shares are insufficient to set off any
------
claim for Indemnifiable Damages hereunder (or have been delivered to the AVCOM
Shareholders prior to the making or resolution of such claim), then SIGR may
take any action or exercise any remedy available to it by appropriate legal
proceedings to collect the Indemnifiable Damages from the AVCOM Shareholders
specifically including the Principal Shareholders.
8.6 LIMITATIONS ON CLAIMS. Notwithstanding anything contained in this
---------------------
Article VIII to the contrary, no claim for indemnification may be made by SIGR
unless the amount of the individual claim exceeds $25,000, or the aggregate
amount of all claims made from the date of Closing shall exceed $100,000. Once
such limitations are met, whether individually or in the aggregate, the entire
claim shall be subject to indemnification. This provision does not provide for
a deductible and shall not apply, in any event, in the event that the claim
arises out of fraud or intentional or willful misconduct on the part of the
breaching party.
ARTICLE IX
MISCELLANEOUS
9.1 GOVERNING LAW AND CONSENT TO JURISDICTION. This Agreement shall be
-----------------------------------------
deemed to be made in, and in all respects shall be interpreted, construed and
governed by and in accordance with the internal laws of, the State of Arizona
(without regard to such state's conflicts of law principles).
9.2 NOTICES. Any notices or other communications required under this
-------
Agreement shall be in writing, shall be deemed to
62
<PAGE>
have been given when delivered in person, by telex or telecopier, when delivered
to a recognized next business day courier, or, if mailed, when deposited in the
United States mail, first class, registered or certified, return receipt
requested, with proper postage prepaid, addressed as follows or to such other
address as notice shall have been given pursuant hereto:
If to AVCOM:
AVCOM International, Inc.
Attn: Gary Hughes/John Stevens
Post Office Box 1243
Sedona, Arizona 86339
561 Highway 179
Sedona, Arizona 86336
Telecopy: (520) 282-9428
With a copy to:
Gallagher & Kennedy
Attn: Thomas J. Morgan, Esq.
2600 North Central Avenue
Phoenix, Arizona 85004-3020
Telephone: (602) 530-8000
Telecopy: (602) 257-9459
63
<PAGE>
and a copy to:
DeConcini McDonald Brammer Yetwin
& Lacy, P.C.
Attn: David V. Sanderson, Esq.
2901 North Central Avenue
Suite 1644
Phoenix, Arizona 85012-2736
Telephone: (602) 241-0100
Telecopy: (602) 241-0220
If to SIGR:
Signature Resorts, Inc.
Attn: Mr. Steven C. Kenninger
911 Wilshire Blvd.
Suite 2250
Los Angeles, California 90017
Telecopy: (213) 622-2211
With a copy to:
Edward H. Brown, Esq.
Schreeder, Wheeler & Flint, LLP
127 Peachtree Street, N.E.
1600 Candler Building
Atlanta, Georgia 30303-1845
Telephone: (404) 681-3450
9.3 ASSIGNMENT. This Agreement may not be assigned, by operation of law
----------
or otherwise, except that SIGR may assign its rights under this Agreement in
whole or in part to a subsidiary or other Affiliate of SIGR (including but not
limited to any subsidiary or Affiliate of SIGR formed or acquired following the
date hereof) or to any lender of SIGR.
9.4 SECTION HEADINGS. The section headings contained in this Agreement
----------------
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
9.5 COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an
64
<PAGE>
original, but all of which together shall constitute one and the same
instrument.
9.6 AMENDMENT. Except as hereinafter provided, this Agreement may not
---------
be amended except by a writing signed by the party to be charged.
9.7 ENTIRE AGREEMENT. This Agreement and the Lock-Up Letters constitute
----------------
the entire agreement and supersedes all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof.
9.8 BINDING EFFECT. Subject to Section 9.3, this Agreement shall be
--------------
binding upon and inure to the benefit of the parties hereto and their respective
heirs, personal representatives, successors and permitted assigns.
9.9 SURVIVAL. The covenants, agreements, indemnities, representations
--------
and warranties of SIGR and AVCOM made in or pursuant to this Agreement shall
survive the Closing, notwithstanding any investigation made or information
obtained by or on behalf of another party.
9.10 SEVERABILITY. In case any provision in this Agreement shall be held
------------
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions hereof shall not in any way be affected or impaired
thereby unless SIGR elects otherwise.
65
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
SIGNATURE RESORTS, INC. AVCOM INTERNATIONAL, INC.
By: /s By: /s
---------------------------- -------------------------
Name: Andrew J. Gessow Name: Gary L. Hughes
Title: President Title: C.E.O.
(CORPORATE SEAL) (CORPORATE SEAL)
JOINDER OF PRINCIPAL SHAREHOLDERS
---------------------------------
The undersigned Principal Shareholders hereby join in and execute the
foregoing Agreement for the purposes of Article III and VIII.
/s (SEAL)
-----------------------
GARY HUGHES
/s (SEAL)
-----------------------
JOHN STEVENS
66
<PAGE>
LIST OF EXHIBITS
----------------
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
2.1 SIGR Subsidiaries and Qualifications
3.1(a) AVCOM Qualifications
3.1(b) Subsidiaries and Qualifications
3.1(c) Homeowner Associations
3.1(d) Related Parties
3.2(a) List of Organization Documents of AVCOM and
Related Parties, as Amended
3.2(b) Restrictions upon Transfer or Pertaining to
Securities of AVCOM and Related Parties
3.3 Capital Structure and Ownership
3.5 Address Changes to Financial Position
3.6(a) AVCOM Property and Title/Compliance Exceptions
3.6(b) Intellectual Property
3.7 Insurance Policies
3.8 Environmental Matters
3.9 Records and Information Off Premises
3.10 Obligations or Liabilities
3.11 Contracts
3.12 Litigation and Claims
3.14(a) Franchises, Licenses, Permits, Etc.
3.14(b) Required Consents, Etc.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
3.16 Employee Benefit Plans
3.17 Tax Matters
3.19 Pledged Accounts Receivable
4.1 Changes to Business Relationships
4.13 Signature Loan
5.2 Form of Lockup, Affiliate Letter and Standstill
6.2 Form Employment Agreements
</TABLE>
<PAGE>
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
-----------------------------------------------
THIS FIRST AMENDMENT TO THE AGREEMENT AND PLAN OF MERGER (the "Merger
Agreement") by and among SIGNATURE RESORTS, INC. ("SIGR") and AVCOM
INTERNATIONAL, INC. ("AVCOM") is hereby made and entered into this 15th day of
November, 1996, by and among SIGR and AVCOM and ASP ACQUISITION CORP., a
Delaware corporation ("ASP") (SIGR, AVCOM and ASP collectively referred to
herein as the "Parties").
W I T N E S S E T H:
--------------------
WHEREAS, SIGR and AVCOM did enter into the Merger Agreement, dated
September 22, 1996, which contemplated the creation of ASP, a subsidiary of
Signature, which entity has subsequently been created; and
WHEREAS, the parties hereto are desirous of amending the Merger
Agreement in certain respects.
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained, good and valuable consideration, the receipt, sufficiency and
adequacy of which are hereby acknowledged is hereby acknowledged, the parties
hereto agree as follows:
1. Section 3.12-Status of Litigation and Compliance. Section 3.12 of
------------------------------------------------
the Merger Agreement is hereby amended to provide that the matters set forth on
Exhibit 3.12 include all pending, threatened or potential litigation,
arbitration or administrative proceedings against AVCOM or a Subsidiary (known,
or which through the conduct of reasonable investigation, should have been
known), whether or not incurred in the ordinary course of business, including
matters which may reasonably be anticipated to give rise to litigation,
arbitration or administrative proceedings, such disclosure being made as of the
date of the Merger Agreement and as of the Closing Date, provided, however, that
AVCOM may amend Exhibit 3.12 at any time through the Closing Date to add any
matter of which AVCOM has subsequently obtained knowledge and which matter is
not one which was known, or which through the conduct of reasonable
investigation should have been known, to AVCOM at the date of the Merger
Agreement or preparation of Exhibit 3.12.
2. Section 8.1-Indemnification for Outstanding Litigation. Section 8.1
------------------------------------------------------
of the Merger Agreement is hereby amended to provide that Indemnifiable Damages
shall consist of, in addition to the items stated in Section 8.1, any expenses,
losses, costs, deficiencies, liabilities and damages (including, without
limitation, related counsel and paralegal fees and expenses) (collectively,
"Litigation Expenses") with respect to any litigation or claims described on
Exhibit 3.12 to the Merger Agreement incurred from and after September 22, 1996
in excess of $1,000,000, in the aggregate (it being acknowledged that
Indemnifiable Damages resulting from litigation and claims which should have
been but were not disclosed on Exhibit 3.12 are not subject to the $1,000,000
amount), including any amounts paid with respect to the litigation and disputes
between AVCOM or any Subsidiaries, and Success Marketing, Inc., Success
Marketing Companies, Inc., Success
<PAGE>
Ventures, Inc., or any of their affiliates as described in Exhibit 3.12.
Notwithstanding the foregoing, Indemnifiable Damages (i) shall not include any
Litigation Expenses which arise out of or are based upon either the proposed
Merger or any alleged actions or misrepresentations or breaches of duty by
either AVCOM, its Subsidiaries and/or its officers, directors or shareholders in
connection therewith, except to the extent of any fraudulent or willful or
grossly negligent conduct or misrepresentation by any of such persons or
entities in connection therewith; and (ii) shall not include any Litigation
Expenses with respect to any matter which is either disclosed on Exhibit 3.12 or
which should have been disclosed on Exhibit 3.12 to the extent that any solvent
insurance carrier has agreed to defend and indemnify the applicable defendant
within the policy limits of the applicable insurance policy.
3. Section 8.2-Survival of Representations and Warranties. Section
------------------------------------------------------
8.2 of the Merger Agreement is amended to provide that, prior to the expiration
of one year after the Effective Time (the "Evaluation Date"), SIGR and the
Principal Shareholders will meet and confer and attempt in good faith to agree
upon and establish prior to the Evaluation Date the realistic Exposure (as
defined below) to AVCOM, SIGR and/or either's Subsidiaries with respect to each
matter remaining on Exhibit 3.12 which has not previously been adjudicated,
dismissed or settled, and, with respect to each such remaining matter, counsel
for AVCOM shall have acknowledged that such Exposure as so determined is not
"unreasonable" (an "Exposure Analysis"). In the event that SIGR and the
Principal Shareholders cannot so agree, SIGR shall have the obligation to act in
good faith and determine in the exercise of its good faith business judgment
what such Exposure should be with respect to any matter to which the parties
cannot reach agreement. As used herein, "Exposure" shall mean the reasonably
projected cost of defense or prosecution through a final judgment of such matter
(including attorneys' fees, costs and any direct expenses of either AVCOM and
SIGR in connection therewith) plus a realistic assessment expressed as a dollar
amount of the likelihood and amount of either an adverse or favorable judgment
on all claims and counterclaims in connection with each of such matters. The sum
of the Exposure determined for each of such matters remaining on Exhibit 3.12 as
of the Evaluation Date plus the cumulative amount of Litigation Expenses through
the Evaluation Date which either AVCOM or SIGR has incurred, paid out or accrued
to adjudicate, dismiss and/or settle each of the matters originally included (or
which should have been included) on Exhibit 3.12 shall be the "Cumulative
Exposure" in connection with such matters pending on the Evaluation Date.
4. Section 8.4-Delivery of Holdback Shares. Section 8.4 of
---------------------------------------
the Merger Agreement is amended to provide that, to the extent that the
Cumulative Exposure determined in any Exposure Analysis is:
a. Equal to or less than $1.0 Million, all of the Holdback
Shares shall promptly be delivered to the Shareholders in accordance with the
provisions of Section 8.4 of the Merger Agreement; and
b. Greater than $1.0 Million, SIGR shall be entitled to continue
to withhold that amount of the Holdback Shares equal to the amount by which the
Cumulative Exposure exceeds $1.0 Million without the need to submit a notice for
claim of Indemnifiable Damages, and the balance of the
- 2 -
<PAGE>
Holdback Shares, if any, shall promptly be delivered to the Shareholders in
accordance with the provisions of Section 8.4 of the Merger Agreement; provided,
however, to the extent that the then Cumulative Exposure exceeds the amount of
the Holdback Shares, there shall be no obligation of either AVCOM or the
Shareholders to supplement or increase the amount of the Holdback Shares.
At any date between the Evaluation Date and the distribution by SIGR of all
Holdback Shares, any of the Principal Shareholders can request that an Exposure
Analysis be done as of such date ("Revised Cumulative Exposure"), provided that
such analysis does not occur more than once in any three month period and only
when the parties have reason to believe that a new Exposure Analysis will
produce a meaningful reduction in the amount of Holdback Shares being held by
SIGR. To the extent that the Revised Cumulative Exposure as recalculated in the
current Exposure Analysis has decreased from the most recently calculated
Cumulative Exposure, and to the extent that the Revised Cumulative Exposure is
less than the amount of the Holdback Shares which SIGR is holding, SIGR shall be
obligated to reduce the Holdback Shares (and deliver to the Shareholders in
accordance with the provisions of Section 8.4 of the Merger Agreement) by the
amount by which the Revised Cumulative Exposure is less than the Cumulative
Exposure, but only to the extent that the Revised Cumulative Exposure is less
than the amount of the Holdback Shares. SIGR shall have the obligation to
distribute any and all Holdback Shares remaining in its possession as soon as
the Revised Cumulative Exposure is reduced to zero, but, in any event, no later
than five years after the Effective Time except for any Holdback Shares being
held by SIGR to satisfy disputed claims for Indemnifiable Damages.
5. Taxes. Section 3.17 of the Merger Agreement is hereby clarified
-----
to provide that, to the best knowledge of AVCOM and each of the Principal
Shareholders after reasonable inquiry and investigation, all tax returns
(including informational returns) described therein filed by AVCOM and the
Subsidiaries are true, complete and correct, subject to reasonable
interpretation of the applicable tax codes, rulings, and regulations, and that
all Taxes (including interest and penalties) required to be paid, collected or
withheld with respect to all open tax years have been paid or collected or
withheld and remitted to the appropriate governmental agency or otherwise
accrued as a liability in AVCOM's June 30, 1996 financial statements.
6. Other Matters. In all other respects, the terms of the
-------------
Merger Agreement are ratified and confirmed.
- 3 -
<PAGE>
7. IN WITNESS WHEREOF, the undersigned have hereunto
set their hands and seals as of the day and year first written above.
SIGNATURE RESORTS, INC.
By: /s/ Steven C. Kenninger
-----------------------------
Title: Chief Operating Officer
[CORPORATE SEAL]
AVCOM INTERNATIONAL, INC.
By: /s/ Gary L. Hughes
-----------------------------
Title: C.E.O., President
By: /s/ Robert M. Eckenroth
-----------------------------
Title: Vice President
[CORPORATE SEAL]
- 4 -
<PAGE>
ASP ACQUISITION CORP.
By:
----------------------------------------
Title:
---------------------------------------
[CORPORATE SEAL]
JOINDER OF PRINCIPAL SHAREHOLDERS
---------------------------------
The undersigned Principal Shareholders hereby join in and execute the
foregoing Agreement for the purposes of Articles III and VIII.
By: /s/
-----------------------------------
Gary Hughes
By: /s/
-----------------------------------
John Stevens
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
A - 1
<PAGE>
FORM OF ESCROW AGREEMENT
------------------------
THIS ESCROW AGREEMENT, dated as of this ____ day of ________, 199____ (this
"AGREEMENT"), is by and among SIGNATURE RESORTS, INC., a Maryland corporation
(the "PARENT"), AVCOM INTERNATIONAL, INC., a Delaware corporation (the
"COMPANY"), GARY L. HUGHES and JOHN R. STEVENS (collectively, the "STOCKHOLDER
REPRESENTATIVES"), CHICAGO TITLE INSURANCE COMPANY, as escrow agent (the "ESCROW
AGENT").
RECITALS
--------
A. The Parent, the Company and AS Acquisition Corporation, a Delaware
corporation and wholly owned subsidiary of the Parent (the "PURCHASER"), have
entered into an Agreement and Plan of Merger dated as of September 22, 1996 (the
"MERGER AGREEMENT"), which provides, among other things, for the merger
("MERGER") of the Purchaser with and into the Company, with the result that the
Company will become a wholly owned subsidiary of the Parent.
B. The Parent, the Company, the Purchaser and the Stockholder
Representatives who are parties hereto desire, pursuant to Article VIII of the
Merger Agreement, to set aside a portion of the consideration to be paid to the
AVCOM Shareholders (as defined in the Merger Agreement) in connection with the
Merger, for the purpose of providing the Parent with a remedy in the event of a
breach by the Company of certain representations, warranties and covenants made
in the Merger Agreement.
C. The Escrow Agent has agreed to hold the Escrowed Shares (as defined
below) in accordance with the terms and provisions contained herein.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. Except as hereinafter defined, capitalized terms used in
-----------
this Agreement will have the meanings assigned to such terms in the Merger
Agreement.
"Average Share Price" shall refer to the mean average high and low
trades of SIGR Stock as reported on the NASDAQ National Market System for each
of the ten (10) consecutive trading days immediately preceding ten (10) days
prior to the date that the Average Share Price is to be determined.
"Breach" shall mean (A) any breach of any representation or warranty
or the inaccuracy of any representation made by the Company in or pursuant to
the Merger Agreement; and (B) any breach of any covenant or agreement made by
the Company in or pursuant to the Merger Agreement.
"Claim" shall mean a claim for Damages incurred by the Parent or the
Purchaser as a result of one or more Breaches.
B - 2
<PAGE>
"Claim Date" shall have the meaning set forth in Section 5 hereof.
"Claim Expiration Time" shall mean the date of first anniversary
following the Effective Date unless litigation pending on the date hereof
involving AVCOM or any of its subsidiaries disclosed on Exhibit 3.12 to the
Merger Agreement continues to be pending and unresolved on such first
anniversary, in which case the Claim Expiration Time with respect to such
litigation only shall extend to the fifth anniversary following the Effective
Date.
"Damage Amount" shall have the meaning set forth in Section 5 hereof.
"Escrowed Funds" shall have the meaning set forth in Section 4 hereof.
"Escrowed Shares" shall have the meaning set forth in
Section 3 hereof.
"Final Instruction" shall have the meaning set forth in
Section 6 hereof.
"AVCOM Shareholders" shall mean holders of AVCOM Shares or the
options immediately prior to the Effective Date.
"Indemnifiable Amount" shall mean those amounts for which the Parent
is entitled to indemnity pursuant to Article VIII of the Merger Agreement.
"Parent Net Claim" shall have the meaning set forth in
Section 5 hereof.
"Total Shares Available" shall, as of any date of determination, mean
the sum of the aggregate number of Escrowed Shares held in escrow and governed
by this Agreement as of such date of termination.
2. APPOINTMENT OF ESCROW AGENT. The Parent, the Company and the AVCOM
---------------------------
Shareholders hereby designate and appoint Chicago Title Insurance Company as
Escrow Agent for the purposes set forth herein and the Escrow Agent hereby
accepts such appointments on the terms herein provided.
3. DEPOSIT OF ESCROWED SHARES. Promptly after the Effective Date, the
--------------------------
Parent shall deliver to the Escrow Agent one or more certificates in the name of
each AVCOM Shareholder representing 10% of the aggregate number of shares of
SIGR Common Stock issuable to the AVCOM Shareholders in connection with the
Merger (collectively, the "ESCROWED SHARES").
4. MAINTENANCE OF ESCROW.
---------------------
(a) The Escrow Agent shall hold the Escrowed Shares in escrow, and
shall maintain and disburse the Escrowed Shares, pursuant to this Agreement.
(b) All stock splits or dividends payable in stock or other securities
of the Parent that are made by the Parent with respect to the Escrowed Shares
while such shares are held by the Escrow Agent, shall be registered in the name
of the respective AVCOM Shareholders, deposited in escrow and become part of the
Escrowed Shares and any cash in lieu of fractional shares of the SIGR Stock are
collectively referred to in this Agreement as the "Escrowed Funds." All other
dividends or distributions made by the Parent with respect to the Escrowed
Shares while such shares are held by the Escrow Agent shall be delivered to each
AVCOM Shareholder based on the number of Escrowed Shares to which such AVCOM
Shareholder is entitled, and such dividends or distributions shall be made to
each such AVCOM Shareholder at the same time such dividends or distributions are
paid or delivered to holders of SIGR Stock.
B - 3
<PAGE>
5. THE PARENT'S RIGHT TO ASSERT CLAIM TO ESCROWED FUNDS. The Parent shall
----------------------------------------------------
have the right to make one or more Claims on or prior to the Claim Expiration
Time by delivering a notice of such Claim (a "Claim Notice") to the Stockholder
Representatives, the AVCOM Shareholders and the Escrow Agent prior to such time
(the date of such notice, the "Claim Date"). If the Parent asserts a Claim,
such Claim Notice shall state with particularity (i) all Breaches asserted,
together with sufficient facts relating thereto so that the Stockholder
Representatives may reasonably evaluate such Claim, (ii) the Parent's estimate
of the amount that equals the aggregate amount of such Indemnifiable Amount (the
"Damage Amount"), (iii) the Parent's estimate of the amount (the "Parent Net
Claim") that equals (A) the Indemnifiable Amount multiplied by (B) the aggregate
number of Escrowed Shares divided by (C) the aggregate number of Total Shares
Available, and (iv) a calculation of the number of Escrowed Shares to be
disbursed from the Escrow Fund in connection with such Parent Net Claim (for
purposes of such calculation, each share of SIGR Stock shall be valued at the
Average Share Price).
6. DETERMINATION OF VALID PARENT NET CLAIM; FINAL INSTRUCTION. For
----------------------------------------------------------
purposes of this Agreement, a "Final Instruction" shall mean a written notice
given to the Escrow Agent directing the disbursement of the amount of the Parent
Net Claim (which had previously been set forth in a Claim Notice properly
delivered in accordance with the provisions of Section 5 hereof), and shall be
signed both by the Parent and by the Stockholder Representatives except as
otherwise provided below in clause (b) or (d). A Final Instruction shall be
delivered to the Escrow Agent under the following circumstances, and accompanied
by the indicated documentation:
(a) If the Stockholder Representatives dispute either the validity,
amount or calculation of the Claim and/or the Parent Net Claim, the Stockholder
Representatives shall give written notice of such dispute to the Parent, with a
copy to the Escrow Agent, within 10 business days after the delivery of the
Claim Notice by the Parent to the Stockholder Representatives. In such
circumstances, no Final Instruction may be given to the Escrow Agent except as
provided in (c) or (d) below.
(b) If the Stockholder Representatives fail to respond to the Claim
Notice within 10 business days after the delivery to the Stockholder
Representatives and the Escrow Agent of the Claim Notice, or if the Stockholder
Representatives notify the Escrow Agent that there is no dispute with respect to
the Claim and/or the Parent Net Claim, the Parent shall have the right to
deliver to the Escrow Agent a Final Instruction, signed only by the Parent, with
respect to the Claim and/or the Parent Net Claim.
(c) If the Stockholder Representatives and the Parent reach an
agreement with respect to the proper determination of the Claim and/or the
Parent Net Claim, the Stockholder Representatives and the Parent shall give to
the Escrow Agent a Final Instruction, signed by both the Stockholder
Representatives and the Parent, with respect to the Claim and/or the Parent Net
Claim.
(d) If an arbitration award pursuant to Section 24 hereof is entered
with respect to the Claim and/or the Parent Net Claim, either the Stockholder
Representatives or the Parent shall have the right to deliver to the Escrow
Agent a Final Instruction with respect to the Claim and/or the Parent Net Claim
based on and in compliance with such award, signed only by the Stockholder
Representatives or by the Parent, as the case may be, and accompanied by a copy
of such award.
Upon receipt of a Final Instruction in accordance with this Section,
the Escrow Agent shall disburse to the Parent from the Escrow such number of
shares of the SIGR Stock as shall equal the Parent Net Claim based on the
valuation procedures set forth in Section 8 hereof and shall distribute the
remaining Escrowed Shares and Escrowed Funds in accordance with Section 7
hereof.
Notwithstanding anything contained in this Section 6 to the contrary, no
claim may be made by Parent unless the amount of the individual claim exceeds
$25,000, or the aggregate amount of all claims made from the Effective Date
shall exceed $100,000. Once such limitations are met, whether individually or
in the aggregate, the entire claim may be made the subject of a Claim Notice.
This provision does not provide for a deductible and shall
B - 4
<PAGE>
not apply, in any event, in the event that the claim arises out of fraud or
intentional or willful misconduct on the part of the breaching party.
7. DISTRIBUTION OF ESCROWED FUNDS. If the Parent fails to make a Claim on
------------------------------
or prior to the Claim Expiration Date in accordance with Section 5 hereof, then
as promptly as practicable thereafter (and in no event later than 10 business
days following the Claim Expiration Time), the Escrow Agent shall deliver to
each AVCOM Shareholder the Escrowed Shares to which such AVCOM Shareholder is
entitled together with all other Escrowed Funds relating to such Escrowed
Shares. If the Parent timely makes a Claim or Claims and if at or after the
expiration of the Claim Expiration Time, such Claim or Claims (whether or not in
dispute) aggregate less than the sum of the remaining Escrowed Shares (valued at
the Average Share Price) plus the remaining Escrowed Funds, then the Escrow
Agent shall deliver such remaining amount of Escrowed Funds and Escrowed Shares
(less the amount of such Claim or Claims) to each AVCOM Shareholder based on the
number of Escrowed Shares to which such AVCOM Shareholder is entitled. If,
however, the Parent timely makes a Claim or Claims in accordance with Section 5
hereof and if at the expiration of the Claim Expiration Time, such Claim or
Claims (whether or not in dispute) aggregate more than the sum of the remaining
Escrowed Shares (valued at the Average Share Price) plus the remaining Escrowed
Funds, then only upon the Escrow Agent's receipt of a Final Instruction shall
the Escrow Agent deliver that portion of the Escrowed Funds and Escrowed Shares
to the Parent that is set forth in such Final Instruction and then deliver any
remaining portion of the Escrowed Funds and Escrowed Shares to each AVCOM
Shareholder based on the number of Escrowed Shares to which such AVCOM
Shareholder is entitled. Whenever less than all Escrowed Funds and Escrowed
Shares are required to be released to AVCOM Shareholders under this Section, the
release shall be satisfied to the extent possible from Escrowed Funds, then from
Escrowed Shares.
8. VALUATION OF ESCROWED SHARES; FRACTIONAL SHARES. For purposes of
-----------------------------------------------
determining the number of Escrowed Shares to be disbursed from the Escrow under
this Agreement with respect to the Parent Net Claim, each share of the SIGR
Stock shall be valued at the Average Share Price. No certificates or scrip
representing fractional shares of the SIGR Stock shall be issued pursuant to
this Agreement. In lieu of any fractional share of the SIGR Stock, each AVCOM
Shareholder who would otherwise have been entitled to a fraction of a share of
the SIGR Stock hereunder shall be paid an amount in cash (without interest)
equal to the value of such fraction of a share based upon the Average Share
Price. The Parent agrees to pay to Escrow Agent such amounts as are necessary
to pay such cash in lieu of fractional shares and the Escrow Agent shall
transfer and deliver such shares to the Parent with respect to which cash is so
paid as a result of the distribution to the AVCOM Shareholders.
9. ACTIONS BY AVCOM SHAREHOLDERS REPRESENTATIVE. A decision, act, consent
--------------------------------------------
or instruction of both Stockholder Representatives acting jointly (or, in the
event there is only one Stockholder Representative as a result of the legal
disability of a Stockholder Representative, any decision, act, consent or
instruction of such remaining Stockholder Representative) shall constitute a
decision of all the AVCOM Shareholders, and shall be final, binding and
conclusive upon each of the AVCOM Shareholders, and the Escrow Agent, and the
Parent may rely upon any decision, act, consent or instruction of both
Stockholder Representatives acting jointly (or, in the event there is only one
Stockholder Representative as a result of the legal disability of a Stockholder
Representative, any decision, act, consent or instruction of such remaining
Stockholder Representative) as being the decision, act, consent or instruction
of each and all of the AVCOM Shareholders. The Escrow Agent and the Parent are
relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction. Although the
Stockholder Representatives shall not be obligated to obtain instructions from
the AVCOM Shareholders prior to any decision, act, consent or instruction, if,
and to the extent that, the Stockholder Representatives receive any written
instructions from AVCOM Shareholders entitled to receive a majority of the
Escrowed Shares held in the Escrow Fund, the Stockholder Representatives shall
comply with such instructions. In the event that there is a disagreement
between either of the Stockholder Representatives, AVCOM Shareholders entitled
to receive a majority of the Escrowed Shares held in the Escrow Fund may resolve
such disagreement or remove any Stockholder Representative.
B - 5
<PAGE>
10. Reliance by Escrow Agent; Liability of Escrow Agent. The Escrow Agent
---------------------------------------------------
shall be protected in acting upon any written notice, request, waiver, consent,
certificate, receipt, authorization or other paper or document that the Escrow
Agent believes to be genuine and what it purports to be. The Escrow Agent may
confer with its own corporate or outside legal counsel in the event counsel in
the event of any dispute or question as to the construction of any of the
provisions hereof, or its duties hereunder, and shall incur no liability and
shall be fully protected in acting in accordance with the written opinions of
such counsel. The duties of the Escrow Agent hereunder will be limited to the
observance of the express provisions of this Agreement. The Escrow Agent will
not be subject to, or be obliged to recognize, any other agreement between the
parties hereto or directions or instructions not specifically set forth as
provided for herein. The Escrow Agent will not make any payment or disbursement
from or out of the Escrow that is not expressly authorized pursuant to this
Agreement. The Escrow Agent may rely upon and act upon any instrument received
by it pursuant to the provisions of this Agreement that it reasonably believes
to be genuine and in conformity with the requirements of this Agreement. The
Escrow Agent undertakes to use the same degree of care and skill in performing
its services hereunder as an ordinary prudent person would do or use under the
conduct of his or her own affairs. The Escrow Agent will not be liable for any
action taken or not taken by it under the terms hereof in the absence of breach
of its obligations hereunder or gross negligence or willful misconduct on its
part.
11. INDEMNIFICATION OF ESCROW AGENT. The Parent will indemnify and hold
-------------------------------
the Escrow Agent harmless from and against any and all losses, costs, damages or
expenses (including, but not limited to, reasonable attorneys' fees) it may
sustain by reason of its service as Escrow Agent hereunder, except such losses,
costs, damages or expenses (including, but not limited to, reasonable attorneys'
fees) incurred by reason of such acts or omissions for which the Escrow Agent is
liable or responsible under the last sentence of Section 9 hereof.
12. FEES AND EXPENSES OF THE ESCROW AGENT. All fees of the Escrow Agent
-------------------------------------
for its services hereunder, together with any expenses reasonably incurred by
the Escrow Agent in connection with this Agreement, shall be paid by the Parent.
The fees and reasonable expenses of the Escrow Agent in connection with the
negotiation, preparation, execution and delivery of this Agreement, the deposit
of the Escrowed Shares into the escrow, and the distribution of Escrow pursuant
to no more than two Final Instructions shall be $_________ and shall be paid by
the Parent within 30 days of the execution of this Agreement. The fees and
reasonable expenses of the Escrow Agent for the distribution of Escrow to more
than two Final Instructions shall be determined at the time of such
distributions and shall be paid by the Parent.
13. RESIGNATION OF ESCROW AGENT. The Escrow Agent may resign from its
---------------------------
duties hereunder by giving Parent and the AVCOM Shareholder Representative not
less than 30 days prior written notice of the effective date of such resignation
(which effective date shall be at least 30 days after the date such notice is
given). The parties hereto intend that a substitute Escrow Agent will be
appointed by the Parent to fulfill the duties of the Escrow Agent hereunder for
the remaining term of this Agreement in the event of the Escrow Agent's
resignation. If on or before the effective date of such resignation, a
substitute Escrow Agent has not been appointed, the Escrow Agent will thereupon
deposit the Escrowed Funds into the registry of a court of competent
jurisdiction.
14. DESIGNEES FOR INSTRUCTIONS. The Parent, may, by notice to the Escrow
--------------------------
Agent, designate one or more persons who will execute notices and from whom the
Escrow Agent may take instructions hereunder. Such designations may be changed
from time to time upon notice to the Escrow Agent from the Parent. The Escrow
Agent will be entitled to rely conclusively on any notices or instructions from
any person so designated by the Parent.
15. TAX REPORTING. Unless otherwise required by Treasury Regulations
-------------
issued in the future, the parties will treat the Escrowed Shares and any other
shares of the SIGR Stock deposited with the Escrow Agent hereunder for purposes
of Section 468(g) of the Internal Revenue Code of 1986, as amended, and for all
other income tax purposes as being owned by the AVCOM Shareholders during the
period such shares are held in escrow, and therefore any income earned on such
shares during such period will be allocated and reported to the AVCOM
B - 6
<PAGE>
Shareholders as such income is earned. The parties will make any elections or
filings required to characterize such shares in a manner consistent with the
preceding sentence. The AVCOM Shareholders will be entitled to vote their
respective Escrowed Shares while they remain in escrow. Notwithstanding the
provisions of the Merger Agreement, no AVCOM Shareholder shall have the right to
direct Escrow Agent to sell any of the Escrowed Shares.
16. NOTICES. All notices, requests, demands and other communications
-------
which are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given when received if personally delivered;
when transmitted if transmitted by telecopy, electronic or digital transmission
method; the day after it is sent, if sent for next day delivery to a domestic
address by recognized overnight delivery service (e.g., Fedex); and upon
----
receipt, if sent by certified or registered mail, return receipt requested.
Notwithstanding the foregoing, a Final Instruction provided pursuant to Section
6 hereof shall be deemed to have been duly given (whether delivered personally,
by telecopy, by electronic or digital delivery, by recognized overnight delivery
or by certified or registered mail) if receipt of such Final Instruction was
acknowledged in writing. In each case notice shall be sent to:
If to the Parent or, after the Effective Date, to the Company,
addressed to:
Signature Resorts, Inc.
Attn: Mr. Steven C. Kenninger
5933 W. Century Blvd.
Suite 210
Los Angeles, California 90045
Telecopy: (310) 348-1010
With a copy to:
Edward H. Brown
Schreeder, Wheeler & Flint, LLP
1600 Candler Building
127 Peachtree Street, N.E.
Atlanta, Georgia 30303-1845
Telecopy No.: (404) 681-1046
If to the Stockholder Representatives:
Gary L. Hughes
100 Broken Lance Way
Sedona, Arizona 86351
and
John R. Stevens
50 Cord Circle
Sedona, Arizona 86351
B - 7
<PAGE>
With a copy to:
David V. Sanderson, Esq.
Deconcini McDonald Brammer
Yetwin & Lacy, P.C.
2901 North Central Avenue
Suite 1644
Phoenix, AZ 85012-2736
If to the Escrow Agent:
Chicago Title Insurance Company
_________________________________
_________________________________
_________________________________
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
17. ASSIGNMENT. Neither this Agreement nor any of the rights or
----------
obligations hereunder may be assigned by any party without the prior written
consent of the other party; except that the Parent may, without such consent,
assign all such rights and obligations to a wholly owned subsidiary (or a
partnership controlled by the Parent) or subsidiaries of the Parent or to a
successor in interest to the Parent which shall assume all obligations of the
Parent, as the case may be, under this Agreement. Subject to the foregoing,
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, and no other
person shall have any right, benefit or obligation under this Agreement as a
third party beneficiary or otherwise.
18. AMENDMENT AND TERMINATION. This Agreement may be amended by and upon
-------------------------
written notice to the Escrow Agent given jointly by the Parent and the
Stockholder Representatives, but the duties and responsibilities of the Escrow
Agent may not be increased without its written consent. This Agreement will
terminate on the date on which all the Escrowed Funds and Escrowed Shares have
been distributed.
19. MULTIPLE COUNTERPARTS. This Agreement may be executed in one or more
---------------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20. INVALIDITY. In the event that any one or more of the provisions
----------
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provisions of this
Agreement or any other such instrument.
21. TITLES. The titles, captions or headings of the Sections herein are
------
for convenience of reference only and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement.
22. CUMULATIVE REMEDIES. All rights and remedies of either party hereto
-------------------
are cumulative of each other and of every other right or remedy such party may
otherwise have at law or in equity, and the exercise of one or more rights or
remedies shall not prejudice or impair the concurrent or subsequent exercise of
other rights or remedies.
B - 8
<PAGE>
23. GOVERNING LAW; JURISDICTION. IT IS THE PARTIES' INTENT THAT THIS
---------------------------
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL
LAWS OF THE STATE OF ARIZONA (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW).
24. ARBITRATION. Notwithstanding anything herein to the contrary, in the
-----------
event that there shall be a dispute among the parties arising out of or relating
to this Agreement, or the breach thereof, the parties agree that such dispute
shall be resolved by final and binding arbitration in Los Angeles, California,
administered by AAA, in accordance with AAA's Commercial Arbitration Rules then
in effect. There shall be three (3) arbitrators (one appointed by the AVCOM
Shareholder Representatives, one appointed by the Parent, and one appointed by
the two arbitrators so appointed), which shall be appointed within 70 days after
the Claim Notice. If AVCOM Shareholder Representatives do not appoint an
arbitrator within such period, then the arbitrator appointed by the Parent shall
arbitrate the dispute. There shall be limited discovery prior to the
arbitration hearing, subject to the discretion of the arbitrators, as follows
(i) exchange of witness lists and copies of documentary evidence and documents
related to or arising out of the issues to be arbitrated, (ii) depositions of
all party witnesses, (iii) other depositions as may be allowed by the
arbitrators upon a showing of good cause. Depositions shall be conducted in
accordance with the California Code of Civil Procedure. Any award issued as a
result of such arbitration shall be final and binding between the parties
thereto, and shall be enforceable by any court having jurisdiction over the
party against whom enforcement is sought. The costs of the arbitration and
reasonable attorneys' fees shall be paid by the Parent, but the arbitrators
shall have the right to increase the Parent Net Claim by any or all of such
costs.
25. BINDING EFFECT. This Agreement will be binding upon and inure to the
--------------
benefit of the parties hereto and their permitted assigns. The rights of any
person or entity to receive Escrowed Shares hereunder shall not be transferable
except by operation of law.
IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement
as of the date first written above.
COMPANY:
-------
AVCOM INTERNATIONAL, INC., a
Delaware corporation
By:_____________________________
Name:_______________________
PARENT:
------
SIGNATURE RESORTS, INC., a
Maryland corporation
By:_____________________________
Name:_______________________
Title: President and Chief Executive
Officer
B - 9
<PAGE>
ESCROW AGENT:
------------
CHICAGO TITLE COMPANY
By:______________________________
Name:________________________
Title:_________________________
STOCKHOLDER REPRESENTATIVES:
---------------------------
________________________________
By:______________________________
Name:________________________
Title:_________________________
B - 10
<PAGE>
APPENDIX C
APPRAISAL RIGHTS
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
C - 1
<PAGE>
DELAWARE GENERAL CORPORATION LAW
SECTION 262
APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented hereto in writing pursuant to (S) 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S) 251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsections (f) or (g) of (S) 251 of this title.
(2) Notwithstanding paragraph (l) if this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the items of an agreement of merger or consolidation pursuant to (S)(S)
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock or depository
receipts at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by
the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of
this paragraph.
C - 2
<PAGE>
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing
to take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228 or
253 of this title, the surviving or resulting corporation, either before
the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written
C - 3
<PAGE>
request for such a statement is received by the surviving or resulting
corporation or within 10 days after expiration of the period for delivery of
demands for appraisal under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register of
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such hearing of such petition by registered or certified mail to the
surviving or resulting corporation and to the stockholders shown on the list at
the addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair
rate of interest, the Court may consider all relevant factors, including the
rate of interest which the surviving or resulting corporation would have had to
pay to borrow money during the pendency of the proceeding. Upon application by
the surviving or resulting corporation or by any stockholder entitled to
participate in the appraisal proceeding, the Court may, in its discretion,
permit discovery or other pretrial proceedings and may proceed to trial upon the
appraisal prior to the final determination of the stockholder entitled to an
appraisal. Any stockholder whose name appears on the list filed by the
surviving or resulting corporation pursuant to subsection (f) of this section
and who has submitted his certificates of stock to the Register in Chancery, if
such is required, may participate fully in all proceedings until it is finally
determined that he is not entitled to appraisal rights under this section.
(i) The Court shall direct payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be made to each such stockholder, in the case of
holders of uncertified stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable
C - 4
<PAGE>
to stockholders of record at a date which is prior to the effective date of the
merger or consolidation); provided, however, that if no petition for an
appraisal shall be filed within the time provided in subsection (e) of this
section, of if such stockholder shall deliver to the surviving or resulting
corporation a written withdrawal of his demand for an appraisal and an
acceptance of the merger or consolidation, either within 60 days after the
effective date of the merger or consolidation as provided in subsection (e) of
this section or thereafter within the written approval of the corporation, then
the right of such stockholder to an appraisal shall cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed
as to any stockholder without the approval of the Court, and such approval may
be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
79, L. '95 eff. 7-1-95).
C - 5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Signature is a Maryland corporation. Section 2-418 of the Maryland General
Corporation Law empowers Signature to indemnify, subject to the standards set
forth therein, any person who is a party in any action in connection with any
action, suit or proceeding brought or threatened by reason of the fact that the
person was a director, officer, employee or agent of such company, or is or was
serving as such with respect to another entity at the request of such company.
The Maryland General Corporation Law also provides that Signature may purchase
insurance on behalf of any such director, officer, employee or agent.
Signature's Charter and Bylaws provide in effect for the indemnification by
Signature of each director and officer of Signature to the fullest extent
permitted by applicable law.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
A list of exhibits filed with this Registration Statement on Form S-4 is
set forth in the Index to Exhibits on page E-1, and is incorporated herein by
reference.
(b) Financial Statement Schedules
None. Schedules are omitted because of the absence of the conditions under
which they are required or because the information required by such omitted
schedules is set forth in the financial statements or the notes thereto.
Item 22. Undertakings
(a) (1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is
filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference unto the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
II - 1
<PAGE>
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Signature Resorts, Inc. has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on November 18, 1996.
SIGNATURE RESORTS, INC.
By: /s/ Andrew D. Hutton
-----------------------------
Andrew D. Hutton, Vice President and
General Counsel
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Andrew J. Gessow, Steven C. Kenninger and Andrew
D. Hutton and each of them, his true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) and supplements to this Registration
Statement and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto such attorneys-in-fact and agents and each of them full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, to all intents and purposes and as fully
as they might or could do in person, hereby ratifying and confirming all that
such attorney-in-fact and agent, each acting alone, or their substitutes, may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Osamu Kaneko Chairman of the Board and Chief November 18, 1996
- ------------------------------
Osamu Kaneko Executive Officer (Principal
Executive Officer)
/s/ Andrew J. Gessow Director and President November 18, 1996
- ------------------------------
Andrew J. Gessow
/s/ Steven C. Kenninger Director, Chief Operating Officer November 18, 1996
- ------------------------------
Steven C. Kenninger and Secretary
/s/ Charles C. Frey Chief Financial Officer and November 18, 1996
- ------------------------------
Charles C. Frey Treasurer (Principal Financial and
Accounting Officer)
/s/ James E. Noyes Executive Vice President and November 18, 1996
- ------------------------------
James E. Noyes Director
/s/ Juergen Bartels Director November 18, 1996
- ------------------------------
Juergen Bartels
/s/ Sanford R. Climan Director November 18, 1996
- ------------------------------
Sanford R. Climan
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Joshua S. Friedman
- ------------------------------ Director November 18, 1996
Joshua S. Friedman
/s/ W. Leo Kiely III
- ------------------------------ Director November 18, 1996
W. Leo Kiely III
</TABLE>
II - 3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Page
<S> <C> <C>
2. Plan and Agreement of Merger as amended (included as Appendix A to this
Registration Statement)
3.1 Charter of Signature Resorts, Inc. (incorporated by reference to Exhibit
3.1 to Registrant's Registration Statement on Form S-1 (No. 333-06027))
3.2 Bylaws of Signature Resorts, Inc. (incorporated by reference to Exhibit
3.2 to Registrant's Registration Statement on Form S-1 (No. 333-06027)
4.1 Form of Stock Certificate of Signature Resorts, Inc. (incorporated by
reference to Exhibit 4.1 to Registrant's Registration Statement on Form
S-1 (No. 333-06027))
5.1 Form of Opinion of Schreeder, Wheeler & Flint, LLP regarding the
validity of the Common Stock being registered (including consent)
8.1 Form of Opinion of Gallagher & Kennedy, P.A. regarding federal income
tax consequences (including consent)
10.1 Form of Registration Rights Agreement among Signature Resorts, Inc. and
the persons named therein (incorporated by reference to Exhibit 10.1 to
Registrant's Registration Statement on Form S-1 (No. 333-06027)
10.2.1 Form of Employment Agreements between Signature Resorts, Inc. and each
of Osamu Kaneko, Andrew J. Gessow and Steven C. Kenninger (incorporated
by reference to Exhibit 10.2.1 to Registrant's Registration Statement on
Form S-1 (No. 333-06027))
10.2.2 Employment Agreement between Signature Resorts, Inc. and James E. Noyes
(incorporated by reference to Exhibit 10.2.2 to Registrant's
Registration Statement on Form S-1 (No. 333-06027))
10.2.3 Form of Employment Agreement between Signature Resorts, Inc. and
Gary L. Hughes/*/
10.2.4 Form of Employment Agreement between Signature Resorts, Inc. and
John R. Stevens/*/
10.2.5 Employment Agreement between Signature Resorts, Inc. and Michael A.
Depatie*
10.3 1996 Equity Participation Plan of Signature Resorts, Inc. (incorporated
by reference to Exhibit 10.3 to Registrant's Registration Statement on
Form S-1 (No. 333-06027))
10.4 Agreement of Limited Partnership of Pointe Resort Partners, L.P.
(subsequently renamed Poipu Resort Partners L.P.) dated
October 11, 1994 (incorporated by reference to Exhibit 10.4
to Registrant's Registration Statement on Form S-1 (No. 333-06027))
10.5 Signature Resorts, Inc. Employee Stock Purchase Plan (incorporated
by reference to Exhibit 10.5 to Registrant's Registration Statement
on Form S-1 (No. 333-06027))
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
10.6 Agreement between W&S Hotel L.L.C. and Argosy/KOAR Group, Inc. dated
as of May 3, 1996 (incorporated by referenced to Exhibit 10.6 to
Registrant's Registration Statement on Form S-1 (No. 333-06027)
10.7 Conti-Trade Financial Warehouse Line Agreement/*/
10.8.1 Lender's Certification and Consent from Resort Capital Corporation to
Signature Resorts, Inc. dated as of August 15, 1996
10.8.2 Lender's Certification and Consent from FINOVA Capital Corporation
to Signature Resorts, Inc. dated as of August 15, 1996
10.8.3 Assumption Agreement between FINOVA Capital Corporation and Signature
Resorts, Inc. dated as of August 15, 1996
10.8.4 Assumption Agreement between Resort Capital Corporation and Signature
Resorts, Inc. dated as of August 15, 1996
10.8.5 Assumption Agreement between FINOVA Capital Corporation and AKGI-Sint
Maarten, N.V. dated as of August 15, 1996
16.1 Letter from Ernst & Young LLP regarding change in certifying accountant
(incorporated by reference to Exhibit 16.1 to Registrant's current
report on Form 8-K filed with the Commission on September 18, 1996)
21.1 Subsidiaries of Signature Resorts, Inc. (incorporated by reference to
Exhibit 21.1 to Registrant's Registration Statement on Form S-1
(No. 333-06027))
23.1 Consent of Schreeder, Wheeler & Flint, LLP (included as part of
Exhibit 5.1)
23.2 Consent of Gallagher & Kennedy, P.A. (included as part of Exhibit 8.1)
23.4 Consents of Ernst & Young LLP
23.5 Consents of Coopers & Lybrand
24.1 Power of Attorney (included as part of page II-3 of this Registration
Statement)
99. Form of Proxy/*/
</TABLE>
__________________________
/*/ to be filed by amendment
<PAGE>
EXHIBIT 5.1
[FORM OF OPINION]
[SCHREEDER, WHEELER & FLINT, LLP LETTERHEAD]
____________, 1996
Signature Resorts, Inc.
5933 W. Century Blvd.
Suite 210
Los Angeles, California 90045
RE: Signature Resorts, Inc., a Maryland corporation (the "Company") -
Registration Statement on Form S-4 (File No. _________)
Ladies and Gentlemen:
In connection with the registration of 1,494,957 shares of the Company's
Common Stock, par value $0.01 per share (the "Shares"), under the Securities and
Exchange Commission (the "Commission") on or about November ___, 1996 (the
"Registration Statement"), you have requested our opinion with respect to the
matters set forth below.
We have acted as special corporate counsel for the Company in connection
with the matters described herein. In our capacity as special Maryland
corporation counsel to the Company, we have reviewed and are familiar with
proceedings taken and proposed to be taken by the Company in connection with the
authorization, issuance and sale of the Shares, and for purposes of this opinion
have assumed such proceedings will be timely completed in the manner presently
proposed. In addition, we have relied upon certification and advice from the
officers of the Company upon which we believe we are justified in relying and on
various certificates from, and the documents recorded with, the State Department
of Assessments and Taxation of Maryland (the "SDAT"), including the charter of
the Corporation (the "Charter"), consisting of Articles of Incorporation filed
with the SDAT on May 28, 1996 and Articles of Amendment filed with the SDAT on
June 13, 1996. We have also examined the Bylaws of the Company adopted as of
May 28, 1996 (the "Bylaws") and Resolutions of the Board of Directors of the
Company adopted on or before September 22, 1996 and in full force and effect on
November ___, 1996; and such laws, records, documents, certificates, opinions
and instruments as we deem necessary to render this opinion.
We have assumed the genuineness of all signatures and the authenticity of
all documents submitted to us as originals and the conformity to the originals
of all documents submitted to us as certified, photostatic or conformed copies.
In addition, we have assumed that each person executing any instrument, document
or certificate referred to herein on behalf of any party is duly authorized to
do so.
Based on the foregoing, and subject to the assumptions and qualifications
set forth herein, it is our opinion that, as of the date of this letter, the
Shares have been duly authorized by all necessary corporation action on the part
of the Company, and the Shares will, upon issuance and delivery in accordance
with the terms and conditions described in the Registration Statement, be
validly issued, fully paid and nonassessable.
We consent to your filing this opinion as an exhibit to the Registration
Statement and further consent to the filing of this opinion as an exhibit to the
applications to securities commissions for the various states of the United
States for registration of the Shares. We also consent to the identification of
our firm as special corporate counsel to the Company in the section of the
Prospectus (which is part of the Registration Statement) entitled "Legal
Matters."
The opinions expressed herein are limited to the laws of the state of
Maryland and we express no opinion concerning any laws other than the laws of
the State of Maryland. Furthermore, the opinions presented in this letter are
limited to the matters specifically set forth herein and no other opinion shall
be inferred beyond the matters expressly stated.
<PAGE>
The opinions expressed in this letter are solely for your use and may not
be relied upon by any other person without our prior written consent.
Very truly yours,
SCHREEDER, WHEELER & FLINT, LLP
By:____________________________
______________, Partner
<PAGE>
EXHIBIT 8.1
[FORM OF TAX OPINION TO BE DELIVERED AT CLOSING]
[GALLAGHER & KENNEDY, P.A. LETTERHEAD]
_____________, 1996
AVCOM International, Inc.
Post Office Box 1243
561 Highway 179
Sedona, Arizona 86336
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the Agreement and
Plan of Merger (the "Agreement") executed September 22, 1996, by and among
Signature Resorts, Inc., a Maryland corporation ("SIGR"), and AVCOM
International, Inc., a Delaware corporation ("AVCOM"). AS Acquisition Corp., a
Delaware corporation and a wholly owned subsidiary of SIGR ("AS Acquisition"),
will merge into AVCOM (the "Merger") pursuant to the Agreement.
Except as otherwise provided, capitalized terms referred to herein have the
meanings set forth in the Agreement. All section references, unless otherwise
indicated, are to the Internal Revenue Code of 1986, as amended (the "Code").
For the purpose of rendering our opinion, we have examined and are relying
upon the truth and accuracy, at all relevant times, of the statements,
covenants, representations and warranties contained in the following documents:
1. The Agreement;
2. Representations made to us by SIGR, AS Acquisition, AVCOM, officers
and directors of SIGR, AS Acquisition and AVCOM, and shareholders of AVCOM
holding five percent or more of the outstanding stock of AVCOM;
3. The Registration Statement on Form S-4 filed with the Securities and
Exchange Commission on ___________________, 1996, as amended to the date hereof,
in connection with the issuance of shares of SIGR Stock in the Merger (the
"Registration Statement");
4. An opinion received by SIGR from Montgomery Securities that the Merger
is fair to the shareholders of SIGR as of the Closing Date of the Merger; and
5. Such other instruments and documents related to the formation,
organization and operation of SIGR, AS Acquisition and AVCOM and related to the
consummation of the Merger and the transactions contemplated thereby as we have
deemed necessary or appropriate.
In connection with rendering this opinion we have assumed and are relying
upon, without any independent investigation or review thereof, the following:
1. The genuineness of all signatures on, and the authenticity of,
original documents, the conformity to original documents of all documents
submitted to us as copies, and the due authorization, execution and delivery of
all documents;
<PAGE>
AVCOM International, Inc.
________________, 1996
Page 2
2. The transactions described in the Agreement will be consummated in
accordance with their terms, without waiver of any material provision thereof,
and the Merger will be effective under applicable state laws;
3. The shareholders of AVCOM do not, and will not on or before the
Closing Date of the Merger, have an existing plan or intent to dispose of an
amount of SIGR Stock to be received in the Merger such that the shareholders of
AVCOM will not retain a meaningful continuing equity ownership in SIGR that is
sufficient to satisfy the continuity of interest requirement as specified in
Treas. Reg. (S) 1.368-l(b) and as interpreted in certain Internal Revenue
Service rulings and federal judicial decisions;
4. AVCOM is not a collapsible corporation within the meaning of Section
341(b) of the Code;
5. All of the AVCOM Shares for which dissenters' or appraisal rights are
perfected and all of the AVCOM Shares exchanged for SIGR Stock or for payment in
lieu of a fractional share of SIGR Stock (i) are capital assets in the hands of
the AVCOM shareholder, (ii) were not acquired pursuant to the exercise of an
employee stock option or otherwise in connection with the performance of
services, and (iii) are not "Section 306 stock" within the meaning of Section
306 of the Code; and
6. Payments to a shareholder of AVCOM due to perfection of dissenters' or
appraisal rights or in lieu of fractional shares of SIGR stock (i) are neither
essentially equivalent to a dividend nor have the effect of a distribution of a
dividend, (ii) will be received within six months of the Closing Date of the
Merger and the same taxable year of the shareholder as the Closing Date of the
Merger, and (iii) with respect to payments to dissenters, will be from the
respective corporation in which dissenters' or appraisal rights were perfected.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we are
of the opinion that, for federal income tax purposes, the following consequences
will result:
1. The Merger will be a reorganization as defined in Section 368(a) of
the Code;
2. No gain or loss will be recognized by the shareholders of AVCOM upon
the receipt pursuant to the Merger of SIGR Stock solely in exchange for their
AVCOM Shares;
3. The aggregate basis of the SIGR Stock received by each shareholder of
AVCOM will be the same as the aggregate basis of the AVCOM Shares surrendered in
exchange therefor;
4. The holding period for each share of SIGR Stock received by each
shareholder of AVCOM in exchange for AVCOM Shares will include the period for
which such shareholder held the AVCOM Shares exchanged therefor;
5. A shareholder of AVCOM who exercises dissenters' or appraisal rights
under any applicable law with respect to AVCOM Shares and receives payment for
such shares in cash will recognize capital gain or capital loss measured by the
difference between the amount of cash received and the shareholder's basis in
such shares; and
6. A shareholder of AVCOM who receives a cash payment in lieu of a
fractional share of SIGR Stock will be treated as if the fractional share were
distributed in the Merger and then redeemed by SIGR, and such shareholder will
recognize capital gain or capital loss measured by the difference between the
amount of cash received and the shareholder's basis in the fractional share
(which will be a pro-rata portion of the shareholder's basis in the SIGR Stock
received in the Merger).
<PAGE>
AVCOM International, Inc.
________________, 1996
Page 3
In addition to the assumptions set forth above, this opinion is subject to
the following exceptions, limitations and qualifications:
1. Our opinion of the consequences expressed herein is based upon our
interpretation of the federal income tax treatment of the Merger under the Code
and existing judicial decisions, administrative regulations and published
rulings and procedures. Our opinion is not binding upon the Internal Revenue
Service or courts and there is no assurance that the Internal Revenue Service
will not successfully challenge the consequences set forth herein. Furthermore,
no assurance can be given that future legislative, judicial or administrative
changes, on either a prospective or retroactive basis, would not adversely
affect the accuracy of the conclusions stated herein. We undertake no
responsibility to advise you of any new developments in the application or
interpretation of the federal income tax laws;
2. This opinion only addresses certain federal income tax consequences of
the Merger and does not address any estate, gift, state, local or foreign tax
consequences that may result from the Merger. In particular, we express no
opinion regarding (i) the amount, existence, and/or availability, after the
Merger, of any of the federal income tax attributes of AVCOM (including, without
limitation, net operating loss carryforwards, if any, of AVCOM or its
subsidiaries), (ii) the potential application of the "disqualifying disposition"
rules of Section 421 to dispositions of SIGR Stock or AVCOM Shares, or (iii) the
effects of the Merger and SIGR's assumption of outstanding options to acquire
AVCOM Shares on the holders of such options under any AVCOM employee stock
option or stock purchase or other compensatory plan; and
3. This opinion is intended solely for your benefit in connection with
the Merger; it may not be relied upon for any other purpose or by any other
person or entity, and may not be made available to any other person or entity
without our prior written consent. We hereby consent, however, to the use of
this opinion as an exhibit to the Registration Statement and further consent to
the use of our name whenever appearing in the Registration Statement, including
the Prospectus/Proxy Statement constituting a part thereof, and any amendments
thereto.
In the event any one of the statements, representations, warranties or
assumptions we have relied upon to issue this opinion is incorrect, our opinion
might be adversely affected and may not be relied upon.
Very truly yours,
GALLAGHER & KENNEDY, P.A.
<PAGE>
EXHIBIT 10.8.1
LENDER'S CERTIFICATION AND CONSENT
TO: Signature Resorts, Inc.
911 Wilshire Boulevard
Suite 2250
Los Angeles, California 90017
FROM: Resort Capital Corporation, a Delaware corporation ("Lender")
DATE: As of August 15, 1996
RE: That certain indebtedness of Fall Creek Resort, L.P., a Georgia limited
partnership ("Fall Creek"), in favor of Lender, (i) under that Commitment
Agreement between Fall Creek and Lender and dated as of May 21, 1993, and
all renewals, extensions, amendments, replacements, restatements,
supplements or modifications thereto, whether now or hereafter existing
(collectively, the "Fall Creek Commitment Agreement"), pursuant to which,
and under the circumstances set forth therein, Lender agreed to purchase
certain portfolios of receivables in an amount of up to $10,000,000
consisting of promissory notes and mortgages then existing and thereafter
arising from sales by Fall Creek to individuals purchasing interval
estates in specific condominium parcels developed by Fall Creek as a time
share condominium project known as The Plantation at Fall Creek (the
"Fall Creek Purchase") for the purposes and upon the terms and conditions
set forth therein (such Commitment Agreement, together with any and all
renewals, extensions, amendments, replacements, restatements, supplements
or modification, whether now or hereafter existing, is hereinafter
referred to collectively as the "Fall Creek Commitment Agreement"). The
Fall Creek Commitment Agreement and all obligations of Fall Creek
thereunder are set forth in and evidenced by the "Fall Creek Loan
Documents," as defined in the Fall Creek Commitment Agreement, and the
"Documents," as defined in the Fall Creek Commitment Agreement, and any
and all renewals, extensions, amendments, replacements, restatements,
supplements or modifications thereto, whether now or hereafter existing
(collectively, the "Fall Creek Loan Documents").
R E C I T A L S
WHEREAS, the Fall Creek Loan Documents are hereinafter collectively
referred to as the "Loan Documents." The Fall Creek Commitment Agreement is
sometimes hereinafter referred to as the "Loan."
WHEREAS, Signature Resorts, Inc. ("Signature") was incorporated in
Maryland in May of 1996 to effect a consolidation of transactions whereby
certain direct and indirect holders of interests in and obligations of Fall
Creek, among others, will, in exchange for the assignment and transfer of their
respective interests in such entities, receive shares of common stock in
Signature (the "Consolidation Transactions") in connection with an initial
public offering of stock in Signature (the "Signature IPO"). As a result of the
Consolidation Transactions, all of the obligations of Fall Creek under the Fall
Creek Loan Documents, will be assumed directly by Signature, in which, as a
result of the Consolidation Transactions, Signature will own one hundred percent
(100%) of the shares of stock therein and all ownership interests in Fall Creek
will be transferred and assigned to Signature.
WHEREAS, the Loan Documents prohibit the assignments and transfers
described in and contemplated by the Consolidation Transactions without Lender's
prior written consent.
WHEREAS, pursuant to this Certification and Consent, Lender is certifying
as to certain matters with respect to the Loan and providing its consent to the
Consolidation Transactions pursuant to the terms and conditions set forth
herein.
<PAGE>
A G R E E M E N T
Lender hereby states, certifies, represents and agrees as follows:
1. Lender is the sole owner and holder of the Loan and all Loan
Documents related thereto and has not assigned, transferred or conveyed, nor
agreed to assign, transfer or convey, any interest therein to any other party.
2. All of the Loan Documents are currently in full force and
effect in accordance with their respective terms.
3. The outstanding principal balance of the Loan as of August 13,
1996 is One Million Eight Hundred Eighty-Seven Thousand Four Hundred Seventy-
Nine and 92/100 Dollars ($1,887,479.92).
4. The maturity date of the Loan is the date on which the last
receivable note is paid in full, unless shortened or extended pursuant to the
Loan Documents.
5. No notices of default are outstanding under any of the Loan
Documents; however, that receivable replacement obligations in the approximate
amount of $67,307 and additional upgrade obligations are presently due and
payable and have not been paid.
6. The Fall Creek Commitment Agreement does not contain a
prepayment penalty.
7. Provided that the Consolidation Transactions are closed in the
manner described on the attached Exhibit A, Lender hereby consents to the (i)
transfer and assignment of all assets of Fall Creek to Signature, (ii) the
dissolution of Fall Creek and (iii) the payment in full of the subordinated debt
now owed to CPI Securities, L.P. and Grace Investments, Ltd.
8. The dissolution of Fall Creek and the conveyance of all the assets
of Fall Creek to Signature is hereby approved by Lender and shall not constitute
an event of default under the Loan.
9. Lender consents to the dissolution of Argosy Branson, Inc. the
general partner of Fall Creek.
DATED as of the date and year first written above
RESORT CAPITAL CORPORATION,
a Delaware corporation
By:____________________________
Its:__________________________
<PAGE>
EXHIBIT "A"
-----------
SUMMARY OF SRI CONSOLIDATION STRUCTURE -- DRAFT AS OF 8/15/96
-------------------------------------------------------------
I. SERVICE ENTITY MERGERS. Signature Resorts, Inc. ("SRI") will be
----------------------
merged with the following corporations (with SRI as the surviving
entity, succeeding to the assets and liabilities of the following
entities by operation of law):
1. Argosy/KOAR Group, Inc.
2. Resort Telephone & Cable of Orlando, Inc.
3. Vacation Resort Marketing of Missouri, Inc.
4. Vacation Ownership Marketing, Inc.
II. SERVICE ENTITY STOCK TRANSFERS. SRI will acquire from the
------------------------------
Founders all of their stock in the following corporations via
stock transfers in exchange for SRI stock:
1. Resort Marketing International, Inc.
2. Premier Resort Management, Inc.
3. Resort Management International, Inc. (GA)
4. Resort Management International, Inc. (CA)
III. EMBASSY GRAND BEACH RESORT.
--------------------------
1. SRI will acquire each partner's interest in USA Grand Beach
Partners through assignments of interest in exchange for SRI
stock.
2. USA Grand Beach Partners will dissolve by operation of law,
with SRI succeeding to the limited partnership interest of
USA Grand Beach Partners in Grand Beach Resort, Limited
Partnership.
3. SRI will acquire the limited partnership interests of all
other limited partners in Grand Beach Resort, L.P. through
the assignment of such interests in exchange for SRI stock,
with SRI thereby becoming the sole limited partner of Grand
Beach Resort, Limited Partnership.
4. SRI will acquire the limited partnership interest of JCIR in
Grand Beach Partners, L.P. through an assignment of interest
in exchange for SRI stock.
5. SRI will assume the debt owed by Koar Group, Inc. indirectly
to USA Vacation Investors in exchange for Koar Group, Inc.'s
interest in certain income streams (the "Income Streams")
from Grand Beach Resort, Limited Partnership, Resort
Management International, Inc., and Resort Telephone and
Cable of Orlando, Inc.
6. SRI will acquire each partner's interest in USA Vacation
Investors through assignments of interest in exchange for
SRI stock.
<PAGE>
7. USA Vacation Investors will dissolve by operation of law,
with SRI succeeding to USA Vacation Investors' rights with
respect to the Income Streams. The debt will be cancelled.
8. SRI will acquire Argosy Grand Beach, Inc. via stock
transfers in exchange for SRI stock, with Argosy Grand
Beach, Inc. remaining in existence as a wholly-owned
subsidiary of SRI.
9. SRI will acquire KGI Grand Beach Investments, Inc. and
Argosy Partners, Inc via stock transfers in exchange for SRI
stock, with both corporations remaining in existence.
10. Argosy/KGI Grand Beach Investment Partnership and Grand
Beach Partners, L.P. will remain in existence, such that
Grand Beach Partners, L.P. will be the sole general partner
and SRI will be the sole limited partner of Grand Beach
Resort, Limited Partnership.
IV. EMBASSY POIPU POINT RESORT
--------------------------
1. SRI will acquire each partner's interest in USA Poipu
Partners, L.P. through assignments of interest in exchange
for SRI stock.
2. USA Poipu Partners, L.P. will dissolve by operation of law,
with SRI succeeding to the limited partnership interest of
USA Poipu Partners, L.P. in Poipu Resort Partners, L.P.
3. SRI will merge with Argosy Poipu Inc. (with SRI as the
surviving entity), with SRI succeeding to the limited
partnership interest of Argosy Poipu Inc. in Argosy/KGI
Poipu Investment Partnership, L.P.
4. SRI will acquire Argosy Partners, Inc via stock transfer in
exchange for SRI stock, with Argosy Partners, Inc. remaining
in existence.
5. SRI will acquire from Kenninger and Kaneko their limited
partnership interests in Argosy/KGI Poipu Investment
Partnership, L.P. via assignments of interest in exchange
for SRI stock.
6. SRI will acquire AKGI Poipu Investments, Inc. via stock
transfers in exchange for SRI stock, with AKGI Poipu
Investments, Inc. remaining in existence as a wholly-owned
subsidiary of SRI.
7. Argosy/KGI Poipu Investment Partnership, L.P. will remain in
place as the managing general partner of Poipu Resort
Partners, L.P.
8. Poipu Resort Partners, L.P. remains in existence.
<PAGE>
V. FLAMINGO AND ROYAL PALM RESORTS
-------------------------------
1. AKGI - St. Maarten NV has been domesticated, such that it is
now dually incorporated in Delaware and the Netherlands-
Antilles.
2. AKGI Flamingo C.V.o.a. and AKGI Royal Palm C.V.o.a. will be
dissolved./1/
3. The Founders transfer 100% of their interests in the
following limited liability companies in exchange for SRI
stock, followed by the dissolution of such entities
immediately thereafter (with SRI succeeding to all of the
assets and liabilities of each, including the interest of
ARK - Las Flamas LLC in the Flamingo Resort and the interest
of ARK - Las Palmas LLC in the Royal Palm Resort):
(a) AK - Royal Palm LLC
(b) AK - Flamingo LLC
(c) ARK - Las Flamas LLC
(d) ARK - Las Palmas LLC
(e) AK - St. Maarten LLC
4. SRI transfers its 99% interests in Flamingo Resort and Royal
Palm Resort to AKGI - St. Maarten NV in exchange for stock
of AKGI - St. Maarten NV immediately following the
dissolution of each entity listed in step 3 above.
Following steps 1 through 4 above, SRI will wholly own AKGI - St.
Maarten NV, which will itself own all of Flamingo Resort and
Royal Palm Resort directly.
VI. PORT ROYAL RESORT (HILTON HEAD)
-------------------------------
1. SRI will acquire KGI Port Royal, Inc. and Argosy Hilton
Head, Inc. via stock transfers in exchange for SRI stock,
with KGI Port Royal, Inc. remaining in existence.
2. SRI will acquire assignee interest of Peachtree Limited in
Argosy/KGI Port Royal Partners via assignment of interest in
exchange for SRI stock.
- ----------
/1/ The Flamingo Resort and any and all other assets of AKGI Flamingo
C.V.o.a. will transitorily be owned by AKGI - St. Maarten NV and ARK-
Las Flamas LLC as tenants-in-common, with AKGI - St. Maarten NV
holding an undivided 1% interest, and ARK - Las Flamas LLC holding a
99% undivided interest. Likewise, the Royal Palm Resort and any and
all other assets of AKGI Royal Palm C.V.o.a. will transitorily be
owned by AKGI - St. Maarten NV and ARK - Las Palmas LLC as tenants-in-
common, with AKGI - St. Maarten NV holding an undivided 1% interest,
and ARK - Las Palmas LLC holding a 99% undivided interest.
<PAGE>
3. Argosy/KGI Port Royal Partners will remain in existence as
the general partner of Port Royal Resort, L.P., with KGI
Port Royal, Inc. and Argosy Hilton Head, Inc. as the only
partners thereof.
4. SRI will acquire each partner's interest in KPI General
Partnership Hilton Head via assignments of interest in
exchange for SRI stock.
5. KPI General Partnership Hilton Head will dissolve by
operation of law (as SRI will be the sole remaining
partner), with SRI succeeding to the limited partnership
interest of KPI General Partnership Hilton Head in Port
Royal Resort, L.P.
6. SRI will acquire the assignee interest of KPI Realty Inc. in
Port Royal Resort, L.P. via assignment of interest in
exchange for SRI stock.
7. SRI will acquire the limited partnership interest of MBK
Realty, Inc. in Port Royal Resort, L.P. via assignment of
interest in exchange for SRI stock.
8. Port Royal Resort, L.P. to remain in existence.
VII. CYPRESS POINTE RESORT
---------------------
1. Argosy Investments, Inc. and Argosy Group, Inc. are merged
into SRI (with SRI the surviving entity, succeeding to the
assets and liabilities of both corporations, including
Argosy Group, Inc.'s general partner interest in Cypress
Pointe Resort, L.P. and Argosy Investments, Inc.'s
partnership interest in Argosy Canyon Investments, L.P.).
2. CanPartners, Inc. and Canyon Investment Partnership II, L.P.
will transfer 100% of their partnership interests in Argosy
Canyon Investments, L.P. to SRI in exchange for SRI stock.
3. Argosy Canyon Investments, L.P. is dissolved by operation of
law, as SRI is the sole remaining partner.
4. Cypress Pointe Resort, L.P. dissolves by operation of law,
as SRI is the sole remaining partner. SRI will therefore
own Cypress Pointe Resort directly.
VIII. FALL CREEK RESORT
-----------------
1. Argosy Branson, Inc. is merged into SRI (with SRI the
surviving entity, succeeding to Argosy Branson, Inc.'s
partnership interest in Fall Creek Resort, L.P.).
2. Argosy Investments, Inc. is merged into SRI (see step 1 of
Cypress Pointe Resort, above). SRI will succeed to Argosy
Investments, Inc.'s partnership interest in Fall Creek
Resort, L.P.
<PAGE>
3. CanPartners Investments II, L.P., Canyon Partners
Investments V, L.P., Grace Investments Ltd., and Randall
Wooster transfer 100% of their limited partners' interests
in Fall Creek Resort, L.P. to SRI in exchange for SRI stock.
3. Fall Creek Resort, L.P. is dissolved by operation of law, as
SRI is the sole remaining partner. SRI will then own Fall
Creek Resort directly.
IX. SAN LUIS
--------
1. AKGI San Luis, Inc. and KGK San Luis, Inc. will be merged
into SRI (with SRI the surviving entity, succeeding to the
assets and liabilities of both corporations).
2. San Luis Resort Partners, LLC will be dissolved, after which
SRI will own San Luis Bay Resort directly.
X. SKI RUN
-------
1. SRI will acquire all of the stock of AKGI Lake Tahoe
Investments, Inc. and KGK Lake Tahoe Development, Inc. via
stock transfers in exchange for SRI stock. Both
corporations will remain in existence and will continue to
be the only members of Lake Tahoe Resort Partners, LLC,
which will continue to own the Ski Run resort.
XI. KABUSHIKI GAISHA KEI, LLC (KGK)
-------------------------------
1. Prior to the Consolidation, KGK will sell the Phase II
property in St. Maarten to AKGI - St. Maarten NV in exchange
for a note.
2. SRI will acquire all of the stock of KGK Partners, Inc., KGK
Investors, Inc., and Argosy Partners, Inc. (see step 9 of
Embassy Grand Beach Resort above) via stock transfers in
exchange for SRI stock. All three corporations will remain
in existence and will continue to be the members of KGK,
which will continue to own the installment notes it
presently holds.
<PAGE>
EXHIBIT 10.8.2
LENDER'S CERTIFICATION AND CONSENT
TO: Signature Resorts, Inc.
911 Wilshire Boulevard
Suite 2250
Los Angeles, California 90017
FROM: FINOVA Capital Corporation, a Delaware corporation ("Lender")
DATE: As of August 15, 1996
RE: That certain indebtedness of Cypress Pointe Resorts, L.P., a
Delaware limited partnership ("Cypress"), in favor of Lender, formerly
known as Greyhound Financial Corporation, the successor-in-interest to
Greyhound Real Estate Finance Company, an Arizona corporation
("GREFCO"), (i) under that Construction Loan Agreement between Cypress
and GREFCO and dated as of December 19, 1991, and all renewals,
extensions, amendments, replacements, restatements, supplements or
modifications thereto, whether now or hereafter existing
(collectively, the "Cypress Construction Loan Agreement"), pursuant to
which Lender agreed to make a construction loan to Cypress, under the
circumstances set forth in the Cypress Construction Loan Agreement
(the "Cypress Construction Loan"), and (ii) under that Loan and
Security Agreement between Cypress and GREFCO and dated as of December
19, 1991, together with all renewals, extensions, amendments,
replacements, restatements, supplements or modifications thereto,
whether now or hereafter existing (collectively, the "Cypress
Receivables Loan Agreement"), pursuant to which Lender agreed to make
to Cypress a receivables loan (the "Cypress Receivables Loan") and a
working capital loan (the "Cypress Working Capital Loan"), under the
circumstances set forth in the Cypress Receivables Loan Agreement.
The Cypress Construction Loan, the Cypress Receivables Loan, the
Cypress Working Capital Loan and all obligations of Cypress thereunder
are set forth in and evidenced by the "Construction Loan Documents,"
as defined in the Cypress Construction Loan Agreement, and the
"Documents," as defined in the Cypress Receivables Loan Agreement, and
any and all renewals, extensions, amendments, replacements,
restatements, supplements or modifications thereto, whether now or
hereafter existing (collectively, the "Cypress Loan Documents").
RE: That certain indebtedness of Grand Beach Resort, Limited
Partnership, a Georgia limited partnership ("Grand Beach"), in favor
of Lender (i) under that Construction Loan Agreement between Grand
Beach and Lender and dated as of October 7, 1994, together with all
renewals, extensions, amendments, replacements, restatements,
supplements or modifications thereto, whether now or hereafter
existing (collectively, the "Grand Beach Construction Loan
Agreement"), pursuant to which Lender agreed to make a construction
loan to Grand Beach (the "Grand Beach Construction Loan"), under the
circumstances set forth in the Grand Beach Construction Loan Agreement
and (ii) under that Loan and Security Agreement between Grand Beach
and Lender and dated as of October 7, 1994, together with any and all
renewals, extensions, amendments, replacements, restatements,
supplements or modifications thereto, whether now or hereafter
existing (collectively, the "Grand Beach Receivables Loan Agreement"),
pursuant to which Lender agreed to make to Grand Beach a receivables
loan (the "Grand Beach Receivables Loan") and a working capital loan
(the "Grand Breach Working
<PAGE>
Capital Loan"), under the circumstances set forth in the Grand Beach
Receivables Loan Agreement. The obligations of Grand Beach under the
Grand Beach Construction Loan, the Grand Beach Receivables Loan and
the Grand Beach Working Capital Loan are set forth in and evidenced by
the "Construction Loan Documents," as defined in the Grand Beach
Construction Loan Agreement, and the "Documents," as defined in the
Grand Beach Receivables Loan Agreement, together with any and all
renewals, extensions, amendments, replacements, restatements,
supplements or modifications thereto, whether now or hereafter
existing (collectively, the "Grand Beach Loan Documents").
RE: That certain indebtedness of Port Royal Resort, L.P., a South
Carolina limited partnership ("Port Royal"), in favor of Lender (i)
under that Construction Loan Agreement between Port Royal and Lender
and dated as of October 7, 1993, together with all renewals,
extensions, amendments, replacements, restatements, supplements or
modifications thereto, whether now or hereafter existing
(collectively, the "Port Royal Construction Loan Agreement"), pursuant
to which Lender agreed to make a construction loan to Port Royal (the
"Port Royal Construction Loan"), under the circumstances set forth in
the Port Royal Construction Loan Agreement, and (ii) under that Loan
and Security Agreement between Port Royal and Lender dated as of
October 7, 1993, together with any and all renewals, extensions,
amendments, replacements, restatements, supplements or modifications
thereto, whether now or hereafter existing (collectively, the "Port
Royal Receivables Loan Agreement"), pursuant to which Lender agreed to
make to Port Royal a receivables loan (the "Port Royal Receivables
Loan") and a working capital loan (the "Port Royal Working Capital
Loan"), under the circumstances set forth in the Port Royal
Receivables Loan Agreement. The obligations of Port Royal under the
Port Royal Construction Loan, the Port Royal Receivables Loan and the
Port Royal Working Capital Loan are set forth in and evidenced by the
"Construction Loan Documents," as defined in the Port Royal
Construction Loan Agreement, the "Documents" and the "Working Capital
Note," as such terms are defined in the Port Royal Receivables Loan
Agreement, together with any and all renewals, extensions, amendments,
replacements, restatements, supplements or modifications thereto,
whether now or hereafter existing (collectively, the "Port Royal Loan
Documents").
RE: That certain indebtedness of San Luis Resort Partners, L.L.C., a
Georgia limited liability company ("San Luis"), in favor of Lender (i)
under that Construction Loan Agreement dated as of June 6, 1996
between Lender and San Luis, together with any and all renewals,
extensions, amendments, replacements, restatements, supplements or
modifications thereto, whether now or hereafter existing
(collectively, the "San Luis Construction Loan Agreement"), pursuant
to which Lender agreed to make a construction loan to San Luis (the
"San Luis Construction Loan"), under the circumstances set forth in
the San Luis Construction Loan Agreement, and (ii) under that Loan and
Security Agreement between San Luis and Lender dated as of June 6,
1996, together with any and all renewals, extensions, amendments,
replacements, restatements, supplements or modifications thereto,
whether now or hereafter existing (collectively, the "San Luis
Receivables Loan Agreement"), pursuant to which Lender agreed to make
to San Luis a receivables loan (the "San Luis Receivables Loan") and a
working capital loan (the "San Luis Working Capital Loan"), under the
circumstances set forth in the San Luis Receivables Loan Agreement.
The obligations of San Luis to Lender under the San Luis Construction
Loan, the San Luis Working Capital Loan and the San Luis Receivables
Loan are set forth in and evidenced by the "Construction Loan
Documents," as defined in the San Luis Construction Loan Agreement,
the "Receivables Loan
<PAGE>
Documents," as defined in the San Luis Receivables Loan Agreement, and
the "Working Capital Note," as defined in the San Luis Receivables
Loan Agreement, together with any and all renewals, extensions,
amendments, replacements, restatements, supplements or modifications
thereto, whether now or hereafter existing (collectively, the "San
Luis Loan Documents").
RE: That certain indebtedness of Lake Tahoe Resort Partners, L.L.C.,
a California limited liability company ("Lake Tahoe"), under that
Construction Loan Agreement between Lender and Lake Tahoe dated as of
April 29, 1996, together with any and all renewals, extensions,
amendments, replacements, restatements, supplements or modifications
thereto, whether now or hereafter existing (collectively, the "Lake
Tahoe Construction Loan Agreement"), pursuant to which Lender agreed
to make a construction loan to Lake Tahoe (the "Lake Tahoe
Construction Loan"), under the circumstances set forth in the Lake
Tahoe Construction Loan Agreement, and (ii) under that Loan and
Security Agreement between Lake Tahoe and Lender dated as of April 29,
1996, together with any and all renewals, extensions, amendments,
replacements, restatements, supplements or modifications thereto,
whether now or hereafter existing (collectively, the "Lake Tahoe
Receivables Loan Agreement"), pursuant to which Lender agreed to make
to Lake Tahoe a receivables loan (the "Lake Tahoe Receivables Loan")
and a working capital loan (the "Lake Tahoe Working Capital Loan"),
under the circumstances set forth in the Lake Tahoe Receivables Loan
Agreement. The obligations of Lake Tahoe to Lender under the Lake
Tahoe Construction Loan, the Lake Tahoe Receivables Loan and the Lake
Tahoe Working Capital Loan are set forth in and evidenced by the
"Construction Loan Documents," as defined in the Lake Tahoe
Construction Loan Agreement, the "Receivables Loan Documents," as
defined in the Lake Tahoe Receivables Loan Agreement, and the "Working
Capital Note," as defined in the Lake Tahoe Receivables Loan
Agreement. The Construction Loan Documents, the Receivables Loan
Documents and the Working Capital Note are hereinafter collectively
referred to as the "Lake Tahoe Loan Documents."
RE: That certain indebtedness of AKGI-Royal Palm C.V., a Netherlands
Antilles limited partnership ("Royal Palm"), (i) under that Loan and
Security Agreement between the Lender and Royal Palm and dated as of
July 12, 1995,, together with any and all renewals, extensions,
amendments, replacements, restatements, supplements or modifications
thereto, whether now or hereafter existing (collectively, the "Royal
Palm Loan Agreement"), pursuant to which Lender agreed to make to
Royal Palm an acquisition and development loan (the "Royal Palm A&D
Loan") and a receivables loan (the "Royal Palm Receivables Loan"),
under the circumstances set forth in the Royal Palm Loan Agreement.
The obligations of Royal Palm to Lender under the Royal Palm A&D Loan
and the Royal Palm Receivables Loan are set forth in and evidenced by
the "Documents," as defined in the Royal Palm Loan Agreement. Such
documents, together with any and all renewals, extensions, amendments,
replacements, restatements, supplements or modifications thereto,
whether now or hereafter existing, are hereinafter collectively
referred to as the "Royal Palm Loan Documents").
RE: That certain indebtedness of AKGI-Flamingo C.V., a Netherlands
Antilles limited partnership ("Flamingo"), under that Loan and
Security Agreement between Flamingo and Lender dated as of September
1, 1995, together with any and all renewals, extensions, amendments,
replacements, restatements, supplements or modifications thereto,
whether now or hereafter existing (collectively, the "Flamingo Loan
Agreement"), pursuant to which Lender agreed to make to Flamingo an
acquisition and
<PAGE>
development loan (the "Flamingo A&D Loan") and a receivables loan (the
"Flamingo Receivables Loan"), under the circumstances set forth in the
Flamingo Loan Agreement. The obligations of Flamingo under the
Flamingo A&D Loan and the Flamingo Receivables Loan are set forth and
evidenced by the "Documents," as defined in the Flamingo Loan
Agreement. Such documents, together with any and all renewals,
extensions, amendments, replacements, restatements, supplements or
modifications thereto, whether now or hereafter existing are
hereinafter collectively referred to as the "Flamingo Loan Documents."
RE: That certain indebtedness of Kabushiki Gaisha Kei, L.L.C., a
California limited liability company ("KGK"), under that Loan and
Security Agreement between Lender and KGK dated as of December 1,
1995, together with any and all renewals, extensions, amendments,
replacements, restatements, supplements or modifications thereto,
whether now or hereafter existing (the "KGK Loan Agreement"), pursuant
to which Lender agreed to make to KGK a receivables loan (the "KGK
Receivables Loan"), under the circumstances set forth in the KGK Loan
Agreement. The obligations of KGK under the KGK Receivables Loan are
set forth in and evidenced by the "Documents," as defined in the KGK
Loan Agreement. Such documents, together with any and all renewals,
extensions, amendments, replacements, restatements, supplements or
modifications thereto, whether now or hereafter existing, are
hereinafter collectively referred to as the "KGK Loan Documents."
R E C I T A L S
WHEREAS, the Cypress Loan Documents, the Grand Beach Loan Documents,
the Port Royal Loan Documents, the San Luis Loan Documents, the Lake Tahoe
Loan Documents, the Royal Palm Loan Documents, the Flamingo Loan Documents
and the KGK Loan Documents are hereinafter collectively referred to as the
"Loan Documents." The Cypress Construction Loan, the Cypress Working
Capital Loan, the Cypress Receivables Loan, the Grand Beach Construction
Loan, the Grand Beach Working Capital Loan, the Grand Breach Receivables
Loan, the Port Royal Construction Loan, the Port Royal Working Capital
Loan, the Port Royal Receivables Loan, the San Luis Construction Loan, the
San Luis Working Capital Loan, the San Luis Receivables Loan, the Lake
Tahoe Construction Loan, the Lake Tahoe Working Capital Loan, the Lake
Tahoe Receivables Loan, the Royal Palm A&D Loan, the Royal Palm Receivables
Loan, the Flamingo A&D Loan, the Flamingo Receivables Loan and the KGK
Receivables Loan are sometimes hereinafter collectively referred to as the
"Loans."
WHEREAS, Signature Resorts, Inc. ("Signature") was incorporated in
Maryland in May of 1996 to effect a consolidation of transactions whereby
certain direct and indirect holders of interests in and obligations of
Cypress, Grand Beach, Port Royal, San Luis, Lake Tahoe, Royal Palm,
Flamingo and KGK will, in exchange for the assignment and transfer of their
respective interests in such entities, receive shares of common stock in
Signature (the "Consolidation Transactions") in connection with an initial
public offering of stock in Signature (the "Signature IPO"). As a result
of the Consolidation Transactions, all of the obligations of Cypress under
the Cypress Loan Documents and of San Luis under the San Luis Loan
Documents will be assumed directly by Signature, all of the obligations of
Royal Palm under the Royal Palm Loan Documents and of Flamingo under the
Flamingo Loan Documents will be assumed directly by AKGI-Sint Maarten,
N.V., an Netherlands Antilles corporation, in which, as a result of the
Consolidation Transactions, Signature will own one hundred percent (100%)
of the shares of stock therein, and
<PAGE>
all ownership interests in Grand Beach, Port Royal, KGK and Lake Tahoe will
be transferred and assigned to Signature.
WHEREAS, the Loan Documents prohibit the assignments and transfers
described in and contemplated by the Consolidation Transactions without
Lender's prior written consent.
WHEREAS, pursuant to this Certification and Consent, Lender is
certifying as to certain matters with respect to the Loans and providing
its consent to the Consolidation Transactions pursuant to the terms and
conditions set forth herein.
A G R E E M E N T
Lender hereby states, certifies, represents and agrees as follows:
1. Lender is the sole owner and holder of all of the Loans and all
Loan Documents related thereto and has not assigned, transferred or
conveyed, nor agreed to assign, transfer or convey, any interest therein to
any other party.
2. All of the Loan Documents are currently in full force and effect
in accordance with their respective terms.
3. The outstanding principal balance of each of the Loans as of
August 5, 1996 is as set forth in the Portfolio Status Report dated as of
August 5, 1996 and attached hereto as EXHIBIT "A" (the "Portfolio Status
Report").
4. The balance of loan proceeds available under each of the Loans
for future advances as of August 5, 1996 are as set forth in the Portfolio
Status Report.
5. Subject to the provisions of the Loan Documents, Lender's
commitment to fund advances under each of the Loans expires as of the
respective dates therefor set forth in the Portfolio Status Report.
6. The respective maturity dates of each of the Loans are as set
forth in the Portfolio Status Report, unless shortened or extended pursuant
to the Loan Documents.
7. The effect of the Consolidation Transactions will not cause the
Loans to violate the Lender's restrictions with respect to loans to a
single borrower and Lender will consider each of Signature, AKGI-Sint
Maarten, N.V., Grand Beach, Port Royal, KGK and Lake Tahoe as separate
borrowers for such purposes.
8. No notices of default are outstanding under any of the Loan
Documents.
9. Provided that the Consolidation Transactions are closed in the
manner described on the attached EXHIBIT B, Lender hereby consents to the
Consolidation Transactions, and the consummation of the Consolidation
Transactions shall not constitute a default or breach of any of the terms
and conditions of any of the Loans, or necessitate the prepayment of any
indebtedness thereunder.
<PAGE>
DATED as of the date and year first written above.
FINOVA CAPITAL CORPORATION, a Delaware
corporation
By:_______________________________________
Its:______________________________________
<PAGE>
EXHIBIT "A"
-----------
SUMMARY OF SRI CONSOLIDATION STRUCTURE -- DRAFT AS OF 8/15/96
-------------------------------------------------------------
I. SERVICE ENTITY MERGERS. Signature Resorts, Inc. ("SRI") will be
----------------------
merged with the following corporations (with SRI as the surviving
entity, succeeding to the assets and liabilities of the following
entities by operation of law):
1. Argosy/KOAR Group, Inc.
2. Resort Telephone & Cable of Orlando, Inc.
3. Vacation Resort Marketing of Missouri, Inc.
4. Vacation Ownership Marketing, Inc.
II. SERVICE ENTITY STOCK TRANSFERS. SRI will acquire from the
------------------------------
Founders all of their stock in the following corporations via
stock transfers in exchange for SRI stock:
1. Resort Marketing International, Inc.
2. Premier Resort Management, Inc.
3. Resort Management International, Inc. (GA)
4. Resort Management International, Inc. (CA)
III. EMBASSY GRAND BEACH RESORT.
--------------------------
1. SRI will acquire each partner's interest in USA Grand Beach
Partners through assignments of interest in exchange for SRI
stock.
2. USA Grand Beach Partners will dissolve by operation of law,
with SRI succeeding to the limited partnership interest of
USA Grand Beach Partners in Grand Beach Resort, Limited
Partnership.
3. SRI will acquire the limited partnership interests of all
other limited partners in Grand Beach Resort, L.P. through
the assignment of such interests in exchange for SRI stock,
with SRI thereby becoming the sole limited partner of Grand
Beach Resort, Limited Partnership.
4. SRI will acquire the limited partnership interest of JCIR in
Grand Beach Partners, L.P. through an assignment of interest
in exchange for SRI stock.
5. SRI will assume the debt owed by Koar Group, Inc. indirectly
to USA Vacation Investors in exchange for Koar Group, Inc.'s
interest in certain income streams (the "Income Streams")
from Grand Beach Resort, Limited Partnership, Resort
Management International, Inc., and Resort Telephone and
Cable of Orlando, Inc.
6. SRI will acquire each partner's interest in USA Vacation
Investors through assignments of interest in exchange for
SRI stock.
<PAGE>
7. USA Vacation Investors will dissolve by operation of law,
with SRI succeeding to USA Vacation Investors' rights with
respect to the Income Streams. The debt will be cancelled.
8. SRI will acquire Argosy Grand Beach, Inc. via stock
transfers in exchange for SRI stock, with Argosy Grand
Beach, Inc. remaining in existence as a wholly-owned
subsidiary of SRI.
9. SRI will acquire KGI Grand Beach Investments, Inc. and
Argosy Partners, Inc via stock transfers in exchange for SRI
stock, with both corporations remaining in existence.
10. Argosy/KGI Grand Beach Investment Partnership and Grand
Beach Partners, L.P. will remain in existence, such that
Grand Beach Partners, L.P. will be the sole general partner
and SRI will be the sole limited partner of Grand Beach
Resort, Limited Partnership.
IV. EMBASSY POIPU POINT RESORT
--------------------------
1. SRI will acquire each partner's interest in USA Poipu
Partners, L.P. through assignments of interest in exchange
for SRI stock.
2. USA Poipu Partners, L.P. will dissolve by operation of law,
with SRI succeeding to the limited partnership interest of
USA Poipu Partners, L.P. in Poipu Resort Partners, L.P.
3. SRI will merge with Argosy Poipu Inc. (with SRI as the
surviving entity), with SRI succeeding to the limited
partnership interest of Argosy Poipu Inc. in Argosy/KGI
Poipu Investment Partnership, L.P.
4. SRI will acquire Argosy Partners, Inc via stock transfer in
exchange for SRI stock, with Argosy Partners, Inc. remaining
in existence.
5. SRI will acquire from Kenninger and Kaneko their limited
partnership interests in Argosy/KGI Poipu Investment
Partnership, L.P. via assignments of interest in exchange
for SRI stock.
6. SRI will acquire AKGI Poipu Investments, Inc. via stock
transfers in exchange for SRI stock, with AKGI Poipu
Investments, Inc. remaining in existence as a wholly-owned
subsidiary of SRI.
7. Argosy/KGI Poipu Investment Partnership, L.P. will remain in
place as the managing general partner of Poipu Resort
Partners, L.P.
8. Poipu Resort Partners, L.P. remains in existence.
<PAGE>
V. FLAMINGO AND ROYAL PALM RESORTS
-------------------------------
1. AKGI - St. Maarten NV has been domesticated, such that it is
now dually incorporated in Delaware and the Netherlands-
Antilles.
2. AKGI Flamingo C.V.o.a. and AKGI Royal Palm C.V.o.a. will be
dissolved./1/
3. The Founders transfer 100% of their interests in the
following limited liability companies in exchange for SRI
stock, followed by the dissolution of such entities
immediately thereafter (with SRI succeeding to all of the
assets and liabilities of each, including the interest of
ARK - Las Flamas LLC in the Flamingo Resort and the interest
of ARK - Las Palmas LLC in the Royal Palm Resort):
(a) AK - Royal Palm LLC
(b) AK - Flamingo LLC
(c) ARK - Las Flamas LLC
(d) ARK - Las Palmas LLC
(e) AK - St. Maarten LLC
4. SRI transfers its 99% interests in Flamingo Resort and Royal
Palm Resort to AKGI - St. Maarten NV in exchange for stock
of AKGI - St. Maarten NV immediately following the
dissolution of each entity listed in step 3 above.
Following steps 1 through 4 above, SRI will wholly own AKGI - St.
Maarten NV, which will itself own all of Flamingo Resort and
Royal Palm Resort directly.
VI. PORT ROYAL RESORT (HILTON HEAD)
-------------------------------
1. SRI will acquire KGI Port Royal, Inc. and Argosy Hilton
Head, Inc. via stock transfers in exchange for SRI stock,
with KGI Port Royal, Inc. remaining in existence.
2. SRI will acquire assignee interest of Peachtree Limited in
Argosy/KGI Port Royal Partners via assignment of interest in
exchange for SRI stock.
- ----------
/1/ The Flamingo Resort and any and all other assets of AKGI Flamingo
C.V.o.a. will transitorily be owned by AKGI - St. Maarten NV and ARK-
Las Flamas LLC as tenants-in-common, with AKGI - St. Maarten NV
holding an undivided 1% interest, and ARK - Las Flamas LLC holding a
99% undivided interest. Likewise, the Royal Palm Resort and any and
all other assets of AKGI Royal Palm C.V.o.a. will transitorily be
owned by AKGI - St. Maarten NV and ARK - Las Palmas LLC as tenants-in-
common, with AKGI - St. Maarten NV holding an undivided 1% interest,
and ARK - Las Palmas LLC holding a 99% undivided interest.
<PAGE>
3. Argosy/KGI Port Royal Partners will remain in existence as
the general partner of Port Royal Resort, L.P., with KGI
Port Royal, Inc. and Argosy Hilton Head, Inc. as the only
partners thereof.
4. SRI will acquire each partner's interest in KPI General
Partnership Hilton Head via assignments of interest in
exchange for SRI stock.
5. KPI General Partnership Hilton Head will dissolve by
operation of law (as SRI will be the sole remaining
partner), with SRI succeeding to the limited partnership
interest of KPI General Partnership Hilton Head in Port
Royal Resort, L.P.
6. SRI will acquire the assignee interest of KPI Realty Inc. in
Port Royal Resort, L.P. via assignment of interest in
exchange for SRI stock.
7. SRI will acquire the limited partnership interest of MBK
Realty, Inc. in Port Royal Resort, L.P. via assignment of
interest in exchange for SRI stock.
8. Port Royal Resort, L.P. to remain in existence.
VII. CYPRESS POINTE RESORT
---------------------
1. Argosy Investments, Inc. and Argosy Group, Inc. are merged
into SRI (with SRI the surviving entity, succeeding to the
assets and liabilities of both corporations, including
Argosy Group, Inc.'s general partner interest in Cypress
Pointe Resort, L.P. and Argosy Investments, Inc.'s
partnership interest in Argosy Canyon Investments, L.P.).
2. CanPartners, Inc. and Canyon Investment Partnership II, L.P.
will transfer 100% of their partnership interests in Argosy
Canyon Investments, L.P. to SRI in exchange for SRI stock.
3. Argosy Canyon Investments, L.P. is dissolved by operation of
law, as SRI is the sole remaining partner.
4. Cypress Pointe Resort, L.P. dissolves by operation of law,
as SRI is the sole remaining partner. SRI will therefore
own Cypress Pointe Resort directly.
VIII. FALL CREEK RESORT
-----------------
1. Argosy Branson, Inc. is merged into SRI (with SRI the
surviving entity, succeeding to Argosy Branson, Inc.'s
partnership interest in Fall Creek Resort, L.P.).
2. Argosy Investments, Inc. is merged into SRI (see step 1 of
Cypress Pointe Resort, above). SRI will succeed to Argosy
Investments, Inc.'s partnership interest in Fall Creek
Resort, L.P.
<PAGE>
3. CanPartners Investments II, L.P., Canyon Partners
Investments V, L.P., Grace Investments Ltd., and Randall
Wooster transfer 100% of their limited partners' interests
in Fall Creek Resort, L.P. to SRI in exchange for SRI stock.
3. Fall Creek Resort, L.P. is dissolved by operation of law, as
SRI is the sole remaining partner. SRI will then own Fall
Creek Resort directly.
IX. SAN LUIS
--------
1. AKGI San Luis, Inc. and KGK San Luis, Inc. will be merged
into SRI (with SRI the surviving entity, succeeding to the
assets and liabilities of both corporations).
2. San Luis Resort Partners, LLC will be dissolved, after which
SRI will own San Luis Bay Resort directly.
X. SKI RUN
-------
1. SRI will acquire all of the stock of AKGI Lake Tahoe
Investments, Inc. and KGK Lake Tahoe Development, Inc. via
stock transfers in exchange for SRI stock. Both
corporations will remain in existence and will continue to
be the only members of Lake Tahoe Resort Partners, LLC,
which will continue to own the Ski Run resort.
XI. KABUSHIKI GAISHA KEI, LLC (KGK)
-------------------------------
1. Prior to the Consolidation, KGK will sell the Phase II
property in St. Maarten to AKGI - St. Maarten NV in exchange
for a note.
2. SRI will acquire all of the stock of KGK Partners, Inc., KGK
Investors, Inc., and Argosy Partners, Inc. (see step 9 of
Embassy Grand Beach Resort above) via stock transfers in
exchange for SRI stock. All three corporations will remain
in existence and will continue to be the members of KGK,
which will continue to own the installment notes it
presently holds.
<PAGE>
EXHIBIT "B"
-----------
PORTFOLIO STATUS REPORT - AUGUST 8, 1996
<TABLE>
<CAPTION>
8/5/96 COMMITMENT
COMMITMENT LOAN FUNDS EXPIRATION
MATURITY
TRANSACTION LOAN# AMOUNT BALANCE AVAILABLE DATE DATE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cypress Pointe 21098
Construction (Bldg. 8) 1-5 9,000,000 998,832 4,934,549 11/27/97 5/27/98
Construction (Bldg. 10) 1-6 (Combined) 794,952
Construction (Bldg. 16) 1-7 2,271,667
Working Capital 2-2 1,800,000 0 1,800,000 11/27/97 11/27/97
Receivables 2-1 40,000,000 27,417,447 12,582,553 11/27/97 11/27/07
Combined Max. 45,000,000 31,482,898 13,517,102
Grand Beach 30767
Construction 1-1 8,000,000 6,736,186 1,263,814 7/14/97 1/14/98
Working Capital 1-3 4,000,000 0 4,000,000 7/14/97 7/14/97
Receivables 1-2 35,000,000 13,160,260 21,839,740 7/14/97 7/14/07
Combined Max. 40,000,000 19,896,446 20,103,554
Port Royal 30612
Construction 1-1 2,100,000 1,692,581 407,419 11/5/96 5/5/97
Working Capital 1-2 3,000,000 0 3,000,000 1/5/97 5/5/97
Receivables 1-3 15,000,000 3,575,620 11,424,380 1/5/97 1/5/07
Combined Max. 17,500,000 5,268,201 12,231,799
San Luis Bay Inn 34310
Acq./Construction 1-1 9,000,000 2,648,693 6,351,307 6/6/98 12/6/98
Working Capital 500,000 0 500,000 6/6/98 6/6/98
Receivables 18,000,000 0 18,000,000 6/6/98 6/6/05
Combined Max. 20,000,000 2,648,693 17,351,307
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
8/5/96 COMMITMENT
COMMITMENT LOAN FUNDS EXPIRATION
MATURITY
TRANSACTION LOAN# AMOUNT BALANCE AVAILABLE DATE DATE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ski Run (Lake Tahoe) 33789
Construction 1-1 28,000,000 2,801,530 25,198,470 4/29/99 4/29/00
Working Capital 1-2 4,000,00 208,382 3,791,618 4/29/99 4/29/99
Receivables 30,000,000 0 30,000,000 4/29/99 4/29/06
Combined Max. 45,000,000 3,009,912 41,990,088
AKGI - Royal Palm 31910
Acquisition & Development 1 4,400,000 3,463,365 0 Closed 1/14/98
Receivables 2 6,000,00 1,341,628 4,658,372 3/21/97 3/21/07
Combined Max. 10,400,000 4,804,993 5,595,007
AKGI - Flamingo 32210
Acquisition & Development 1 5,400,000 4,694,454 0 Closed 4/6/98
Receivables 2 5,000,000 393,407 4,606,593 7/19/97 7/19/07
Combined Max. 10,400,000 5,087,861 5,312,139
KGK 33116 6,000,000 3,184,471 2,815,529 3/21/97 3/21/07
-----------------------------------
TOTAL FACILITIES PORTFOLIO 194,300,000 75,383,475 118,916,525
===================================
</TABLE>
<PAGE>
PORTFOLIO STATUS REPORT - AUGUST 8, 1996
(Cypress Pointe Resort, San Luis Bay Inn, KGK)
<TABLE>
<CAPTION>
8/5/96 COMMITMENT
COMMITMENT LOAN FUNDS EXPIRATION
MATURITY
TRANSACTION LOAN# AMOUNT BALANCE AVAILABLE DATE DATE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cypress Pointe 21098
Construction (Bldg. 8) 1-5 9,000,000 998,832 4,934,549 11/27/97 5/27/98
Construction (Bldg. 10) 1-6 (Combined) 794,952
Construction (Bldg. 16) 1-7 2,271,667
Working Capital 2-2 1,800,000 0 1,800,000 11/27/97 11/27/97
Receivables 2-1 40,000,00 27,417,447 12,582,553 11/27/97 11/27/07
Combined Max. 45,000,000 31,482,898 13,517,102
San Luis Bay Inn 34310
Acq./Construction 1-1 9,000,000 2,648,693 6,351,307 6/6/98 12/6/98
Working Capital 500,000 0 500,000 6/6/98 6/6/98
Receivables 18,000,000 0 18,000,000 6/6/98 6/6/05
Combined Max. 20,000,000 2,648,693 17,351,307
KGK 33116 6,000,000 3,184,471 2,815,529 3/21/97 3/21/07
--------------------------------------
TOTAL FACILITIES PORTFOLIO 71,000,000 37,316,062 33,683,938
======================================
</TABLE>
<PAGE>
PORTFOLIO STATUS REPORT - AUGUST 8, 1996
(Cypress Pointe Resort, San Luis Bay Inn, KGK)
<TABLE>
<CAPTION>
8/5/96 COMMITMENT
COMMITMENT LOAN FUNDS EXPIRATION
MATURITY
TRANSACTION LOAN# AMOUNT BALANCE AVAILABLE DATE DATE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Acq./Construction Loans
Cypress Pointe 21098 9,000,000 4,065,451 4,934,549 11/27/97 5/27/98
San Luis Bay Inn 34310 9,000,000 2,648,693 6,351,307 6/6/98 12/6/98
KGK 33116 n/a n/a n/a
---------------------------------
Total Acq./Construction 18,000,000 6,714,144 11,285,856
=================================
Working Capital Loans
Cypress Pointe 21098 1,800,000 0 1,800,000 11/27/97 11/27/97
San Luis Bay Inn 34310 500,000 0 500,000 6/6/98 6/6/98
KGK 33116 n/a n/a n/a
---------------------------------
Total Working Capital 2,300,000 0 2,300,000
=================================
Receivables Loans
Cypress Pointe 21098 40,000,000 27,417,447 12,582,553 11/27/97 11/27/07
San Luis Bay Inn 34310 18,000,000 0 18,000,000 6/6/98 6/6/05
KGK 33116 6,000,000 3,184,471 2,815,529 3/21/97 3/21/07
---------------------------------
Total Receivables 64,000,000 30,601,918 33,398,082
=================================
</TABLE>
<PAGE>
PORTFOLIO STATUS REPORT - AUGUST 8, 1996
(Grand Beach, Port Royal, Ski Run Lake Tahoe, Royal Palm, Flamingo)
<TABLE>
<CAPTION>
8/5/96 COMMITMENT
COMMITMENT LOAN FUNDS EXPIRATION
MATURITY
TRANSACTION LOAN# AMOUNT BALANCE AVAILABLE DATE DATE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Grand Beach 30767
Construction 1-1 8,000,000 6,736,186 1,263,814 7/14/97 1/14/98
Working Capital 1-3 4,000,000 0 4,000,000 7/14/97 7/14/97
Receivables 1-2 35,000,000 13,160,260 21,839,740 7/14/97 7/14/07
Combined Max. 40,000,000 19,896,446 20,103,554
Port Royal 30612
Construction 1-1 2,100,000 1,692,581 407,419 11/5/96 5/5/97
Working Capital 1-2 3,000,000 0 3,000,000 1/5/97 5/5/97
Receivables 1-3 15,000,000 3,575,620 11,424,380 1/5/97 1/5/07
Combined Max. 17,500,000 5,268,201 12,231,799
Ski Run (Lake Tahoe) 33789
Construction 1-1 28,000,000 2,801,530 25,198,470 6/6/98 12/6/98
Working Capital 1-2 4,000,000 208,382 3,791,618 6/6/98 6/6/98
Receivables 30,000,000 0 30,000,000 6/6/98 6/6/06
Combined Max. 45,000,000 3,009,912 41,990,088
AKGI - Royal Palm 31910
Acquisition & Development 1 4,400,000 3,463,365 0 Closed 1/14/98
Receivables 2 6,000,000 1,341,628 4,658,372 3/21/97 3/21/07
Combined Max. 10,400,000 4,804,993 5,595,007
AKGI - Flamingo 32210
Acquisition & Development 1 5,400,000 4,694,454 0 Closed 4/6/98
Receivables 2 5,000,000 393,407 4,606,593 7/19/97 7/19/07
Combined Max. 10,400,000 5,087,861 5,312,139
-----------------------------------
TOTAL FACILITIES PORTFOLIO 123,300,000 38,067,413 85,232,587
===================================
</TABLE>
<PAGE>
PORTFOLIO STATUS REPORT - AUGUST 8, 1996
(Grand Beach, Port Royal, Ski Run Lake Tahoe, Royal Palm, Flamingo)
<TABLE>
<CAPTION>
8/5/96 COMMITMENT
COMMITMENT LOAN FUNDS EXPIRATION
MATURITY
TRANSACTION LOAN# AMOUNT BALANCE AVAILABLE DATE DATE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Acq./Construction Loans
Grand Beach 30767 8,000,000 6,736,186 1,263,814 7/14/97 1/14/98
Port Royal 30612 2,100,000 1,692,581 407,419 11/5/96 5/5/97
Ski Run Lake Tahoe 33789 28,000,000 2,801,530 25,198,470 4/29/99 4/29/00
Royal Palm 31910 4,400,000 3,463,365 n/a Closed 1/14/98
Flamingo 32210 5,400,000 4,694,454 n/a Closed 4/6/98
----------------------------------
Total Acq./Construction 47,900,000 19,388,116 26,869,703
==================================
Working Capital Loans
Grand Beach 30767 4,000,000 0 4,000,000 7/14/97 7/14/97
Port Royal 30612 3,000,000 0 3,000,000 1/5/97 5/5/97
Ski Run Lake Tahoe 33789 4,000,000 208,382 3,791,618 4/29/99 4/29/99
Royal Palm 31910 n/a n/a n/a
Flamingo 32210 n/a n/a n/a
----------------------------------
Total Working Capital 11,000,000 208,382 10,791,618
==================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
8/5/96 COMMITMENT
COMMITMENT LOAN FUNDS EXPIRATION MATURITY
TRANSACTION LOAN# AMOUNT BALANCE AVAILABLE DATE DATE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Receivables Loans
Grand Beach 30767 35,000,000 13,160,260 21,839,740 7/14/97 7/14/07
Port Royal 30612 15,000,000 3,575,620 11,424,380 1/5/97 1/5/07
Ski Run Lake Tahoe 33789 30,000,000 0 30,000,000 4/29/99 4/29/06
Royal Palm 31910 6,000,000 1,341,628 4,658,372 3/21/97 3/21/07
Flamingo 32210 5,000,000 393,407 4,606,593 7/19/97 7/19/07
----------------------------------
Total Receivables 91,000,000 18,470,915 72,529,085
==================================
</TABLE>
<PAGE>
EXHIBIT 10.8.3
ASSUMPTION AGREEMENT
THIS ASSUMPTION AGREEMENT ("Agreement") is entered into as of the 15th
day of August, 1996, by and between FINOVA CAPITAL CORPORATION, a Delaware
corporation, formerly known as Greyhound Financial Corporation ("Lender"),
and SIGNATURE RESORTS, INC., a Maryland corporation ("Signature").
R E C I T A L S
A. Lender's predecessor-in-interest, Greyhound Real Estate Finance
Company, an Arizona corporation ("GREFCO"), and Cypress Pointe Resorts,
L.P., a Delaware limited partnership ("Cypress"), entered into that
Construction Loan Agreement dated as of December 19, 1991 pursuant to which
GREFCO agreed to make a construction loan (the "Cypress Construction Loan")
to Cypress for the purposes more particularly described therein (such
Construction Loan Agreement, together with any and all renewals,
extensions, amendments, replacements, restatements, supplements or
modifications, whether now or hereafter existing, is hereinafter referred
to collectively as the "Cypress Construction Loan Agreement"). GREFCO and
Cypress also entered into that Loan and Security Agreement dated as of
December 19, 1991 pursuant to which Lender agreed to make receivables and
working capital loans (the "Cypress Receivables Loan") to Cypress (such
Loan and Security Agreement, together with any and all renewals,
extensions, amendments, replacements, restatements, supplements or
modifications, whether now or hereafter existing, is hereinafter referred
to collectively as the "Cypress Receivables Loan Agreement"). Pursuant to
that Assignment dated as of January 13, 1993 by and between GREFCO and
Lender, GREFCO assigned to Lender all of GREFCO's rights and obligations
under the Cypress Construction Loan, the Cypress Construction Loan
Agreement, the Cypress Receivables Loan and the Cypress Receivables Loan
Agreement, and all documents and instruments executed in connection
therewith.
B. Lender and San Luis Resort Partners, L.L.C., a Georgia limited
liability company ("San Luis"), entered into that Construction Loan
Agreement dated as of June 6, 1996 pursuant to which Lender agreed to make
a construction loan (the "San Luis Construction Loan") to San Luis for the
purposes more particularly set forth therein (such Construction Loan
Agreement, together with any and all renewals, extensions, amendments,
replacements, restatements, supplements or modifications, whether now or
hereafter existing, is hereinafter referred to collectively as the "San
Luis Construction Loan Agreement"). San Luis and Lender also entered into
that Loan and Security Agreement dated as of June 6, 1996 pursuant to which
Lender agreed to make receivables and working capital loans (the "San Luis
Receivables Loan") to San Luis for the purposes more specifically described
therein (such Loan and Security Agreement, together with any and all
renewals, extensions, amendments, replacements, restatements, supplements
or modifications, whether now or hereafter existing, is hereinafter
referred to collectively as the "San Luis Receivables Loan Agreement").
C. Pursuant to that Private Placement Memorandum dated as of May 28,
1996, Signature solicited and received the consent and agreement of the
general partner and limited partner of Cypress and the members of San Luis
to exchange their respective interests in Cypress and San Luis for shares
of common stock in Signature (the "Consent Solicitation"). Pursuant to the
Consent Solicitation, the general partner and limited partner of Cypress
and the members of San Luis have exchanged their respective interests in
such entities for shares of common stock in Signature. Essentially
simultaneously therewith, each of the corporate partners or members of
Cypress and San Luis were merged with and into Signature, and each of the
interests of the partners and members of Cypress and San Luis were
transferred to Signature. As of the date of this Agreement, Signature
constitutes the surviving corporation of such mergers and interest
transfers (the "Signature Merger").
D. Signature and Lender now desire and intend by this Agreement to
confirm the rights, obligations and liabilities of Signature (as the
successor to Cypress and San Luis), as the Borrower
<PAGE>
under the Cypress Construction Loan, the Cypress Receivables Loan, the
Cypress Construction Loan Agreement, the Cypress Receivables Loan
Agreement, the San Luis Construction Loan, the San Luis Receivables Loan,
the San Luis Construction Loan Agreement and the San Luis Receivables Loan
Agreement, and all documents and instruments executed in connection
therewith.
NOW, THEREFORE, in consideration of the foregoing Recitals and all
covenants contained in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, Lender and Signature hereby state, confirm and agree as
follows:
A G R E E M E N T
1. ASSUMPTION OF CYPRESS CONSTRUCTION LOAN AND CYPRESS RECEIVABLES LOAN .
---------------------------------------------------------------------
1.1 Definitions. Unless specifically defined herein, all initial
-----------
capitalized terms used in this SECTION 1 shall have the same meaning as set
forth in the Cypress Receivables Loan Agreement. The following terms shall
have the meanings ascribed to them below:
1.1.1 "Cypress Loan Documents" shall mean, collectively, the
Cypress Construction Loan Agreement, the Cypress Receivables Loan
Agreement, the Construction Loan Documents (as defined in the Cypress
Construction Loan Agreement) and the Documents (as defined in the
Cypress Receivables Loan Agreement), together with any and all
renewals, extensions, amendments, replacements, restatements,
supplements or modifications, whether now or hereafter existing.
1.1.2 "Cypress Obligations" shall mean and refer to each and
every obligation, duty, covenant, undertaking and condition which
Cypress is required or has agreed to perform under the Cypress Loan
Documents, and each and every other obligation of Cypress under the
Cypress Construction Loan and the Cypress Receivables Loan now or
hereafter owing to Lender.
1.2 Assumption of Cypress Obligations. Signature hereby assumes all
---------------------------------
obligations of Cypress under the Cypress Loan Documents for the payment of
the Cypress Construction Loan and the Cypress Receivables Loan and any and
all other indebtedness created or evidenced thereby and for the performance
and observance of all the covenants, provisions, representations,
warranties and agreements of the Borrower under the Cypress Loan Documents
as if Signature were an original party thereto.
1.3 Consent by Lender. Lender hereby consents to the transfer to and
-----------------
assumption by Signature of all of the Cypress Obligations and Lender hereby
agrees from and after the date hereof to recognize Signature as the
"Borrower" under the Cypress Loan Documents. Such consent shall not
constitute a consent to any further transfer or assignment of the Cypress
Obligations or for any other transfer, assignment or transaction for which
Lender's consent is required under the Cypress Loan Documents.
1.4 Representations, Warranties, Acknowledgments, Covenants and
-----------------------------------------------------------
Agreements Relating to the Cypress Construction Loan and the Cypress
--------------------------------------------------------------------
Receivables Loan. As a material inducement to Lender to enter into this
----------------
Agreement, and acknowledging Lender's reliance upon the truth and accuracy
thereof, and in addition to the representations, warranties,
acknowledgments, covenants and agreements set forth in SECTION 3 below,
Signature hereby represents, warrants, acknowledges, covenants and agrees
that:
1.4.1 The Cypress Obligations are just and owing.
1.4.2 The obligation of Signature to repay and perform the
Cypress Obligations is absolute, irrevocable and unconditional and
there exists no right of setoff or recoupment,
<PAGE>
counterclaim or defense of any nature whatsoever to the payment and
performance of the Cypress Obligations.
1.4.3 Signature hereby ratifies, reaffirms, acknowledges and
agrees that the Cypress Obligations and the Cypress Loan Documents
represent the valid, enforceable and collectible obligations of
Signature and, as of the date hereof, there exists no claims or
defenses (personal or otherwise) whatsoever with respect to the
Cypress Obligations. Signature further acknowledges and represents
that no event has occurred and no condition exists that, after notice
or lapse or time, or both, would constitute a default under the
Cypress Loan Documents.
1.4.4 Signature and Lender acknowledge and agree that all terms,
conditions and provisions of the Cypress Loan Documents are continued
in full force and effect and remain unaffected and unchanged except as
may be modified or amended by this Agreement; this Agreement in no way
acts as a release or relinquishment of, and in no way affects, the
liens, security interests and rights created by or arising under any
of the Cypress Loan Documents or the priority thereof. Such liens,
security interests and rights are hereby ratified, confirmed, renewed
and extended in all respects.
1.5 Amendments and Modifications to Cypress Loan Documents. The
------------------------------------------------------
Cypress Loan Documents are hereby amended and modified in the following
respects:
1.5.1 The following defined term is hereby added to the
"Definitions" section of the Cypress Receivables Loan Agreement:
"'Assumption Agreement' shall mean that Assumption Agreement executed
by Signature Resorts, Inc., a Maryland corporation, and FINOVA Capital
Corporation, a Delaware corporation, and dated as of August 15, 1996."
1.5.2 All references in the Cypress Loan Documents to the term
"Borrower" shall hereinafter be deemed to mean and refer to Signature.
1.5.3 The term "Guarantors" as used in the Cypress Loan
Documents is hereby amended and modified to delete therefrom the
following entities: Argosy Group, Inc., a Georgia corporation, and
Argosy Canyon Investments, L.P., a California limited partnership.
1.5.4 Section 8.2 of the Cypress Construction Loan Agreement is
hereby modified and restated in its entirety to read as follows:
"Borrower is a corporation duly organized, validly existing and in
good standing under the laws of the State of Maryland and is qualified
to do business in the State of Florida."
1.5.5 Section 8.1(a) of the Cypress Receivables Loan Agreement
is hereby modified and restated in its entirety to read as follows:
"Borrower is, and will continue to be during the Term hereof, a
corporation duly organized, validly existing and in good standing
under the laws of the State of Maryland and is, and will continue to
be during the Term hereof, qualified to do business and in good
standing in each jurisdiction in which it is selling Time-Share
Interests or where the location or nature of its properties or
business makes such qualification necessary (except where failure to
do so would not adversely affect Lender's ability to realize upon the
Receivables Collateral or any other security for the Performance of
the Obligations or materially adversely affect the business or
financial condition of Borrower or the ability of Borrower to complete
Performance of the Obligations). Borrower has, and will continue to
have, powers adequate for making and performing under the
<PAGE>
Documents, for undertaking and performing the Obligations and for
carrying on its business and owning its property."
1.1.6 The following provision is hereby added as Section 13.1(m)
of the Cypress Construction Loan Agreement:
"(m) the occurrence of an 'Event of Default' under the San Luis Loan
Documents (as defined in the Assumption Agreement)."
1.1.6 The following provision is hereby added to the terms of
the Cypress Receivables Loan Agreement as Section 9.1(l):
"(l) the occurrence of an 'Event of Default' under the San Luis Loan
Documents (as defined in the Assumption Agreement)."
1.6 Release of Cypress Guarantors. Lender hereby agrees that, upon
-----------------------------
receipt from the Guarantors of the Cypress Construction Loan, the Cypress
Construction Loan Agreement, the Cypress Receivables Loan and the Cypress
Receivables Loan Agreement of a duly-executed Mutual Release of Guaranty in
a form mutually acceptable to Lender and said Guarantors, Lender shall
release the Guarantors in accordance with the terms and conditions set
forth in the Mutual Release.
2. ASSUMPTION OF SAN LUIS LOAN.
---------------------------
2.1 Definitions. Unless specifically defined herein, all initial
-----------
capitalized terms used in this SECTION 2 shall have the same meaning as set
forth in the San Luis Receivables Loan Agreement. The following terms
shall have the meanings ascribed to them below:
2.1.1 "San Luis Loan Documents" shall mean, collectively, the
San Luis Construction Loan Agreement, the San Luis Receivables Loan
Agreement, the Construction Loan Documents (as defined in the San Luis
Construction Loan Agreement), the Receivables Loan Documents and the
Working Capital Note (as each of such documents are defined in the San
Luis Receivables Loan Agreement), together with any and all renewals,
extensions, amendments, replacements, restatements, supplements or
modifications, whether now or hereafter existing.
2.1.2 "San Luis Obligations" shall mean and refer to each and
every obligation, duty, covenant, undertaking and condition which San
Luis is required or has agreed to perform under the San Luis Loan
Documents, and each and every other obligation of San Luis under the
San Luis Construction Loan and the San Luis Receivables Loan now or
hereafter owing to Lender.
2.2 Assumption of San Luis Obligations. Signature hereby assumes all
----------------------------------
obligations of San Luis under the San Luis Loan Documents for the payment
of the San Luis Construction Loan and the San Luis Receivables Loan and any
and all other indebtedness created or evidenced thereby and for the
performance and observance of all the covenants, provisions,
representations, warranties and agreements of the Borrower under the San
Luis Loan Documents as if Signature were an original party thereto.
2.3 Consent by Lender. Lender hereby consents to the transfer to and
-----------------
assumption by Signature of all of the San Luis Obligations and Lender
hereby agrees from and after the date hereof to recognize Signature as the
"Borrower" under the San Luis Loan Documents. Such consent shall not
constitute a consent to any further transfer or assignment of the San Luis
Obligations or for any other transfer, assignment or transaction for which
Lender's consent is required under the San Luis Loan Documents.
<PAGE>
2.4 Representations, Warranties, Acknowledgments, Covenants and
-----------------------------------------------------------
Agreements Relating to San Luis Construction Loan and San Luis Receivables
--------------------------------------------------------------------------
Loan. As a material inducement to Lender to enter into this Agreement, and
----
acknowledging Lender's reliance upon the truth and accuracy thereof, and in
addition to the representations, warranties, acknowledgments, covenants and
agreements set forth in SECTION 3 below, Signature hereby represents,
warrants, acknowledges, covenants and agrees that:
2.4.1 The San Luis Obligations are just and owing.
2.4.2 The obligation of Signature to repay and perform the San
Luis Obligations is absolute, irrevocable and unconditional and there
exists no right of setoff or recoupment, counterclaim or defense of
any nature whatsoever to the payment and performance of the San Luis
Obligations.
2.4.3 Signature hereby ratifies, reaffirms, acknowledges and
agrees that the San Luis Obligations and the San Luis Loan Documents
represent the valid, enforceable and collectible obligations of
Signature and, as of the date hereof, there exists no claims or
defenses (personal or otherwise) whatsoever with respect to the San
Luis Obligations. Signature further acknowledges and represents that
no event has occurred and no condition exists that, after notice or
lapse or time, or both, would constitute a default under the San Luis
Loan Documents.
2.4.4 Signature and Lender acknowledge and agree that all terms,
conditions and provisions of the San Luis Loan Documents are continued
in full force and effect and remain unaffected and unchanged except as
may be modified or amended hereby; this Agreement in no way acts as a
release or relinquishment of, and in no way affects, the liens,
security interests and rights created by or arising under any of the
San Luis Loan Documents or the priority thereof. Such liens, security
interests and rights are hereby ratified, confirmed, renewed and
extended in all respects.
2.5 Amendments and Modifications to the San Luis Loan Documents. The
-----------------------------------------------------------
San Luis Loan Documents are hereby amended and modified in the following
respects:
2.5.1 The following defined term is hereby added to the
"Definitions" section of the San Luis Receivables Loan Agreement:
"'Assumption Agreement' shall mean that Assumption Agreement executed
by Signature Resorts, Inc., a Maryland corporation, and FINOVA Capital
Corporation, a Delaware corporation, and dated as of August 15, 1996."
2.5.2 All references in the San Luis Loan Documents to the term
"Borrower" shall be deemed to mean and refer to Signature.
2.5.3 All references to the "Guarantors" in the San Luis Loan
Documents shall be modified and amended to delete therefrom the
following entities: AKGI San Luis, Inc., a Georgia corporation, and
KGK San Luis, Inc., a Georgia corporation.
2.5.4 Paragraph 8.2 of the San Luis Construction Loan Agreement
is hereby modified and restated in its entirety to read as follows:
"Borrower is a corporation, duly organized, validly existing and in
good standing under the laws of the State of Maryland."
2.5.5 Paragraph 8.1(a) of the San Luis Receivables Loan
Agreement is hereby modified in its entirety to read as follows:
<PAGE>
"Borrower is, and will continue to be during the Term hereof, a
corporation duly organized, validly existing and in good standing
under the laws of the State of Maryland and is, and will continue to
be during the Term hereof, qualified to do business and in good
business in California and in each jurisdiction in which it is selling
Time-Share Interests or where the location or nature of its properties
or business make such qualification necessary (except where failure to
do so would not adversely affect Lender's ability to realize upon the
Receivables Collateral, the Purchased Notes and Mortgages Collateral
or any other security for the Performance of the Obligations or
materially adversely affect the business or financial condition of
Borrower or the ability of Borrower to complete the Performance of the
Obligations). Borrower has, and will continue to have, powers adequate
for making and performing under the Receivables Loan Documents, for
undertaking and performing the Obligations and for carrying on its
business and owning its property."
2.5.6 The following provision is hereby added as Paragraph
13.1(n) to the San Luis Construction Loan Agreement:
"the occurrence of an 'Event of Default' under the Cypress Loan
Documents (as defined in the Assumption Agreement)."
2.5.7 The following provision is hereby added as Paragraph
9.1(m) to the San Luis Receivables Loan Agreement:
"the occurrence of an 'Event of Default' under the Cypress Loan
Documents (as defined in the Assumption Agreement)."
2.6 Release of San Luis Guarantors. Lender hereby agrees that, upon
------------------------------
receipt from the Guarantors of the San Luis Construction Loan, the San Luis
Construction Loan Agreement, the San Luis Receivables Loan and the San Luis
Receivables Loan Agreement of a duly-executed Mutual Release of Guaranty in
a form mutually acceptable to Lender and said Guarantors, Lender shall
release the Guarantors in accordance with the terms and conditions set
forth in the Mutual Release.
3. ADDITIONAL REPRESENTATIONS, WARRANTIES, ACKNOWLEDGMENTS, COVENANTS AND
----------------------------------------------------------------------
AGREEMENTS OF SIGNATURE.
-----------------------
As a material inducement to Lender to enter into and grant the
consents set forth in this Agreement, and acknowledging Lender's reliance
upon the truth and accuracy thereof, and Signature's agreement to act in
accordance herewith, Signature hereby represents, warrants, acknowledges,
covenants and agrees that:
3.1 The Recitals set forth in this Agreement are true and correct.
3.2 This Agreement and all other documents and instruments executed
by Signature in connection herewith have been authorized by all necessary
action and, when executed, will, to the best of its knowledge, be the
legal, valid and binding obligations of Signature enforceable against
Signature in accordance with their respective terms.
3.3 Signature's execution, delivery and performance of this Agreement
will not (a) violate any law, rule, regulation or court order to which
Signature is subject, (b) conflict with or result in a breach of
Signature's Articles of Incorporation or Bylaws or any agreement or
instrument to which Signature is a party or by which it or its properties
are bound, or (c) result in the creation or imposition of any lien,
security interest or encumbrance on any property, whether now owned or
hereafter acquired, other than the liens in favor of Lender.
<PAGE>
3.4 Signature is a corporation, validly existing and in good standing
under the laws of the State of Maryland. Signature is, and will remain so
during any period of time it has any outstanding obligations to Lender,
qualified to do business and in good standing in each jurisdiction where
Signature is doing business or where the location or nature of the
properties or business of Signature make such qualification necessary.
3.5 Signature and its Related Entities (as hereinafter defined) shall
each maintain, during any period of time in which any of the Cypress
Obligations or the San Luis Obligations remain outstanding, separate
internally-prepared financial statements with respect to the separate
operations of such entities and each of its respective properties,
notwithstanding that Signature and its Related Entities may maintain
consolidated financial statements for other purposes.
3.6 Neither Signature nor any Related Entities have paid or shall pay
any secured or unsecured debts or obligations of the other, except to the
extent any such obligations are also direct, contractual obligations of
Signature or any Related Entity under a guarantee or otherwise.
3.7 Other than distributions to shareholders or partners and
repayment of bona fide debt owed to a Related Entity, Signature shall not
transfer any funds to or accept a transfer of any funds from any Related
Entity without contemporaneous written documentation clearly identifying
that the transfer constitutes a loan or capital investment and, if the
transfer is a loan, the specific repayment terms thereof.
3.8 Signature has not taken and shall not take any action or omit to
take any action that could reasonably be expected to cause its creditors or
the creditors of any Related Entity to be confused as to which entity the
creditor is dealing with.
3.9 Signature and all Related Entities were adequately capitalized as
of the date of their creation or organization and shall continue to remain
adequately capitalized so long as any obligations of Signature remain
outstanding to Lender.
For the purposes of this Agreement, the term "Related Entities" shall
mean any corporation, partnership, limited liability company or other
entity of which Signature owns a controlling interest or otherwise
controls, either directly or indirectly, the operations of such entity, and
any corporation, partnership, limited liability company or other entity
which owns a controlling interest in or otherwise controls, either directly
or indirectly, the operations of Signature. For the purposes of this
Agreement, the following entities shall be deemed to be "Related Entities"
of Signature: AKGI-Sint Maarten, N.V., a Netherlands Antilles corporation;
Grand Beach Resort, Limited Partnership, a Georgia limited partnership;
Port Royal Resort, L.P., a South Carolina limited partnership; Lake Tahoe
Resort Partners, L.L.C., a California limited liability company; and
Kabushiki Gaisha Kei, L.L.C., a California limited liability company. Each
of the foregoing representations, warranties, acknowledgments, covenants
and agreements shall be deemed to be a part of the covenants and
obligations of Signature as Borrower under the Cypress Construction Loan,
the Cypress Receivables Loan, the San Luis Construction Loan and the San
Luis Receivables Loan as if the same were set forth in their entirety in
the Cypress Loan Documents and the San Luis Loan Documents.
4. CONDITIONS SUBSEQUENT.
---------------------
The consent and obligations of Lender under this Agreement are subject
to the satisfaction of the following conditions subsequent within the
applicable time periods hereinafter set forth:
4.1 Signature shall have delivered to Lender fully-executed UCC
Financing Statement Change forms or new UCC Financing Statements as Lender
may require to continue perfection of all security interests in favor of
Lender within thirty (30) days after receipt of such documents from Lender;
<PAGE>
4.2 Within forty-five (45) days after the date of this Agreement,
Signature shall have delivered to Lender an opening balance sheet with
respect to Signature prepared in accordance with GAAP; and
4.3 Within seventy-five (75) days after the date of this Agreement,
Signature and Lender shall have agreed upon reasonable financial covenants
to be observed and maintained by Signature during the term of each of the
Cypress Construction Loan, Cypress Receivables Loan, San Luis Construction
Loan and San Luis Receivables Loan, including, without limitation,
covenants regarding the net worth of Signature, limitations on marketing
and sales expenses, debt-service coverage ratios and similar covenants.
The nonsatisfaction of any of the foregoing conditions subsequent
within the time period provided therefor shall be deemed to be an "Event of
Default" under the Cypress Loan Documents and the San Luis Loan Documents.
5. GENERAL.
-------
5.1 Signature shall execute and deliver such additional documents and
do such further acts as Lender may reasonably require to fully implement
the intent of this Agreement.
5.2 Signature shall pay all costs and expenses including, but not
limited to, recording fees, title insurance premiums and reasonable
attorney's fees incurred by Lender in connection herewith, whether or not
all of the conditions described in this paragraph are satisfied.
5.3 This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their heirs, personal representatives,
successors and assigns.
5.4 This Agreement shall be governed and construed in accordance with
the laws of the State of Arizona.
[Signature page of FINOVA/Signature Assumption Agreement]
IN WITNESS WHEREOF, this Agreement has been executed as of the day and year
first above written.
FINOVA CAPITAL CORPORATION,
a Delaware corporation
By:______________________________
Its:___________________________
SIGNATURE RESORTS, INC.,
a Maryland corporation
By:______________________________
Its:___________________________
<PAGE>
EXHIBIT 10.8.4
ASSUMPTION AGREEMENT
THIS ASSUMPTION AGREEMENT ("Agreement") is entered into as of the 15th
day of August, 1996, by and between RESORT CAPITAL CORPORATION, a Delaware
corporation ("Lender"), and SIGNATURE RESORTS, INC., a Maryland corporation
("Signature").
R E C I T A L S
A. Lender and Fall Creek Resort, L.P., a Georgia limited partnership
("Fall Creek"), entered into that Commitment Agreement dated as of May 21,
1993 pursuant to which Lender agreed to purchase certain portfolios of
promissory notes and mortgages then existing and thereafter arising from
sales by Fall Creek to individuals purchasing interval estates in specific
condominium parcels developed by Fall Creek as a time share condominium
project known as The Plantation at Fall Creek (the "Fall Creek Purchase")
for the purposes and upon the terms and conditions set forth therein (such
Commitment Agreement, together with any and all renewals, extensions,
amendments, replacements, restatements, supplements or modification,
whether now or hereafter existing, is hereinafter referred to collectively
as the "Fall Creek Commitment Agreement").
B. Pursuant to that Private Placement Memorandum dated as of May 28,
1996, Signature solicited and received the consent and agreement of the
general and limited partners of Fall Creek to exchange their respective
interests in Fall Creek for shares of common stock in Signature (the
"Consent Solicitation"). Pursuant to the Consent Solicitation, the general
and limited partners of Fall Creek have exchanged their respective
interests in such entities for shares of common stock in Signature.
Essentially simultaneously therewith, each of the general and limited
partners of Fall Creek were merged with and into Signature, and each of the
interests of the general and limited partners of Fall Creek were
transferred to Signature. As of the date of this Agreement, Signature
constitutes the surviving corporation of such interest transfers (the
"Signature Merger").
C. Signature and Lender now desire and intend by this Agreement to
confirm the rights, obligations and liabilities of Signature (as the
successor to Fall Creek), as the Seller under the Fall Creek Purchase and
the Fall Creek Commitment Agreement, and all documents and instruments
executed in connection therewith.
NOW, THEREFORE, in consideration of the foregoing Recitals and all
covenants contained in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, Lender and Signature hereby state, confirm and agree as
follows:
A G R E E M E N T
1. ASSUMPTION OF FALL CREEK LOAN.
-----------------------------
1.1 Definitions. Unless specifically defined herein, all initial
-----------
capitalized terms used in this SECTION 1 shall have the same meaning as set
forth in the Fall Creek Commitment Agreement. The following terms shall
have the meanings ascribed to them below:
1.1.1 "Fall Creek Loan Documents" shall mean, collectively, the
Fall Creek Commitment Agreement, the Purchased Property, the Records,
all documents delivered in connection with each Portfolio purchase (as
defined and set forth in the Fall Creek Commitment Agreement),
together with any and all renewals, extensions, amendments,
replacements, restatements, supplements or modifications, whether now
or hereafter existing.
<PAGE>
1.1.2 "Fall Creek Obligations" shall mean and refer to each and
every obligation, duty, covenant, undertaking and condition which Fall
Creek is required or has agreed to perform under the Fall Creek Loan
Documents, and each and every other obligation of Fall Creek under the
Fall Creek Commitment Agreement now or hereafter owing to Lender.
1.2 Assumption of Fall Creek Obligations. Signature hereby assumes
------------------------------------
all obligations of Fall Creek under the Fall Creek Loan Documents for the
payment of the Fall Creek Commitment Agreement and any and all other
indebtedness created or evidenced thereby and for the performance and
observance of all the covenants, provisions, representations, warranties
and agreements of the Seller under the Fall Creek Loan Documents as if
Signature were an original party thereto.
1.3 Consent by Lender. Lender hereby consents to the transfer to and
-----------------
assumption by Signature of all of the Fall Creek Obligations and Lender
hereby agrees from and after the date hereof to recognize Signature as the
"Seller" under the Fall Creek Loan Documents. Such consent shall not
constitute a consent to any further transfer or assignment of the Fall
Creek Obligations or for any other transfer, assignment or transaction for
which Lender's consent is required under the Fall Creek Loan Documents.
1.4 Representations, Warranties, Acknowledgments, Covenants and
-----------------------------------------------------------
Agreements Relating to the Fall Creek Loan. As a material inducement to
------------------------------------------
Lender to enter into this Agreement, and acknowledging Lender's reliance
upon the truth and accuracy thereof, and in addition to the
representations, warranties, acknowledgments, covenants and agreements set
forth in SECTION 2 below, Signature hereby represents, warrants,
acknowledges, covenants and agrees that:
1.4.1 The Fall Creek Obligations are just and owing.
1.4.2 The obligation of Signature to repay and perform the Fall
Creek Obligations is absolute, irrevocable and unconditional and there
exists no right of setoff or recoupment, counterclaim or defense of
any nature whatsoever to the payment and performance of the Fall Creek
Obligations.
1.4.3 Signature hereby ratifies, reaffirms, acknowledges and
agrees that the Fall Creek Obligations and the Fall Creek Loan
Documents represent the valid, enforceable and collectible obligations
of Signature and, as of the date hereof, there exists no claims or
defenses (personal or otherwise) whatsoever with respect to the Fall
Creek Obligations. Signature further acknowledges and represents that
no event has occurred and no condition exists that, after notice or
lapse or time, or both, would constitute a default under the Fall
Creek Loan Documents.
1.4.4 Signature and Lender acknowledge and agree that all terms,
conditions and provisions of the Fall Creek Loan Documents are
continued in full force and effect and remain unaffected and unchanged
except as may be modified or amended by this Agreement; this Agreement
in no way acts as a release or relinquishment of, and in no way
affects, the liens, security interests and rights created by or
arising under any of the Fall Creek Loan Documents or the priority
thereof. Such liens, security interests and rights are hereby
ratified, confirmed, renewed and extended in all respects.
1.5 Amendments and Modifications to Fall Creek Loan Documents. The
---------------------------------------------------------
Fall Creek Loan Documents are hereby amended and modified in the following
respects:
1.5.1 All references in the Fall Creek Loan Documents to the
term "Seller" shall hereinafter be deemed to mean and refer to
Signature.
<PAGE>
1.5.2 Paragraph 6(a) of the Fall Creek Commitment Agreement is
hereby modified and restated in its entirety to read as follows:
"Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of Maryland and is qualified to
do business in the State of Missouri."
2. ADDITIONAL REPRESENTATIONS, WARRANTIES, ACKNOWLEDGMENTS, COVENANTS AND
----------------------------------------------------------------------
AGREEMENTS OF SIGNATURE.
-----------------------
As a material inducement to Lender to enter into and grant the
consents set forth in this Agreement, and acknowledging Lender's reliance
upon the truth and accuracy thereof, and Signature's agreement to act in
accordance herewith, Signature hereby represents, warrants, acknowledges,
covenants and agrees that:
2.1 The Recitals set forth in this Agreement are true and correct.
2.2 This Agreement and all other documents and instruments executed
by Signature in connection herewith have been authorized by all necessary
action and, when executed, will be the legal, valid and binding obligations
of Signature enforceable against Signature in accordance with their
respective terms.
2.3 Signature's execution, delivery and performance of this Agreement
will not (a) violate any law, rule, regulation or court order to which
Signature is subject, (b) conflict with or result in a breach of
Signature's Articles of Incorporation or Bylaws or any agreement or
instrument to which Signature is a party or by which it or its properties
are bound, or (c) result in the creation or imposition of any lien,
security interest or encumbrance on any property, whether now owned or
hereafter acquired, other than the liens in favor of Lender.
2.4 Signature is a corporation, validly existing and in good standing
under the laws of the State of Maryland. Signature is, and will remain so
during any period of time it has any outstanding obligations to Lender,
qualified to do business and in good standing in each jurisdiction where
Signature is doing business or where the location or nature of the
properties or business of Signature make such qualification necessary.
2.5 Signature and its Related Entities (as hereinafter defined) shall
each maintain, during any period of time in which any of the Fall Creek
Obligations remain outstanding, separate internally-prepared financial
statements with respect to the separate operations of such entities and
each of its respective properties, notwithstanding that Signature and any
Related Entities may maintain consolidated financial statements for other
purposes.
2.6 Neither Signature nor any Related Entities have paid or shall pay
any secured or unsecured debts or obligations of the other, except to the
extent any such obligations also constitute direct, contractual obligations
of Signature or any Related Entity under a guarantee or otherwise.
2.7 Other than distributions to shareholders or partners and
repayment of bona fide debt owed to a Related Entity, Signature shall not
transfer any funds to or accept a transfer of any funds from any Related
Entity without contemporaneous written documentation clearly identifying
that the transfer constitutes a loan or capital investment and, if the
transfer is a loan, the specific repayment terms thereof.
2.8 Signature has not taken and shall not take any action or omit to
take any action that could reasonably be expected to cause its creditors or
the creditors of any Related Entity to be confused as to which entity the
creditor is dealing with.
<PAGE>
2.9 Signature and all Related Entities were adequately capitalized as
of the date of their creation or organization and shall continue to remain
adequately capitalized so long as any obligations of Signature remain
outstanding to Lender.
For the purposes of this Agreement, the term "Related Entities" shall
mean any corporation, partnership, limited liability company or other
entity of which Signature owns a controlling interest or otherwise
controls, either directly or indirectly, the operations of such entity, and
any corporation, partnership, limited liability company or other entity
which owns a controlling interest in or otherwise controls, either directly
or indirectly, the operations of Signature. For the purposes of this
Agreement, the following entities shall be deemed to be "Related Entities"
of Signature: AKGI-Sint Maarten, N.V., a Netherlands Antilles corporation;
Grand Beach Resort, Limited Partnership, a Georgia limited partnership;
Port Royal Resort, L.P., a South Carolina limited partnership; Lake Tahoe
Resort Partners, L.L.C., a California limited liability company; and
Kabushiki Gaisha Kei, L.L.C., a California limited liability company. Each
of the representations, warranties, acknowledgments, covenants and
agreements set forth in this SECTION 2 shall be deemed to be a part of the
covenants and obligations of Signature as Seller under the Fall Creek
Commitment Agreement as if the same were set forth in their entirety in the
Fall Creek Loan Documents.
3. GENERAL.
-------
3.1 Signature shall execute and deliver such additional documents and
do such further acts as Lender may reasonably require to fully implement
the intent of this Agreement, including, without limitation, the execution
by Signature and delivery to Lender of fully-executed UCC Financing
Statement Change forms or new UCC Financing Statements as Lender may
require to continue perfection of all security interests in favor of
Lender, within thirty (30) days after Signature's receipt of such documents
from Lender.
3.2 Signature shall pay all costs and expenses including, but not
limited to, recording fees, title insurance premiums and reasonable
attorney's fees incurred by Lender in connection herewith, whether or not
all of the conditions described in this paragraph are satisfied.
3.3 This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their heirs, personal representatives,
successors and assigns.
3.4 This Agreement shall be governed and construed in accordance with
the laws of the State of Arizona.
<PAGE>
[Signature page of Resort Capital Corporation/Signature Resorts, Inc.
Assumption Agreement]
IN WITNESS WHEREOF, this Agreement has been executed as of the day and year
first above written.
RESORT CAPITAL CORPORATION,
a Delaware corporation
By:______________________________
Its:___________________________
SIGNATURE RESORTS, INC.,
a Maryland corporation
By:______________________________
Its:___________________________
<PAGE>
EXHIBIT 10.8.5
ASSUMPTION AGREEMENT
THIS ASSUMPTION AGREEMENT ("Agreement") is entered into as of the 15th
day of August, 1996, by and between FINOVA CAPITAL CORPORATION, a Delaware
corporation ("Lender"), and AKGI-SINT MAARTEN, N.V., a Netherlands Antilles
corporation with limited liability ("AKGI").
R E C I T A L S
A. Lender and AKGI-Royal Palm, C.V.o.a., a Netherlands Antilles
limited partnership ("Royal Palm"), entered into that Loan and Security
Agreement dated as of July 12, 1995, pursuant to which Lender agreed to
make to Royal Palm an acquisition and development loan (the "Royal Palm A&D
Loan") and a receivables loan (the "Royal Palm Receivables Loan"). The
Loan and Security Agreement, together with any and all renewals,
extensions, amendments, replacements, restatements, supplements or
modifications, whether now or hereafter existing, is hereinafter
collectively referred to as the "Royal Palm Loan Agreement." The
obligations of Royal Palm under the Royal Palm A&D Loan and the Royal Palm
Receivables Loan are guaranteed by AKGI pursuant to that Corporate
Guarantee Agreement dated as of July 12, 1995 (the "Royal Palm Guarantee").
B. Lender and AKGI-Flamingo, C.V.o.a., a Netherlands Antilles
limited partnership ("Flamingo"), entered into that Loan and Security
Agreement dated as of September 1, 1995, pursuant to which Lender agreed to
make to Flamingo an acquisition and development loan (the "Flamingo A&D
Loan") and a receivables loan (the "Flamingo Receivables Loan"). The Loan
and Security Agreement, together with any and all renewals, extensions,
amendments, replacements, restatements, supplements or modifications,
whether now or hereafter existing, is hereinafter collectively referred to
as the "Flamingo Loan Agreement." The obligations of Flamingo under the
Flamingo A&D Loan and the Flamingo Receivables Loan are guaranteed by AKGI
pursuant to the terms and conditions of that Corporate Guarantee Agreement
dated as of September 1, 1995 (the "Flamingo Guarantee").
C. Signature Resorts, Inc. ("Signature") was incorporated in
Maryland in May of 1996 to effect a consolidation of transactions in
connection with an initial public offering of stock in Signature. As part
of the consolidation of transactions (hereinafter collectively referred to
as the "Consolidation Transactions"), and pursuant to that Private
Placement Memorandum dated as of May 28, 1996 (the "Consent Solicitation"),
Signature solicited and received the consent and agreement of the general
partners and limited partners of Royal Palm and Flamingo to exchange their
respective interests in Royal Palm and Flamingo for shares of common stock
in Signature. As a result of the Consolidation Transactions, all of the
outstanding shares of stock of AKGI will be transferred to and held by
Signature, and Royal Palm and Flamingo will be dissolved into AKGI (the
"AKGI Merger"). As a result of the AKGI Merger as described in the Deed of
Acknowledgment executed in connection with Royal Palm of approximately even
date herewith (the "Royal Palm Deed of Acknowledgment") and in the Deed of
Acknowledgment executed in connection with Flamingo of approximately even
date herewith (the "Flamingo Deed of Acknowledgment"), AKGI will succeed as
a matter of law to all rights and privileges of Royal Palm and Flamingo and
become directly responsible and liable for all liabilities and obligations
of Royal Palm and Flamingo.
D. AKGI and Lender now desire and intend by this Agreement to
confirm the rights, obligations and liabilities of AKGI (as the successor
to Royal Palm and Flamingo), as the Borrower under the Royal Palm A&D Loan,
the Royal Palm Receivables Loan, the Flamingo A&D Loan, the Flamingo
Receivables Loan, the Royal Palm Loan Agreement and the Flamingo Loan
Agreement.
NOW, THEREFORE, in consideration of the foregoing Recitals and all
covenants contained in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, Lender and AKGI hereby state, confirm and agree as follows:
<PAGE>
A G R E E M E N T
1. ASSUMPTION OF ROYAL PALM A&D LOAN AND ROYAL PALM RECEIVABLES LOAN.
-----------------------------------------------------------------
1.1 Definitions. Unless specifically defined herein, all initial
-----------
capitalized terms used in this SECTION 1 shall have the same meaning as set
forth in the Royal Palm Loan Agreement. The following terms shall have the
meanings ascribed to them below:
1.1.1 "Royal Palm Loan Documents" shall mean, collectively, the
Royal Palm Loan Agreement, the Royal Palm Receivables Loan Agreement
and the Documents (as defined in the Royal Palm Receivables Loan
Agreement), together with any and all renewals, extensions,
amendments, replacements, restatements, supplements or modifications,
whether now or hereafter existing.
1.1.2 "Royal Palm Obligations" shall mean and refer to each and
every obligation, duty, covenant, undertaking and condition which
Royal Palm is required or has agreed to perform under the Royal Palm
Loan Documents, and each and every other obligation of Royal Palm
under the Royal Palm A&D Loan and the Royal Palm Receivables Loan now
or hereafter owing to Lender.
1.2 Assumption of Royal Palm Obligations. AKGI hereby confirms that,
------------------------------------
pursuant to the Royal Palm Deed of Acknowledgment, it has assumed and by
these presents hereby assumes all obligations of Royal Palm under the Royal
Palm Loan Documents for the payment of the Royal Palm A&D Loan and the
Royal Palm Receivables Loan and any and all other indebtedness created or
evidenced thereby and for the performance and observance of all the
covenants, provisions, representations, warranties and agreements of the
Borrower under the Royal Palm Loan Documents as if AKGI were an original
party thereto.
1.3 Consent by Lender. Lender hereby consents to the transfer to and
-----------------
assumption by AKGI of all of the Royal Palm Obligations and Lender hereby
agrees from and after the date hereof to recognize AKGI as the "Borrower"
under the Royal Palm Loan Documents. Such consent shall not constitute a
consent to any further transfer or assignment of the Royal Palm Obligations
or for any other transfer, assignment or transaction for which Lender's
consent is required under the Royal Palm Loan Documents.
1.4 Representations, Warranties, Acknowledgments, Covenants and
-----------------------------------------------------------
Agreements Relating to the Royal Palm A&D Loan and the Royal Palm
-----------------------------------------------------------------
Receivables Loan. As a material inducement to Lender to enter into this
----------------
Agreement, and acknowledging Lender's reliance upon the truth and accuracy
thereof, and in addition to the representations, warranties,
acknowledgments, covenants and agreements set forth in SECTION 3 below,
AKGI hereby represents, warrants, acknowledges, covenants and agrees that:
1.4.1 The Royal Palm Obligations are just and owing.
1.4.2 The obligation of AKGI to repay and perform the Royal Palm
Obligations is absolute, irrevocable and unconditional and there
exists no right of setoff or recoupment, counterclaim or defense of
any nature whatsoever to the payment and performance of the Royal Palm
Obligations.
1.4.3 AKGI hereby ratifies, reaffirms, acknowledges and agrees
that the Royal Palm Obligations and the Royal Palm Loan Documents
represent the valid, enforceable and collectible
<PAGE>
obligations of AKGI and, as of the date hereof, there exists no claims
or defenses (personal or otherwise) whatsoever with respect to the
Royal Palm Obligations. AKGI further acknowledges and represents that
no event has occurred and no condition exists that, after notice or
lapse or time, or both, would constitute a default under the Royal
Palm Loan Documents.
1.4.4 AKGI and Lender acknowledge and agree that all terms,
conditions and provisions of the Royal Palm Loan Documents are
continued in full force and effect and remain unaffected and unchanged
except as may be modified or amended by this Agreement; this Agreement
in no way acts as a release or relinquishment of, and in no way
affects, the liens, security interests and rights created by or
arising under any of the Royal Palm Loan Documents or the priority
thereof. Such liens, security interests and rights are hereby
ratified, confirmed, renewed and extended in all respects.
1.4.5 That lien of attachment recorded by Elliston Securities
Ltd. on October 30, 1995 with respect to the Real Property described
in the Royal Palm Loan Agreement is a "conservatory attachment" and
the plaintiff in such action has not yet obtained a judgment against
the Borrower under the Royal Palm Loan Agreement or against the Real
Property described therein.
1.5 Amendments and Modifications to Royal Palm Loan Documents. The
---------------------------------------------------------
Royal Palm Loan Documents are hereby amended and modified in the following
respects:
1.5.1 The following defined term is hereby added to the
"Definitions" section of the Royal Palm Loan Agreement:
"'Assumption Agreement' shall mean that Assumption Agreement executed
by AKGI-Sint Maarten, N.V., a Netherlands Antilles corporation, and
FINOVA Capital Corporation, a Delaware corporation, and dated as of
August 15, 1996."
1.5.2 All references in the Royal Palm Loan Documents to the
term "Borrower" shall hereinafter be deemed to mean and refer to AKGI.
1.5.3 The term "Obligations" as defined in the "Definitions"
section of the Royal Palm Loan Agreement and used in the Royal Palm
Loan Documents is hereby amended and modified to read as follows:
"'Obligations' shall mean each and every obligation, duty, covenant,
undertaking and condition which Borrower is required or has agreed to
perform under the Documents and each and every other obligation of
Borrower now or hereafter owing to Lender, including, without
limitation, the obligations of Borrower as the Guarantor under that
Corporate Guarantee Agreement dated as of August 15, 1996 executed by
Borrower in favor of Lender."
1.5.4 Section 8.1(a) of the Royal Palm Loan Agreement is hereby
modified and restated in its entirety to read as follows:
"Borrower is, and will continue to be during the Term hereof, a
corporation duly organized, validly existing and in good standing
under the laws of the Netherlands Antilles and Delaware and is, and
will continue to be during the Term hereof, qualified to do business
and in good standing in each jurisdiction in which it is selling Time-
Share Interests or where the location or nature of its properties or
business makes such qualification necessary (except where failure to
do so would not adversely affect Lender's ability to realize upon the
Receivables Collateral, Real Estate Collateral or any other security
for the Performance of the Obligations or materially adversely affect
the business or financial condition of Borrower or the ability of
Borrower to complete Performance of the Obligations). Borrower has,
and will continue to have, powers adequate for
<PAGE>
making and performing under the Documents, for undertaking and
performing the Obligations and for carrying on its business and owning
its property."
1.5.5 Section 8.22(a) of the Royal Palm Loan Agreement is hereby
amended and modified in its entirety to read as follows:
"At the end of each fiscal quarter of Borrower, Borrower shall
maintain a net worth, calculated in accordance with GAAP of at least
U.S. $2,000,000.00. The foregoing covenant shall be tested quarterly
beginning with the quarter-year ending December 31, 1995."
1.5.6 The first sentence of Section 8.22(c) of the Royal Palm
Loan Agreement is hereby amended and modified in its entirety to read
as follows:
"Borrower's general and administrative expenses with respect to the
Project shall not exceed ten percent (10%) of Net Sales."
1.5.7 The following provision is hereby added as Section 9.1(n)
of the Royal Palm Loan Agreement:
"(n) The occurrence of an 'Event of Default' under the Flamingo Loan
Agreement (as defined in the Assumption Agreement)."
2. Assumption of Flamingo A&D Loan and Flamingo Receivables Loan.
-------------------------------------------------------------
2.1 Definitions. Unless specifically defined herein, all initial
-----------
capitalized terms used in this SECTION 2 shall have the same meaning as set
forth in the Flamingo Loan Agreement. The following terms shall have the
meanings ascribed to them below:
2.1.1 "Flamingo Loan Documents" shall mean, collectively, the
Flamingo Loan Agreement and the Documents (as such Documents are
defined in the Flamingo Loan Agreement), together with any and all
renewals, extensions, amendments, replacements, restatements,
supplements or modifications, whether now or hereafter existing.
2.1.2 "Flamingo Obligations" shall mean and refer to each and
every obligation, duty, covenant, undertaking and condition which
Flamingo is required or has agreed to perform under the Flamingo Loan
Documents, and each and every other obligation of Flamingo under the
Flamingo A&D Loan and the Flamingo Receivables Loan now or hereafter
owing to Lender.
2.2 Assumption of Flamingo Obligations. AKGI hereby confirms that,
----------------------------------
pursuant to the Flamingo Deed of Acknowledgment, it has assumed and by
these presents hereby assumes all obligations of Flamingo under the
Flamingo Loan Documents for the payment of the Flamingo A&D Loan and the
Flamingo Receivables Loan and any and all other indebtedness created or
evidenced thereby and for the performance and observance of all the
covenants, provisions, representations, warranties and agreements of the
Borrower under the Flamingo Loan Documents as if AKGI were an original
party thereto.
2.3 Consent by Lender. Lender hereby consents to the transfer to and
-----------------
assumption by AKGI of all of the Flamingo Obligations and Lender hereby
agrees from and after the date hereof to recognize AKGI as the "Borrower"
under the Flamingo Loan Documents. Such consent shall not constitute a
consent
<PAGE>
to any further transfer or assignment of the Flamingo Obligations or for
any other transfer, assignment or transaction for which Lender's consent is
required under the Flamingo Loan Documents.
2.4 Representations, Warranties, Acknowledgments, Covenants and
-----------------------------------------------------------
Agreements Relating to the Flamingo A&D Loan and Flamingo Receivables Loan.
--------------------------------------------------------------------------
As a material inducement to Lender to enter into this Agreement, and
acknowledging Lender's reliance upon the truth and accuracy thereof, and in
addition to the representations, warranties, acknowledgments, covenants and
agreements set forth in SECTION 3 below, AKGI hereby represents, warrants,
acknowledges, covenants and agrees that:
2.4.1 The Flamingo Obligations are just and owing.
2.4.2 The obligation of AKGI to repay and perform the Flamingo
Obligations is absolute, irrevocable and unconditional and there
exists no right of setoff or recoupment, counterclaim or defense of
any nature whatsoever to the payment and performance of the Flamingo
Obligations.
2.4.3 AKGI hereby ratifies, reaffirms, acknowledges and agrees
that the Flamingo Obligations and the Flamingo Loan Documents
represent the valid, enforceable and collectible obligations of AKGI
and, as of the date hereof, there exists no claims or defenses
(personal or otherwise) whatsoever with respect to the Flamingo
Obligations. AKGI further acknowledges and represents that no event
has occurred and no condition exists that, after notice or lapse or
time, or both, would constitute a default under the Flamingo Loan
Documents.
2.4.4 AKGI and Lender acknowledge and agree that all terms,
conditions and provisions of the Flamingo Loan Documents are continued
in full force and effect and remain unaffected and unchanged except as
may be modified or amended hereby; this Agreement in no way acts as a
release or relinquishment of, and in no way affects, the liens,
security interests and rights created by or arising under any of the
Flamingo Loan Documents or the priority thereof. Such liens, security
interests and rights are hereby ratified, confirmed, renewed and
extended in all respects.
2.5 Amendments and Modifications to the Flamingo Loan Documents. The
-----------------------------------------------------------
Flamingo Loan Documents are hereby amended and modified in the following
respects:
2.5.1 The following defined term is hereby added to the
"Definitions" section of the Flamingo Loan Agreement:
"'Assumption Agreement' shall mean that Assumption Agreement executed
by AKGI-Sint Maarten, N.V., a Netherlands Antilles corporation, and
FINOVA Capital Corporation, a Delaware corporation, and dated as of
August 15, 1996."
2.5.2 All references in the Flamingo Loan Documents to the term
"Borrower" shall be deemed to mean and refer to AKGI.
2.5.3 The term "Obligations" as defined in the "Definitions"
section of the Flamingo Loan Agreement and used in the Flamingo Loan
Documents is hereby amended and modified to read as follows:
"'Obligations' shall mean each and every obligation, duty, covenant,
undertaking and condition which Borrower is required or has agreed to
perform under the Documents and each and every other obligation of
Borrower now or hereafter owing to Lender, including, without
limitation, the obligations of Borrower as the Guarantor under that
Corporate Guarantee Agreement dated as of August 15, 1996, executed by
Borrower in favor of Lender."
<PAGE>
2.5.4 Section 8.1(a) of the Flamingo Loan Agreement is hereby
modified in its entirety to read as follows:
"Borrower is, and will continue to be during the Term hereof, a
corporation duly organized, validly existing and in good standing
under the laws of the Netherlands Antilles and Delaware and is, and
will continue to be during the Term hereof, qualified to do business
and in good business in each jurisdiction in which it is selling Time-
Share Interests or where the location or nature of its properties or
business make such qualification necessary (except where failure to do
so would not adversely affect Lender's ability to realize upon the
Receivables Collateral, the Real Estate Collateral or any other
security for the Performance of the Obligations or materially
adversely affect the business or financial condition of Borrower or
the ability of Borrower to complete the Performance of the
Obligations). Borrower has, and will continue to have, powers
adequate for making and performing under the Documents, for
undertaking and performing the Obligations and for carrying on its
business and owning its property."
2.5.5 Section 8.22(a) of the Flamingo Loan Agreement is hereby
amended and modified in its entirety to read as follows:
"As of the end of each fiscal quarter of Borrower, Borrower shall
maintain a net worth, calculated in accordance with GAAP, of at least
U.S. $2,000,000.00. The foregoing covenant shall be tested quarterly
beginning with the quarter-year ending December 31, 1995."
2.5.6 The first sentence of Section 8.22(c) of the Flamingo Loan
Agreement is hereby amended and modified in its entirety to read as
follows:
"Borrower's general and administrative expenses with respect to the
Project shall not exceed ten percent (10%) of Net Sales."
2.5.7 The following provision is hereby added as Section 9.1(n)
of the Flamingo Loan Agreement:
"(n) The occurrence of an 'Event of Default' under the Royal Palm
Agreement (as defined in the Assumption Agreement)."
3. Additional Representations, Warranties, Acknowledgments, Covenants and
----------------------------------------------------------------------
Agreements of AKGI.
------------------
As a material inducement to Lender to enter into and grant the
consents set forth in this Agreement, and acknowledging Lender's reliance
upon the truth and accuracy thereof, and AKGI's agreement to act in
accordance herewith, AKGI hereby represents, warrants, acknowledges,
covenants and agrees that:
3.1 The Recitals set forth in this Agreement are true and correct.
3.2 This Agreement has been executed in conjunction with the Flamingo
Deed of Acknowledgment and the Royal Palm Deed of Acknowledgment, and this
Agreement and all other documents and instruments executed by AKGI in
connection or conjunction herewith have been authorized by all necessary
action and, when executed, will, to the best of their knowledge, be the
legal, valid and binding obligations of AKGI enforceable against AKGI in
accordance with their respective terms.
<PAGE>
3.3 AKGI's execution, delivery and performance of this Agreement will
not (a) violate any law, rule, regulation or court order to which AKGI is
subject, (b) conflict with or result in a breach of AKGI's Articles of
Incorporation or Bylaws or any agreement or instrument to which AKGI is a
party or by which it or its properties are bound, or (c) result in the
creation or imposition of any lien, security interest or encumbrance on any
property, whether now owned or hereafter acquired, other than the liens in
favor of Lender.
3.4 AKGI is a corporation, validly existing and in good standing
under the laws of the Netherlands Antilles and under the laws of the State
of Delaware. AKGI is, and will remain so during any period of time it has
any outstanding obligations to Lender, qualified to do business and in good
standing in each jurisdiction where AKGI is doing business or where the
location or nature of the properties or business of AKGI make such
qualification necessary.
3.5 AKGI and its Related Entities (as hereinafter defined) shall,
during any period of time in which any of the Royal Palm Obligations and/or
the Flamingo Obligations remain outstanding, each maintain separate
internally-prepared financial statements with respect to the separate
operations of such entities and each of their respective properties,
notwithstanding that AKGI and its Related Entities may maintain
consolidated financial statements for other purposes.
3.6 Neither AKGI nor any Related Entities have paid or shall pay any
secured or unsecured debts or obligations of the other, except to the
extent that such obligations also constitute direct, contractual
obligations of AKGI or any Related Entity under a guarantee or otherwise.
3.7 Other than distributions to shareholders or partners and
repayment of bona fide debt owed to a Related Entity, AKGI shall not
transfer any funds to or accept a transfer of any funds from any Related
Entity without contemporaneous written documentation clearly identifying
that the transfer constitutes a loan or capital investment and, if the
transfer is a loan, the specific repayment terms thereof.
3.8 AKGI has not taken and shall not take any action or omit to take
any action that could reasonably be expected to cause its creditors or the
creditors of any Related Entity to be confused as to which entity the
creditor is dealing with.
3.9 AKGI and all Related Entities were adequately capitalized as of
the date of their creation or organization and shall continue to remain
adequately capitalized so long as any obligations of AKGI remain
outstanding to Lender.
3.10 Insofar as is necessary, AKGI will not be subrogated to the
rights of Lender against either of Royal Palm or Flamingo.
For the purposes of this Agreement, the term "Related Entities" shall
mean any corporation, partnership, limited liability company or other
entity of which AKGI owns a controlling interest or otherwise controls,
either directly or indirectly, the operations of such entity, and any
corporation, partnership, limited liability company or other entity which
owns a controlling interest in or otherwise controls, either directly or
indirectly, the operations of AKGI. For the purposes of this Agreement,
the following entities shall be deemed to be "Related Entities" of AKGI:
Signature Resorts, Inc., a Maryland corporation; Grand Beach Resort,
Limited Partnership, a Georgia limited partnership; Port Royal Resort,
L.P., a South Carolina limited partnership; Lake Tahoe Resort Partners,
L.L.C., a California limited liability company; and Kabushiki Gaisha Kei,
L.L.C., a California limited liability company. Each of the
representations, warranties, acknowledgments, covenants and agreements set
forth in this SECTION 3 shall be deemed to be a part of the covenants and
obligations of AKGI as Borrower under the Royal Palm A&D Loan, the Royal
Palm Receivables Loan, the Flamingo A&D Loan and the Flamingo Receivables
Loan as if the same were set forth in their entirety in the Royal Palm Loan
Documents and the Flamingo Loan Documents.
<PAGE>
4. CONDITIONS SUBSEQUENT.
---------------------
The consent and obligations of Lender under this Agreement are subject
to the satisfaction of the following express conditions subsequent within
the applicable time periods hereinafter set forth:
4.1 Within thirty (30) days after the date of this Agreement, AKGI
shall have caused to be executed and recorded Deeds of Mortgage in favor of
Lender with respect to the Real Property described in each of the Royal
Palm Loan Agreement and Flamingo Loan Agreement with such evidence as may
be required by Lender (which evidence shall be a certification from a
Netherlands Antilles civil notary) that such Deeds of Mortgage constitute a
lien upon the real property in a first priority position (subject only to
such matters as are acceptable to Lender) upon the real property described
therein. AKGI hereby agrees that Lender shall have no obligations to make
any further Advances under the Royal Palm Loan Agreement or the Flamingo
Loan Agreement until such time as Lender has received evidence satisfactory
to Lender that such Deeds of Mortgage are of record and continue to
evidence a first priority position upon the real property described
therein. In the event that such evidence is not received by Lender within
thirty (30) days after the date of this Agreement within which to provide
such evidence to Lender, but Lender shall have no further obligation to
make any Advances under the Royal Palm Loan Agreement or the Flamingo Loan
Agreement until such evidence is received by Lender.
4.2 On or before August 29, 1996, and as a condition precedent to
Lender's obligation to make any further Advances under the Royal Palm Loan
Agreement or the Flamingo Loan Agreement, Borrower shall deliver to Lender
a permit from the Netherlands Antilles Central Bank with respect to AKGI's
incurring of and servicing the Royal Palm Receivables Loan and the Flamingo
Receivables Loan in form satisfactory to Lender. AKGI shall indemnify,
defend and hold harmless Lender from and against any and all loss, costs,
damages or expenses incurred as a result of the failure of AKGI to obtain
such bank permits.
4.3 Lender shall have received duly-executed UCC Financing Statement
Change forms or new UCC Financing Statements as Lender may require to
continue perfection of all security interests in favor of Lender, within
thirty (30) days after AKGI's receipt of such terms or statements from
Lender.
4.4 On or before August 26, 1996, Borrower agrees to take whatever
steps are necessary or appropriate under the laws of the Netherlands
Antilles N.V. in order to remove as a lien against the real property (the
"Royal Palm Property") which is the subject matter of the Royal Palm Loan
Agreement, the present attachments in favor of Elliston Securities and Mr.
J. Schena and Mrs. M. Schena (collectively, the "Attachments"). Borrower
agrees to indemnify and hold Lender harmless from all loss or liability to
Lender as a result of the existence of the Attachments. Borrower
represents and warrants to Lender that the Attachments are "conservatory
attachments", rather than "execution attachments" and that the holder of
the Attachments has not and will not within a period earlier than thirty
(30) days from the date hereof, obtain a judgment against Borrower arising
out of the matter which is the subject of the Attachments. Until such time
as the Attachments have been removed as a lien against the Royal Palm
Property, Lender has no obligation to make any advances under the Royal
Palm Loan Agreement.
5. GENERAL.
-------
5.1 AKGI shall execute and deliver such additional documents and do
such further acts as Lender may reasonably require to fully implement the
intent of this Agreement.
<PAGE>
5.2 AKGI shall pay all costs and expenses including, but not limited
to, recording fees, title insurance premiums and reasonable attorney's fees
incurred by Lender in connection herewith, whether or not all of the
conditions described in this paragraph are satisfied.
5.3 This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their heirs, personal representatives,
successors and assigns.
5.4 This Agreement shall be governed and construed in accordance with
the laws of the State of Arizona.
<PAGE>
[Signature page of FINOVA/AKGI Assumption Agreement]
IN WITNESS WHEREOF, this Agreement has been executed as of the day and
year first above written.
FINOVA CAPITAL CORPORATION,
a Delaware corporation
By:_____________________________
Its:__________________________
AKGI-SINT MAARTEN, N.V.,
a Netherlands Antilles corporation
By:_____________________________
Its:__________________________
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We consent to the reference to our firm under the caption "Experts,"
and to the use of our report dated May 31, 1996, except for Note 12, as to
which the date is July 1, 1996, included in the Proxy Statement/Prospectus
and Registration Statement of AVCOM International, Inc. and Signature
Resorts, Inc. (Form S-4 No. 333-____) for the registration of 1,498,400
shares of common stock of Signature Resorts, Inc.
Ernst & Young, LLP
Phoenix, Arizona
November 13, 1996
<PAGE>
EXHIBIT 23.4
Consent of Independent Certified Public Accountants
We consent to the reference to our firm under the caption "Experts", under the
caption "Selected Financial Data" and to the use of our report dated March 8,
1996 in the Registration Statement Form S-4 and related Prospectus of Signature
Resorts, Inc. for the registration of 1,494,957 shares of its common stock.
Ernst & Young LLP
Los Angeles, California
November 12, 1996
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the inclusion in this Registration Statement on Form S-4
(File No._____ ) of our reports dated February 9, 1995 and March 16, 1995 on our
audits of the financial statements of Fall Creek Resort, L.P. and Cypress Pointe
Resort, L.P., respectively, as of December 31, 1994 and for each of the two
years in the period then ended (not presented separately in this Registration
Statement). We also consent to the reference to our firm under the caption
"Experts" in the Registration Statement.
Coopers & Lybrand
Orlando, Florida
November 15, 1996
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the inclusion in this Registration Statement on Form S-4
(File No. 333-_____ ) of our reports dated March 29, 1996 and April 9, 1996 on
our audits of the financial statements of AKGI Flamingo CVoa and AKGI Royal Palm
CVoa, respectively, as of December 31, 1995 and for the period May 23, 1995
through December 31, 1995 (not presented separately in this Registration
Statement). We also consent to the reference to our firm under the caption
"Experts" in the Registration Statement.
Coopers & Lybrand
Philipsburg, St. Maarten
November 15, 1996
