<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 27, 1997
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
SIGNATURE RESORTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
MARYLAND 6552 95-4582157
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
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
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)
---------------
COPIES TO:
JOHN M. NEWELL, ESQ.
LATHAM & WATKINS
633 WEST FIFTH STREET
SUITE 4000
LOS ANGELES, CALIFORNIA 90071
(213) 485-1234
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement as
determined by market conditions.
---------------
If any of the securities on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434 of
the Securities Act of 1933, please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PRICE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED SHARE(1) PRICE(1) FEE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value per 4,959,548
Share............................... Shares $33.063 $163,977,536 $49,690
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended,
based on the average of the high and low trading prices of the Common
Stock on the Nasdaq National Market on June 23, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
SIGNATURE RESORTS, INC.
CROSS-REFERENCE SHEET
PURSUANT TO RULE 404(a) AND ITEM 501(b) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN
FORM S-1 REGISTRATION STATEMENT PROSPECTUS CAPTION
------------------------------- ------------------
<C> <S> <C>
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus........ Facing Page; Cross-Reference Sheet;
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus....... Inside Front and Outside Back Cover
Pages of Prospectus
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges......................... Summary; Risk Factors
4. Use of Proceeds.................. Summary; Use of Proceeds; Consolidated
Capitalization; Management's
Discussion and Analysis of Financial
Condition and Results of Operations
5. Determination of Offering Price.. Outside Front Cover Page; Plan of
Distribution
6. Dilution......................... Not Applicable
7. Selling Security Holders......... Principal Stockholders; Registering
Stockholders
8. Plan of Distribution............. Outside Front Cover Page; Plan of
Distribution
9. Description of Securities to be Summary; Description of Capital Stock
Registered......................
10. Interests of Named Experts and
Counsel......................... Experts; Legal Matters
11. Information with Respect to the
Registrant...................... Outside and Inside Front Cover Pages of
Prospectus; Summary; Risk Factors; Use
of Proceeds; Common Stock Price Range;
Dividend Policy; Consolidated
Capitalization; Selected Consolidated
and Restated Historical Financial
Information of the Company; Selected
Financial Data of Plantation Resorts
Group, Inc.; Pro Forma Financial
Information (Unaudited); Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Certain
Relationships and Related
Transactions; Principal Stockholders;
Registering Stockholders; Description
of Capital Stock; Certain Provisions
of Maryland Law and of the Company's
Charter and Bylaws; Shares Eligible
for Future Sale; Plan of Distribution;
Legal Matters; Experts; Available
Information; Index to Financial
Statements
12. Disclosure of Commission Position
on Indemnification for
Securities Act Liabilities...... Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 27, 1997
4,959,548 SHARES
[LOGO OF SIGNATURE RESORTS]
SIGNATURE RESORTS, INC.
COMMON STOCK
The shares of Common Stock, par value $0.01 per share ("Common Stock"), of
Signature Resorts, Inc., a Maryland corporation (the "Company" or "Signature"),
which may be offered hereby (the "Registered Offering") are held by certain
stockholders of the Company (the "Registering Stockholders"). See "Registering
Stockholders." The Company will not receive any of the proceeds from the sale
of any shares offered hereby. The Registering Stockholders received such shares
of Common Stock in private placement transactions and the Company has agreed to
file and maintain a shelf registration statement relating to such shares in
order to permit the Registering Stockholders to resell such shares from time-
to-time in public transactions. In connection with this transaction, the
Company will bear expenses estimated at $ .
The Common Stock is listed on the Nasdaq National Market under the symbol
"SIGR." On June 26, 1997, the last reported sales price for the Company's
Common Stock was $34 5/16 per share. See "Common Stock Price Range."
SEE "RISK FACTORS" COMMENCING ON PAGE 10 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Any distribution of the shares covered by this Prospectus may be effected
from time to time in one or more transactions (which may involve block
transactions) on the Nasdaq National Market, in negotiated transactions or in a
combination of such methods of sale, at fixed prices, at prices related to the
prevailing market prices or at negotiated prices. The Registering Stockholders
will effect any such transactions with or through one or more broker-dealers
which may act as agent or principal, and if required by the Company, through
block trades or offerings through underwriters. Any such broker-dealer may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Registering Stockholders and/or the purchaser of the
shares for whom it may act as agent or to whom it may sell as principals or
both. With respect to any shares sold by a Registering Stockholder, the
Registering Stockholder and/or any broker-dealer effecting the sales may be
deemed to be an "underwriter" within the meaning of Section 2(11) of the
Securities Act of 1933, as amended (the "Securities Act"), and any commissions
received by the broker-dealer and any profit on the resale of shares as
principal may be deemed to be underwriting discounts or commissions under the
Securities Act. Additionally, the Registering Stockholders may pledge or make
gifts of their shares and such shares may also be sold by the pledgees or
transferees. See "Plan of Distribution."
-----------
The date of this Prospectus is , 1997
<PAGE>
IN CONNECTION WITH THE REGISTERED OFFERING, UNDERWRITERS MAY EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, ON THE OPEN MARKET
OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial
data, including the financial statements and notes thereto, included
elsewhere in this Prospectus. Unless the context otherwise indicates, the
"Company" means Signature Resorts, Inc. and includes its corporate and
partnership predecessors and wholly-owned subsidiaries and affiliates,
including AVCOM International, Inc. ("AVCOM") and its subsidiaries, which
were acquired by a subsidiary of Signature Resorts, Inc. on February 7,
1997 in the merger with AVCOM (the "AVCOM Merger") and Plantation Resorts
Group, Inc. ("PRG") and its subsidiaries, which were acquired by a
subsidiary of Signature Resorts, Inc. on May 15, 1997 (the "PRG Merger").
This Prospectus contains forward-looking statements which involve risks
and uncertainties. The Company's actual results may differ significantly
from the results discussed in the forward-looking statements. Factors that
might cause such a difference include, but are not limited to, those
discussed in "Risk Factors."
THE COMPANY
Signature Resorts, Inc. is one of the largest developers and operators
of vacation ownership resorts in North America. The Company is devoted
exclusively to vacation ownership operations and, as of the date of this
Prospectus, owns 22 vacation ownership resorts located in a variety of
popular resort destinations, which includes three resorts in which the
Company holds a partial interest. The Company's resorts are located in
Arizona (six resorts), California (five resorts), Florida (two resorts),
Netherlands Antilles (two resorts), Hawaii, Missouri, South Carolina,
Texas, U.S. Virgin Islands and Virginia (two resorts). The Company
acquired (i) its Arizona resorts, three of its California resorts and its
Texas resort as a result of the AVCOM Merger (the "All Seasons Resorts")
and (ii) its Virginia resorts as a result of the PRG Merger (the "PRG
Resorts"). The Company currently sells Vacation Intervals at 18 of these
22 resorts; sales at three resorts have been substantially completed; and
sales at one resort have yet to commence.
The Company's principal operations currently consist of (i) acquiring,
developing and operating vacation ownership resorts, (ii) marketing and
selling vacation ownership interests in its resorts, which typically
entitle the buyer to use a fully-furnished vacation residence, generally
for a one-week period each year ("Vacation Intervals") and (iii) providing
financing for the purchase of Vacation Intervals at its resorts.
The Company's principal executive offices are located at 5933 West
Century Boulevard, Suite 210, Los Angeles, California 90045, and its
telephone number is (310) 348-1000.
2
<PAGE>
RECENT DEVELOPMENTS
Acquisition of Plantation Resorts Group, Inc. On May 15, 1997 the Company
consummated the PRG Merger, acquiring 100% of the capital stock of PRG for the
issuance of 2,401,229 shares of the Company's Common Stock. Based upon the
closing price of the Company's Common Stock on May 15, 1997, the
2,401,229 shares issued in the PRG Merger were valued at approximately
$59.1 million in the aggregate. The PRG Merger will be accounted for by the
Company under the pooling-of-interests method of accounting.
PRG is a Williamsburg, Virginia based developer, owner and operator of
vacation ownership resorts and owns and operates the Powhatan Plantation Resort
which currently consists of 405 units, and the Greensprings Plantation Resort
which currently consists of 58 units. Upon completion, the two PRG Resorts will
have a combined total of 1,000 units.
The Company also acquired an additional 141 acres of waterfront land near the
PRG Resorts. Subject to obtaining necessary permits and approvals, the Company
expects to use the land for the future development of 350 units. The PRG
Resorts and the additional land together provide an aggregate expansion
capacity of over 43,000 intervals.
Pursuant to the Agreement and Plan of Merger dated as of May 15, 1997 by and
among the Company, Primavera Acquisition Corp. and PRG (the "PRG Merger
Agreement"), certain beneficial shareholders of PRG agreed to indemnify the
Company from and against certain expenses and damages arising out of a breach
of a representation, warranty or covenant made by PRG in the PRG Merger
Agreement. In order to establish a procedure for the satisfaction of claims by
the Company for indemnification, the PRG Merger Agreement requires 5% of the
2,401,229 shares of the Company's Common Stock received by PRG stockholders
upon consummation of the PRG Merger be deposited into escrow and held pursuant
to an escrow agreement. The PRG Merger Agreement provides that the escrow
shares will be held by the escrow agent to satisfy claims made within one year
from the closing date. If no claim for indemnification is outstanding at the
end of the one year period, the remaining escrowed shares will be released.
Pursuant to the terms of the PRG Merger Agreement, the Company entered into a
one year consulting agreement, subject to renewal, with Robert T. Gow and
Kay F. Gow (the "Gows") (the "Consulting Agreement"). The Consulting Agreement
provides that, under the Company's supervision, the Gows shall be responsible
for general property management, sales, marketing and construction supervision,
as well as administrative activities for the PRG Resorts including inventory
and underwriting control, contract processing, registration and loan servicing.
Under the supervision of the Company's senior management, the principals will
have primary responsibility for the performance of such services and will
receive a salary and discretionary bonuses in connection therewith as approved
in the Consulting Agreement. In addition, the Consulting Agreement provides for
the payment to Robert Gow of an acquisition fee in the event Mr. Gow introduces
to or procures for the Company, and the Company consummates, any vacation
ownership resorts or operating companies.
Pursuant to the terms of the PRG Merger Agreement, the Company and the PRG
shareholders entered into a registration rights agreement (the "PRG
Registration Rights Agreement") with respect to the registration of the shares
of Common Stock delivered to the PRG stockholders at closing (the "PRG
Registrable Shares"). The PRG Registration Rights Agreement provides for either
(i) a registration statement for an offering to be made on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act covering the PRG
Registrable Shares or (ii) an amendment of an effective shelf registration of
the Company to provide for the inclusion of the PRG Registrable Shares. The
Company has agreed to use its maximum reasonable efforts to cause the shelf
registration to be declared effective under the Securities Act as soon as
practicable following the closing of the PRG Merger and to keep the shelf
registration continuously effective under the Securities Act for a period of
the shorter of three years from the closing, or such period that will terminate
when all Registrable Shares are
3
<PAGE>
tradeable without restriction under any applicable rules and regulations under
the Securities Act or when all PRG Registrable Shares covered by the shelf
registration have been disposed of in accordance therewith. See "Shares
Eligible for Future Sale."
Acquisition of LSI Group Holdings, PLC. On June 5, 1997, the Company
announced the execution of a definitive agreement to acquire 100% of the
capital stock of LSI Group Holdings, PLC ("LSI"). LSI is a United Kingdom based
developer, owner and operator of European vacation ownership resorts with 11
resorts located in England, Spain and Austria. Operating a points-based club
system, LSI and its Grand Vacation Club allow member families to flexibly
exchange points for vacation options at LSI's resorts. Under the LSI club
system, members purchase an annual allotment of points which can be applied
toward a single extended stay or several shorter vacations at LSI's resorts
according to established exchange rates. The number of points required for each
vacation option vary based upon the desired resort location, time of year,
length of stay and unit size and type. LSI's 11 resorts are located in
England's Lake District and Midlands (2 resorts), Southern England (2 resorts),
the sun coast of Spain (3 resorts), the Spanish island of Menorca (2 resorts),
Lanzarote in the Canary Islands and the Austrian Alps.
Under the terms of the purchase agreement, the Company will acquire all
outstanding shares of LSI stock in exchange for newly-issued shares of the
Company's Common Stock (the "LSI Merger"). The actual number of shares to be
issued by the Company will be determined by the average closing price of the
Company's Common Stock for a five day trading period which will end prior to
August 7, 1997. Between an average closing price of $21 and $27 per share,
1,875,000 shares will be issued. Should the average closing price exceed $27
per share, the number of shares issued would decrease so that the total common
stock consideration would not exceed $50,625,000, subject to a minimum of
1,400,000 shares being issued.
The LSI Merger is subject to any applicable waiting periods required for
governmental approvals and the satisfaction of other customary conditions. The
LSI Merger is structured to qualify for the pooling-of-interests method of
accounting and is anticipated to close during the third quarter of 1997. Giving
effect to the LSI acquisition, the Company will own and operate 33 resorts in
Europe and North America.
4
<PAGE>
THE REGISTERED OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Registering
Stockholders.............................. 4,959,548 shares
Common Stock to be outstanding after
the Registered Offering................... 22,292,070 shares(1)
Use of Proceeds............................ The Company will not receive any
proceeds from the sale of Common
Stock by the Registering
Stockholders in the Registered
Offering. See "Use of Proceeds."
Nasdaq National Market symbol.............. "SIGR"
</TABLE>
- --------
(1) Does not include 3,024,660 shares of Common Stock initially issuable upon
conversion of the Company's 5 3/4% Convertible Subordinated Notes due 2007
(the "Convertible Notes"), 2,500,000 shares of Common Stock reserved for
issuance upon exercise of options granted pursuant to the Company's 1996
Equity Participation Plan (as defined) and 500,000 shares of Common Stock
reserved for issuance pursuant to the Company's Employee Stock Purchase
Plan (as defined). See "Management--1996 Equity Participation Plan" and "--
Employee Stock Purchase Plan."
5
<PAGE>
SUMMARY CONSOLIDATED AND RESTATED HISTORICAL AND PRO FORMA FINANCIAL
INFORMATION OF THE COMPANY
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth summary consolidated and restated historical
and pro forma financial information of the Company. For the historical period
ended March 31, 1997, the financial information presented below includes the
effect of the Consolidation Transactions (as defined herein) and the Company's
initial public offering (the "Initial Public Offering") which were consummated
on August 20, 1996. For periods ending prior to March 31, 1997, the historical
financial information presented below combines each of the Company's
predecessor limited partnerships, limited liability companies and other
affiliated corporations that were combined into the Company in the
Consolidation Transactions. Such historical financial information also gives
effect to the AVCOM Merger by combining and restating the historical financial
information of the Company and AVCOM and should be read in conjunction with
the selected consolidated historical and pro forma financial information of
the Company, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the consolidated financial statements for the
Company and the notes thereto which are contained elsewhere in this
Prospectus. The pro forma information for the three month period ended March
31, 1997 gives effect to the PRG Merger (the historical information for such
period already gives effect to the Consolidation Transactions and the Initial
Public Offering) and the pro forma information for the year ended December 31,
1996 and for the three month period ended March 31, 1996 give effect to the
Consolidation Transactions, the Initial Public Offering and the PRG Merger, in
each case, as if each had occurred as of the beginning of the period
presented. Due to seasonality, other market factors and additions to the
number of the Company's resorts, the combined historical and pro forma results
for the three months ended March 31, 1997 and 1996 are not necessarily
indicative of results for a full year.
<TABLE>
<CAPTION>
HISTORICAL(a)
-------------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------ -----------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Vacation
Interval sales.. $ 45,796 $ 19,890 $ 121,330 $ 92,302 $ 64,399 $ 36,719 $20,629
Interest income. 5,393 2,489 12,254 7,523 3,863 2,061 586
Other income.... 2,366 1,648 9,891 7,052 882 544 248
----------- ----------- ----------- ----------- -------- -------- -------
Total revenues.. 53,555 24,027 143,475 106,877 69,144 39,324 21,463
----------- ----------- ----------- ----------- -------- -------- -------
COSTS AND
OPERATING
EXPENSES:
Vacation
Interval cost of
sales........... 12,061 5,036 31,302 26,731 19,186 9,256 5,202
Advertising,
sales, and
marketing....... 20,760 9,456 61,495 42,408 30,977 17,759 9,437
Loan portfolio:
Interest
expense--
treasury........ 2,341 1,541 6,466 3,887 1,691 1,009 590
Other expenses.. 844 410 2,260 1,667 1,244 208 50
Provision for
doubtful
accounts........ 2,057 717 6,286 2,579 1,294 870 658
General and
administrative.. 7,122 4,134 27,836 11,148 6,625 4,788 1,824
Resort property
valuation
allowance....... -- -- 2,620 -- -- -- --
Depreciation and
amortization.... 919 601 4,219 1,861 635 439 225
Merger costs.... 1,693 -- -- -- -- -- --
----------- ----------- ----------- ----------- -------- -------- -------
Total cost and
operating
expenses........ 47,797 21,895 142,484 90,281 61,652 34,329 17,986
----------- ----------- ----------- ----------- -------- -------- -------
Income from
operations...... 5,758 2,132 991 16,596 7,492 4,995 3,477
Interest
expense--other.. 1,337 834 3,725 1,515 1,313 519 --
Equity loss on
investment in
joint venture... 70 1 236 1,649 271 -- --
Minority
interest in
income of
consolidated
limited
partnership..... 24 -- 199 -- -- -- --
----------- ----------- ----------- ----------- -------- -------- -------
Income (loss)
before taxes.... 4,327 1,297 (3,169) 13,432 5,908 4,476 3,477
Provision
(benefit) for
income taxes.... 1,731 (414) (4,907) 1,479 695 1,970 12
----------- ----------- ----------- ----------- -------- -------- -------
Net income...... $ 2,596 $ 1,711 $ 1,738 $ 11,953 $ 5,213 $ 2,506 $ 3,465
=========== =========== =========== =========== ======== ======== =======
Pro forma
unaudited net
income
(loss)(d)....... $ 778 $ (1,901) $ 8,059 $ 3,604 $ 2,730 $ 2,119
=========== =========== =========== ======== ======== =======
Pro forma
unaudited net
income (loss)
per common and
common
equivalent
shares
outstanding
(Actual for
March 31, 1997). $ 0.13 $ 0.06 $ (0.13) $ 0.66 $ -- $ -- $ --
=========== =========== =========== =========== ======== ======== =======
Pro forma
unaudited
weighted average
common and
common
equivalent
shares
outstanding
(Actual for
March 31, 1997). 19,990,454 12,237,741 14,730,268 12,237,741 -- -- --
OTHER DATA:
EBITDA(e)....... $ 8,924 $ 4,273 $ 11,241 $ 20,695 $ 9,547 $ 6,443 $ 4,292
Cash flows
provided by
(used in)
Operating
activities...... $ (9,835) $ (4,778) $ (36,646) $ 5,504 $ (9,647) $ (355) $(7,718)
Investing
activities...... $ (26,954) $ (19,490) $ (78,790) $ (50,332) $(26,866) $(12,973) $(1,793)
Financing
activities...... $ 136,090 $ 22,710 $ 116,531 $ 48,096 $ 37,180 $ 15,158 $ 8,427
Number of
resorts at
period end...... 20 19 19 11 8 5 3
Number of
Vacation
Intervals sold.. 3,445 1,659 10,458 7,482 6,469 3,503 2,206
Number of
Vacation
Intervals in
inventory....... 32,576 26,866 28,465 22,265 6,269 2,368 3,360
Average price of
Vacation
Intervals sold.. $ 13,293 $ 11,992 $ 11,602 $ 12,337 $ 9,955 $ 10,482 $ 9,351
BALANCE SHEET
DATA (END OF
PERIOD):
Cash, including
escrow.......... $ 108,878 $ 6,559 $ 8,525 $ 8,095 $ 5,308 $ 3,156 $ 912
Total Assets.... $ 454,208 $ 326,006 $ 325,228 $ 174,019 $103,306 $ 46,689 $25,984
Long term debt.. $ 248,586 $ 118,262 $ 165,934 $ 97,988 $ 57,375 $ 26,385 $13,736
Stockholders'
equity.......... $ 152,993 $ 45,521 $ 96,942 $ 43,810 $ 34,195 $ 14,352 $ 9,258
<CAPTION>
PRO FORMA (UNAUDITED)
-----------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
-------------------------------------------- --------------------------------
1997 1996 1996
----------- -------------------------------- --------------------------------
CONSOLIDATION CONSOLIDATION
THE PRG TRANSACTIONS/INITIAL THE PRG TRANSACTIONS/INITIAL THE PRG
MERGER(b) PUBLIC OFFERING(c) MERGER(b) PUBLIC OFFERING(c) MERGER(b)
----------- -------------------- ----------- -------------------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Vacation
Interval sales.. $ 53,930 $ 19,890 $ 31,175 $ 121,330 $ 157,042
Interest income. 8,416 2,489 5,655 12,254 24,935
Other income.... 2,367 1,728 1,731 10,101 10,133
----------- -------------------- ----------- -------------------- -----------
Total revenues.. 64,713 24,107 38,561 143,685 192,110
----------- -------------------- ----------- -------------------- -----------
COSTS AND
OPERATING
EXPENSES:
Vacation
Interval cost of
sales........... 14,572 5,021 8,514 31,252 42,618
Advertising,
sales, and
marketing....... 24,527 9,456 14,712 61,495 78,029
Loan portfolio:
Interest
expense--
treasury........ 4,100 687 2,358 3,995 11,011
Other expenses.. 1,422 393 789 2,194 4,010
Provision for
doubtful
accounts........ 2,138 717 1,296 6,286 8,009
General and
administrative.. 8,225 4,134 4,512 27,836 30,692
Resort property
valuation
allowance....... -- -- -- 2,620 2,620
Depreciation and
amortization.... 1,057 601 705 4,219 4,639
Merger costs.... 1,693 -- -- -- --
----------- -------------------- ----------- -------------------- -----------
Total cost and
operating
expenses........ 57,734 21,009 32,886 139,897 181,628
----------- -------------------- ----------- -------------------- -----------
Income from
operations...... 6,979 3,098 5,675 3,788 10,482
Interest
expense--other.. 1,337 283 283 2,144 2,144
Equity loss on
investment in
joint venture... 70 147 147 626 626
Minority
interest in
income of
consolidated
limited
partnership..... 24 -- -- 199 199
----------- -------------------- ----------- -------------------- -----------
Income (loss)
before taxes.... 5,548 2,668 5,245 819 7,513
Provision
(benefit) for
income taxes.... 2,220 1,067 2,098 328 3,006
----------- -------------------- ----------- -------------------- -----------
Net income...... $ 3,328 $ 1,601 $ 3,147 $ 491 $ 4,507
=========== ==================== =========== ==================== ===========
Pro forma
unaudited net
income
(loss)(d).......
Pro forma
unaudited net
income (loss)
per common and
common
equivalent
shares
outstanding
(Actual for
March 31, 1997). $ 0.15 $ 0.09 $ 0.15 $ 0.03 $ 0.21
=========== ==================== =========== ==================== ===========
Pro forma
unaudited
weighted average
common and
common
equivalent
shares
outstanding
(Actual for
March 31, 1997). 22,391,683 18,275,241 20,676,470 19,100,399 21,501,628
OTHER DATA:
EBITDA(e).......
Cash flows
provided by
(used in)
Operating
activities......
Investing
activities......
Financing
activities......
Number of
resorts at
period end......
Number of
Vacation
Intervals sold..
Number of
Vacation
Intervals in
inventory.......
Average price of
Vacation
Intervals sold..
BALANCE SHEET
DATA (END OF
PERIOD):
Cash, including
escrow..........
Total Assets....
Long term debt..
Stockholders'
equity..........
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------
AS ADJUSTED
COMPANY FOR THE
ACTUAL PRG MERGER(b)
-------- -------------
(UNAUDITED)
BALANCE SHEET DATA (AT END OF PERIOD)
<S> <C> <C>
Cash, including escrow................................... $108,878 $115,484
Total assets............................................. 454,208 554,106
Long-term debt........................................... 248,586 317,015
Stockholders' equity..................................... 152,993 177,700
</TABLE>
- --------
(a) Reflects the effects of the AVCOM Merger under the pooling-of-interests
accounting method.
(b) The Pro Forma adjustments for the PRG Merger represent the historical
financial statements of PRG. These adjustments assume the PRG Merger will
be accounted for using the pooling-of-interests method of accounting and
assumes that the combined Company was treated as a C corporation rather
than as limited partnerships and limited liability companies for purposes
of computing federal income taxes for the relevant period. See "Risk
Factors--Risks Related to the AVCOM Merger, the PRG Merger and the LSI
Merger--Accounting Treatment."
(c) Reflects the effects of the Consolidation Transactions, the Initial Public
Offering and assumes that the combined Company was treated as a C
corporation rather than limited partnerships and limited liability
companies for purposes of computing federal income taxes for the relevant
period.
(d) Reflects the effect on historical statement of operations data, assuming
the combined Company had been treated as a C corporation rather than as
individual limited partnerships and limited liability companies for federal
income tax purposes.
(e) As shown below, EBITDA represents net income before interest expense,
income taxes and depreciation and amortization. EBITDA is presented because
it is a widely-accepted financial indicator of a company's ability to
service and/or incur indebtedness. However, EBITDA should not be construed
as an alternative to net income as a measure of the Company's operating
results or to operating cash flow as a measure of liquidity. The following
table reconciles EBITDA to net income:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------------- -----------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----------- ----------- ------- ------- ------ ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income.............. $2,596 $1,711 $ 1,738 $11,953 $5,213 $2,506 $3,465
Interest expense--
treasury............... 2,341 1,541 6,466 3,887 1,691 1,009 590
Interest expense--other. 1,337 834 3,725 1,515 1,313 519 --
Taxes................... 1,731 (414) (4,907) 1,479 695 1,970 12
Depreciation and
amortization........... 919 601 4,219 1,861 635 439 225
------ ------ ------- ------- ------ ------ ------
EBITDA.................. $8,924 $4,273 $11,241 $20,695 $9,547 $6,443 $4,292
====== ====== ======= ======= ====== ====== ======
</TABLE>
7
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL INFORMATION OF PRG
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
The operating data for the years ended December 31, 1996, 1995 and 1994 and
the balance sheet data as of December 31, 1996 and 1995 are derived from PRG's
consolidated financial statements and notes thereto which have been audited by
Arthur Andersen LLP, independent public accountants, and are included elsewhere
in this Prospectus. The operating data and the balance sheet data as of and for
the three months ended March 31, 1997 and 1996 and the operating data and
balance sheet data as of and for the years ended December 31, 1993 and 1992
have been derived from unaudited financial statements that in the opinion of
PRG'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 PRG's consolidated financial
statements, appearing elsewhere in this Prospectus in thousands.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 YEAR ENDED DECEMBER 31
----------------------- ------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----------- ----------- ------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
REVENUES:
Vacation Interval sales. $ 8,134 $11,285 $35,712 $26,250 $34,659 $32,148 $32,101
Interest income......... 3,023 3,166 12,681 12,483 11,884 10,709 9,769
Other income............ 1 3 32 92 151 566 563
------- ------- ------- ------- ------- ------- -------
Total revenues........ 11,158 14,454 48,425 38,825 46,694 43,423 42,433
------- ------- ------- ------- ------- ------- -------
COSTS AND OPERATING
EXPENSES:
Vacation Interval cost
of sales............... 2,511 3,493 11,366 7,346 9,806 9,292 8,383
Advertising, sales and
marketing.............. 3,767 5,256 16,534 12,202 16,104 14,952 14,967
Loan Portfolio:
Interest expense...... 1,759 1,671 7,016 6,190 6,533 6,426 6,910
Other expenses........ 578 396 1,816 351 216 632 803
Provision for doubtful
accounts............. 81 579 1,723 921 662 833 1,935
General and
administrative......... 1,103 378 2,856 2,451 1,838 2,064 2,060
Depreciation and
amortization........... 138 104 420 293 355 177 187
------- ------- ------- ------- ------- ------- -------
Total costs and
operating expenses... 9,937 11,877 41,731 29,754 35,514 34,376 35,245
------- ------- ------- ------- ------- ------- -------
Income before (benefit)
provision for income
taxes.................. 1,221 2,577 6,694 9,071 11,180 9,047 7,188
(Benefit) provision for
income taxes........... (380) 418 (337) 1,533 1,351 1,094 882
------- ------- ------- ------- ------- ------- -------
Net income............ $ 1,601 $ 2,159 $ 7,031 $ 7,538 $ 9,829 $ 7,953 $ 6,306
======= ======= ======= ======= ======= ======= =======
PRO FORMA NET INCOME
(UNAUDITED)(A)......... $ 733 $ 1,546 $ 4,016 $ 5,443 $ 6,820 $ 5,519 $ 4,385
======= ======= ======= ======= ======= ======= =======
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31 YEAR ENDED DECEMBER 31
----------------------- ----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----------- ----------- -------- -------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(b)............... $ 3,118 $ 4,352 $ 14,130 $ 15,554 $18,068 $15,650 $14,285
Cash flows provided by
(used in)
Operating activities... $ (775) $ 3,602 $ 5,109 $ 4,366 $ 5,876 $ 3,654 $ 1,917
Investing activities... $ 1,043 $ (1,019) $ (4,453) $ (4,460) $(6,487) $ (149) $ (133)
Financing activities... $ 1,417 $ (2,719) $ (4,171) $ 601 $(1,871) $ 6,386 $(1,171)
Number of resorts at
period end............. 2 2 2 2 1 1 1
Number of Vacation
Intervals sold......... 558 773 2,452 1,813 2,365 2,414 2,159
Number of Vacation
Intervals in inventory. 1,789 2,096 1,934 1,174 646 462 1,797
Average price of
Vacation Intervals..... $14,577 $ 14,599 $ 14,564 $ 14,479 $14,655 $13,317 $14,868
BALANCE SHEET DATA (END
OF PERIOD):
Cash and cash
equivalents, including
escrow................. $ 6,606 $ 11,324 $ 7,573 $ 11,460 $10,946 $13,295 $ 3,404
Total Assets............ $99,898 $100,593 $101,916 $108,816 $96,674 $89,918 $72,547
Notes payable to
financial institutions. $68,429 $ 68,517 $ 69,756 $ 69,278 $64,017 $61,454 $49,793
Equity.................. $24,707 $ 24,903 $ 23,196 $ 28,151 $25,274 $22,280 $19,602
</TABLE>
- --------
(a) Reflects the effect on historical statement of operations data, assuming
the combined company had been treated as a C Corporation rather than as
individual joint ventures for federal income tax purposes.
(b) 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 PRG's operating results or
to operating cash flow as a measure of liquidity. The following table
reconciles EBITDA to net income:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31 YEAR ENDED DECEMBER 31
----------------------- ------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----------- ----------- ------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income.............. $1,601 $2,159 $ 7,031 $ 7,538 $ 9,829 $ 7,953 $ 6,306
Interest expense........ 1,759 1,671 7,016 6,190 6,533 6,426 6,910
(Benefit) provision for
income taxes........... (380) 418 (337) 1,533 1,351 1,094 882
Depreciation and
amortization........... 138 104 420 293 355 177 187
------ ------ ------- ------- ------- ------- -------
EBITDA.................. $3,118 $4,352 $14,130 $15,554 $18,068 $15,650 $14,285
====== ====== ======= ======= ======= ======= =======
</TABLE>
9
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be carefully considered in evaluating the
Company and its business before purchasing any of the shares of Common Stock
offered hereby. The Company cautions the reader that this list of risk factors
may not be exhaustive.
The Company desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. Certain statements in this
Prospectus that are not historical fact constitute "forward- looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Discussions containing such forward-looking statements may be found
in the material set forth under "Summary," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," as well as within the Prospectus generally. In addition, when used
in the Prospectus the words "believes," "anticipates," "expects" and similar
expressions are intended to identify forward-looking statements. Such
statements are subject to a number of risks and uncertainties. Actual results
could differ materially from those projected in the forward-looking statements
as a result of the risk factors set forth below and the matters set forth in
the Prospectus generally. The Company undertakes no obligation to publicly
release the result of any revisions to these forward-looking statements that
may be made to reflect any future events or circumstances.
ACQUISITION STRATEGY AND RISKS RELATED TO RAPID GROWTH
A principal component of the Company's strategy is to continue to grow by
acquiring additional resorts. The Company's future growth and financial
success will depend upon a number of factors, including its ability to
identify attractive resort acquisition opportunities, consummate the
acquisitions of such resorts on favorable terms, convert such resorts to use
as vacation ownership resorts and profitably sell Vacation Intervals at such
resorts. There can be no assurance that the Company will be successful with
respect to such factors. The Company's ability to execute its growth strategy
depends to a significant degree on the existence of attractive resort
acquisition opportunities (which, in the past, have included completed or
nearly completed resort properties), its ability both to consummate
acquisitions on favorable terms and to obtain additional debt and equity
capital and to fund such acquisitions and any necessary conversion and
marketing expenditures. Currently, there are numerous potential buyers of
resort real estate which are better capitalized than the Company competing to
acquire resort properties which the Company may consider attractive resort
acquisition opportunities. There can be no assurance that the Company will be
able to compete against such other buyers successfully or that the Company
will be successful in consummating any such future financing transactions or
equity offerings on terms favorable to the Company. The Company's ability to
obtain and repay any indebtedness at maturity may depend on refinancing, which
could be adversely affected if the Company cannot effect the sale of
additional debt or equity through public offerings or private placements on
terms favorable to the Company. Factors which could affect the Company's
access to the capital markets, or the cost of such capital, include changes in
interest rates, general economic conditions, the perception in the capital
markets of the vacation ownership industry and the Company's business, results
of operations, leverage, financial condition and business prospects.
In addition, an important part of the Company's growth strategy is to
acquire and develop additional Embassy Vacation Resorts and Westin Vacation
Club resorts. See "Business--Embassy Vacation Resorts," and "--Westin Vacation
Club Resorts." Westin has not previously been active in the vacation ownership
market and may not devote the corporate resources to such projects at levels
which will make the projects successful. Moreover, there can be no assurance
that Promus will elect to continue licensing the Embassy Vacation Resort name
to the Company with respect to possible future resorts. Under the terms of an
exclusive five-year agreement, Promus and Vistana, Inc. will jointly acquire,
develop, manage and market vacation ownership resorts in North America under
Promus brand names. As part of the exclusive agreement, Promus and Vistana,
Inc. will designate selected markets for development. The Company has been
identified by Promus as the only other licensee to whom Promus will license
the Embassy Vacation Resort name. However, there can be no assurance that
Promus will not grant other entities a license to develop Embassy Vacation
Resorts or that Promus will not exercise its rights to terminate the Embassy
Vacation Resort licensees. See "--Competition."
10
<PAGE>
RISKS RELATED TO THE AVCOM MERGER, THE PRG MERGER AND THE LSI MERGER
Uncertainty as to Future Financial Results. The Company believes that the
AVCOM Merger, the PRG Merger and the LSI Merger (collectively, the "Mergers")
offer opportunities for long-term efficiencies in operations that should
positively affect future results of the combined operations of the Company,
AVCOM, PRG and LSI. However, the Mergers may adversely affect the Company's
financial performance in 1997 and future years until such time as the Company
is able to realize the positive effect of such long-term efficiencies. In
addition, the combined companies will be more complex and diverse than the
Company prior to the Mergers, and the combination and continued operation of
their distinct business operations present difficult challenges for the
Company's management due to the increased time and resources required in the
management effort. While management and the Board of Directors of the Company
believe that the combinations can be effected in a manner which will realize
the value of the companies, management has limited experience in combinations
of this size. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
In order to maintain and increase profitability, the combined companies will
need to successfully integrate and streamline overlapping functions with
respect to AVCOM and PRG. There can be no assurance that such integration will
be successfully accomplished. The difficulties of such integration may be
increased by the necessity of coordinating geographically separate
organizations. The integration of certain operations following the Mergers
will require the dedication of management resources which may temporarily
distract attention from the day-to-day business of the combined companies.
Failure to effectively accomplish the integration of AVCOM's and PRG's
operations could have an adverse effect on the Company's results of operations
and financial condition.
PRG Merger and LSI Merger and Related Expenses. Transaction costs relating
to the negotiation of and preparation for the PRG Merger and the LSI Merger,
and for the consummation of the PRG Merger and the anticipated combination of
certain operations are expected to result in a one-time charge to the
Company's earnings of approximately $3.5 million in the second quarter of 1997
and approximately $1.5 million in the third quarter of 1997. These charges
will include the fees and expenses payable to financial advisors, legal fees
and other transaction expenses related to the PRG Merger and the LSI Merger.
In addition, there can be no assurance that the Company will not incur
additional charges in subsequent quarters to reflect costs associated with the
PRG Merger and the LSI Merger and the integration of the Company's and PRG's
operations.
Accounting Treatment. The Mergers will be accounted for by the pooling-of-
interests method of accounting. Under this method of accounting, the recorded
assets and liabilities of the Company, AVCOM, PRG and LSI will be carried
forward at their book values to the Company, income of the Company will
include the income (or loss) of the Company, AVCOM, PRG and LSI for the entire
fiscal year in which the Mergers occurred, and the reported income of the
Company, AVCOM, PRG and LSI for prior periods will be combined and restated as
income of the Company. Although the Company has received an opinion from its
independent public accountants that the AVCOM Merger and the PRG Merger will
qualify for pooling-of-interests accounting treatment, and expects to receive
such an opinion with respect to the LSI Merger, opinions of accountants are
not binding upon the Commission, and there can be no assurance that the
Commission will not successfully assert a contrary position. In such case, the
purchase method of accounting would be applicable. Under the purchase method,
the book value of AVCOM's, PRG's and LSI's assets would be increased to their
fair values, which could result in higher operating costs and expenses as the
excess of the purchase price over the fair value of AVCOM's, PRG's and LSI's
assets would be amortized and expensed, which would adversely affect the
Company's earnings.
Dilution to Existing Stockholders. As a result of the LSI Merger, up to
1,875,000 shares (subject to adjustment) of Common Stock will be issuable by
the Company in exchange for outstanding shares of LSI stock. Such shares will
represent up to approximately 7.8% of the number of shares of Common Stock
outstanding following the LSI Merger.
Shares Eligible for Public Sale. Sales of substantial amounts of the
Company's Common Stock issued (or issuable) in the AVCOM Merger, the PRG
Merger and the LSI Merger in the public market could
11
<PAGE>
adversely affect prevailing market prices. Subject to certain limitations, the
shares of Common Stock issued in the AVCOM Merger are eligible for sale in the
public market, subject to certain limitations relating to pooling and relating
to affiliates of AVCOM under the Securities Act. See "Shares Eligible for
Future Sale."
VARIABILITY OF QUARTERLY RESULTS; POSSIBLE VOLATILITY OF STOCK PRICE
The Company's earnings may be impacted by the timing of the completion of the
acquisition and development of future resorts and the potential impact of
weather or other natural disasters at the Company's resort locations (e.g.,
hurricanes in Hawaii, St. Maarten and St. John and earthquakes in California).
See "--Natural Disasters; Uninsured Loss" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Furthermore, the
Company has historically experienced and expects to continue to experience
seasonal fluctuations in its gross revenues and net income from the sale of
Vacation Intervals. This seasonality may cause significant variations in
quarterly operating results. If sales of Vacation Intervals are below seasonal
normalities during a particular period, the Company's annual operating results
could be materially adversely affected. In addition, the combination of (i) the
possible delay in generating revenue after the acquisition by the Company of
additional resorts prior to the commencement of Vacation Interval sales and
(ii) the expenses associated with start-up unit or room-rental operations,
interest expense, amortization and depreciation expenses from such acquisitions
may materially adversely impact earnings.
Due to the foregoing and other factors, the Company believes that its
quarterly and annual revenues, expenses and operating results could vary
significantly in the future and that period-to-period comparisons should not be
relied upon as indications of future performance. Because of the above factors,
it is possible that the Company's operating results will be below the
expectations of stock market analysts and investors, which could have a severe
adverse effect on the market value of the Company's Common Stock. Furthermore,
the market price for the Common Stock has been subject to significant
fluctuations. Numerous factors, including announcements of fluctuations in the
Company's or its competitors' operating results and market conditions for
hospitality and vacation ownership industry stocks in general, could have a
significant impact on the future price of the Common Stock. In addition, the
stock market in recent years has experienced significant price and volume
fluctuations that often have been unrelated or disproportionate to the
operating performance of companies. These broad fluctuations may adversely
affect the market price of the Common Stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
RISKS OF DEVELOPMENT AND CONSTRUCTION ACTIVITIES
The Company intends to actively continue development, construction,
redevelopment/conversion and expansion of vacation ownership resorts. There can
be no assurance that the Company will complete development, expansion and/or
conversion of its resorts currently under development or expansion, undertake
the additional expansion plans set forth in "Business--Description of the
Company's Resorts" or undertake to develop other resorts or complete such
development if undertaken. Risks associated with the Company's development,
construction and redevelopment/conversion activities, and expansion activities
may include the risks that: acquisition and/or development opportunities may be
abandoned; construction costs of a property may exceed original estimates,
possibly making the resort uneconomical or unprofitable; sales of Vacation
Intervals at a newly completed property may not be sufficient to make the
property profitable; financing may not be available on favorable terms for
development of, or the continued sales of Vacation Intervals at, a property;
and construction may not be completed on schedule, resulting in decreased
revenues and increased interest expense. In addition, the Company's
construction activities typically are performed by third-party contractors, the
timing, quality and completion of which cannot be controlled by the Company.
Nevertheless, construction claims may be asserted against the Company for
construction defects and such claims may give rise to liabilities. New
development activities, regardless of whether or not they are ultimately
successful, typically require a substantial portion of management's time and
attention. Development activities are also subject to risks relating to the
inability to obtain, or delays in obtaining, all necessary zoning, land-use,
building, occupancy and other required governmental permits and authorizations,
the ability of the Company to coordinate construction activities with the
process of obtaining such permits and authorizations, and the ability of the
Company to obtain the financing
12
<PAGE>
necessary to complete the necessary acquisition, construction, and/or
conversion work. The Company currently does not have the financing available to
complete all of its planned expansion as set forth in "Business--Description of
the Company's Resorts." The ability of the Company to expand its business to
include new resorts will in part depend upon the availability of suitable
properties at reasonable prices and the availability of financing for the
acquisition and development of such properties. In addition, certain states and
local laws may impose liability on property developers with respect to
construction defects, discovered or repairs made by future owners of such
property. Pursuant to such laws, future owners may recover from the Company
amounts in connection with any repairs made to the developed property. See
"Business--Business Strategy" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RISKS OF THE ST. JOHN ACQUISITION
Although the Company expects to begin sales of Vacation Intervals at the St.
John resort by the fourth quarter of 1997, there can be no assurance that
commencement of vacation ownership sales will be consummated in such time
period. In the event that the commencement of vacation ownership sales is
materially delayed, the Company could incur additional transaction and start-up
costs, which may result in an adverse effect on the results of the Company in
1997 or in future years.
RISK OF INCREASING LEVERAGE; RESTRICTIVE COVENANTS
The Company will have significant interest expense and principal repayment
obligations under its indebtedness. As of March 31, 1997, the Company and its
consolidated subsidiaries had an aggregate of approximately $317.0 million of
long-term debt. See "Consolidated Capitalization" and "Pro Forma Financial
Information." Future development by the Company at its resorts will be financed
with indebtedness obtained pursuant to the Company's existing credit facilities
or credit facilities obtained by the Company in the future. The agreements with
respect to such facilities do contain or in the future could contain
restrictive covenants, possibly including covenants limiting capital
expenditures, incurrence of debt and sales of assets and requiring the Company
to achieve certain financial ratios, some of which could become more
restrictive over time. Subsequent acquisition activities will be financed
primarily by new financing arrangements. The Company's pro forma indebtedness
as well as the indebtedness to be incurred under such facilities will be
secured by mortgages on the Company's resort properties as well as other assets
of the Company. Among other consequences, the leverage of the Company and such
restrictive covenants and other terms of the Company's debt instruments could
impair the Company's ability to obtain additional financing in the future, to
make acquisitions and to take advantage of significant business opportunities
that may arise. In addition, the Company's leverage may increase its
vulnerability to adverse general economic and vacation ownership industry
conditions and to increased competitive pressures.
RISKS ASSOCIATED WITH PARTNERSHIP INVESTMENT IN THE POIPU PARTNERSHIP
The Embassy Vacation Resort Poipu Point is owned by the Poipu Partnership (as
defined), which consists of the Company and a third party. Property ownership
through a partnership involves additional risks, including requirements of
partner consents for major decisions (including approval of budgets), capital
contributions and entry into material agreements. If the Company and its
partner are unable to agree on major decisions, either partner may elect to
invoke a buy/sell right, which could require the Company to either sell its
interest in the Embassy Vacation Resort Poipu Point or to buy out the interest
of its partner at a time when the Company is not prepared to do so. In
addition, under certain circumstances, the other partner can require the
Company to purchase such partner's interest or sell its interest to the
partner. If a dispute arises under this partnership, an adverse resolution
could have a material adverse effect on the operations of the Company. In
addition, as a general partner, the Company will be subject to certain
fiduciary obligations which may obligate it to act in a manner which is not
necessarily in the best interest of the Company. The Company may elect to
purchase interests in future resorts through similar partnership arrangements.
See "--Risks Related to Westin Agreement; Limited Control of Resorts and
Termination" and "Business--the Resorts."
13
<PAGE>
LIMITED OPERATING HISTORY
The Company was formed in May 1996 in order to effectuate the Consolidation
Transactions and the Initial Public Offering. Although predecessors of the
Company have operating history in the vacation ownership and hospitality
industries, the Company has limited operating history as an integrated entity
and limited experience operating as a public company, which could have an
adverse impact on the Company's operations and future profitability. The
Company has chosen to conduct its management operations (i) in two locations
in California primarily with respect to acquisition, development and finance,
(ii) in Chicago, Illinois with respect to marketing, (iii) in Orlando, Florida
primarily with respect to sales, accounting and property management operations
and (iv) in Sedona, Arizona, primarily with respect to sales, marketing,
accounting and property management of the All Seasons Resorts. However, as the
Company grows and diversifies into additional geographic markets, no assurance
can be given as to management's ability to efficiently manage operations and
control functions without a centrally located management team.
GENERAL ECONOMIC CONDITIONS; CONCENTRATION IN VACATION OWNERSHIP INDUSTRY;
GEOGRAPHIC CONCENTRATION OF INVESTMENTS
Any downturn in economic conditions or any price increases (e.g., airfares)
related to the travel and tourism industry could depress discretionary
consumer spending and have a material adverse effect on the Company's
business. Any such economic conditions, including recession, may also
adversely affect the future availability of attractive financing rates for the
Company or its customers and may materially adversely affect the Company's
business. Furthermore, adverse changes in general economic conditions may
adversely affect the collectibility of the Company's loans to Vacation
Interval buyers. Because the Company's operations are conducted solely within
the vacation ownership industry, any adverse changes affecting the vacation
ownership industry such as an oversupply of vacation ownership units, a
reduction in demand for vacation ownership units, changes in travel and
vacation patterns, changes in governmental regulations of the vacation
ownership industry and increases in construction costs or taxes, as well as
negative publicity for the vacation ownership industry, could have a material
adverse effect on the Company's operations. Additionally, six of the Company's
22 resorts are located in Arizona, five are located in California and two
resorts are located in each of Florida, the Netherlands Antilles and Virginia.
See "Business--The Resorts." The concentration of the Company's investments in
Arizona, California, Florida, the Caribbean and Virginia could result in
adverse events or conditions which affect those areas in particular, such as
economic recessions and natural disasters, having a more significant negative
effect on the operations of the Company's resorts, than if the Company's
investments were more geographically diverse. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
RISKS ASSOCIATED WITH CUSTOMER FINANCING
The Company offers financing to the buyers of Vacation Intervals at the
Company's resorts who make a down payment generally equal to at least 10% of
the purchase price. This financing generally bears interest at fixed rates and
is collateralized by a first mortgage on the underlying Vacation Interval. The
Company has entered into agreements with lenders for the financing of these
customer receivables. Under these arrangements, the Company pledges as
security promissory notes to these lenders, who typically lend the Company 85%
to 90% of the principal amount of such notes. Payments under these promissory
notes are made by the buyer/borrowers directly to a payment processing center
and such payments are credited against the Company's outstanding balance with
the respective lenders. The Company does not presently have binding agreements
to extend the terms of such existing financing or for any replacement
financing upon the expiration of such funding commitments (which have varying
borrowing periods ranging from 18 to 20 months after the initial commitment
date), and there can be no assurance that alternative or additional
arrangements can be made on terms that are satisfactory to the Company.
Accordingly, future sales of Vacation Intervals may be limited by both the
availability of funds to finance the initial negative cash flow that results
from sales that are financed by the Company and by reduced demand which may
result if the Company is unable to provide financing through unaffiliated
lenders to buyers of Vacation Intervals. If the Company is required to sell
its customer receivables to lenders, discounts from the face value of such
receivables may be required by such lenders, if lenders are
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available at all. The Company has historically derived income from its
financing activities. However, because the Company's borrowings bear interest
at variable rates and the Company's loans to buyers of Vacation Intervals bear
interest at fixed rates, the Company bears the risk of increases in interest
rates with respect to the loans it has from its lenders. To the extent
interest rates on the Company's borrowings decrease, the Company faces an
increased risk that customers will pre-pay their loans and reduce the
Company's income from financing activities. See "Business--Customer
Financing."
RISKS OF HEDGING ACTIVITIES
To manage risks associated with the Company's borrowings bearing interest at
variable rates, the Company may from time to time to purchase interest rate
caps, interest rate swaps or similar instruments. The nature and quantity of
the hedging transactions for the variable rate debt will be determined by the
management of the Company based on various factors, including market
conditions, and there have been no limitations placed on management's use of
certain instruments in such hedging transactions. No assurance can be given
that any such hedging transactions will offset the risks of changes in
interest rates, or that the costs associated with hedging activities will not
increase the Company's operating costs.
RISKS ASSOCIATED WITH CUSTOMER DEFAULT
The Company bears the risk of defaults by buyers who financed the purchase
of their Vacation Intervals. As of March 31, 1997, approximately 6.9% of the
Company's consumer loans were considered by the Company to be delinquent (past
due by 60 or more days) and the Company has completed or commenced foreclosure
or deed-in-lieu of foreclosure on approximately 2.4% of its consumer loans. If
a buyer of a Vacation Interval defaults on the loan made by the Company and
the Company has pledged the mortgage receivable as collateral to a lending
institution, the Company generally must take back the mortgage with respect to
such Vacation Interval and replace it with a performing mortgage. In
connection with the Company taking back any such Vacation Interval, the
associated marketing costs other than certain sales commissions will not have
been recovered by the Company and they must be incurred again after their
Vacation Interval has been returned to the Company's inventory for resale
(commissions paid in connection with the sale of Vacation Intervals may be
recoverable from the Company's sales personnel and from independent
contractors upon default in accordance with contractual arrangements with the
Company, depending upon the amount of time that has elapsed between the sale
and the default and the number of payments made prior to such default).
Although private mortgage insurance or its equivalent is available to cover
Vacation Intervals, the Company has never purchased such insurance. In
addition, although the Company in many cases may have recourse against
Vacation Interval buyers, sales personnel and independent contractors for the
purchase price paid and for commissions paid, respectively, no assurance can
be given that the Vacation Interval purchase price or any commissions will be
fully or partially recovered in the event of buyer defaults under such
financing arrangements. The Company purchased defaulted mortgage notes with
respect to 900 Vacation Intervals at the San Luis Bay Resort on which the
Company is in the process of foreclosing. The Company will be subject to the
costs and delays associated with such foreclosure process and no assurance can
be given that the value of the underlying Vacation Intervals being foreclosed
upon at the time of resale will exceed the purchase price of the defaulted
loans, taking into consideration the costs of foreclosure and resale. See
"Business--Customer Financing." Similarly, in March 1996, AVCOM purchased
defaulted mortgage notes with respect to 1,057 Vacation Intervals at the Tahoe
Seasons Resort on which AVCOM was in the process of foreclosing. The Company
continues to be subject to the costs and delays associated with such
foreclosure process and no assurance can be given that the value of the
underlying Vacation Intervals being foreclosed upon at the time of resale will
exceed the purchase price of the defaulted loans, taking into consideration
the costs of foreclosure and resale. See "Business--Description of All Seasons
Resorts."
COMPETITION
The Company is subject to significant competition at each of its resorts
from other entities engaged in the business of resort development, sales and
operation, including interval ownership, condominiums, hotels and motels. Many
of the world's most recognized lodging, hospitality and entertainment
companies have begun to
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develop and sell Vacation Intervals in resort properties. Although the Company
recently obtained the exclusive development rights to Westin Vacation Clubs
from Westin pursuant to the Westin Agreement, other major companies that now
operate or are developing or planning to develop Vacation Interval resorts
include Marriott Ownership Resorts ("Marriott"), The Walt Disney Company
("Disney"), Hilton Hotels Corporation ("Hilton"), Hyatt Corporation ("Hyatt"),
Four Seasons Hotels & Resorts ("Four Seasons") and Inter-Continental Hotels
and Resorts ("Inter-Continental"). Many of these entities possess
significantly greater financial, marketing, personnel and other resources than
those of the Company and may be able to grow at a more rapid rate or more
profitably as a result.
The Company also competes with companies with non-branded resorts such as
Westgate, Vistana, Inc., ILX Incorporated, Fairfield Communities and Vacation
Break. Under the terms of an exclusive five-year agreement, Promus and
Vistana, Inc. will jointly acquire, develop and manage and market vacation
ownership resorts in North America under Promus brand names. As part of the
exclusive agreement, Promus and Vistana, Inc. will designate selected markets
for development. The Company has been identified by Promus as the only other
licensee to whom Promus will license the Embassy Vacation Resort name.
However, there can be no assurance that Promus will not grant other entities a
license to develop Embassy Vacation Resorts or that Promus will not exercise
its rights to terminate the Embassy Vacation Resort licenses. See "Business--
Competition."
In the event that the Westin Agreement becomes the subject of dispute
between the parties thereto, it is possible that the Company's interest in
pursuing acquisition and development opportunities at "four-star" and "five-
star" resorts located in North America, Mexico and the Caribbean through May
2001 could be barred pending the final resolution of such dispute.
Additionally, at the expiration or early termination of the Westin Agreement,
Westin could become a direct competitor with the Company in the vacation
ownership business, including in the markets most attractive to the Company.
See "--Risks Related to the Westin Agreement; Limited Control of Resorts and
Termination" and "Business--Westin Vacation Club Resorts." Subject to the
covenants not to compete (as described herein), the Founders could acquire
resort and other hotel properties that could compete with the Company's
vacation ownership business. See "Management--Employment Agreements" and "--
Covenants Not To Compete."
DEPENDENCE ON VACATION INTERVAL EXCHANGE NETWORKS; RISK OF INABILITY TO
QUALIFY RESORTS
The attractiveness of Vacation Interval ownership is enhanced significantly
by the availability of exchange networks that allow Vacation Interval owners
to exchange in a particular year the occupancy right in their Vacation
Interval for an occupancy right in another participating network resort.
According to the American Resort Development Association ("ARDA"), the ability
to exchange Vacation Intervals was cited by buyers as a primary reason for
purchasing a Vacation Interval. Several companies, including Resort
Condominiums International ("RCI"), provide broad-based Vacation Interval
exchange services, and the Company's resorts are currently qualified for
participation in the RCI exchange network. In November 1996, HFS Incorporated
consummated its acquisition of RCI.
No assurance can be given that the Company will continue to be able to
qualify its resorts or will be able to qualify its future resorts, for
participation in the RCI network or any other exchange network. RCI is under
no obligation to include the Company's resorts in its exchange network. If
such exchange networks cease to function effectively, or if the Company's
resorts are not accepted as exchanges for other desirable resorts, the
Company's sales of Vacation Intervals could be materially adversely effected.
See "Business--Participation in Vacation Interval Exchange Networks."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a large extent upon the experience and
abilities of Messrs. Osamu Kaneko, Andrew J. Gessow and Steven C. Kenninger
(the "Founders"), who serve as the Company's Chief Executive Officer,
President, and Chief Operating Officer, respectively, as well as the abilities
of James E. Noyes
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and Michael A. Depatie, the Company's Executive Vice President, and Executive
Vice President and Chief Financial Officer, respectively. The loss of the
services of any one of these individuals could have a material adverse effect
on the Company, its operations and its business prospects. See "Management--
Employment Agreements." The Company's success is also dependent upon its
ability to attract and maintain qualified development, acquisition, marketing,
management, administrative and sales personnel for which there is keen
competition among the Company's competitors. In addition, the cost of
retaining such key personnel could escalate over time. There can be no
assurance that the Company will be successful in attracting and/or retaining
such personnel.
REGULATION OF MARKETING AND SALES OF VACATION INTERVALS; OTHER LAWS
The Company's marketing and sales of Vacation Intervals and other operations
are subject to extensive regulation by the federal government and the states
and foreign jurisdictions in which its resorts are located and in which
Vacation Intervals are marketed and sold. On a federal level, the Federal
Trade Commission has taken the most active regulatory role through the Federal
Trade Commission Act, which prohibits unfair or deceptive acts or competition
in interstate commerce. Other federal legislation to which the Company is or
may be subject appears in the Truth-in-Lending Act and Regulation Z, the Equal
Opportunity Credit Act and Regulation B, the Interstate Land Sales Full
Disclosure Act, Telephone Consumer Protection Act, Telemarketing and Consumer
Fraud and Abuse Prevention Act, Fair Housing Act and the Civil Rights Acts of
1964 and 1968. In addition, many states have adopted specific laws and
regulations regarding the sale of interval ownership programs. The laws of
most states, including Florida, California, Arizona, South Carolina, Virginia
and Hawaii, require the Company to file with a designated state authority for
its approval a detailed offering statement describing the Company and all
material aspects of the project and sale of Vacation Intervals. Laws in each
state where the Company sells Vacation Intervals generally grant the purchaser
of a Vacation Interval the right to cancel a contract of purchase at any time
within a period ranging from three to fifteen calendar days following the
earlier of the date the contract was signed or the date the purchaser has
received the last of the documents required to be provided by the Company.
Most states have other laws which regulate the Company's activities, such as
real estate licensure; seller's of travel licensure; anti-fraud laws;
telemarketing laws; price, gift and sweepstakes laws; and labor laws. The
Company believes that it is in material compliance with all federal, state,
local and foreign laws and regulations to which it is currently subject.
However, no assurance can be given that the cost of qualifying under Vacation
Interval ownership regulations in all jurisdictions in which the Company
desires to conduct sales will not be significant or that the Company is in
fact in compliance with all applicable federal, state, local and foreign laws
and regulations. Any failure to comply with applicable laws or regulations
could have a material adverse effect on the Company. See "Business--
Governmental Regulation."
In addition, certain state and local laws may impose liability on property
developers with respect to construction defects discovered or repairs made by
future owners of such property. Pursuant to such laws, future owners may
recover from the Company amounts in connection with the repairs made to the
developed property.
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various federal, state and local laws, ordinances and regulations, the
owner of real property generally is liable for the costs of removal or
remediation of certain hazardous or toxic substances located on or in, or
emanating from, such property, as well as related costs of investigation and
property damage. Such laws often impose such liability without regard to
whether the owner knew of, or was responsible for, the presence of such
hazardous or toxic substances. The presence of such substances, or the failure
to properly remediate such substances, may adversely affect the owner's
ability to sell or lease a property or to borrow using such real property as
collateral. Other federal and state laws require the removal or encapsulation
of asbestos-containing material when such material is in poor condition or in
the event of construction, demolition, remodeling or renovation. Other
statutes may require the removal of underground storage tanks. Noncompliance
with these and other environmental, health or safety requirements may result
in the need to cease or alter operations at a property.
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As of the date of the Prospectus, Phase I environmental reports (which
typically involve inspection without soil sampling or ground water analysis)
have been prepared by independent environmental consultants for each of the
Company's 22 resorts. In connection with the acquisition and development of
the Embassy Vacation Resort Lake Tahoe and the San Luis Bay Resort, the
independent environmental consultants have identified several areas of
environmental concern. The areas of concern at the Embassy Vacation Resort
Lake Tahoe relate to possible soil and water contamination that originated on
the resort site due to prior uses and to contamination that may migrate onto
the resort site from upgradient sources. California regulatory agencies have
been monitoring the resort site and have required or are in the process of
requiring the responsible parties (presently excluding the Company) to effect
remediation action. The Company has been indemnified by certain of such
responsible parties for certain costs and expenses in connection with
contamination at the Embassy Vacation Resort Lake Tahoe (including Chevron
(USA), Inc.) and does not anticipate incurring material costs in connection
therewith; however, there is no assurance that the indemnitor(s) will meet
their obligations in a complete and timely manner. In addition, the Company's
San Luis Bay Resort is located in an area of Avila Beach, California which has
experienced underground contamination resulting from leaking pipes at a nearby
oil refinery. California regulatory agencies have required the installation of
groundwater monitoring wells on the beach near the resort site, and no demand
or claim in connection with such contamination has been made on the Company,
however, there is no assurance that claims will not be asserted against the
Company with respect to this environmental condition. In addition, while
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. Civil and criminal penalties could be assessed in this
matter, however, it is the present belief of the Company, after conferring
with counsel, that such penalties are unlikely. Civil liability for personal
injury is also possible, but the Company's consultants do not believe that the
asbestos posed a substantial health hazard and that the environmental concern
has been remediated. The total additional cost to AVCOM for the asbestos
remediation, including all professional fees, was $325,000.
With the exception of the above mentioned resorts, the Company is not aware
of any environmental liability that would have a material adverse effect on
the Company's business, assets or results of operations. No assurance,
however, can be given that these reports reveal all environmental liabilities
or that no prior owner created any material environmental condition not known
to the Company.
Certain environmental laws impose liability on a previous owner of property
to the extent that hazardous or toxic substances were present during the prior
ownership period. A transfer of the property does not relieve an owner of such
liability. Thus, the Company may have liability with respect to properties
previously sold by its predecessors.
The Company believes that it is in compliance in all material respects with
all federal, state and local ordinances and regulations regarding hazardous or
toxic substances and, except as described above with respect to the Embassy
Vacation Resort Lake Tahoe, the San Luis Bay Resort and the Tahoe Beach & Ski
Club, the Company has not been notified by any governmental authority or third
party of any non-compliance, liability or other claim in connection with any
of its present or former properties. See "Business--Governmental Regulation--
Environmental Matters."
COSTS OF COMPLIANCE WITH LAWS GOVERNING ACCESSIBILITY OF FACILITIES TO
DISABLED PERSONS
A number of state and federal laws, including the Fair Housing Act and the
Americans with Disabilities Act (the "ADA"), impose requirements related to
access and use by disabled persons on a variety of public accommodations and
facilities. These requirements did not become effective until after January 1,
1991. Although the Company believes that its resorts are substantially in
compliance with laws governing the accessibility of its facilities to disabled
persons, a determination that the Company is not in compliance with the ADA
could result in a judicial order requiring compliance, imposition of fines or
an award of damages to private litigants. The Company is likely to incur
additional costs of complying with the ADA; however, such costs are not
expected to have a material adverse effect on the Company's results of
operations or financial condition. Additional legislation
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may impose further burdens or restrictions on property owners (including
homeowner associations at the Existing Resorts) with respect to access by
disabled persons. The ultimate amount of the cost of compliance with such
legislation is not currently ascertainable, and, while such costs are not
expected to have a material effect on the Company, such costs could be
substantial. Limitations or restrictions on the completion of certain
renovations may limit application of the Company's growth strategy in certain
instances or reduce profit margins on the Company's operations. If a
homeowners' association at a resort was required to make significant
improvements as a result of non-compliance with the ADA, Vacation Interval
owners may default on their mortgages and/or cease making required homeowners'
association assessment payments. The Company is not aware of any non-
compliance with the ADA, the Fair Housing Act or similar laws that management
believes would have a material adverse effect on the Company's business,
assets or results of operations.
NATURAL DISASTERS; UNINSURED LOSS
In 1992, prior to the Company's purchase of an interest in the Embassy
Vacation Resort Poipu Point, the resort was substantially destroyed by
Hurricane Iniki. The resort was rebuilt with insurance proceeds before the
Company acquired its interest in the resort, but could suffer similar damage
in the future. In September 1995 and July 1996, the Company's St. Maarten
resorts were damaged by hurricanes and could suffer similar damage in the
future. In addition, the Company's other resorts which are or will be located
in Hawaii, Florida and the Caribbean (including the St. John resort which was
damaged by Hurricane Marilyn in 1995) may be subject to hurricanes and damaged
as a result thereof. The Company's resorts located in California and Hawaii
may be subject to damage resulting from earthquakes. There are certain types
of losses that are not generally insured because they are either uninsurable
or not economically insurable and for which the Company does not have
insurance coverage. Should an uninsured loss or a loss in excess of insured
limits occur, the Company could lose its capital invested in a resort, as well
as the anticipated future revenues from such resort and would continue to be
obligated on any mortgage indebtedness or other obligations related to the
property. Any such loss could have a material adverse effect on the Company.
See "Business--Insurance, Legal Proceedings."
EFFECTIVE VOTING CONTROL BY EXISTING STOCKHOLDERS; WESTIN DIRECTOR DESIGNATION
The Founders hold substantial amounts of shares of Common Stock (Messrs.
Kaneko, Gessow and Kenninger hold 11.7%, 13.4% and 5.0%, respectively, as of
the date of this Prospectus) which may allow them, collectively, to exert
substantial influence over the election of directors and the management and
affairs of the Company. Accordingly, if such persons vote their shares of
Common Stock in the same manner, they may have sufficient voting power to
determine the outcome of various matters submitted to the stockholders for
approval, including mergers, consolidations and the sale of substantially all
of the Company's assets. Pursuant to the Westin Agreement, during the term
thereof Westin generally will have the right to designate one member of the
Company's Board of Directors, irrespective of its share ownership in the
Company. See "Principal Stockholders," "Registering Stockholders,"
"Description of Capital Stock" and "Business--Westin Vacation Club Resorts."
Such control may result in decisions which are not in the best interest of the
Company. In addition, under certain circumstances, in the event that the
Founders collectively own less than 75% of the shares of Common Stock owned by
them immediately following the closing of the Initial Public Offering and the
consummation of the Consolidation Transactions, and the Common Stock they own
thereafter is less than 75% of the market value of the Common Stock issued to
them in the Initial Public Offering, then the Company's partner in the Poipu
Partnership will be entitled to require the Company to either dispose of its
interest or purchase such partner's interest in the Poipu Partnership pursuant
to the terms and conditions of the partnership agreement.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. Any payment of future dividends will be in the discretion of the
Company's Board of Directors and will depend upon, among other things, the
Company's earnings, financial condition, capital requirements, level of
indebtedness, contractual restrictions in respect of the payment of dividends
and other factors that the Company's Board of Directors deems relevant.
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RISK OF TAX RE-CLASSIFICATION OF INDEPENDENT CONTRACTORS AND RESULTING TAX
LIABILITY; COST OF COMPLIANCE WITH APPLICABLE LAWS
The Company sells Vacation Intervals at its resorts through independent
sales agents. Such independent sales agents provide services to the Company
under contract and, the Company believes, are not employees of the Company.
Accordingly, the Company does not withhold payroll taxes from the amounts paid
to such independent contractors. Although the Internal Revenue Service has
made inquiries regarding the Company's classification of its sales agents at
its Branson, Missouri resort, no formal action has been taken and the Company
has requested that the inquiry be closed. In the event the Internal Revenue
Service or any state or local taxing authority were to successfully classify
such independent sales agents as employees of the Company, rather than as
independent contractors, and hold the Company liable for back payroll taxes,
such reclassification may have a material adverse effect on the Company.
LIMITED RESALE MARKET FOR VACATION INTERVALS
The Company sells the Vacation Intervals to buyers for leisure and not
investment purposes. The Company believes, based on experience at its resorts,
that the market for resale of Vacation Intervals by buyers is presently
limited, and that any resales of Vacation Intervals are typically at prices
substantially less than the original purchase price. These factors may make
ownership of Vacation Intervals less attractive to prospective buyers, and
attempts by buyers to resell their Vacation Intervals will compete with sales
of Vacation Intervals by the Company. In addition, the market price of
Vacation Intervals sold by the Company at a given resort or by its competitors
in the market in which each resort is located could be depressed by a
substantial number of Vacation Intervals offered for resale.
RISKS RELATED TO OPERATIONS IN ST. MAARTEN, NETHERLAND ANTILLES
Two of the Company's resorts are located in St. Maarten, Netherlands
Antilles, both of which were acquired by the Company in a foreclosure sale.
There are a number of ongoing disputes with owners who owned units at the
Flamingo Beach Club, including certain claims respecting their obligations to
pay for annual maintenance expenses or whether there are certain entitlements
to guaranteed returns. If such claims are adversely determined against the
Company, such determination may have a material adverse impact on the
operation of this property.
In addition, a portion of the Company's Royal Palm Beach Club resort located
in St. Maarten, Netherlands Antilles, is operated by the Company pursuant to a
long-term ground lease that expires in 2050 and the types of tenant
protections, such as estoppel certificates, which would be provided in the
United States, are not available. Although the Company is unaware of any
circumstances that could cause the early termination of such ground lease
before its scheduled expiration date, any such early termination or
cancellation of the ground lease could have an adverse effect on the Company's
operations. In addition, title insurance is not available in the Netherlands
Antilles. Accordingly, title to the Company's real property and ground lease
with respect to the Flamingo Beach Club and Royal Palm Beach Club resorts are
not insured, may be subject to challenge, and, if successfully challenged,
could result in additional costs to operate these resorts.
POTENTIAL CONFLICTS OF INTEREST
Because affiliates of Messrs. Kaneko and Kenninger have operations in the
lodging industry other than those with respect to the development and
operation of vacation ownership resorts, potential conflicts of interest
exist. Affiliates of KOAR Group, Inc. ("KOAR"), a Los Angeles based real
estate acquisition and development company and predecessor of the Company
which is owned by Messrs. Kaneko and Kenninger, have developed and currently
act as the managing general partner of partnerships which own hotels that are
franchised as Embassy Suites hotels (one of which, the Embassy Suites Lake
Tahoe, is located in a market served by the Company) and a residential
condominium project overlooking the ocean in Long Beach, California (a market
in which the Company may operate in the future). Messrs. Kaneko and Kenninger
will continue to devote a portion of their time to KOAR's hotel business and
to meeting their duties and responsibilities to investors in such entities.
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Additionally, notwithstanding their covenants not to compete, the Founders
have the right to pursue certain activities which could divert their time and
attention from the Company's business and result in conflicts with the
Company's business. The Founders are evaluating the acquisition of other hotel
properties in Hawaii, which at a future date may be converted to accommodate
vacation ownership operations. See "Management--Employment Agreements and
Covenants Not To Compete" and "Business--Future Acquisitions."
RISKS RELATED TO WESTIN AGREEMENT; LIMITED CONTROL OF RESORTS AND TERMINATION
The Westin Agreement may involve certain additional risks to the Company's
future operations. The Westin Agreement imposes certain restrictions on the
Company's ability to develop certain vacation ownership resorts in conjunction
with hotel operators other than Westin. Generally, the Company is required,
subject to certain exceptions involving Embassy Vacation Resorts and Promus, to
submit for Westin's consideration any "four-star" or "five-star" development
opportunity that the Company has determined to pursue in North America, Mexico
and the Caribbean. In the event Westin determines not to proceed with the
Company to develop such resort, the Company would be free only to develop the
resort as a "non-branded" property or as a property branded as an Embassy
Vacation Resort or in conjunction with other upscale operators, but excluding
specified operators of luxury hotels and resorts. In addition, resorts acquired
or developed pursuant to the Westin Agreement, including the St. John resort,
will be owned by partnerships, limited liability companies or similar entities
in which each of Westin and the Company will own a 50% equity interest and have
an equal voice in management. Accordingly, the Company will not be able to
control such resorts or the applicable entities. In addition, the Westin
Agreement will be terminable by either party if certain thresholds relating to
development or acquisitions of resorts are not met, in the event of certain
changes in management of Westin or the Company or in the event of an
acquisition or merger of either party. Pursuant to the Westin Agreement, Westin
and the Company intend to enter into detailed definitive agreements to
implement the Westin Agreement, including operating agreements. There can be no
assurance that the parties will be able to reach such definitive agreements.
See "Business--Westin Vacation Club Resorts" and "Risk Factors--Effective
Voting Control of Existing Stockholders; Westin Director Designation."
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND THE COMPANY'S
CHARTER AND BYLAWS
Certain provisions of the Company's articles of incorporation (the "Charter")
and bylaws (the "Bylaws"), as well as Maryland corporate law, may be deemed to
have anti-takeover effects and may delay, defer or prevent a takeover attempt
that a stockholder might consider to be in the stockholder's best interest. For
example, such provisions may (i) deter tender offers for Common Stock, which
offers may be beneficial to stockholders or (ii) deter purchases of large
blocks of Common Stock, thereby limiting the opportunity for stockholders to
receive a premium for their Common Stock over then-prevailing market prices.
These provisions include the following:
Preferred Shares. The Charter authorizes the Board of Directors to issue
preferred stock in one or more classes and to establish the preferences and
rights (including the right to vote and the right to convert into Common Stock)
of any class of preferred stock issued. No preferred stock will be issued or
outstanding as of the closing of either of the Offerings. See "Description of
Capital Stock--Preferred Stock."
Staggered Board. The Board of Directors of the Company has 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.
21
<PAGE>
Maryland Control Share Acquisition. Maryland law provides that "Control
Shares" of a corporation acquired in a "Control Share Acquisition" have no
voting rights except to the extent approved by a vote of two-thirds of the
votes eligible under the statute to be cast on the matter. "Control Shares"
are voting shares of beneficial interest which, if aggregated with all other
such shares of beneficial interest previously acquired by the acquiror, would
entitle the acquiror directly or indirectly to exercise voting power in
electing directors within one of the following ranges of voting power: (i)
one-fifth or more but less than one-third, (ii) one-third or more but less
than a majority or (iii) a majority of all voting power. Control Shares do not
include shares of beneficial interest the acquiring person is then entitled to
vote as a result of having previously obtained stockholder approval. A
"Control Share Acquisition" means the acquisition of Control Shares, subject
to certain exceptions.
If voting rights are not approved at a meeting of stockholders then, subject
to certain conditions and limitations, the issuer may redeem any or all of the
Control Shares (except those for which voting rights have previously been
approved) for fair value. If voting rights for Control Shares are approved at
a stockholders meeting and the acquiror becomes entitled to vote a majority of
the shares of beneficial interest entitled to vote, all other stockholders may
exercise appraisal rights. See "Certain Provisions of Maryland Law and of the
Company's Charter and Bylaws."
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of Common Stock, or the potential for
such sales, could adversely affect prevailing market prices. The shares of
Common Stock issued in the Consolidation Transactions and the PRG Merger are,
and the shares of Common Stock issuable in the LSI Merger will be, subject to
the limitations of Rule 144 of the Securities Act ("Rule 144"). The holders of
the shares issued in the Consolidation Transactions and the PRG Merger have
been granted certain registration rights pursuant to which the Company has
agreed to file the shelf registration statement of which this Prospectus is a
part with the Commission for the purpose of registering the sale of such
shares of Common Stock.
Sales in the public market of substantial amounts of the Company's Common
Stock issued (or issuable) in the AVCOM Merger, the PRG Merger and the LSI
Merger could also adversely affect prevailing market prices. Additionally,
sales of substantial amounts of the Company's Common Stock pursuant to this
Prospectus could adversely affect prevailing market prices.
The Founders have agreed, with certain exceptions, not to offer, sell,
contract to sell or otherwise dispose of any Common Stock, for a period of one
year after the closing of the Initial Public Offering, which occurred on
August 20, 1996, without the written consent of Montgomery Securities (which
consent has been given with respect to the shares being registered by the
Founders in the shelf registration statement of which this Prospectus is a
part). One such exception allowed 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 allowed the Founders to pledge
approximately $5.8 million of their Common Stock in connection with their
buyout of a former partner. See "Shares Eligible for Future Sale."
The Founders have only elected to register a portion of their shares in the
shelf registration statement of which this Prospectus is a part pursuant to
such registration rights. However, they reserve the right to register their
remaining shares pursuant to another shelf registration statement.
As of the date of this Prospectus, there were (i) outstanding stock options
to purchase approximately 2,000,000 shares of Common Stock which have been
granted to executive officers, other key employees, independent directors and
independent contractors of the Company under the 1996 Equity Participation
Plan (less than 20% of which are presently exercisable), (ii) up to 500,000
shares of Common Stock that may be sold pursuant to the Company's Employee
Stock Purchase Plan (none of which have been sold to date) and (iii) 3,024,660
shares of Common Stock initially issuable upon conversion of the Convertible
Notes.
22
<PAGE>
USE OF PROCEEDS
The Company will not receive any of the proceeds of the sale of Common Stock
by the Registering Stockholders. In connection with the filing of the shelf
registration of which this Prospectus is a part, the Company will bear the
estimated expenses set forth on the cover of this Prospectus.
COMMON STOCK PRICE RANGE
The Company's Initial Public Offering of Common Stock was consummated in
August 1996, at an initial public offering price of $14.00 per share. The
Company's Common Stock is quoted on the Nasdaq National Market under the symbol
"SIGR." The following table sets forth, for the periods indicated, the high and
low sale prices for the Common Stock, as quoted on the Nasdaq National Market.
<TABLE>
<CAPTION>
COMMON STOCK
--------------
HIGH LOW
------ ------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
Third Quarter (commencing August 15, 1996).................. 24 5/8 13 5/8
Fourth Quarter.............................................. 39 1/8 25
YEAR ENDING DECEMBER 31, 1997:
First Quarter............................................... 38 21 1/4
Second Quarter (through June 26, 1997)...................... 34 1/2 19 1/4
</TABLE>
A recent reported last sales price for the Company's Common Stock as quoted
on the Nasdaq National Market is set forth on the cover of this Prospectus. On
May 21, 1997, there were approximately 107 holders of record of the Company's
Common Stock.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. Any payment of future dividends will be at the discretion of the Board
of Directors of the Company and will depend upon, among other things, the
Company's earnings, financial condition, capital requirements, level of
indebtedness, contractual restrictions in respect of the payment of dividends
and other factors that the Company's Board of Directors deems relevant.
23
<PAGE>
CONSOLIDATED CAPITALIZATION
The following table sets forth, as of March 31, 1997, the total consolidated
capitalization of the Company. The as adjusted information gives effect to the
PRG Merger. This table should be read in conjunction with the historical
financial statements of the Company and the related notes thereto included
elsewhere in this Prospectus. See "Use of Proceeds" and "Selected Consolidated
Historical Financial Information of the Company."
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
----------------------------
(UNAUDITED)
(DOLLAR AMOUNTS IN
THOUSANDS)
AS
ADJUSTED
FOR THE
ACTUAL PRG PRG MERGER
-------- ------- ----------
<S> <C> <C> <C>
Debt:
Notes payable to financial institutions(1)...... $110,586 $68,429 $179,015
5 3/4% convertible subordinated notes due 2007.. 138,000 -- 138,000
-------- ------- --------
Total debt.................................... 248,586 68,429 317,015
Stockholders' equity:
Common Stock, $0.01 par value;
19,890,841 issued and outstanding; as adjusted
for the PRG Merger, 22,292,070 shares issued
and outstanding(2)............................. 199 24 223
Additional paid-in capital...................... 153,597 24,683 178,280
Retained earnings............................... (803) -- (803)
-------- ------- --------
Total stockholders' equity...................... 152,993 24,707 177,700
-------- ------- --------
Total capitalization.......................... $401,579 $93,136 $494,715
======== ======= ========
</TABLE>
- --------
(1) Includes notes collateralized by mortgages receivable.
(2) Does not include an aggregate of 2,500,000 shares of Common Stock reserved
for issuance upon exercise of options granted pursuant to the Company's
1996 Equity Participation Plan, as amended, 500,000 shares of Common Stock
reserved for issuance pursuant to the Employee Stock Purchase Plan and
3,024,660 shares of Common Stock initially issuable upon conversion of the
Convertible Notes. See "Management--1996 Equity Participation Plan" and
"--Employee Stock Participation Plan."
24
<PAGE>
SELECTED CONSOLIDATED AND RESTATED HISTORICAL AND PRO FORMA FINANCIAL
INFORMATION OF THE COMPANY
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth summary consolidated and restated historical
and pro forma financial information of the Company. For the historical period
ended March 31, 1997, the financial information presented below includes the
effect of the Consolidation Transactions (as defined herein) and the Company's
initial public offering (the "Initial Public Offering") which were consummated
on August 20, 1996. For periods ending prior to March 31, 1997, the historical
financial information presented below combines each of the Company's
predecessor limited partnerships, limited liability companies and other
affiliated corporations that were combined into the Company in the
Consolidation Transactions. Such historical financial information also gives
effect to the AVCOM Merger by combining and restating the historical financial
information of the Company and AVCOM and should be read in conjunction with
the selected consolidated historical and pro forma financial information of
the Company, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the consolidated financial statements for the
Company and the notes thereto which are contained elsewhere in this
Prospectus. The pro forma information for the three month period ended March
31, 1997 gives effect to the PRG Merger (the historical information for such
period already gives effect to the Consolidation Transactions and the Initial
Public Offering) and the pro forma information for the year ended December 31,
1996 and for the three month period ended March 31, 1996 give effect to the
Consolidation Transactions, the Initial Public Offering and the PRG Merger, in
each case, as if each had occurred as of the beginning of the period
presented. Due to seasonality, other market factors and additions to the
number of the Company's resorts, the combined historical and pro forma results
for the three months ended March 31, 1997 and 1996 are not necessarily
indicative of results for a full year.
<TABLE>
<CAPTION>
HISTORICAL(a)
-------------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------ -----------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Vacation
Interval sales.. $ 45,796 $ 19,890 $ 121,330 $ 92,302 $ 64,399 $ 36,719 $20,629
Interest income. 5,393 2,489 12,254 7,523 3,863 2,061 586
Other income.... 2,366 1,648 9,891 7,052 882 544 248
----------- ----------- ----------- ----------- -------- -------- -------
Total revenues.. 53,555 24,027 143,475 106,877 69,144 39,324 21,463
----------- ----------- ----------- ----------- -------- -------- -------
COSTS AND
OPERATING
EXPENSES:
Vacation
Interval cost of
sales........... 12,061 5,036 31,302 26,731 19,186 9,256 5,202
Advertising,
sales, and
marketing....... 20,760 9,456 61,495 42,408 30,977 17,759 9,437
Loan portfolio:
Interest
expense--
treasury........ 2,341 1,541 6,466 3,887 1,691 1,009 590
Other expenses.. 844 410 2,260 1,667 1,244 208 50
Provision for
doubtful
accounts........ 2,057 717 6,286 2,579 1,294 870 658
General and
administrative.. 7,122 4,134 27,836 11,148 6,625 4,788 1,824
Resort property
valuation
allowance....... -- -- 2,620 -- -- -- --
Depreciation and
amortization.... 919 601 4,219 1,861 635 439 225
Merger costs.... 1,693 -- -- -- -- -- --
----------- ----------- ----------- ----------- -------- -------- -------
Total cost and
operating
expenses........ 47,797 21,895 142,484 90,281 61,652 34,329 17,986
----------- ----------- ----------- ----------- -------- -------- -------
Income from
operations...... 5,758 2,132 991 16,596 7,492 4,995 3,477
Interest
expense--other.. 1,337 834 3,725 1,515 1,313 519 --
Equity loss on
investment in
joint venture... 70 1 236 1,649 271 -- --
Minority
interest in
income of
consolidated
limited
partnership..... 24 -- 199 -- -- -- --
----------- ----------- ----------- ----------- -------- -------- -------
Income (loss)
before taxes.... 4,327 1,297 (3,169) 13,432 5,908 4,476 3,477
Provision
(benefit) for
income taxes.... 1,731 (414) (4,907) 1,479 695 1,970 12
----------- ----------- ----------- ----------- -------- -------- -------
Net income...... $ 2,596 $ 1,711 $ 1,738 $ 11,953 $ 5,213 $ 2,506 $ 3,465
=========== =========== =========== =========== ======== ======== =======
Pro forma
unaudited net
income
(loss)(d)....... $ 778 $ (1,901) $ 8,059 $ 3,604 $ 2,730 $ 2,119
=========== =========== =========== ======== ======== =======
Pro forma
unaudited net
income (loss)
per common and
common
equivalent
shares
outstanding
(Actual for
March 31, 1997). $ 0.13 $ 0.06 $ (0.13) $ 0.66 $ -- $ -- $ --
=========== =========== =========== =========== ======== ======== =======
Pro forma
unaudited
weighted average
common and
common
equivalent
shares
outstanding
(Actual for
March 31, 1997). 19,990,454 12,237,741 14,730,268 12,237,741 -- -- --
OTHER DATA:
EBITDA(e)....... $ 8,924 $ 4,273 $ 11,241 $ 20,695 $ 9,547 $ 6,443 $ 4,292
Cash flows
provided by
(used in)
Operating
activities...... $ (9,835) $ (4,778) $ (36,646) $ 5,504 $ (9,647) $ (355) $(7,718)
Investing
activities...... $ (26,954) $ (19,490) $ (78,790) $ (50,332) $(26,866) $(12,973) $(1,793)
Financing
activities...... $ 136,090 $ 22,710 $ 116,531 $ 48,096 $ 37,180 $ 15,158 $ 8,427
Number of
resorts at
period end...... 20 19 19 11 8 5 3
Number of
Vacation
Intervals sold.. 3,445 1,659 10,458 7,482 6,469 3,503 2,206
Number of
Vacation
Intervals in
inventory....... 32,576 26,866 28,465 22,265 6,269 2,368 3,360
Average price of
Vacation
Intervals sold.. $ 13,293 $ 11,992 $ 11,602 $ 12,337 $ 9,955 $ 10,482 $ 9,351
BALANCE SHEET
DATA (END OF
PERIOD):
Cash, including
escrow.......... $ 108,878 $ 6,559 $ 8,525 $ 8,095 $ 5,308 $ 3,156 $ 912
Total Assets.... $ 454,208 $ 326,006 $ 325,228 $ 174,019 $103,306 $ 46,689 $25,984
Long term debt.. $ 248,586 $ 118,262 $ 165,934 $ 97,988 $ 57,375 $ 26,385 $13,736
Stockholders'
equity.......... $ 152,993 $ 45,521 $ 96,942 $ 43,810 $ 34,195 $ 14,352 $ 9,258
<CAPTION>
PRO FORMA (UNAUDITED)
-----------------------------------------------------------------------------
QUARTER ENDED MARCH 31, YEAR ENDED DECEMBER 31,
-------------------------------------------- --------------------------------
1997 1996 1996
----------- -------------------------------- --------------------------------
CONSOLIDATION CONSOLIDATION
THE PRG TRANSACTIONS/INITIAL THE PRG TRANSACTIONS/INITIAL THE PRG
MERGER(b) PUBLIC OFFERING(c) MERGER(b) PUBLIC OFFERING(c) MERGER(b)
----------- -------------------- ----------- -------------------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Vacation
Interval sales.. $ 53,930 $ 19,890 $ 31,175 $ 121,330 $ 157,042
Interest income. 8,416 2,489 5,655 12,254 24,935
Other income.... 2,367 1,728 1,731 10,101 10,133
----------- -------------------- ----------- -------------------- -----------
Total revenues.. 64,713 24,107 38,561 143,685 192,110
----------- -------------------- ----------- -------------------- -----------
COSTS AND
OPERATING
EXPENSES:
Vacation
Interval cost of
sales........... 14,572 5,021 8,514 31,252 42,618
Advertising,
sales, and
marketing....... 24,527 9,456 14,712 61,495 78,029
Loan portfolio:
Interest
expense--
treasury........ 4,100 687 2,358 3,995 11,011
Other expenses.. 1,422 393 789 2,194 4,010
Provision for
doubtful
accounts........ 2,138 717 1,296 6,286 8,009
General and
administrative.. 8,225 4,134 4,512 27,836 30,692
Resort property
valuation
allowance....... -- -- -- 2,620 2,620
Depreciation and
amortization.... 1,057 601 705 4,219 4,639
Merger costs.... 1,693 -- -- -- --
----------- -------------------- ----------- -------------------- -----------
Total cost and
operating
expenses........ 57,734 21,009 32,886 139,897 181,628
----------- -------------------- ----------- -------------------- -----------
Income from
operations...... 6,979 3,098 5,675 3,788 10,482
Interest
expense--other.. 1,337 283 283 2,144 2,144
Equity loss on
investment in
joint venture... 70 147 147 626 626
Minority
interest in
income of
consolidated
limited
partnership..... 24 -- -- 199 199
----------- -------------------- ----------- -------------------- -----------
Income (loss)
before taxes.... 5,548 2,668 5,245 819 7,513
Provision
(benefit) for
income taxes.... 2,220 1,067 2,098 328 3,006
----------- -------------------- ----------- -------------------- -----------
Net income...... $ 3,328 $ 1,601 $ 3,147 $ 491 $ 4,507
=========== ==================== =========== ==================== ===========
Pro forma
unaudited net
income
(loss)(d).......
Pro forma
unaudited net
income (loss)
per common and
common
equivalent
shares
outstanding
(Actual for
March 31, 1997). $ 0.15 $ 0.09 $ 0.15 $ 0.03 $ 0.21
=========== ==================== =========== ==================== ===========
Pro forma
unaudited
weighted average
common and
common
equivalent
shares
outstanding
(Actual for
March 31, 1997). 22,391,683 18,275,241 20,676,470 19,100,399 21,501,628
OTHER DATA:
EBITDA(e).......
Cash flows
provided by
(used in)
Operating
activities......
Investing
activities......
Financing
activities......
Number of
resorts at
period end......
Number of
Vacation
Intervals sold..
Number of
Vacation
Intervals in
inventory.......
Average price of
Vacation
Intervals sold..
BALANCE SHEET
DATA (END OF
PERIOD):
Cash, including
escrow..........
Total Assets....
Long term debt..
Stockholders'
equity..........
</TABLE>
25
<PAGE>
- --------
(a) Reflects the effects of the AVCOM Merger under the pooling-of-interests
accounting method.
(b) The Pro Forma adjustments for the PRG Merger represent the historical
financial statements of PRG. These adjustments assume the PRG Merger will
be accounted for using the pooling-of-interests method of accounting and
assumes that the combined Company was treated as a C corporation rather
than as limited partnerships and limited liability companies for purposes
of computing federal income taxes for the relevant period. See "Risk
Factors--Risks Related to the AVCOM Merger, the PRG Merger and the LSI
Merger--Accounting Treatment."
(c) Reflects the effects of the Consolidation Transactions, the Initial Public
Offering and assumes that the combined Company was treated as a C
corporation rather than limited partnerships and limited liability
companies for purposes of computing federal income taxes for the relevant
period.
(d) Reflects the effect on historical statement of operations data, assuming
the combined Company had been treated as a C corporation rather than as
individual limited partnerships and limited liability companies for
federal income tax purposes.
(e) As shown below, EBITDA represents net income before interest expense,
income taxes and depreciation and amortization. EBITDA is presented
because it is a widely-accepted financial indicator of a company's ability
to service and/or incur indebtedness. However, EBITDA should not be
construed as an alternative to net income as a measure of the Company's
operating results or to operating cash flow as a measure of liquidity. The
following table reconciles EBITDA to net income:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------------- -----------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----------- ----------- ------- ------- ------ ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income.............. $2,596 $1,711 $ 1,738 $11,953 $5,213 $2,506 $3,465
Interest expense--
treasury............... 2,341 1,541 6,466 3,887 1,691 1,009 590
Interest expense--other. 1,337 834 3,725 1,515 1,313 519 --
Taxes................... 1,731 (414) (4,907) 1,479 695 1,970 12
Depreciation and
amortization........... 919 601 4,219 1,861 635 439 225
------ ------ ------- ------- ------ ------ ------
EBITDA.................. $8,924 $4,273 $11,241 $20,695 $9,547 $6,443 $4,292
====== ====== ======= ======= ====== ====== ======
</TABLE>
26
<PAGE>
SELECTED FINANCIAL DATA OF PLANTATION RESORTS GROUP, INC.
(DOLLAR AMOUNT IN THOUSANDS, EXCEPT PER SHARE DATA)
The statements of operations for the years ended December 31, 1996, 1995 and
1994 and the balance sheet data as of December 31, 1996 and 1995 are derived
from PRG's consolidated financial statements and notes thereto which have been
audited by Arthur Andersen LLP, independent public accountants, and are
included elsewhere in this Prospectus. The statements of operations and the
balance sheet data as of and for the three months ended March 31, 1997 and
1996 and the statements of operations and balance sheet data as of and for the
years ended December 31, 1993 and 1992 have been derived from unaudited
financial statements that in the opinion of PRG'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 PRG's consolidated financial statements, appearing elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 YEAR ENDED DECEMBER 31
----------------------- ----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----------- ----------- -------- -------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF
OPERATIONS:
REVENUES:
Vacation Interval
sales................ $ 8,134 $ 11,285 $ 35,712 $ 26,250 $34,659 $32,148 $32,101
Interest income....... 3,023 3,166 12,681 12,483 11,884 10,709 9,769
Other income.......... 1 3 32 92 151 566 563
------- -------- -------- -------- ------- ------- -------
Total revenues........ 11,158 14,454 48,425 38,825 46,694 43,423 42,433
------- -------- -------- -------- ------- ------- -------
COSTS AND OPERATING
EXPENSES:
Vacation Interval cost
of sales............... 2,511 3,493 11,366 7,346 9,806 9,292 8,383
Advertising, sales and
marketing.............. 3,767 5,256 16,534 12,202 16,104 14,952 14,967
LOAN PORTFOLIO:
Interest expense...... 1,759 1,671 7,016 6,190 6,533 6,426 6,910
Other expenses........ 578 396 1,816 351 216 632 803
Provision for doubtful
accounts............. 81 579 1,723 921 662 833 1,935
General and
administrative......... 1,103 378 2,856 2,451 1,838 2,064 2,060
Depreciation and
amortization........... 138 104 420 293 355 177 187
------- -------- -------- -------- ------- ------- -------
Total costs and
operating expenses... 9,937 11,877 41,731 29,754 35,514 34,376 35,245
------- -------- -------- -------- ------- ------- -------
Income before
(benefit) provision
for income taxes..... 1,221 2,577 6,694 9,071 11,180 9,047 7,188
(Benefit) provision for
income taxes........... (380) 418 (337) 1,533 1,351 1,094 882
------- -------- -------- -------- ------- ------- -------
Net income............ $ 1,601 $ 2,159 $ 7,031 $ 7,538 $ 9,829 $ 7,953 $ 6,306
======= ======== ======== ======== ======= ======= =======
PRO FORMA NET INCOME
(UNAUDITED)(a)......... $ 733 $ 1,546 $ 4,016 $ 5,443 $ 6,820 $ 5,519 $ 4,385
======= ======== ======== ======== ======= ======= =======
OTHER DATA:
EBITDA(b)............... $ 3,118 $ 4,352 $ 14,130 $ 15,554 $18,068 $15,650 $14,285
Cash flows provided by
(used in)
Operating activities.. $ (775) $ 3,602 $ 5,109 $ 4,366 $ 5,876 $ 3,654 $ 1,917
Investing activities.. $ 1,043 $ (1,019) $ (4,453) $ (4,460) $(6,487) $ (149) $ (133)
Financing activities.. $ 1,417 $ (2,719) $ (4,171) $ 601 $(1,871) $ 6,386 $(1,171)
Number of Existing
Resorts at period end...
Number of Vacation
Intervals sold......... 558 773 2,452 1,813 2,365 2,414 2,159
Number of Vacation
Intervals in inventory. 1,789 2,096 1,934 1,174 646 462 1,797
Average price of
Vacation Intervals..... $14,570 $ 14,599 $ 14,564 $ 14,479 $14,655 $13,317 $14,868
BALANCE SHEET DATA (END
OF PERIOD):
Cash and cash
equivalents, including
escrow................. $ 6,606 $ 11,324 $ 7,573 $ 11,460 $10,946 $13,295 $ 3,404
Total Assets............ $99,898 $100,593 $101,916 $108,816 $96,674 $89,918 $72,547
Notes payable to
financial institutions. $68,429 $ 68,517 $ 69,756 $ 69,278 $64,017 $61,454 $49,793
Equity.................. $24,707 $ 24,903 $ 23,196 $ 28,151 $25,274 $22,280 $19,602
</TABLE>
27
<PAGE>
- --------
(a) Reflects the effect on historical statement of operations data, assuming
the combined company had been treated as a C corporation rather than as
individual joint ventures for federal income tax purposes.
(b) As shown below, EBITDA represents net income (loss) before interest
expense, income taxes and depreciation and amortization. EBITDA is
presented because it is a widely accepted financial indicator of a
company's ability to service and/or incur indebtedness. However, EBITDA
should not be construed as an alternative to net income as a measure of
PRG's operating results or to operating cash flow as a measure of
liquidity. The following table reconciles EBITDA to net income.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31 YEAR ENDED DECEMBER 31
----------------------- ------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----------- ----------- ------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income.............. $1,601 $2,159 $ 7,031 $ 7,538 $ 9,829 $ 7,953 $ 6,306
Interest expense........ 1,759 1,671 7,016 6,190 6,533 6,426 6,910
(Benefit) provision for
income taxes........... (380) 418 (337) 1,533 1,351 1,094 882
Depreciation and
amortization........... 138 104 420 293 355 177 187
------ ------ ------- ------- ------- ------- -------
EBITDA.................. $3,118 $4,352 $14,130 $15,554 $18,068 $15,650 $14,285
====== ====== ======= ======= ======= ======= =======
</TABLE>
28
<PAGE>
SIGNATURE RESORTS, INC.
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The pro forma statements of operations data set forth below for the year
ended December 31, 1996 and for the three months ended March 31, 1997 and 1996
give effect, individually and in the aggregate, to the following: (i) the
Consolidation Transactions and the Initial Public Offering and (ii) the PRG
Merger, in each case, as if each had occurred at the beginning of the period.
The Company's actual statement of operations data reflects the combined
operations of the Company and AVCOM using pooling-of-interests accounting for
all periods presented. The pro forma adjustments are based upon currently
available information and certain assumptions that management of the Company
believes are reasonable under current circumstances.
PRO FORMA STATEMENT OF OPERATIONS DATA
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------
PRO FORMA ADJUSTMENTS
-------------------------
CONSOLIDATION
TRANSACTIONS/
INITIAL
COMPANY PUBLIC THE PRG COMPANY
ACTUAL OFFERING(A) MERGER(B) PRO FORMA
---------- ------------- --------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Vacation Interval sales.... $ 121,330 $ $ 35,712 $ 157,042
Interest income............ 12,254 12,681 24,935
Other income............... 9,891 210 (c) 32 10,133
---------- --------- --------- ----------
Total revenues............ 143,475 210 48,425 192,110
---------- --------- --------- ----------
COSTS AND OPERATING
EXPENSES: --
Vacation Interval cost of
sales..................... 31,302 (50)(d) 11,366 42,618
Advertising, sales and
marketing................. 61,495 16,534 78,029
Loan portfolio:
Interest expense--
treasury................. 6,466 (2,471)(d) 7,016 11,011
Other expenses ........... 2,260 (66)(d) 1,816 4,010
Provision for doubtful
accounts................. 6,286 1,723 8,009
General and administrative. 27,836 2,856 30,692
Resort property valuation
allowance................. 2,620 -- 2,620
Depreciation and
amortization.............. 4,219 420 4,639
---------- --------- --------- ----------
Total costs and operating
expenses.................. 142,484 (2,587) 41,731 181,628
---------- --------- --------- ----------
Income from operations..... 991 2,797 6,694 10,482
Interest expense--other.... 3,725 (1,581)(d) -- 2,144
Equity loss on investment
in joint venture.......... 236 390 (e) -- 626
Minority interest in income
of consolidated limited
partnership............... 199 -- -- 199
---------- --------- --------- ----------
(Loss) income before taxes. (3,169) 3,988 6,694 7,513
(Benefit) provision for
income taxes.............. (4,907) 5,235 (f) 2,678(f) 3,006
---------- --------- --------- ----------
Net income (loss).......... $ 1,738 $ (1,247) $ 4,016 $ 4,507
========== ========= ========= ==========
Pro forma earnings per
common and common
equivalent shares......... $ 0.12 $ 0.21
========== ==========
Pro forma weighted average
number of common and
common equivalent shares
outstanding............... 14,730,268 4,370,131 2,401,229(g) 21,501,628
</TABLE>
- -------
(a) Reflects the Initial Public Offering of shares of Common Stock.
(b) The pro forma adjustments for the PRG Merger assume pooling-of-interests
accounting and reflect the historical statement of operations of PRG for
the year ended December 31, 1996.
(c) Reflects increase in interest income due to the purchase of loans from
certain combining interests of $2.7 million relating to loans made by such
combining interests to the joint venture. The loans carry interest at 12%
per annum.
(d) Reflects the following: (i) the elimination or reduction of interest
expense due to the retirement of $53.5 million of debt; (ii) the reduction
of Vacation Interval cost of sales due to the reduction of capitalized
interest related to the retirement of debt; and (iii) the elimination of
financing fees on advances not required as a result of the debt
retirement. The average interest rate on the debt retired was 10.82%.
(e) Reflects the increase of goodwill amortization on the purchase of a joint
venture interest.
(f) Reflects the effect on 1996 historical statement of operations data of
(c)-(e) above and assumes the combined Company had been treated as a
C corporation rather than as limited partnerships and limited liability
companies for federal income tax purposes.
(g) Represents 2,401,229 shares issuable in connection with the PRG Merger.
29
<PAGE>
PRO FORMA STATEMENTS OF OPERATIONS DATA
<TABLE>
<CAPTION>
MARCH 31, 1997 MARCH 31, 1996
---------------------------------- -----------------------------------------------------
PRO FORMA ADJUSTMENTS PRO FORMA ADJUSTMENTS
--------------------- ---------------------
CONSOLIDATION
TRANSACTIONS/
COMPANY COMPANY COMPANY INITIAL PUBLIC COMPANY
ACTUAL PRG(b) PRO FORMA ACTUAL OFFERING(a) PRG(b) PRO FORMA
---------- --------- ---------- ---------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Vacation Interval
sales................. $ 45,796 $ 8,134 $ 53,930 $ 19,890 $ -- $ 11,285 $ 31,175
Interest income........ 5,393 3,023 8,416 2,489 -- 3,166 5,655
Other income........... 2,366 1 2,367 1,648 80 (c) 3 1,731
---------- --------- ---------- ---------- --------- --------- ----------
Total revenues......... 53,555 11,158 64,713 24,027 80 14,454 38,561
---------- --------- ---------- ---------- --------- --------- ----------
COSTS AND OPERATING
EXPENSES:
Vacation Interval cost
of sales.............. 12,061 2,511 14,572 5,036 (15)(d) 3,493 8,514
Advertising, sales and
marketing............. 20,760 3,767 24,527 9,456 -- 5,256 14,712
Loan portfolio:
Interest expense--
treasury............ 2,341 1,759 4,100 1,541 (854)(d) 1,671 2,358
Other expenses....... 844 578 1,422 410 (17)(d) 396 789
Provision for
doubtful accounts... 2,057 81 2,138 717 -- 579 1,296
General and
administrative........ 7,122 1,103 8,225 4,134 -- 378 4,512
Depreciation and
amortization.......... 919 138 1,057 601 -- 104 705
Merger costs........... 1,693 -- 1,693 -- -- -- --
---------- --------- ---------- ---------- --------- --------- ----------
Total costs and
operating expenses.... 47,797 9,937 57,734 21,895 (886) 11,877 32,886
---------- --------- ---------- ---------- --------- --------- ----------
Income from operations.. 5,758 1,221 6,979 2,132 966 2,577 5,675
Interest expense--
other................. 1,337 -- 1,337 834 (551)(d) -- 283
Equity loss on
investment in joint
venture............... 70 -- 70 1 146 (e) -- 147
Minority interest in
income of
consolidated limited
partnership........... 24 -- 24 -- -- -- --
---------- --------- ---------- ---------- --------- --------- ----------
Income before taxes..... 4,327 1,221 5,548 1,297 1,371 2,577 5,245
Provision for income
taxes................. 1,731 489 2,220 (414) 1,481 (f) 1,031(f) 2,098
---------- --------- ---------- ---------- --------- --------- ----------
Net income.............. $ 2,596 $ 732 $ 3,328 $ 1,711 $ (110) $ 1,546 $ 3,147
========== ========= ========== ========== ========= ========= ==========
Pro forma earnings per
common and common
equivalent shares...... $ 0.13 $ 0.15 $ 0.14 $ 0.15
========== ========== ========== ==========
Pro forma weighted
average number of
common and common
equivalent shares
outstanding ........... 19,990,454 2,401,229(h) 22,391,683 12,237,741 6,037,500 (g) 2,401,229 (h) 20,676,470
</TABLE>
- -------
(a) The consolidated pro forma statements of operations all give effect to the
exchange of direct and indirect interest in, and obligations of, certain
predecessor limited partnerships, limited liability companies and
corporations for shares of the Company's Common Stock in the Consolidation
Transactions as if it had occurred at the beginning of the period
indicated. The Consolidation Transactions were consummated concurrently
with the Initial Public Offering in August 1996. The pro forma adjustments
are based upon currently available information and certain assumptions
that the Company's management believes are reasonable under current
circumstances.
(b) The pro forma adjustments for the PRG Merger assume pooling-of-interests
accounting and reflect the historical statements of operations data for
PRG.
(c) Reflects increase in interest income due to the assumption of notes
receivable in the Consolidation Transactions of $2.7 million. Such notes
bear interest at a rate of 12% per annum.
(d) Reflects the following: (i) the elimination or reduction of interest
expense due to the retirement of $54.3 million of debt retirement with
respect to the period ended March 31, 1996; (ii) the reduction of Vacation
Interval cost of sales due to the reduction of capitalized interest
related to the retirement of construction debt; and (iii) the elimination
of financing fees on advances not required as a result of the debt
retirement. The average interest rate on a per annum basis on the debt
retired was 11.5% for the three months ended March 31, 1996.
(e) Reflects the increase in goodwill amortization on the purchase of a joint
venture interest.
(f) Reflects the effects on historical statements of operations data of (b)-
(e) above and assumes the combined Company had been treated as a
C corporation rather than as individual limited partnerships and limited
liability companies for federal income tax purposes.
(g) Reflects the Initial Public Offering of shares of Common Stock.
(h) Reflects 2,401,229 shares issuable in connection with the PRG Merger.
30
<PAGE>
The pro forma balance sheet data set forth below at March 31, 1997 give
effect to the PRG Merger as if it had occurred on March 31, 1997. The pro forma
adjustments are based upon currently available information and certain
assumptions that management of the Company believes are reasonable under
current circumstances.
PRO FORMA BALANCE SHEET
MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------------
PRO FORMA ADJUSTMENTS
---------------------
COMPANY THE PRG COMPANY
ACTUAL MERGER(A) PRO FORMA
-------- --------- ---------
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents......................... $106,545 $ 5,995 $112,540
Cash in escrow.................................... 2,333 611 2,944
Mortgages receivable.............................. 167,547 64,794 232,341
Due from related parties.......................... 7,180 5,440 12,620
Other receivables, net............................ 4,925 -- 4,925
Prepaid expenses and other assets................. 7,932 1,658 9,590
Investment in joint venture....................... 7,327 -- 7,327
Real estate and development costs................. 132,422 16,231 148,653
Property and equipment, net....................... 11,465 1,561 13,026
Intangible assets, net............................ 6,532 1,268 7,800
Deferred income taxes............................. -- 2,340 2,340
-------- ------- --------
Total assets.................................. $454,208 $99,898 $554,106
======== ======= ========
LIABILITIES AND EQUITY:
Accounts payable.................................. $ 15,201 $ 3,475 $ 18,676
Accrued liabilities............................... 27,890 933 28,823
Deferred revenue.................................. -- 2,354 2,354
Due to related parties............................ 718 -- 718
Income taxes payable.............................. 2,285 -- 2,285
Deferred taxes.................................... 4,990 -- 4,990
Notes payable to financial institutions........... 110,586 68,429 179,015
Convertible subordinated notes.................... 138,000 -- 138,000
-------- ------- --------
Total liabilities............................. 299,670 75,191 374,861
Minority interest in consolidated limited
partnership...................................... 1,545 -- 1,545
Equity............................................ 152,993 24,707 177,700
-------- ------- --------
Total liabilities and equity.................. $454,208 $99,898 $554,106
======== ======= ========
</TABLE>
- --------
(a) The pro forma adjustments for the PRG Merger represent the historical
financial statements of PRG using the pooling-of-interests accounting
method.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Signature Resorts, Inc. was formed in May 1996 to combine the ownership of
the resorts and the vacation ownership acquisition and development business of
the Company's predecessors. The consolidated financial statements reflect the
combined financial statements of the Company and AVCOM using pooling-of-
interests accounting for all periods presented. The Company generates revenues
from the sale and financing of Vacation Intervals in resorts, which typically
entitle the buyer to the use of a fully-furnished vacation resort in
perpetuity, generally for a one-week period each year. The Company generates
additional revenues from room rental operations, rentals of Vacation Intervals
in Company inventory and from fees associated with managing the resorts.
The Company recognizes sales of Vacation Intervals on an accrual basis after
a binding sales contract has been executed between the Company and the
proposed buyer, a 10% minimum down payment has been received, the rescission
period has expired, construction is substantially complete, and certain
minimum sales levels are achieved. If all the criteria are met, except that
construction is not substantially complete, revenues are recognized on the
percentage-of-completion basis. Costs associated with the acquisition and
development of vacation ownership resorts, including carrying costs such as
interest and taxes, are capitalized as real estate and development costs and
allocated as Vacation Interval cost of sales as the respective revenue is
recognized. The Company's investment in the Embassy Vacation Resort Poipu
Point is accounted for using the equity method and reflected on the balance
sheet as "Investment in joint venture" and on the income statement as "Equity
loss on investment in joint venture."
Comparison of the three months ended March 31, 1997 to the three months
ended March 31, 1996. For the three months ended March 31, 1997 the Company
achieved total revenues of $53.6 million compared to $24.0 million for the
three months ended March 31, 1996, an increase of $29.6 million, or 123%. This
increase was primarily due to a 130% increase in Vacation Interval sales and a
117% increase in interest income. The growth in Vacation Interval sales was
due to both an increase in intervals sold to 3,445 in 1997 from 1,659 in 1996,
an increase of 108%, and an increase in the average price of intervals sold to
$13,293 in 1997 from $11,992 in 1996, a 11% increase. The growth in Vacation
Intervals sold was due to the commencement of sales at four resorts (San Luis
Bay, Embassy Vacation Resort Lake Tahoe, Sedona Summit and Scottsdale Villa
Mirage).
Interest income for the three month period increased $2.9 million to $5.4
million from $2.5 million in the comparable period in 1996 as a result of an
increase in mortgages receivable, and increases in interest income from
investments. Mortgages receivable increased to $167.5 million in 1997 from
$99.1 million in 1996, an increase of $68.4 million, or 69%. Interest income
from investments increased by approximately $0.9 million as a result of
investing the proceeds received as part of the Convertible Offering and the
Stock Offering that occurred in January 1997.
Total costs and operating expenses, excluding merger costs, for the three
months ended March 31, 1997 and 1996 increased by $24.2 million, or 111%, to
$46.1 million from $21.9, respectively. However, as a percentage of total
revenues, total costs and operating expenses, excluding merger costs,
decreased to 86% in 1997 from 91% in 1996. This decrease is attributable to a
decrease in advertising, sales and marketing as a percentage of Vacation
Interval sales to 45% in 1997 from 48% in 1996, a decrease in interest expense
as a percentage of total revenues to 4% in 1997 from 6% in 1996, a decrease in
general and administrative expenses as a percentage of total revenues to 13%
in 1997 from 17% in 1996. Vacation Interval cost of sales, as a percentage of
Vacation Interval sales, increased to 26% in 1997 from 25% in 1996.
Interest expense--treasury increased $0.8 million to $2.3 million for the
three months ended March 31, 1997 from $1.5 million for the comparable period
in 1996. However, as a percentage of total revenues, interest expense--
treasury declined to 4% from 6% in 1996 as the result of the Company financing
its originated mortgages receivable portfolio with the proceeds from its Stock
and Convertible Offerings.
32
<PAGE>
Loan portfolio--other expenses increased $0.4 million for the three months
ended March 31, 1997 to $0.8 million from $0.4 million in 1996. As a
percentage of mortgages receivable, loan portfolio-other expenses increased to
0.5% from 0.4% in the comparable period in 1996.
The provision for doubtful accounts increased $1.4 million from the
comparable period in 1996 to $2.1 million from $0.7 million. However, the
allowance for loan losses as a percentage of gross mortgages receivable was
6.2% at March 31, 1997 compared to 6.5% at March 31, 1996.
General and administrative expenses increased to $7.1 million for the three
months ended March 31, 1997 from $4.1 million for the three months ended March
31, 1996, an increase of 72%. However, as a percentage of total revenues,
general and administrative expenses decreased to 13% in 1997 from 17% in 1996.
The increase in general and administrative expenses was the result of (i) the
addition of a number of senior officers and key executives in order to build
the management and organizational infrastructure necessary to efficiently
manage the Company's future growth, (ii) the Company's expenses and reporting
obligations as a public company, (iii) increased overhead due to the
acquisition of additional resorts, (iv) added salary, travel and office
expenses attributable to the current and planned growth in the size of the
Company and (v) the acquisition of AVCOM.
Depreciation and amortization increased $0.3 million, or 53%, to $0.9
million during the three months ended March 31, 1997 from $0.6 million during
the three months ended March 31, 1996, reflecting increased depreciation and
amortization from capital expenditures and intangible assets.
During the three months ended March 31, 1997, merger related expenses were
$1.7 million. No such expenses were incurred during the comparable period in
1996. Merger expenses relate to a one time charge made to expense fees paid to
financial advisors, legal fees and other transaction expenses related to the
AVCOM Merger.
As a result of the factors discussed above, income before provision for
income taxes increased 234% to $4.3 million, or 8% of total revenues, from
$1.3 million, or 5% of total revenues for the three months ended March 31,
1997 and 1996, respectively. Excluding the charge for merger related expenses
of $1.7 million, income before provision for income taxes would have increased
364% to $6.0 million or 11% of total revenues.
During the three months ended March 31, 1997, provision for income taxes
increased $2.1 million from March 31, 1996 as a result of the changes in the
Company's status as a C corporation subsequent to its initial public offering
in August of 1996. Previously, the company's predecessor entities only
incurred foreign income taxes on their properties located in St. Maarten,
Netherlands Antilles. In addition, during the three months ended March 31,
1996, AVCOM recorded a $0.5 million income tax benefit as a result of an
operating loss for the period.
Net income increased 52% to $2.6 million for the three months ended March
31, 1997 from $1.7 million for the comparable period in 1996.
Comparison of the year ended December 31, 1996 to year ended December 31,
1995. For the year ended December 31, 1996, the Company achieved total
revenues of $143.5 million compared to $106.9 million for the year ended
December 31, 1995, an increase of $36.6 million or 34%. Such increase was due
to the growth of intervals sold from 7,482 in 1995 to 10,458 in 1996, a 40%
increase. The growth in vacation intervals sold was due to the commencement of
sales at San Luis Bay, Embassy Vacation Resort Lake Tahoe, Sedona Summit and
Scottsdale Villa Mirage combined with a full year of sales at Royal Palm and
Flamingo Beach Club.
Interest income increased $4.7 million, or 63%, due to an increase in
mortgages receivable from $83.8 million in 1995 to $148.5 million in 1996.
Other income increased $2.8 million from $7.1 million in 1995 to $9.9 million
in 1996 as a result of $1.7 million of income as a result of the settlement of
certain receivables from the former owners of the St. Maarten properties, and
a $1.3 million increase in portfolio income from the $10.5 million portfolio
acquired with the two St. Maarten resorts in 1995.
33
<PAGE>
Total costs and operating expenses for the years ended 1995 and 1996
increased by $52.2 million from $90.3 million to $142.5 million, respectively.
As the result of significant charges incurred by AVCOM during the fourth
quarter of 1996, costs and operating expenses, as a percentage of total
revenues, increased from 85% in 1995 to 99% in 1996. The significant AVCOM
charges include (i) an increase in the provision for doubtful accounts by
$2.0 million, (ii) $5.3 million in severance cost, lease cancellation,
litigation reserves and other synergistic costs, (iii) a $2.6 million write
down of certain property to estimated fair market value, (iv) $3.0 million
reserve for losses associated with certain property management and related
contracts, and (v) a $0.7 million charge relating to amortization of start up
costs over a period of one year. As a percentage of Vacation Interval
revenues, Vacation Interval costs of sales decreased to 26% in 1996 compared
to 29% in 1995 as the Company was able to purchase and construct Vacation
Intervals at a discount to historical development costs, reducing the unit
cost on average for each Vacation Interval sold.
Loan portfolio expenses consisting of interest expense--treasury, other
expenses and provision for doubtful accounts increased from $8.1 million
during 1995 to $15.0 million during 1996, an increase of $6.9 million or 85%.
This overall increase reflects a $2.0 million increase in the provision for
doubtful accounts relating solely to the mortgage receivable portfolio
acquired in the AVCOM Merger. Prior to the AVCOM Merger, AVCOM's allowance for
doubtful accounts was 2% of its gross mortgage receivable balance. With the
$2.0 million increase in the allowance account made during the fourth quarter
of 1996 the allowance for doubtful accounts was at 4% of gross mortgage
receivables for AVCOM's mortgage portfolio. This increase also reflects the
82% increase in revolving lines of credit attributable to mortgages payable
due to increased hypothecation of mortgages receivable related to Vacation
Interval sales growth.
General and administrative expenses increased $16.7 million from $11.1
million during 1995 to $27.8 million during 1996. As a percentage of total
revenues, general and administrative expenses were lower during 1995 at 10.4%
as compared to 19% during 1996. The increase in general and administrative
expenses was the result of (i) a $5.3 million expense relating to severance
arrangements, lease cancellations and other expenses related to the AVCOM
Merger, (ii) the addition of a number of senior officers and key executives in
connection with building the Company's management and organizational
infrastructure necessary to efficiently manage the Company's future growth,
(iii) the Company's expenses and reporting obligations as a public company,
(iv) increased overhead due to the acquisition and development of additional
resorts, and (v) added salary, travel, and office expenses attributable to the
current and planned growth of the Company.
Depreciation and amortization increased $2.3, or 126%, from $1.9 million in
1995 to $4.2 million, reflecting increased depreciation and amortization
resulting from (i) a $0.7 million AVCOM charge relating to amortization of
start up costs over a period of one year from AVCOM's previous policy of three
years and (ii) an increase in capital expenditures and intangible assets.
Equity loss on investment in joint venture decreased to $.2 million in 1996
from $1.6 million in 1995 due to increased Vacation Interval sales and higher
hotel occupancy at Embassy Vacation Poipu Point during 1996. In 1996, 1,146
vacation intervals were sold at the Embassy Vacation Poipu Point, while 281
vacation intervals were sold at the Embassy Vacation Poipu Point in 1995.
Primarily as the result of the significant charges incurred by AVCOM during
the fourth quarter of 1996, as discussed above, income before provision for
income taxes decreased to a loss of $3.2 million during 1996 from income
before provision for income taxes of $13.4 million in 1995. However, income
before provision for taxes of Signature Resorts, Inc. increased 49% to $17.2
million in 1996 from $11.6 in 1995. AVCOM's (loss) income before provision for
taxes decreased to $(20.4) million in 1996 from $1.9 million in 1995,
primarily as a result of $13.6 million of nonrecurring charges related to
accrued expenses and the write down and write off of certain assets of AVCOM.
Provision for income taxes changed from an expense of $1.5 million in 1995
to a tax benefit of $4.9 million in 1996. The 1996 tax benefit results from
the recognition of AVCOM's operating loss carryforwards.
34
<PAGE>
As a result of the factors discussed above, net income decreased 85% from
$12.0 million for 1995 to $1.7 million for 1996.
Comparison of the year ended December 31, 1995 to year ended December 31,
1994. For the year ended December 31, 1995 the Company achieved total revenues
of $106.9 million compared to $69.1 million for the year ended December 31,
1994, an increase of $37.8 million or 55%. Total revenues grew due to a 43%
increase in Vacation Interval sales from $64.4 million to $92.3 million, a 95%
increase in interest income from $3.9 million to $7.5 million, and a $6.2
million increase in 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 resorts from 6,469
sold in 1994 to 7,482 sold in 1995, an increase of 16%. These higher volumes,
combined with price growth, drove the 43% increase in Vacation Interval sales
revenue. Interest income increased due to a 113% increase in mortgages
receivable, which grew from $39.4 million at the end of 1994 to $83.8 million
at the end of 1995. Other income increased $6.2 million from $0.9 million in
1994 to $7.1 million in 1995. This increase was the result of the acquisition
of a mortgages receivable portfolio of approximately $10.2 million acquired
with the two St. Maarten resorts on which the Company earned $2.2 million. In
addition, the Company accrued $2.0 million of business interruption insurance
claims to compensate for loss revenues and profits related to damages
sustained from Hurricane Luis at the two St. Maarten resorts.
While total costs and operating expenses increased from $61.7 million for
the year ended December 31, 1994 to $90.3 million for the year ended December
31, 1995, an increase of 46%, as a percentage of total revenues, total costs
and operating expenses decreased from 89% in 1994 to 85% in 1995. Relative
decreases in Vacation Interval cost of sales and other expenses, as a
percentage of total revenues were offset by relative increases in interest
expense-treasury, provision for doubtful accounts, depreciation and
amortization and equity loss on investment in joint venture. The Company was
able to purchase and construct Vacation Intervals at a relative discount to
historical development costs, reducing the unit cost on average of each
Vacation Interval sold. This is reflected in a proportionate decrease in cost
of Vacation Intervals sold from 30% of Vacation Interval sales in 1994 to 29%
of Vacation Interval sales in 1995. Advertising, sales and marketing costs
also decreased as a percentage of Vacation Interval sales from 48% to 46%.
Loan portfolio expenses consisting of interest expense--treasury, other
expenses and provision for doubtful accounts increased from $4.2 million in
total in 1994 to $8.1 million in total in 1995, an increase of 92%. This
increase reflects the 113% increase in mortgages receivable due to Vacation
Interval sales growth and acquisitions of resorts made by the Company in 1995.
General and administrative expenses increased 68% from $6.6 million in 1994
to $11.1 million in 1995. The increase in general and administrative expenses
was the result of increased salary expenses and overhead due to the
acquisition of additional resorts and growth in the size of the Company.
Relative to total revenues, general and administrative expenses were constant
in 1995 at 10% of revenues and 10% of revenues in 1994.
Depreciation and amortization increased from $0.6 million in 1994 to $1.9
million in 1995, reflecting increased depreciation resulting from an increase
in capital expenditures.
The Company made its investment in the Embassy Vacation Resort Poipu Point
during the last quarter of 1994. The Embassy Vacation Resort Poipu Point has
experienced losses associated with the start-up operations of the related
resort, which is being converted to a vacation ownership resort. Equity loss
on investment in 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.
Income before provision for income taxes increased 127% to $13.4 million, or
13% of total revenues, in 1995 from $5.9 million, or 9% of total revenues, in
1994.
Provision for income taxes increased to $1.5 for the year ended December 31,
1995 from $0.7 for the year ended December 31, 1994 due to the acquisition of
Royal Palm Beach Club and Flamingo Beach Club in
35
<PAGE>
St. Maarten, Netherlands Antilles as well as increases in AVCOM earnings from
1994 to 1995. In July and August, the Company acquired Royal Palm and Flamingo,
respectively, incurring foreign taxes related to income earned for the
remainder of fiscal year 1995.
Net income increased $6.8 million to $12.0 million for the twelve months
ended December 31, 1995 from $5.2 million for the twelve months ended December
31, 1994.
Comparison of the year ended December 31, 1994 to year ended December 31,
1993. For the year ended December 31, 1994 the Company generated total revenues
of $69.1 million compared to $39.3 million in 1993, an increase of 76%. This
increase was due to a 75% growth in Vacation Interval sales from $36.7 million
in 1993 to $64.4 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 3,503 Vacation Intervals sold
in 1993 to 6,469 Vacation Intervals sold in 1994. This volume growth of 85%
more than offset the 5.3% decrease in the average price of Vacation Intervals
sold to drive the 75% increase in Vacation Interval sales. Interest income
increased due to a $17.8 million increase in mortgages receivable from
$21.6 million at the end of 1993 to $39.4 million at the end of 1994, an
increase of 82%.
Total costs and operating expenses increased from $34.3 million for the year
ended December 31, 1993 to $61.7 million for the year ended December 31, 1993,
an increase of 80%. As a percentage of total revenues, total costs and
operating expenses increased slightly from 87% in 1993 to 89% in 1994.
Increases in Vacation Interval cost of sales as a percentage of total revenues
from 24% in 1993 to 28% in 1994 were offset by decreases in other operating
costs. 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 remained
relatively flat as a percentage of Vacation Interval sales from 48.4% in 1993
to 48.1% 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
$4.8 million in 1993 to $6.6 in 1994, a 38% increase. Depreciation and
amortization was approximately consistent between 1993 and 1994 at $0.4 million
and $0.6 million, respectively. Equity loss on investment in joint venture of
$0.3 million in 1994 reflects the Company's share of losses associated with the
start-up operations at the Embassy Vacation Resort Poipu Point.
Loan portfolio expenses consisting of interest expense-treasury, other
expenses and provision for doubtful accounts increased from $2.1 million in
1993 to $4.2 million in 1994, an increase of 103%. This reflects the increase
in Vacation Intervals sold in 1994 and a relative increase in borrowings made
by the Company secured by interval inventory.
Income before provision for income taxes increased 32% from $4.5 million in
1993 to $5.9 million in 1994.
MERGER WITH AVCOM INTERNATIONAL, INC.
In February 1997, the Company consummated the AVCOM Merger with AVCOM,
acquiring AVCOM for 883,036 shares of the Company's Common Stock, plus the
assumption of debt.
Transaction costs relating to the negotiation of, preparation for, and
consummation of the AVCOM Merger and the combination of certain operations of
the Company and AVCOM resulted in a one-time charge to the Company's earnings
of $1.7 million in the first quarter of 1997. This charge included the fees and
expenses payable to financial advisors, legal fees and other transaction
expenses related to the AVCOM Merger. In addition, there can be no assurance
that the Company will not incur additional charges in subsequent quarters to
reflect costs associated with the AVCOM Merger and the integration of the
Company's and AVCOM's operations. Additionally, transaction costs relating to
the consummation of the AVCOM Merger and the combination of operations of the
Company and AVCOM, along with changes in AVCOM's accounting policies to conform
to the Company's and the write-down and write-off of certain AVCOM assets,
resulted in a one-time charge to AVCOM's earnings of approximately
$13.6 million. This charge included the estimated costs associated with
workforce reductions, contractual payment obligations and other restructuring
activities.
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PRG MERGER AND LSI MERGER AND RELATED EXPENSES
Transaction costs relating to the negotiation of and preparation for the PRG
Merger and the LSI Merger, and for the consummation of the PRG Merger and the
anticipated combination of certain operations are expected to result in a one-
time charge to the Company's earnings of approximately $3.5 million in the
second quarter of 1997 and approximately $1.5 million in the third quarter of
1997. These charges will include the fees and expenses payable to financial
advisors, legal fees and other transaction expenses related to the PRG Merger
and the LSI Merger. In addition, there can be no assurance that the Company
will not incur additional charges in subsequent quarters to reflect costs
associated with the PRG Merger and the LSI Merger and the integration of the
Company's and PRG's operations.
LIQUIDITY AND CAPITAL RESOURCES
In February 1997, the Company consummated its offering (the "Convertible
Offering") of $138.0 million aggregate principal amount of its 5.75%
Convertible Subordinated Notes due 2007 (the "Convertible Notes") and its
offering (the "Stock Offering" and together with the Convertible Offering the
"Offerings") of 4.0 million shares of Common Stock (including 2.4 million
secondary shares sold by certain selling stockholders). The net proceeds to
the Company from the sale of the 1.6 million shares of Common Stock offered by
the Company in the Stock Offering, based on a public offering price of $36.50
per share, and from the sale of the $138.0 million aggregate principal amount
of 5.75% Convertible Subordinated Notes due 2007 offered by the Company in the
Convertible Offering, based on a public price of 100% of the principal amount
thereof, in each case after deducting underwriting discounts and estimated
expenses of the Stock Offering and the Convertible Offering, were
approximately $53.2 million and $134.9 million, respectively.
The Company has used approximately $161 million of the approximately
$188.1 million net proceeds of the Offerings as follows: (i) approximately
$40.4 million to retire existing indebtedness of the Company and
(ii) approximately $21.1 million to retire the indebtedness of AVCOM that was
assumed by the Company in the AVCOM Merger, (iii) approximately $8.0 million
to finance acquisition costs related to St. John Villas, and
(iv) approximately $91.5 million to complete construction and expansion at
certain resorts, to finance the acquisition and development of additional
resorts and vacation ownership-related assets, to finance sales of vacation
intervals, and for working capital and other general corporate purposes.
Pending any such additional uses, the Company will invest the excess proceeds
in commercial paper, bankers' acceptances, other short-term investment-grade
securities and money-market accounts.
The Company generates cash for operations from the sale of Vacation
Intervals, the financing of the sales of Vacation Intervals, the rental of
unsold Vacation Interval units, and the receipt of management fees. With
respect to the sale of Vacation Intervals, the Company generates cash for
operations from cash sales of Vacation Intervals, from the receipt of down
payments from customers acquiring Vacation Intervals, and from the
hypothecation of mortgages receivable from purchasers equal to 85% to 90% of
the amount borrowed by such purchasers. The Company generates cash related to
the financing of Vacation Interval sales on the difference between the
interest charged on the mortgages receivable, which averaged 15.0% in 1996,
and the interest paid on the notes payable secured by such mortgages
receivable.
During the three months ended March 31, 1997 and 1996, cash used in
operating activities was $9.8 million and $4.8 million, respectively. Cash
used in operating activities was higher for the three months ended March 31,
1997 when compared to the comparable period in 1996 primarily due to timing
related to the payment of AVCOM's current accounts payable and accrued
liabilities, offset by decreases in the amount of expenditures made for real
estate and development costs during the three months ended March 31, 1997. The
decrease in capital expenditures for real estate and development costs was due
to a decrease in the number of resorts undergoing construction as five resorts
were undergoing construction in 1997 compared to seven resorts in 1996.
Net cash used in investing activities for the three months ended March 31,
1997 and 1996 was $27.0 million and $19.5 million, respectively. For the three
months ended March 31, 1997, the change in gross mortgages receivable was $5.0
million higher than during the comparable period in 1996 due to an increased
number of
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intervals sold and increase average sales price per interval sold. As of March
31, 1997, approximately 6.9% of the Company's consumer loans from the sale of
Vacation Intervals were considered by the Company to be delinquent (past due by
60 or more days) and the Company has completed or commenced foreclosure or
deed-in-lieu of foreclosure on approximately 2.4% of its consumer loans. As of
March 31, 1996, approximately 7.0% of the Company's consumer loans from the
sale of Vacation Intervals were considered by the Company to be delinquent
(past due by 60 or more days) and the Company has completed or commenced
foreclosure or deed-in-lieu of foreclosure on approximately 2.0% of its
consumer loans. In addition, net cash used in investing activities also
increased as a result of $3.8 million in underwriting discounts and expenses
associated with the Convertible Offering.
For the three months ended March 31, 1997 and 1996, net cash provided by
financing activities was $136.1 million and $22.7 million, respectively. The
increase in cash provided by financing activities during the quarter ended
March 31, 1997 resulted from the proceeds from the Offerings. The proceeds from
the Offerings were used to reduce borrowings from financial institutions by
$24.4 million and to prepay $54.1 million of notes payable to financial
institutions.
During the years ended December 31, 1996, 1995, and 1994 cash (used in)
provided by operating activities was ($36.6) million, $5.5 million and ($9.6)
million, respectively. Cash generated from operating activities was lower in
1996 when compared to the comparable period in 1995 primarily due to a $35.1
million increase in expenditures on acquisition and development activities
associated with the acquisition and development of new resorts and the
expansion of existing resorts during the period. 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.
Net cash used in investing activities for the years ended December 31, 1996,
1995 and 1994 was $78.8 million, $50.3 million, and $26.9 million,
respectively. Net cash used by investing activities was higher for the year
ended December 31, 1996 when compared to the same period in 1995 principally
due to increases in mortgages receivable which resulted from both higher sales
of Vacation Intervals. During 1996, the change in gross mortgages receivable
was $24.6 million higher than during the comparable period in 1995 due to an
increase in the number of Vacation Intervals sold and increased average sales
price per vacation interval sold.
For the years ended December 31, 1996, 1995 and 1994, net cash provided by
financing activities was $116.5 million, $48.1 million and $37.2 million,
respectively. These net cash figures were affected by the Company's increased
borrowings secured by mortgages receivable 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. During the 1996, the
Company issued 6,037,500 shares of Common Stock in the Initial Public Offering
in August 1996 resulting in approximately $73.3 million of net proceeds. The
proceeds of the Initial Public Offering were used by the Company to repay debt,
to fund expansion, and for other corporate purposes. In addition, period to
period net cash provided by investing activities fluctuates as a result of
borrowing activities for acquisition and development, and from equity
investments as a result of resort acquisitions.
The Company requires funds to finance the future acquisition and development
of vacation ownership 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 mortgages receivable and
partner loans generally funded by third party lenders and capital
contributions. As of March 31, 1997, the Company had $13.1 million outstanding
under its notes payable secured by Vacation Interval inventory or land, and
$96.6 million outstanding under its notes payable secured by mortgages
receivable.
During 1997, the Company anticipates spending approximately $56.5 million for
expansion and development activities at the Company's resorts. The Company may
also be required to expend additional amounts to fund certain AVCOM guarantees
relating to the North Bay Resort at Lake Arrowhead. The Company
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plans to fund these expenditures primarily with the net proceeds of the
Offerings, available capacity on credit facilities and cash generated from
operations. In addition, during 1997, the Company anticipates spending
approximately $8.8 million to finance the acquisition, development and
conversion costs related to the St. John acquisition. These expenditures are
expected to be funded primarily with the net proceeds of the Offerings,
available borrowing capacity under lines of credit and cash generated from
operations.
In addition, the Company anticipates spending approximately $212.0 million
to complete its expansion plans at its resorts (excluding the All Seasons
Resorts and the PRG Resorts) during the periods following 1997. The Company
also plans to spend $34.0 million to complete expansion plans at the All
Seasons Resorts and $96.7 million at the PRG Resorts during the periods
following 1997. The Company anticipates financing the expansion plans of the
Company's resorts through cash acquired from operations, future credit
facilities and/or future issuance of securities. While the Company has not
entered into commitments with respect to any new credit facilities or planned
any additional issuances of securities, it is not currently obligated to
continue with the planned expansion of its resorts. There can be no assurance
that the Company will be able to obtain the financing necessary to continue
such expansion plans.
The Company intends to pursue a growth-oriented strategy. From time to time,
the Company may acquire, among other things, additional vacation ownership
properties, resorts and completed Vacation Intervals; land upon which
additional vacation ownership resorts may be built; management contracts; loan
portfolios of Vacation Interval mortgages; portfolios which include properties
or assets which may be integrated into the Company's operations; and operating
companies providing or possessing management, sales, marketing, development,
administration and/or other expertise with respect to the Company's operations
in the vacation ownership industry.
In the future, the Company may negotiate additional credit facilities, or
issue, in addition to the Convertible Notes, other corporate debt or equity
securities. Any debt incurred or issued by the Company may be secured or
unsecured, fixed or variable rate interest and may be subject to such terms as
management deems prudent.
The Company believes that, with respect to its current operations, the net
proceeds to the Company from the Offerings, together with cash generated from
operations and future borrowings, will be sufficient to meet the Company's
working capital and capital expenditure needs for the near future. However,
depending upon conditions in the capital and other financial markets and other
factors, the Company may from time to time consider the issuance of debt or
other securities, the proceeds of which would be used to finance acquisitions,
to refinance debt or for other general corporate purposes. The Company
believes that the Company's properties are adequately covered by insurance.
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BUSINESS
OVERVIEW
Signature Resorts, Inc. is one of the largest developers and operators of
vacation ownership resorts in North America. The Company is devoted
exclusively to vacation ownership operations and, as of the date of this
Prospectus owns 22 vacation ownership resorts located in a variety of popular
resort destinations, which includes three resorts in which the Company holds a
partial interest. The Company's resorts are located in Arizona (six resorts),
California (five resorts), Florida (two resorts), Netherlands Antilles (two
resorts), Hawaii, Missouri, South Carolina, Texas, U.S. Virgin Islands and
Virginia (two resorts). The Company acquired (i) its Arizona resorts, three of
its California resorts and its Texas resort as a result of the AVCOM Merger
and (ii) its Virginia resorts as a result of the PRG Merger. The Company
currently sells Vacation Intervals at 18 of these 22 resorts; sales at three
resorts have been substantially completed; and sales at one resort have yet to
commence.
The Company's principal operations currently consist of (i) acquiring,
developing and operating vacation ownership resorts, (ii) marketing and
selling vacation ownership interests in its resorts, which typically entitle
the buyer to use a fully-furnished vacation residence, generally for a one-
week period each year and (iii) providing financing for the purchase of
Vacation Intervals at its resorts.
THE VACATION OWNERSHIP INDUSTRY
The Market. The resort component of the leisure industry primarily is
serviced by two separate alternatives for overnight accommodations: commercial
lodging establishments and 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. Also, room rates and availability at such establishments are
subject to change periodically. In addition to providing improved lifestyle
benefits to owners, vacation ownership presents an economical alternative to
commercial lodging for vacationers.
The Company believes that, based on published industry data, the following
factors have contributed to the increased acceptance of the vacation ownership
concept among the general public and the substantial growth of the vacation
ownership industry over the past 15 years:
. Increased consumer confidence resulting from consumer protection
regulation of the vacation ownership industry and the entrance of brand
name national lodging companies to the industry;
. Increased flexibility of vacation ownership ownership due to the growth
of international exchange organizations;
. Improvement in the quality of both the facilities themselves and the
management of available vacation ownership resorts;
. Increased consumer awareness of the value and benefits of vacation
ownership including the cost savings relative to other lodging
alternatives; and
. Improved availability of financing for purchasers of Vacation Intervals.
The vacation ownership industry traditionally has been highly fragmented and
dominated by a large number of local and regional resort developers and
operators, each with small resort portfolios generally of differing quality.
The Company believes that one of the most significant factors contributing to
the current success of the vacation ownership 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 Ownership Resorts ("Marriott"), The Walt
Disney Company ("Disney"), Hilton Hotels Corporation ("Hilton"), Hyatt
Corporation ("Hyatt"), Four Seasons Hotels & Resorts ("Four Seasons") and
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Inter-Continental Hotels and Resorts ("Inter-Continental"), as well as Promus
Hotel Corporation ("Promus") and Westin Hotels & Resorts ("Westin"). Unlike the
Company, however, the vacation ownership operations of each of Marriott,
Disney, Hilton, Hyatt, Four Seasons and Inter-Continental comprise only a small
portion of such companies' overall operations.
The Economics. The Company believes that national lodging and hospitality
companies are attracted to the vacation ownership concept because of the
industry's rapid historic growth rate and high profit margins. In addition,
such companies recognize that Vacation Intervals provide an attractive
alternative to the traditional hotel-based vacation and allow the hotel
companies to leverage their brands into additional resort markets where demand
exists for accommodations beyond traditional hotels.
The Consumer. According to information compiled by the ARDA for the year
ended December 31, 1994 (the most recent year for which statistics are
available), 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 vacation
ownership industry as of December 31, 1994, Vacation Interval ownership has
achieved only an approximate 3.0% market penetration among United States
households with income above $35,000 per year and 3.9% market penetration among
United States households with income above $50,000 per year.
According to the ARDA study, the three primary reasons cited by consumers for
purchasing a Vacation Interval are (i) the ability to exchange the Vacation
Interval for accommodations at other resorts through exchange networks (cited
by 82% of Vacation Interval purchasers), (ii) the money savings over
traditional resort vacations (cited by 61% of purchasers) and (iii) the quality
and appeal of the resort at which they purchased a Vacation Interval (cited by
54% of purchasers). According to the ARDA study, Vacation Interval buyers have
a high rate of repeat purchases: approximately 41% of all Vacation Interval
owners own more than one interval representing approximately 65% of the
industry inventory and approximately 51% of all owners who bought their first
Vacation Interval before 1985 have since purchased a second Vacation Interval.
In addition, customer satisfaction increases with length of ownership, age,
income, multiple location ownership and accessibility to Vacation Interval
exchange networks.
The Company believes it is well positioned to take advantage of these
demographics trends because of the quality of its resorts and locations, its
program to allow buyers to exchange intervals at several of the Company's
resorts and its participation in the RCI network. However, RCI is under no
obligation to continue to include the Company's resorts in its exchange
network. The Company expects the vacation ownership industry to continue to
grow as the baby-boom generation continues to enter the 40-55 year age bracket,
the age group which purchased the most Vacation Intervals in 1994.
BUSINESS STRATEGY
The Company's objective is to become North America's leading developer and
operator of vacation ownership resorts. To meet this objective, the Company
intends to (i) acquire, convert and develop additional resorts to be operated
as Embassy Vacation Resorts, Westin Vacation Club resorts and non-branded
resorts, capitalizing on the acquisition and marketing opportunities to be
provided as a result of its relationships with Promus, Westin, selected
financial institutions and its position in certain markets and the vacation
ownership industry generally, (ii) increase sales and financing of Vacation
Intervals at its resorts through broader-based marketing efforts and in certain
instances through the construction of additional Vacation Interval inventory,
(iii) improve operating margins by reducing borrowing costs and reducing its
sales and marketing expenses as a percentage of revenues over time,
(iv) acquire additional Vacation Interval inventory, operating companies,
management contracts, Vacation Interval mortgage portfolios and properties or
other vacation ownership-related assets that may be integrated into the
Company's operations and (v) pursue the development of a points based club
system.
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The key elements of the Company's strategy are described below.
Acquisition and Development of New Resorts. The Company intends to acquire
and develop additional resorts to be operated as branded Embassy Vacation
Resorts, Westin Vacation Club resorts and as non-branded resorts. To implement
its growth strategy, the Company intends to pursue resort acquisitions and
developments in a number of vacation destinations that will complement the
Company's operations, including the California and Hawaii markets, which are
subject to barriers to entry and in which the Company's founders have extensive
acquisition and development experience. The Company believes that its
relationships with Promus, Westin and selected financial institutions that
control resort properties located in Hawaii and California will provide it with
acquisition, development and hotel-to-vacation ownership conversion
opportunities and will allow it to take advantage of currently favorable market
opportunities to acquire resort and condominium properties to be operated as
vacation ownership resorts. Since the inception of the resort acquisition and
development business by the Company's predecessor in 1992, the Company believes
it has been able to purchase hotel, condominium and resort properties and/or
entitled land at less than either their initial development cost or replacement
cost and remodel or convert such properties for sale and use as vacation
ownership resorts. In addition to acquiring existing resort and hotel-to-
vacation ownership conversion properties, the Company also seeks to develop
resorts located in destinations where it discerns a strong demand, which the
Company anticipates will enable it to achieve attractive rates of return.
The Company considers the potential acquisition or development of vacation
ownership resorts in locations based on existing vacation ownership competition
in the area as well as existing overall demand for accommodations. In
evaluating whether to acquire, convert or develop a vacation ownership resort
in a particular location, the Company analyzes relevant demographic, economic
and financial data. Specifically, the Company considers the following factors,
among others, in determining the viability of a potential new vacation
ownership resort in a particular location: (i) supply/demand ratio for the
purchase of Vacation Intervals in the relevant market and for Vacation Interval
exchanges into the relevant market by other Vacation Interval owners, (ii) the
market's growth as a vacation destination, (iii) the ease of converting a hotel
or condominium property into a vacation ownership resort from a regulatory and
construction point of view, (iv) the availability of additional land at or
nearby the property for potential future development and expansion, (v)
competitive accommodation alternatives in the market, (vi) uniqueness of
location, and (vii) barriers to entry that would tend to limit competition.
The Company believes that its relationships with Promus and Westin will
provide it with attractive acquisition, conversion, development and marketing
opportunities and uniquely position the Company to offer Vacation Intervals at
a variety of attractive resort destinations to multiple demographic groups in
the vacation ownership market. Capitalizing on two of the Company's founders'
relationship with Promus as a developer and owner of Embassy Suites hotels, in
1994 the Company and Promus established Embassy Vacation Resorts. However, the
Company has no ownership of or rights to the "Embassy Vacation Resorts" name or
servicemark, both of which are owned exclusively by Promus, except as set forth
in the Company's license agreements with Promus with respect to the Company's
Embassy Vacation Resorts. Under Promus's exclusive development agreement with
Vistana, Inc., Promus has identified the Company as the only other licensee of
the Embassy Vacation Resort name. On January 7, 1997, Promus announced that it
intended to expand its branded vacation ownership business with only the
Company and Vistana and that additional Embassy Vacation Resort properties to
be developed or acquired by the Company and licensed by Promus are under
discussion. However, there can be no assurance that Promus will license the
Embassy Vacation Resort name to the Company with respect to possible future
resorts.
Through its agreement with Westin, the Company has the exclusive right
through May 2001, to jointly acquire, develop and market with Westin "four-
star" and "five-star" vacation ownership resorts located in North America,
Mexico and the Caribbean (the "Westin Agreement"). The Company's rights also
cover the conversion of Westin hotels to vacation ownership resorts. In
addition, pursuant to the Westin Agreement, it is expected that Westin will
provide the Company with lead generation assistance and marketing support at
the Westin Vacation Club resorts and Promus currently provides such assistance
at Embassy Vacation Resorts. The
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Embassy Suites hotels owned by two of the Company's founders also provide lead
generation assistance and support to the Company with respect to the marketing
of the Company's resorts.
The Company's relationships with Promus and Westin also provide it with a
competitive advantage in the vacation ownership industry by allowing it to
offer two separate branded products in both the upscale and luxury market
segments. The Company believes that brand affiliation is becoming an important
characteristic in the vacation ownership industry as it provides the consumer
an important element of reliability and image in a fragmented and largely non-
branded industry. Through its Embassy Vacation Resorts and Westin Vacation Club
resorts, the Company believes it will be able to provide Vacation Interval
buyers with consistent quality in their vacation ownership purchases. In
addition, through its non-branded resorts the Company will be able to appeal to
the value-conscious consumer who seeks the best value for his or her money and
does not seek affiliation with brand-name lodging companies.
Sales and Expansion at the Company's Resorts. The Company intends to continue
sales of Vacation Intervals at its resorts by adding Vacation Interval
inventory through the construction of new development units and by broadening
marketing efforts. The Company believes it is well positioned to expand sales
of Vacation Intervals at its resorts as a result of its existing supply of
Vacation Intervals in inventory, as well as planned expansion.
Based on information received from the Company's customers and sales agents,
the Company believes that in addition to basic quality, expanded resort
amenities and larger, multi-purpose units, current and potential buyers want
enhanced flexibility in scheduling their vacations, a broader distribution of
quality exchange locations and the availability of other value-priced services.
As a major developer and operator of vacation ownership resorts in North
America, the Company believes that it has acquired skill and expertise both in
the development and operation of vacation ownership resorts and in the
marketing and sales of Vacation Intervals and that it has acquired the breadth
of resorts which give it a competitive advantage.
Improvement of Operating Margins. As the Company grows, management believes
that its larger number of resorts relative to its competitors will provide it
with additional revenue opportunities and economies of scale which will allow
it the potential for significant cost savings. The Company believes that
increased efficiency, reduction in on-site administrative requirements and a
multi-resort management system will reduce operating costs and allow the
Company to experience increased margins by spreading operating and corporate
overhead costs over a larger revenue base. In addition, operating margins at a
resort tend to improve over time as a greater percentage of Vacation Intervals
are sold, resulting in lower selling, marketing and advertising expenses. The
Company also believes that it will reduce sales and marketing expenses as a
result of the lead generation assistance provided or to be provided by Westin
and Promus and by targeting potential buyers through Westin Vacation Club
resorts and Embassy Suites hotels.
Acquisition of Vacation Ownership Assets, Management Contracts and Operating
Companies. As a result of the Company's relationships in the vacation ownership
and financial communities and the size and geographic diversity of its
portfolio of properties, the Company has access to a variety of acquisition
opportunities related to the Company's business. The Company's business
strategy includes pursuing growth by expanding or supplementing the Company's
existing vacation ownership business through acquisitions. The Company believes
that its record of acquiring resort properties gives the Company credibility
and, the Company's status as a public company may make the acquisition by the
Company of businesses or operations more attractive to potential sellers. The
Company believes that these collective factors will help the Company acquire
assets, operations and companies in the fragmented vacation ownership industry.
Acquisitions which the Company may consider, in addition to those disclosed
herein, include acquiring additional Vacation Interval inventory, operating
companies, management contracts, Vacation Interval mortgage portfolios and
properties or other vacation ownership-related assets which may be integrated
into the Company's operations. The acquisitions of AVCOM and PRG are recent
examples of the implementation of the Company's acquisition strategy.
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DESCRIPTION OF THE COMPANY'S RESORTS
The Company believes that, based on published industry data, it is the only
developer and operator of vacation ownership resorts in North America that
will offer Vacation Intervals in each of the three principal price segments of
the market (value, upscale and luxury). Since the inception of the vacation
ownership development and acquisition business of the Company's predecessors,
the Company has developed or acquired 22 vacation ownership resorts, of which
18 are currently in sales. Of the Company's 22 resorts, three resorts are
partially-owned by the Company. The Company's resorts operate in the following
three general categories, each differentiated by price range, brand
affiliation and quality of accommodations:
Non-Branded Resorts. The Company's non-branded resorts, which are not
affiliated with any hotel chain, are positioned in the value price segment of
the market. Vacation Intervals at the Company's 18 non-branded resorts (which
include the All Seasons Resorts and the PRG Resorts) generally sell for $6,000
to $18,000 and are targeted to buyers with annual incomes ranging from $35,000
to $80,000. The Company believes its non-branded resorts offer buyers an
economical alternative to branded vacation ownership resorts (such as Embassy
Vacation Resorts and Westin Vacation Club resorts) or traditional vacation
lodging alternatives.
Embassy Vacation Resorts. The Company's Embassy Vacation Resorts are
positioned in the upscale price segment of the market and are characterized by
high quality accommodations and service. Vacation Intervals at the Company's
three Embassy Vacation Resorts generally sell for $14,000 to $20,000 and are
targeted to buyers with annual incomes ranging from $60,000 to $150,000.
Embassy Vacation Resorts are designed to provide vacation ownership
accommodations that offer the high quality and value that is represented by
the more than 135 Embassy Suites hotels throughout North America.
Westin Vacation Club Resorts. The Company's Westin Vacation Club resorts are
positioned in the luxury price segment of the market and are characterized by
elegant accommodations and personalized service. Through the Westin Agreement,
the Company has the exclusive right through May 2001 to jointly acquire,
develop and market with Westin "four-star" and "five-star" vacation ownership
resorts located in North America, Mexico and the Caribbean. The Company
anticipates that Vacation Intervals at Westin Vacation Club resorts generally
will sell for $16,000 to $25,000 and will be targeted to buyers with annual
incomes ranging from $80,000 to $250,000. The Westin Agreement represents
Westin's entry into the vacation ownership market.
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The following table sets forth certain information regarding each of the
Company's resorts, including location, date acquired or to be acquired by the
Company, the number of existing and total potential units at the resort, the
number of Vacation Intervals currently available for sale and occupancy and
additional expansion potential. Of the resorts set forth below, the Embassy
Vacation Resort Poipu Point and the North Bay Resort at Lake Arrowhead and the
Westin Vacation Club at St. John are partially owned by the Company. The exact
number of units and Vacation Intervals ultimately constructed may differ from
the following estimates based on future land planning and site layout
considerations.
<TABLE>
<CAPTION>
VACATION INTERVALS AT
UNITS AT RESORT RESORT
DATE ----------------------- -------------------------
ACQUIRED/TO BE TOTAL CURRENT POTENTIAL
RESORT LOCATION ACQUIRED(A) CURRENT(B) POTENTIAL(C) INVENTORY(D) EXPANSION(E)
------ -------- -------------- ---------- ------------ ------------ ------------
<C> <S> <C> <C> <C> <C> <C>
NON-BRANDED RESORTS:
Cypress Pointe Resort Lake Buena Vista, Florida November 1992 224 500(f) 2,150 14,076(f)
Plantation at Fall Creek Branson, Missouri July 1993 114 400(g) 991 14,586(g)
Royal Dunes Resort Hilton Head Island, South April 1994 40 55(h) 499 765(h)
Carolina
Royal Palm Beach Club St. Maarten, Netherlands July 1995 140 140(i) 1,483 --
Antilles
Flamingo Beach Club St. Maarten, Netherlands July 1995 172 257(j) 1,947 4,420(j)
Antilles
San Luis Bay Resort Avila Beach, California June 1996 68 130(k) 525 3,162(k)
EMBASSY VACATION RESORTS:
Poipu Point(l) Koloa, Kauai, Hawaii November 1994 219 219(m) 9,429 --
Grand Beach Orlando, Florida January 1995 126 400(n) 3,261 13,974(n)
Lake Tahoe South Lake Tahoe, California May 1996 62 210(o) 2,658 7,548(o)
WESTIN VACATION CLUB:
St. John(p) St. John, U.S. Virgin Islands May 1997 48 96(q) 1,715 2,448(q)
ALL SEASONS RESORTS:
Scottsdale Villa Mirage Scottsdale, Arizona February 1997 64 168(r) 1,947 5,304(r)
Resort
The Ridge on Sedona Sedona, Arizona February 1997 -- 120(s) -- 6,120(s)
Golf Resort
Sedona Springs Resort Sedona, Arizona February 1997 40 40 46 --
Sedona Summit Resort Sedona, Arizona February 1997 46 60(t) 392 714(t)
Villas of Poco Diablo Sedona, Arizona February 1997 33 33 77 --
Villas of Sedona Sedona, Arizona February 1997 40 40 155 --
North Bay Resort at Lake Lake Arrowhead, California February 1997 13 13(u) 47 --
Arrowhead
Tahoe Beach & Ski Club South Lake Tahoe, California February 1997 140 140 1,002 --
Tahoe Seasons Resort(v) South Lake Tahoe, California February 1997 21 21(v) 847 --
Villas on the Lake Lake Conroe, Texas February 1997 37 85(w) 1,616 2,448(w)
PRG RESORTS:
Powhatan Plantation Williamsburg, Virginia May 1997 405 500(x) 797 4,845(x)
Greensprings Plantation Williamsburg, Virginia May 1997 58 500(y) 992 22,542(y)
----- ----- ------ -------
TOTAL.................................................................. 2,110 4,127 32,576 102,952
===== ===== ====== =======
</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 resort by the
Company.
(b) Current units at each resort represents only those units that have
received their certificate of occupancy as of March 31, 1997. The Company
generally is able to sell 51 Vacation Intervals with respect to each unit
at its resorts.
(c) Total potential units at each resort includes, as of March 31, 1997, (i)
units which have received their certificate of occupancy, (ii) units
currently under construction that have not yet received their certificate
of occupancy and (iii) units planned to be developed on land currently
owned by the Company.
(d) Current inventory of Vacation Intervals at each resort represents only
those unsold intervals that have received their certificate of occupancy
as of March 31, 1997.
(e) Potential expansion of Vacation Intervals at each resort includes, as of
March 31, 1997, (i) intervals currently under development that have not
yet received their certificate of occupancy and (ii) intervals planned to
be developed on land currently owned by the Company.
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(f) Includes an estimated 276 units which the Company plans to construct on
land which it owns at the Cypress Pointe Resort and for which all
necessary governmental approvals and permits (except building permits)
have been obtained. Should the Company elect to construct a higher
percentage of three bedroom units, rather than its current planned mix of
one, two and three bedroom units, the actual number of planned units will
be lower than is indicated above.
(g) Includes an estimated 286 units 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.
(h) Includes 15 units construction of which commenced in the second quarter of
1997 and for which all necessary governmental approvals and permits have
been received by the Company.
(i) The Company has not committed to any expansion of the Royal Palm Beach
Club. The Company is considering the acquisition of additional land
adjacent to the Royal Palm Beach Club for the addition of an estimated 60
units but has yet to enter into an agreement with respect to such
additional land or to obtain the necessary governmental approvals and
permits for such expansion.
(j) In May 1996 the Company acquired a five-acre parcel of land adjacent to
the Flamingo Beach Club on which the Company plans to develop
approximately 85 units. The Company is in the process of seeking to obtain
the necessary governmental approvals and permits for such proposed
expansion.
(k) Includes 62 units for which all necessary governmental approvals and
permits have been received by the Company. Construction of the first 31
units began in October 1996 and is scheduled for completion during the
third quarter of 1997. In addition, the Company is considering the
acquisition of additional land near the San Luis Bay Resort for the
addition of an estimated 100 units, 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. In June 1996 the
Company acquired approximately 130 Vacation Intervals at the San Luis Bay
Resort out of the bankruptcy estate of Glen Ivy Resorts, Inc. In addition,
the Company acquired promissory notes in default that are secured by
approximately 900 Vacation Intervals. The Company intends to foreclose
upon and acquire clear title to such Vacation Intervals and intends to
complete such foreclosure procedures (or deed-in-lieu procedures) during
1997.
(l) The Company acquired a 30.43% partnership interest in the Embassy Vacation
Resort Poipu Point in November 1994. The Company owns, directly or
indirectly, 100% of the partnership interests in one of the two co-
managing general partners of Poipu Resort Partners L.P., a Hawaii limited
partnership ("Poipu Partnership"), the partnership which owns the Embassy
Vacation Resort Poipu Point. The managing general partner owned by the
Company holds a 0.5% partnership interest for purposes of distributions,
profits and losses. The Company also holds, directly or indirectly, a
29.93% limited partnership interest in the Poipu Partnership for purposes
of distributions, profits and losses, for a total partnership interest of
30.43%. In addition, following repayment of any outstanding partner loans,
the Company, directly or indirectly, is entitled to receive a 10% per
annum return on the Founders' and certain former limited partners' initial
capital investment of approximately $4.6 million in the Poipu Partnership.
After payment of such preferred return and the return of approximately
$4.6 million of capital to the Company, directly or indirectly, on a pari
passu basis with the other general partner in the partnership, the
Company, directly or indirectly, is entitled to receive approximately 50%
of the net profits of the Poipu Partnership. In the event certain internal
rates of return specified in the Poipu Partnership agreement are achieved,
the Company, directly or indirectly, is entitled to receive approximately
55% of the net profits of the Poipu Partnership.
(m) Includes 179 units that the Company currently rents on a nightly basis,
pending their sale as Vacation Intervals.
(n) The Company has received all necessary discretionary governmental
approvals and permits to construct an additional estimated 274 units on
land which it owns at the Embassy Vacation Resort Grand Beach (excluding
building permits which have not yet been applied for by the Company). The
Company plans to apply for and obtain these building permits on a
building-by-building basis.
(o) The Company has received all necessary discretionary governmental
approvals and permits (excluding building permits which will be applied
for and obtained on a phase-by-phase basis) to construct an
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additional estimated 148 units on land that it owns at the Embassy Vacation
Resort Lake Tahoe. The Company commenced construction on 40 of such units
in the first quarter of 1997 and, subject to market demand, currently plans
to construct an additional 40 of such units commencing in the second
quarter of each year from 1998 through 1999 and the remaining 28 units
commencing in May 2000.
(p) The Company owns 50% of the entity which has acquired the unsold Vacation
Intervals at this resort. The acquisition closed in May of 1997 and
commencement of Vacation Interval sales is anticipated to begin by the
fourth quarter of 1997.
(q) Includes 48 units which are currently available for occupancy. With
respect to such 48 units, 36 of such units have received all necessary
discretionary governmental approvals and permits necessary to commence
Vacation Interval sales and the Company plans to file the necessary
documentation to receive such approvals with respect to the remaining 12
of such units. Also includes an additional 48 units which will require the
installation of utilities, furniture, fixtures and equipment and interior
finishes before occupancy. The Company currently anticipates completing
the renovation of such 48 additional units by the fourth quarter of 1997.
The Company also owns adjacent land at the St. John resort which will
accommodate the development of additional units but with respect to which
no permits or approvals have been obtained. The Company has not yet
determined the number of potential additional units which may be
constructed on such adjacent land or the timing of such potential
development.
(r) Includes 40 units and 64 units which are scheduled for completion in the
first quarter of 1998 and 1999, respectively. All necessary discretionary
approvals and permits have been received for all units to be constructed
at the Scottsdale Villa Mirage Resort.
(s) Construction began in December 1996 on The Ridge on Sedona Golf Resort,
which upon completion will consist of 120 units. The first 12 units and
clubhouse are scheduled for occupancy in June 1997 and have received all
necessary discretionary governmental approvals and permits. Governmental
approvals and permits have not been received for the additional planned
108 units. Vacation Interval sales began in May 1997.
(t) Construction of the final 14 units is scheduled for completion in the
third quarter of 1997. All necessary discretionary governmental approvals
and permits have been received for all units at the resort.
(u) The Company owns or has the power to vote 80% of the partnership interests
of Trion Capital Corporation. Trion is the General Partner of Arrowhead
Capital Partners, L.P., which is the developer of North Bay Resort at Lake
Arrowhead. The General Partner is entitled to receive 1% of the profits of
Arrowhead Capital Partners, L.P., but under certain circumstances, is
entitled to receive substantially higher profits. All Seasons has an
exclusive sales and marketing contract for sales at North Bay, and is the
property manager of the resort. Although Arrowhead Capital Partners, L.P.
owns undeveloped land and buildings under construction at the North Bay
Resort at Lake Arrowhead, no definitive expansion plans have been made.
(v) Prior to being acquired by the Company, AVCOM purchased a portfolio of
1,057 defaulted consumer notes at the Tahoe Seasons Resort in March 1996
which are secured by Vacation Intervals. Of the notes purchased, 414 notes
have been converted to inventory of which 160 Vacation Intervals have been
sold by the Company and 41 of the notes have been reaffirmed by the
original buyers. The Company intends to foreclose on the remaining notes
and acquire clear title to the intervals.
(w) Villas on the Lake consists of 37 existing units purchased in February
1996 currently in the final phase of renovation. Land included in the
initial purchase is able to accommodate construction of an additional
48 units in phase II. The phase II construction start date has not yet
been determined, however all necessary discretionary governmental
approvals and permits (excluding building permits which have not yet been
applied for) have been received for such additional 48 units.
(x) Includes 14 units which are currently under construction and are scheduled
for occupancy during the first quarter of 1998. The Company has received
all necessary discretionary governmental approvals and permits with
respect to such 14 units. The Company's development schedule for the
remaining 81 units will be determined based on market demand and other
factors.
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<PAGE>
(y) Includes 30 units which are currently under construction and are scheduled
for occupancy during the first quarter of 1998. The Company has received
all necessary discretionary governmental approvals and permits with respect
to such 30 units. The Company's development schedule for the remaining 412
units will be determined based on market demand and other factors.
NON-BRANDED RESORTS
The Cypress Pointe Resort. Cypress Pointe Resort, the Company's first
vacation ownership resort, opened in November 1992 and is located in Lake Buena
Vista, Florida, approximately one-half mile from the entrance of Walt Disney
World and is an approximately 10 minute drive from all major Orlando
attractions. The resort is being developed in two phases. Phase I sits on 9.7
acres of land and consists of nine buildings, eight of which currently are
complete. Phase II sits on 12.5 acres of land and will consist of seven
buildings, the first and second of which were completed in April and September
1996, respectively.
Styled with a Caribbean theme, upon completion of the nine buildings, Phase I
will contain 192 three bedroom 1,460 square foot units. Each unit comfortably
accommodates up to eight people with its two large master bedrooms, three
bathrooms, living room with sleeper sofa, and full kitchen. The three bedroom
units in Phase I also offer a jacuzzi tub, a roman tub, three color televisions
(including one 460 screen), a video cassette player, a complete stereo system,
a washer/dryer and elegant interior details such as nine-foot ceilings, crown
moldings, interior ceiling fans, imported ceramic tile, oversized sliding-glass
doors and rattan and pine furnishings. With the completion of Phase II, the
resort will be equipped with three pools including a 4,000 gallon heated pool
with a volcano, two spas, two poolside cafes, two tennis courts, a sand
volleyball court, a basketball court, an exercise facility, a kiddie pool, a
gift shop, a lakeside gazebo, a shuffleboard court, a picnic area and a video
arcade. The resort also contains a full children's playground and a new 17,000
square foot clubhouse.
Upon completion of Phases I and II, the resort will contain approximately 500
units. Upon completion of seven buildings in Phase II, Phase II will contain a
total of approximately 308 units consisting of one, two and three bedroom units
of up to 1,850 square feet and accommodating up to ten people. Phase I consists
of 168 existing units, with an additional 24 units scheduled to be built upon
the completion of Phase II.
Vacation Intervals at the Cypress Pointe Resort are currently priced from
$6,000 to $16,000 for one-week Vacation Intervals. Vacation Intervals at the
resort can be exchanged for Vacation Intervals at other locations through RCI,
which awarded the resort its Gold Crown Resort Designation. The resort won the
ARDA National Award for its overall owner package in 1993.
The Plantation at Fall Creek. The Plantation at Fall Creek, which opened in
July 1993, is located on the shores of Lake Taneycomo, a fishing lake near the
heart of Branson, Missouri, the capital of country music theaters. The resort's
units each consist of 2 bedrooms and 2 baths and up to 1,417 square feet and
are built in a country style on approximately 130 acres of land. The Company
currently plans to continue to expand the resort to accommodate a total of 400
units. Each unit features two large master bedrooms/baths, queen
sized sofa-sleeper, full kitchen, three color televisions, video cassette
player, washer/dryer, cherry wood furnishings, ceiling fans and jacuzzi or
roman tub. The resort is equipped with 4 swimming pools, a fishing dock, a
shuffleboard court, a game room, a children's playground, a health club, a
tennis court, a miniature golf course, a sand volleyball court, barbecue areas
and a basketball court.
Vacation Intervals at the Plantation at Fall Creek are currently priced from
$7,295 to $10,295 for one-week Vacation Intervals. Vacation Intervals at the
resort can be exchanged for Vacation Intervals at other locations through RCI,
which awarded the resort its Gold Crown Resort Designation.
The Royal Dunes Resort at Port Royal Plantation. The Royal Dunes Resort at
Port Royal Plantation opened in April 1994 and is located in Port Royal
Plantation on Hilton Head Island, South Carolina, only 400 yards from the
beach. Upon completion, the resort will contain a total of 55 units, each
consisting of three bedrooms. The units can comfortably accommodate eight
people in their 1,460 square feet of living area with two master
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suites with private bath, one guest bedroom with bath, a living room with a
sofa sleeper, a full kitchen and an outside deck. Each unit features a jacuzzi
tub, a roman tub, a washer/dryer, four color televisions, a video cassette
player, an entertainment center and elegant interior details such as nine-foot
ceilings, crown moldings, interior ceiling fans and rattan and pine
furnishings. The resort offers a heated swimming pool, outdoor whirlpool spa,
kiddie pool, sand volleyball court, barbecue grill and picnic area. The Royal
Dunes is conveniently located for golf, tennis, fishing, shopping, boating,
biking and croquet and adjacent to Royal Dunes is the Westin Hotel & Resort at
Port Royal, Hilton Head Island.
Vacation Intervals at the Royal Dunes are currently priced from $8,250 to
$13,250 for one-week Vacation Intervals. Vacation Intervals at the resort can
be exchanged for Vacation Intervals at other locations through RCI, which
awarded the resort its Gold Crown Resort Designation.
The Royal Palm Beach Club. The Royal Palm Beach Club, originally opened in
1990 and acquired by the Company in July 1995, is located at Simpson Bay in
St. Maarten, Netherlands Antilles. Located approximately one mile from the
island's major airport and ten minutes from local shopping and dining, the
resort is surrounded by the Caribbean on three sides. The resort contains 140
units consisting either of two bedrooms, two baths or three bedrooms, three
baths. Each unit is equipped with a full kitchen, complete with microwave and
dishwasher, color television, VCR and private lanai. The resort is equipped
with a private beach, an overflowing style pool located on the beach, a large
sun deck and a picnic area with barbecue grills. The Royal Palm Beach Club is
also conveniently located for water sports, boating, health club workouts and
tennis, and is located adjacent to a retail center, including an outdoor cafe,
dance clubs, market, hair salon, gift shop, mini-market and restaurants. Each
unit at the resort, as well as the resort grounds and common areas, recently
received a complete renovation in connection with repairs following the
September 1995 hurricane which damaged the resort.
Units at the Royal Palm Beach Club, are currently priced from $9,450 to
$12,900 for one-week Vacation Intervals. Vacation Intervals at the resort can
be exchanged for Vacation Intervals at other locations through RCI, which
awarded the resort its Gold Crown Resort Designation and through Interval
International, the other major exchange company in the industry, which awarded
the resort a "five-star" designation, the highest quality level in the II
system.
The Flamingo Beach Club. The Flamingo Beach Club, originally opened in
January 1991 and acquired by the Company in August 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 upon completion will contain 257 units, consisting of
beachfront studio and one bedroom, one bath units. Each unit is equipped with
two color televisions, a video cassette player, air conditioning, a balcony
suitable for outside dining and a fully equipped kitchen complete with
microwave oven and dishwasher. The resort features water sports, a beach
palapa bar and grill, a mini-market, tennis facilities and a beach house bar.
Each unit at the resort, as well as the resort grounds and common areas,
recently received a complete renovation in connection with repairs following
the September 1995 hurricanes which damaged the resort.
Vacation Intervals at the Flamingo Beach Club are currently priced from
$6,500 to $8,900 for one-week Vacation Intervals. Vacation Intervals at the
resort can be exchanged for Vacation Intervals at other locations through RCI,
which awarded the resort its Gold Crown Resort Designation.
The San Luis Bay Resort. The San Luis Bay Resort, located on 16 oceanview
acres in Avila Beach, California, near San Luis Obispo, was originally opened
in 1969 as a hotel club and in June 1996 was acquired by the Company from the
bankruptcy estate of Glen Ivy Resorts, Inc., which had converted the property
to a vacation ownership resort in 1989. The resort is adjacent to a
championship golf course and is well located for visiting local wineries and
historical attractions. At present, a total of 68 studio and one bedroom units
are completed at the resort. The Company has commenced construction of the
phase I addition of 30 units. Upon completion of the addition, units will be
available in one and two bedroom configurations (some with lock-off
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capability) and will offer a king size bed, a queen size sofa sleeper, a porch,
a full kitchen, two color televisions, a video cassette player and a stereo.
The phase II addition of 32 units is scheduled to commence construction
following the completion of phase I. The resort features a swimming pool, a
spa, four tennis courts, exercise facilities, a full service salon, a video
game room, a basketball court and a barbecue area. The resort is also well
located for windsurfing, boating, fishing and surfing.
Vacation Intervals at the San Luis Bay Resort 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 400
units. Despite the resort's remote, lake front ambiance, it is only minutes
from International Drive which provides access to Orlando, Florida's major
attractions. All current units offer three bedrooms and three bathrooms with
approximately 1,550 square feet of living area, including a large screened-in
deck and a full-size, well-equipped kitchen. With two master suites, a third
bedroom, and a sleeper sofa in the living room, units can comfortably
accommodate four couples. Each unit features air-conditioning, a whirlpool tub,
a washer/dryer, three cable televisions, a video cassette player, a stereo and
elegant interior details such as nine-foot ceilings, crown molding, wooden
venetian blinds, imported ceramic tile and slate flooring. Upon full
completion, the Company expects that the resort will include 5,000 square feet
of sand beaches, four gazebo-covered docks that stretch out over Lake Bryan and
easy access to water skiing, jetskiing, parasailing, sailboating, wind surfing
and fishing on Lake Bryan. The Grand Beach resort will provide two outdoor
pools, two spas, two kiddie pools, two lighted tennis courts, sand volleyball
courts, shuffleboard courts, a putting green, a children's playground, barbecue
and picnic areas and a fitness complex with two clubhouses containing exercise
rooms, kitchens and a video arcade. In 1995, the resort was featured in both
RCI Perspective Magazine and Resort Development and Operations Magazine.
Vacation Intervals at the Embassy Vacation Resort Grand Beach are currently
priced from $12,500 to $14,000 for one-week Vacation Intervals. Vacation
Intervals at the resort can be exchanged for Vacation Intervals at other
locations through RCI, which awarded the resort its Gold Crown Resort
Designation.
The Embassy Vacation Resort Poipu Point. The Embassy Vacation Resort Poipu
Point was reconstructed in 1993 after being substantially destroyed by
Hurricane Iniki and was acquired by the Company in November 1994. The resort is
located at the most southern point on the Poipu Sun Coast of Kauai, Hawaii,
offering a natural, open setting in an architectural style designed to blend
with the land. The resort spans 10 buildings on 22 acres with a total of 219
units. The units, one of which has one bedroom and one bathroom, 216 of which
have two bedrooms and two bathrooms and 2 of which have three bedrooms and
three bathrooms, range in size from 1,363 to 2,629 square feet. Each unit
either overlooks the ocean or one of the many gardens maintained on the
grounds. All units feature air-conditioning, two telephones with voice mail,
two cable televisions, video
cassette player, stereo, washer/dryer, whirlpool tub, full kitchen and a
spacious lanai. Units can accommodate up to six people and are appointed with
designer furnishings, custom fabrics, and custom-designed ceramic tile. The
resort is equipped with a spectacular lagoon-like freshwater swimming pool with
a sandy beach entry and its own beach, waterfalls, fish ponds, lush garden
walkways, a kiddie pool and a health club with weight and aerobic equipment,
two hydrospas, sauna and steamroom. The property is adjacent to a large sandy
beach and is well located for scuba diving, wind surfing, golf, tennis,
surfing, horseback riding, fishing, boating and exploring the island's rain
forests, fern grottos and waterfalls.
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. Vacation Intervals at the resort can be exchanged for
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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. The resort is located in South Lake
Tahoe, California, and is situated on nine acres near the shores of Lake Tahoe
adjoining the Lake Tahoe Marina in one of the world's most beautiful resort
areas. The architectural design of the resort connotes the rustic elegance
known as "Old Tahoe." Approximately one mile from the casinos and 1/2 mile
from the base lift of Heavenly Ski Resort, upon completion the resort will
contain 210 two bedroom/two bath units offering lake and mountain views. The
resort features a restaurant, an indoor/outdoor heated swimming pool, a spa, a
sunning deck, lakefront activities, bike rentals, ski valet, sundry shop,
convenience store and delicatessen.
Vacation Intervals at the Embassy Vacation Resort Lake Tahoe are priced from
$17,000 to $25,000 for one-week Vacation Intervals. RCI has indicated that
Vacation Intervals at the resort may be exchanged for Vacation Intervals at
other locations through RCI.
WESTIN VACATION CLUB RESORTS
The Company and Westin have entered into the Westin Agreement pursuant to
which the Company has acquired the exclusive right to jointly acquire, develop
and sell with Westin "four-star" and "five-star" Westin Vacation Club resorts
in North America, Mexico and the Caribbean for a five year term expiring May
3, 2001. Pursuant to the Westin Agreement, Westin and the Company intend to
enter into detailed definitive agreements to implement the Westin Agreement,
including operating agreements. There can be no assurance that the parties
will be able to reach such definitive agreements. Pursuant to the Westin
Agreement, each of the Company and Westin will own a 50% equity interest in
the ventures that own such resorts and have an equal voice in the management
of such ventures. The primary focus of the Westin Agreement is (i) developing
vacation ownership villas surrounding existing Westin hotel resort properties
and (ii) acquiring or developing hotels which can be operated under the Westin
hotel brand while at the same time being converted to vacation ownership
properties. Pursuant to the Westin Agreement, each of the Company and Westin
has agreed that, subject to certain exceptions, including certain Embassy
Vacation Resort acquisition and development opportunities, it will present to
the other party all "four-star" and "five-star" hotel and resort acquisition
and development opportunities (e.g., properties that are flagged by brands
such as Disney, Marriott, Omni, Ritz Carlton, Four Seasons/Regent, Inter-
Continental and Meridien) that it has determined to pursue and such other
party has a right of first refusal to determine whether to jointly develop
such opportunities with the other party subject to the foregoing exclusions.
Pursuant to the Westin Agreement, Westin and the Company intend to form a
separate partnership, limited liability company or similar entity to develop
and operate each Westin Vacation Club resort, of which Westin and the Company
shall be co-general partners or co-managers, as applicable. Each of the
Company and Westin will contribute 50% of the equity needed to develop and
operate each Westin Vacation Club resort. Pursuant to the Westin Agreement,
Westin has the right to manage all Westin Vacation Club resorts and the
Company and Westin will share the profits from such management activity. In
addition, Westin will promote the Westin Vacation Club concept by utilizing
its customer base for sales and marketing programs, arranging for on-site
sales desks and other in-house marketing programs, in exchange for which the
Company has agreed to reimburse Westin predetermined marketing and advertising
costs incurred by Westin. Under certain circumstances, either party may
terminate the Westin Agreement upon failure to reach specified development
goals.
Pursuant to the Westin Agreement, the Company has agreed to make available
to Westin one voting seat on the Company's Board of Directors and has agreed
to use maximum reasonable efforts to cause the nomination and election of
Westin's designee. Westin has agreed to make available to the Company one non-
voting seat on its Board of Directors which will be filled by one of the
Founders. Following any public offering of equity securities by Westin, the
Company's seat on Westin's board will become a voting seat, entitled to all
reciprocal provisions granted by the Company to Westin.
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In May 1997, the Company and Westin jointly acquired the Westin Vacation
Club resort in St. John, U.S. Virgin Islands. The "four-star" Westin Vacation
Club at St. John involves a conversion of the existing St. John Villas,
located adjacent to the Great Cruz Bay Resort Hotel (formerly known as the
Hyatt Regency St. John) which will be operated as a Westin Hotel. Pursuant to
a purchase and sale agreement with subsidiaries of Skopbank, a Finnish
corporation, Westin acquired a 100% interest in the hotel and the Company and
Westin formed the Westin Partnership owned 50% by each of the Company and
Westin to acquire an interest in the 96 units at the St. John Villas,
representing 4,163 Vacation Intervals (the number of unsold Vacation Intervals
remaining at the St. John Villas), which will be operated as the Westin
Vacation Club resort at St. John. Of the $10.5 million purchase price for the
remaining unsold Vacation Intervals at St. John Villas, each of the Company
and Westin is obligated to contribute approximately $2.5 million in cash, with
the remaining $5.5 million of the acquisition price to be paid by the Westin
Partnership (which amount was loaned to the partnership by the Company in the
first quarter of 1997). In addition, the Westin Partnership will borrow
approximately $7.1 million to complete the conversion of the St. John Villas
to a Westin Vacation Club resort.
Commencement of Vacation Interval sales is anticipated to begin by the
fourth quarter of 1997. Located adjacent to the beachfront hotel, the St. John
Villas consist of 96 studio, one bedroom, two bedroom and three bedroom units
located on 12.3 hillside acres, of which 48 units are completed and ready for
immediate occupancy. The additional 48 units currently require construction of
all interior finishes and installation of furniture, fixtures and equipment
prior to occupancy.
ALL SEASONS RESORTS
As a result of the AVCOM Merger, the Company acquired 10 additional vacation
ownership resorts. Of these resorts, seven are currently in sales (including
the partially-owned North Bay Resort at Lake Arrowhead) and the Company has
completed sales at three resorts (Villas at Poco Diablo, Villas of Sedona and
Sedona Springs Resort) and the Company provides homeowners' association
management and resale services at these three locations.
Resorts Currently in Sales
Tahoe Beach & Ski Club. The Tahoe Beach & Ski Club is a beach front resort
located in the City of South Lake Tahoe, California on approximately eight
acres at the end of Ski Run Boulevard which was purchased by AVCOM in March
1994. The project includes a total of 140 units, of which 110 were renovated
as vacation ownership units at the date acquired. Thirty units have since been
renovated for sale as vacation ownership units and are being marketed. At the
time of purchase, 4,533 Vacation Intervals related to the 110 renovated units
of the resort had been previously sold. The homeowners' association engaged
RPM Management, Inc., a wholly-owned subsidiary of All Seasons, to operate the
property.
Sedona Summit Resort. In May 1995, AVCOM purchased approximately three acres
in Sedona, Arizona for development of a 60 unit vacation ownership resort.
Additionally, in May 1996, AVCOM exercised an option to acquire an adjacent
parcel consisting of approximately four acres. Vacation Interval sales
commenced in February 1996. Upon completion of construction, the resort will
contain 60 units.
Scottsdale Villa Mirage Resort. The Scottsdale Villa Mirage Resort is a 168
unit resort currently under construction located on 10 acres in Scottsdale,
Arizona. The units will be two bedroom condominium type units consisting of
approximately 1,200 square feet. Construction and sales of Phase I began in
March 1996, and Phase I received its certificate of occupancy in February
1997. Amenities are anticipated to include a clubhouse with an exercise
facility, swimming pool and spas and tennis and volleyball courts.
Villas on the Lake. AVCOM acquired an existing condominium project adjacent
to Lake Conroe in Montgomery County, Texas in April 1996. The project consists
of 37 completed units and existing approvals and land for the construction of
48 additional units. Prior to the AVCOM Merger, AVCOM had 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.
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Tahoe Seasons Resort. In February 1996, AVCOM acquired a portfolio of
approximately 1,057 non-performing receivables generated from the sale of
Vacation Intervals at Tahoe Seasons Resort in South Lake Tahoe, California for
a purchase price of approximately $1.5 million. Prior to the AVCOM Merger,
AVCOM had 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 Vacation Interval inventory which will be
sold.
North Bay Resort at Lake Arrowhead. The North Bay Resort at Lake Arrowhead
is located in San Bernardino County, California. AVCOM entered into a series
of agreements in January 1996 whereby AVCOM provided guarantees for $12.7
million of the developer's financing in return for a fee of $450,000
(evidenced by a note payable), a right of first refusal to offer Vacation
Interval receivable financing to the developer after expiration of the
developer's present $10.0 million financing commitment, received an option to
assume property management for the resort's homeowners association and
purchased a 40% equity position in Trion Capital Corporation, the corporate
general partner of Arrowhead Capital Partners L.P., the developer of the
resort. The general partner is entitled to receive 1% of the profits of the
developer partnership, but under certain circumstances is entitled to receive
substantially higher profits. The 40% equity position was acquired for
$600,000. The proposed resort contemplates the consolidation of two adjacent
developments. One development consists of two completed condominium buildings
converted to Vacation Interval and additional undeveloped land. The second
parcel consists of a combination of three existing condominium buildings in
various stages of construction and pads for two additional condominium
buildings. The developer has been provided with a $2.7 million construction
and operating loan commitment and a $10.0 million commitment for Vacation
Interval receivable financing from a financing company, subject to operational
involvement and financial guarantees of AVCOM.
The Ridge on Sedona Golf Resort. Prior to the AVCOM Merger, AVCOM had
acquired an approximate 12 acre parcel in Sedona, Arizona for approximately
$5.5 million. The facility comprising The Ridge Spa & Racquet Club has been
acquired as a portion of this development. The parcel is located on the 18th
fairway of the golf course at the Sedona Golf Resort. The Company plans to
develop the property into a 120 unit vacation ownership resort in phases.
Amenities are anticipated to include a 12,000 square foot club house, three
swimming pools and six spas in addition to privileges at The Ridge Spa and
Racquet Club. Vacation interval sales began at the Ridge in May 1997.
Resorts At Which Sales Have Been Completed
Prior to the AVCOM Merger, AVCOM had substantially completed sales of
Vacation Intervals at the following three resorts. The Company provides
homeowners' association management and resale services at these locations.
Villas of Poco Diablo. The Villas of 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, and the units
were refurbished with new furniture, fixtures and equipment, new paint, new
roofs and interiors and a remodeled outdoor pool and spa area.
Villas of Sedona. The Villas of Sedona resort is a 40 unit townhouse
conversion of one and two bedroom units located in west Sedona, Arizona. The
property was purchased in 1992 and has been remodeled by AVCOM. The resort has
new furniture, fixtures and equipment, new paint, a new outdoor pool and
custom spa area and major landscaping. In addition, a new building encloses an
outdoor pool which adjoins a 4,000 square foot clubhouse and fitness center.
Sedona Springs Resort. Sedona Springs is a 40-unit 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. 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.
PRG RESORTS
As a result of the PRG Merger, the Company acquired the two PRG Resorts. The
Company also acquired an additional 141 acres of waterfront land near the PRG
Resorts. The Company expects to use the land for future development of 350
units.
Powhatan Plantation Resort. The Powhatan Plantation Resort is located on 256
acres of land surrounding a restored plantation manor house built in 1735 and
registered as a historical Virginia landmark. The resort is located near
colonial Williamsburg, Virginia. Amenities at the resort include formal
gardens, outdoor and indoor pool complexes, tennis facilities, a putting
green, an indoor sports complex and dining facilities. Construction began at
the resort in 1984. Currently, the resort contains 405 units and will contain
500 upon completion of the project. Each unit at the resort is configured as
two, two bedroom lock-offs, but is sold as a four bedroom unit either annually
or biannually.
Greensprings Plantation Resort. Greensprings Plantation Resort is located on
123 acres of land adjacent to the Jack Nicklaus designed Williamsburg National
Golf Club in Williamsburg, Virginia. The resort currently contains 58 units
and, upon completion, will contain 500 units. In connection with the
completion of the first 50 units, a $4.5 million sports and amenity complex
were developed at the resort. Each unit at the resort is configured as two,
two bedroom lock-offs, but is sold as a four bedroom unit either annually or
biannually.
CUSTOMER FINANCING
A typical Vacation Interval entitles the buyer to a one-week per year stay
at one of the Company's resorts and ranges in price from approximately $6,000
to $8,000 for a studio residence to approximately $12,000 to $26,000 for a
three bedroom residence. The Company offers financing to the purchasers of
Vacation Intervals in the Company's resort properties who make a down payment
generally equal to at least 10% of the purchase price. This financing
generally bears interest at fixed rates and is collateralized by a first
mortgage on the underlying Vacation Interval. A portion of the proceeds of
such financing is used to obtain releases of the Vacation Interval unit from
outstanding construction loans, if any. The Company has entered into
agreements with lenders for the financing of customer receivables. These
agreements provide an aggregate of up to approximately $220 million of
available financing to the Company bearing interest at variable rates tied to
either the prime rate or LIBOR of which the Company had, at March 31, 1997,
approximately $109 million of additional borrowing capacity available. Under
these arrangements, the Company pledges as security qualified purchaser
promissory notes to these lenders, who typically lend the Company 85% to 90%
of the principal amount of such notes. Payments under these promissory notes
are made by the Vacation Interval purchaser directly to a payment processing
center and such payments are credited against the Company's outstanding
balance with the respective lenders. These arrangements currently have varying
borrowing periods ranging from 18 to 20 months after the initial commitment
date. The Company 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 the Company. Accordingly, future sales of Vacation Intervals
may be limited by both the availability of funds to finance the initial
negative cash flow that results from sales that are financed by the Company
and by reduced demand which may result if the Company is unable to provide
financing to purchasers of Vacation Intervals.
In addition, following the Company's February 1997 offerings of 1.6 million
primary shares of Common Stock and $138 million principal amount of
convertible subordinated notes and the application of the net proceeds
therefrom, the Company currently has approximately $27.1 million available to
finance customer receivables and currently intends to use such funds to self-
finance customer receivables.
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At March 31, 1997, the Company had a portfolio of approximately 32,675 loans
to Vacation Interval buyers amounting to approximately $175 million with
respect to the Company's consolidated resorts (all of its resorts with the
exception of the partially-owned Embassy Vacation Resort Poipu Point and a
portfolio acquired as part of the 1995 acquisition of the two properties in
St. Maarten). The Company's consumer loans had a weighted average maturity of
approximately seven years and a weighted average interest rate of 15% compared
to a weighted average cost of funds of 10.25% on the Company's borrowings
secured by such customer loans. As of March 31, 1997, approximately 6.9% of
the Company's consumer loans were considered by the Company to be delinquent
(past due by 60 or more days) and the Company has completed or commenced
foreclosure or deed-in-lieu of foreclosure on approximately 2.4% of its
consumer loans. The Company has historically derived income from its financing
activities. Because the Company's borrowings bear interest at variable rates
and the Company's loans to purchasers of Vacation Intervals bear interest at
fixed rates, the Company bears the risk of increases in interest rates with
respect to the loans it has from its lenders. The Company may engage in
interest rate hedging activities from time to time in order to reduce the risk
and impact of increases in interest rates with respect to such loans, but
there can be no assurance that any such hedging activity will be adequate at
any time to fully protect the Company from any adverse changes in interest
rates.
The Company also bears the risk of purchaser default. The Company's practice
has been to continue to accrue interest on its loans to purchasers of Vacation
Intervals until such loans are deemed to be uncollectible, at which point it
expenses the interest accrued on such loan, commences foreclosure proceedings
and, upon obtaining title, returns the Vacation Interval to the Company's
inventory for resale. As of March 31, 1997, 6.9% of the Company's loans were
considered delinquent. The Company closely monitors its loan accounts and
determines whether to foreclose on a case-by-case basis.
SALES AND MARKETING
As one of the leading developers and operators of vacation ownership resorts
in North America, the Company believes that it has acquired the skill and
expertise in the development, management and operation of vacation ownership
resorts and in the marketing of Vacation Intervals. The Company's primary
means of selling Vacation Intervals is through on-site sales forces at each of
its resorts. A variety of marketing programs are employed to generate
prospects for these sales efforts, which include targeted mailings, overnight
mini-vacation packages, gift certificates, seminars and various destination-
specific local marketing efforts. Additionally, incentive premiums are offered
to guests to encourage resort tours, in the form of entertainment tickets,
hotel stays, gift certificates or free meals. The Company's sales process is
tailored to each prospective buyer based upon the marketing program that
brought the prospective buyer to the resort for a sales presentation.
Prospective target customers are identified through various means of
profiling, and either include or will include Westin Vacation Club and Embassy
Suites hotel guests and current owners of vacation ownerships. Cross-marketing
targets current owners of intervals at the Company's resorts, both to sell
additional intervals at the owner's home resort, or to sell an interval at
another of the Company's resorts. The Company also sells Vacation Intervals
through off-site sales centers.
The Company seeks to attract potential Vacation Interval buyers at its
Embassy Vacation Resorts by targeting past and present Embassy Suites' hotel
guests with in-hotel marketing and direct marketing programs. These marketing
efforts offer this target audience of Embassy Suites hotel guests value priced
vacation packages which include resort tours and the opportunity to purchase
complete vacations, including accommodations, airfare and other vacation
components such as car rental. Additionally, the Company has the ability to
generate resort tours through Embassy Suites' central reservation system by
offering a premium for a resort tour at the time a consumer books an Embassy
Suites hotel in the vicinity of an Embassy Vacation Resort property. The
Company believes its access to the Embassy Suites customer base allows it to
generate Vacation Interval sales from these prospective customers at a lower
cost than through other lead generation methods. Because a high percentage of
such customers already have a preference for the Embassy brand, the Company
believes it achieves relatively high sales closing percentages among these
customers. Pursuant to the Westin Agreement, the Company intends to use
similar marketing strategies at its Westin Vacation Club resorts. The
Company's non-
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branded resorts also provide it the opportunity to cross-market customers among
resorts and give owners and prospective buyers the ability to visit and own
Vacation Intervals in multiple destinations. These cross-marketing programs may
also help to create a meaningful identity for the non-branded properties.
ACQUISITION PROCESS
The Company obtains information with respect to resort acquisition
opportunities through interaction by the Company's management team with resort
operators, real estate brokers, lodging companies or financial institutions
with which the Company has established business relationships. From time to
time the Company is also contacted by lenders and property owners who are aware
of the Company's development, management, operations and sales expertise with
respect to Vacation Interval properties.
The Company has expertise in all areas of resort development including, but
not limited to, architecture, construction, finance, management, operations and
sales. With relatively little lead time, the Company is able to analyze
potential acquisition and development opportunities. After completing an
analysis of the prospective market and the general parameters of the property
or the site, the Company generates a conceptual design to determine the extent
of physical construction or renovation that can occur on the site in accordance
with the requirements of the local governing agencies. For most properties, the
predominant factors in determining the physical design of the site include
density of units, maximum construction height, land coverage and parking
requirements. Following the preparation of such a conceptual design, the
Company analyzes other aspects of the development process, such as construction
cost and phasing, to match the projected sales flow in the relevant market. At
this stage of analysis, the Company compares sales, construction cost and
phasing, debt and equity structure, cash flow, financing and overall project
cost to the acquisition cost. The Company's procedures when considering a
potential acquisition are set forth below.
Economic and Demographic Analysis. To evaluate the primary economic and
demographic indicators for the resort area, the Company considers the following
factors, among others, in determining the viability of a potential new vacation
ownership resort in a particular location: (i) supply/demand ratio for Vacation
Intervals in the relevant market, (ii) the market's growth as a vacation
destination, (iii) the ease of converting a hotel or condominium property into
a vacation ownership resort, (iv) the availability of additional land at or
nearby the property for future development and expansion, (v) competitive
accommodation alternatives in the market, (vi) uniqueness of location, and
(vii) barriers to entry that would limit competition. The Company examines the
competitive environment in which the proposed resort is located and all
existing or to-be-developed resorts. In addition, information respecting
characteristics, amenities and financial information at competitive resorts is
collected and organized. This information is used to assess the potential to
increase revenues at the resort by making capital improvements.
Pro Forma Operating Budget. The Company develops a comprehensive pro forma
budget for the resort, utilizing available financial information in addition to
the other information collected from a variety of sources. The estimated sales
of units are examined, including the management fees associated with such unit.
Finally, the potential for overall capital appreciation of the resort is
reviewed, including the prospects for liquidity through sale or refinancing of
the resort.
Environmental and Legal Review. In conjunction with each prospective
acquisition or development, the Company conducts real estate and legal due
diligence on the property. This due diligence includes an environmental
investigation and report by a reputable environmental consulting firm,
including tests on identified underground storage tanks. If recommended by the
environmental consulting firm, additional testing is generally conducted. The
Company also obtains a land survey of the property and inspection reports from
licensed engineers or contractors on the physical condition of the resort. In
addition, the Company conducts customary real estate due diligence, including
review of title documents, operating leases and contracts, zoning, and
governmental permits and licenses and a determination of whether the property
is in compliance with applicable laws.
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OTHER OPERATIONS
Room Rental Operations. In order to generate additional revenue at certain of
its resorts that have rentable inventory of Vacation Intervals, the Company
rents units with respect to such unsold or unused Vacation Intervals for use as
a hotel. The Company offers these unoccupied units both through direct consumer
sales, travel agents or package vacation wholesalers. In addition to providing
the Company with supplemental revenue, the Company believes its room-rental
operations provide it with a good source of lead generation for the sale of
Vacation Intervals. As part of the management services provided by the Company
to Vacation Interval owners, the Company receives a fee for services provided
to rent an owner's Vacation Interval in the event the owner is unable to use or
exchange the Vacation Interval. In addition, the Embassy Vacation Resort Poipu
Point (acquired in November 1994) was acquired as a traditional hotel with the
intention of converting each such resort to a vacation ownership property.
Until such time as a unit at each resort is sold as Vacation Intervals, the
Company continues
(or will continue) to rent such unit on a nightly basis. In the future, other
acquired resorts may be operated in this fashion during the start-up of
Vacation Interval sales.
Resort Management. The Company's resorts are (i) generally managed by the
Company pursuant to management agreements with homeowner associations with
respect to each of the Company's non-branded resorts, (ii) managed by Promus
pursuant to management agreements with the Company with respect to the
Company's Grand Beach and Lake Tahoe Embassy Vacation Resorts or (iii) managed
by Aston Hotels & Resorts ("Aston") with respect to the Embassy Vacation Resort
Poipu Point. The Company pays Promus a licensing fee of 2% of Vacation Interval
sales at the Embassy Vacation Resorts. Westin will manage Westin Vacation Club
resorts.
At each of the Company's non-branded resorts, the Company enters into a
management agreement with an association comprised of owners of Vacation
Intervals at the resort to provide for management and maintenance of the
resort. Pursuant to each such management agreement the Company is paid a
monthly management fee equal to 10% to 12% of monthly maintenance fees. The
management agreements are typically for a three year period, renewable annually
automatically unless notice of non-renewal is given by either party. Pursuant
to each management agreement the Company has sole responsibility and exclusive
authority for all activities necessary for the day-to-day operation of the non-
branded resorts, including administrative services, procurement of inventories
and supplies and promotion and publicity. With respect to each resort the
Company also obtains comprehensive and general public liability insurance, all-
risk property insurance, business interruption insurance and such other
insurance as is customarily obtained for similar properties. The Company also
provides all managerial and other employees necessary for the non-branded
resorts, including review of the operation and maintenance of the resorts,
preparation of reports, budgets and projections, employee training, and the
provision of certain in-house legal services. At the Company's Grand Beach and
Lake Tahoe Embassy Vacation Resorts, Promus provides these services. At the
Embassy Vacation Resort Poipu Point, Aston provides management and maintenance
services to the Company pursuant to a management agreement and assumes
responsibility of such day-to-day operation of the Embassy Vacation Resorts.
VACATION INTERVAL OWNERSHIP
The purchase of a Vacation Interval typically entitles the buyer to use a
fully-furnished vacation residence, generally for a one-week period each year,
in perpetuity. Typically, the buyer acquires an ownership interest in the
vacation residence, which is often held as tenant in common with other buyers
of interests in the property.
The owners of Vacation Intervals manage the property through a non-profit
homeowners' association, which is governed by a Board consisting of
representatives of the developer and owners of Vacation Intervals at the
resort. The Board hires an agent, delegating many of the rights and
responsibilities of the homeowners' association to a management company, as
described above, including grounds landscaping, security, housekeeping and
operating supplies, garbage collection, utilities, insurance, laundry and
repair and maintenance.
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Each Vacation Interval owner is required to pay the homeowners' association
a share of all costs of maintaining the property. These charges can consist of
an annual maintenance fee plus applicable real estate taxes (generally $300 to
$700 per interval) and special assessments, assessed on an as-needed basis. If
the owner does not pay such charges, the owner's use rights may be suspended
and the homeowners' association may foreclose on the owner's Vacation
Interval.
PARTICIPATION IN VACATION INTERVAL EXCHANGE NETWORKS
The Company believes that its Vacation Intervals are made more attractive by
the Company's participation in Vacation Interval exchange networks operated by
RCI and Interval International with respect to the Royal Palm Beach Club. In a
recent 1995 study sponsored by the Alliance for Timeshare Excellence and ARDA,
the exchange opportunity was cited by purchasers of Vacation Intervals as one
of the most significant factors in determining whether to purchase a Vacation
Interval. Participation in RCI allows the Company's customers to
exchange in a particular year their occupancy right in the unit in which they
own a Vacation Interval for an occupancy right at the same time or a different
time in another participating resort, based upon availability and the payment
of a variable exchange fee. A member may exchange his Vacation Interval for an
occupancy right in another participating resort by listing his Vacation
Interval as available with the exchange organization and by requesting
occupancy at another participating resort, indicating the particular resort or
geographic area to which the member desires to travel, the size of the unit
desired and the period during which occupancy is desired. RCI assigns a rating
to each listed Vacation Interval, based upon a number of factors, including
the location and size of the unit, the quality of the resort and the period
during which the Vacation Interval is available, and attempts to satisfy the
exchange request by providing an occupancy right in another Vacation Interval
with a similar rating. If RCI is unable to meet the member's initial request,
it suggests alternative resorts based on availability.
Founded in 1974, RCI has grown to be the world's largest Vacation Interval
exchange organization, which has a total of more than 2,900 participating
resort facilities and over 2.0 million members worldwide. During 1995 RCI
processed over 1.5 million Vacation Interval exchanges. The cost of the annual
membership fee in RCI, which typically is at the option and expense of the
owner of the Vacation Interval, is $65 per year, plus an exchange fee of $89
and $119 for domestic and international exchanges, respectively. RCI has
assigned high ratings to the Vacation Intervals in the Company's resort
properties, and such Vacation Intervals have in the past been exchanged for
Vacation Intervals at other highly-rated member resorts. During 1995,
approximately 97% of all exchange requests were fulfilled by RCI, and
approximately 58% of all exchange requests are confirmed on the day of the
request. In November 1996, HFS Incorporated consummated the acquisition of RCI
for cash and securities.
FUTURE ACQUISITIONS
The Company intends to expand its vacation ownership business by acquiring
or developing resorts located in attractive resort destinations, including
Hawaii and California, and is in the process of evaluating strategic
acquisitions in a variety of locations. Such future acquisition and
development of resorts could have a substantial and material impact on the
Company's operations and prospects. The Company currently is evaluating
possible acquisitions of resorts and development opportunities, including
opportunities located in Southern and Northern California, the Hawaiian
islands of Hawaii, Maui and Oahu, the Caribbean, Mexico, the Western,
Southwestern and Southeastern United States (including Florida, Arizona and
Utah) and in various Westin resorts throughout North America, as well as in
Europe and Asia. In addition, the Company has also explored the acquisition of
and may consider acquiring existing management companies, vacation ownership
developers and marketers, loan portfolios or other industry related operations
or assets in the fragmented vacation ownership 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
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vacation ownership operations in the past decade, the industry remains largely
unbranded and highly fragmented, with a vast majority of North America's
approximately 2,000 vacation ownership resorts being owned and operated by
smaller, regional companies. Of the Company's major brand name lodging company
competitors, the Company believes, based on published industry data and
reports, that Marriott currently sells Vacation Intervals at 10 resorts which
it also owns and operates and directly competes with the Company's Poipu Point,
Hilton Head Island, Williamsburg and Orlando area resorts; Disney currently
sells Vacation Intervals at three resorts which it also owns and operates and
directly competes with the Company's Orlando area and Hilton Head Island
resorts; Hilton currently sells Vacation Intervals at two resorts which it also
owns and operates and directly competes with the Company's Orlando area
resorts; Hyatt owns and operates one resort in Key West, Florida but does not
directly compete in any of the Company's existing markets; Four Seasons
currently is developing its first vacation ownership resort in Carlsbad,
California but is not yet in sales of Vacation Intervals at any resorts; and
Inter-Continental has announced its entry into the vacation ownership market.
Many of these entities possess significantly greater financial, marketing,
personnel and other resources than those of the Company and may be able to grow
at a more rapid rate as result.
The Company also competes with companies with unbranded resorts such as
Westgate, Vistana and Vacation Break, each of which competes with the Company's
Orlando area resorts, Fairfield, which competes with the Company's Orlando
area, Williamsburg and Branson resorts and ILX Incorporated, which competes
with the Company's Sedona, Arizona resorts. Under the terms of a recently
announced exclusive five-year agreement, Promus and Vistana, Inc. will jointly
acquire, develop and manage and market vacation ownership resorts in North
America under Promus brand names. As part of the exclusive agreement, Promus
and Vistana, Inc. will designate selected markets for development (which
markets have yet to be announced). The Company has been identified by Promus as
the only other licensee to whom Promus will license the Embassy Vacation Resort
name. However, there can be no assurance that Promus will not grant other
entities a license to develop Embassy Vacation Resorts or that Promus will not
exercise its rights to terminate the Embassy Vacation Resort licenses.
In the event that the Westin Agreement becomes the subject of dispute between
the parties thereto, it is possible that the Company's interest in pursuing
acquisition and development opportunities at "four-star" and "five-star"
resorts located in North America, Mexico and the Caribbean through May 2001
could be barred pending the final resolution of such dispute. Additionally, at
the expiration or early termination of the Westin Agreement, Westin could
become a direct competitor with the Company in the vacation ownership resort
business, including in the markets most attractive to the Company. In addition,
the Embassy Suites hotels owned or controlled by affiliates of the Company's
founders may compete with certain of the Company's vacation ownership resorts;
however, the Company anticipates that such Embassy Suites hotels could be a
significant source of lead generation for its marketing activities. Subject to
the covenants not to compete (as described herein), the Company's founders
could acquire resort and other hotel properties that could compete with the
Company's vacation ownership business.
The Company believes, based on published industry data and reports, that its
experience and exclusive focus on the vacation ownership industry, together
with its portfolio of resorts located in a wide range of resort destinations
and at a variety of price points, distinguish it from each of its competitors
and that the Company is uniquely positioned for future growth.
GOVERNMENTAL REGULATION
General. The Company's Vacation Interval marketing and sales are subject to
extensive regulations by the federal government and the states and foreign
jurisdictions in which its resort properties are located and in which Vacation
Intervals are marketed and sold. On a federal level, the Federal Trade
Commission has taken the most active regulatory role through the Federal Trade
Commission Act, which prohibits unfair or deceptive acts or competition in
interstate commerce. Other federal legislation to which the Company is or may
be subject appears 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, Telephone Consumer Protection Act, Telemarketing and Consumer
Fraud
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and Abuse Prevention Act, Fair Housing Act and the Civil Rights Act of 1964
and 1968. In addition, many states have adopted specific laws and regulations
regarding the sale of interval ownerships programs. The laws of most states,
including Florida, South Carolina and Hawaii require the Company to file with
a designated state authority for its approval a detailed offering statement
describing the Company and all material aspects of the project and sale of
Vacation Intervals. The laws of California require the Company to file
numerous documents and supporting information with the California Department
of Real Estate, the agency responsible for the regulation of Vacation
Intervals. When the California Department of Real Estate determines that a
project has complied with California law, it will issue a public report for
the project. The Company is required to deliver an offering statement or
public report to all prospective purchaser of a Vacation Interval, together
with certain additional information concerning the terms of the purchase. The
laws of Illinois, Florida and Hawaii impose similar requirements. Laws in each
state where the Company sells Vacation Intervals generally grant the purchaser
of a
Vacation Interval the right to cancel a contract of purchase at any time
within a period ranging from 3 to 15 calendar days following the earlier of
the date the contract was signed or the date the purchaser has received the
last of the documents required to be provided by the Company. Most states have
other laws which regulate the Company's activities such as real estate
licensure; sellers of travel licensure; anti-fraud laws; telemarketing laws;
price gift and sweepstakes laws; and labor laws. The Company believes that it
is in material compliance with all federal, state, local and foreign laws and
regulations to which it is currently or may be subject. However, no assurance
can be given that the cost of qualifying under interval ownership regulations
in all jurisdictions in which the Company desires to conduct sales will not be
significant. Any failure to comply with applicable laws or regulations could
have material adverse effect on the Company.
In addition, certain state and local laws may impose liability on property
developers with respect to construction defects discovered or repairs made by
future owners of such property. Pursuant to such laws, future owners may
recover from the Company amounts in connection with the repairs made to the
developed property.
Environmental Matters. Under various federal, state and local environmental
laws, ordinances and regulations, a current or previous owner or operator of
real estate may be required to investigate and clean up hazardous or toxic
substances or petroleum product releases at such property, and may be held
liable to a governmental entity or to third parties for property damage and
for investigation and clean-up costs incurred by such parties in connection
with the contamination. Such laws typically impose clean-up responsibility and
liability without regard to whether the owner knew of or caused the presence
of the contaminants, and the liability under such laws has been interpreted to
be joint and several unless the harm is divisible and there is a reasonable
basis for allocation of responsibility. The cost of investigation, remediation
or removal of such substances may be substantial, and the presence of such
substances, or the failure to properly remediate the contamination on such
property, may adversely affect the owner's ability to sell or rent such
property or to borrow using such property as collateral. Persons who arrange
for the disposal or treatment of hazardous or toxic substances at a disposal
or treatment facility also may be liable for the costs of removal or
remediation of a release of hazardous or toxic substances at such disposal or
treatment facility, whether or not such facility is owned or operated by such
person. In addition, some environmental laws create a lien on the contaminated
site in favor of the government for damages and costs it incurs in connection
with the contamination. Finally, the owner of a site may be subject to common
law claims by third parties based on damages and costs resulting from
environmental contamination emanating from a site. In connection with its
ownership and operation of its properties, the Company may be potentially
liable for such costs.
Certain Federal, state and local laws, regulations and ordinances govern the
removal, encapsulation or disturbance of asbestos-containing materials
("ACMs") when such materials are in poor condition or in the event of
construction, remodeling, renovation or demolition of a building. Such laws
may impose liability for release of ACMs and may provide for third parties to
seek recovery from owners and operation of real properties for personal injury
associated with ACMs. In connection with its ownership and operation of its
properties, the Company may be potentially liable for such costs.
In addition, recent studies have linked radon, a naturally-occurring
substance, to increased risks of lung cancer. While there are currently no
state or federal requirements regarding the monitoring for, presence of, or
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exposure to, radon in indoor air, the EPA and the Surgeon General recommend
testing residences for the presence of radon in indoor air, and the EPA
further recommends that concentrations of radon in indoor air be limited to
less than 4 picocuries per liter of air (Pci/L) (the "Recommended Action
Level"). The presence of radon in concentrations equal to or greater than the
Recommended Action Level in one or more of the Company's properties may
adversely affect the Company's ability to sell Vacation Intervals at such
properties and the market value of such property. Recently-enacted federal
legislation will eventually require the Company to disclose to potential
purchasers of Vacation Intervals at the Company's resorts that were
constructed prior to 1978 any known lead-paint hazards and will impose treble
damages for failure to so notify.
Electric transmission lines are located in the vicinity of the Company's
properties. Electric transmission lines are one of many sources of electro-
magnetic fields ("EMFs") to which people may be exposed. Research
into potential health impacts associated with exposure to EMFs has produced
inconclusive results. Notwithstanding the lack of conclusive scientific
evidence, some states now regulate the strength of electric and magnetic
fields emanating from electric transmission lines, while others have required
transmission facilities to measure for levels of EMFs. In addition, the
Company understands that lawsuits have, on occasion, been filed (primarily
against electric utilities) alleging personal injuries resulting from exposure
as well as fear of adverse health effect. In addition, fear of adverse held
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
the Company to be exposed to damage claims by person exposed to EMFs.
The Company has conducted Phase I assessments at each of its 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 and
knowledgeable parties, investigation for the presence of above ground and
underground storage tanks presently or formerly at the sites, a visual
inspection of potential lead-based paint and suspect friable ACMs where
appropriate, a radon survey, and the preparation and issuance of written
reports.
The Company's assessments of its properties have not revealed any
environmental liability that the Company believes would have a material
adverse effect on the Company's business, assets or results of operations, nor
is the Company aware of any such material environmental liability.
Nevertheless, it is possible that the Company's assessments do not reveal all
environmental liabilities or that there are material environmental liabilities
of which the Company is unaware. The Company does not believe that compliance
with applicable environmental laws or regulations will have a material adverse
effect on the Company or its financial condition or results of operations.
In connection with the acquisition and development of the Embassy Vacation
Resort Lake Tahoe and the San Luis Bay Resort, the Company's environmental
consultant has identified several areas of environmental concern. The areas of
concern at the Embassy Vacation Resort Lake Tahoe relate to possible
contamination that originated on the resort site due to prior uses and to
contamination that may migrate onto the resort site from upgradient sources.
California regulatory agencies have been monitoring the resort site and have
required or is in the process of requiring the responsible parties (presently
excluding the Company) to effect remediation action. The Company has been
indemnified by certain of the responsible parties for certain costs and
expenses in connection with contamination at the Embassy Vacation Resort Lake
Tahoe (including Chevron (USA), Inc.) and does not anticipate incurring
material costs in connection therewith, however, there is no assurance that
the indemnitor(s) will meet their obligations in a complete and timely manner.
In addition, the Company's San Luis Bay Resort is located in an area of Avila
Beach, California which has experienced underground contamination resulting
from leaking pipes at a nearby oil refinery. California regulatory agencies
have required the installation of groundwater monitoring wells on the beach
near the resort site, and no demand or claim in connection with
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such contamination has been made on the Company, however, there is no
assurance that claims will not be asserted against the Company with respect to
this environmental condition.
The Company believes that its properties are in compliance in all material
respects with all federal, state and local laws, ordinances and regulations
regarding hazardous or toxic substances. Except as described above with
respect to the Embassy Vacation Resort Lake Tahoe and the San Luis Bay Resort,
the Company has not been notified by any governmental authority or any third
party, and is not otherwise aware, of any material noncompliance, liability or
claim relating to hazardous or toxic substances or petroleum products in
connection with any of its present properties.
Other Regulations. Under various state and federal laws governing housing
and places of public accommodation the Company is required to meet certain
requirements related to access and use by disabled
persons. Many of these requirements did not take effect until after January 1,
1991. Although management of the Company believes that its facilities are
substantially in compliance with present requirements of such laws, and the
Company may incur additional costs of compliance. Additional legislation may
impose further burdens or restriction on owners with respect to access by
disabled persons. The ultimate amount of the cost of compliance with such
legislation is not currently ascertainable, and, while such costs are not
expected to have a material effect on the Company, such costs could be
substantial. Limitations or restrictions on the completion of certain
renovations may limit application of the Company's growth strategy in certain
instances or reduce profit margins on the Company's operations.
EMPLOYEES
As of March 31, 1997, the Company employed approximately 1,700 full-time
employees and approximately 500 part-time employees. The Company believes that
its employee relations are good. Except for certain employees located in the
St. Maarten, Netherlands Antilles properties, none of the Company's employees
is represented by a labor union. The Company sells Vacation Intervals at its
resorts through approximately 770 independent contractors. Such independent
sales agents provide services to the Company under contract and are not
employees of the Company.
INSURANCE
The Company carries comprehensive liability, fire, hurricane, storm,
earthquake and business interruption insurance with respect to the Company's
resorts, with policy specifications, insured limits and deductibles
customarily carried for similar properties which the Company believes are
adequate. In September 1995 and July 1996, the Company's St. Maarten resorts
were damaged by a hurricane. With respect to such September 1995 damage, the
Company has recovered amounts from its insurance carriers sufficient to cover
100% of the property damage losses and is in the process of recovering amounts
for business interruption. The Company has agreed to provide approximately
2,700 replacement weeks to owners who were unable to use their Vacation
Interval as a result of such 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 the Company. There are, however, certain
types of losses (such as losses arising from acts of war) that are not
generally insured because they are either uninsurable or not economically
insurable. Should an uninsured loss or a loss in excess of insured limits
occur, the Company could lose its capital invested in a resort, as well as the
anticipated future revenues from such resort and would continue to be
obligated on any mortgage indebtedness or other obligations related to the
property. Any such loss could have a material adverse effect on the Company.
LEGAL PROCEEDINGS
The Company is currently subject to litigation and claims respecting
employment, tort, contract, construction and commissions, disputes, among
others. In the judgment of management, none of such lawsuits or claims against
the Company is likely to have a material adverse effect on the Company or its
business.
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On September 12, 1996, Ernst & Young LLP advised the Company that it was
resigning as independent auditors for the Company. Ernst & Young LLP had been
retained since the Company's inception and there have been no disagreements
between the Company 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 the Company's inception, Ernst & Young LLP's report on the
Company's financial statements did not contain an adverse opinion or a
disclaimer of opinion, nor were the opinions qualified or modified as to
uncertainty, audit scope, or accounting principles, nor were there any events
of the type requiring disclosure under Item 304(a)(l)(v) of Regulation S-K
under the Securities Act.
On September 17, 1996, the Company retained the accounting firm of Arthur
Andersen LLP as auditors for the fiscal year ending December 31, 1996
following Board of Directors approval, which was obtained on September 16,
1996. The decision to retain Arthur Andersen LLP was based upon the prior
relationship with a predecessor of the Company as auditors for the fiscal year
ending December 31, 1994 and Arthur Andersen LLP's experience in the Company's
industry, and was not motivated by any disagreements between the Company and
Ernst & Young LLP concerning any accounting principles and/or policy matters.
From the Company's inception to September 17, 1996, the Company did not
consult with Arthur Andersen LLP with respect to the matters described in Item
304(a)(2) of Regulation S-K.
TRADEMARKS AND COMPANY NAME
While the Company owns and controls a number of trade secrets, confidential
information, trademarks, trade names, copyrights and other intellectual
property rights which, in the aggregate, are of material importance to its
business, it is believed that the Company's business, as a whole, is not
materially dependent upon any one intellectual property or related group of
such properties. The Company is licensed to use certain technology and other
intellectual property rights owned and controlled by others, and, similarly,
other companies are licensed to use certain technology and other intellectual
property rights owned and controlled by the Company.
The Company's Board of Directors has approved, subject to stockholder
approval, a proposal to change the Company's corporate name.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information, as of May 31, 1997,
concerning each person who is a director or executive officer of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Osamu Kaneko 49 Chairman of the Board and Chief Executive Officer
Andrew J. Gessow 39 Director and President
Steven C. Kenninger 44 Director, Chief Operating Officer and Secretary
James E. Noyes 50 Director and Executive Vice President
Michael A. Depatie 40 Executive Vice President and Chief Financial Officer
Charles C. Frey 42 Senior Vice President and Chief Accounting Officer
Genevieve Giannoni 33 Senior Vice President of Operations
Andrew D. Hutton 32 Vice President and General Counsel
Timothy D. Levin 40 Vice President of Architecture
Dewey W. Chambers 39 Vice President and Treasurer
Juergen Bartels 56 Director
Sanford R. Climan 41 Director
Joshua S. Friedman 41 Director
W. Leo Kiely III 50 Director
</TABLE>
OSAMU KANEKO has served as a Director, Chairman of the Board and Chief
Executive Officer of the Company since its inception in May 1996. Mr. Kaneko,
a Japanese national, was born in Tokyo, Japan and received his B.A. degree
from Indiana State University in 1971. From 1974 to 1986 Mr. Kaneko was the
Executive Vice President of Hasegawa Komuten (USA) Inc., the American
subsidiary of Hasegawa Komuten Ltd., a large Japanese development company
based in Tokyo. In this capacity, Mr. Kaneko was responsible for the
development of income producing properties in Hawaii, including resort
condominiums and hotels. Mr. Kaneko co-founded KOAR (a real estate acquisition
and development company and predecessor of the Company) with Mr. Kenninger in
1985 and since that time has served as its Chief Executive Officer. Pursuant
to the Westin Agreement, Mr. Kaneko serves as the Founder's designee on the
Board of Directors of Westin Hotels & Resorts.
ANDREW J. GESSOW has served as a Director and President of the Company since
its inception in May 1996. Mr. Gessow founded Argosy Group, Inc. ("Argosy") (a
real estate acquisition and development company and predecessor of the
Company) in 1990 and served as President since inception. Mr. Gessow served as
a Partner with Trammell Crow Company (a real estate development, management
and investment 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. (a real estate consulting firm) 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 a Director, Chief Operating Officer and
Secretary of the Company since its inception in May 1996. Mr. Kenninger co-
founded KOAR (a real estate acquisition and development company and
predecessor of the Company) with Mr. Kaneko in 1985 and most recently 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
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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 member of the Board of Visitors of the Stanford Law
School and has been a member of the State Bar of California since 1977.
JAMES E. NOYES has served as a Director and Executive Vice President of the
Company since July 1996 and has overall responsibility for the daily operation
of the Company's sales, marketing and resort/hotel management divisions. Prior
to joining the Company, from 1989 through June 1996 Mr. Noyes served as
President of The Trase Miller Group (a travel technology services company),
the parent company of MTI Vacations, Inc., with interests in vacation
packaging, travel technology and specialized teleservices, and previously
served as its Vice President of Marketing and Sales since 1980. Mr. Noyes
served in various management positions for Wilson Sporting Goods from 1976 to
1980. Mr. Noyes is a director of Premier Yachts, Ltd. (a shipbuilding and
repairing company), Preview Travel, Inc. and Ball Horticultural, Inc. (a
horticultural supply company). 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 the Company since November 1996, prior to which he served
as a consultant to the Company since September 1996. Prior to joining the
Company, Mr. Depatie was Senior Vice President of Finance and Chief Financing
Officer of La Quinta Inns, Inc. (a hotel operating company) 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 (a hotel
operating company). 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, a division of Marriott
International, Inc. 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 and Chief Accounting
Officer of the Company since January 1997, previously serving as Senior Vice
President of the Company since July 1996. Prior thereto he had served as
Senior Vice President of Administration and Treasurer of Argosy since 1992.
Prior to joining the Company, 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 the
Company since July 1996 and has overall responsibility for operations at all
of the Company's resorts. Ms. Giannoni joined Argosy in May 1992 as Director
of Marketing and became a Vice President of Argosy in 1993 and a Senior Vice
President in 1995. 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 the
Company since October 1996. Prior to joining the Company, from 1991 through
October 1996 Mr. Hutton practiced corporate securities and finance law with
the law firm of Latham & Watkins, located in Los Angeles, California. Mr.
Hutton received a J.D. degree with honors from the University of Minnesota Law
School in 1991 and received both B.S. and B.A. degrees from the University of
Kansas in 1988. Mr. Hutton has been a member of the State Bar of California
since 1991.
TIMOTHY D. LEVIN has served as Vice President of Architecture of the Company
since its inception and of the Company's predecessor since December 1995. From
1989 through December 1995, Mr. Levin was the President of Sevelex
Consultants, Inc., a project management and design consulting firm affiliated
with
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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.
DEWEY W. CHAMBERS has served as Vice President and Treasurer of the Company
since January 1997. Prior to joining the Company, Mr. Chambers served as Vice
President and Treasurer of La Quinta Inns, Inc. from 1992 through December
1996. Prior thereto, Mr. Chambers served with the accounting firm of KPMG Peat
Marwick, L.L.P. from 1983 to 1992, most recently as Senior Manager. Mr.
Chambers received a B.B.A. degree in Finance from the University of Oklahoma
in 1980 and a B.B.A. degree in Accounting from the University of Texas at San
Antonio in 1983. Mr. Chambers is a Certified Public Accountant.
JUERGEN BARTELS has served as a Director of the Company 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 (each a hotel operating Company).
SANFORD R. CLIMAN has served as a Director of the Company since August 1996.
In June 1997, Mr. Climan returned to Creative Artists Agency, Inc. ("CAA"), a
leading literary and talent agency, as a member of its senior executive team.
Mr. Climan was formerly a member of CAA's senior executive team from June 1986
to September 1995 where he participated in a range of corporate advisory
activities, including mergers and acquisitions, and financial restructurings.
From October 1995 through May 1997 Mr. Climan was Executive Vice President and
President Worldwide Business Development of Universal Studios. From 1979 to
1986, Mr. Climan held various positions in the entertainment industry. Mr.
Climan also serves as a director of PointCast, Inc. (an internet computer
software company). Mr. Climan received a B.A. degree from Harvard College in
1977, a M.B.A. degree from Harvard Business School in 1979 and a Master of
Science in Health Policy and Management from the Harvard School of Public
Health in 1979.
JOSHUA S. FRIEDMAN has served as a Director of the Company 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 (an
investment bank). Mr. Friedman also serves as a director of First Aviation
Services, Inc., a publicly traded aircraft services supplier, and several
privately held companies and charitable organizations. Mr. Friedman received a
B.A. degree from Harvard College in 1976, a M.A. degree from Oxford University
in 1978, a J.D. degree from Harvard Law School in 1982 and a M.B.A. degree
from Harvard Business School in 1982.
W. LEO KIELY III has served as a Director of the Company 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 flavoring extract and syrup
manufacturer and subsidiary of PepsiCo, most recently serving as President of
Frito-Lay's Central Division. Prior to joining Frito-Lay, Mr. Kiely was
President of Ventura Coastal Corporation, a division of Seven-Up Corporation,
from 1979 through 1982. Mr. Kiely also serves as a director of Bell Sports,
Inc. (a bicycle helmet manufacturer). 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.
In August 1996, KEN/KOAR LAX Partners, L.P. (the "LAX Partnership"),
formerly an affiliate of Messrs. Kaneko and Kenninger, filed a voluntary
petition for relief under Chapter 11 of the Bankruptcy Code.
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At the time of the Chapter 11 filing, the LAX Partnership owned the Embassy
Suites Hotel-LAX North, located at the Los Angeles International Airport.
Subsequent to the Chapter 11 filing, the LAX Partnership sold its interest in
the Embassy Suites hotel, and in connection therewith, the Chapter 11
proceeding was dismissed concurrently with the closing of such transaction.
The Company has (and prior to the sale had) no interest in the hotel or the
LAX Partnership. Following the consummation of the sale, neither Mr. Kaneko
nor Mr. Kenninger holds any interest in or obligation related to the hotel.
COMMITTEES OF THE BOARD OF DIRECTORS
Executive Committee. The Board of Directors 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 Board of Directors.
The Executive Committee consists of Messrs. Gessow, Kenninger and Friedman.
All actions by the Executive Committee require the unanimous vote of all of
its members.
Audit Committee. The Board of Directors has established an audit committee
(the "Audit Committee"), which consists of Messrs. Bartels, Friedman and
Kenninger. The Audit Committee makes recommendations concerning the engagement
of independent public accountants, reviews with the independent public
accountants the plans and results of the audit engagement, approves
professional services provided by the independent public accountants, reviews
the independence of the independent public accountants, considers the range of
audit and non-audit fees and reviews the adequacy of the Company's internal
accounting controls.
Compensation Committee. The Board of Directors has established a
compensation committee (the "Compensation Committee"), which consists of
Messrs. Kiely and Climan, to determine compensation for the Company's senior
executive officers, determine awards under the Company's 1996 Equity
Participation Plan and administer the Company's Employee Stock Purchase Plan.
The Board of Directors of the Company does not have a nominating committee.
CLASSIFIED BOARD OF DIRECTORS
The Charter provides for the Company's Board of Directors to be divided into
three classes serving staggered terms so that directors' initial terms will
expire either at the 1997, 1998 or 1999 annual meeting of stockholders.
Starting with the 1997 annual meeting of stockholders, one class of directors
will be elected each year for three-year terms. The classification of
directors makes it more difficult for a significant stockholder to change the
composition of the Board of Directors in a relatively short period of time
and, accordingly, provides the Board of Directors and stockholders time to
review any proposal that a significant stockholder may make and to pursue
alternative courses of action which are fair to all the stockholders of the
Company. At the Company's 1997 annual meeting of stockholders,
Messrs. Kenninger, Bartels and Noyes, who have been classified as Class I
directors of the Company, each were re-elected to a three year term that will
expire at the 2000 annual meeting of stockholders. Messrs. Gessow, Friedman
and Kiely have been classified as Class II directors whose initial terms will
expire at the 1998 annual meeting of stockholders. Messrs. Kaneko and Climan
have been classified as Class III directors whose initial terms will expire at
the 1999 annual meeting of stockholders.
COMPENSATION OF DIRECTORS
The Company pays its directors who are not officers of the Company
("Independent Directors") a fee of $1,000 per meeting of the Board of
Directors and any committee thereof (including telephonic meetings) for their
services as directors. In addition, the Company has granted options to
purchase 15,000 shares of Common Stock at a price of $14.00 per share (which
was the price per share of the Common Stock issued in the 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
Board of Directors at the end of the three year vesting period of the initial
grant of options will receive a grant of additional options to purchase 15,000
shares of Common
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Stock at the fair market value of the Common Stock on the date of the grant,
with such options to vest over an additional three year period. In addition to
such option grants, the Independent Directors will be reimbursed for expenses
of attending each meeting of the Board of Directors. Officers of the Company
who are directors will not be paid any director fees but will be reimbursed
for expenses of attending meetings of the Board of Directors.
DIRECTORS AND OFFICERS INSURANCE
The Company has purchased a directors and officers liability insurance
policy with coverage typical for a public company. The directors and officers
liability insurance policy insures (i) the officers and directors of the
Company from any claim arising out of an alleged wrongful act by such person
while acting as officers and directors of the Company, (ii) the Company to the
extent it has indemnified the officers and directors for such loss and (iii)
the Company for losses incurred in connection with claims made against the
Company for covered wrongful acts.
INDEMNIFICATION
The Charter provides for the indemnification of the Company's officers and
directors against certain liabilities to the fullest extent permitted under
applicable law. The Charter also provides that the directors and officers of
the Company be exculpated from monetary damages to the fullest extent
permitted under applicable law. It is the position of the Securities and
Exchange Commission that indemnification of directors and officers for
liabilities arising under the Securities Act is against public policy and
unenforceable pursuant to Section 14 of the Securities Act.
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EXECUTIVE COMPENSATION
Summary Compensation Table. The Summary Compensation Table below sets forth
the annual base salary and other annual compensation which the Company would
have paid in 1996 on an annualized basis to the Company's chief executive
officer and each of the other four most highly compensated executive officers
whose cash compensation exceeded $100,000 (salary and bonus) (the "Named
Executive Officers"). The Company was formed in May 1996 and, upon
consummation of the Consolidation Transactions completed in connection with
the consummation of the Company's Initial Public Offering, succeeded to the
operations of its predecessor corporations, partnerships and limited liability
companies.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------- ---------------
SECURITIES
NAME AND PRINCIPAL FISCAL OTHER ANNUAL UNDERLYING
POSITION YEAR SALARY($) BONUS($)(1) COMPENSATION($)(2) OPTIONS/SARS(#)
- ------------------ ------ --------- ----------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
Osamu Kaneko............ 1996 $280,000 $ -- $ 2,500 150,000
Chairman of the Board
and
Chief Executive Officer
Andrew J. Gessow........ 1996 280,000 -- 2,500 150,000
Director and President
Steven C. Kenninger..... 1996 280,000 -- 2,500 150,000
Director, Chief
Operating Officer and
Secretary
James E. Noyes.......... 1996 280,000 120,000 14,500 375,000
Director and Executive
Vice President
Michael A. Depatie...... 1996 280,000 -- 2,500 375,000
Executive Vice
President and Chief
Financial Officer
</TABLE>
- --------
(1) The Board of Directors in June 1996 approved the payment of such bonus to
Mr. Noyes under the terms of his employment agreement with the Company.
Although the other Named Executive Officers were eligible to receive
bonuses pursuant to the Company's Incentive Compensation Plan, no such
bonuses were paid in 1996. See "Employment Agreements and Covenants Not to
Compete" and "Compensation Committee Report" below for a discussion of
annual performance bonuses payable to key employees and executive
officers.
(2) Represents automobile lease payments ($12,000 with respect to Mr. Noyes)
and insurance premiums for customary life and health benefits ($2,500 with
respect to each of Messrs. Kaneko, Gessow, Kenninger, Noyes and Depatie).
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Option Grants in 1996. The following table contains information concerning
the grant of stock options under the Company's 1996 Equity Participation Plan
made during the year ended December 31, 1996 to the Named Executive Officers.
The table also lists potential realizable values of such options on the basis
of assumed annual compounded stock appreciation rates of 5% and 10% over the
life of the options which are set for a maximum of ten years.
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------
POTENTIAL REALIZABLE
NUMBER OF PERCENT OF VALUE AT ASSUMED
SECURITIES TOTAL OPTIONS EXERCISE ANNUAL RATES OF SHARE
UNDERLYING GRANTED TO OR BASE PRICE APPRECIATION(3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME GRANTED(1) FISCAL YEAR(2) PER SHARE DATE 5%($) 10%($)
- ---- ---------- -------------- --------- ---------------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Osamu Kaneko............ 150,000 8.5% $14.00 August 2006 $ 1,321 $ 3,347
Andrew J. Gessow........ 150,000 8.5% $14.00 August 2006 $ 1,321 $ 3,347
Steven C. Kenninger..... 150,000 8.5% $14.00 August 2006 $ 1,321 $ 3,347
James E. Noyes.......... 375,000 21.3% $12.00 June 2006 $ 2,830 $ 7,172
Michael A. Depatie...... 110,000 6.2% $18.13 September 2006 $ 1,254 $ 3,178
Michael A. Depatie...... 265,000 15.0% $24.13 November 2006 $ 4,021 $ 10,191
Total Optionees......... 1,769,000 100.0% $12.00 June 2006 $ 12,068 $ 43,521
to $24.13 to November 2006
All Stockholders(4)..... N/A N/A N/A N/A $ 153,130 $ 388,062
All Optionees as a
percent of
All Stockholders Gain.. N/A N/A N/A N/A 7.9% 11.2%
</TABLE>
- --------
(1) The options granted to Messrs. Kaneko, Gessow, and Kenninger will vest in
three equal installments on the first, second, and third anniversaries of
the date of the grant. The options granted to Mr. Depatie vested with
respect to 22,000 shares at $18.13 per share and with respect to 53,000
shares at $24.13 per share upon the date of the respective grant, with the
balance of such shares vesting in four equal annual installments beginning
on the first anniversary of the date of grant. The options granted to Mr.
Noyes vested with respect to 75,000 shares on the date of the grant and
with respect to the remaining 300,000 shares will vest in 48 equal
installments at the end of each of the first 48 months that Mr. Noyes is
employed by the Company.
(2) During the year ended December 31, 1996 the Company issued options to
employees and directors of the Company to purchase an aggregate of
1,769,000 shares of Common Stock.
(3) The potential realizable value (in thousands of dollars) is reported net
of the option price, but before income taxes associated with exercise.
These amounts represent assumed annual compounded rates of appreciation at
5% and 10% only from the date of grant to the expiration date of the
option, or in the case of all stockholders, 10 years from the date of the
Initial Public Offering.
(4) These amounts represent the appreciated value which common stockholders
would receive at the hypothetical 5% and 10% appreciation rates based on
the per share Initial Public Offering Price of $14.00 and based on
17,392,205 shares outstanding upon consummation of the Initial Public
Offering.
INCENTIVE COMPENSATION PLAN
The Company has established an incentive compensation plan for officers and
key employees of the Company. 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 the Company 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 the Company. The amount of the bonus to other
participating officers and key employees will be based on a formula to be
determined for each employee by the Compensation Committee, and is expected to
be based on growth in earnings per share and other factors.
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1996 EQUITY PARTICIPATION PLAN
General. The Company established the 1996 Equity Participation Plan to
enable executive officers, other key employees, Independent Directors and
consultants of the Company to participate in the ownership of the Company. The
1996 Equity Participation Plan is designed to attract and retain executive
officers, other key employees, Independent Directors and consultants of the
Company and to provide incentives to such persons to maximize the Company's
performance. The 1996 Equity Participation Plan provides for the award to
executive officers, other key employees, Independent Directors and consultants
of the Company of a broad variety of stock-based compensation alternatives
such as nonqualified stock options, incentive stock options, restricted stock
and performance awards. Awards under the 1996 Equity Participation Plan may
provide participants with rights to acquire shares of Common Stock. The 1996
Equity Participation Plan was first approved by the Company's stockholders in
June 1996, prior to the consummation of the Company's Initial Public Offering.
At the 1997 annual meeting, the Company's stockholders approved an amendment
to the 1996 Equity Participation Plan which increased the number of shares of
Common Stock reserved for issuance thereunder from 1,750,000 shares to
2,500,000 shares. As amended, 2,500,000 shares of Common Stock are authorized
for issuance under the 1996 Equity Participation Plan upon exercise of
qualified stock options, incentive stock options, stock appreciation rights,
restricted stock awards, performance awards, dividend equivalents, deferred
stock awards and stock payments. Furthermore, the maximum number of shares
which may be subject to options or stock appreciation rights granted under the
1996 Equity Participation Plan to any individual in any fiscal year cannot
exceed 450,000.
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, each of which is an Independent Director, select from
among the eligible participants the individuals to whom nonqualified stock
options are to be granted, determine the number of shares to be subject
thereto and the terms and conditions thereof and make all other determinations
and take all other actions necessary or advisable for the administration of
the 1996 Equity Participation Plan. The Compensation Committee is also
authorized to adopt, amend and rescind rules relating to the administration of
the 1996 Equity Participation Plan.
Options, stock appreciation rights, restricted stock and other awards under
the 1996 Equity Participation Plan may be granted to individuals who are then
officers or employees of the Company or any of its present or future
subsidiaries or Independent Directors or independent contractors of the
Company selected by the Compensation Committee for participation in the 1996
Equity Participation Plan.
Nonqualified stock options provide for the right to purchase Common Stock at
a specified price which may be less than fair market value on the date of
grant (but not less than par value), and usually will become exercisable in
installments after the grant date. Nonqualified stock options may be granted
for any reasonable term. Independent Directors shall be automatically granted
options to purchase 15,000 shares of Common Stock on the date of initial
election and options to purchase an additional 15,000 shares of Common Stock
on the third anniversary of such date, provided that he continues to serve on
the Board of Directors at such time.
Incentive stock options are designed to comply with the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), and will be subject to
restrictions contained in the Code, including exercise prices equal to at
least 100% of fair market value of Common Stock on the grant date and a ten
year restriction on their term, but may be subsequently modified to disqualify
them from treatment as an incentive stock option.
Restricted stock may be sold to participants at various prices (but not
below par value) and made subject to such restrictions as may be determined by
the Compensation Committee. Restricted stock typically may be repurchased by
the Company at the original purchase price if the conditions or restrictions
are not met. In general, restricted stock may not be sold, or otherwise
transferred or hypothecated, until restrictions are removed
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<PAGE>
or expire. Purchasers of restricted stock, unlike recipients of options, will
have voting rights and will receive dividends prior to the time when the
restrictions lapse.
Performance awards may be granted by the Compensation Committee on an
individual or group basis. Generally, these awards will be based upon specific
agreements and may be paid in cash or in Common Stock or in a combination of
cash and Common Stock. Performance awards may include "phantom" stock awards
that provide for payments based upon increases in the price of the Company's
Common Stock over a predetermined period. Performance awards may also include
bonuses which may be granted by the Compensation Committee on an individual or
group basis and which may be payable in cash or in Common Stock or in a
combination of cash and Common Stock.
Dividend Equivalents represent the value of the dividends per share paid by
the Company, calculated with reference to the number of shares covered by the
stock options, stock appreciation rights or other awards held by the
participant.
Deferred Stock may be awarded to participants, typically without payment of
consideration, but subject to vesting conditions based on continued employment
or on performance criteria established by the Compensation Committee. Like
restricted stock, deferred stock may not be sold, or otherwise transferred or
hypothecated, until vesting conditions are removed or expire. Unlike
restricted stock, deferred stock will not be issued until the deferred stock
award has vested, and recipients of deferred stock generally will have no
voting or dividend rights prior to the time when vesting conditions are
satisfied.
Stock Payments may be authorized by the Compensation Committee in the form
of shares of Common Stock or an option or other right to purchase Common Stock
as part of a deferred compensation arrangement in lieu of all or any part of
compensation, including bonuses, that would otherwise be payable in cash to
the key employee, officer, Independent Director or consultant.
Stock Appreciation Rights may be granted in connection with stock options or
other awards, or separately. Stock Appreciation Rights ("SARs") granted by the
Compensation Committee in connection with stock options or other awards
typically will provide for payments to the holder based upon increases in the
price of the Company's Common Stock over the exercise price of the related
option or other awards, but alternatively may be based upon criteria such as
book value. Except as required by Section 162(m) of the Code with respect to a
SAR intended to qualify as performance-based compensation as described in
Section 162(m) of the Code, there are no restrictions specified in the 1996
Equity Participation Plan on the exercise of SARs or the amount of gain
realizable therefrom, although restrictions may be imposed by the Compensation
Committee in the SAR agreements. The Compensation Committee may elect to pay
SARs in cash or in Common Stock or in a combination of both.
Securities Laws. The 1996 Equity Participation Plan is intended to conform
to the extent necessary with all provisions of the Securities Act and the
Exchange Act and any and all regulations and rules promulgated by the
Securities and Exchange Commission thereunder, including without limitation
Rule 16b-3. The 1996 Equity Participation Plan will be administered, and
options will be granted and may be exercised, only in such a manner as to
conform to such laws, rules and regulations. To the extent permitted by
applicable law, the 1996 Equity Participation Plan and options granted
thereunder shall be deemed amended to the extent necessary to conform to such
laws, rules and regulations.
General Federal Tax Consequences. Under current federal laws, in general,
recipients of awards and grants of nonqualified stock options, stock
appreciation rights, restricted stock, deferred stock, dividend equivalents,
performance awards, and stock payments under the 1996 Equity Participation
Plan are taxable under Section 83 of the Code upon their receipt of Common
Stock or cash with respect to such awards or grants and, subject to Section
162(m) of the Code, the Company will be entitled to an income tax deduction
with respect to the amounts taxable to such recipients. Under Sections 421 and
422 of the Code, recipients of incentive stock options are generally not
taxable on their receipt of Common Stock upon their exercises of incentive
stock options if the
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<PAGE>
incentive stock options and option stock are held for certain minimum holding
periods and, in such event, the Company is not entitled to income tax
deductions with respect to such exercises. Participants in the 1996 Equity
Participation Plan will be provided with detailed information regarding the
tax consequences relating to the various types of awards and grants under the
plan.
Section 162(m) Limitation. In general, under Section 162(m) of the Code,
income tax deductions of publicly-held corporations may be limited to the
extent total compensation (including base salary, annual bonus, stock option
exercises and non-qualified benefits paid) for certain executive officers
exceeds $1,000,000 (less the amount of any "excess parachute payments" as
defined in Section 280G of the Code) in any one year. However, under Section
162(m), the deduction limit does not apply to certain "performance-based
compensation" established by an independent compensation committee which is
adequately disclosed to, and approved by, stockholders. In particular, stock
options and SARs will satisfy the "performance-based compensation" exception
if the awards are made by a qualifying compensation committee, the plan sets
the maximum number of shares that can be granted to any person within a
specified period and the compensation is based solely on an increase in the
stock price after the grant date (i.e. the option exercise price is equal to
or greater than the fair market value of the stock subject to the award on the
grant date). Rights or awards granted under the 1996 Equity Participation
Plan, other than options and SARs, will not qualify as "performance-based
compensation" for purposes of Section 162(m) unless such rights or awards are
granted or vest upon preestablished objective performance goals, the material
terms of which are disclosed to and approved by the stockholders of the
Company.
The Company has attempted to structure the 1996 Equity Participation Plan in
such a manner that subject to obtaining stockholder approval for the 1996
Equity Participation Plan, as amended, the remuneration attributable to stock
options and SARs which meet the other requirements of Section 162(m) will not
be subject to the $1,000,000 limitation.
EMPLOYEE STOCK PURCHASE PLAN
The Company has established the Signature Resorts, Inc. Employee Stock
Purchase Plan (the "Employee Stock Purchase Plan") to assist employees of the
Company in acquiring a stock ownership interest in the Company and to
encourage them to remain in the employment of the Company. The Employee Stock
Purchase Plan is neither a qualified pension, profit sharing or stock bonus
plan under Section 401(a) of the Code, nor an "employee benefit plan" subject
to the provisions of the Employee Retirement Income Security Act of 1974, as
amended. The following discussion is a general summary of the material U.S.
federal income tax consequences to U.S. participants in the Employee Stock
Purchase Plan. The discussion is based on the Code, regulations thereunder,
rulings and decisions now in effect, all of which are subject to change. The
summary does not discuss all aspects of federal income taxation that may be
relevant to a particular participant in light of such participant's personal
investment circumstances.
The Employee Stock Purchase Plan is intended to meet the requirements of an
"employee stock purchase plan" under Section 423 of the Code. Neither the
grant of the right to purchase shares, nor the purchase of shares, under the
Employee Stock Purchase Plan has a federal income tax effect on employees or
the Company. Any United States tax liability to the employee and the tax
deductions to the Company are deferred until the employee sells the shares,
disposes of the shares by gift or dies. Under the Employee Stock Purchase
Plan, shares are generally purchased for 85% of the fair market value thereof,
as permitted by the Code.
In general, if shares are held for more than one year after they are
purchased and for more than two years from the beginning of the enrollment
period in which they are purchased or if the employee dies while owning the
shares, gain on the sale or other disposal of the shares constitutes ordinary
income to and employee (with no corresponding deduction to the Company) to the
extent of the lesser of (i) 15% of the fair market value of the shares at the
beginning of the enrollment period or (ii) the gain on sale of the amount by
which the market value of the shares on the date of sale, gift or death,
exceeds the purchase price. Any additional gain is capital gain. If the shares
are sold or disposed of within either or both of the holding periods, an
employee recognizes ordinary
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income (and the Company receives a corresponding deduction subject to Section
162(m) of the Code) to the extent that the fair market value of the shares at
the date of exercise of the option exceeds the option price. Any appreciation
or depreciation after the date of purchase is capital gain or loss.
A maximum of 500,000 shares of Common Stock have been reserved for issuance
under the Employee Stock Purchase Plan. The Employee Stock Purchase Plan will
be administered by the Compensation Committee.
401(K) PLAN
The Company has established 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 permits the employees of the Company to defer a portion
of their compensation in accordance with the provisions of Section 401(k) of
the Code. The 401(k) Plan allows participants to defer up to ten percent of
their eligible compensation on a pre-tax basis subject to certain maximum
amounts. Matching contributions may be made in amounts and at times determined
by the Company. The 401(k) Plan provides for Company matching contributions, if
determined by the Company 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 the Company's contribution under the 401(k) Plan also apply. Participants
receive service credit for employment with the predecessors of the Company and
affiliates. Amounts contributed by the Company for a participant vest over five
years and are held in trust until distributed pursuant to the terms of the
401(k) Plan.
Employees of the Company are 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 are invested in accordance with
participant elections among certain investment options. Distributions from
participant accounts will not be permitted before age 59 1/2, except in the
event of death, disability, certain financial hardships or termination of
employment.
EMPLOYMENT AGREEMENTS AND COVENANTS NOT TO COMPETE
Each of Messrs. Kaneko, Gessow, Kenninger, Noyes and Depatie have entered
into an employment agreement with the Company for a term of two years, subject
to extension. The employment agreement for each of such executives provides for
an annual salary of $280,000 per year for the first year and at such salary as
may be determined by the Compensation Committee thereafter, with annual
performance bonuses determined by the Compensation Committee in connection with
the achievement of performance criteria to be determined (except with respect
to Mr. Noyes, who will receive a quarterly bonus of $30,000 for each quarter he
is employed by the Company). In addition, each of Messrs. Kaneko, Gessow,
Kenninger, Noyes and Depatie have received options to purchase shares of Common
Stock as described in "Option Grants During Year Ended December 31, 1996." 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 the
Company terminates such executive as a result of gross negligence, willful
misconduct, fraud or a material breach of the employment agreement. Each such
executive will have "good cause" to terminate his employment with the Company
in the event of any reduction in his compensation or benefits, material breach
or material default by the Company under his employment agreement or following
the merger or change in control of the Company.
Each of Messrs. Kaneko, Gessow, Kenninger, Noyes and Depatie have also agreed
to devote substantially full time to the business of the Company and not engage
in any competitive businesses. In particular, the foregoing individuals are
prohibited from managing, consulting or participating in any way in any
vacation ownership business or from acquiring any property with the intent to
convert the property to a vacation ownership operation, unless the Independent
Directors of the Company determine that such investment is in the best interest
of the Company. Such noncompetition provisions shall survive for two years
following any
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termination of employment. Such individuals are not, however, prohibited from
acquiring hotels, including hotels which may compete directly with properties
of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Signature Resorts, Inc. was incorporated in Maryland in May 1996 by the
Founders to effect the Consolidation Transactions and the Initial Public
Offering. The exchange of direct and indirect interests in, and obligations
of, certain limited partnerships, limited liability companies and other
corporations affiliated with the Founders for shares of Common Stock in the
Company are referred to herein as the "Consolidation Transactions."
The Company's vacation ownership resort acquisition and development business
commenced in 1992 to take advantage of the unique real estate development,
financing and travel industry expertise of the Founders. Mr. Kaneko, who is a
Japanese national and was educated in the United States, has more than 24
years of experience in resort real estate acquisition and development. Prior
to forming the Company, Mr. Kaneko co-founded KOAR with Mr. Kenninger in 1985
and was previously the executive vice-president of the Hawaii-based United
States operations of a Japanese publicly-traded real estate developer. Mr.
Kenninger, a former business attorney for the seven years prior to co-founding
KOAR, has had overall responsibility for the development, acquisition,
licensing, branding and legal operations of the Company since 1993. Prior to
forming the Company, Mr. Gessow in 1990 formed Argosy and, prior to forming
Argosy, was previously president of both the Florida and west coast offices of
Trammell Crow Residential Services, a real estate development company. See
"Management--Directors and Executive Officers."
FOUNDERS' OTHER BUSINESS INTERESTS
Affiliates of Messrs. Kaneko and Kenninger currently have managing general
partner or similar interests in entities which own investment properties which
the Company does not consider to be competitive with its vacation ownership
business (the "KOAR Interests"). These properties include a 225-unit
condominium project in Long Beach, California which is being marketed for
whole share unit sales or long-term residential use rather than vacation use
(and with respect to which the KOAR Interests, as of the date of this
Prospectus, own 42 of the total 225 units, the balance having been sold to
third parties); and several retail centers. Messrs. Kaneko and Kenninger are
also currently the constituent general partners of a number of partnerships in
which they owe fiduciary duties to limited partners who invested over $80
million of equity therein (which partnerships include five Embassy Suites
hotels which are still owned by partnerships controlled by Affiliates of
Messrs. Kaneko and Kenninger (the "Prior Partnerships")). Messrs. Kaneko and
Kenninger are authorized by the Company to meet their duties and
responsibilities to the Prior Partnerships pursuant to the terms thereof,
including the sale, refinancing, restructuring and packaging of the Prior
Partnerships, and including with respect to the formation of public or private
entities for such purpose, including a public real estate investment trust
("REIT") for one or all of the Embassy Suites hotels in the Prior Partnerships
(provided, that Messrs. Kaneko and Kenninger agree not to serve as an officer
or employee of such REIT). Messrs. Kaneko and Kenninger agree to continue to
retain third party management companies to manage these properties (e.g.,
Promus Hotels manages all of the KOAR Interests' Embassy Suites hotels), and
to employ personnel not employed by the Company to carry out the day-to-day
responsibilities of managing and overseeing these properties. However, Messrs.
Kaneko and Kenninger reserve the right to do what is reasonably necessary
within these constraints to carry out their duties and responsibilities to the
Prior Partnerships pursuant to the terms thereof. The Company does not believe
that such activities will detract materially from Messrs. Kaneko's and
Kenninger's services to the Company.
PAYMENTS TO AFFILIATES
A total of $15.7 million of the net proceeds from the Consolidation
Transactions and the Initial Public Offering were used to repay outstanding
debt to affiliates of the Founders. Of the $15.7 million of the funds paid to
the affiliates of the Founders, $15.3 million was used to pay off existing
debt to third party financial institutions or other third party financing
sources or to pay tax liabilities. The proceeds from the loans were
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previously either invested in or loaned either to the Company or its
predecessors or to acquire or develop certain of the Company's resorts.
In addition, pursuant to the Consolidation Transactions, during the three
months ended September 30, 1996 Founders also received $2.3 million of
distributions from certain predecessor partnerships of the Company to fund
income tax obligations which had accrued through the date of the Initial
Public Offering and with respect to whom no pre-Initial Public Offering
profits of the Company had been distributed.
In addition, $12.2 million of the net proceeds of the Initial Public
Offering were used to repay outstanding indebtedness owed to partnerships in
which an affiliate of Mr. Friedman, a director of the Company, is a general
partner. Of such repayment, approximately $3.0 million was repaid directly to
Mr. Friedman or his affiliates.
CONSOLIDATION TRANSACTIONS
The Company's nine vacation ownership resorts existing prior to the
Consolidation Transactions were previously owned and operated by partnerships,
each affiliated with the Founders. Such partnerships consisted of Grand Beach
Resort, L.P., a Georgia limited partnership (Embassy Vacation Resort Grand
Beach); AKGI-Flamingo C.V., a Netherlands Antilles limited partnership
(Flamingo Beach Club); AKGI-Royal Palm C.V., a Netherlands Antilles limited
partnership (Royal Palm Beach Club); Port Royal Resort, L.P., a South Carolina
limited partnership (Royal Dunes Resort); an approximately 30% interest in
Poipu Resort Partners, L.P., a Hawaii limited partnership (Embassy Vacation
Resort Poipu Point); Fall Creek Resort, L.P., a Georgia limited partnership
(Plantation at Fall Creek); Cypress Pointe Resort, L.P., a Delaware limited
partnership (Cypress Pointe Resort); Lake Tahoe Resort Partners, LLC, a
California limited liability company (Embassy Vacation Resort Lake Tahoe); and
San Luis Resort Partners, LLC, a Georgia limited liability company (San Luis
Bay Resort) (collectively the "Property Partnerships"). Affiliates of the
Founders were previously the sole general partners or the sole members of each
of the Property Partnerships. Each of the Property Partnerships (other than
the Embassy Vacation Resort Poipu Beach) which remained in existence following
the Consolidation Transactions and the Initial Public Offering are wholly
owned by the Company.
As a result of the consummation of the Consolidation Transactions, the
partnership and limited liability company interests in each of the Property
Partnerships, certain of the stock of certain other corporations affiliated
therewith (the "Affiliated Companies") held by "accredited investors" (as
defined pursuant to Regulation D under the Securities Act) and certain debt
obligations of the Property Partnerships and affiliates (and, as a result,
ownership of certain of the Company's resorts) have been directly or
indirectly transferred to the Company and in exchange the holders of such
partnership interests and certain of such stock received shares of Common
Stock in the Company. Holders of any such partnership interests who are not
"accredited investors" received cash at a price commensurate with the value
received by the accredited investors to be determined prior to the Consent
Solicitation. As a result of the Consolidation Transactions, 11,354,705 shares
of Common Stock were issued to the holders of partnership interests in the
Property Partnerships and to certain stockholders of the Affiliated Companies.
The Affiliated Companies include Argosy/KOAR Group, Inc., Resort Management
International, Inc., Resort Marketing International, Inc., RMI-Royal Palm
C.V.o.a., RMI-Flamingo C.V.o.a., AK-St. Maarten, LLC, Premier Resort
Management, Inc., Resort Telephone & Cable of Orlando, Inc., Kabushiki Gaisha
Kei, LLC, Vacation Ownership Marketing Company and Vacation Resort Marketing
of Missouri, Inc., each of which are controlled by the Founders and previously
provided administrative, utility, management and/or marketing services to
certain of the Property Partnerships.
Signature Resorts, Inc. was incorporated in Maryland in May 1996 by the
Founders to effect the Consolidation Transactions and the Initial Public
Offering. Pursuant to a Private Placement Memorandum dated as of May 28, 1996,
the Company in the Consent Solicitation solicited and received on or before
June 13, 1996 the consent and agreement of the ultimate owners of interests in
the Property Partnerships, the stockholders of the Affiliated Companies and
the holders of certain debt obligations to exchange their partnership
interests or shares in, and obligations of, the Property Partnerships or
Affiliated Companies (or their direct or indirect interests in the owners
thereof), as applicable, for shares of Common Stock in the Company. Such
exchange
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occurred simultaneously with the closing of the Initial Public Offering.
Direct and indirect holders of interests in, and obligations of, certain
Property Partnerships received, upon consummation of the Consolidation
Transactions, shares of Common Stock in the Company equal to a predetermined
dollar value based on agreement between the Company and such holders as set
forth in the Private Placement Memorandum for the Consent Solicitation. The
balance of the shares of Common Stock issued in the Consolidation Transactions
were issued to the holders of interests in the remaining Property Partnerships
and to the holders of interests in the Affiliated Companies, which are
comprised solely of the Founders or their affiliates.
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PRINCIPAL STOCKHOLDERS
The information in the following table sets forth information regarding the
beneficial ownership of the Common Stock of the Company as of the date of this
Prospectus, without giving effect to the sale of shares offered in the
Registered Offering, with respect to (i) each person known by the Company to
beneficially owns 5% or more of the outstanding shares of Common Stock, (ii)
each person who is a director, or Named Executive Officer of the Company and
(iii) all directors and executive officers of the Company as a group.
Applicable percentage ownership is based on 22,292,070 shares of Common Stock
outstanding as of the date of this Prospectus.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PRIOR TO THE
REGISTERED OFFERING
-----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(A) SHARES PERCENTAGE
--------------------------------------- --------- ----------
<S> <C> <C>
Osamu Kaneko(b)..................................... 2,601,903 11.7%
Andrew J. Gessow(c)................................. 2,990,704 13.4%
Steven C. Kenninger(b)(d)........................... 1,105,779 5.0%
James E. Noyes...................................... 150,000(e) *
Michael A. Depatie.................................. 82,400(f) *
Juergen Bartels..................................... -- --
Sanford R. Climan................................... 3,250 *
Joshua S. Friedman(g)(h)............................ -- --
W. Leo Kiely, III................................... -- --
Canpartners Incorporated(g)(k)...................... 505,011 2.3%
Beth Friedman(g)(h)............................... 98,188 *
Loretta Evensen(g)(h)............................. 98,188 *
Mitchell R. Julis(g)(h)........................... 98,188 *
--------- ----
Total (as a group)............................... 799,575 3.5%
Putnam Investments, Inc. (i)........................ 2,210,585 10.0%
One Post Office Square
Boston, Massachusetts 02109
Chancellor LGT Asset Management, Inc.(j)............ 2,028,200 9.1%
1166 Avenue of the Americas
New York, New York 10036
All directors and executive officers as a group
(14 persons)(l).................................... 7,078,436 31.8%
</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 Blvd., Suite 210, Los
Angeles, California 90045.
(c) The address of such person is 2934 Woodside Road, Woodside, California
94062.
(d) The shares indicated are held by Mr. Kenninger through trusts, pension
plans and profit sharing plans, under which Mr. Kenninger may be deemed to
have, or to share, beneficial ownership of such shares. Does not include
200,000 shares held by the Jaquish Charitable Remainder Unitrust,
beneficial ownership of which is disclaimed by Mr. Kenninger.
(e) Represents presently exercisable options to acquire shares of Common Stock
or options which will become exercisable within 60 days of the date of this
Prospectus.
(f) Includes (i) presently exercisable options to acquire 75,000 shares of
Common Stock, (ii) 6,400 shares of Common Stock held through trusts and
retirement plans and (iii) 1,000 shares of Common Stock held by a
corporation in which Mr. Depatie is a director and a 7.2% shareholder.
(g) Canpartners Incorporated ("Canyon") is the beneficial owner of 42,219
shares and is the sole general partner of CPI Securities L.P. (which holds
317,586 shares), Canpartners Investments II, L.P. (which holds 101,241
shares) and Canpartners Investments V, L.P. (which holds 43,965 shares).
Mr. Friedman (a director of the Company), Mitchell R. Julis and R.
Christian B. Evensen are the sole shareholders and directors of Canyon and
may be deemed to share beneficial ownership of the shares shown as owned by
Canyon and the indicated limited partnerships. Such persons disclaim
beneficial ownership of such shares. The 505,011 shares shown as
beneficially owned by Canyon do not
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include 98,188 shares owned by Mr. Friedman's wife, 98,188 shares owned by
Mr. Julis and 98,188 shares owned by Mr. Evensen's wife, the beneficial
ownership of which is disclaimed by Canyon.
(h) Beth Friedman is the wife of Joshua S. Friedman, a director of the
Company. Loretta Evensen is the wife of R. Christian B. Evensen, a
shareholder and director of Canyon. Mitchell R. Julis is a shareholder and
director of Canyon.
(i) Information based solely on a Schedule 13G filed with the Securities and
Exchange Commission (the "Commission") by, among others, Putnam
Investments, Inc. ("PI"). Of the shares beneficially owned by PI, Putnam
Investment Management, Inc. ("PIM") beneficially owns 1,706,217 (or 8.6%)
of the outstanding shares of Common Stock and The Putnam Advisory Company,
Inc. ("PAC") beneficially owns 504,368 (or 2.5%) of the outstanding shares
of Common Stock. The shares of Common Stock reported as being beneficially
owned by PI consist of securities beneficially owned by subsidiaries of PI
which are registered investment advisers, which in turn include securities
beneficially owned by clients of such investment advisers, which clients
may include investment companies registered under the Investment Company
Act and/or employee benefit plans, pension funds, endowment funds or other
institutional clients. PI, which is a wholly-owned subsidiary of Marsch &
McLennan Companies, Inc. ("M&MC"), wholly owns two registered investment
advisers: PIM, which is the investment adviser to the Putnam family of
mutual funds and PAC, which is the investment adviser to Putnam's
institutional clients. Both subsidiaries have dispository power over the
shares as investment managers, but each of the mutual fund's trustees have
voting power over the shares held by each fund, and PAC has shared voting
power over the shares held by the institutional clients. M&MC and PI
disclaim beneficial ownership of the shares of Common Stock reported as
being beneficially owned by PI.
(j) Information based solely on a Schedule 13G filed with the Commission by
Chancellor LGT Asset Management, Inc. and Chancellor LGT Trust Company, as
investment advisors for various fiduciary accounts and LGT Asset
Management, Inc. as the holding company for Chancellor LGT Asset
Management, Inc. As investment advisors, such entities report having sole
power to vote or to direct to vote, and sole power to dispose of or to
direct the disposition of, the 2,028,200 shares reported in such Schedule
13G.
(k) The address of such entity is 9665 Wilshire Boulevard, Suite 200, Beverly
Hills, California 90210.
(l) Includes 369,400 shares which may be acquired upon exercise of presently
exercisable options or options which will become exercisable within 60
days of the date of this Prospectus.
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<PAGE>
REGISTERING STOCKHOLDERS
All shares indicated below have been registered pursuant to the Company's
previously announced obligations under registration rights agreements entered
into in connection with the Consolidation Transactions and the PRG Merger. An
aggregate of 4,959,548 shares of Common Stock may be offered by the Registering
Stockholders from time-to-time. The following table sets forth, as of the date
of this Prospectus, the name of each Registering Stockholder, and for each, the
number of shares of Common Stock which may be offered for sale and, unless
otherwise indicated, the number of shares to be owned beneficially after the
Registered Offering (assumes all shares available for offer will be sold).
Applicable percentage ownership is based on 22,292,070 shares of Common Stock
outstanding as of the date of this Prospectus.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE AFTER THE
REGISTERED OFFERING REGISTERED OFFERING
----------------------- -----------------------
NAME AND ADDRESS OF NUMBER OF SHARES
REGISTERING STOCKHOLDER SHARES PERCENTAGE BEING REGISTERED SHARES PERCENTAGE
----------------------- --------- ---------- ---------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Osamu Kaneko(a)......... 2,601,903 11.7% 300,000(b) 2,301,903 10.3%
Andrew J. Gessow(a)..... 2,990,704 13.4% 300,000(c) 2,690,704 12.1%
Steven C. Kenninger(a).. 1,105,779 5.0% 100,000(d) 1,005,779 4.5%
Canpartners
Incorporated(e)........ 505,011 2.3% 505,011 -- --
Beth Friedman(e)...... 98,188 * 98,188 -- --
Loretta Evensen(e).... 98,188 * 98,188 -- --
Mitchell R. Julis(e).. 98,188 * 98,188 -- --
--------- ---- ------- --------- -----
Total (as a group)... 799,575 3.5% 799,575 -- --
Robert T. Gow and Kay F.
Gow.................... 853,727 3.8% 853,727 -- --
Offsite International,
Inc. .................. 773,751 3.5% 773,751 -- --
Plantation Group,
L.L.C. ................ 464,251 2.1% 464,251 -- --
Bush Construction
Corporation............ 309,500 1.4% 309,500 -- --
J.C. Investment &
Realty, Inc. .......... 228,219 1.0% 228,219 -- --
Peach Tree, Ltd. ....... 227,154 1.0% 227,154 -- --
KPI Realty, Inc. ....... 95,989 * 95,989 -- --
First Capital Investment
Fund................... 93,492 * 93,492 -- --
Charles C. Frey(a)...... 72,900(f) * 6,000 66,900(f) *
Genevieve Giannoni(a)... 70,500(f) * 3,000 67,500(f) *
Shinko Sangyou Co. Ltd.. 59,355 * 59,355 -- --
EKC Corporation......... 53,534 * 53,534 -- --
Grace Investments,
Ltd. .................. 43,958 * 43,958 -- --
Centaur Corp. .......... 41,941 * 41,941 -- --
Brains-Heart, Ltd....... 26,953 * 26,953 -- --
Dennis H. Vaughn(g)..... 25,660 * 25,660 -- --
Michael C. Ross(h)...... 23,980 * 23,980 -- --
James C. Anderson....... 23,960 * 23,960 -- --
James W. Geisz.......... 21,025 * 21,025 -- --
Arai Development Co.,
Inc. .................. 13,623 * 13,623 -- --
Kumagai El Paseo, Inc. . 13,623 * 13,623 -- --
Martin A. Flannes....... 11,078 * 11,078 -- --
Susan K. Kenninger...... 8,993 * 8,993 -- --
Michael B. Reeves(i).... 8,396 * 8,396 -- --
Charles V. Thornton(j).. 6,840 * 6,840 -- --
David M. Roberts........ 5,990 * 5,990 -- --
Ruth L. Kenninger....... 5,990 * 5,990 -- --
James A. Hamilton....... 4,643 * 4,643 -- --
Timothy D. Levin(a)..... 4,438 * 4,348 -- --
Charles H. Reeves(k).... 1,000 * 1,000 -- --
</TABLE>
- --------
* Less than 1%
(a) Such person is a director and/or executive officer of the Company. See
"Management--Directors and Executive Officers" and "Principal
Stockholders."
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<PAGE>
(b) Mr. Kaneko has advised the Company that he intends to donate 200,000 of
the shares registered by him hereunder as charitable gifts. Mr. Kaneko is
registering the remaining 100,000 shares pursuant to his obligations under
a pledge agreement securing a margin loan, although such pledge agreement
does not prohibit the sale of such shares by him.
(c) Mr. Gessow has advised the Company that he intends to donate 200,000 of
the shares registered by him hereunder as charitable gifts. Mr. Gessow is
registering the remaining 100,000 shares pursuant to his obligations under
a pledge agreement securing a margin loan, although such pledge agreement
does not prohibit the sale of such shares by him.
(d) Mr. Kenninger is registering such shares pursuant to his obligations under
a pledge agreement securing a margin loan, although such pledge agreement
does not prohibit the sale of such shares by him.
(e) See notes (g), (h) and (k) under "Principal Stockholders."
(f) Includes presently exercisable options to purchase 66,900 shares of Common
Stock with respect to Mr. Frey and 67,500 shares of Common Stock with
respect to Ms. Giannoni.
(g) Includes 22,660 shares held by The Vaughn Family Trust, of which Mr.
Vaughn is a co-trustee and 3,000 shares held by the Dennis Vaughn
Subtrust, of which Mr. Vaughn is trustee.
(h) Includes 16,780 shares held by the Ross Revocable Trust, of which Mr. Ross
is a co-trustee and 7,200 shares held by the Latham & Watkins Pension Plan
FBO Michael C. Ross, of which Mr. Ross is beneficiary.
(i) Includes 6,000 shares held by The CCN&M Revocable Trust, of which Mr.
Reeves is co-trustee.
(j) Includes 1,560 shares held by the Paul, Hastings, Janofsky & Walker
Retirement Plan FBO Charles V. Thornton, of which Mr. Thornton is
beneficiary.
(k) The shares indicated are held by a trust of which Mr. Reeves is co-
trustee.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of (i) 50,000,000
shares of Common Stock, par value $0.01 per share, 22,292,070 shares of which
are outstanding as of the date of this Prospectus and (ii) 25,000,000 shares
of Preferred Stock, par value $0.01 per share, none of which will be
outstanding after the Registered Offering. The following summary description
of the capital stock of the Company is qualified in its entirety by reference
to the Charter and Bylaws of the Company, copies of which are filed as
exhibits to the Registration Statement of which this Prospectus is a part. See
"Additional Information."
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters voted on by stockholders, including elections of directors, and,
except as otherwise required by law or provided in any resolution adopted by
the Board of Directors with respect to any series of Preferred Stock
establishing the designation, powers, preferences and relative, participating,
option or other special rights and powers of such series of Preferred Stock,
the holders of shares of Common Stock exclusively possess all voting power.
The Charter does not provide for cumulative voting in the election of
directors. Subject to any preferential rights of any outstanding series of
Preferred Stock, the holders of Common Stock are entitled to such
distributions as may be declared from time to time by the Board of Directors
from funds available therefor, and upon liquidation are entitled to receive
pro rata all assets of the Company available for distribution to such holders.
All shares of Common Stock issued in the Offering will be fully paid and
nonassessable and the holders thereof will not have preemptive rights.
PREFERRED STOCK
Preferred Stock may be issued from time to time, in one or more classes, as
authorized by the Board of Directors. Prior to issuance of shares of each
class, the Board of Directors is required by the MGCL and the Company's
Charter to fix for each such class, the terms, preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends or
other distributions, qualifications and terms or conditions of redemption, as
are permitted by Maryland law. The Board of Directors could authorize the
issuance of Preferred Stock with terms and conditions which could have the
effect of discouraging a takeover or other transaction which holders of some,
or a majority, of the Company's outstanding shares might believe to be in
their best interests or in which holders of some, or a majority, of shares
might receive a premium for their shares over the market price of such shares.
TRANSFER AGENT AND REGISTRAR
The Company has appointed ChaseMellon Shareholder Services, L.L.C.
(successor in interest to Wells Fargo Bank) as its transfer agent and
registrar.
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<PAGE>
CERTAIN PROVISIONS OF MARYLAND LAW
AND OF THE COMPANY'S CHARTER AND BYLAWS
The following paragraphs summarize certain provisions of Maryland law and
the Company's Charter and Bylaws. The summary does not purport to be complete
and is subject to and qualified in its entirety by reference to the Company's
Charter and Bylaws, copies of which are exhibits to the Registration Statement
of which this Prospectus is a part, as described in "Additional Information,"
and to Maryland law.
CLASSIFICATION OF THE BOARD OF DIRECTORS
The Company's Charter provides that the number of directors of the Company
shall be established by the Bylaws but shall not be less than the minimum
number required by the MGCL, which in the case of the Company is three. The
Bylaws currently provide that the Board of Directors will consist of not fewer
than seven nor more than 13 members. Any vacancy on the Board of Directors
will be filled, at any regular meeting or at any special meeting called for
that purpose, by a majority of the remaining directors, except that a vacancy
resulting from an increase in the number of directors will be filled by a
majority of the entire board of directors. The Charter provides for a
staggered Board of Directors consisting of three classes as nearly equal in
size as practicable. One class will hold office initially for a term expiring
at the annual meeting of stockholders to be held in 1997, another class will
hold office initially for a term expiring at the annual meeting of
stockholders to be held in 1998 and another class will hold office initially
for a term expiring at the annual meeting of stockholders to be held in 1999.
As the term of each class expires, directors in that class will be elected for
a term of three years and until their successors are duly elected and qualify.
The Company believes that classification of the Board of Directors will help
to assure the continuity and stability of the Company's business strategies
and policies as determined by the Board of Directors.
The classified director provision could have the effect of making the
removal of incumbent directors more time-consuming and difficult, which could
discourage a third party from making a tender offer or otherwise attempting to
obtain control of the Company, even though such an attempt might be beneficial
to the Company and its stockholders. At least two annual meetings of
stockholders, instead of one, will generally be required to effect a change in
a majority of the Board of Directors. Thus, the classified board provision
could increase the likelihood that incumbent directors will retain their
positions. Holders of shares of Common Stock will have no right to cumulative
voting for the elections of directors. Consequently, at each annual meeting of
stockholders, the holders of a majority of outstanding shares of Common Stock
will be able to elect all of the successors of the class of directors whose
term expires at that meeting.
REMOVAL OF DIRECTORS
The Charter provides that a director may be removed with or without cause by
the affirmative vote of at least two-thirds of the votes entitled to be cast
in the election of directors, and by the vote required to elect a director,
the stockholders may fill a vacancy on the Board of Directors resulting from
removal. This provision, when coupled with the provision in the Bylaws
authorizing the Board of Directors to fill vacant directorships, could
preclude stockholders from removing incumbent directors except upon a
substantial affirmative vote and filling the vacancies created by such removal
with their own nominees.
BUSINESS COMBINATIONS
Under the MGCL, certain "Business Combinations" (including a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns ten percent or more of the
voting power of the corporation's shares or an affiliate of the corporation
who, at any time within the two-year period prior to the date in question, was
the beneficial owner of ten percent or more of the voting power of the then-
outstanding voting stock of the corporation (an "Interested Stockholder") or
an affiliate thereof are prohibited for five years after the most recent date
on which the Interested Stockholder became an Interested Stockholder.
Thereafter, any
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<PAGE>
such Business Combination must be recommended by the Board of Directors of
such corporation and approved by the affirmative vote of at least (i) 80% of
the votes entitled to be cast by holders of outstanding voting shares of the
corporation and (ii) 66 2/3% of the votes entitled to be cast by holders of
outstanding voting shares of the corporation other than shares held by the
Interested Stockholder with whom the Business Combination is to be effected,
unless, among other things, the corporation's stockholders receive a minimum
price (as defined in the MGCL) for their shares and the consideration is
received in cash or in the same form as previously paid by the Interested
Stockholder for its shares. These provisions of Maryland law do not apply,
however, to Business Combinations that are approved or exempted by the Board
of Directors of the corporation prior to the time that the Interested
Stockholder becomes an Interested Stockholder. The Board of Directors of the
Company has exempted from these provisions of the MGCL any Business
Combination involving the Executive Officers and certain persons and entities
affiliated therewith.
CONTROL SHARE ACQUISITIONS
The MGCL provides that "Control Shares" of a Maryland corporation acquired
in a "Control Share Acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares of stock owned by the acquiror or by officers or
directors who are employees of the corporation. "Control Shares" are voting
shares of stock which, if aggregated with all other such shares of stock
previously acquired by such person, or in respect of which such person is able
to exercise or direct the exercise of voting power, would entitle the acquiror
to exercise voting power in electing directors within one of the following
ranges of voting power: (i) one-fifth or more but less than one-third, (ii)
one-third or more but less than a majority, or (iii) a majority of all voting
power. Control Shares do not include shares the acquiring person is then
entitled to voter as a result of having previously obtained stockholder
approval. A "Control Share Acquisition" means the acquisition of Control
Shares, subject to certain exceptions.
A person who has made or proposes to make a Control Share Acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the Board of Directors to call a special meeting of stockholders to
be held within 50 days of demand to consider the voting rights of the shares.
If no request for a meeting is made, the corporation may itself present the
question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute,
then, subject to certain conditions and limitations, the corporation may
redeem any or all of the Control Shares (except those for which voting rights
have previously been approved) for fair value determined, without regard to
the absence of voting rights for control shares, as of the date of the last
Control Share Acquisition or of any meeting of stockholders at which the
voting rights of such shares are considered and not approved. If voting rights
for Control Shares are approved at a stockholders meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote, all other
stockholders may exercise appraisal rights. The fair value of the shares are
determined for purposes of such appraisal rights may not be less than the
highest price per share paid in the Control Share Acquisition, and certain
limitations and restrictions otherwise applicable to the exercise of
dissenters' rights do not apply in the context of a Control Share Acquisition.
The control share acquisition statute does not apply to shares acquired in a
merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the Charter or Bylaws
of the corporation. The Company in its Bylaws has exempted from the Control
Share Acquisition statute the Executive Officers and certain persons and
entities affiliated therewith.
AMENDMENT TO THE COMPANY'S CHARTER AND BYLAWS
The Company's Charter, including its provisions on classification of the
Board of Directors and removal of directors, may be amended only by the
affirmative vote of the holders of at least 66 2/3% of the capital stock
entitled to vote. The Company's Bylaws may be amended by the affirmative vote
of holders of at least 66 2/3% of
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<PAGE>
the capital stock entitled to vote on the matter. Subject to the right of
stockholders to adopt, alter and repeal the Bylaws, the Board of Directors is
authorized to adopt, alter or repeal the Bylaws.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws of the Company provide that (i) with respect to an annual meeting
of stockholders, nominations of persons for election to the Board of Directors
and the proposal of business to be considered by stockholders may be made only
(a) pursuant to the Company's notice of the meeting, (b) by the Board of
Directors, or (c) by a stockholder who is entitled to vote at the meeting and
has complied with the advance notice procedures set forth in the Bylaws, and
(ii) with respect to special meetings of stockholders, only the business
specified in the Company's notice of meeting may be brought before the meeting
of stockholders, or provided that the Board of Directors has determined that
directors shall be elected at such meeting, nominations of persons for
election to the Board of Directors may be brought by a stockholder who is
entitled to vote at the meeting and has complied with the advance notice
provisions set forth in the Bylaws.
STOCKHOLDER MEETINGS AND ACTION BY WRITTEN CONSENT
In order for stockholders to call special meetings, the Bylaws require the
written request of holders of shares entitled to cast not less than 25% of all
votes entitled to be cast at such meeting. Such provisions do not, however,
affect the ability of stockholders to submit a proposal to the vote of all
stockholders of the Company in accordance with the Bylaws, which provide for
the additional notice requirements for stockholder nominations and proposals
at the annual meetings of stockholders as described above.
The Bylaws provide that any action required or permitted to be taken at a
meeting of stockholders may be taken without a meeting by unanimous written
consent, if such consent sets forth such action and is signed by each
stockholder entitled to vote on the matter and a written waiver of any right
to dissent is signed by each stockholders entitled to notice of the meeting
but not entitled to vote at it.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Charter limits the liability of the Company's directors and
officers to the Company and its stockholders to the fullest extent permitted
from time to time by Maryland law. Maryland law presently permits the
liability of directors and officers to a corporation or its stockholders for
money damages to be limited, except (i) to the extent that it is proved that
the director or officer actually received an improper benefit or profit, or
(ii) if a judgment or other final adjudication is entered in a preceding based
on a finding that the director's or officers' action, or failure to act, was
the result of active and deliberate dishonesty and was material to the cause
of action adjudicated in the proceeding. This provision does not limit the
ability of the Company or its stockholders to obtain other relief, such as an
injunction or rescission.
The Company's Charter and Bylaws require the Company to indemnify its
directors, officers and certain other parties to the fullest extent permitted
from time to time by Maryland law. The MGCL presently permits a corporation to
indemnify its directors, officers and certain other parties against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by
them in connection with any proceeding to which they may be made a party by
reason of their service to the corporation, unless it is established that (i)
the act or omission of the indemnified party was material to the matter giving
rise to the proceeding, and (1) was committed in bad faith or (2) was the
result of active and deliberate dishonest; or (ii) the indemnified party
actually received an improper personal benefit in money, property or services;
or (iii) in the case of any criminal proceeding, the indemnified party had
reasonable cause to believe that the act or omission was unlawful.
Indemnification may be made against judgments, penalties, fines, settlements
and reasonable expenses actually incurred by the director or officer in
connection with the proceeding; provided, however, that if the proceeding is
one by or in the right of the corporation, indemnification may not be made
with respect to any proceeding in which the director or officer has been
adjudged to be liable to the corporation. In addition, a director or officer
may not be indemnified with respect to any proceeding charging improper
personal benefit to the director or officer in which the director
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<PAGE>
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. The Company has applied for directors and
officers insurance which will become effective upon the effectiveness of the
Registration Statement.
DISSOLUTION OF THE COMPANY
The dissolution of the Company must be approved by the affirmative vote of
holders of not less than a majority of all of the votes entitled to be cast on
the matter.
SHARES ELIGIBLE FOR FUTURE SALE
As a result of the Initial Public Offering, the Consolidation Transactions,
the Offerings, the AVCOM Merger and the PRG Merger, the Company has
outstanding 22,292,070 shares of Common Stock. Of these shares, the 6,037,500
shares sold in the Initial Public Offering, the 1,600,000 shares sold by the
Company and the 2,400,000 shares sold by certain stockholders in the Stock
Offering and the 883,036 shares of Common Stock issued pursuant to the AVCOM
Merger are freely tradable in the public market without restriction or further
registration under the Securities Act and will be freely transferable subject
to certain limitations relating to pooling and relating to affiliates of AVCOM
under the Securities Act.
All 2,401,229 shares of Common Stock issued pursuant to the PRG Merger and
8,954,705 of the 11,354,705 (the other 2,400,000 shares having been registered
in the Stock Offering) shares of Common Stock issued upon consummation of the
Consolidation Transactions 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 one year has
elapsed since the later of the date of acquisition of shares of Common Stock
from the Company or the date of acquisition of shares of Common Stock from any
"affiliate" of the Company, as that term is defined under the Securities Act,
the acquiror or subsequent holder is entitled to sell within any three-month
period a number of shares of Common Stock that do not exceed the greater of 1%
of the then-outstanding shares of Common Stock or the average weekly trading
volume of shares of Common Stock on all exchanges and reported through the
automated quotation system of a registered securities association during the
four calendar weeks preceding the date on which notice of the sale is filed
with the Commission. Sales under Rule 144 are also subject to certain
restrictions on the manner of sales, notice requirements and the availability
of current public information about the Company. If two years have elapsed
since the date of acquisition of shares of Common Stock from the Company or
from any "affiliate" of the Company, and the acquiror or subsequent holder
thereof is deemed not to have been an affiliate of the company at any time
during the 90 days preceding a sale, such person would be entitled to sell
such shares of Common Stock in the public market under Rule 144(i) without
regard to the volume limitations, manner of sale provisions, public
information requirements or notice requirements.
Pursuant to a Registration Rights Agreement dated as of August 20, 1996
between the Company and certain of the Registering Stockholders (the "Initial
Registration Rights Agreement") the Company has agreed to file and use its
best efforts to have the shelf registration of which this Prospectus is a part
be declared and remain effective for a period of 18 months with respect to the
shares of Common Stock issued upon consummation of the Consolidation
Transactions that continue to be "restricted securities" (the "Initial
Registrable Shares"). Upon the effectiveness of such shelf registration
statement, and as provided in the Initial Registration Rights Agreement, the
holders of the Initial Registrable Shares will be subject to the volume
restrictions of Rule 144. The Company will bear the expenses incident to the
registration requirements of the Initial Registrable Shares, except that such
expenses shall not include any underwriting discounts or commissions or
transfer taxes relating to such shares.
Under the Initial Registration Rights Agreement, the holders of the Initial
Registrable Shares will also be entitled to include within any registration
statement under the Securities Act filed by the Company with respect to any
underwritten public offering of Common Stock (either of its own account or the
account of other security
86
<PAGE>
holders) at any time within three years following the closing of the Initial
Public Offering, which occurred on August 20, 1996, the Initial Registrable
Shares held by such holders, subject to certain conditions and restrictions.
The existence of the Initial Registration Rights Agreement may adversely affect
the terms upon which the Company can obtain additional equity financing in the
future.
The Company may require that the Initial Registrable Shares be sold in block
trades through underwriters or broker-dealers or that the Initial Registrable
Shares be underwritten by investment banking firms selected by the Company.
Pursuant to the PRG Registration Rights Agreement, the Company has agreed to
(i) file a shelf registration statement covering the PRG Registrable Shares or
(ii) amend an effective shelf registration of the Company to provide for the
inclusion of the PRG Registrable Shares. The Company has agreed to use its
maximum reasonable efforts to cause such shelf registration to be declared and
remain effective for a period of the shorter of the three years from the
closing and such period that will terminate when all PRG Registrable Shares are
tradeable without restriction under any applicable rules and regulations under
the Securities Act or when all PRG Registrable Shares covered by such shelf
registration have been disposed of in accordance therewith. The Company will
bear the expenses incident to the registration requirements of the PRG
Registrable Shares, except that such expenses shall not include any
underwriting discounts or commissions or transfer taxes relating to such
shares.
Under the PRG Registration Rights Agreement, the holders of the PRG
Registrable Shares will also be entitled to include within any registration
statement under the Securities Act filed by the Company with respect to any
underwritten public offering of Common Stock (either of its own account or the
account of other security holders) at any time within two years following the
closing of the PRG Merger, which occurred on May 15, 1997, the PRG Registrable
Shares held by such holders, subject to certain conditions and restrictions.
The Company may require that the PRG Registrable Shares be sold in block
trades through underwriters or broker-dealers or that the PRG Registrable
Shares be underwritten by investment banking firms selected by the Company.
The Founders have agreed, with certain exceptions, not to offer, sell,
contract to sell or otherwise dispose of any Common Stock for a period of one
year after the closing of the Initial Public Offering, which occurred on August
20, 1996, without the written consent of Montgomery Securities (which consent
has been given with respect to the shares being registered by the Founders in
the shelf registration statement of which this Prospectus is a part). One such
exception allowed the Founders to pledge up to an aggregate of $50 million of
their Common Stock to secure a margin loan in a maximum amount of $10 million
and another exception allowed the Founders to pledge approximately $5.8 million
of their Common Stock in connection with their buyout of a former partner.
The Founders have only elected to register a portion of their shares in the
shelf registration statement of which this Prospectus is a part pursuant to the
Initial Registration Rights Agreement. However, they reserve the right to
register their remaining shares pursuant to another shelf registration
statement.
Prior to the Initial Public Offering, there had been no public market for the
Common Stock and the effect, if any, that future market sales of Common Stock
or the availability of such Common Stock for sale will have on the market price
of the Common Stock prevailing from time to time cannot be predicted.
Nevertheless, sales of substantial amounts of Common Stock in the public market
(or the perception that such sales could occur) might adversely affect market
prices for the Common Stock.
Additionally, there are (i) outstanding stock options to purchase
approximately 2,000,000 shares of Common Stock which have been granted to
executive officers, other key employees, Independent Directors and consultants
of the Company under the 1996 Equity Participation Plan, (ii) up to 500,000
shares of Common Stock that may be sold pursuant to the Company's Employee
Stock Purchase Plan and (iii) 3,024,660 shares initially issuable upon
conversion of the Convertible Notes.
87
<PAGE>
PLAN OF DISTRIBUTION
The Company is registering the shares of Common Stock offered hereby
pursuant to the Initial Registration Rights Agreement and the PRG Registration
Rights Agreement. Any distribution of the shares covered by this Prospectus
may be effected from time to time in one or more transactions (which may
involve block transactions) on the Nasdaq National Market, in negotiated
transactions or in a combination of such methods of sale, at fixed prices, at
market prices prevailing at the time of sale, at prices related to the
prevailing market prices or at negotiated prices. The Registering Stockholders
will effect any such transactions with or through one or more broker-dealers
which may act as agent or principal, and if required by the Company, through
block trades or offerings through underwriters. Any such broker-dealer may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Registering Stockholders and/or the purchaser of the
shares for whom it may act as agent or to whom it may sell as principals or
both. With respect to any shares sold by a Registering Stockholder, the
Registering Stockholder and/or any broker-dealer effecting the sales may be
deemed to be an "underwriter" within the meaning of Section 2(11) of the
Securities Act, and any commissions received by the broker-dealer and any
profit on the resale of shares as principal may be deemed to be underwriting
discounts or commissions under the Securities Act. Additionally, the
Registering Stockholders may pledge or make gifts of their shares and the
shares may also be sold by the pledgee or transferees. Pursuant to the Initial
Registration Rights Agreement and the PRG Registration Rights Agreement, the
Company shall (i) pay substantially all of the expenses incurred by the
Company and the Registering Stockholders incident to the sale of the shares
offered hereby, excluding any fees and disbursements of counsel to such
Registering Stockholders, (ii) provide customary indemnification to each
Registering Stockholder and (iii) keep the Registration Statement continuously
effective for up to three years from the closing of the PRG Merger (which
occurred on May 15, 1997).
In order to comply with the securities laws of certain states, if
applicable, the Common Stock may be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Common Stock may not be sold unless it has been registered or qualified for
sale or an exemption from registration or qualification requirements is
available and is complied with.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland. Certain
other legal matters will be passed upon for the Company by Latham & Watkins,
Los Angeles, California.
EXPERTS
The consolidated financial statements of Signature Resorts, Inc. and
subsidiaries as of December 31, 1996 and 1995 and for each of the three years
in the period ended December 31, 1996, appearing in this Prospectus and
Registration Statement have been audited by Arthur Andersen LLP, independent
certified public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm
as experts in accounting and auditing in giving said report.
The consolidated financial statements of AVCOM International, Inc. and
subsidiaries as of December 31, 1995, and for each of the two years in the
period ended December 31, 1995, not presented separately in this Prospectus
and the related Registration Statement, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report appearing elsewhere
herein, given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of Plantation Resorts Group, Inc. and
subsidiaries as of December 31, 1996 and 1995 and for each of the three years
in the period ended December 31, 1996, appearing in this Prospectus and
Registration Statement have been audited by Arthur Andersen LLP, independent
certified public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm
as experts in accounting and auditing in giving said report.
88
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, exhibits and schedules thereto, the "Registration Statement")
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement. For further information with respect to the Company
and the Common Stock offered hereby, reference is hereby made to such
Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete and in each instance, reference is made
to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Company is also subject to the informational requirements
of the Exchange Act, and in accordance therewith files reports and other
information with the Commission. Copies of the Registration Statement and
reports, proxy statements and other information concerning the Company may be
obtained from the Commission's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following regional offices of the
Commission: Seven World Trade Center, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
may be obtained from the public reference section of the Commission at its
Washington address upon payment of the fees prescribed by the Commission or
may be examined without charge at the offices of the Commission. Electronic
filings made through the Electronic Data Gathering Analysis and Retrieval
System are publicly available through the Commission's Website
(http://www.sec.gov).
The Company intends to furnish its stockholders with annual reports
containing combined financial statements audited by an independent public
accounting firm and quarterly reports for the first three quarters of each
fiscal year containing unaudited combined financial information.
89
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants........................ F-2
Report of Independent Auditors............................................ F-3
Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996 and
1995..................................................................... F-4
Consolidated Statements of Income for the three months ended March 31,
1997 and 1996 and for each of the three years ended December 31, 1996.... F-5
Consolidated Statements of Equity for each of the three years ended
December 31, 1996 and the three months ended March 31, 1997.............. F-6
Consolidated Statements of Cash Flows for the three months ended March 31,
1997 and 1996 and for each of the three years ended December 31, 1996.... F-7
Notes to Consolidated Financial Statements................................ F-8
PLANTATION RESORTS GROUP, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants........................ F-23
Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996 and
1995..................................................................... F-24
Consolidated Statements of Income for the three months ended March 31,
1997 and 1996 and for each of the three years ended December 31, 1996.... F-25
Consolidated Statements of Equity for each of the three years ended
December 31, 1996 and the three months ended March 31, 1997.............. F-26
Consolidated Statements of Cash Flows for the three months ended March 31,
1997 and 1996 and for each of the three years ended December 31, 1996.... F-27
Notes to Consolidated Financial Statements................................ F-28
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Signature Resorts, Inc.:
We have audited the accompanying consolidated balance sheets of Signature
Resorts, Inc. (a Maryland Corporation) and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of income, equity and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits. We did not audit the December 31, 1995 and 1994
consolidated financial statements of AVCOM International, Inc. and
subsidiaries, which statements reflect total assets and total revenues of 21
percent and 32 percent in 1995, and total revenues of 36 percent in 1994,
respectively, of the consolidated totals. Those statements were audited by
other auditors, whose report has been furnished to us and our opinion, insofar
as it relates to the amounts included for AVCOM International, Inc. and
subsidiaries, is based solely on the report 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 financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Signature Resorts, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Orlando, Florida,
March 21, 1997 (except with respect to
the matters discussed in Note 17, as to
which the dates are May 15 and June 5, 1997)
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
AVCOM International, Inc.
We have audited the consolidated balance sheet of AVCOM International, Inc.
(Company) as of December 31, 1995, and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the two years in the
period ended December 31, 1995 (not presented separately herein). 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 the consolidated
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1995, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
May 31, 1996, except for
Note 12, as to which the
date is July 1, 1996
F-3
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
MARCH 31,
1997 1996 1995
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents............ $106,545,000 $ 7,244,000 $ 6,149,000
Cash in escrow....................... 2,333,000 1,281,000 1,946,000
Mortgages receivable, net of an
allowance of $11,116,000, $9,840,000
and $6,608,000 at March 31, 1997,
December 31, 1996 and 1995,
respectively........................ 167,547,000 148,488,000 83,759,000
Due from related parties............. 7,180,000 7,333,000 3,391,000
Other receivables, net............... 4,925,000 7,903,000 7,009,000
Prepaid expenses and other assets.... 7,932,000 9,683,000 3,262,000
Investment in joint venture.......... 7,327,000 7,397,000 2,644,000
Real estate and development costs.... 132,422,000 122,821,000 57,584,000
Property and equipment, net.......... 11,465,000 9,922,000 4,051,000
Intangible assets, net............... 6,532,000 3,156,000 4,224,000
------------ ------------ ------------
Total assets..................... $454,208,000 $325,228,000 $174,019,000
============ ============ ============
LIABILITIES AND EQUITY:
Accounts payable..................... $ 15,201,000 $ 20,490,000 $ 7,123,000
Accrued liabilities.................. 27,890,000 32,737,000 10,625,000
Due to related parties............... 718,000 1,656,000 1,906,000
Income taxes payable................. 2,285,000 438,000 500,000
Deferred taxes....................... 4,990,000 5,493,000 2,624,000
Notes payable to financial
institutions........................ 110,586,000 165,934,000 97,988,000
Notes payable to related parties..... -- -- 9,443,000
Convertible subordinated notes....... 138,000,000 -- --
------------ ------------ ------------
Total liabilities................ 299,670,000 226,748,000 130,209,000
------------ ------------ ------------
Commitments and contingencies (Note
10)
Minority interest in consolidated
limited partnership................. 1,545,000 1,538,000 --
------------ ------------ ------------
Stockholders equity:
Preferred stock (10,000,000 shares
authorized and none issued or
outstanding)...................... -- -- --
Common stock ($0.01 par value,
100,000,000 shares authorized;
19,890,841, and 18,275,205
outstanding on March 31, 1997 and
December 31, 1996 respectively;
par value $100 on 290 shares
outstanding at December 31, 1995). 199,000 183,000 29,000
Additional paid-in capital......... 153,597,000 100,158,000 1,988,000
Retained (deficit) earnings........ (803,000) (3,399,000) 5,935,000
Members' deficit................... -- -- (1,432,000)
Partners' equity:
General partners' equity........... -- -- 4,176,000
Limited partners' equity........... -- -- 33,114,000
------------ ------------ ------------
Total equity..................... 152,993,000 96,942,000 43,810,000
------------ ------------ ------------
Total liabilities and equity..... $454,208,000 $325,228,000 $174,019,000
============ ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ------------ ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Vacation Interval
sales................ $45,796,000 $19,890,000 $121,330,000 $ 92,302,000 $64,399,000
Interest income....... 5,393,000 2,489,000 12,254,000 7,523,000 3,863,000
Other income.......... 2,366,000 1,648,000 9,891,000 7,052,000 882,000
----------- ----------- ------------ ------------ -----------
Total revenues...... 53,555,000 24,027,000 143,475,000 106,877,000 69,144,000
----------- ----------- ------------ ------------ -----------
COSTS AND OPERATING
EXPENSES:
Vacation Interval cost
of sales............. 12,061,000 5,036,000 31,302,000 26,731,000 19,186,000
Advertising, sales,
and marketing........ 20,760,000 9,456,000 61,495,000 42,408,000 30,977,000
Loan portfolio:
Interest expense--
treasury........... 2,341,000 1,541,000 6,466,000 3,887,000 1,691,000
Other expenses...... 844,000 410,000 2,260,000 1,667,000 1,244,000
Provision for
doubtful accounts.. 2,057,000 717,000 6,286,000 2,579,000 1,294,000
General and
administrative....... 7,122,000 4,134,000 27,836,000 11,148,000 6,625,000
Resort property
valuation allowance.. -- -- 2,620,000 -- --
Depreciation and
amortization......... 919,000 601,000 4,219,000 1,861,000 635,000
Merger costs.......... 1,693,000 -- -- -- --
----------- ----------- ------------ ------------ -----------
Total costs and
operating expenses. 47,797,000 21,895,000 142,484,000 90,281,000 61,652,000
----------- ----------- ------------ ------------ -----------
Income from
operations........... 5,758,000 2,132,000 991,000 16,596,000 7,492,000
Interest expense--other
(net of capitalized
interest of $6,723,000,
and $3,315,000 in 1996
and 1995, respectively) 1,337,000 834,000 3,725,000 1,515,000 1,313,000
Equity loss on
investment in joint
venture.............. 70,000 1,000 236,000 1,649,000 271,000
Minority interest in
income of consolidated
limited partnership.. 24,000 -- 199,000 -- --
----------- ----------- ------------ ------------ -----------
Income (loss) before
provision (benefit)
for income taxes.... 4,327,000 1,297,000 (3,169,000) 13,432,000 5,908,000
Provision (benefit)
for income taxes..... 1,731,000 (414,000) (4,907,000) 1,479,000 695,000
----------- ----------- ------------ ------------ -----------
Net income........... $ 2,596,000 $ 1,711,000 $ 1,738,000 $ 11,953,000 $ 5,213,000
=========== =========== ============ ============ ===========
PRO FORMA INCOME DATA
(UNAUDITED):
Income (loss) before
taxes............... $ 1,297,000 $ (3,169,000) $ 13,432,000 $ 5,908,000
Pro forma provision
(benefit) for income
taxes................ 519,000 (1,268,000) 5,373,000 2,304,000
----------- ------------ ------------ -----------
Pro forma net income
(loss).............. $ 778,000 $ (1,901,000) $ 8,059,000 $ 3,604,000
=========== ============ ============ ===========
Pro forma net income
(loss) per common and
common equivalent share
(actual for the three
months ended March 31,
1997).................. $ 0.13 $ 0.06 $ (0.13) $ 0.66
Pro forma weighted
average common and
common equivalent
shares outstanding
(actual for the three
months ended March 31,
1997).................. 19,990,454 12,237,741 14,730,268 12,237,741
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- ADDITIONAL RETAINED MEMBERS' GENERAL LIMITED
SHARES PAID-IN EARNINGS EQUITY PARTNERS' PARTNERS'
OUTSTANDING AMOUNT CAPITAL (DEFICIT) (DEFICIT) EQUITY EQUITY TOTAL EQUITY
----------- -------- ------------ ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1993........... 883,000 $ 9,000 $ 966,000 $ 1,539,000 $ -- $ (59,000) $ 11,897,000 $ 14,352,000
Payment for stock
held in escrow..... -- -- 10,000 -- -- -- 10,000
Repurchase of AVCOM
common stock....... -- -- (30,000) -- -- -- (30,000)
Contributions....... -- -- -- -- -- 3,205,000 12,315,000 15,520,000
Distributions....... -- -- -- -- -- -- (870,000) (870,000)
Net income.......... -- -- 650,000 -- 183,000 4,380,000 5,213,000
---------- -------- ------------ ----------- ----------- ----------- ------------ ------------
Balance at December
31, 1994........... 883,000 9,000 946,000 2,189,000 -- 3,329,000 27,722,000 34,195,000
Issuance of Common
Stock.............. 200 20,000 157,000 -- -- -- -- 177,000
Proceeds from the
sale of AVCOM
common stock, net
of issuance costs
of $115,000........ -- -- 885,000 -- -- -- -- 885,000
Contributions....... -- -- -- 655,000 1,000 374,000 -- 1,030,000
Distributions....... -- -- -- -- (2,437,000) (43,000) (1,950,000) (4,430,000)
Net income.......... -- -- -- 3,091,000 1,004,000 516,000 7,342,000 11,953,000
---------- -------- ------------ ----------- ----------- ----------- ------------ ------------
Balance at December
31, 1995........... 883,200 29,000 1,988,000 5,935,000 (1,432,000) 4,176,000 33,114,000 43,810,000
Distributions of
partnership equity
and other equity
interests.......... -- -- -- (2,543,000) (5,394,000) -- (1,633,000) (9,570,000)
Conversion of
convertible notes
payable to AVCOM
common stock....... -- -- 400,000 -- -- -- -- 400,000
Proceeds from the
sale of common
stock to the
public, net of
offering costs..... 16,845,205 169,000 73,155,000 -- -- -- -- 73,324,000
Stock issued and
goodwill recorded
in connection with
the acquisition of
investment in Joint
Venture............ 547,000 5,000 4,984,000 -- -- -- -- 4,989,000
Acquisition of
minority limited
partners'
interests.......... -- -- (7,465,000) -- -- -- -- (7,465,000)
Deferred taxes
recorded in
connection with the
Consolidation
Transactions....... -- -- (9,464,000) -- -- -- -- (9,464,000)
Interest accrued on
deferred
installment gains
in connection with
the Consolidation
Transactions....... -- -- (820,000) -- -- -- -- (820,000)
Net (loss) income... -- -- -- (5,421,000) 3,568,000 (164,000) 3,755,000 1,738,000
Exchange of
partners' and
members' equity for
stock in connection
with the
Consolidation
Transactions....... (200) (20,000) 37,380,000 (1,370,000) 3,258,000 (4,012,000) (35,236,000)
---------- -------- ------------ ----------- ----------- ----------- ------------ ------------
Balance at December
31, 1996........... 18,275,205 183,000 100,158,000 (3,399,000) -- -- -- 96,942,000
Unaudited interim
information:
Proceeds from the
sale of common
stock to the
public, net of
offering costs.... 1,600,000 16,000 53,221,000 -- -- -- -- 53,237,000
Proceeds from the
exercise of
employee stock
options........... 15,600 -- 218,000 218,000
Net income......... 2,596,000 -- -- -- 2,596,000
---------- -------- ------------ ----------- ----------- ----------- ------------ ------------
Balance at March
31, 1997
(unaudited)....... 19,890,805 $199,000 $153,597,000 $ (803,000) $ -- $ -- $ -- $152,993,000
========== ======== ============ =========== =========== =========== ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------------- -----------------------------------------
1997 1996 1996 1995 1994
------------ ------------ ------------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.............. $ 2,596,000 $ 1,711,000 $ 1,738,000 $ 11,953,000 $ 5,213,000
Adjustments to reconcile
net income to net cash
(used in) provided by
operating activities:
Depreciation and
amortization.......... 919,000 601,000 4,219,000 1,861,000 635,000
Gain on sale of notes
receivable............ -- -- -- (566,000) (571,000)
Provision for doubtful
accounts.............. 2,057,000 717,000 6,286,000 2,579,000 1,294,000
Resort property
valuation allowance... -- -- 2,620,000 -- --
Equity loss on
investment in joint
venture............... 70,000 1,000 236,000 1,649,000 271,000
Minority interest in
income of
consolidated limited
partnership........... 24,000 -- 199,000 -- --
Changes in operating
assets and
liabilities:
Cash in escrow....... (1,052,000) (22,000) 665,000 481,000 (1,484,000)
Due from related
parties............. 153,000 (223,000) (3,942,000) (2,657,000) (328,000)
Prepaid expenses and
other assets........ 1,751,000 (2,422,000) (7,654,000) (1,368,000) (1,034,000)
Real estate and
development costs... (9,601,000) (13,130,000) (67,857,000) (13,489,000) (18,684,000)
Other receivables.... 2,978,000 1,468,000 (908,000) (5,603,000) (744,000)
Accounts payable..... (5,289,000) 2,397,000 13,367,000 4,944,000 745,000
Accrued liabilities.. (4,847,000) 5,098,000 21,292,000 3,794,000 4,042,000
Income taxes......... 1,847,000 (200,000) (62,000) 97,000 91,000
Deferred taxes....... (503,000) (816,000) (6,595,000) 448,000 506,000
Due to related
parties............. (938,000) 42,000 (250,000) 1,381,000 401,000
------------ ------------ ------------- ------------ ------------
Net cash (used in)
provided by operating
activities............. (9,835,000) (4,778,000) (36,646,000) 5,504,000 (9,647,000)
------------ ------------ ------------- ------------ ------------
INVESTING ACTIVITIES:
Expenditures for
investment in joint
venture................ -- -- -- -- (4,565,000)
Expenditures for
property and equipment. (1,945,000) (3,287,000) (6,882,000) (2,231,000) (773,000)
Expenditures for
intangible assets...... (3,893,000) (106,000) (907,000) (1,705,000) (3,147,000)
Mortgages receivable.... (21,116,000) (16,097,000) (71,001,000) (46,396,000) (18,381,000)
------------ ------------ ------------- ------------ ------------
Net cash (used in)
investing activities... (26,954,000) (19,490,000) (78,790,000) (50,332,000) (26,866,000)
------------ ------------ ------------- ------------ ------------
FINANCING ACTIVITIES:
Proceeds from notes
payable to financial
institutions........... 13,444,000 37,825,000 169,576,000 93,472,000 39,994,000
Payments on notes
payable to financial
institutions........... (68,792,000) (14,651,000) (101,230,000) (45,407,000) (20,010,000)
Proceeds from
convertible
subordinated notes..... 138,000,000 -- -- -- --
Proceeds from notes
payable to related
parties................ -- 205,000 5,606,000 3,711,000 5,145,000
Payments on notes
payable to related
parties................ -- (669,000) (15,049,000) (1,343,000) (2,569,000)
Contributions .......... -- -- 1,500,000 1,208,000 15,520,000
Proceeds from Initial
Public Offering........ 53,237,000 -- 73,324,000 885,000 --
Acquisition of minority
limited partners'
interests.............. -- -- (7,465,000) -- --
Repurchase of AVCOM
common stock........... -- -- -- -- (30,000)
Proceeds from exercise
of employee stock
options................ 218,000 -- -- -- --
Distributions........... (17,000) -- (9,731,000) (4,430,000) (870,000)
------------ ------------ ------------- ------------ ------------
Net cash provided by
financing activities... 136,090,000 22,710,000 116,531,000 48,096,000 37,180,000
------------ ------------ ------------- ------------ ------------
Net increase (decrease)
in cash and cash
equivalents............ 99,301,000 (1,558,000) 1,095,000 3,268,000 667,000
Cash and cash
equivalents, beginning
of period.............. 7,244,000 6,149,000 6,149,000 2,881,000 2,214,000
------------ ------------ ------------- ------------ ------------
Cash and cash
equivalents, end of
period................. $106,545,000 $ 4,591,000 $ 7,244,000 $ 6,149,000 $ 2,881,000
============ ============ ============= ============ ============
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Cash paid during the
period for interest.... $ 2,464,000 $ 3,246,000 $ 17,182,000 $ 7,977,000 $ 5,052,000
Cash paid during the
period for income
taxes.................. $ 235,000 $ 342,000 $ 1,782,000 $ 367,000 $ 127,000
SUPPLEMENTAL DISCLOSURE
OF NON-CASH INFORMATION
Stock issued and
goodwill recorded in
connection with the
acquisition of
investment in joint
venture................ $ 4,989,000
Deferred taxes recorded
in connection with the
Consolidated
Transactions........... $ 9,464,000
Interest accrued on
deferred installment
gains in connection
with the Consolidation
Transactions........... $ 820,000
Net assets of
predecessor partnership
acquired in exchange
for 11,354,705 shares
of common stock in
connection with the
Consolidation
Transactions........... $ 37,380,000
Conversion of
convertible notes
payable to AVCOM common
stock.................. $ 400,000
</TABLE>
See accompanying notes to the consolidated financial statements.
F-7
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. NATURE OF BUSINESS
Signature Resorts, Inc. and its wholly-owned subsidiaries (the Company)
generate revenues from the sale and financing of vacation ownership interests
in their 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 (i)
developing and acquiring vacation ownership resorts, (ii) marketing and
selling Vacation Intervals at its resorts, (iii) providing consumer financing
for the purchase of Vacation Intervals at its resorts, and (iv) managing the
operations of its resorts.
The Company was incorporated in May 1996. On August 20, 1996, the Company
consummated an initial public offering of a portion of its Common Stock (the
Initial Public Offering) by offering 6,037,500 shares to the public. The gross
proceeds from the public offering were $84,525,000. The Company incurred
$11,201,000 of expenses associated with this offering. Concurrent with the
Initial Public Offering, certain predecessor limited partnerships, limited
liability companies and corporations (the Entities) exchanged their direct or
indirect interest in, and obligations of the entities, for shares of the
Company's common stock (the Consolidation Transactions).
On September 23, 1996, the Company announced the signing of a merger
agreement to acquire AVCOM International Inc. (AVCOM) for approximately $34.6
million of the Company's Common Stock plus the assumption of net debt. AVCOM
is the parent company of All Seasons Resorts, Inc., a developer, marketer and
operator of vacation ownership resorts in Arizona, California and Texas. On
February 7, 1997 this merger (the "AVCOM Merger") was consummated. Under the
terms of the merger agreement, the Company issued approximately 883,000 shares
of its common stock in exchange for all the outstanding capital stock of
AVCOM. The AVCOM Merger has been treated as a pooling-of-interests and is
reflected in the accompanying financial statements as if it took place at the
beginning of the earliest period presented.
Total revenues of the combined entities were $143,475,000, $106,877,000 and
$69,144,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. AVCOM contributed $48,421,000, $34,269,000 and $24,854,000 to
the Company's total revenues during the years ended December 31, 1996, 1995
and 1994, respectively, and the Company contributed the remaining $95,054,000,
$72,608,000 and $44,290,000 of total revenues for the same periods.
Net income of the combined entities was $1,738,000, $11,953,000 and
$5,213,000 during the years ended December 31, 1996, 1995 and 1994,
respectively. AVCOM contributed $(12,442,000), $1,040,000 and $922,000 to the
Company's net (loss) income during the years ended December 31, 1996, 1995 and
1994, respectively, and the Company contributed the remaining $14,180,000,
$10,913,000 and $4,291,000 of net income for the same periods.
All intercompany transactions between the Company and AVCOM have been
eliminated for all periods presented.
As part of the AVCOM Merger, AVCOM recorded approximately $13.6 million of
expenses during 1996 as a result of the write-down and write-off of certain
assets recorded by AVCOM. During the three months ended March 31, 1997, the
Company recorded a one-time charge to earnings of $1.7 million for charges
that include fees and expenses payable to financial advisors, legal fees, and
other transaction expenses related to the AVCOM Merger.
F-8
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The accompanying consolidated financial statements reflect the combined
financial position and combined results of operations of the Company and AVCOM
as if the AVCOM Merger was consummated at the beginning of the earliest period
presented using pooling-of-interests accounting.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
For periods prior to August 20, 1996, the accompanying financial statements
include the combined accounts of Signature Resorts, Inc., AVCOM, and the other
companies presented in Note 1 that were acquired or formed prior to August 20,
1996, which became wholly-owned subsidiaries in connection with the
Consolidation Transactions or the AVCOM Merger. As a result, the combined
accounts are now referred to as consolidated financial statements for the
historical periods presented. All significant intercompany transactions and
balances have been eliminated from these consolidated financial statements.
The Consolidation Transactions have been accounted for as a reorganization
of entities under common control. Accordingly, the net assets of the
predecessor entities were recorded at the predecessor entities' basis. In
addition, the accompanying financial statements reflect the historical results
of operations of the predecessor partnerships on a combined basis.
Interim Financial Statements
The accompanying unaudited interim financial statements at March 31, 1997
and for the three months ended March 31, 1997 and 1996 do not include all
disclosures provided in the annual financial statements. These interim
financial statements should be read in conjunction with the accompanying
annual audited financial statements and the footnotes thereto. Results for the
1997 interim period are not necessarily indicative of the results to be
expected for the year ended December 31, 1997. However, the accompanying
interim financial statements reflect all adjustments which are, in the opinion
of management, of a normal and recurring nature necessary for a fair
presentation of the financial position and results of operations of the
Company. Unless otherwise stated, all information subsequent to December 31,
1996, is unaudited.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash, money market, and all highly
liquid investments purchased with an original maturity of three months or
less.
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. Interest, taxes,
and other carrying costs incurred during the construction period are
capitalized.
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. Buildings
are amortized over 40 years.
F-9
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Depreciation and amortization expense related to property and equipment was
$1,011,000, $523,000, and $206,000 in 1996, 1995 and 1994 respectively.
Intangible Assets
Organizational costs incurred in connection with the formation of the
Company have been capitalized and are being amortized on a straight-line basis
over a period of three to five years. Start-up costs relate to costs incurred
to develop a marketing program prior to receiving regulatory approval to
market the related property and are being amortized on a straight line basis
over a period of one year.
Financing and loan origination fees incurred in connection with obtaining
funding for the Company have been capitalized and are being amortized over the
life of the respective loans.
Goodwill recorded in connection with the acquisition of the Investment in
Joint Venture is being amortized by a fixed amount per Interval as Intervals
are sold.
Revenue Recognition
The Company recognizes sales of Vacation Intervals on an accrual basis after
a binding sales contract has been executed, a 10% minimum down payment has
been received, the recission period has expired, construction is substantially
complete, and certain minimum sales levels have been achieved. If all the
criteria are met except that construction is not substantially complete, then
revenues are recognized on the percentage-of-completion (cost to cost) basis.
For sales that do not qualify for either accrual or percentage-of-completion
accounting, all revenue is deferred using the deposit method.
Revenues from resort management and maintenance services are recognized on
an accrual basis as earned.
Income Taxes
Prior to August 20, 1996, the predecessor entities were taxed either as a
corporation at the corporate level, as an S corporation taxable at the
shareholder level, or as a partnership taxable at the partner level. As a
result of the Consolidation Transactions, the Company became subject to
federal, state, and foreign income taxes from the effective date of the
Initial Public Offering. The pro forma net income per common and common
equivalent share uses the historical net income of the Company as adjusted by
the unaudited pro forma provision for income taxes to reflect the net income
per common and common equivalent share, as if the Company had been treated as
a C corporation rather than as individual limited partnerships and limited
liability companies for federal income tax purposes for the years ended
December 31, 1996, 1995 and 1994.
As a result of the AVCOM Merger (see Note 13), AVCOM's results of operations
have been included in the accompanying financial statements under the pooling-
of-interests method of accounting. During each period presented, AVCOM was
taxed as a C corporation.
The Company accounts for income taxes using an asset and liability approach
in accordance with Statement of Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes, which requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax returns.
Deferred tax assets and liabilities are measured by applying enacted statutory
tax rates applicable to the future years in which the related deferred tax
assets or liabilities are expected to be settled or realized. Income tax
expense consists of the taxes payable for the current period and the change
during the period in deferred tax assets and liabilities.
F-10
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Newly Issued Accounting Standards
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, Accounting for Stock-Based Compensation (SFAS 123). SFAS 123 was adopted
during the year ended December 31, 1996. SFAS 123 requires that the Company's
financial statements include certain disclosures about stock-based employee
compensation arrangements and permits the adoption of a change in accounting
for such arrangements. Changes in accounting for stock-based compensation are
optional and the Company has adopted the disclosure requirements.
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of (SFAS 121), 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. SFAS 121 also addresses the
accounting for the expected disposition of long-lived assets. The Company
adopted SFAS 121 during the year ended December 31, 1996. The impact of
adopting SFAS 121 was to reduce net income by $2,620,000 and has been recorded
as a resort property valuation allowance to reduce real estate and development
costs.
Earnings Per Share
During February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 (SFAS 128), Earnings Per
Share. The statement establishes standards for computing and presenting
earnings per share (EPS) and applies to publicly held common stock or
potential common stock. The statement simplifies the standards for computing
EPS previously found in APB Opinion No. 15, Earnings Per Share (Opinion 15).
It replaces presentation of primary EPS with a presentation of basic EPS. It
also requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS pursuant to Opinion 15.
The statement requires implementation for the Company during the fourth
quarter of 1997 and does not allow for early implementation. However, if the
Company had implemented SFAS 128, both basic EPS and diluted EPS would have
been ($0.12) and $0.69, for the years ended December 31, 1996, and December
31, 1995, respectively.
Reclassifications
Certain reclassifications were made to the 1994 and 1995 financial
statements to conform to the 1996 presentation.
F-11
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. ACCOUNTS RECEIVABLE
The Company has accrued insurance claims as a result of hurricane damage to
its Royal Palm and Flamingo properties located in St. Maarten, Netherlands
Antilles of $1.25 million and $3.8 million at December 31, 1996 and 1995,
respectively. The receivable at December 31, 1996 consists of business
interruption insurance claims. The Company has submitted additional claims
above the amounts accrued for business interruption insurance and is in
negotiations with its carriers regarding these claims. Subsequent to December
31, 1996, the Company collected $650,000 in partial payment of this
receivable.
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 generally bear interest at the time of issuance of between 12% and
17% and remain fixed over the term of the loan, which is five to ten years.
The weighted average rate of interest on outstanding mortgages receivable is
15% as of December 31, 1996.
At December 31, 1996 and 1995, approximately $3.7 million and $1.8 million,
respectively, of mortgages receivable are non-interest bearing. These
mortgages have not been discounted as management has determined that the
effect would not be material to the consolidated financial statements.
Additionally, the Company has accrued interest receivable related to
mortgages receivable of $1,452,000 and $861,000 at December 31, 1996 and 1995,
respectively. The accrued interest receivable at December 31, 1996 and 1995 is
net of an allowance for doubtful accounts of $165,000 and $145,000,
respectively, and is included in other receivables, net.
The following schedule reflects the principal maturities of mortgages
receivable:
<TABLE>
<S> <C>
Year ending December 31:
1997....................................................... $ 22,260,000
1998....................................................... 21,144,000
1999....................................................... 20,825,000
2000....................................................... 21,519,000
2001....................................................... 21,842,000
Thereafter................................................. 50,738,000
------------
Total principal maturities of mortgages receivable......... 158,328,000
Less allowance for doubtful accounts....................... (9,840,000)
------------
Net principal maturities of mortgages receivable......... $148,488,000
============
</TABLE>
The activity in the mortgages receivable allowance for doubtful accounts is
as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Balance, beginning of the period.................. $ 6,608,000 $ 2,238,000
(Decrease) increase in allowance for purchased
mortgage receivables............................. (400,000) 3,156,000
Provision......................................... 6,286,000 2,579,000
Receivables charged off........................... (2,654,000) (1,365,000)
----------- -----------
Balance, end of the period...................... $ 9,840,000 $ 6,608,000
=========== ===========
</TABLE>
During September 1995, the Company recorded an allowance for doubtful
accounts of $3,412,000 for certain mortgage portfolios acquired in conjunction
with the acquisition of the two properties in St. Maarten.
F-12
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. REAL ESTATE AND DEVELOPMENT COSTS
Real estate and development costs and accumulated cost of sales consist of
the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
------------ -------------
<S> <C> <C>
Land.......................................... $49,378,000 $ 23,183,000
Development costs, excluding capitalized
interest..................................... 151,061,000 85,516,000
Capitalized interest.......................... 13,276,000 6,553,000
------------ -------------
Total real estate and development costs....... 213,715,000 115,252,000
Less accumulated cost of sales................ (88,274,000) (57,668,000)
Less resort property valuation allowance...... (2,620,000) --
------------ -------------
Net real estate and development costs....... $122,821,000 $ 57,584,000
============ =============
</TABLE>
6. INVESTMENT IN JOINT VENTURE
The Company owns partnership interests in the Embassy Vacation Resort at
Poipu Point, Koloa, Kauai, Hawaii (the "Poipu Partnership"). As co-managing
general partner, the Company holds a 0.5% partnership interest for purposes of
distributions, profits and losses. The Company is also a limited partner and
holds a 29.93% limited 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 preferred 10% per annum return on the initial capital investment
of approximately $4.6 million. 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. 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.
Summarized financial information for the Poipu Partnership is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
----------- -----------
<S> <C> <C>
Mortgages receivable................................ $15,920,000 $ 3,474,000
Real estate and development costs, net.............. 38,262,000 3,248,000
Net property and equipment.......................... 510,000 39,287,000
Total assets........................................ 60,474,000 50,696,000
Notes payable....................................... 40,903,000 35,494,000
Advances from partners.............................. 6,675,000 4,000,000
Partners' capital................................... 8,452,000 8,688,000
Revenues............................................ 23,904,000 10,119,000
Net loss............................................ 237,000 5,419,000
</TABLE>
Concurrent with the Initial Public Offering, the Company exchanged 547,000
shares of stock with the former holders of interests in the Poipu Partnership
for the 30.43% interest in the joint venture. As a result of this exchange,
$4,989,000 of goodwill was recorded as an increase in investment in joint
venture and is being amortized on a per Interval basis as Intervals are sold.
The amortization of such goodwill for the year ended December 31, 1996 was
$168,000 and is included in equity loss on investment in joint venture. The
Company also acquired a $2,547,000 note receivable from the partnership in
connection with the exchange. The principal balance and accrued interest
related to this note receivable was $2,031,000 and $291,000 respectively, and
is included in due from related parties as of December 31, 1996.
F-13
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. INTANGIBLE ASSETS
Intangible assets and accumulated amortization consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Organizational costs............................... $ 2,569,000 $ 2,547,000
Start-up costs..................................... 2,433,000 2,051,000
Loan origination fees.............................. 422,000 522,000
Financing fees..................................... 1,620,000 1,444,000
----------- -----------
Total intangible assets............................ 7,044,000 6,564,000
Less accumulated amortization...................... (3,888,000) (2,340,000)
----------- -----------
Net intangible assets............................ $ 3,156,000 $ 4,224,000
=========== ===========
</TABLE>
Amortization expense was $3,208,000, $1,338,000 and $429,000 in 1996, 1995
and 1994, respectively. In addition, $427,000 of fully amortized intangibles
were retired from the related asset and accumulated amortization accounts.
8. NOTES PAYABLE
Notes payable to financial institutions consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1996 1995
----------- -----------
<S> <C> <C>
Construction loans payable not to exceed $49.0 million
in the aggregate, interest payable monthly at prime
plus 2% (10.65% at December 31, 1995)................ $ -- $ 9,268,000
Construction and acquisition loan payable, due October
31, 1998 with interest payable monthly at LIBOR plus
4.25% (9.94% at December 31, 1995) collateralized by
land, improvements and vacation ownership interests.. -- 1,898,000
Revolving lines of credit not to exceed $155.0 million
in the aggregate (limited by eligible collateral),
with interest payable monthly at prime plus 2% to
prime plus 3% (10.25% to 11.25% at December 31,
1996), 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........................................... 58,767,000 41,917,000
Revolving line of credit of $10.0 million,
collateralized by certain mortgages receivable with
interest payable at LIBOR plus 4.25% (9.78% at
December 31, 1996), 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............................................. 6,043,000 1,571,000
Revolving line of credit of $6.0 million, with
interest payable monthly at prime plus 3% (11.25% at
December 31, 1996), maturing seven years after the
date of the last advance, collateralized by mortgages
receivable........................................... 2,523,000 3,874,000
</TABLE>
F-14
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1996 1995
------------ -----------
<S> <C> <C>
Revolving line of credit of $40.0 million and $25
million during 1996 and 1995, respectively, with
interest payable monthly at LIBOR plus 3% (8.69% at
December 31, 1996) 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 June
1998................................................ $ 37,226,000 $12,277,000
Revolving line of credit of $5.0 million, with
interest payable monthly at prime plus 1.75% (10.0%
at December 31, 1996) 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
September 8, 2000................................... 951,000 --
Working capital note payable of $4.0 million, with
interest payable monthly at prime plus 2% (10.25% at
December 31, 1996), due in April 1999,
collateralized by certain mortgage receivables...... 3,707,000 521,000
Acquisition loans payable of $5.45 million, with
interest payable monthly at prime plus 3% (11.25% at
December 31, 1996), 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.......................................... 2,459,000 5,998,000
Acquisition/construction loan payable of $9.0
million, with monthly interest payable at prime plus
2% (10.25% at December 31, 1996), due by June 13,
1999, payable with a portion of the proceeds
received on the sale of Vacation Intervals,
collateralized by specific mortgages receivable..... 1,937,000 --
Acquisition note payable with monthly principal and
interest payments due at 8%, collateralized by
certain real property, due January 10, 2001......... 615,000 --
Acquisition note payable with monthly interest
payments due at 6.75%, collateralized by certain
real property, due June 14, 1999.................... 552,000 --
Acquisition note payable with monthly principal and
interest payments due at 9%, collateralized by
certain real property, due February 14, 2014........ 436,000 --
Construction loan payable of $28.0 million, with
monthly interest payable at prime plus 2% (10.25% at
December 31, 1996) principal payable with a portion
of the proceeds received on the sale of Vacation
Intervals, collateralized by specific land and
unsold interval inventory, due by April 30, 2000.... 11,792,000 --
Construction loan payable of $11.0 million with
monthly interest payable at prime plus 2% (10.25% at
December 31, 1996) principal payable with a portion
of the proceeds received on the sale of Vacation
Intervals, collateralized by specific land and
unsold interval inventory, due by May 19, 1998...... 402,000 --
Construction loan payable of $3.0 million with
monthly interest payable at LIBOR plus 4.25% (9.78%
at December 31, 1996) principal payable with a
portion of the proceeds received on the sale of
Vacation Intervals, collateralized by specific land
and unsold interval inventory, due by October 31,
1998................................................ 419,000 --
</TABLE>
F-15
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1996 1995
------------ -----------
<S> <C> <C>
Construction loan payable of $8.0 million with
monthly interest payable at prime plus 2% (10.25% at
December 31, 1996) principal payable with a portion
of the proceeds received on the sale of Vacation
Intervals, collateralized by specific land and
unsold interval inventory, due by January 14, 1998.. $ 2,226,000 $ --
Noninterest bearing land purchase obligation (net of
a $335,000 discount for imputed interest at 8.5% in
1996) due October 1, 1997........................... 2,165,000 1,500,000
Note payable of $3.0 million with monthly interest
payable at LIBOR plus 4.25% (9.78% at December 31,
1996) payable with a portion of the proceeds on the
sale of Vacation Intervals, collateralized by
specific land....................................... 516,000 --
Noninterest bearing land loan of $500,000 payable at
$54 per interval sold with remaining balance due May
1, 1997............................................. 500,000 --
Notes payable to certain investors and former owners,
with monthly principal payments of $100,000, plus
interest at 12%, with additional interest of $325
per interval sold, due April 10, 1998............... 1,655,000 2,900,000
Mortgages receivable sold with option to repurchase,
collateralized by certain mortgages receivable...... 6,281,000 --
Noninterest bearing purchase money mortgage note,
payable in annual installments of $2.0 million with
final payment due November 5, 1997 (net of a
discount of $670,000 for imputed interest at 8.5% at
December 31, 1996 collateralized by specific land... 1,330,000 5,588,000
Other notes payable.................................. 23,432,000 10,676,000
------------ -----------
Total notes payable................................ $165,934,000 $97,988,000
============ ===========
</TABLE>
Under the terms of the revolving lines of credit agreements, totaling
approximately $220 million, the Company may typically borrow from 85% to 90% of
the balances of the pledged mortgages receivable. A total of $112 million is
available under these certain agreements at December 31, 1996, the borrowing
capacity expires seven to ten years after the date on which the last advance
related to mortgages receivable was executed.
The loans contain certain covenants, the most restrictive of which require
certain of the consolidated entities to maintain a minimum net worth and
require certain expenses to not exceed certain percentages of sales. At
December 31, 1996, the Company was in compliance with all covenants or had
received waivers with respect to these covenants.
Subsequent to December 31, 1996, the Company paid $47,325,000 of the
$165,934,000 notes payable outstanding at December 31, 1996, including all
other notes payable. The expected maturities of the remaining notes payable,
are as follows:
<TABLE>
<S> <C>
Due in fiscal year
1997........................................................ $ 28,993,000
1998........................................................ 21,778,000
1999........................................................ 20,009,000
2000........................................................ 18,949,000
2001........................................................ 14,492,000
2002 and thereafter......................................... 14,388,000
------------
$118,609,000
============
</TABLE>
F-16
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. RELATED-PARTY TRANSACTIONS
At December 31, 1996, the Company, had accrued $4,405,000 and $1,590,000 as
a receivable and payable, respectively, with the various homeowners'
associations at its resorts. The Company accrued $1,220,000 and $1,771,000 as
a receivable and payable, respectively, at December 31, 1995 with the
homeowners' associations at its resorts. The related party payable to the
homeowners' associations at December 31, 1995, included $1,030,000 of a
special assessment fee charged to the Company. The Company generally accrues
receivables from homeowners' associations for management fees and certain
other expenses. Payables to the homeowners' associations consist mostly of
maintenance fees for units owned by the Company. All of these amounts are
classified as due from and due to related parties in the accompanying
consolidated balance sheets.
The Company recorded a receivable of $1,154,000 and $121,000 from two of its
predecessor partnerships at December 31, 1995, for predevelopment costs
incurred by the Company at its Embassy Vacation Resort Lake Tahoe and San Luis
Bay Resorts. These receivables were included as due from related parties. Such
predecessor partnerships were consolidated into the Company on August 20,
1996, as a result of the Consolidation Transactions.
The Company also made payments of $295,000 during the twelve months ended
December 31, 1995, to an affiliate of the Company for construction consulting
and expense reimbursement. For the year ended December 31, 1996, no such
payments were made.
Notes payable to related parties as of December 31, 1995 consist of the
following:
<TABLE>
<S> <C>
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........................................................... $2,722,000
Notes payable to Grace Investments, Ltd. one of the limited
partners, with interest at 12% payable monthly, due on December
31, 1996....................................................... 1,667,000
Notes payable to Dickstein & Company, L.P., an affiliate of a
limited partner, with interest payable monthly at 12%, due on
December 31, 1996.............................................. 1,111,000
Acquisition loan payable with interest payable at 12%, due on
December 31, 1996.............................................. 1,495,000
Notes payable to partners, with interest accrued at 16%, payable
on demand...................................................... 2,157,000
Other........................................................... 291,000
----------
Total notes payable to related parties........................ $9,443,000
==========
</TABLE>
During 1996, notes payable to related parties were satisfied as part of the
Consolidation Transactions.
10. COMMITMENTS AND CONTINGENCIES
The Company has license agreements with Embassy Vacation Resorts, a division
of The Promus Corporation ("Promus"), to franchise the Grand Beach and Lake
Tahoe properties. The agreements allow the resorts to be operated and marketed
as "Embassy Vacation Resorts." The agreements provide for Promus to be paid a
percentage of net sales of the Embassy Vacation Resort properties. Additional
terms are stated in the related license agreements.
The Company has an agreement with Westin Hotels & Resorts ("Westin") to
acquire, develop, and sell Vacational Intervals at four and five star Westin
Vacation Clubs. In December 1996, the Company announced plans to acquire the
first Westin Vacation Club. This property will be located in St. John, U.S.
Virgin Islands. The Company and Westin will form the Westin Partnership owned
50% each by the Company and Westin to
F-17
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
acquire an interest in the St. John Resort. Of the $10.5 million purchase
price, each company is obligated to contribute $2.5 million. The remaining
$5.5 million of the acquisition price will be paid by the Westin Partnership
using debt financing. In addition, the Westin Partnership will borrow
approximately $7.1 million to complete the conversion of the project to a
Westin Vacation Club.
The Company is currently subject to litigation and claims regarding
employment, tort, contract, construction, and commission dispute, among
others. In the judgment of management, none of such lawsuits or claims against
the Company is likely to have a material adverse effect on the Company or its
business.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 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 their fair value because of the short maturity of these
instruments.
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 to financial institutions: 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.
Notes payable to related parties: The fair value of the notes payable to
related parties is not determinable since these financial instruments are not
readily marketable and are payable to related parties.
12. OTHER INCOME
Included in other income for the year ended December 31, 1996, is primarily
$3.5 million of income from the realization of purchased mortgages receivable,
$1.7 million of income related to the settlement of certain receivables from
the former owners of the St. Maarten properties, $2.0 million of rental
income, $0.9 million of management fees, $(0.5) million of losses from AVCOM's
property management and health spa operations, and $1.0 million of consulting
and development income related to certain joint marketing programs. Other
income for the year ended December 31, 1995, consists primarily of business
interruption insurance proceeds of $2.0 million, income from the realization
of purchased mortgages receivable of $2.2 million, rental income of $1.3
million, $1.2 million of management fees.
13. CONVERTIBLE SUBORDINATED NOTE AND COMMON STOCK OFFERINGS
In February 1997, the Company consummated its offering (the "Convertible
Offering") of $138 million aggregate principal amount of its 5.75% Convertible
Subordinated Notes due 2007 (the "Convertible Notes") and its offering (the
"Stock Offering" and together with the Convertible Offering the "Offerings")
of 4.0 million shares of its Common Stock (including 1.6 million primary
shares sold by the Company and 2.4 million secondary shares sold by certain
selling stockholders).
F-18
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The net proceeds to the Company from the sale of the 1.6 million primary
shares of Common Stock offered by the Company in the Stock Offering, based on
public offering price of $36.50 per share, and from the sale of the $138.0
million aggregate principal amount of 5.75% Convertible Subordinated Notes due
2007 offered by the Company in the Convertible Offering, based on a public
price of 100% of the principal amount thereof, in each case after deducting
underwriting discounts and estimated expenses of the Offerings, were $53.2
million and $134.9 million, respectively.
14. STOCK OPTIONS
The Company issued 1,769,000 stock options during 1996 which were
outstanding at December 31, 1996. 19,000 of these options are subject to
stockholder approval at the 1997 Annual Stockholders Meeting. The Company
accounts for these options under APB Opinion No. 25, Accounting for Stock
Issued to Employees, under which no compensation cost has been recognized.
Under SFAS 123, the Company's net income and unaudited pro forma earnings per
share would have been $11,902,000 and $0.61, respectively, during the year
ended December 31, 1996. SFAS 123 would not have affected the Company's net
income and earnings per share for the years ended December 31, 1995 and 1994.
A summary of the Company's stock options for the year ended December 31, 1996
is presented below.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
OPTIONS PRICE
--------- --------
<S> <C> <C>
Outstanding options, beginning of year.................. -- --
Granted................................................. 1,769,000 $15.44
Exercised............................................... -- --
Forfeited............................................... -- --
Expired................................................. -- --
--------- ------
Outstanding options, end of year........................ 1,769,000 $15.44
========= ======
Exercisable at end of year.............................. 348,000 $15.27
Weighted average fair value of options granted.......... $ 6.35
</TABLE>
The following is a summary of the exercise prices and terms of the 1,769,000
options granted during 1996.
<TABLE>
<CAPTION>
EXERCISE PRICE OPTIONS TERM
-------------- ------- -------
<S> <C> <C>
$12.00.................................................... 375,000 4 years
14.00.................................................... 529,000 5 years
14.00.................................................... 450,000 3 years
17.81.................................................... 40,000 5 years
18.125................................................... 110,000 4 years
24.125................................................... 265,000 4 years
</TABLE>
The fair value of each option granted is estimated on the date of the grant
using the Black-Scholes option pricing model with the following assumptions:
risk free interest rate of 6.0%, expected dividend yield of zero, expected
volatility of 35%, and expected lives of 5 years.
15. EMPLOYEE BENEFIT PLANS
During 1996, the Company authorized 500,000 shares of Common Stock to be
issued in connection with its 1996 Equity Participation Plan and The Employee
Stock Purchase Plan (the "Plan"). The Plan allows employees that work at least
20 hours per week to purchase Common Stock of the Company at a 15% discount
from the
F-19
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
lesser of the stock price on the date of grant or the date the stock is
purchased. Employees may purchase up to a maximum of 10% of their annual
compensation or $25,000. As of December 31, 1996, no shares were issued or
outstanding related to the Plan.
The Company also sponsors a 401(k) deferred savings plan (the "401(k) Plan")
in which employees can contribute up to 10% of their eligible compensation on
a pre-tax basis subject to certain maximum amounts. Under the terms of the
401(k) Plan, the Company can, at its option, match 50% of employee
contributions up to three percent of compensation. No contributions were made
to the 401(k) Plan by the Company during 1996.
16. INCOME TAXES
On August 20, 1996, the Company consummated a public offering which made it
subject to federal, state, and foreign income taxes from the effective date of
the Initial Public Offering. In addition, the Company is now required to
record a deferred tax liability for cumulative temporary differences between
financial reporting and tax reporting following the effective date of the
Initial Public Offering. For the year ended December 31, 1996, the Company
recorded approximately $1,720,000 of current income tax expense and
approximately $6,627,000 of deferred income tax benefit. Additionally, the
Company recorded deferred taxes of $9,464,000 related to deferred taxes from
prior years that were assumed as part of the Initial Public Offering. The
total current tax liability and deferred tax liability at December 31, 1996
was $438,000 and $5,493,000, respectively.
The Company has recorded $820,000 of accrued interest related to deferred
installment gains from previous years that were assumed as part of the Initial
Public Offering. During the year ended December 31, 1996, the Company recorded
an additional $78,000 of expense related to these deferred installment gains.
Prior to August 20, 1996, the predecessor entities were taxed either as a
corporation at the corporate level, as an S corporation taxable at the
shareholder level, or as a partnership taxable at the partner level.
Accordingly, the table below summarizes the unaudited pro forma provision for
income taxes that would have been reported had the Company been treated as a C
corporation rather than as individual limited partnerships and limited
liability companies for federal income tax purposes for the years ended
December 31, 1996 and 1995. AVCOM's actual deferred income taxes and provision
for income taxes are included in the proforma schedules and 1996 actual
schedule below. The Company's actual income tax provision is presented for the
period subsequent to August 20, 1996.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------
PRO FORMA UNAUDITED
-----------------------------------
1996 1996 1995 1994
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Current:
Federal.................. $ 1,428,000 $ 2,366,000 $1,830,000 $ 542,000
State.................... 227,000 382,000 36,000 6,000
Foreign.................. 65,000 58,000 686,000 --
----------- ----------- ---------- ----------
1,720,000 2,806,000 2,552,000 548,000
Deferred:
Federal.................. $(5,541,000) $(3,327,000) $2,103,000 $1,442,000
State.................... (1,086,000) (747,000) 725,000 314,000
Foreign.................. -- -- (7,000) --
----------- ----------- ---------- ----------
(6,627,000) (4,074,000) 2,821,000 1,756,000
----------- ----------- ---------- ----------
(Benefit) provision for
income taxes............ $(4,907,000) $(1,268,000) $5,373,000 $2,304,000
=========== =========== ========== ==========
</TABLE>
F-20
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The reconciliation between the statutory provision for income taxes and the
actual provision for income taxes is shown as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------
PRO FORMA UNAUDITED
-----------------------------------
1996 1996 1995 1994
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Income tax at federal
statutory rate............ $(4,144,000) $(1,077,000) $4,567,000 $2,008,000
State tax, net of federal
benefit................... (1,003,000) (662,000) 535,000 253,000
Foreign tax, net of federal
benefit................... -- -- (8,000) --
Other...................... 240,000 471,000 279,000 43,000
----------- ----------- ---------- ----------
(Benefit) provision for
income taxes............ $(4,907,000) $(1,268,000) $5,373,000 $2,304,000
=========== =========== ========== ==========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the net deferred tax liabilities were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
PRO FORMA
UNAUDITED
1996 1995
------------ ------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts............ $ 3,803,000 $ 1,763,000
Fixed assets and inventory................. 3,092,000 (359,000)
Accrued expenses........................... 2,304,000 62,000
Net operating loss carryforward............ 15,763,000 1,383,000
Federal benefit of state deferred tax...... -- 364,000
Foreign tax credit carryover............... 332,000 632,000
Minimum tax credit carryover............... 1,629,000 3,094,000
------------ ------------
Total deferred tax assets................ $ 26,923,000 $ 6,939,000
------------ ------------
Deferred tax liabilities:
Installment sales.......................... (27,190,000) (13,070,000)
Percentage of completion................... (4,370,000) --
Other...................................... (856,000) (901,000)
------------ ------------
Total deferred tax liabilities............... $(32,416,000) $(13,971,000)
------------ ------------
Net deferred taxes....................... $ (5,493,000) $ (7,032,000)
============ ============
</TABLE>
Additionally, certain of the Company's consolidated affiliates include
foreign corporations which are taxed at a regular rate up to 45%. The Company
has filed a request for a tax holiday for AKGI-Royal Palm C.V.O.A. which
effectively reduces the tax to 2%. This 2% tax liability rate will be in
effect for the fiscal year ending December 31, 1997. Generally, a foreign tax
credit is allowed for any taxes paid on foreign income up to the amount of
U.S. tax.
17. SUBSEQUENT EVENTS
On June 5, 1997, the Company announced the execution of a definitive
agreement to acquire 100% of the capital stock of United Kingdom based LSI
Group Holdings, PLC (LSI). LSI is a developer, owner and operator of European
Vacation ownership resorts with 11 resorts in England, Spain, and Austria. LSI
operates a points based club system called the Grand Vacation Club with 25,000
member families. The Company plans to acquire all the outstanding stock of LSI
for newly issued shares of the Company's common stock. The actual number of
F-21
<PAGE>
SIGNATURE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
shares will be determined by the average closing price of the Company's common
stock for a five day trading period ending August 7, 1997. Between an average
closing price of $21 and $27 per share, 1,875,000 shares will be issued.
Should the average closing price exceed $27 per share, the number of shares
issued would decrease so that the total common stock consideration would not
exceed $50,625,000 subject to a minimum of 1,400,000 shares issued. The
company plans to account for this merger under the pooling of interest method
of accounting.
On May 15, 1997, the Company announced the acquisition and merger of
Plantation Resorts Group, Inc (PRG), a Williamsburg, VA based developer, owner
and operator of vacation ownership intervals. The merger was consummated
through the issuance of 2.4 million shares of the Company's common stock. PRG
owns and operates the 256 acre Powhatan Plantation Resort which currently
consists of 405 units, and the 123 acre Greensprings Plantation Resort which
currently consists of 58 units. In addition, the Company acquired an
additional 141 acres of waterfront land near the two resorts.
The following presents a summary of the pro forma revenue, net income and
earnings per share if the merger between the Company and PRG had taken place
on January 1, 1996:
<TABLE>
<S> <C>
Pro forma total revenue..................................... $191,900,000
Pro forma net income (unaudited)............................ $ 2,115,000
Pro forma earnings per share (unaudited).................... $ 0.12
</TABLE>
F-22
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Plantation Resorts Group, Inc.:
We have audited the accompanying consolidated balance sheets of Plantation
Resorts Group, Inc. (a Virginia corporation) and subsidiaries as of December
31, 1996 and 1995, and the related consolidated statements of income, equity
and cash flows for each of the three years in the period then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Plantation Resorts Group,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the
period then ended in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Orlando, Florida
March 28, 1997 (except with respect to
the matter discussed in Note 10,
as to which the date
is May 15, 1997)
F-23
<PAGE>
PLANTATION RESORTS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
MARCH 31, 1997 1996 1995
-------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents........... $ 5,994,697 $ 7,142,739 $ 10,657,091
Cash in escrow...................... 611,156 430,681 802,719
Mortgages receivable, net of an
allowance of $6,938,806, $7,148,915
and $6,506,000 at March 31, 1997,
December 31, 1996 and 1995,
respectively....................... 64,793,823 65,964,496 63,315,332
Due from related parties............ 5,440,012 4,426,678 14,132,963
Real estate and development costs,
net................................ 16,231,464 14,580,222 10,513,808
Property and equipment, net......... 1,560,865 1,582,036 2,281,462
Prepaid expenses.................... 1,657,748 4,502,403 5,561,859
Intangible assets, net.............. 1,267,560 1,338,517 1,550,531
Deferred income taxes............... 2,340,582 1,948,626 --
----------- ------------ ------------
Total assets..................... $99,897,907 $101,916,398 $108,815,765
=========== ============ ============
LIABILITIES AND EQUITY:
Accounts payable.................... $ 3,474,853 $ 1,923,294 $ 2,492,141
Accrued liabilities................. 933,198 1,380,227 771,186
Deferred revenue.................... 2,353,373 5,661,152 8,123,190
Notes payable to financial
institutions....................... 68,429,288 69,755,720 69,278,148
----------- ------------ ------------
Total liabilities................ 75,190,712 78,720,393 80,664,665
Stockholders equity:
Common stock (no par value, 5,000
shares authorized and 973
outstanding)..................... -- -- --
Additional paid-in capital........ 410,998 410,998 410,998
Retained deficit ................. (5,900,111) (5,260,604) (294,927)
Venturer's equity................... 30,196,308 28,045,611 28,035,029
----------- ------------ ------------
Total equity........................ 24,707,195 23,196,005 28,151,100
----------- ------------ ------------
Total liabilities and equity..... $99,897,907 $101,916,398 $108,815,765
=========== ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-24
<PAGE>
PLANTATION RESORTS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------ ------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Vacation Interval
sales................ $ 8,133,678 $11,284,685 $35,712,455 $26,249,708 $34,659,161
Interest income....... 3,023,608 3,166,380 12,681,108 12,483,200 11,883,479
Other income.......... 1,071 2,986 31,660 91,661 151,263
----------- ----------- ----------- ----------- -----------
Total revenues...... 11,158,357 14,454,051 48,425,223 38,824,569 46,693,903
----------- ----------- ----------- ----------- -----------
COSTS AND OPERATING
EXPENSES:
Vacation Interval cost
of sales............. 2,510,934 3,493,016 11,366,259 7,345,649 9,806,598
Advertising, sales and
marketing............ 3,766,607 5,255,614 16,534,132 12,202,283 16,103,507
Loan portfolio:
Interest expense--
treasury........... 1,758,903 1,670,508 7,016,109 6,189,582 6,533,220
Other expenses...... 578,035 395,692 1,816,246 351,006 215,684
Provision for
doubtful accounts . 80,687 579,869 1,722,832 920,619 661,822
General and
administrative ...... 1,103,520 378,316 2,855,882 2,450,752 1,838,268
Depreciation and
amortization ........ 138,836 104,017 419,944 293,126 354,867
----------- ----------- ----------- ----------- -----------
Total costs and
operating expenses. 9,937,522 11,877,032 41,731,404 29,753,017 35,513,966
----------- ----------- ----------- ----------- -----------
Income before
(benefit) provision
for income taxes..... 1,220,835 2,577,019 6,693,819 9,071,552 11,179,937
(Benefit) provision for
income taxes .......... (380,456) 418,314 (337,365) 1,533,193 1,351,376
----------- ----------- ----------- ----------- -----------
Net income............ $ 1,601,291 $ 2,158,705 $ 7,031,184 $ 7,538,359 $ 9,828,561
=========== =========== =========== =========== ===========
PRO FORMA INCOME DATA
(UNAUDITED):
Income before taxes... $ 1,220,835 $ 2,577,019 $ 6,693,819 $ 9,071,552 $11,179,937
Pro forma provision
for income taxes..... 488,334 1,030,808 2,677,528 3,628,621 4,360,175
----------- ----------- ----------- ----------- -----------
Pro forma net income.. $ 732,501 $ 1,546,211 $ 4,016,291 $ 5,442,931 $ 6,819,762
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-25
<PAGE>
PLANTATION RESORTS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------ ADDITIONAL RETAINED STOCKHOLDERS'
SHARES PAID-IN EARNINGS EQUITY VENTURERS' TOTAL
OUTSTANDING AMOUNT CAPITAL (DEFICIT) (DEFICIT) EQUITY EQUITY
----------- ------ ---------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993................... 973 -- $410,998 $ 1,507,551 $ 1,918,549 $17,960,948 $19,879,497
Net (loss) income....... -- -- -- (1,069,617) (1,069,617) 10,898,178 9,828,561
Distributions........... -- -- -- -- -- (4,434,248) (4,434,248)
Balance at December 31,
1994................... 973 -- 410,998 437,934 848,932 24,424,878 25,273,810
Net (loss) income....... -- -- -- (732,861) (732,861) 8,271,220 7,538,359
Distributions........... -- -- -- -- -- (4,811,069) (4,811,069)
Contributions........... -- -- -- -- -- 150,000 150,000
--- --- -------- ----------- ----------- ----------- -----------
Balance at December 31,
1995................... 973 -- 410,998 (294,927) 116,071 28,035,029 28,151,100
Net (loss) income....... -- -- -- (1,076,002) (1,076,002) 8,107,186 7,031,184
Distributions........... -- -- -- -- -- (4,648,096) (4,648,096)
Assignment to venturers'
of receivable due from
related party ......... -- -- -- -- -- (3,448,508) (3,448,508)
Write-off of receivable
from related party..... -- -- -- (3,889,675) (3,889,675) -- (3,889,675)
--- --- -------- ----------- ----------- ----------- -----------
Balance at December 31,
1996................... 973 -- 410,998 (5,260,604) (4,849,606) 28,045,611 23,196,005
(Unaudited interim
financial information):
Net (loss) income....... -- -- -- (639,507) (639,507) 2,240,798 1,601,291
Distributions........... -- -- -- -- -- (90,101) (90,101)
--- --- -------- ----------- ----------- ----------- -----------
Balance at March 31,
1997 (unaudited)....... 973 -- $410,998 $(5,900,111) $(5,489,113) $30,196,308 $24,707,195
=== === ======== =========== =========== =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-26
<PAGE>
PLANTATION RESORTS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------ -------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.............. $ 1,601,291 $ 2,158,705 $ 7,031,184 $ 7,538,359 $ 9,828,561
Adjustments to reconcile
net income to net cash
(used in) provided by
operating activities:
Depreciation and
amortization.......... 138,836 104,017 419,944 293,126 354,867
Provision for doubtful
accounts.............. 80,687 579,869 1,722,832 920,619 661,822
Loss on disposal of
property and
equipment............. -- 337,135 572,820 -- --
Changes in operating
assets and
liabilities:
Cash in escrow....... (180,475) 92 372,038 (7,619) (133,002)
Due from related
parties............. (1,013,334) 1,562,220 2,368,102 (1,425,553) (4,854,354)
Real estate and
development costs... (1,651,242) (131,578) (4,066,414) (4,532,302) 800,222
Prepaid expenses..... 2,844,655 2,901,951 1,059,456 (2,422,705) 983,322
Accounts payable..... 1,551,559 337,531 (568,847) 186,869 476,699
Accrued liabilities.. (447,029) (350,917) 609,041 (36,869) (127,057)
Deferred revenue..... (3,307,779) (3,840,200) (2,462,038) 3,852,447 (2,114,669)
Deferred income
taxes............... (391,956) (57,000) (1,948,626) -- --
----------- ----------- ----------- ----------- -----------
Net cash (used in)
provided by operating
activities............. (774,787) 3,601,825 5,109,492 4,366,372 5,876,411
----------- ----------- ----------- ----------- -----------
INVESTING ACTIVITIES:
Mortgages receivable.... 1,089,986 (991,071) (4,371,996) (1,957,056) (5,848,598)
Expenditures for
property and equipment. (46,708) (16,524) (16,524) (1,600,236) (486,220)
Expenditures for
intangible assets...... -- (11,217) (64,800) (903,183) (152,680)
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) investing
activities............. 1,043,278 (1,018,812) (4,453,320) (4,460,475) (6,487,498)
----------- ----------- ----------- ----------- -----------
FINANCING ACTIVITIES:
Net (payments of)
proceeds from notes
payable to financial
institutions........... (1,326,432) (760,977) 477,572 5,261,579 2,562,796
Contributions........... -- -- -- 150,000 --
Distributions........... (90,101) (1,958,002) (4,648,096) (4,811,069) (4,434,248)
----------- ----------- ----------- ----------- -----------
Net cash (used in)
provided by financing
activities............. (1,416,533) (2,718,979) (4,170,524) 600,510 (1,871,452)
----------- ----------- ----------- ----------- -----------
Net (decrease) increase
in cash and cash
equivalents............ (1,148,042) (135,966) (3,514,352) 506,407 (2,482,539)
Cash and cash
equivalents, beginning
of period.............. 7,142,739 10,657,091 10,657,091 10,150,684 12,633,223
----------- ----------- ----------- ----------- -----------
Cash and cash
equivalents, end of
period................. $ 5,994,697 $10,521,125 $ 7,142,739 $10,657,091 $10,150,684
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW
INFORMATION:
Cash paid during the
period for interest.... $ 1,763,604 $ 1,680,064 $ 7,027,982 $ 6,423,392 $ 6,802,821
Cash (received) paid
during the period for
income taxes........... $ (391,755) $ 223,936 $(1,048,213) $ 1,683,360 $ 1,109,384
SUPPLEMENTAL DISCLOSURE
OF NON-CASH
INFORMATION:
Assignment to venturers
of receivable due from
related party recorded
as a reduction of
venturers' equity...... $ 3,448,508 $ 3,448,508
Write-off of receivable
from related party
recorded as a reduction
of stockholders'
equity................. $ 3,889,675
</TABLE>
See accompanying notes to the consolidated financial statements.
F-27
<PAGE>
PLANTATION RESORTS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. NATURE OF BUSINESS
Plantation Resorts Group, Inc. (the Company) generates revenues from the
sale and financing of vacation ownership interests in its resorts, which
typically entitle the owner to use a fully furnished vacation resort (in
perpetuity), typically for one-week each year (a Vacation Interval). The
Company's principal operations consist of (1) developing and acquiring
vacation ownership resorts and (2) providing consumer financing for the
purchase of Vacation Intervals at its resorts.
The Company was incorporated in April 1997 through a private placement of
its common stock in which certain predecessor joint ventures and corporations
(the "Entities") exchanged their interests for shares of the Company's common
stock (the "Consolidation Transactions"). The Entities are Powhatan
Associates, Greensprings Associates (Virginia joint ventures wholly-owned by
the Company), Powhatan Associates Mortgage Trust I (a Delaware trust wholly-
owned by the Company), RKG Corporation (RKG) and its wholly-owned
subsidiaries, Greensprings Plantation Resort, Inc. (GPR) and Williamsburg
Vacations, Inc. (WVI) (all Virginia corporations).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements include the combined
accounts of the companies listed in Note 1, which became wholly-owned
subsidiaries of the Company through the Consolidation Transactions. As a
result, the combined accounts are now referred to as consolidated financial
statements for the historical periods presented. All significant intercompany
transactions and balances have been eliminated from these consolidated
financial statements.
The Consolidation Transactions have been accounted for as a reorganization
of entities under common control. Accordingly, the net assets of the
predecessor entities were recorded at the predecessor entities' basis. In
addition, the accompanying consolidated financial statements reflect the
historical results of operations of the predecessor entities on a combined
basis.
Interim Financial Statements
The accompanying unaudited interim financial statements at March 31, 1997
and for the three months ended March 31, 1997 and 1996, do not include all
disclosures provided in the annual financial statements. These interim
financial statements should be read in conjunction with the accompanying
annual audited financial statements and the footnotes thereto. Results for the
1997 interim period are not necessarily indicative of the results to be
expected for the year ended December 31, 1997. However, the accompanying
interim financial statements reflect all adjustments which are, in the opinion
of management, of a normal and recurring nature necessary for a fair
presentation of the financial position and results of operations of the
Company. Unless otherwise stated, all information subsequent to December 31,
1996, 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 rescission period has expired.
F-28
<PAGE>
PLANTATION RESORTS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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, is allocated to Vacation Intervals. Interest, taxes
and other carrying costs incurred during the construction period are
capitalized.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-lived Assets and for Long-lived Assets to Be Disposed Of" (SFAS 121),
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. SFAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. The Company adopted SFAS 121 effective
January 1, 1996, and there has been no material impact on the Company's
operations or financial position.
Income Taxes
The Company accounts for income taxes using an asset and liability approach
in accordance with Statement of Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes, which requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax returns.
Deferred tax assets and liabilities are measured by applying enacted statutory
tax rates applicable to the future years in which the related deferred tax
assets or liabilities are expected to be settled or realized. Income tax
expense consists of the taxes payable for the current period and the change
during the period in deferred tax assets and liabilities.
Property and Equipment
Property and equipment consists of buildings used for sales presentations.
The buildings are recorded at cost and depreciated using the straight-line
method over their estimated useful life of 39 years.
Depreciation expense related to property and equipment was $143,130, $67,496
and $89,394 for the years ended December 31, 1996, 1995 and
1994, respectively.
Fair Value of Financial Instruments
SFAS 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 their fair value because of the short maturity of these
instruments.
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 to financial institutions: 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-29
<PAGE>
PLANTATION RESORTS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Intangible Assets
Bond issuance costs and loan commitment fees incurred in connection with
obtaining funding for the Company have been capitalized and are being
amortized 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 percent minimum down payment
has been received, the rescission period has expired, construction is
substantially complete, and certain minimum sales levels have been achieved.
If all the criteria are met except that construction is not substantially
complete, then revenues are recognized on the percentage-of-completion (cost-
to-cost) basis. For sales that do not qualify for either accrual or
percentage-of-completion accounting, all revenue is deferred using the deposit
method.
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 reported amounts of assets, liabilities, revenues
and expenses and disclosure of contingent assets and liabilities at the date
of the financial statements during the reporting period. Actual results could
differ from those estimates.
3. MORTGAGES RECEIVABLE
The Company provides financing to the purchasers of Vacation Intervals,
which is collateralized by the purchaser's deeded interest in such Vacation
Intervals. The mortgages receivable bear interest at the time of issuance of
16 percent per annum over the term of the loan, which is 10 years.
Mortgages receivable consisted of the following as of December 31, 1996 and
1995:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Mortgages receivable............................... $72,131,335 $68,713,899
Accrued interest................................... 982,076 1,107,433
Allowance for doubtful accounts.................... (7,148,915) (6,506,000)
----------- -----------
$65,964,496 $63,315,332
=========== ===========
</TABLE>
The activity in the mortgages receivable allowance for doubtful accounts is
as follows for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Balance, beginning of period....................... $(6,506,000) $(6,500,000)
Provision........................................ (1,722,832) (920,619)
Receivables charged-off.......................... 1,079,917 914,619
----------- -----------
Balance, end of period............................. $(7,148,915) $(6,506,000)
=========== ===========
</TABLE>
F-30
<PAGE>
PLANTATION RESORTS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following schedule reflects the principal maturities of mortgages
receivable as of December 31, 1996:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ -----------
<S> <C>
1997.......................................................... $ 7,989,000
1998.......................................................... 9,186,000
1999.......................................................... 9,323,000
2000.......................................................... 9,281,000
2001.......................................................... 9,168,000
Thereafter.................................................... 27,184,335
-----------
Total principal maturities of mortgages receivable............ 72,131,335
Less--Allowance for doubtful accounts......................... (7,148,915)
-----------
Net principal maturities of mortgages receivable............ $64,982,420
===========
</TABLE>
4. REAL ESTATE AND DEVELOPMENT COSTS
Real estate and development costs and accumulated cost of Vacation Interval
sales consisted of the following as of December 31, 1996, and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
Land................................................ $ 5,135,676 $ 3,275,476
Development costs................................... 77,167,391 63,594,918
------------ ------------
Total real estate and development costs............. 82,303,067 66,870,394
Less--Accumulated cost of Vacation Interval sales... (67,722,845) (56,356,586)
------------ ------------
Real estate and development costs, net............ $ 14,580,222 $ 10,513,808
============ ============
</TABLE>
5. INTANGIBLE ASSETS
Intangible assets and accumulated amortization consisted of the following as
of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Bond issuance costs..................................... $ 933,184 $ 933,184
Loan commitment fees.................................... 1,056,268 991,468
---------- ----------
1,989,452 1,924,652
Accumulated amortization................................ (650,935) (374,121)
---------- ----------
Intangible assets, net................................ $1,338,517 $1,550,531
========== ==========
</TABLE>
Amortization expense related to intangible assets was $276,814, $225,630 and
$265,473 for the years ended December 31, 1996, 1995 and 1994, respectively.
During the year ended December 31, 1994, the Company wrote-off certain fully
amortized loan commitment fees related to expired loan agreements.
F-31
<PAGE>
PLANTATION RESORTS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. NOTES PAYABLE TO FINANCIAL INSTITUTIONS
Notes payable to financial institutions consisted of the following as of
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
----------- -----------
<S> <C> <C>
Bonds payable, bearing interest at 7.75%, payable from
collections of mortgages receivable, secured by
mortgages receivable, matures April 2004............. $17,460,180 $23,179,521
Construction loan, bearing interest at prime plus 2%,
payable by release fees on Vacation Interval sales,
secured by mortgages receivable, matures June 2001... 2,055,635 3,692,321
Endpaper loan, bearing interest at prime plus 2%,
payable from collections of mortgages receivable,
secured by mortgages receivable, matures
December 2002........................................ 9,137,010 1,119,833
Endpaper loan, bearing interest at prime plus 1.25%,
payable from collections of mortgages receivable,
secured by mortgages receivable, matures June 2005... 2,558,595 306,168
Endpaper loan, bearing interest at prime plus 2.25%,
payable from collections of mortgages receivable,
secured by mortgages receivable, matures April 2003.. 7,963,092 7,088,997
Endpaper loan, bearing interest at prime plus 1.5%,
payable from collections of mortgages receivable,
secured by mortgages receivable, matures April 2003.. 14,654,234 16,553,718
Endpaper loan, bearing interest at prime plus 1.25%,
payable from collections of mortgages receivable,
secured by mortgages receivable, matures
December 2002........................................ 2,700,252 1,798,148
Endpaper loan, bearing interest at prime plus 2.25%,
payable from collections of mortgages receivable,
secured by mortgages receivable, matures April 2003.. 13,226,722 15,539,442
----------- -----------
$69,755,720 $69,278,148
=========== ===========
</TABLE>
The prime rate was 8.25% at December 31, 1996.
The following schedule reflects the expected principal maturities of notes
payable to financial institutions as of December 31, 1996:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ -----------
<S> <C>
1997.............................................. $12,813,000
1998....................................................... 12,857,000
1999....................................................... 12,799,000
2000....................................................... 12,549,000
2001....................................................... 12,215,000
Thereafter................................................. 6,522,720
-----------
Net principal maturities of debt........................... $69,755,720
===========
</TABLE>
F-32
<PAGE>
PLANTATION RESORTS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. DUE FROM RELATED PARTIES
Amounts due from related parties represent advances to affiliates and owners
of the Company. Amounts due from affiliates totalled $4,043,942 and $12,315,611
at December 31, 1996 and 1995, respectively, and represent amounts advanced to
entities owned by Shareholders to fund working capital and expansion. Amounts
due from Shareholders totaled $382,736 and $1,817,352 at December 31, 1996 and
1995, respectively. These amounts represent advances for services to be
provided to the Company. For each of the three years in the period ended
December 31, 1996, Shareholders of the Company, through their affiliates,
provided certain marketing and development services to the Company as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Marketing .................................. $16,070,605 $11,812,369 $15,596,622
Development ................................ 13,572,473 10,612,475 9,006,376
</TABLE>
The above services were performed at rates negotiated by the Shareholders and
are reflected in the accompanying consolidated statements of income, except for
development-related costs, which have been capitalized as real estate and
development costs.
8. PREPAID EXPENSES
Prepaid expenses consisted of the following as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
---------- ----------
<S> <C> <C>
Deferred selling and marketing costs...................... $3,978,223 $5,050,726
Other prepaid expenses.................................... 524,180 511,133
---------- ----------
$4,502,403 $5,561,859
========== ==========
</TABLE>
9. INCOME TAXES (PRO FORMA UNAUDITED)
In connection with the merger discussed in Note 10, the Company became a C
corporation, which made it subject to federal and state income taxes from the
date of incorporation. In addition, the Company is now required to record the
impact of cumulative temporary differences between financial reporting and tax
reporting since the date of incorporation. RKG, GPR and WVI were subject to
federal and state income taxes for all periods presented. The actual provision
(benefit) for income taxes for RKG, GPR and WVI has been included in the
unaudited pro forma provision for income taxes for all periods presented.
The unaudited pro forma provision for income taxes represents the estimated
income taxes that would have been reported had the Company filed federal and
state income tax returns as a C corporation. The following summarizes the
unaudited pro forma provision for income taxes for the years ended December 31,
1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal................................ $2,778,530 $4,049,536 $3,587,934
State.................................. 308,726 449,949 410,050
---------- ---------- ----------
3,087,256 4,499,485 3,997,984
Deferred:
Federal................................ (368,756) (783,777) 325,043
State.................................. (40,972) (87,087) 37,148
---------- ---------- ----------
(409,728) (870,864) 362,191
---------- ---------- ----------
Unaudited pro forma provision for income
taxes................................... $2,677,528 $3,628,621 $4,360,175
========== ========== ==========
</TABLE>
F-33
<PAGE>
PLANTATION RESORTS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The reconciliation between the unaudited pro forma statutory provision for
income taxes and the unaudited pro forma provision for income taxes is shown
as follows for the years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Unaudited pro forma provision for federal tax. $2,409,774 $3,265,759 $3,912,977
Unaudited pro forma provision for state tax,
net of federal benefit....................... 267,754 362,862 447,198
---------- ---------- ----------
Unaudited pro forma provision for income
taxes........................................ $2,677,528 $3,628,621 $4,360,175
========== ========== ==========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the pro forma net deferred tax liabilities were as follows as of
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts.................... $ 4,813,343 $ 2,602,400
----------- -----------
Total deferred tax assets............................ 4,813,343 2,602,400
----------- -----------
Deferred tax liabilities:
Book over tax sales................................ 8,218,071 6,332,526
Other.............................................. 178,424 262,754
----------- -----------
Total deferred tax liabilities....................... 8,396,495 6,595,280
----------- -----------
Pro forma net deferred tax liabilities............... $(3,583,152) $(3,992,880)
=========== ===========
</TABLE>
10. SUBSEQUENT EVENT
On May 15, 1997, the Company announced the signing of a merger agreement
with Signature Resorts, Inc. ("Signature"). The merger was consummated through
the issuance of 2,401,229 shares of Signature's common stock in the exchange
for 100% of the Company's outstanding Common Stock.
F-34
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or by any of the
Underwriters. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the registered
securities to which this Prospectus relates or any offer to any person in any
jurisdiction where such an offer would be unlawful. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that the information herein is correct as of any time
subsequent to the date hereof.
------------------
TABLE OF CONTENTS
------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary................................................................... 2
Risk Factors.............................................................. 10
Use of Proceeds........................................................... 23
Common Stock Price Range.................................................. 23
Dividend Policy........................................................... 23
Consolidated Capitalization............................................... 24
Selected Consolidated and Restated Historical Financial Information of the
Company.................................................................. 25
Selected Financial Data of Plantation Resorts Group, Inc. ................ 27
Pro Forma Financial Information (Unaudited)............................... 29
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 32
Business.................................................................. 40
Management................................................................ 64
Certain Relationships and Related Transactions............................ 75
Principal Stockholders.................................................... 78
Registering Stockholders.................................................. 80
Description of Capital Stock.............................................. 82
Certain Provisions of Maryland Law and of the Company's Charter and
Bylaws................................................................... 83
Shares Eligible for Future Sale........................................... 86
Plan of Distribution...................................................... 88
Legal Matters............................................................. 88
Experts................................................................... 88
Available Information..................................................... 89
Index to Financial Statements............................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,959,548 SHARES
[LOGO OF SIGNATURE RESORTS]
SIGNATURE RESORTS, INC.
COMMON STOCK
---------------
PROSPECTUS
---------------
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated costs and expenses, other than
underwriting discounts and commissions, in connection with the sale and
distribution of the shares of Common Stock being registered hereby.
<TABLE>
<S> <C>
Commission Registration Fee...................................... $49,690
Accounting fees and expenses..................................... *
Blue Sky fees and expenses....................................... *
Legal fees and expenses.......................................... *
Printing and engraving expenses.................................. *
Transfer Agent fees.............................................. *
Miscellaneous and other expenses................................. *
-------
TOTAL.......................................................... $
=======
</TABLE>
- --------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Maryland corporation. Section 2-418 of the Maryland General
Corporation Law empowers the Company to indemnify, subject to the standards
set forth therein, any person who is a party in any action in connection with
any action, suit or proceeding brought or threatened by reason of the fact
that the person was a director, officer, employee or agent of such company, or
is or was serving as such with respect to another entity at the request of
such company. The Maryland General Corporation Law also provides that the
Company may purchase insurance on behalf of any such director, officer,
employee or agent.
The Company's Charter and Bylaws provide in effect for the indemnification
by the Company of each director and officer of the Company to the fullest
extent permitted by applicable law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the Consolidation Transactions in June 1996, investors in
the Property Partnerships and the Affiliated Entities agreed to contribute
their interests in such entities to the Company in return for the issuance of
11,354,705 shares of the Company's common stock, $.01 par value.
Additionally, in connection with the PRG Merger in May 1997, the Company
issued 2,401,229 shares of its Common Stock to former PRG stockholders. Such
securities were issued by the Company in reliance upon an exemption from the
registration requirements of the Securities Act provided by Section 4(2)
thereof.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
Unless otherwise indicated, all exhibits have been previously filed.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 Plan and Agreement of Merger dated as of September 22, 1996 by and
between Signature Resorts, Inc. and AVCOM International, Inc. as
amended (incorporated by reference to Exhibit 2 to Registrant's
Registration Statement on Form S-4 (No. 333-16339))
2.2 Agreement and Plan of Merger dated as of May 15, 1997 by and among
Signature Resorts, Inc., Primavera Acquisition Corp. and Plantation
Resorts Group, Inc. (incorporated by reference to Exhibit 2.1 to
Registrant's current report on Form 8-K filed with the Commission on
May 29, 1997)
+2.3 Purchase Agreement dated as of June 5, 1997 by and among Signature
Resorts, Inc., Ian K. Ganney, Richard Harrington and Stephen Massey
3.1 Articles of Incorporation, as amended, 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., as amended (incorporated by
reference to Exhibit 3.2 to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996)
*4 Indenture dated as of January 15, 1997 by and between Signature
Resorts, Inc. and Norwest Bank Minnesota, National Association, as
trustee, for the 5 3/4% Convertible Subordinated Notes of Signature
Resorts, Inc. due 2007
*5.1 Opinion of Ballard Spahr Andrews & Ingersoll regarding the validity
of the Common Stock being registered (including consent)
*10.1 Registration Rights Agreement dated as of August 20, 1996 by and
among Signature Resorts, Inc. and the persons named therein
*10.2.1 Employment Agreement between Signature Resorts, Inc. and Osamu Kaneko
*10.2.2 Employment Agreement between Signature Resorts, Inc. and Andrew J.
Gessow
*10.2.3 Employment Agreement between Signature Resorts, Inc. and Steven C.
Kenninger
10.2.4 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))
10.2.5 Employment Agreement between Signature Resorts, Inc. and Michael A.
Depatie (incorporated by reference to Exhibit 10.2.5 to Registrant's
Registration Statement on Form S-4 (No. 333-16339))
*10.2.6 Option Agreement between Signature Resorts, Inc. and Osamu Kaneko.
*10.2.7 Option Agreement between Signature Resorts, Inc. and Andrew J. Gessow
*10.2.8 Option Agreement between Signature Resorts, Inc. and Steven C.
Kenninger
*10.2.9 Option Agreement between Signature Resorts, Inc. and James E. Noyes
*10.2.10 Option Agreement between Signature Resorts, Inc. and Michael A.
Depatie
10.3.1 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))
*10.3.2 First Amendment to 1996 Equity Participation Plan of Signature
Resorts, Inc. dated as of May 16, 1997
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.4 Agreement of Limited Partnership of Pointe Resort Partners, L.P.
(subsequently renamed Poipu Resort Partners L.P.) dated October 11,
1994 (incorporated by reference to Exhibit 10.4 to Registrant's
Registration Statement on Form S-1 (No. 333-06027))
10.5 Signature Resorts, Inc. Employee Stock Purchase Plan (incorporated by
reference to Exhibit 10.5 to Registrant's Registration Statement on
Form S-1 (No. 333-06027))
10.6 Agreement between W&S Hotel L.L.C. and Argosy/KOAR Group, Inc. dated
as of May 3, 1996 (incorporated by reference to Exhibit 10.6 to
Registrant's Registration Statement on Form S-1 (No. 333-06027))
10.7 Conti-Trade Financial Warehouse Line Agreement (incorporated by
reference to Exhibit 10.7 to Registrant's Registration Statement on
Form S-4 (No. 333-16339))
10.8.1 Loan and Security Agreement between Port Royal Resort, L.P., and
Finova Capital Corporation (as successor in interest to Greyhound
Capital Corporation) dated as of October 7, 1993 and as amended by
the First Amendment to Loan and Security Agreement dated as of April
26, 1995 (incorporated by reference to Exhibit 10.8.1 to Registrant's
Registration Statement on Form S-1 (No. 333-18447))
10.8.2 Loan and Security Agreement between Signature Resorts, Inc. (as
successor in interest to Cypress Pointe Resorts, L.P.), and Finova
Capital Corporation (as successor in interest to Greyhound Real
Estate Finance Company) dated as of December 19, 1991 and as amended
by (i) the First Amendment to Loan and Security Agreement and Consent
and Agreement of Guarantors dated as of November 9, 1992, (ii) the
Second Amendment to Loan and Security Agreement dated as of January
13, 1993, (iii) the Third Amendment to Loan and Security Agreement
dated as of April 7, 1993, (iv) the Fourth Amendment to Loan and
Security Agreement dated as of December 16, 1993, (v) the Fifth
Amendment to Loan and Security Agreement dated as of June 28, 1994,
(vi) the Sixth Amendment to Loan and Security Agreement dated
December 16, 1994, and (vii) the Seventh Amendment to Loan and
Security Agreement dated as of November 6, 1995 (incorporated by
reference to Exhibit 10.8.2 to Registrant's Registration Statement on
Form S-1 (No. 333-18447))
10.8.3 Loan and Security Agreement between Signature Resorts, Inc. (as
successor in interest to San Luis Resort Partners, LLC), and Finova
Capital Corporation dated as of June 6, 1996 (incorporated by
reference to Exhibit 10.8.3 to Registrant's Registration Statement on
Form S-1 (No. 333-18447))
10.8.4 Loan and Security Agreement between Grand Beach Resort, Limited
Partnership, and Finova Capital Corporation (as successor in interest
to Greyhound Financial Corporation) dated as of October 7, 1994 and
as amended by the First Amendment to Loan and Security Agreement
dated as of July 5, 1995 (incorporated by reference to Exhibit 10.8.4
to Registrant's Registration Statement on Form S-1 (No. 333-18447))
10.8.5 Loan and Security Agreement (Receivables) between Signature Resorts,
Inc. (as successor in interest to Fall Creek Resort, L.P.), and
Heller Financial, Inc., dated as of October 9, 1995 (incorporated by
reference to Exhibit 10.8.5 to Registrant's Registration Statement on
Form S-1 (No. 333-18447))
10.8.6 Loan and Security Agreement between AKGI-St. Maarten NV (as successor
in interest to AKGI-Royal Palm C.V.o.a.), and Finova Capital
Corporation dated as of July 12, 1995 (incorporated by reference to
Exhibit 10.8.6 to Registrant's Registration Statement on Form S-1
(No. 333-18447))
10.8.7 Loan and Security Agreement between Lake Tahoe Resort Partners, LLC,
and Finova Capital Corporation dated as of April 29, 1996
(incorporated by reference to Exhibit 10.8.7 to Registrant's
Registration Statement on Form S-1 (No. 333-18447))
10.8.8 Construction Loan Agreement between Lake Tahoe Resort Partners, LLC,
and Finova Capital Corporation dated as of April 29, 1996
(incorporated by reference to Exhibit 10.8.8 to Registrant's
Registration Statement on Form S-1 (No. 333-18447))
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.8.9 Lender's Certification and Consent from Resort Capital Corporation to
Signatures Resorts, Inc. dated as of August 15, 1996 (incorporated
by reference to Exhibit 10.8.1 to Registrant's Registration
Statement on Form S-4 (No. 333-16339))
10.8.10 Lender's Certification and Consent from FINOVA Capital Corporation to
Signature Resorts, Inc. dated as of August 15, 1996 (incorporated by
reference to Exhibit 10.8.2 to Registrant's Registration Statement
on Form S-4 (No. 333-16339))
10.8.11 Assumption Agreement between FINOVA Capital Corporation and Signature
Resorts, Inc. dated as of August 15, 1996 (incorporated by reference
to Exhibit 10.8.3 to Registrant's Registration Statement on Form S-4
(No. 333-16339))
10.8.12 Assumption Agreement between Resort Capital Corporation and Signature
Resorts, Inc. dated as of August 15, 1996 (incorporated by reference
to Exhibit 10.8.4 to Registrant's Registration Statement on Form S-4
(No. 333-16339))
10.8.13 Assumption Agreement between FINOVA Capital Corporation and AKGI-Sint
Maarten, N.V. dated as of August 15, 1996 (incorporated by reference
to Exhibit 10.8.5 to Registrant's Registration Statement on Form S-4
(No. 333-16339))
10.9 Registration Rights Agreement dated as of May 15, 1997 by and among
Signature Resorts, Inc. and the persons named therein (incorporated
by reference to Exhibit 4 to Registrant's current report on Form 8-K
filed with the Commission on May 29, 1997)
*11 Statement re Computation of Per Share Earnings
16.1 Letter from Ernst & Young LLP regarding change in certifying
accountant (incorporated by reference to Exhibit 16.1 to
Registrant's current report on Form 8-K filed with the Commission on
September 18, 1996)
*21 Subsidiaries of Signature Resorts, Inc.
*23.1 Consent of Ballard Spahr Andrews & Ingersoll (included as part of
Exhibit 5.1)
*23.2 Consent of Arthur Andersen LLP
*23.3 Consent of Ernst & Young LLP
*24 Power of Attorney (included on page II-6)
*27 Financial Data Schedule
</TABLE>
- --------
* Filed herewith
+ To be filed by amendment
(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 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
II-4
<PAGE>
(b) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold as of the
termination of the offering.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
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 June 27, 1997.
SIGNATURE RESORTS, INC.
By: /s/ Andrew D. Hutton
-----------------------------------
Name: Andrew D. Hutton
Title: Vice President and General
Counsel
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Andrew J.
Gessow, Steven C. Kenninger, Michael A. Depatie and Andrew D. Hutton, and each
of them, with full power to act without the other, such person's true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign this Registration Statement, and any and all amendments
thereto (including pre- and post-effective amendments) or any registration
statement for the same offering that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, as amended, and to file the same,
with exhibits and schedules thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing necessary or desirable to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed 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 June 27, 1997
____________________________________ Chief Executive Officer
Osamu Kaneko (Principal Executive
Officer)
/s/ Andrew J. Gessow Director and President June 27, 1997
____________________________________
Andrew J. Gessow
/s/ Steven C. Kenninger Director, Chief Operating June 27, 1997
____________________________________ Officer and Secretary
Steven C. Kenninger
/s/ Michael A. Depatie Executive Vice President and June 27, 1997
____________________________________ Chief Financial Officer
Michael A. Depatie (Principal Financial
Officer)
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ James E. Noyes Executive Vice President and June 27, 1997
____________________________________ Director
James E. Noyes
/s/ Charles C. Frey Senior Vice President and June 27, 1997
____________________________________ Chief Accounting Officer
Charles C. Frey (Principal Accounting
Officer)
/s/ Juergen Bartels Director June 27, 1997
____________________________________
Juergen Bartels
/s/ Sanford R. Climan Director June 27, 1997
____________________________________
Sanford R. Climan
/s/ Joshua S. Friedman Director June 27, 1997
____________________________________
Joshua S. Friedman
/s/ W. Leo Kiely III Director June 27, 1997
____________________________________
W. Leo Kiely III
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
-------- ----------- ------------
<C> <S> <C>
2.1 Plan and Agreement of Merger dated as of September 22,
1996 by and between Signature Resorts, Inc. and AVCOM
International, Inc. as amended (incorporated by
reference to Exhibit 2 to Registrant's Registration
Statement on Form S-4 (No. 333-16339))
2.2 Agreement and Plan of Merger dated as of May 15, 1997
by and among Signature Resorts, Inc., Primavera
Acquisition Corp. and Plantation Resorts Group, Inc.
(incorporated by reference to Exhibit 2.1 to
Registrant's current report on Form 8-K filed with
the Commission on May 29, 1997)
+2.3 Purchase Agreement dated as of June 5, 1997 by and
among Signature Resorts, Inc., Ian K. Ganney, Richard
Harrington and Stephen Massey
3.1 Articles of Incorporation, as amended, 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., as amended
(incorporated by reference to Exhibit 3.2 to
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996)
*4 Indenture dated as of January 15, 1997 by and between
Signature Resorts, Inc. and Norwest Bank Minnesota,
National Association, as trustee, for the 5 3/4%
Convertible Subordinated Notes of Signature Resorts,
Inc. due 2007
*5.1 Opinion of Ballard Spahr Andrews & Ingersoll regarding
the validity of the Common Stock being registered
(including consent)
*10.1 Registration Rights Agreement dated as of August 20,
1996 by and among Signature Resorts, Inc. and the
persons named therein
*10.2.1 Employment Agreement between Signature Resorts, Inc.
and Osamu Kaneko
*10.2.2 Employment Agreement between Signature Resorts, Inc.
and Andrew J. Gessow
*10.2.3 Employment Agreement between Signature Resorts, Inc.
and Steven C. Kenninger
10.2.4 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))
10.2.5 Employment Agreement between Signature Resorts, Inc.
and Michael A. Depatie (incorporated by reference to
Exhibit 10.2.5 to Registrant's Registration Statement
on Form S-4 (No. 333-16339))
*10.2.6 Option Agreement between Signature Resorts, Inc. and
Osamu Kaneko.
*10.2.7 Option Agreement between Signature Resorts, Inc. and
Andrew J. Gessow
*10.2.8 Option Agreement between Signature Resorts, Inc. and
Steven C. Kenninger
*10.2.9 Option Agreement between Signature Resorts, Inc. and
James E. Noyes
*10.2.10 Option Agreement between Signature Resorts, Inc. and
Michael A. Depatie
10.3.1 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))
*10.3.2 First Amendment to 1996 Equity Participation Plan of
Signature Resorts, Inc. dated as of May 16, 1997
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>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
10.6 Agreement between W&S Hotel L.L.C. and Argosy/KOAR
Group, Inc. dated as of May 3, 1996 (incorporated by
reference to Exhibit 10.6 to Registrant's Registration
Statement on Form S-1 (No. 333-06027))
10.7 Conti-Trade Financial Warehouse Line Agreement
(incorporated by reference to Exhibit 10.7 to
Registrant's Registration Statement on Form S-4 (No.
333-16339))
10.8.1 Loan and Security Agreement between Port Royal Resort,
L.P., and Finova Capital Corporation (as successor in
interest to Greyhound Capital Corporation) dated as of
October 7, 1993 and as amended by the First Amendment
to Loan and Security Agreement dated as of April 26,
1995 (incorporated by reference to Exhibit 10.8.1 to
Registrant's Registration Statement on Form S-1
(No. 333-18447))
10.8.2 Loan and Security Agreement between Signature Resorts,
Inc. (as successor in interest to Cypress Pointe
Resorts, L.P.), and Finova Capital Corporation (as
successor in interest to Greyhound Real Estate Finance
Company) dated as of December 19, 1991 and as amended
by (i) the First Amendment to Loan and Security
Agreement and Consent and Agreement of Guarantors
dated as of November 9, 1992, (ii) the Second
Amendment to Loan and Security Agreement dated as of
January 13, 1993, (iii) the Third Amendment to Loan
and Security Agreement dated as of April 7, 1993, (iv)
the Fourth Amendment to Loan and Security Agreement
dated as of December 16, 1993, (v) the Fifth Amendment
to Loan and Security Agreement dated as of June 28,
1994, (vi) the Sixth Amendment to Loan and Security
Agreement dated December 16, 1994, and (vii) the
Seventh Amendment to Loan and Security Agreement dated
as of November 6, 1995 (incorporated by reference to
Exhibit 10.8.2 to Registrant's Registration Statement
on Form S-1 (No. 333-18447))
10.8.3 Loan and Security Agreement between Signature Resorts,
Inc. (as successor in interest to San Luis Resort
Partners, LLC), and Finova Capital Corporation dated
as of June 6, 1996 (incorporated by reference to
Exhibit 10.8.3 to Registrant's Registration Statement
on Form S-1 (No. 333-18447))
10.8.4 Loan and Security Agreement between Grand Beach Resort,
Limited Partnership, and Finova Capital Corporation
(as successor in interest to Greyhound Financial
Corporation) dated as of October 7, 1994 and as
amended by the First Amendment to Loan and Security
Agreement dated as of July 5, 1995 (incorporated by
reference to Exhibit 10.8.4 to Registrant's
Registration Statement on Form S-1 (No. 333-18447))
10.8.5 Loan and Security Agreement (Receivables) between
Signature Resorts, Inc. (as successor in interest to
Fall Creek Resort, L.P.), and Heller Financial, Inc.,
dated as of October 9, 1995 (incorporated by reference
to Exhibit 10.8.5 to Registrant's Registration
Statement on Form S-1 (No. 333-18447))
10.8.6 Loan and Security Agreement between AKGI-St. Maarten NV
(as successor in interest to AKGI-Royal Palm
C.V.o.a.), and Finova Capital Corporation dated as of
July 12, 1995 (incorporated by reference to
Exhibit 10.8.6 to Registrant's Registration Statement
on Form S-1 (No. 333-18447))
10.8.7 Loan and Security Agreement between Lake Tahoe Resort
Partners, LLC, and Finova Capital Corporation dated as
of April 29, 1996 (incorporated by reference to
Exhibit 10.8.7 to Registrant's Registration Statement
on Form S-1 (No. 333-18447))
10.8.8 Construction Loan Agreement between Lake Tahoe Resort
Partners, LLC, and Finova Capital Corporation dated as
of April 29, 1996 (incorporated by reference to
Exhibit 10.8.8 to Registrant's Registration Statement
on Form S-1 (No. 333-18447))
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
-------- ----------- ------------
<S> <C> <C>
10.8.9 Lender's Certification and Consent from Resort Capital
Corporation to Signatures Resorts, Inc. dated as of
August 15, 1996 (incorporated by reference to Exhibit
10.8.1 to Registrant's Registration Statement on Form
S-4 (No. 333-16339))
10.8.10 Lender's Certification and Consent from FINOVA Capital
Corporation to Signature Resorts, Inc. dated as of
August 15, 1996 (incorporated by reference to Exhibit
10.8.2 to Registrant's Registration Statement on Form
S-4 (No. 333-16339))
10.8.11 Assumption Agreement between FINOVA Capital
Corporation and Signature Resorts, Inc. dated as of
August 15, 1996 (incorporated by reference to Exhibit
10.8.3 to Registrant's Registration Statement on Form
S-4 (No. 333-16339))
10.8.12 Assumption Agreement between Resort Capital
Corporation and Signature Resorts, Inc. dated as of
August 15, 1996 (incorporated by reference to Exhibit
10.8.4 to Registrant's Registration Statement on Form
S-4 (No. 333-16339))
10.8.13 Assumption Agreement between FINOVA Capital
Corporation and AKGI-Sint Maarten, N.V. dated as of
August 15, 1996 (incorporated by reference to Exhibit
10.8.5 to Registrant's Registration Statement on Form
S-4 (No. 333-16339))
10.9 Registration Rights Agreement dated as of May 15, 1997
by and among Signature Resorts, Inc. and the persons
named therein (incorporated by reference to Exhibit 4
to Registrant's current report on Form 8-K filed with
the Commission on May 29, 1997)
*11 Statement re Computation of Per Share Earnings
16.1 Letter from Ernst & Young LLP regarding change in
certifying accountant (incorporated by reference to
Exhibit 16.1 to Registrant's current report on Form
8-K filed with the Commission on September 18, 1996)
*21 Subsidiaries of Signature Resorts, Inc.
*23.1 Consent of Ballard Spahr Andrews & Ingersoll (included
as part of Exhibit 5.1)
*23.2 Consent of Arthur Andersen LLP
*23.3 Consent of Ernst & Young LLP
*24 Power of Attorney (included on page II-6)
*27 Financial Data Schedule
</TABLE>
- --------
* Filed herewith
+ To be filed by amendment
<PAGE>
EXHIBIT 4
SIGNATURE RESORTS, INC.
AND
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Trustee
--------------------
INDENTURE
Dated as of
January 15, 1997
$120,000,000
(With an Over-Allotment option for an
Additional $18,000,000)
5 3/4% Convertible Subordinated Notes due 2007
==============================================================================
<PAGE>
*Reconciliation and tie between Trust Indenture Act
of 1939 and Indenture, dated as of January 15, 1997
<TABLE>
<CAPTION>
TRUST INDENTURE INDENTURE
ACT SECTION SECTION
--------------- ---------
<S> <C> <C>
SECTION 310 (a)(1).................................... 6.9
(a)(2).................................... 6.9
(a)(3)....................................Not Applicable
(a)(4)....................................Not Applicable
(b)....................................... 6.8
6.1
SECTION 311 (a)....................................... 6.13
(b)....................................... 6.13
SECTION 312 (a)....................................... 7.1
7.2(a)
(b)....................................... 7.2(b)
(c)....................................... 7.2(c)
SECTION 313 (a)....................................... 7.3(a)
(b)....................................... 7.3(a)
(c)....................................... 7.3(a)
(d)....................................... 7.3(b)
SECTION 314 (a)....................................... 7.4
(b).......................................Not Applicable
(c)(1).................................... 1.2
(c)(2).................................... 1.2
(c)(3)....................................Not Applicable
(d).......................................Not Applicable
(e)....................................... 1.2
SECTION 315 (a)....................................... 6.1(a)
(b)....................................... 6.2
7.3(a)
(c)....................................... 6.1(b)
(d)....................................... 6.1(c)
(d)(1).................................... 6.1(a)(i)
(d)(2).................................... 6.1(c)(ii)
(d)(3).................................... 6.1(c)(iii)
(e)....................................... 5.14
SECTION 316 (a)(1)(A)................................. 5.12
(a)(1)(B)................................. 5.13
(a)(2)....................................Not Applicable
(b)....................................... 5.8
SECTION 317 (a)(1).................................... 5.3
(a)(2).................................... 5.4
(b)....................................... 10.3
SECTION 318 (a)....................................... 1.7
</TABLE>
- ---------------------
*Note: This reconciliation and tie shall not, for any purpose, be deemed
to be a part of the Indenture.
(i)
<PAGE>
TABLE OF CONTENTS*
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS OF
GENERAL APPLICATION....................... 1
Section 1.1 Definitions......................................... 1
Section 1.2 Compliance Certificates and Opinions................ 10
Section 1.3 Form of Documents Delivered to Trustee.............. 10
Section 1.4 Acts of Holders..................................... 11
Section 1.5 Notices, Etc., to Trustee and Company............... 13
Section 1.6 Notice to Holders; Waiver........................... 14
Section 1.7 Conflict with Trust Indenture Act................... 14
Section 1.8 Book-Entry System................................... 14
Section 1.10 Successors and Assigns.............................. 15
Section 1.11 Separability Clause................................. 15
Section 1.12 Benefits of Indenture............................... 15
Section 1.13 Governing Law....................................... 15
Section 1.14 Legal Holidays...................................... 15
Section 1.15 Immunity of Incorporators, Stockholders,
Officers and Directors.............................. 15
ARTICLE 2
NOTE FORMS.............................. 16
Section 2.1 Forms Generally..................................... 16
Section 2.2 Form of Face of Note................................ 16
Section 2.3 Form of Reverse of Note............................. 18
Section 2.4 Form of Trustee's Certificate of Authentication..... 23
Section 2.5 Form of Conversion Notice........................... 24
Section 2.6 Form of Assignment.................................. 25
ARTICLE 3
THE NOTES............................... 25
Section 3.1 Title and Terms..................................... 25
Section 3.2 Denominations....................................... 26
Section 3.3 Execution, Authentication, Delivery and Dating...... 26
Section 3.4 Temporary Notes..................................... 27
Section 3.5 Registration; Registration of Transfer and Exchange. 28
Section 3.6 Mutilated, Destroyed, Lost and Stolen Notes......... 30
Section 3.7 Payment of Interest; Interest Rights Preserved...... 31
Section 3.8 Persons Deemed Owners............................... 32
Section 3.10 Computation of Interest............................. 33
ARTICLE 4
SATISFACTION AND DISCHARGE..................... 33
Section 4.1 Satisfaction and Discharge of Indenture............. 33
Section 4.2 Application of Trust Money.......................... 34
</TABLE>
- --------------------
*Note: This Table of Contents shall not, for any purpose, be deemed to
be a part of the Indenture.
(ii)
<PAGE>
<TABLE>
ARTICLE 5
<S> <C>
REMEDIES................................ 35
Section 5.1 Events of Default...................................... 35
Section 5.2 Acceleration of Maturity; Rescission and Annulment..... 36
Section 5.3 Collection of Indebtedness and Suits for Enforcement
by Trustee............................................. 37
Section 5.4 Trustee May File Proofs of Claim....................... 38
Section 5.5 Trustee May Enforce Claims Without Possession of Notes. 39
Section 5.6 Application of Money Collected......................... 39
Section 5.7 Limitation on Suits.................................... 40
Section 5.8 Unconditional Right of Holders to Receive Principal,
Premium and Interest and to Convert.................... 41
Section 5.9 Restoration of Rights and Remedies..................... 41
Section 5.10 Rights and Remedies Cumulative......................... 41
Section 5.11 Delay or Omission Not Waiver........................... 41
Section 5.12 Control by Holders..................................... 42
Section 5.13 Waiver of Past Defaults................................ 42
Section 5.14 Undertaking for Costs.................................. 42
Section 5.15 Waiver of Stay or Extension Laws....................... 43
ARTICLE 6
THE TRUSTEE............................... 43
Section 6.1 Certain Duties and Responsibilities.................... 43
Section 6.2 Notice of Defaults..................................... 44
Section 6.3 Certain Rights of Trustee.............................. 45
Section 6.4 Not Responsible for Recitals or Issuance of Notes...... 46
Section 6.5 May Hold Notes......................................... 46
Section 6.6 Money Held in Trust.................................... 46
Section 6.7 Compensation and Reimbursement......................... 47
Section 6.8 Disqualification; Conflicting Interests................ 47
Section 6.9 Corporate Trustee Required; Eligibility................ 47
Section 6.10 Resignation and Removal Appointment of Successor....... 48
Section 6.11 Acceptance of Appointment by Successor................. 49
Section 6.12 Merger, Conversion, Consolidation or Succession to
Business............................................... 49
Section 6.13 Preferential Collection of Claims Against Company...... 50
Section 6.14 Appointment of Authenticating Agent.................... 50
ARTICLE 7
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY........... 52
Section 7.1 Company to Furnish Trustee Names and Addresses of
Holders................................................ 52
Section 7.2 Preservation of Information; Communications to Holders. 52
Section 7.3 Reports by Trustee..................................... 53
Section 7.4 Reports by Company..................................... 53
ARTICLE 8
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE........... 53
Section 8.1 Company May Consolidate, Etc., Only on Certain Terms... 53
Section 8.2 Successor Substituted.................................. 54
ARTICLE 9
SUPPLEMENTAL INDENTURES......................... 54
Section 9.1 Supplemental Indentures Without Consent of Holders..... 54
Section 9.2 Supplemental Indentures with Consent of Holders........ 55
Section 9.3 Execution of Supplemental Indentures................... 56
Section 9.4 Effect of Supplemental Indentures...................... 56
</TABLE>
(iii)
<PAGE>
<TABLE>
<S> <C>
Section 9.5 Conformity with Trust Indenture Act................... 57
Section 9.6 Reference in Notes to Supplemental Indentures......... 57
Section 9.7 Notice of Supplemental Indentures..................... 57
ARTICLE 10
COVENANTS......................... 57
Section 10.1 Payment of Principal, Premium and Interest............ 57
Section 10.2 Maintenance of Office or Agency....................... 57
Section 10.3 Money for Note Payments to be Held in Trust........... 58
Section 10.4 Statement by Officers as to Default................... 60
Section 10.5 Existence............................................. 60
Section 10.6 Maintenance of Properties............................. 60
Section 10.7 Payment of Taxes and Other Claims..................... 61
Section 10.8 Waiver of Certain Covenants........................... 61
Section 10.9 Book-Entry System..................................... 61
ARTICLE 11
REDEMPTION OF NOTES.................... 62
Section 11.1 Right of Redemption................................... 62
Section 11.2 Applicability of Article.............................. 62
Section 11.3 Election to Redeem; Notice to Trustee................. 62
Section 11.4 Selection by Trustee of Notes to Be Redeemed.......... 62
Section 11.5 Notice of Redemption.................................. 63
Section 11.6 Deposit of Redemption Price........................... 63
Section 11.7 Notes Payable on Redemption Date...................... 64
Section 11.8 Notes Redeemed in Part................................ 64
ARTICLE 12
CONVERSION OF NOTES.................... 65
Section 12.1 Conversion Privilege and Conversion Price............. 65
Section 12.2 Exercise of Conversion Privilege...................... 65
Section 12.3 Fractions of Shares................................... 66
Section 12.4 Adjustment of Conversion Price........................ 67
Section 12.5 Notice of Adjustments of Conversion Price............. 72
Section 12.6 Notice of Certain Corporate Action.................... 72
Section 12.7 Company to Reserve Common Stock....................... 74
Section 12.8 Taxes on Conversions.................................. 74
Section 12.9 Covenant as to Common Stock........................... 74
Section 12.10 Cancellation of Converted Notes....................... 74
Section 12.11 Provisions in Case of Consolidation, Merger or Sale
of Assets............................................. 74
Section 12.12 Responsibility of Trustee for Conversion Provisions... 75
ARTICLE 13
SUBORDINATION OF NOTES.................. 76
Section 13.1 Securities Subordinate to Senior Indebtedness......... 76
Section 13.2 No Payments in Certain Circumstances; Payment Over
of Proceeds Upon Dissolution, Etc..................... 76
Section 13.3 Prior Payment to Senior Indebtedness Upon
Acceleration of Notes................................. 79
Section 13.4 Payment Permitted if No Default....................... 79
Section 13.5 Subrogation to Rights to Holders of Senior
Indebtedness.......................................... 80
Section 13.6 Provisions Solely to Define Relative Rights........... 80
Section 13.7 Trustee to Effectuate Subordination................... 81
Section 13.8 No Waiver of Subordination Provisions................. 81
Section 13.9 Notice to Trustee..................................... 82
</TABLE>
(iv)
<PAGE>
<TABLE>
<S> <C>
Section 13.10 Reliance on Judicial Order or Certificate of
Liquidating Agent..................................... 83
Section 13.11 Trustee Not Fiduciary for Holders of Senior
Indebtedness.......................................... 83
Section 13.12 Rights of Trustee as Holder of Senior
Indebtedness; Preservation of Trustee's Rights........ 83
Section 13.13 Article Applicable to Paying Agents................... 84
Section 13.14 Certain Conversions Deemed Payment.................... 84
ARTICLE 14
REPURCHASE OF NOTES AT THE OPTION................... 84
Section 14.1 Right to Require Repurchase........................... 84
Section 14.2 Conditions to the Company's Election to Pay the
Repurchase Price in Common Stock...................... 85
Section 14.3 Notices; Method of Exercising Repurchase Right, Etc... 86
Section 14.4 Certain Definitions................................... 89
</TABLE>
(v)
<PAGE>
INDENTURE, dated as of January 15, 1997, between Signature Resorts,
Inc., a corporation duly organized and existing under the laws of the State of
Maryland (herein called the "Company"), having its principal office at Los
Angeles, California, and Norwest Bank Minnesota, National Association, as
Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of its 5 3/4%
Convertible Subordinated Notes due January 15, 2007 (herein called the "Notes")
of substantially the tenor and amount hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of this
Indenture.
All things necessary to make the Notes, when executed by the Company
and authenticated and delivered hereunder and duly issued by the Company, the
valid obligations of the Company, and to make this Indenture a valid agreement
of the Company, in accordance with their and its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Notes
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Notes, as follows:
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS OF
GENERAL APPLICATION
Section 1.1 Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted
1
<PAGE>
hereunder shall mean such accounting principles as are generally accepted at the
date of this instrument; and (d) the words "herein", "hereof" and "hereunder"
and other words of similar import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision.
Certain terms, used principally in Articles Six, Twelve and Fourteen,
are defined in that Article.
"Act", when used with respect to any Holder, has the meaning specified
in Section 1.4.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agent Member" means any member of, or participant in, the Depositary.
"Applicable Procedures" means, with respect to any transfer or transaction
involving a Global Note or beneficial interest therein, the rules and procedures
of the Depositary for such Global Note to the extent applicable to such
transaction and as in effect from time to time. "Authenticating Agent" means
any Person authorized by the Trustee to act on behalf of the Trustee to
authenticate Notes. "Board of Directors" means either the board of directors of
the Company or any duly authorized committee of that board. "Board Resolution"
means a copy of a resolution certified by the Secretary or an Assistant
Secretary of the Company to have been duly adopted by the Board of Directors and
to be in full force and effect on the date of such certification, and delivered
to the Trustee. "Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in the City of New
York or the city in which the Corporate Trust Office of the Trustee is located
are authorized or obligated by law or executive order to close.
"Closing Price" for any security for any day means the last reported
sale price of such security regular way on such day or, in case no such reported
sale takes place on such day, the average of the reported closing bid and asked
prices regular way on such day, in either case on the New York Stock Exchange
or, if the security is not listed or admitted to trading on such exchange, on
the principal national securities exchange on which the security is listed or
admitted to trading or, if not listed or admitted to trading on any national
securities exchange, on
2
<PAGE>
the Nasdaq National Market or Nasdaq or, if the security is not listed or
admitted to trading on any national securities exchange or quoted on such
National Market or Nasdaq, the average of the closing bid and asked prices in
the over-the-counter market as furnished by any New York Stock Exchange member
firm selected from time to time by the Company for that purpose. If the security
is not listed or admitted to trading on any national securities exchange, quoted
on such National Market or Nasdaq or listed in any list of bid and asked prices
in the over-the-counter market, "Closing Price" shall mean the fair market value
of the security as determined in good faith by the Board of Directors and
evidenced by Board Resolution.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, or,
if at any time after the execution of this instrument such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
"Common Stock" includes any stock of any class of the Company which
has no preference in respect of dividends or of amounts payable in the event of
any voluntary or involuntary liquidation, dissolution or winding-up of the
Company and which is not subject to redemption by the Company. However, subject
to the provisions of Section 12.11, shares issuable on conversion of Notes and
shares used to pay the Repurchase Price pursuant to Section 14.1 shall include
only shares of the class designated as Common Stock of the Company at the date
of this instrument or shares of any class or classes resulting from any
reclassification or reclassifications thereof and which have no preference in
respect of dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding-up of the Company and which are
not subject to redemption by the Company; provided that if at any time there
shall be more than one such resulting class, the shares of each such class then
so issuable shall be substantially in the proportion which the total number of
shares of such class resulting from all such reclassifications bears to the
total number of shares of all such classes resulting from all such
reclassifications.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument unless and until a successor Person shall have
become such pursuant to the applicable provisions of this Indenture and
thereafter "Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by (i) its Chairman of the Board, its
President or a Vice President, and
3
<PAGE>
(ii) by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant
Secretary, and delivered to the Trustee.
"Conversion Agent" has the meaning specified in Section 10.2.
"Conversion Price" has the meaning specified in Section 12.1.
"Corporate Trust Office" means the principal office of the Trustee at
which at any particular time its corporate trust business shall be administered.
Initially, the Corporate Trust Office of the Trustee is located at 608 2nd
Avenue South, Northstar East Building, Minneapolis, Minnesota 55402, Attn:
Corporate Trust Department.
"Corporation" means a corporation, association, company, joint-stock
company or business trust.
"Defaulted Interest" has the meaning specified in Section 3.7.
"Depositary" means, with respect to any Global Notes, a clearing
agency that is registered as such under the Exchange Act and is designated by
the Company to act as a Depositary for such Global Notes (or any successor notes
clearing agency so registered).
"Designated Senior Indebtedness" means any particular Senior
Indebtedness in which the instrument creating or evidencing the same or the
assumption or guarantee thereof (or related agreements or documents to which the
Company is a party) expressly provides that such indebtedness shall be
"Designated Senior Indebtedness" for purposes of the Indenture (provided that
such instrument, agreement or other document may place limitations and
conditions on the right of such Senior Indebtedness to exercise the rights of
Designated Senior Indebtedness).
"Disqualified Capital Stock" means with respect to any person, Capital
Stock of such person that, by its terms or by the terms of any security into
which it is convertible, exercisable or exchangeable, is, or upon the happening
of an event or the passage of time would be, required to be redeemed or
repurchased (including at the option of the holder thereof) by such person or
any of its Subsidiaries, in whole or in part, on or prior to the Stated Maturity
of the Notes.
"DTC" means the Depository Trust Company, a New York corporation.
4
<PAGE>
"Event of Default" has the meaning specified in Section 5.1.
"Exchange Act" means the United States Securities Exchange Act of 1934
(or any successor statute), as amended from time to time.
"Expiration Date" has the meaning specified in Section 1.4(f).
"Global Note" means a Note that is registered in the Note Registrar in
the name of a Depositary or nominee thereof.
"Holder" means a Person in whose name a Note is registered in the Note
Register.
"Indebtedness" has the meaning specified in Section 5.1(e).
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Notes.
"Junior Securities" means any Qualified Capital Stock, or any other
indebtedness of the Company which is subordinated in right of payment to all
Senior Indebtedness which may be outstanding at the time of issuance or delivery
of such securities to substantially the same extent as, or to a greater extent
than, the Notes are so subordinated as provided in Article Thirteen.
"Maturity", when used with respect to any Note, means the date on
which the principal of such Note becomes due and payable as therein or herein
provided, whether at the Stated Maturity or by declaration of acceleration, call
for redemption, obligation to repurchase or otherwise.
"Non-Recourse Debt" means indebtedness of a Person to the extent that
under the terms thereof and pursuant to applicable law, no personal recourse
could be had against such person for the payment of principal of or interest or
premium or any other amounts with respect to such indebtedness or for any claim
based on such indebtedness and that enforcement of obligations on such
indebtedness is limited solely to recourse against interests in specified
assets.
5
<PAGE>
"Note Register" and "Note Registrar" have the respective meanings
specified in Section 3.5.
"Notes" have the meaning specified in the Recitals above.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, the President or a Vice President, and by the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary, of the Company, and
delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, and who shall be acceptable to the Trustee.
"Outstanding", when used with respect to Notes, means, as of the date
of determination, all Notes theretofore authenticated and delivered under this
Indenture, except:
(i) Notes theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Notes for whose payment or redemption money in the necessary
amount has been theretofore deposited with the Trustee or any Paying Agent
(other than the Company) in trust or set aside and segregated in trust by the
Company (if the Company shall act as its own Paying Agent) for the Holders of
such Notes; PROVIDED that, if such Notes are to be redeemed, notice of such
redemption has been duly given pursuant to this Indenture or provision therefore
satisfactory to the Trustee has been made; and
(iii) Notes which have been paid pursuant to Section 3.5 or in
exchange for or in lieu of which other Notes have been authenticated and
delivered pursuant to this Indenture, other than any such Notes in respect of
which there shall have been presented to the Trustee proof satisfactory to it
that such Notes are held by a bona fide purchaser in whose hands such Notes are
valid obligations of the Company;
PROVIDED, HOWEVER, that in determining whether the Holders of the
requisite principal amount of the Outstanding Notes have given any request,
demand, authorization, direction, notice, consent or waiver hereunder, Notes
owned by the Company or any other obligor upon the Notes or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Notes which the Trustee knows to be so owned shall be so
6
<PAGE>
disregarded. Notes so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such securities and that
the pledgee is not the Company or any other obligor upon the Notes or any
Affiliate of the Company or of such other obligor. The Trustee may require, and
may conclusively rely upon, an Officers' Certificate as to whether or not any
Notes are so owned.
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Notes on behalf of the
Company.
"Person" means any individual, corporation, partnership, joint
venture, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 3.6 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Note shall be deemed to evidence the same
debt as the mutilated, destroyed, lost or stolen Note.
"Qualified Capital Stock" means any Capital Stock of the Company that
is not Disqualified Capital Stock.
"Redemption Date", when used with respect to any Note to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Note to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the January 1 or July 1 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date.
"Repurchase Date" has the meaning specified in Section 14.1.
"Repurchase Price" has the meaning specified in Section 14.1.
"Responsible Officer", when used with respect to the Trustee, means
any officer assigned to and working in the corporate trust department of the
Trustee, or any other officer of the Trustee customarily performing functions
similar to those
7
<PAGE>
performed by any of the above designated officers and also means, with respect
to a particular corporate trust matter, any other officer to whom such matter is
referred because of his or her knowledge of and familiarity with the particular
subject.
"Senior Indebtedness" means (a) all indebtedness of the Company,
including the principal of and premium, if any, and interest on such
indebtedness (including all interest accruing subsequent to the commencement of
any bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in such proceeding) and all fees and other
amounts payable in connection with, the following, whether absolute or
contingent, secured or unsecured, due or to become due, outstanding on the date
of the Indenture or thereafter created, incurred or assumed: (i) indebtedness of
the Company, other than the Notes, (including obligations of the Company arising
from its guarantee of the indebtedness of others) to banks, insurance companies
and other financial institutions evidenced by credit or loan agreements, notes
or other written obligations, (ii) all other indebtedness of the Company
(including obligations of the Company arising from its guarantee of indebtedness
of others) other than the Notes, whether outstanding on the date of the
Indenture or thereafter created, incurred or assumed, which is (1) for money
borrowed, or (2) evidenced by a note, security, debenture, bond or similar
instrument or guarantee thereof, (iii) obligations of the Company as lessee
under leases required to be capitalized on the balance sheet of the lessee under
generally accepted accounting principles or in respect of any lease or related
document (including a purchase agreement) which provides that the Company is
contractually obligated to purchase or cause a third party to purchase the
leased property and thereby effectively guarantees a minimum residual value of
the leased property to the landlord and the obligations of the Company under
such lease or related document to purchase or cause a third party to purchase
such leased property, (iv) obligations of the Company under interest rate and
currency swaps, caps, floors, collars or similar agreements or arrangements, (v)
all obligations of the Company issued or assumed as the deferred purchase price
of property (but excluding any portion thereof constituting trade accounts
payable arising in the ordinary course of business), (vi) all obligations of the
Company for the reimbursement of any letters of credit (1) to the extent the
obligations underlying such letters of credit are Senior Indebtedness under
clauses (i) through (iv) above or (2) that secure the Company's obligations to
clearing institutions arising out of its merchant processing business to the
extent such obligations are incurred in the ordinary course of business in
amounts consistent with the Company's past practices, and (vii) renewals,
extensions, modifications, restatements and refundings of, and any amendments,
modifications or supplements to, or any indebtedness or obligation issued in
8
<PAGE>
exchange for, any such indebtedness or obligation described in clauses (i)
through (vi) of this paragraph; provided that Senior Indebtedness shall not
include (i) indebtedness to a Subsidiary or other Affiliate of the Company, (ii)
any such indebtedness or obligation if the terms of such indebtedness or
obligation (or the terms of the instrument under which, or pursuant to which, it
is issued) expressly provided that such indebtedness or obligation shall not be
senior in right of payment to the Notes, and (iii) accounts payable of the
Company to trade creditors.
"Significant Subsidiary" means any Subsidiary which is a "significant
subsidiary" of the Company within the meaning of Rule 1.02(w) of Regulation S-X
promulgated by the SEC as in effect as of the date of this Indenture.
"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 3.7.
"Stated Maturity", when used with respect to any Note or any
installment of interest thereon, means the date specified in such Note as the
fixed date on which the principal of such Note or such installment of interest
is due and payable.
"Subsidiary" means a corporation more than 50% of the outstanding
voting stock of which is owned, directly or indirectly, by the Company or by one
or more other Subsidiaries, or by the Company and one or more other
Subsidiaries. For the purposes of this definition, "voting stock" means stock
which ordinarily has voting power for the election of directors, whether at all
times or only so long as no senior class of stock has such voting power by
reason of any contingency.
"Trading Day" means, with respect to any security, each Monday,
Tuesday, Wednesday, Thursday and Friday, other than any day on which securities
are not traded on the exchange or market on which such security is traded.
"Trustee" means the person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in
force at the date as of which this instrument was executed, except as provided
in Section 9.5, provided, however, that in the event the Trust Indenture Act is
amended after such date, the Trust Indenture Act means, to the extent required
by such amendment, the Trust Indenture Act as so amended.
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"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
Section 1.2 Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee an Officers' Certificate stating that all conditions precedent, if
any, provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(a) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein relating
thereto;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of each such individual, he or
she has made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition has
been complied with; and
(d) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 1.3 Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such
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Person may certify or give an opinion as to such matters in one or several
documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 1.4 Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent duly
appointed in writing; and, except as otherwise expressly provided herein, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 6.1) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date
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of the execution of any such instrument or writing, or the authority of the
Person executing the same, may also be proved in any other manner which the
Trustee deems sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Note shall bind every future Holder of
the same Note and the Holder of every Note issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such Note.
(e) Except for matters arising under Article Five (in which event any
record date shall be set by the Trustee), the Company may set any day as a
record date for the purpose of determining the Holders of Outstanding Notes
entitled to give, make or take any request, demand, authorization, direction,
notice, consent, waiver or other action provided or permitted by this Indenture
to be given, made or taken by Holders of Notes. If any record date is set
pursuant to this paragraph, the Holders of Outstanding Notes on such record
date, and no other Holders, shall be entitled to take the relevant action,
whether or not such Holders remain Holders after such record date; provided that
no such action shall be effective hereunder unless taken on or prior to the
applicable Expiration Date (as defined below) by Holders of the requisite
principal amounts of Outstanding Notes on such record date. Nothing in this
paragraph shall be construed to prevent the Trustee from setting a new record
date for any action for which a record date has previously been set pursuant to
this paragraph (whereupon the record date previously set shall automatically and
with no action by any Person be cancelled and of no effect), and nothing in this
paragraph shall be construed to render ineffective any action taken by Holders
of the requisite principal amount of Outstanding Notes on the date such action
is taken. Promptly after receiving written notice of a record date set by the
Company pursuant to this paragraph, the Trustee, at the Company's expense, shall
cause notice of such record date, the proposed action by Holders and the
applicable Expiration Date to be given to the Company in writing and to each
Holder of Notes in the manner set forth in Section 1.6.
The Trustee may set any day as a record date for the purpose of
determining the Holders entitled to join in the giving or making of (i) any
Notice of Default, (ii) any declaration of acceleration referred to in Section
5.2, (iii) any request to institute proceedings referred to in Section 5.7(b),
or (iv) any direction referred to in Section 5.12. If any record date is set
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pursuant to this Section 1.4(e), the Holders on such record date, and only such
Persons, shall be entitled to join in such notice, declaration, request or
direction, whether or not such Holders remain Holders after such record date;
provided that no such action be effective hereunder unless taken on or prior to
the applicable Expiration Date by Holders of the requisite principal amount of
Notes on such record date. Nothing in this Section 1.4(e) shall be construed to
prevent the Trustee from setting a new record date for any action for which a
record date has previously been set pursuant to this Section 1.4(e) (whereupon
the record date previously set shall automatically and with no action by any
Person be cancelled and of no effect), and nothing in this Section 1.4(e) shall
be construed to render ineffective any action taken by Holders of the requisite
principal amount of Notes on the date such action is taken. Promptly after any
record date is set pursuant to this Section 1.4(e), the Trustee, at the
Company's expense, shall cause notice of such record date, the proposed action
by Holders and the applicable Expiration Date to be given to the Company in
writing and to each Holder of Notes in the manner set forth in Section 1.6.
(f) With respect to any record date set pursuant to Sections 1.4(e)
or 1.4(f), the party hereto which sets such record date may designate any day as
the "Expiration Date" and from time to time may change the Expiration Date to
any earlier or later day; provided that no such change shall be effective unless
notice of the proposed new Expiration Date is given to the other party hereto in
writing, and to each Holder of Notes in the manner set forth in Section 1.6, on
or prior to the existing Expiration Date. If an Expiration Date is not
designated with respect to any record date set pursuant to this Section 1.4(e),
the party hereto which set such record date shall be deemed to have initially
designated the 180th day after such record date as the Expiration Date with
respect thereto, subject to its right to change the Expiration Date as provided
in this Section 1.4(f). Notwithstanding the foregoing, no Expiration Date shall
be later than the 180th day after the applicable record date.
Section 1.5 Notices, Etc., to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with, (i) the Trustee by any
Holder or by the Company, shall be sufficient for every purpose hereunder if
made, given, furnished or filed in writing to or with the Trustee at its
Corporate Trust Office, Attention: Ray Haverstock, or (ii) the Company by the
Trustee or by any Holder shall be sufficient for every purpose hereunder (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to the Company at 5933 West Century Boulevard, Suite 210, Los
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Angeles, California 90045 or at any other address previously furnished in
writing to the Trustee by the Company.
Section 1.6 Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Note Register, not later than
the latest date, and not earlier than the earliest date, prescribed for the
giving of such notice. In any case where notice to Holders is given by mail,
neither the failure to mail such notice, nor any defect in any notice so mailed,
to any particular Holder shall affect the sufficiency of such notice with
respect to other Holders. Where this Indenture provides for notice in any
manner, such notice may be waived in writing by the Person entitled to receive
such notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
Section 1.7 Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with another
provision hereof which is required to be included in this Indenture by any of
the provisions of the Trust Indenture Act, such required provision shall
control. If any provision of this Indenture modifies or excludes any provision
of the Trust Indenture Act that may be so modified or excluded, the latter
provision shall be deemed to apply to this Indenture as so modified or to be
excluded, as the case may be.
Section 1.8 Book-Entry System.
If the Notes cease to trade in DTC's book-entry settlement system, the
Company covenants and agrees that it shall use reasonable efforts to make such
other book-entry arrangements that it determines are reasonable for the Notes.
Section 1.9 Effect of Headings and Table of Contents.
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The Article and Section headings herein and the Table of Contents are
for convenience only and shall not effect the construction hereof.
Section 1.10 Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
Section 1.11 Separability Clause.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 1.12 Benefits of Indenture.
Nothing in this Indenture or in the Notes, express or implied, shall
give to any Person, other than the parties hereto and their successors
hereunder, the holders of Senior Indebtedness and the Holders of Notes, any
benefit or any legal or equitable right, remedy or claim under this Indenture.
Section 1.13 Governing Law.
This Indenture and the Notes shall be governed by and construed in
accordance with the laws of the State of New York without regards to the
conflicts of law principles as applied in such state.
Section 1.14 Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any security or the last date on which a Holder has the right to
convert his Notes shall not be a Business Day, then (notwithstanding any other
provision of this Indenture or of the Notes) payment of interest or principal
(and premium, if any) or conversion of the Notes need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the Interest Payment Date, Redemption Date or at the stated
maturity, or on such last day for conversion, provided that no interest shall
accrue for the period from and after such Interest Payment Date, Redemption
Date, Stated Maturity or last day of conversion, as the case may be.
Section 1.15 Immunity of Incorporators, Stockholders, Officers and
Directors.
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No recourse shall be had for the payment of the principal of (and
premium, if any), or the interest, if any, on any Note, or for any claim based
thereon, or upon any obligation, covenant or agreement of this Indenture,
against any incorporator, stockholder, officer or director, as such, past,
present or future, of the Company or of any successor corporation, either
directly or indirectly through the Company or of any successor corporation,
whether by virtue of any constitution, statute or rule of law or by the
enforcement of any assessment of penalty or otherwise; it being expressly agreed
and understood that this Indenture and all of the Notes are solely corporate
obligations, and that no personal liability whatever shall attach to, or is
incurred by, any incorporator, stockholder, officer or director, past, present
or future, of the Company or of any successor corporation, either directly or
indirectly through the Company or any successor corporation, because of the
incurring of the indebtedness hereby authorized or under or by reason of any of
the obligations, covenants or agreements contained in this Indenture or in the
Notes, or to be implied herefrom or therefrom; and that all such personal
liability is hereby expressly released and waived as a condition of, and as part
of the consideration for, the execution of this Indenture and the issuance of
the Notes.
ARTICLE 2
NOTE FORMS
Section 2.1 Forms Generally.
The Notes and the Trustee's certificates of authentication shall be in
substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange, the Internal
Revenue Code of 1986, as amended, and the regulations thereunder, or as may,
consistently herewith, be determined by the officers executing such Notes, as
evidenced by their execution of the Notes.
The definitive Notes shall be printed, lithographed or engraved or
produced by any combination of these methods on steel engraved borders or may be
produced in any other manner permitted by the rules of any Notes exchange on
which the Notes may be listed, all as determined by the officers executing such
Notes, as evidenced by their execution of such Notes.
Section 2.2 Form of Face of Note.
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The following legend shall also appear on the face of each Global
Note:
THIS SECURITY IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE
REFERRED TO BELOW AND IS REGISTERED IN THE NAME OF THE DEPOSITARY OR A NOMINEE
OF THE DEPOSITARY, WHICH MAY BE TREATED BY THE COMPANY, THE TRUSTEE AND ANY
AGENT THEREOF AS OWNER AND HOLDER OF THIS SECURITY FOR ALL PURPOSES.
The following legend shall also appear on the face of each Global Note
for which the Depository Trust Company is to be the Depositary:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC") TO THE COMPANY
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR REGISTERED
SECURITIES IN DEFINITIVE REGISTERED FORM IN THE LIMITED CIRCUMSTANCES REFERENCED
IN THE INDENTURE, THIS GLOBAL NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY
THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY
TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR
ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY.
Signature Resorts, Inc.
5 3/4% Convertible Subordinated Note due January 15, 2007
Signature Resorts, Inc., a corporation duly organized and existing
under the laws of Maryland (herein called the "Company", which term includes any
successor person under the Indenture hereinafter referred to), for value
received hereby promises to pay to ___________ or registered assigns, the
principal sum of $120,000,000 on January 15, 2007, and to pay interest thereon
from the date of the initial issuance or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, semiannually on
January 15 and July 15 in each year, commencing July 15, 1997, at the rate of
5 3/4% per annum, until the principal hereof is paid or made available for
payment. The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in
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such Indenture, be paid to the Person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on the Regular Record
Date for such interest, which shall be the January 1 or July 1 (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date.
Except as otherwise provided in the Indenture, any such interest not so
punctually paid or duly provided for will forthwith cease to be payable to the
Holder on such Regular Record Date and may either be paid to the Person in whose
name this Note (or one or more Predecessor Notes) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice whereof shall be given to Holders of Notes not
less than 10 days prior to such Special Record Date, or be paid at any time in
any other lawful manner, all as more fully provided in said Indenture. Payment
of the principal of (and premium, if any) and interest on this Note will be made
at the office or agency of the Company maintained for that purpose in New York,
New York or the city in which the Corporate Trust Office of the Trustee is
located, in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts; provided,
however, that at the option of the Company payment of interest may be made by
check mailed to the address of the Person entitled thereto as such address shall
appear in the Note Register.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place. Unless the certificate of
authentication hereon has been executed by the Trustee referred to on the
reverse hereof by manual signature, this Note shall not be entitled to any
benefit under the Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: SIGNATURE RESORTS, INC.
Attest: ____________________ By: _____________________
Section 2.3 Form of Reverse of Note.
This Note is one of a duly authorized issue of securities of the
Company designated as its 5 3/4% Convertible Subordinated Notes due January 15,
2007 (herein called the "Notes"), limited in aggregate principal amount to
$120,000,000 (except for such additional principal amounts, not to exceed
$18,000,000, of Notes issued to cover over-allotments in the
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initial public offering of the Notes) issued and to be issued under an
Indenture, dated as of January 15, 1997 (herein called the "Indenture"), between
the Company and Norwest Bank Minnesota, National Association, as Trustee (herein
called the "Trustee", which term includes any successor trustee under the
Indenture), to which Indenture and all indentures supplemental thereto reference
is hereby made for a statement of the respective rights, limitations of rights,
duties and immunities thereunder of the Company, the Trustee, the holders of
Senior Indebtedness and the Holders of the Notes and of the terms upon which the
Notes are, and are to be, authenticated and delivered. The Notes are issuable
in registered form only without coupons in denominations of $1,000 and any
integral multiple thereof.
Subject to and upon compliance with the provisions of the Indenture,
the Holder of this Note is entitled, at his option, at any time after 60 days
from the latest date of original issuance of the Notes and on or before the
close of business on the last Business Day prior to January 15, 2007, (except
that (i) if this Note or a portion hereof is called for redemption, then the
right of conversion in respect of this Note or such portion hereof shall
terminate (unless the Company defaults in making the payment due upon
redemption) on, the close of business on the fifth Business Day prior to the
Redemption Date, and (ii) if the Holder hereof has exercised his right to
require the Company to repurchase this Note or a portion hereof, then the right
of conversion in respect of this Note shall terminate at the close of business
on the fifth Business Day prior to the Repurchase Date) to convert this Note (or
any portion of the principal amount hereof which is $1,000 or an integral
multiple thereof), at the principal amount hereof, or of such portion, into
fully paid and non-assessable shares (calculated as to each conversion to the
nearest 1/100 of a share) of Common Stock of the Company at a conversion price
equal to $45.625 for each share of Common Stock (or at the current adjusted
conversion price if an adjustment has been made as provided in the Indenture) by
surrender of this Note, duly endorsed or assigned to the Company or in blank, to
the Company at its office or agency in New York, New York or the city in which
the Corporate Trust Office of the Trustee is located, accompanied by written
notice to the Company that the Holder hereof elects to convert this Note, or if
less than the entire principal amount hereof is to be converted, the portion
hereof to be converted, and, in case such surrender shall be made during the
period from the close of business on any Regular Record Date next preceding any
Interest Payment Date to the opening of business on such Interest Payment Date
(the "Interest Period"), also accompanied by payment in New York Clearing House
Funds or other funds acceptable to the Company of an amount equal to the
interest payable on such Interest Payment Date on the principal amount of this
Note then being converted; except that in the case
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of Notes or portions thereof that have been called for redemption and, pursuant
to Section 12.1 of the Indenture, as a result of such redemption the right to
convert such Notes terminates during the Interest Period, any such Notes
surrendered for conversion during such Interest Period need not be accompanied
by payment in an amount equal to such interest. Subject to the aforesaid
requirement for payment and, in the case of a conversion after the Regular
Record Date next preceding any Interest Payment Date and on or before such
Interest Payment Date, to the right of the Holder of Record of this Note (or any
Predecessor Note) at such Regular Record Date to receive an installment of
interest (with certain exceptions provided in the Indenture), no payment or
adjustment is to be made on conversion for interest accrued hereon or for
dividends on the Common Stock issued on conversion. No fractions of shares or
scrip representing fractions of shares will be issued on conversion, but instead
of any fractional interest the Company shall pay a cash adjustment as provided
in Section 12.3 of the Indenture. The conversion price is subject to adjustment
as provided in Section 12.4 of the Indenture. In addition, the Indenture
provides that in case of certain consolidations or mergers to which the Company
is a party or the transfer of all or substantially all of the assets of the
Company, the Indenture shall be amended, without the consent of any Holders of
Notes, so that this Note, if then outstanding, will be convertible thereafter,
during the period this Note shall be convertible as specified above, only into
the kind and amount of securities, cash and other property receivable upon the
consolidation, merger or transfer by a holder of the number of shares of Common
Stock into which this Note might have been converted immediately prior to such
consolidation, merger or transfer (assuming such holder of Common Stock failed
to exercise any rights of election and received per share the kind and amount
received per share by a plurality of non- electing shares and assuming that such
note was then convertible).
The Notes are subject to redemption upon not less than 30 days' nor
more than 60 days' notice by mail, at any time on or after January 15, 2000, as
a whole or in part, at the election of the Company. The Redemption Prices
(expressed as percentages of the principal amount), and in each case, plus
accrued and unpaid interest to the date of Redemption, and subject to the rights
of Holders of record on the relevant Regular Record Date to receive interest due
on an Interest Payment Date, are as follows for the 12-month period (unless
otherwise noted) beginning on January 15 of the following years:
Year Redemption Price
---- ----------------
2000 103.83%
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2001 103.19%
2002 102.56%
2003 101.92%
2004 101.28%
2005 100.64%
2006 and thereafter 100.00%
Interest installments whose Stated Maturity is on or prior to such Redemption
Date will be payable to the Holders of such Notes, or one or more Predecessor
Notes, of record at the close of business on the relevant Record Dates referred
to on the face hereof, all as provided in the Indenture.
Upon a Change in Control (as defined in the Indenture), the Company
will be required to offer to repurchase all of the Notes at 100% of their
principal amount plus accrued interest. The Company may pay the Repurchase
Price in cash, or at its option, in lieu of paying the Repurchase Price in cash,
may pay the Repurchase Price in Common Stock valued at 95% of the average of the
last reported sale price of the Common Stock for the five consecutive Trading
Days ending on and including the third Trading Day preceding the Repurchase Date
as calculated by the Company; provided that payment may not be made in Common
Stock of the Company unless the Company satisfied certain conditions with
respect to such payment as provided in the Indenture. In the event
of redemption or conversion of this Note in part only, a new Note or Notes for
the unredeemed or unconverted portion hereof will be issued in the name of the
Holder hereof upon the cancellation hereof.
The indebtedness evidenced by this Note is, to the extent provided in
the Indenture, subordinate and subject in right of payment to the prior payment
in full of all Senior Indebtedness, and this Note is issued subject to the
provisions of the Indenture with respect thereto. Each holder of this Note, by
accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination so provided and (c)
appoints the Trustee as his attorney-in-fact for any and all such purposes.
If an Event of Default shall occur and be continuing, the principal of
all the Notes may be declared due and payable in the manner and with the effect
provided in the Indenture.
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The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Notes under the Indenture at any
time by the Company and the Trustee with the consent of the Holders of not less
than a majority in aggregate principal amount of the Notes at the time
outstanding. The Indenture also contains provisions permitting the Holders of a
majority in aggregate principal amount of the Notes at the time Outstanding, on
behalf of the Holders of all the Notes, to waive compliance by the Company with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange hereof or in lieu hereof, whether or not notation of such
consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Note at the times, place and rate, and in the coin or currency,
herein prescribed or to convert this Note as provided in the Indenture.
As provided in and subject to the provisions of the Indenture, the
Holder of this Note shall not have the right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or for
any other remedy thereunder, unless (i) such Holder shall have previously given
the Trustee written notice of a continuing Event of Default, (ii) the Holders of
not less than 25% in principal amount of the Outstanding Notes shall have made
written request to the Trustee to institute proceedings in respect of such Event
of Default as Trustee and offered the Trustee reasonable indemnity with respect
thereto, and the Trustee shall not have received from the Holders of a majority
in principal amount of the Notes Outstanding a direction inconsistent with such
request, and (iv) the Trustee shall have failed to institute any such
proceeding, for 60 days after receipt of such notice, request and offer of
indemnity. The foregoing shall not apply to any suit instituted by the Holder
of this Note for the enforcement of any payment of principal hereof, premium, if
any, or interest hereon on or after the respective due dated expressed herein or
for the enforcement of the right to convert this Note as provided in the
Indenture.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registrable in the Note
Register, upon surrender of this Note for registration of transfer at the office
or agency of the Company
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in the city of New York, New York, or the city in which the Corporate Trust
Office of the Trustee is located, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Note
Registrar duly executed by, the Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Notes, of authorized denominations and
for the same aggregate principal amount, will be issued to the designated
transferee or transferees.
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Notes are
exchangeable for a like aggregate principal amount of Notes of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made to a Holder for any such registration
of transfer or exchange, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Note is registered as the owner hereof for all
purposes, whether or not this Note is overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary. All
terms used in this Note which are defined in the Indenture shall have the
meanings assigned to them in the Indenture.
The Indenture and the Notes shall be governed by and construed in
accordance with the laws of the State of New York, without regards to the
conflicts of law principles as applied in such state. No recourse shall be had
for the payment of the principal, premium, if any, or the interest on this Note,
or for any claim based hereon, or otherwise in respect hereof, or based on or in
respect of the Indenture or any indenture supplemental thereto, against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Company or any successor corporation, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise, all such liability being, by the acceptance hereof and as
part of the considerations for the issue hereof, expressly waived and released.
All terms used in this Note that are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
Section 2.4 Form of Trustee's Certificate of Authentication.
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This is one of the Notes referred to in the within-mentioned
Indenture.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
_____________________________
By: Authorized signatory
--------------------
Section 2.5 Form of Conversion Notice.
To Signature Resorts, Inc.:
The undersigned owner of this Note hereby irrevocably exercises the
option to convert this Note, or portion hereof (which is $1,000 or an integral
multiple thereof) below designated, into shares of Common Stock of Signature
Resorts, Inc., in accordance with the terms of the Indenture referred to in this
Note, and directs that the certificate or certificates for the shares issuable
and deliverable upon the conversion, together with any check in payment for
fractional shares and any Notes representing any unconverted principal amount
hereof, be issued in the name of and delivered to the undersigned, unless a
different name has been indicated below. If shares of Common Stock are to be
issued in the name of a person other than the undersigned, the undersigned will
pay any transfer taxes payable with respect thereto. Any amount required to be
paid by the undersigned on account of interest accompanies this Note.
Principal amount to be converted (in an integral multiple of $1,000, if less
than all): $_______________________
FILL IN FOR REGISTRATION OF SHARES:
----------------------------------
Please print name and address (including zip code)
Name: _______________________________
Address: _______________________________
_______________________________
Please Insert Social Security or Other Taxpayer Identifying
Number:__________________
Fill in for registration of shares of Common stock and Securities if
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to be issued otherwise than to the Holder:
_____________________________ _________________________
(Name) Social Security or other
Taxpayer Identifying
Number
_____________________________
(Signature(s)
Signature(s) must be guaranteed by an Eligible Guarantor Institution with
membership in an approved signature guarantee program pursuant to Rule 17Ad-15
under the Securities Exchange Act of 1934.
______________________ Signature Guaranteed
Section 2.6 Form of Assignment
For value received_________________ hereby sell(s), assign(s) and
transfer(s) unto _________________ (please insert name and social security or
other identifying number of assignee) the within Note, and hereby irrevocably
constitutes and appoints ________________________ as attorney to transfer the
said Note on the books of the Company, with full power of substitution in the
premises.
Dated: ______________________________
Signature(s)
Signature(s) must be guaranteed by an Eligible Guarantor Institution with
member ship in an approved signature guarantee program pursuant to Rule 17Ad-15
under the Securities Exchange Act of 1934.
______________________________
Signature Guaranteed
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ARTICLE 3
THE NOTES
Section 3.1 Title and Terms.
The aggregate principal amount of Notes which may be authenticated and
delivered under this Indenture is limited to $120,000,000 (except for such
additional principal amounts, not to exceed an aggregate of $18,000,000, of
Notes issued to cover over-allotments in the initial public offering of the
Notes), except for Notes authenticated and delivered upon registration of
transfer of, or in exchange for, or in lieu of, other Notes pursuant to Section
3.4, 3.5, 3.6, 9.6, 11.8 or 12.2.
The Notes shall be known and designated as the "5 3/4% Convertible
Subordinated Notes due January 15, 2007" of the Company. Their final Stated
Maturity shall be January 15, 2007, and they shall bear interest at the rate of
5 3/4% per annum, from the date of initial issuance or from the most recent
Interest Payment Date to which interest has been paid or duly provided for, as
the case may be, payable semi-annually on January 15 and July 15, commencing
July 15, 1997 until the principal thereof is paid or made available for payment.
The principal of (and premiums if any) and interest on the Notes shall
be payable at the office or agency of the Company in New York, New York or the
city in which the Corporate Trust Office of the Trustee is located for such
purpose and at any other office or agency maintained by the Company for such
purpose; provided, however, that at the option of the Company payment of
interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Note Register.
The Notes shall be redeemable as provided in Article Eleven.
The Notes shall be convertible as provided in Article Twelve. The
Notes shall be subordinated in right of payment to Senior Indebtedness as
provided in Article Thirteen.
The Notes shall be subject to repurchase at the option of the Holder
as provided in Article Fourteen.
Section 3.2 Denominations.
The Notes shall be issuable only in registered form without coupons
and only in denominations of $1,000 and any
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integral multiple thereof.
Section 3.3 Execution, Authentication, Delivery and Dating.
The Notes shall be executed on behalf of the Company by its Chairman
of the Board, its President or one of its Vice Presidents, under its corporate
seal reproduced thereon attested by its Secretary or one of its Assistant
Secretaries. The signature of any of these officers on the Notes may be manual
or facsimile.
Notes bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Notes executed by the Company to the
Trustee for authentication, together with a Company Order for the authentication
and delivery of such Notes; and the Trustee in accordance with such Company
Order shall authenticate and deliver such Notes as in this Indenture provided
and not otherwise.
Each Note shall be dated the date of its authentication. No Note
shall be entitled to any benefit under this Indenture or be valid or obligatory
for any purpose unless there appears on such Note a certificate of
authentication substantially in the form provided for herein executed by the
Trustee by manual signature, and such certificate upon any Note shall be
conclusive evidence, and the only evidence, that such Note has been duly
authenticated and delivered hereunder.
Section 3.4 Temporary Notes.
Pending the preparation of definitive Notes, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Notes which are printed, lithographed, typewritten, mimeographed or otherwise
produced, in any authorized denomination, substantially of the tenor of the
definitive Notes in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Notes may determine, as evidenced by their execution of such
Notes.
If temporary Notes are issued, the Company will cause definitive Notes
to be prepared without unreasonable delay. After the preparation of definitive
Notes, the temporary Notes
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shall be exchangeable for definitive Notes upon surrender of the temporary Notes
at any office or agency of the Company designated pursuant to Section 10.2,
without charge to the Holder. Upon surrender for cancellation of any one or
more temporary Notes the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a like principal amount of
definitive Notes of authorized denominations. Until so exchanged the temporary
Notes shall in all respects be entitled to the same benefits under this
Indenture as definitive Notes.
For purposes of this Section 3.4 each Global Note shall be considered
a definitive Note.
Section 3.5 Registration; Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agent designated pursuant to Section 10.2 being herein sometimes
collectively referred to as the "Note Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Notes and of transfers of Notes. The Trustee is hereby
appointed "Note Registrar" for the purpose of registering Notes and transfers of
Notes as herein provided.
Upon surrender for registration of transfer of any Note at an office
or agency of the Company designated pursuant to Section 10.2 for such purpose,
the Company shall execute, and the Trustee shall authenticate and deliver, in
the name of the designated transferee or transferees, one or more new Notes of
any authorized denominations and of a like aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other Notes of
any authorized denominations and of a like aggregate principal amount, upon
surrender of the Notes to be exchanged at such office or agency. Whenever any
Notes are so surrendered for exchange, the Company shall execute, and the
Trustee shall authenticate and deliver, the Notes which the Holder making the
exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written
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instrument of transfer in form satisfactory to the Company and the Note
Registrar duly executed, by the Holder thereof or his attorney duly authorized
in writing.
No service charge shall be made to a Holder for any registration of
transfer or exchange of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 3.4, 9.6, 11.8 or 12.2 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer
of or exchange any Note during a period beginning at the opening of business 15
days before the day of the mailing of a notice of redemption of Notes selected
for redemption under Section 11.4 and ending at the close of business on the day
of such mailing, or (ii) to register the transfer of or exchange any Note so
selected for redemption in whole or in part, except the unredeemed portion of
any Note being redeemed in part.
The provisions of Clauses (1), (2), (3), (4) and (5) below shall apply
only to Global Notes:
(1) Each Global Note authenticated under this Indenture shall be
registered in the name of the Depositary designated for such Global Note or a
nominee thereof and delivered to such Depositary or a nominee thereof or
Custodian therefor, and each such Global Note shall constitute a single Note for
all purposes of this Indenture.
(2) Notwithstanding any other provision in this Indenture, no Global
Note may be exchanged in whole or in part for Notes registered, and no transfer
of a Global Note in whole or in part may be registered, in the name of any
Person other than the Depositary for such Global Note or a nominee thereof
unless (A) such Depositary (i) has notified the Company that it is unwilling or
unable to continue as Depositary for such Global Note or (ii) has ceased to be a
clearing agency registered under the Exchange Act, or (B) there shall have
occurred and be continuing an Event of Default with respect to such Global Note.
(3) Subject to Clause (2) above, any exchange of a Global Note for
other Notes may be made in whole or in part, and all Notes issued in exchange
for a Global Note or any portion thereof shall be registered in such names as
the Depositary for such Global Note shall direct.
(4) Every Note authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a
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Global Note or any portion thereof, whether pursuant to this Article Three or
otherwise, shall be authenticated and delivered in the form of, and shall be, a
Global Note, unless such Note is registered in the name of a Person other than
the Depositary for such Global Note or a nominee thereof.
(5) The Depositary or its nominee, as registered owner of a Global
Note, shall be the Holder of such Global Note for all purposes under the
Indenture and the Notes, and owners of beneficial interests in a Global Note
shall hold such interests pursuant to the Applicable Procedures. Accordingly,
any such owner's beneficial interest in a Global Note will be shown only on, and
the transfer of such interest shall be effected only through, records maintained
by the Depositary or its nominee or its Agent Members and such owners of
beneficial interests in a Global Note will not be considered the owners or
holders thereof. Neither the Company nor the Trustee will have any
responsibility or obligation to the Depositary or any of its Agent Members with
respect to (i) the accuracy of any records maintained by the Depositary, (ii)
the payment by the Depositary or any Agent Members of any amount due to any
owner of beneficial interests in a Global Note in respect of any Notes, (iii)
the delivery of any notice by the Depositary or any Agent Member, or (v) any
other action taken by the Depositary or any Agent Members.
Section 3.6 Mutilated, Destroyed, Lost and Stolen Notes.
If any mutilated Note is surrendered to the Trustee, the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
new Note of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any Note and
(ii) such security or indemnity as may be required by them to save each of them
and any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Note has been acquired by a bona fide
purchaser, the Company shall execute and upon its request the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen Note, a
new Note of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Note has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Note, pay such Note.
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<PAGE>
Upon the issuance of any new Note under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Note issued pursuant to this Section in lieu of any
destroyed, lost or stolen Note shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Note shall be at any time enforceable by anyone, and shall be entitled to
all the benefits of this Indenture equally and proportionately with any and all
other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes.
Section 3.7 Payment of Interest; Interest Rights Preserved.
Interest on any Note which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name that Note (or one or more Predecessor Notes) is registered at the close of
business on the Regular Record Date for such interest.
Any interest on any Note which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the Holder on the relevant
Regular Record Date by virtue of having been such Holder, and such Defaulted
Interest may be paid by the Company, at its election in each case, as provided
in clause (i) or (ii) below:
(i) The Company may elect to make payment of any Defaulted Interest to the
Persons in whose names the Notes (or their respective Predecessor Notes) are
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest, which shall be fixed in the following manner. The
Company shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Note and the date of the proposed payment, and at
the same time the Company shall deposit with the Trustee an amount of money
equal to the aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such money when deposited to be held
in trust for the benefit of the Persons entitled to such Defaulted Interest as
in this clause provided. Thereupon the Trustee shall fix a Special Record Date
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for the payment of such Defaulted Interest which shall be not more than 15 days
and not less than 10 days prior to the date of the proposed payment and not less
than 10 days after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Company of such Special Record
Date and, in the name and at the expense of the Company, shall cause notice of
the proposed payment of such Defaulted Interest and the Special Record Date
therefor to be mailed, first-class postage prepaid, to each Holder at his
address as it appears in the Note Register, not less than 10 days prior to such
Special Record Date. Notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor having been so mailed, such Defaulted
Interest shall be paid to the Persons in whose names the Notes (or their
respective Predecessor Notes) are registered at the close of business on such
Special Record Date and shall no longer be payable pursuant to the following
clause (ii).
(ii) The Company may make payment of any Defaulted Interest in any other
lawful manner, if, after notice given by the Company to the Trustee of the
proposed payment pursuant to this clause, such manner of payment shall be deemed
practicable by the Trustee.
Subject to the foregoing provisions of this Section 3.7, each Note
delivered under this Indenture upon registration of, transfer of, or in exchange
for or in lieu of any other Note shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Note.
In the case of any Note which is converted after any Regular Record
Date but on or before the next Interest Payment Date, interest whose Stated
Maturity is on such Interest Payment Date shall be payable on such Interest
Payment Date notwithstanding such conversion, and such interest (whether or not
punctually paid or duly provided for) shall be paid to the Person in whose name
that Note (or one or more Predecessor Notes) is registered at the close of
business on such Regular Record Date.
Section 3.8 Persons Deemed Owners.
Prior to due presentment of a Note for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Note is registered as the owner of such Note for the
purpose of receiving payment of principal of (and premium, if any) and (subject
to Section 3.7) interest on such Note and for all other purposes whatsoever,
whether or not such Note be overdue, and neither the Company, the Trustee nor
any agent of the Company or the Trustee shall be affected by notice to the
contrary.
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Section 3.9 Cancellation.
All Notes surrendered for payment, redemption, registration of
transfer or exchange or conversion shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee and shall be promptly cancelled by
it. The Company may at any time deliver to the Trustee for cancellation any
Notes previously authenticated and delivered hereunder which the Company may
have acquired in any manner whatsoever, and all Notes so delivered shall be
promptly cancelled by the Trustee. No Notes shall be authenticated in lieu of
or in exchange for any Notes cancelled as provided in this Section, except as
expressly permitted by this Indenture. All cancelled Notes held by the Trustee
shall be disposed of in accordance with the Trustee's usual document destruction
procedures.
Section 3.10 Computation of Interest.
Interest on the Notes shall be computed on the basis of a 360-day year
of twelve 30-day months.
ARTICLE 4
SATISFACTION AND DISCHARGE
Section 4.1 Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as to any
surviving rights of conversion, registration of transfer or exchange of Notes
herein expressly provided for), and the Trustee, on demand of and at the expense
of the Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(a) either
(i) all Notes theretofore authenticated and delivered (other than (1)
Notes which have been destroyed, lost or stolen and which have been replaced or
paid as provided in Section 3.6 and (2) Notes for whose payment money has
theretofore been deposited in trust or segregated and held in trust by the
Company and thereafter repaid to the Company or discharged from such trust, as
provided in Section 10.3) have been delivered to the Trustee for cancellation;
or
(ii) all such Notes not theretofore delivered to the Trustee for
cancellation (1) have become due and payable, (2) will become due and payable at
their Stated Maturity within one year, or (3) are to be called for redemption
within one year under arrangements satisfactory to the Trustee for the giving of
notice of redemption by the Trustee in the name, and at the expense, of
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the Company, and, the Company, in the case of (1), (2) or (3) above, has
deposited or caused to be deposited with the Trustee as trust funds in trust for
the purpose an amount sufficient to pay and discharge the entire indebtedness on
such Notes not theretofore delivered to the Trustee for cancellation for
principal (and premium, if any) and interest to the date of such deposit (in the
case of Notes which have become due and payable) or to the Stated Maturity or
Redemption Date, as the case may be; or
(iii) all outstanding Notes are delivered to the Trustee for conversion in
accordance with the provisions of this Indenture; and
(b) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(c) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture have
been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.7, the obligations of
the Trustee to any Authenticating Agent under Section 6.14 and, if money shall
have been deposited with the Trustee pursuant to subclause (ii) of clause (a) of
this Section, the obligations of the Trustee under Section 4.2 and the last
paragraph of Section 10.3 shall survive. Except as specifically agreed in
writing, the Trustee shall not be responsible for the payment of interest upon
money deposited with it under this Indenture.
Section 4.2 Application of Trust Money.
Subject to the provisions of the last paragraph of Section 10.3, all
money deposited with the Trustee pursuant to Section 4.1 shall be held in trust
and applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee. All moneys deposited with the Trustee pursuant to Section 4.1 (and
held by it or any Paying Agent) for the payment of Notes subsequently converted
shall be returned to the Company upon Company Request.
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ARTICLE 5
REMEDIES
Section 5.1 Events of Default.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be occasioned by the provisions of Article Thirteen or be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) default in the payment of any interest upon any Note when it becomes
due and payable, and continuance of such default for a period of 30 days whether
or not such payment is prohibited by the subordination provisions contained in
Article Thirteen; or
(b) default in the payment of the principal of (or premium, if any, on)
any Note at its Maturity whether or not such payment is prohibited by the
subordination provisions contained in Article Thirteen; or
(c) failure by the Company to provide a Company Notice of Change in
Control;
(d) default in the performance, or breach, of any covenant or warranty of
the Company in this Indenture (other than a covenant or warranty a default in
whose performance or whose breach is elsewhere in this Section 5.1 specifically
dealt with), and continuance of such default or breach for a period of 60 days
after there has been given, by registered or certified mail, to the Company by
the Trustee or to the Company and the Trustee by the Holders of at least 25% in
principal amount of the Outstanding Notes, a written notice specifying such
default or breach and requiring it to be remedied and stating that such notice
is a "Notice of Default" hereunder; or
(e) a failure by the Company or any Significant Subsidiary to make any
payment in respect of any obligations (other than Non-Recourse Debt) of, or
guaranteed or assumed by, the Company or any Significant Subsidiary, for
borrowed money ("Indebtedness") in an amount in excess of $15,000,000 and
continuance of such failure for ninety (90) days, or a default by the Company or
any Significant Subsidiary with respect to any Indebtedness, which default
results in the acceleration of the Indebtedness in an amount in excess of
$15,000,000, and such Indebtedness not having been discharged or such
acceleration not having been cured, waived, rescinded or annulled within 90 days
of such acceleration; or
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(f) a final judgment or judgments for payment of money against the Company
or any Significant Subsidiary which remains undischarged for a period ending on
the later of (a) 60 days after the entry of such judgment, as extended by any
effective stay of its execution; or (b) the date on which any payment is or
becomes due pursuant to such judgment in accordance with its terms, other than
final judgment with respect to Non-recourse Debt of the Company or any of its
Significant Subsidiaries, provided that the aggregate of all such outstanding
judgments exceed $15,000,000 (excluding any amounts covered by insurance as to
which the insurer has not denied liability); or
(g) the entry by a court having jurisdiction in the premises of (i) a
decree or order for relief in respect of the Company in an involuntary case or
proceeding under any applicable Federal or state bankruptcy, insolvency,
reorganization or other similar law or (ii) a decree or order adjudging the
Company a bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or in respect
of the Company under any applicable Federal or state law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or similar
official of the Company or of any substantial part of its property, or ordering
the winding up or liquidation of its affairs, and the continuance of any such
decree or order for relief or any such other decree or order unstayed and in
effect for a period of 60 consecutive days; or
(h) the commencement by the Company of a voluntary case or proceeding
under any applicable Federal or state bankruptcy, insolvency, reorganization or
other similar law or of any other case or proceeding to be adjudicated a
bankrupt or insolvent, or the consent by it to the entry of a decree or order
for relief in respect of the Company in an involuntary case or proceeding under
any applicable Federal or state bankruptcy, insolvency, reorganization or other
similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against it, or the filing by it of a petition or answer or consent
seeking reorganization or relief under any applicable Federal or state law, or
the consent by it to the filing of such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Company or of any substantial part of
its property, or the making by it of an assignment for the benefit of creditors,
or the admission by it in writing of its inability to pay its debts generally as
they become due, or the taking of corporate action by the Company in substantial
furtherance of any such action.
Section 5.2 Acceleration of Maturity; Rescission and Annulment.
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If an Event of Default (other than an Event of Default specified in
Section 5.1(g) or 5.1(h)) occurs and is continuing, then and in every such case
the Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Notes may declare the principal of all the Notes to be due and
payable immediately, by a notice in writing to the Company (and to the Trustee
if given by Holders), and upon any such declaration such principal shall become
immediately due and payable. If an Event of Default specified in Section 5.1(g)
or 5.1(h) occurs and is continuing, the principal and any accrued interest
thereon, of all Outstanding Notes shall become immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder.
At any time after such a declaration of acceleration has been made,
the Holders of a majority in principal amount of the Outstanding Notes, by
written notice to the Company and the Trustee, may rescind and annul such
declaration and its consequences if (i) the Company has paid or deposited with
the Trustee a sum sufficient to pay
(a) all overdue interest on all Notes,
(b) the principal of (and premium, if any, on) any Notes which have
become due otherwise than by such declaration of acceleration and interest
thereon at the rate of 5 3/4% per annum,
(c) to the extent that payment of such interest is lawful, interest
upon overdue interest at the rate of 5 3/4% per annum, and
(d) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel; and
(ii) all Events of Default, other than the non-payment of the principal of
Notes which have become due solely by such declaration of acceleration, have
been cured or waived (as provided in Section 5.13).
No such rescission shall affect any subsequent default or impair any
right consequent thereon.
Section 5.3 Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company covenants that if
(a) default is made in the payment of any interest on any Note when such
interest becomes due and payable and such default continues for a period of 30
days; or
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(b) default is made in the payment of the principal of (or premium, if
any, on) any Note at the Maturity thereof, the Company will, upon demand of the
Trustee, pay to it, for the benefit of the Holders of such Notes, the whole
amount then due and payable on such Notes for principal (and premium, if any)
and interest, and, to the extent that payment of such interest shall be legally
enforceable, interest on any overdue principal (and premium, if any) and on any
overdue interest, at a rate of 5 3/4% per annum, and, in addition thereto, such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may (i)
institute a judicial proceeding for the collection of the sums so due and
unpaid, (ii) prosecute such proceeding to judgment or final decree and may (iii)
enforce the same against the Company or any other obligor upon the Notes and
collect the moneys adjudged or decreed to be payable in the manner provided by
law out of the property of the Company or any other obligor upon the Notes,
wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
Section 5.4 Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the Notes
or the property of the Company or of such other obligor or their creditors, the
Trustee (irrespective of whether the principal of the Notes shall then be due
and payable as therein expressed or by declaration or otherwise and irrespective
of whether the Trustee shall have made any demand on the Company for the payment
of overdue principal or interest) shall be entitled and empowered, by
intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Notes and take
such other actions, including participating as a member, voting or otherwise, of
any official committee of creditors appointed in such matter and to file such
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other papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including, without limitation, any claim for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel) and of the Holders of Notes allowed in such judicial
proceeding; and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same; and any custodian,
receiver, assignee, trustee, liquidator, sequestrator or other similar official
in any such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 6.7.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding; provided, however, that the
Trustee may, on behalf of such Holders, vote for the election of a trustee in
bankruptcy or similar official and may serve on a creditor's committee.
Section 5.5 Trustee May Enforce Claims Without Possession of Notes.
All rights of action and claims under this Indenture or the Notes may
be prosecuted and enforced by the Trustee without the possession of any of the
Notes or the production thereof in any proceeding relating thereto, and any such
proceeding instituted by the Trustee shall be brought in its own name as trustee
of an express trust, and any recovery of judgment shall, after provision for the
payment of the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel, be for the ratable benefit of the Holders
of the Notes in respect of which such judgment has been recovered.
Section 5.6 Application of Money Collected.
Subject to Article Thirteen, any money collected by the Trustee
pursuant to this Article shall be applied in the following order, at the date or
dates fixed by the Trustee and, in case of the distribution of such money on
account of principal (or premium, if any) or interest, upon presentation of the
Notes
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and the notation thereon of the payment if only partially paid, and upon
surrender thereof if fully paid:
FIRST: To the payment of all amounts due to the Trustee under
Section 6.7; and
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Notes in respect of which
or for the benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and payable on
such Notes for principal (and premium, if any) and interest, respectively.
THIRD: Any remaining amounts, if any, shall be repaid to the
Company, its successors or assigns, or to whomever may be lawfully entitled to
the same, or as a court of competent jurisdiction may determine.
Section 5.7 Limitation on Suits.
No Holder of any Note shall have any right to institute any action,
suit or proceeding, judicial or otherwise, with respect to this Indenture, or
for the appointment of a receiver or trustee, or for any other remedy hereunder,
unless
(a) such Holder has previously given written notice to the Trustee of a
continuing Event of Default;
(b) the Holders of not less than 25% in principal amount of the
Outstanding Notes shall have made written request to the Trustee to institute
proceedings in respect of such Event of Default in its own name as Trustee
hereunder;
(c) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice, request and
offer of indemnity has failed to institute any such action, suit or proceeding;
and
(e) no direction inconsistent with such written request has been given to
the Trustee during such 60-day period by the Holders of a majority in principal
amount of the Outstanding Notes; it being understood and intended that no one or
more Holders shall have any right in any manner whatever by virtue of, or by
availing itself of, any provision of this Indenture to affect, disturb or
prejudice the rights of any other Holders, or to obtain or to seek to obtain
priority or preference over any other Holders or to enforce any right under this
Indenture,
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except in the manner herein provided and for the equal and ratable benefit of
all the Holders.
Section 5.8 Unconditional Right of Holders to Receive Principal,
Premium and Interest and to Convert.
Notwithstanding any other provision in this Indenture, but subject to
the provisions of Article Thirteen, the Holder of any Note shall have the right,
which is absolute and unconditional, to receive payment of the principal of (and
premium, if any) and (subject to Section 3.7) interest on such Note on the
respective Stated Maturities expressed in such Note (or, in the case of
redemption, on the Redemption Date) and to convert such Note in accordance with
Article Twelve and to institute suit for the enforcement of any such payment and
right to convert, and such rights shall not be impaired without the prior
written consent of such Holder.
Section 5.9 Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
Section 5.10 Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes in the last paragraph of
Section 3.6, no right or remedy herein conferred upon or reserved to the Trustee
or to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section 5.11 Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein.
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Every right and remedy given by this Article or by law to the Trustee or to the
Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Holders, as the case may be.
Section 5.12 Control by Holders.
The Holders of a majority in principal amount of the Outstanding Notes
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee, provided that (i) such direction shall not be in
conflict with (x) any rule of law, (y) this Indenture, or (z) the
indemnification provided by the Holder or Holders to the Trustee pursuant to
Section 5.7, and (ii) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
Section 5.13 Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the
Outstanding Notes may on behalf of the Holders of all the Notes waive any past
default hereunder and its consequences, except a default
(a) in the payment of the principal of (or premium, if any) or interest on
any Note, or
(b) in respect of a covenant or provision hereof which under Article Nine
cannot be modified or amended without the consent of the Holder of each
Outstanding Note affected; provided, however, that no such waiver shall be
effected until all amounts then due to the Trustee under Section 6.7 have been
paid.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
Section 5.14 Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Note by
his acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant
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in such suit, having due regard to the merits and good faith of the claims or
defenses made by such party litigant; but the provisions of this Section shall
not apply to any suit instituted by the Trustee, to any suit instituted by any
Holder, or group of Holders, holding in the aggregate more than 10% in principal
amount of the Outstanding Notes, or to any suit instituted by any Holder for the
enforcement of the payment of the principal of (or premium, if any) or interest
on any Note on or after the respective Stated Maturities expressed in such Note
(or, in the case of redemption, on or after the Redemption Date) or for the
enforcement of the right to convert any Note in accordance with Article Twelve,
or to require the Company to repurchase any Notes in accordance with the
provisions of Article Fourteen.
Section 5.15 Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE 6
THE TRUSTEE
Section 6.1 Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default,
(i) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and no implied covenants
or obligations shall be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture; but in the case of
any such certificates or opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the requirements of
this Indenture, but need not verify the accuracy of the contents thereof.
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(b) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own wilful misconduct, except that
(i) this Subsection shall not be construed to limit the effect of
Subsection (a) of this Section 6.1;
(ii) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;
(iii) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of a majority in principal amount of the Outstanding
Notes relating to the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or exercising any trust or power conferred
upon the Trustee, under this Indenture; and
(iv) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
Section 6.2 Notice of Defaults.
Within 90 days after the occurrence of any default hereunder, the
Trustee shall transmit by mail to all Holders, as their names and addresses
appear in the Note Register, notice of such default hereunder known to the
Trustee, unless such default shall have been cured or waived; provided, however,
that, except in the case of a default in the payment of the principal of (or
premium, if any) or interest on any Note, the Trustee shall be protected in
withholding such notice if and so long as the board of directors, the executive
committee or a trust committee of
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directors or Responsible Officers of the Trustee in good faith determines that
the withholding of such notice is in the interest of the Holders. For the
purpose of this Section, the term "default" means any event which is, or after
notice or lapse of time or both would become, an Event of Default.
Section 6.3 Certain Rights of Trustee.
Subject to the provisions of Section 6.1:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders pursuant to this Indenture, unless such Holders shall have offered
to the Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee
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shall determine to make such further inquiry or investigation, it shall be
entitled to examine the books, records and premises of the Company, personally
or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder;
(h) the permissive right of the Trustee to take or refrain from taking any
actions enumerated in this Indenture shall not be construed as a duty and the
Trustee shall not be answerable in such actions other than for its own
negligence or bad faith; and
(i) the Trustee shall not be deemed to know of any fact or event upon the
occurrence of which it may be required to take action hereunder (except with
respect to monetary defaults) unless one of its Responsible Officers shall have
actual knowledge thereof.
Section 6.4 Not Responsible for Recitals or Issuance of Notes.
The recitals contained herein and in the Notes, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and the Trustee assumes no responsibility for their correctness. The Trustee
makes no representations as to the validity or sufficiency of this Indenture or
of the Notes. The Trustee shall not be accountable for the use or application
by the Company of Notes or the proceeds thereof.
Section 6.5 May Hold Notes.
The Trustee, any Authenticating Agent, any Paying Agent, any Note
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Notes and, subject to Sections 6.8
and 6.13, may otherwise deal with the Company with the same rights it would have
if it were not Trustee, Authenticating Agent, Paying Agent, Note Registrar or
such other agent.
Section 6.6 Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company in writing.
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Section 6.7 Compensation and Reimbursement.
The Company agrees:
(a) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee of an
express trust);
(b) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any provision of this
Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to its negligence or bad faith; and
(c) to indemnify the Trustee for, and to hold it harmless against,
any loss, liability or expense incurred without negligence or bad faith on its
part, arising out of or in connection with the acceptance or administration of
this trust, including the costs, expenses and reasonable attorneys' fees of
defending itself against any claim or liability in connection with the exercise
or performance of any of its powers or duties hereunder.
Section 6.8 Disqualification; Conflicting Interests.
If the Trustee has or shall acquire any conflicting interest, within
the meaning of the Trust Indenture Act, it shall, within 90 days after
ascertaining that it has such conflicting interest, either eliminate such
conflicting interest or resign in accordance with the provisions of the Trust
Indenture Act.
Section 6.9 Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America, any State thereof or the District of Columbia, authorized under such
laws to exercise corporate trust powers, having a combined capital and surplus
of at least $50,000,000 and subject to supervision or examination by Federal and
State or District of Columbia authority. If such corporation publishes reports
of condition at least annually, pursuant to law or to the requirements of said
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Trustee shall cease to be eligible in
accordance with the
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provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article and a successor shall be
appointed pursuant to Section 6.10.
Section 6.10 Resignation and Removal Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 6.11.
(b) The Trustee may resign at any time by giving written notice thereof to
the Company. If an instrument of acceptance by a successor Trustee shall not
have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Notes, delivered to the Trustee
and to the Company.
(d) If at any time:
(i) the Trustee shall fail to comply with Section 6.8 after written
request therefor by the Company or by any Holder who has been a bona fide Holder
of a Note for at least six months, or
(ii) the Trustee shall cease to be eligible under Section 6.9 and
shall fail to resign after written request therefor by the Company or by any
such Holder (as described in the preceding subsection (d)(i)), or
(iii) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation then, in any such case, (1) the Company by a Board
Resolution may remove the Trustee, or (2) subject to Section 5.14, any Holder
who has been a bona fide Holder of a Note for at least six months may, on behalf
of himself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, the Company,
by a Board Resolution, shall
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promptly appoint a successor Trustee. If, within one year after such
resignation, removal or incapability, or the occurrence of such vacancy, a
successor Trustee shall be appointed by Act of the Holders of a majority in
principal amount of the Outstanding Notes delivered to the Company and the
retiring Trustee, the successor Trustee so appointed shall, forthwith upon its
acceptance of such appointment, become the successor Trustee and supersede the
successor Trustee appointed by the Company. If no successor Trustee shall have
been so appointed by the Company or the Holders and accepted appointment in the
manner hereinafter provided, any Holder who has been a bona fide Holder of a
Note for at least six months may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the appointment of a
successor Trustee.
(f) The Company shall give notice of each resignation and each removal of
the Trustee and each appointment of a successor Trustee by mailing written
notice of such event by first-class mail, postage prepaid, to all Holders as
their names and addresses appear in the Note Register. Each notice shall
include the name of the successor Trustee and the address of its Corporate Trust
Office.
Section 6.11 Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee,
the Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article Six.
Section 6.12 Merger, Conversion, Consolidation or Succession to
Business.
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Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Notes shall have been authenticated, but
not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Notes so authenticated with the same effect as if
such successor Trustee had itself authenticated such Notes.
Section 6.13 Preferential Collection of Claims Against Company.
If the Trustee shall be or shall become a creditor, directly or
indirectly, secured or unsecured, of the Company or any other obligor on the
Notes, the Trustee shall be subject to and comply with the provisions of the
Trust Indenture Act regarding the collection of claims against the Company or
such other obligor.
Section 6.14 Appointment of Authenticating Agent.
The Trustee may appoint an Authenticating Agent or Agents which shall
be authorized to act on behalf of the Trustee to authenticate Notes issued upon
original issue and upon exchange, registration of transfer, partial conversion
or partial redemption or pursuant to Section 3.6, and Notes so authenticated
shall be entitled to the benefits of this Indenture and shall be valid and
obligatory for all purposes as if authenticated by the Trustee hereunder.
Wherever reference is made in this Indenture to the authentication and delivery
of Notes by the Trustee or the Trustee's certificate of authentication, such
reference shall be deemed to include authentication and delivery on behalf of
the Trustee by an Authenticating Agent and a certificate of authentication
executed on behalf of the Trustee by an Authenticating Agent. Each
Authenticating Agent shall be subject to acceptance by the Company and shall at
all times be a corporation organized and doing business under the laws of the
United States of America, any State thereof or The District of Columbia,
authorized under such laws to act as Authenticating Agent, having a combined
capital and surplus of not less than $50,000,000 and subject to supervision or
examination by Federal or State authority. If such Authenticating Agent
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for
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the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time
an Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written
notice thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice thereof
to such Authenticating Agent and to the Company. Upon receiving such a notice
of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be subject to acceptance by the Company and shall mail written
notice of such appointment by first-class mail, postage prepaid, to all Holders
as their names and addresses appear in the Note Register. Any successor
Authenticating Agent upon acceptance of its appointment hereunder shall become
vested with all the rights, powers and duties of its predecessor hereunder, with
like effect as if originally named as an Authenticating Agent. No successor
Authenticating Agent shall be appointed unless eligible under the provisions of
this Section.
The Trustee agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section, and the
Trustee shall be entitled to be reimbursed for such payments, subject to the
provisions of Section 6.7.
If an appointment is made pursuant to this Section 6.14, the Notes may
have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternate certificate of authentication in the following
form:
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This is one of the Notes described in the within-mentioned Indenture.
Norwest Bank Minnesota, National
Association
As Trustee
By: ______________________________
Authorized Officer
By: ______________________________
As Authenticating Agent
By: ______________________________
Authorized Officer
ARTICLE 7
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.1 Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee
(a) semi-annually, not more than 15 days after each Regular Record Date, a
list, in such form as the Trustee may reasonably require, of the names and
addresses of the Holders as of such Regular Record Date, and
(b) at such other times as the Trustee may request in writing, within 30
days after the receipt by the Company of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such list
is furnished;
Excluding from any such list names and addresses received by the
Trustee in its capacity as Note Registrar.
Section 7.2 Preservation of Information; Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 7.1 and the names and
addresses of Holders received by the Trustee in its capacity as Note Registrar.
The
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Trustee may destroy any list furnished to it as provided in Section 7.1 upon
receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with respect to
their rights under this Indenture or under the Notes, and the corresponding
rights and privileges of the Trustee, shall be as provided in the Trust
Indenture Act.
(c) Every Holder of Notes, by receiving and holding the same, agrees with
the Company and the Trustee that neither the Company nor the Trustee nor any
agent of either of them shall be held accountable by reason of the disclosure of
any such information as to the names and addresses of the Holders made pursuant
to the Trust Indenture Act.
Section 7.3 Reports by Trustee.
(a) On or about each May 15, the Trustee shall transmit to Holders such
reports, if any, concerning the Trustee and its actions under this Indenture as
may be required pursuant to the Trust Indenture Act in the manner provided
pursuant thereto. (b) A copy of each such report shall, at the time of
such transmission to Holders, be filed by the Trustee with each stock exchange
upon which the Notes are listed (if applicable), with the Commission and with
the Company. The Company will notify the Trustee when the Notes are listed on
any stock exchange (if applicable).
Section 7.4 Reports by Company.
The Company shall file with the Trustee and the Commission, and
transmit to the Holders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act at the
times and in the manner provided pursuant to the Trust Indenture Act; provided
that any such information, documents or reports required to be filed with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act shall be filed
with the Trustee within 15 days after the same is so required to be filed with
the Commission.
ARTICLE 8
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 8.1 Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate with or merge into any other Person
or, transfer or lease all or substantially all of its properties and assets to
any Person, unless:
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(i) in case the Company shall consolidate with or merge into
another Person or transfer or lease all or substantially all of its properties
and assets to any Person, the Person formed by such consolidation or into which
the Company is merged or the Person which acquires by transfer, or which leases
the properties and assets of the Company substantially as an entirety shall be a
corporation, partnership or trust, shall be organized and validly existing under
the laws of the United States of America, any State thereof or the District of
Columbia and shall expressly assume, by an indenture supplemental hereto,
executed and delivered to the Trustee, in form satisfactory to the Trustee, the
due and punctual payment of the principal of (and premium, if any) and interest
on all the Notes and the performance of every covenant of this Indenture on the
part of the Company to be performed or observed and shall have provided for
conversion rights in accordance with Article Twelve hereof;
(ii) immediately after giving effect to such transaction, no Event
of Default, and no event which, after notice or lapse of time or both, would
become an Event of Default, shall have happened and be continuing; and
(iii) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger, transfer or lease and, if a supplemental indenture is required in
connection with such transaction, such supplemental indenture, complies with
this Article, and that all conditions precedent herein provided relating to such
transaction have been complied with.
Section 8.2 Successor Substituted.
Upon any consolidation of the Company with, or merger of the Company
into, any other Person or any transfer or lease all or substantially all of the
properties and assets of the Company in accordance with Section 8.1 the
successor Person formed by such consolidation or into which the Company is
merged or to which such transfer or lease is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor Person had been named
as the Company herein, and thereafter, except in the case of a lease, the
Company shall be relieved of all obligations and covenants under this Indenture
and the Notes.
ARTICLE 9
SUPPLEMENTAL INDENTURES
Section 9.1 Supplemental Indentures Without Consent of Holders.
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Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(a) to evidence the succession of another Person to the Company and the
assumption by any such successor of the covenants of the Company herein and in
the Notes; or
(b) to add to the covenants of the Company for the benefit of the Holders,
or to surrender any right or power herein conferred upon the Company; or
(c) to secure the Notes; or
(d) to make provision with respect to the conversion rights of Holders
pursuant to the requirements of Article Twelve; or the repurchase obligations of
the Company pursuant to the requirements of Article Fourteen; or
(e) to add any additional Events of Default; or
(f) to evidence and provide for the acceptance of appointment hereunder by
a successor Trustee with respect to the Notes; or
(g) to cure any ambiguity, to correct or supplement any provision herein
which may be inconsistent with any other provision herein, or to make any other
provisions with respect to matters or questions arising under this Indenture,
provided such action pursuant to this clause (g) shall not adversely affect the
interests of the Holders.
Section 9.2 Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Notes, by Act of said Holders delivered to
the Company and the Trustee, the Company, when authorized by a Board Resolution,
and the Trustee may enter into an indenture or indentures supplemental hereto
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Indenture or of modifying in any
manner the rights of the Holders under this Indenture; provided, however, that
no such supplemental indenture shall, without the consent of the Holder of each
Outstanding Note affected thereby:
(a) (i) change the Stated Maturity of the principal of, or any installment
of interest on, any Note, (ii) reduce the
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principal amount of, or the premium or interest on, any Note, (iii) reduce the
amount payable upon an optional redemption or the consideration payable to any
Holder converting after a notice of redemption has been given, (iv) modify the
provisions with respect to the repurchase right of the Holders in a manner
adverse to the Holders, (v) change the place or currency of payment of principal
of, or premium or interest on, any Note, (vii) impair the right to institute
suit for the enforcement of any payment on or with respect to any Note, (viii)
adversely affect the right to convert the Notes, or (ix) modify the
subordination provisions in a manner adverse to the Holders of the Notes, or
(b) reduce the percentage in principal amount of the Outstanding Notes the
consent of whose Holders is required for any such supplemental indenture, or the
consent of whose Holders is required for any waiver (of compliance with certain
provisions of this Indenture or certain defaults hereunder and their
consequences) provided for in this Indenture, or (c) modify any of the
provisions of this Section 9.2, Section 5.13 or Section 10.8, except to increase
any such percentage or to provide that certain other provisions of this
Indenture cannot be modified or waived without the consent of the Holder of each
Outstanding Note affected thereby.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
Section 9.3 Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 6.1) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which, in the Trustee's
sole discretion, affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise.
Section 9.4 Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Notes
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theretofore or thereafter authenticated and delivered hereunder shall be bound
thereby.
Section 9.5 Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article Nine
shall conform to the requirements of the Trust Indenture Act as then in effect.
Section 9.6 Reference in Notes to Supplemental Indentures.
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Notes so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Notes.
Section 9.7 Notice of Supplemental Indentures.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 9.1 or Section 9.2,
the Company shall give notice to all Holders of Securities of such fact, setting
forth in general terms the substance of such supplemental indenture, in the
manner provided in Section 1.6. Any failure of the Company to give such notice,
or any defect therein, shall not in any way impair or affect the validity of any
such supplemental indenture.
ARTICLE 10
COVENANTS
Section 10.1 Payment of Principal, Premium and Interest.
The Company will duly and punctually pay the principal of (and
premium, if any) and interest on the Notes in accordance with the terms of the
Notes and this Indenture.
Section 10.2 Maintenance of Office or Agency.
The Company hereby appoints the corporate trust office of the Trustee,
as its agent in the city of Minneapolis, Minnesota where Notes may be presented
or surrendered for payment, where Notes may be surrendered for registration of
transfer or exchange, where conversion notices, certificates and other items
required to be delivered to effect conversion may be
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delivered and where notices and demands to or upon the Company in respect of the
Notes and this Indenture may be served.
The Company hereby also appoints the Corporate Trust Office of the
Trustee as Paying Agent for the payment of principal of (and premium, if any),
and interest on the Securities and as "Conversion Agent" for the conversion of
any of the Notes in accordance with Article Twelve, and appoints the Corporate
Trust Office of the Trustee as transfer agent where Notes may be surrendered for
registration of transfer or exchange.
The Company may at any time and from time to time vary or terminate
the appointment of any such Conversion Agent or appoint any additional
Conversion Agents with or without cause for any or all of such purposes;
provided, however, that until all of the Notes have been delivered to the
Trustee for cancellation, or moneys sufficient to pay the principal of and
interest on Notes have been made available for payment and either paid or
returned to the Company pursuant to the provisions of Section 10.3, the Company
will maintain in the city of Minneapolis, Minnesota an office or agency where
Notes may be presented or surrendered for payment, where Notes may be
surrendered for registration of transfer or exchange, where Notes may be
surrendered for conversion and where notices and demand to or upon the Company,
in respect of the Notes and this Indenture may be served. The Company will give
prompt written notice to the Trustee, and will give notice to Holders of Notes
in the manner specified in Section 1.6 of the appointment or termination of any
such agents and of the location and any change in the location of any such
office or agency.
If at any time the Company shall fail to maintain any such required
office or agency, or shall fail to furnish the Trustee with the address thereof,
presentations and surrenders may be made and notice and demands may be served on
and Notes may be surrendered for conversion to the Corporate Trust Office of the
Trustee, and the Company hereby appoints the same as its agent to receive such
respective presentations, surrenders, notices and demands.
Section 10.3 Money for Note Payments to be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of (and premium, if any) or interest
on any of the Notes, segregate and hold in trust for the benefit of the Persons
entitled thereto a sum sufficient to pay the principal (and premium, if any) or
interest so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and will promptly notify the Trustee of
its action or failure so to act.
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Whenever the Company shall have one or more Paying Agents, it will, prior to
each due date of the principal of (and premium, if any) or interest on any
Notes, deposit with a Paying Agent a sum sufficient to pay the principal (and
premium, if any) or interest so becoming due, such sum to be held in trust for
the benefit of the Persons entitled to such principal, premium or interest, and
(unless such Paying Agent is the Trustee) the Company will promptly notify the
Trustee of its action or failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(i) hold all sums held by it for the payment of the principal of
(and premium, if any) or interest on Notes in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(ii) give the Trustee notice of any default by the Company (or any
other obligor upon the Notes) in the making of any payment of principal (and
premium, if any) or interest; and
(iii) at any time during the continuance of any such default, upon
the written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (and premium, if
any) or interest on any Note and remaining unclaimed for two years after such
principal (and premium, if any) or interest has become due and payable shall,
subject to applicable escheat and abandoned property law, be paid to the Company
on Company Request, or (if then held by the Company) shall be discharged from
such trust; and the Holder of such Note shall thereafter, as an unsecured
general creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such
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Paying Agent, before being required to make any such repayment, may, at the
expense of the Company, cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in The City of New York and in the city in which the Corporate Trust
Office of the Trustee is located, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
Section 10.4 Statement by Officers as to Default.
The Company shall deliver to the Trustee, within 90 days after the end
of each fiscal year of the Company, an Officer's Certificate stating whether or
not to the knowledge of the signers thereof the Company is in compliance with
all conditions and covenants under the Indenture (without regard to any period
of grace or requirement of notice provided hereunder). The Company will deliver
to the Trustee, within 3 Business Days after becoming aware of any default or
Event of Default under this Indenture, an Officers' Certificate specifying with
particularity such default or Event of Default and further stating what action
the Company has taken, is taking or proposes to take with respect thereto. For
the purpose of this Section, the term "default" means any event which is, or
after notice or lapse of time or both would become, an Event of Default.
Any notice required to be given under this Section 10.4 shall be
delivered to the Trustee at its Corporate Trust Office.
Section 10.5 Existence.
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its existence,
rights (charter and statutory) and franchises; provided, however, that the
Company shall not be required to preserve any such right or franchise if the
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and that the loss
thereof is not disadvantageous in any material respect to the Holders.
Section 10.6 Maintenance of Properties.
The Company will cause all properties used or useful in the conduct of
its business or the business of any Subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
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betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
nothing in this Section 10.6 shall prevent the Company from discontinuing the
operation or maintenance of any of such properties if such discontinuance is, in
the judgment of the Company, desirable in the conduct of its business or the
business of any Subsidiary and not disadvantageous in any material respect to
the Holders.
Section 10.7 Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (i) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary, and (ii)
all lawful claims for labor, materials and supplies which, if unpaid, might by
law become a lien upon the real or personal property of the Company or any
Subsidiary; provided, however, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings and for which disputed amounts adequate reserves in
accordance with generally accepted accounting principles have been made.
Section 10.8 Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any
covenant or condition set forth in Sections 10.2, 10.3, 10.5 and 10.6, if before
the time for such compliance the Holders of at least a majority in principal
amount of the Outstanding Notes shall, by Act of such Holders, either waive such
compliance in such instance or generally waive compliance with such covenant or
condition, but no such waiver shall extend to or affect such covenant or
condition except to the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Company and the duties of the Trustee
in respect of any such covenant or condition shall remain in full force and
effect.
Section 10.9 Book-Entry System
If the Notes cease to trade in DTC's book-entry settlement system, the
Company covenants and agrees that it shall use reasonable efforts to make such
other book-entry arrangements that it determines are reasonable for the
Securities.
ARTICLE 11
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REDEMPTION OF NOTES
Section 11.1 Right of Redemption.
The Notes may be redeemed at the election of the Company, as a whole
or from time to time in part, at any time on or after January, 2000, at the
Redemption Prices specified in the form of Note hereinbefore set forth, together
with accrued interest to the Redemption Date.
Section 11.2 Applicability of Article.
Redemption of Notes at the election of the Company or otherwise, as
permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article Eleven.
Section 11.3 Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Notes pursuant to Section
11.1 shall be evidenced by a Board Resolution. In case of any redemption at the
election of the Company of less than all the Notes, the Company shall, at least
60 days prior to the Redemption Date fixed by the Company (unless a shorter
notice shall be satisfactory to the Trustee), notify the Trustee of such
Redemption Date and of the principal amount of Notes to be redeemed.
Section 11.4 Selection by Trustee of Notes to Be Redeemed.
If less than all the Notes are to be redeemed, the particular Notes to
be redeemed shall be selected not more than 30 days prior to the Redemption Date
by the Trustee, from the Outstanding Notes not previously called for redemption,
by lot, pro rata, or by such other method as the Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of portions
(equal to $1,000 or any integral multiple thereof) of the principal amount of
Notes of a denomination larger than $1,000.
If any Note selected for partial redemption is converted in part
before termination of the conversion right with respect to the portion of the
Note so selected, the converted portion of such Note shall be deemed (so far as
may be) to be the portion selected for redemption. Notes which have been
converted during a selection of Notes to be redeemed shall be treated by the
Trustee as Outstanding for the purpose of such selection.
The Trustee shall promptly notify the Company and each Note Registrar
in writing of the Notes selected for redemption
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and, in the case of any Notes selected for partial redemption, the principal
amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Notes shall relate, in
the case of any Notes redeemed or to be redeemed only in part, to the portion of
the principal amount of such Notes which has been or is to be redeemed.
Section 11.5 Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Notes to be redeemed, at such Holder's address appearing
in the Note Register.
All notices of redemption shall state:
(a) the Redemption Date
(b) the Redemption Price
(c) if less than all the Outstanding Notes are to be redeemed, the
identification (and, in the case of partial redemption, the principal amounts)
of the particular Notes to be redeemed,
(d) that on the Redemption Date the Redemption Price will become due and
payable upon each such Note to be redeemed and that interest thereon will cease
to accrue on and after said date,
(e) the Conversion Price, the date on which the right to convert the
principal of the Notes to be redeemed will terminate and the place or places
where such Notes may be surrendered for conversion, and
(f) the place or places where such Notes are to be surrendered for payment
of the Redemption Price and accrued interest, if any.
Notice of redemption of Notes to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
Section 11.6 Deposit of Redemption Price.
Not less than one Business Day prior to any Redemption Date, the
Company shall deposit with the Trustee or with a Paying
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Agent (or, if the Company is acting as its own Paying Agent, segregate and hold
in trust as provided in Section 10.3) an amount of money (which shall be in
immediately available funds on such Redemption Date) sufficient to pay the
Redemption Price of, and (except if the Redemption Date shall be an Interest
Payment Date) accrued interest on, all the Notes which are to be redeemed on
that date other than any Notes called for redemption on that date which have
been converted prior to the date of such deposit.
If any Note called for redemption is converted, any money deposited
with the Trustee or with any Paying Agent or so segregated and held in trust for
the redemption of such Note shall (subject to any right of the Holder of such
Note or any Predecessor Note to receive interest as provided in the last
paragraph of Section 3.7) be paid to the Company upon Company Request or, if
then held by the Company, shall be discharged from such trust.
Section 11.7 Notes Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Notes so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Notes shall cease to bear interest. Upon surrender of any such
Note for redemption in accordance with said notice, such Note shall be paid by
the Company at the Redemption Price, together with accrued interest to the
Redemption Date; provided, however, that installments of interest whose Stated
Maturity is on or prior to the Redemption Date shall be payable to the Holders
of such Notes, or one or more Predecessor Notes, registered as such at the close
of business on the relevant Record Dates according to their terms and the
provisions of Section 3.7.
If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any) shall, until paid,
bear interest from the Redemption Date at the rate of 5 3/4% per annum.
Section 11.8 Notes Redeemed in Part.
Any Note which is to be redeemed only in part shall be surrendered at
an office or agency of the Company designated for that purpose pursuant to
Section 10.2 (with, if the Company or the Trustee so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or his attorney duly authorized
in writing), and the Company shall execute, and the Trustee shall authenticate
and deliver to the Holder of such Note without service charge, a new Note or
Notes, of any
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authorized denomination as requested by such Holder, in aggregate principal
amount equal to and in exchange for the unredeemed portion of the principal of
the Note so surrendered.
ARTICLE 12
CONVERSION OF NOTES
Section 12.1 Conversion Privilege and Conversion Price.
Subject to and upon compliance with the provisions of this Article
Twelve, at the option of the Holder thereof, at any time after sixty (60) days
following the latest date of original issuance of the Notes and prior to the
close of business on the last Business Day prior to January 15, 2007 (unless
earlier redeemed or repurchased), any Note or any portion of the principal
amount thereof which is $1,000 or an integral multiple of $1,000, may be
converted at the principal amount thereof, or of such portion thereof, into
fully paid and nonassessable shares (calculated as to each conversion to the
nearest 1/100 of a share) of Common Stock of the Company, at the Conversion
Price, determined as hereinafter provided, in effect at the time of conversion.
In case a Note or portion thereof is called for redemption or is delivered for
repurchase, such conversion right in respect of the Note or portion so called
shall expire at the close of business on the fifth Business Day prior to the
Redemption Date, or the fifth Business Day preceding the Repurchase Date (as
defined in Article Fourteen), as the case may be, unless the Company defaults
in making the payment due upon redemption.
The price at which shares of Common Stock shall be delivered upon
conversion (herein called the "Conversion Price") shall be initially $45.625 per
share of Common Stock. The Conversion Price shall be adjusted in certain
instances as provided in Section 12.4.
Section 12.2 Exercise of Conversion Privilege.
In order to exercise the conversion privilege, the Holder of any Note
to be converted shall surrender such Note, duly endorsed or assigned to the
Company or in blank, at any office or agency of the Company maintained for that
purpose pursuant to Section 10.2, accompanied by written notice to the Company
at such office or agency that the Holder elects to convert such Note or, if less
than the entire principal amount thereof is to be converted, the portion thereof
to be converted. In the case of any Note that has been converted during the
period from the close of business on any Regular Record Date next preceding any
Interest Payment Date to the opening of business on such Interest Payment Date,
interest whose Stated Maturity is on such Interest Payment Date shall be payable
on such Interest
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Payment Date notwithstanding such conversion and such interest shall be paid to
the Holder of such Note on such Regular Record Date. Notes surrendered for
conversion during the period from the close of business on any Regular Record
Date next preceding any Interest Payment Date to the opening of business on such
Interest Payment Date (the "Interest Period") shall be accompanied by payment of
an amount equal to the interest payable on such Interest Payment Date on the
principal amount of Notes being surrendered for conversion; except that in the
case of Notes or portions thereof that have been called for redemption and,
pursuant to Section 12.1 hereof, as a result of such redemption, the right to
convert such Notes terminates during the Interest Period, any such Notes
surrendered for conversion during such Interest Period need not be accompanied
by payment of an amount equal to such interest. Except as provided in the second
preceding sentence and subject to the last paragraph of Section 3.7, no payment
or adjustment shall be made upon any conversion on account of any interest
accrued on the Notes surrendered for conversion or on account of any dividends
on the Common Stock issued upon conversion. All payments required by this
paragraph to be made by the Holder upon the surrender of Notes for conversion
shall be made in New York Clearing House Funds or other funds acceptable to the
Company.
Notes shall be deemed to have been converted immediately prior to the
close of business on the day of surrender of such Notes for conversion in
accordance with the foregoing provisions, and at such time the rights of the
Holders of such Notes as Holders shall cease, and the Person or Persons
entitled to receive the Common Stock issuable upon conversion shall be treated
for all purposes as the record holder or holders of such Common Stock at such
time. As promptly as practicable on or after the conversion date, the Company
shall issue and shall deliver at such office or agency a certificate or
certificates for the number of full shares of Common Stock issuable upon
conversion, together with payment in lieu of any fraction of a share, as
provided in Section 12.3.
In the case of any Note which is converted in part only, upon such
conversion the Company shall execute and the Trustee shall authenticate and
deliver to the Holder thereof, at the expense of the Company, a new Note or
Notes of authorized denominations in aggregate principal amount equal to the
unconverted portion of the principal amount of such Note.
Section 12.3 Fractions of Shares.
No fractional shares of Common Stock shall be issued upon conversion
of Notes. If more than one Note shall be surrendered for conversion at one time
by the same Holder, the number of full shares which shall be issuable upon
conversion
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thereof shall be computed on the basis of the aggregate principal amount of the
Notes (or specified portions thereof) so surrendered. Instead of any fractional
share of Common Stock which would otherwise be issuable upon conversion of any
Note or Notes (or specified portions thereof), the Company shall pay a cash
adjustment in respect of such fraction in an amount equal to the same fraction
of the market price per share of Common Stock as reasonably determined by the
Company at the close of business on the day of conversion.
Section 12.4 Adjustment of Conversion Price.
The Conversion Price shall be subject to adjustments from time to time
as follows:
(a) In case the Company shall pay or make a dividend or other distribution
on any class of capital stock of the Company in Common Stock, the Conversion
Price in effect at the opening of business on the day following the date fixed
for the determination of stockholders entitled to receive such dividend or other
distribution shall be reduced by multiplying such Conversion Price by a fraction
of which the numerator shall be the number of shares of Common Stock outstanding
at the close of business on the date fixed for such determination and the
denominator shall be the sum of such number of shares and the total number of
shares constituting such dividend or other distribution, such reduction to
become effective immediately after the opening of business on the day following
the date fixed for such determination. For the purposes of this paragraph (a),
the number of shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Company but shall include shares issuable in
respect of scrip certificates issued in lieu of fractions of shares of Common
Stock. The Company will not pay any dividend or make any distribution on shares
of Common Stock held in the treasury of the Company.
(b) Subject to 12.4(j), in case the Company shall issue rights, options or
warrants to all holders of its Common Stock entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the current
market price per share (determined as provided in paragraph (h) of this Section
12.4) of the Common Stock on the record date fixed for the determination of
stockholders entitled to receive such rights, options or warrants, the
Conversion Price in effect at the opening of business on the day following the
date fixed for such determination shall be reduced by multiplying such
Conversion Price by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding at the close of business on the date fixed
for such determination plus the number of shares of Common Stock which the
aggregate of the offering price of the total number of shares of Common Stock so
offered for
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subscription or purchase would purchase at such current market price and the
denominator shall be the number of shares of Common Stock outstanding at the
close of business on the date fixed for such determination plus the number of
shares of Common Stock so offered for subscription or purchase, such reduction
to become effective immediately after the opening of business on the day
following the date fixed for such determination. For the purposes of this
paragraph (b), the number of shares of Common Stock at any time outstanding
shall not include shares held in the treasury of the Company but shall include
shares issuable in respect of scrip certificates issued in lieu of fractions of
shares of Common Stock. The Company will not issue any rights, options or
warrants in respect of shares of Common Stock held in the treasury of the
Company.
(c) In case outstanding shares of Common Stock shall be subdivided into a
greater number of shares of Common Stock, the Conversion Price in effect at the
opening of business on the day following the day upon which such subdivision
becomes effective shall be proportionately reduced, and, conversely, in case
outstanding shares of Common Stock shall each be combined into a smaller number
of shares of Common Stock, the Conversion Price in effect at the opening of
business on the day following the day upon which such combination becomes
effective shall be proportionately increased, such reduction or increase, as the
case may be, to become effective immediately after the opening of business on
the day following the day upon which such subdivision or combination becomes
effective.
(d) In case the Company shall, by dividend or otherwise, distribute to all
holders of its Common Stock evidences of its indebtedness, shares of any class
of capital stock, cash or assets (including Notes, but excluding any (i) rights,
options or warrants referred to in paragraph (b) of this Section 12.4, (ii) any
dividend or distribution paid exclusively in cash, (iii) any dividend or
distribution referred to in paragraph (a) of this Section 12.4 and (iv) any
merger or consolidation to which Section 12.11 applies), the Conversion Price
shall be adjusted so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the close of
business on the date fixed for the determination of stockholders entitled to
receive such distribution by a fraction of which the numerator shall be the
current market price per share (determined as provided in paragraph (h) of this
Section 12.4) of the Common Stock on the date fixed for such determination less
the then fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a Board Resolution filed with
the Trustee) of the portion of the assets, shares or evidences of indebtedness
so distributed applicable to one share of Common Stock and the denominator shall
be such current market price per share of the Common Stock, such
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adjustment to become effective immediately prior to the opening of business on
the day following the date fixed for the determination of stockholders entitled
to receive such distribution.
(e) In case the Company shall, by dividend or otherwise, distribute to all
holders of its Common Stock cash (excluding any cash that is distributed upon a
merger or consolidation to which Section 12.11 applies or as part of a
distribution referred to in paragraph (d) of this Section 12.4) in an aggregate
amount that, combined together with (i) the aggregate amount of any other
distributions to all holders of its Common Stock made exclusively in cash within
the 12 months preceding the date of payment of such distribution and in respect
of which no adjustment pursuant to this paragraph (e) has been made and (ii) the
aggregate of any cash plus the fair market value (as determined by the Board of
Directors, whose determination shall be conclusive and shall be described in a
Board Resolution) of consideration payable in respect of any tender offer by the
Company or any of its Subsidiaries for all or any portion of the Common Stock
concluded within the 12 months preceding the date of payment of such
distribution and in respect of which no adjustment pursuant to paragraph (f) of
this Section 12.4 has been made, exceeds 15% of the current market price per
share of the Common Stock on the date for the determination of holders of shares
of Common Stock entitled to receive such distribution multiplied by the number
of shares of Common Stock outstanding on such date, then, and in each such case,
immediately after the close of business on such date for determination, the
Conversion Price shall be adjusted so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately prior to
the close of business on the date fixed for determination of the stockholders
entitled to receive such distribution by a fraction (1) the numerator of which
shall be equal to the current market price per share (determined as provided in
paragraph (h) of this Section 12.4) of the Common Stock on the date fixed for
such determination less an amount equal to the quotient of (x) the excess of
such combined amount over such 15% and (y) the number of shares of Common Stock
outstanding on such date for determination and (2) the denominator of which
shall be equal to the current market price per share (determined as provided in
paragraph (h) of this Section 12.4) of the Common Stock on such date for
determination.
(f) In case a tender offer made by the Company or any Subsidiary for all
or any portion of the Common Stock shall expire and such tender offer (as
amended upon the expiration thereof) shall require the payment to stockholders
(based on the acceptance, up to any maximum specified in the terms of the tender
offer, of Purchased Shares as defined below) of an aggregate consideration
having a fair market value (as determined
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by the Board of Directors, whose determination shall be conclusive and shall be
described in a Board Resolution) that combined together with (i) the aggregate
of the cash plus the fair market value (as determined by the Board of Directors,
whose determination shall be conclusive and shall be described in a Board
Resolution), as of the expiration of such tender offer, of consideration payable
in respect of any other tender offer by the Company or any Subsidiary for all or
any portion of the Common Stock expiring within the 12 months preceding the
expiration of such tender offer and in respect of which no adjustment pursuant
to this paragraph (f) has been made and (ii) the aggregate amount of any
distributions to all holders of the Company's Common Stock made exclusively in
cash within 12 months preceding the expiration of such tender offer and in
respect of which no adjustment pursuant to paragraph (e) of this Section has
been made, exceeds 15% of the current market price per share of the Common Stock
(determined as provided in paragraph (h) of this Section 12.4) as of the last
time (the "Expiration Time") tenders could have been made pursuant to such
tender offer (as it may be amended) times the number of shares of Common Stock
outstanding (including any tendered shares) as of the Expiration Time, then, and
in each such case, immediately prior to the opening of business on the day after
the date of the Expiration Time, the Conversion Price shall be adjusted so that
the same shall equal the price determined by multiplying the Conversion Price
immediately prior to close of business on the date of the Expiration Time by a
fraction (1) the numerator of which shall be equal to (x) the product of (A) the
current market price per share of the Common Stock (determined as provided in
paragraph (h) of this Section) on the date of the Expiration Time and (B) the
number of shares of Common Stock outstanding (including any tendered shares) on
the Expiration Time less the amount of cash plus the fair market value
(determined as aforesaid) of the aggregate consideration payable to stockholders
based on the acceptance (up to any maximum specified in the terms of the tender
offer) of Purchased Shares, and (2) the denominator of which shall be equal to
the product of (A) the current market price per share of the Common Stock
(determined as provided in paragraph (h) of this Section) as of the Expiration
Time and (B) the number of shares of Common Stock outstanding (including any
tendered shares) as of the Expiration Time less the number of all shares validly
tendered and not withdrawn as of the Expiration Time (the shares deemed so
accepted up to any such maximum, being referred to as the "Purchased Shares").
(g) The reclassification of Common Stock into securities including other
than Common Stock (other than any reclassification upon a consolidation or
merger to which Section 12.11 applies) shall be deemed to involve (i) a
distribution of such securities other than Common Stock to all holders of Common
Stock (and the effective date of such reclassification shall be
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deemed to be "the date fixed for the determination of stockholders entitled to
receive such distribution" and "the date fixed for such determination" within
the meaning of paragraph (d) of this Section 12.4), and (ii) a subdivision or
combination, as the case may be, of the number of shares of Common Stock
outstanding immediately prior to such reclassification into the number of shares
of Common Stock outstanding immediately thereafter (and the effective date of
such reclassification shall be deemed to be "the day upon which such subdivision
becomes effective" or "the day upon which such combination becomes effective,"
as the case may be, and "the day upon which such subdivision or combination
becomes effective" within the meaning of paragraph (c) of this Section 12.4).
(h) For the purpose of any computation under paragraphs (b), (d), (e) and
(f) of this Section 12.4, the current market price per share of Common Stock on
any date shall be deemed to be the average of the daily Closing Prices for the
five consecutive Trading Days selected by the Company commencing not more than
ten Trading Days before the day in question.
(i) The Company may make such reductions in the Conversion Price, in
addition to those required by paragraphs (a), (b), (c), (d), (e) and (f) of this
Section, as it considers to be advisable, which determination shall be
conclusive.
(j) Notwithstanding the foregoing, (i) if the options, rights or warrants
described in Section 12.4(b) above are exercisable only upon the occurrence of
certain triggering events, then the conversion price will not be adjusted until
such triggering events occur and (ii) if such options, rights or warrants expire
unexercised, the conversion price will be readjusted to take into account only
the actual number of such options, rights or warrants which were exercised. In
addition, the provisions of Section 12.4(a), (b), (c), (d), (e) and (f) will not
apply to the issuance of Common Stock or the issuance or exercise of options to
purchase Common Stock under any stock-based employee compensation plan now
existing or hereafter adopted.
(k) In the event of a pro rata distribution to holders of Common Stock of
rights to subscribe for additional shares of Common Stock (other than those
referred to in Section 12.4(b) above) or of evidences of indebtedness or assets
as provided in Section 12.4(d) above, the Company may, instead of making any
adjustment in the Conversion Price, make proper provision so that each Holder of
a Note who converts such Note (or a portion thereof) after the record date for
such distribution and prior to the expiration or redemption of such rights shall
be entitled to receive upon conversion, in addition to the shares of Common
Stock issuable upon conversion, an appropriate number of such rights, evidences
of indebtedness or assets, as the case may be,
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as if such Holders had converted the Notes immediately before the Record Date
for any such distribution.
(l) Notwithstanding any other provision of this Section 12.4, the Company
shall not be required to make any adjustment of the Conversion Price unless such
adjustment (together with any prior adjustments that were not made as a result
of this clause (l)) would require an increase or decrease of at least 1% of such
Conversion Price.
(m) Notwithstanding any other provision of this Section 12.4, no
adjustment to the Conversion Price shall reduce the Conversion Price below the
then par value per share of the Common Stock, and any such purported adjustment
shall instead reduce the Conversion Price to such par value. The Company hereby
covenants not to take any action (i) to increase the par value per share of the
Common Stock or (ii) that would or does result in any adjustment in the
Conversion Price that, if made without giving effect to the previous sentence,
would cause the Conversion Price to be less than the then par value per share of
the Common Stock; provided, that the covenant in this sentence shall be
suspended if within 10 days of determining in good faith that such action would
result in such adjustment (but not later than the Business Day following the
effectiveness of such adjustment), the Company gives a notice under Section 11.3
and effects the redemption referred to in such notice on the Redemption Date
referred to therein.
Section 12.5 Notice of Adjustments of Conversion Price.
Whenever the Conversion Price is adjusted as herein provided:
(i) the Company shall compute the adjusted Conversion Price in accordance
with Section 12.4 and shall prepare a certificate signed by the Treasurer of the
Company setting forth the adjusted Conversion Price and showing in reasonable
detail the facts upon which such adjustment is based, and such certificate shall
forthwith be filed with the Trustee and at each office or agency maintained for
the purpose of conversion of Notes pursuant to Section 10.2; and (ii) a notice
stating that the Conversion Price has been adjusted and setting forth the
adjusted Conversion Price shall forthwith be required, and as soon as
practicable after it is required, such notice shall be mailed by the Company to
all Holders at their last addresses as they shall appear in the Note Register.
Section 12.6 Notice of Certain Corporate Action.
In case:
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(a) the Company shall declare a dividend (or any other distribution) on
its Common Stock payable (i) otherwise than exclusively in cash or (ii)
exclusively in cash in an amount that would require any adjustment pursuant to
Section 12.4; or
(b) the Company shall authorize the granting to the holders of its Common
Stock of rights, options or warrants to subscribe for or purchase any shares of
capital stock of any class or of any other rights (excluding stock-based
employee compensation plans); or
(c) of any reclassification of the Common Stock of the Company (other than
a subdivision or combination of its outstanding shares of Common Stock), or of
any consolidation or merger to which the Company is a party and for which
approval of any stockholders of the Company is required, or of the sale or
transfer of all or substantially all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or winding up
of the Company; or
(e) the Company or any Subsidiary shall commence a tender offer for all or
a portion of the Company's outstanding shares of Common Stock (or shall amend
any such tender offer);
then the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of Notes pursuant to Section 10.2, and
shall cause to be mailed to all Holders at their last addresses as they shall
appear in the Note Register, at least 20 days (or 10 days in any case specified
in clause (a), (b) or (e) above) prior to the applicable record or effective
date hereinafter specified, a notice stating (i) the date on which a record is
to be taken for the purpose of such dividend, distribution, rights, options or
warrants, or, if a record is not to be taken, the date as of which the holders
of Common Stock of record to be entitled to such dividend, distribution, rights,
options or warrants are to be determined, (ii) the date on which such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up, or (iii) the date on which such tender
offer commenced, the date on which such tender offer is scheduled to expire
unless extended, the consideration offered and the other material terms thereof
(or the material terms of any amendment thereto).
Section 12.7 Company to Reserve Common Stock.
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The Company shall at all times reserve and keep available, free from
pre-emptive rights, out of its authorized but unissued Common Stock, for the
purpose of effecting the conversion of Notes, the full number of shares of
Common Stock then issuable upon the conversion of all Outstanding Notes.
Section 12.8 Taxes on Conversions.
The Company will pay any and all taxes that may be payable in respect
of the issue or delivery of shares of Common Stock on conversion of Notes
pursuant hereto. The Company shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issue and
delivery of shares of Common Stock in a name other than that of the Holder of
the Note or Notes to be converted, and no such issue or delivery shall be made
unless and until the Person requesting such issue has paid to the Company the
amount of any such tax, or has established to the satisfaction of the Company
that such tax has been paid.
Section 12.9 Covenant as to Common Stock.
The Company covenants that all shares of Common Stock which may be
issued upon conversion of Notes will upon issue be fully paid and nonassessable
and, except as provided in Section 12.8, the Company will pay all taxes, liens
and charges with respect to the issue thereof.
Section 12.10 Cancellation of Converted Notes.
All Notes delivered for conversion shall be delivered to the Trustee
to be cancelled by or at the direction of the Trustee, which shall dispose of
the same as provided in Section 3.9.
Section 12.11 Provisions in Case of Consolidation, Merger or Sale of
Assets.
In case of any consolidation of the Company with, or merger of the
Company into, any other Person, any merger of another Person into the Company
(other than a merger which does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Common Stock of the Company)
or any sale or transfer of all or substantially all of the assets of the
Company, the Person formed by such consolidation or resulting from such merger
or which acquires such assets, as the case may be, shall execute and deliver to
the Trustee a supplemental indenture providing that the Holder of each Note then
outstanding shall have the right thereafter, during the period such Note shall
be convertible as specified in Section 12.1, to convert such Note only into the
kind and amount
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of securities, cash and other property receivable upon such consolidation,
merger, sale or transfer by a holder of the number of shares of Common Stock of
the Company into which such Note might have been converted immediately prior to
such consolidation, merger, sale or transfer, assuming such holder of Common
Stock of the Company (i) is not a Person with which the Company consolidated or
into which the Company merged or which merged into the Company or to which such
sale or transfer was made, as the case may be ("Constituent Person"), or an
Affiliate of a Constituent Person and (ii) failed to exercise his rights of
election, if any, as to the kind or amount of securities, cash and other
property receivable upon such consolidation, merger, sale or transfer (provided
that if the kind or amount of securities, cash and other property receivable
upon such consolidation, merger, sale or transfer is not the same for each share
of Common Stock of the Company held immediately prior to such consolidation,
merger, sale or transfer by others than a Constituent Person or an Affiliate
thereof and in respect of which such rights of election shall not have been
exercised ("non-electing share"), then for the purpose of this Section the kind
and amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer by each non-electing share shall be
deemed to be the kind and amount so receivable per share by a plurality of the
non-electing shares). Such supplemental indenture shall provide for adjustments
which, for events subsequent to the effective date of such supplemental
indenture, shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article. The above provisions of this Section
shall similarly apply to successive consolidations, mergers, sales or transfers.
Section 12.12 Responsibility of Trustee for Conversion Provisions.
The Trustee, subject to the provisions of Section 6.1 and any
Conversion Agent shall not at any time be under any duty or responsibility to
any Holder of Securities to determine whether any facts exist which may require
any adjustment of the Conversion Price, or with respect to the nature or extent
of any such adjustment when made, or with respect to the method employed herein
or in any supplemental indenture provided to be employed, in making the same, or
whether a supplemental indenture need to be entered into. Neither the Trustee,
subject to the provisions of Section 6.1, nor any Conversion Agent shall be
accountable with respect to the validity or value (or the kind or amount) of
any Common Stock, or of any other securities or property or cash, which may at
any time be issued or delivered upon the conversion of any Note; and it or they
do not make any representation with respect thereto. Neither the Trustee,
subject to the provisions of Section 6.1, nor any Conversion Agent shall be
responsible for any failure of the Company to make or calculate any cash payment
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or to issue, transfer, or deliver any shares of Common Stock or share
certificates or other securities or property or cash upon the surrender of any
Note for the purpose of conversion; and the Trustee, subject to the provisions
of Section 6.1, and any Conversion Agent shall not be responsible for any
failure of the Company to comply with any of the covenants of the Company
contained in this Article Twelve. The Trustee may conclusively rely upon the
last Treasurer's certificate filed with it pursuant to Section 12.5(i) as to the
Conversion Price then in effect.
ARTICLE 13
SUBORDINATION OF NOTES
Section 13.1 Securities Subordinate to Senior Indebtedness.
The Company covenants and agrees, and each Holder of a Note, by his
acceptance thereof, likewise covenants and agrees, that, to the event and in the
manner hereinafter set forth in this Article Thirteen (subject to the provisions
of Article Four), the indebtedness represented by the Notes and the payment of
the principal of (and premium, if any) and interest on each and all of the Notes
are hereby expressly made subordinate and subject in right of payment to the
prior payment in full of all Senior Indebtedness. Whenever in this Article
Thirteen there is a reference, in any context, to the principal of any Note as
of any time, such reference shall be deemed to include reference to the
Repurchase Price or Redemption Price payable in cash in respect of such Note to
the event that such Repurchase Price or Redemption Price payable in cash is, was
or would be so payable at such time, and express mention of the Repurchase Price
and the Redemption Price in any provision of this Article Thirteen shall not be
construed as excluding the Repurchase Price or Redemption Price payable in cash
in those provisions of this Article Thirteen when such express mention is not
made. This Article Thirteen is made for the benefit of existing and future
holders of Senior Indebtedness, and such holders are made obligees hereunder and
they or each of them may enforce such provisions.
Section 13.2 No Payments in Certain Circumstances; Payment Over of
Proceeds Upon Dissolution, Etc.
No payment (with the exception of payment in Junior Securities, if
acceptable to the Note Holders in their individual discretion) on account of
principal of, premium, if any, or interest on, or redemption or repurchase of,
the Notes shall be made if, at the time of such payment or immediately after
giving effect thereto: (i) a default in the payment of principal, premium, if
any, or interest or other amounts due on any Senior Indebtedness occurs and is
continuing (or, in the case of Senior
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Indebtedness for which there is a period of grace, in the event of such a
default that continues beyond the period of grace specified in the instrument or
lease evidencing such Senior Indebtedness), unless and until such default shall
have been cured or waived in accordance with the agreements evidencing such
Senior Indebtedness or shall have otherwise ceased to exist; or (ii) a default,
other than a payment default, on any Designated Senior Indebtedness occurs and
is continuing that then permits holders of such Designated Senior Indebtedness
to accelerate the maturity thereof and the Trustee receives a notice of the
default (a "Payment Blockage Notice") from any lender of such Designated Senior
Indebtedness (or agent bank on behalf of such lender). Notwithstanding the
foregoing, the Company may make, and the Trustee may receive and shall apply,
any payment in respect of the Notes (for principal, premium, if any, or interest
or redemption or repurchase) if such payment was made prior to the occurrence of
any of the contingencies specified in clauses (i) and (ii) above.
If the Trustee receives any Payment Blockage Notice pursuant to clause
(ii) above, no subsequent Payment Blockage Notice shall be effective for
purposes of this Section 13.2 unless and until (A) at least 365 days shall have
elapsed since the effectiveness of the immediately prior Payment Blockage
notice, and (B) all scheduled payments of principal, premium, if any, and
interest on the Notes that have come due have been paid in full in cash. No
nonpayment default that existed or was continuing on the date of delivery of any
Payment Blockage Notice to the Trustee shall be, or be made, the basis for a
subsequent Payment Blockage Notice.
The Company may and shall resume payments on and distributions in
respect of the Notes upon the earlier of: (i) in the case of a payment default,
the date upon which the default is cured or waived in accordance with the
agreements evidencing the Senior Indebtedness with respect to which such payment
default occurred, or (ii) in the case of a nonpayment default, the earlier of
the date on which such default is cured or waived in accordance with the
agreements evidencing the Senior Indebtedness with respect to which such default
occurred or 179 days after the applicable Payment Blockage Notice is received.
In the event of (i) any insolvency or bankruptcy case or proceeding,
or any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relative to the Company or to its creditors,
as such, or to its assets, or (ii) any liquidation, dissolution or other winding
up of the Company, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or
any other marshaling of assets
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and liabilities of the Company, then and in any such event the holders of Senior
Indebtedness shall be entitled to receive payment in full of all amounts due or
to become due on or in respect of all Senior Indebtedness in cash or other
immediately available funds, or provision shall be made for such payment in cash
or other immediately available funds or otherwise in a manner satisfactory to
each holder of Senior Indebtedness with respect to its indebtedness, before the
Holders of the Securities are entitled to receive any payment (with the
exception of payment in Junior Securities, if acceptable to the Holders in their
individual discretion) on account of principal or (or premium, if any) or
interest on the Notes, and to that end the holders of Senior Indebtedness shall
be entitled to receive, for any application to the payment thereof, any payment
or distribution of any kind or character, whether in cash, property or
securities, which may be payable or deliverable in respect of the Notes in any
such case.
In the event that, notwithstanding the foregoing provisions of this
Section 13.2, the Trustee or the Holder of any Note shall have received any
payment or distribution of assets of the Company of any kind or character,
whether in cash, securities or other property, before all Senior Indebtedness is
paid in full or payment thereof provided for, and if such fact shall, at or
prior to the time of such payment or distribution, have been made known to the
Trustee or, as the case may be, such Holder, then in such event such payment or
distribution shall be paid over or delivered forthwith to the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other
Person making payment or distribution of assets of the Company for application
to the payment of all Senior Indebtedness remaining unpaid, to the extent
necessary to pay all Senior Indebtedness in full, after giving effect to any
concurrent payment or distribution to or for the holders of Senior Indebtedness.
For purposes of this Article only, the words, "cash, securities or
other property" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment which shares of stock
are subordinated in right of payment to all then outstanding Senior Indebtedness
to substantially the same extent as, or to a greater event than, the Securities
are so subordinated as provided in this Article Thirteen.
The consolidation of the Company with, or the merger of the Company
into, another Person or the liquidation or dissolution of the Company following
the transfer of all or substantially all of its properties and assets to another
Person upon the terms and conditions set forth in Article Eight shall not be
deemed a dissolution, winding up, liquidation,
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reorganization, assignment for the benefit of creditors or marshaling of assets
and liabilities, of the Company for the purposes of this Section 13.2 if the
Person formed by such consolidation or into which the Company is merged or which
acquires by transfer all or substantially all of such properties and assets, as
the case may be, shall, as a part of such consolidation, merger or transfer,
comply with the conditions set forth in Article Eight.
Section 13.3 Prior Payment to Senior Indebtedness Upon Acceleration of
Notes.
In the event that any Notes are declared due and payable before their
Stated Maturity, then and in such event the holders of the Senior Indebtedness
outstanding at the time such Notes so become due and payable shall be entitled
to receive (i) prompt written notice of such acceleration of the Notes, and (ii)
payment in full of all amounts due or to become due on or in respect of such
Senior Indebtedness, or, with respect to this clause (ii) provision shall be
made for such payment in money or monies worth, before the Holders of the Notes
are entitled to receive any payment (with the exception of payment in Junior
Securities, if acceptable to the Note Holders in their individual discretion) by
the Company on account of the principal of (or premium, if any) or interest on
the Notes or on account of the purchase or other acquisition of Notes.
In the event that, notwithstanding the foregoing, the Company shall
make any payment to the Trustee or the Holder of any Note prohibited by the
foregoing provisions of this Section 13.3 of such fact shall, at or prior to the
time of such payment, have been made known to the Trustee, or, as the case may
be, such Holder, then and in such event such payment shall be paid over and
delivered forthwith to the holders of Senior Indebtedness, or as a court of
competent jurisdiction shall direct, for application to the payment of any due
and unpaid Senior Indebtedness, to the extent necessary to pay all such due and
unpaid Senior Indebtedness in cash or other immediately available funds, after
giving effect to any concurrent payment to or for the holders of Senior
Indebtedness.
The provisions of this Section shall not apply to any payment with
respect to which Section 13.2 would be applicable.
Section 13.4 Payment Permitted if No Default.
Nothing contained in this Article Thirteen or elsewhere in this
Indenture or in any of the Notes shall prevent (a) the Company, at any time
except during the pendency of any case, proceeding, dissolution, liquidation or
other winding up,
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assignment for the benefit of creditors or other marshaling of assets and
liabilities of the Company referred to in Section 13.2 or under the conditions
described in Section 13.3, from making payments at any time of principal of
(premium, if any) or interest on the Notes, or (b) the application by the
Trustee of any money deposited with it hereunder to the payment of or on account
of the principal of (and premium, if any) or interest on the Notes or the
retention of such payment by the Holders, if, at the time of such application by
the Trustee, it did not have knowledge that such payment would have been
prohibited by the provisions of this Article Thirteen.
Section 13.5 Subrogation to Rights to Holders of Senior Indebtedness.
Subject to the payment in full of all Senior Indebtedness, the Holders
of the Notes shall be subrogated to the extent of the payments or distributions
made to the holders of such Senior Indebtedness pursuant to the provisions of
this Article Thirteen to the rights of the holders of such Senior Indebtedness
to receive payments and distributions of cash, property and securities
applicable to the Senior Indebtedness until the principal of (and premium, if
any) and interest on the Notes shall be paid in full. For purposes of such
subrogation, no payment or distributions to the holders of the Senior
Indebtedness of any cash, property or securities to which the Holders of the
Notes or the Trustee would be entitled except for the provisions of this Article
Thirteen, and no payments over pursuant to the provisions of this Article
Thirteen to the holders of Senior Indebtedness by Holders of the Notes or the
Trustee, shall, as among the Company, its creditors other than holders of Senior
Indebtedness and the Holders of the Notes, be deemed to be a payment or
distribution by the Company to or on account of the Senior Indebtedness.
Section 13.6 Provisions Solely to Define Relative Rights.
The provisions of this Article Thirteen are and are intended solely
for the purpose of defining the relative rights of the Holders of the Notes on
the one hand and the holders of Senior Indebtedness on the other hand. Nothing
contained in this Article or elsewhere in this Indenture or in the Notes is
intended to or shall (a) impair, as among the Company, its creditors other than
holders of Senior Indebtedness and the Holders of the Securities, the obligation
of the Company, which is absolute and unconditional, to pay to the Holders of
the Notes the principal of (premium, if any) and interest on the Notes as and
when the same shall become due and payable in accordance with their terms; or
(b) affect the relative rights against the Company of the Holders of the Notes
and creditors of the Company other than the holders of Senior Indebtedness; or
(c) prevent the
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Trustee or the Holder of any Note from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, subject to the
rights, if any, under this Article Thirteen of the holders of Senior
Indebtedness to receive cash, property, and securities otherwise payable or
deliverable to the Trustee or such Holder.
Section 13.7 Trustee to Effectuate Subordination.
Each holder of a Note by his acceptance thereof authorizes and directs the
Trustee on his behalf to take such action as may be necessary or appropriate to
effectuate the subordination provided in this Article and appoints the Trustee
his attorney-in-fact for any and all such purposes.
Section 13.8 No Waiver of Subordination Provisions.
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder of any Senior
Indebtedness, or by any non-compliance by the Company with the terms, provisions
and covenants of this Indenture, regardless of any knowledge thereof any such
holder may have or be otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph, the
holders of Senior Indebtedness may, at any time and from time to time, without
the consent of or notice to the Trustee or the Holders of the Notes, without
incurring responsibility to the Holders of the Notes or the obligations
hereunder of the Holders of the Notes to the holders of Senior Indebtedness, do
any one or more of the following: (i) change the manner, place or terms of
payment, or the amount of interest, fees or other amounts payable in respect of,
or extend the time of payment of, or renew, increase, or otherwise alter, Senior
Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness
or any instrument evidencing the same or any agreement under which Senior
Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii)
release any Person liable in any manner for the payment or collection of Senior
Indebtedness; (iv) exercise or refrain from exercising any rights or remedies
against the Company or any other Person; (v) give or fail to give any notice, or
take or fail to take any other action, required by law, by agreement or
otherwise to preserve the rights of any holder of Senior Indebtedness against
the Company or any other Person liable in respect of Senior Indebtedness or with
respect to any property pledged, mortgaged, or otherwise subject to a security
interest
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or lien securing Senior Indebtedness; (vi) perform or fail to perform any
obligation of such holders of Senior Indebtedness under any instrument or
agreement evidencing, guaranteeing, securing or otherwise affecting or relating
to Senior Indebtedness; or (vii) take or fail to take any action that might
otherwise constitute a defense available to, or a discharge of, the Company or
any other Person liable in respect of Senior Indebtedness.
Section 13.9 Notice to Trustee
The Company shall give prompt written notice to the Trustee of any
insolvency or bankruptcy proceeding in respect of the Company, of and
proceedings for voluntary liquidation, dissolution, or other winding up of the
Company (whether or not involving insolvency or bankruptcy), or of any fact
known to the Company which would prohibit the making of any payment to or by the
Trustee in respect of the Notes. Notwithstanding the provisions of this Article
Thirteen or any other provisions of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of or payment to or by the Trustee in respect of the Notes, unless and
until the Trustee shall have received written notice thereof from the Company or
a holder of Senior Indebtedness or from any trustee therefor; and, prior to the
receipt of any such written notice, the Trustee, subject to the provisions of
Section 6.1, shall be entitled in all respects to assume that no such facts
exist; provided that if the Trustee shall not have received the notice provided
for in this Section 13.9 at least two Business Days prior to the date upon which
by the terms hereof any money may become payable for any purpose (including,
without limitation, the payment of the principal of (premium, if any) or
interest on any Note), then, anything herein contained to the contrary
notwithstanding, the Trustee shall have full power and authority to receive such
money and to apply the same to the purpose for which such money was received and
shall not be affected by any notice to the contrary which may be received by it
within two Business Days prior to such date.
Notwithstanding anything in this Article Thirteen to the contrary, nothing
shall prevent any payment by the Trustee to the Holders of monies deposited with
it pursuant to Section 4.1, and any such payment shall not be subject to the
provisions of Section 13.2 or 13.3.
Subject to the provision of Section 6.1, the Trustee shall be entitled to
rely on the delivery to it of a written notice by a Person representing himself
to be a holder of Senior Indebtedness (or an agent bank or a trustee therefor)
to establish that such notice has been given by a holder of Senior Indebtedness
(or any agent bank or a trustee therefor). In the
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event that the Trustee determines in good faith that further evidence is
required with respect to the right of any Person as a holder of Senior
Indebtedness to participate in any payment or distribution pursuant to this
Article, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such Person under this Article Thirteen, and if such evidence is not furnished,
the Trustee may defer any payment to such Person pending judicial determination
as to the right of such Person to receive such payment.
Section 13.10 Reliance on Judicial Order or Certificate of Liquidating
Agent.
Upon any payment or distribution of assets of the Company referred to in
this Article Thirteen, the Trustee, subject to the provisions of Section 6.1,
and the Holders of the Notes shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization, dissolution, winding up
or similar case or proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other Person making such payment or distribution,
delivered to the Trustee or to the Holders of Notes, for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of the Senior Indebtedness and other indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article
Thirteen.
Section 13.11 Trustee Not Fiduciary for Holders of Senior Indebtedness.
The Trustee shall not be deemed to owe any fiduciary duty to the holders of
Senior Indebtedness and shall not be liable to any such holders if it shall in
good faith mistakenly pay over or distribute to Holders of Notes or to the
Company or to any other Person cash, property or securities to which any holders
of Senior Indebtedness shall be entitled by virtue of this Article or otherwise.
Section 13.12 Rights of Trustee as Holder of Senior Indebtedness;
Preservation of Trustee's Rights
The Trustee in its individual capacity shall be entitled to all the rights
set forth in this Article Thirteen with respect to any Senior Indebtedness which
may at any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and
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nothing in this Indenture shall deprive the Trustee of any of its rights as such
holder.
Nothing in this Article Thirteen shall apply to claims of, or payments to,
the Trustee under or pursuant to Section 6.7.
Section 13.13 Article Applicable to Paying Agents
In case at any time any Paying Agent other than the Trustee shall have been
appointed by the Company and be then acting hereunder, the term "Trustee" as
used in this Article shall in such case (unless the contest otherwise requires)
be construed as extending to and including such Paying Agent within its meaning
as fully for all intents and purposes as if such Paying Agent were named in this
Article in addition to or in place of the Trustee; provided that Section 13.12
shall not apply to the Company or any Affiliate of this Company if it or such
Affiliate acts as Paying Agent.
Section 13.14 Certain Conversions Deemed Payment
For the purposes of this Article Thirteen only: (1) the issuance and
delivery of Junior Securities upon conversion of Notes in accordance with
Article Twelve or upon the repurchase of Notes in accordance with Article
Fourteen shall not be deemed to constitute a payment or distribution on account
of the principal of or premium or interest on Notes or on account of the
purchase or other acquisition of Notes, and (2) the payment, issuance or
delivery of cash, property or securities (other than Junior Securities) upon
conversion of a Note shall be deemed to constitute payment on account of the
principal of such Note.
Nothing contained in this Article Thirteen or elsewhere in this
Indenture or in the Notes is intended to or shall impair, as among the Company,
its creditors (other than holders of Senior Indebtedness) and the Holders of the
Notes, the right, which is absolute and unconditional, of the Holder of any Note
to convert such Note in accordance with Article Twelve or to exchange such Note
for Common Stock in accordance with Article Fourteen, if the Company elects to
satisfy its obligation under Article Fourteen by the delivery of Common Stock.
ARTICLE 14
REPURCHASE OF NOTES AT THE OPTION
OF THE HOLDER UPON A CHANGE IN CONTROL
Section 14.1 Right to Require Repurchase.
In the event that a Change in Control (as hereinafter defined) shall
occur, then each Holder shall have the right, at
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the Holder's option, to require the Company to repurchase, and upon the exercise
of such right the Company shall repurchase, all of such Holder's Notes, or any
portion of the principal amount thereof that is an integral multiple of $1,000,
on the date (the "Repurchase Date") that is 45 days after the date of the
Company Notice (as defined in Section 14.2) at a purchase price equal to 100% of
the principal amount of the Notes to be repurchased (the "Repurchase Price"),
together in each case with accrued interest to the Repurchase Date. Such right
to require the repurchase of the Notes shall not continue after a discharge of
the Company from its obligations with respect to the Notes in accordance with
Article Four, unless a Change in Control shall have occurred prior to such
discharge. At the option of the Company, the Repurchase Price may be paid,
subject to the fulfillment by the Company of the conditions set forth below, by
delivery of shares of Common Stock. However, the failure of the Company to pay
the Repurchase Price on the Repurchase Date either in cash or by delivery of
shares of Common Stock shall constitute an Event of Default for purposes of
Section 5.1(b) hereof notwithstanding the Company's inability to comply with
provisions of or satisfy any conditions set forth in this Section 14.1. Whenever
in this Indenture (including Sections 2.2, 3.1, 5.1(b) and 5.8) there is a
reference, in any context, to the principal of any Note as of any time, such
reference shall be deemed to include reference to the Repurchase Price payable
in respect of such Note to the extent that such Repurchase Price is, was or
would be so payable at such time, and express mention of the Repurchase Price in
any provision of this Indenture shall not be construed as excluding the
Repurchase Price in those provisions of this Indenture when such express mention
is not made; provided that for the purposes of Article Fourteen such reference
shall be deemed to include reference to the Repurchase Price only to the extent
the Repurchase Price is payable in cash.
Section 14.2 Conditions to the Company's Election to Pay the Repurchase
Price in Common Stock.
The Company may elect to pay the Repurchase Price by delivery of
shares of Common Stock pursuant to Section 14.1 if and only if the following
conditions shall have been satisfied.
(a) The shares of Common Stock deliverable in payment of the Repurchase
Price shall have a fair market value as of the Repurchase Date of not less than
the Repurchase Price. For purposes of this Section 14.1, the fair market value
of shares of Common Stock shall be determined by the Company and shall be equal
to 95% of the average of the Closing Prices Per Share for the five consecutive
Trading Days ending on and including the third Trading Day immediately preceding
the Repurchase Date.
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(b) The shares of Common Stock deliverable in payment of the Repurchase
Price are, or shall have been listed on the New York Stock Exchange or other
national securities exchange or are, or shall have been, approved for quotation
on the Nasdaq National Market, in either case, prior to the Repurchase Date; and
(c) All shares of Common Stock deliverable in payment of the Repurchase
Price shall be issued out of the Company's authorized but unissued Common Stock
and, will upon issue, be duly and validly issued and fully paid and
nonassessable and free of any preemptive rights.
If all of the conditions set forth in this Section 14.1 are not
satisfied in accordance with the terms thereof, the Repurchase Price shall be
paid by the Company only in cash.
Section 14.3 Notices; Method of Exercising Repurchase Right, Etc.
(a) Unless the Company shall have theretofore called for redemption all
the outstanding Notes, on or before the 30th day after the occurrence of a
Change in Control, the Company or, at the written request of the Company, the
Trustee, shall mail to all Holders (and the Trustee, if applicable) a notice
(the "Company Notice") as prepared by the Company of the occurrence of the
Change in Control and of the repurchase right set forth herein arising as a
result thereof. The Company shall also deliver a copy of such notice of a
repurchase right to the Trustee.
(b) Each notice of a repurchase right shall state:
(i) the Repurchase Date,
(ii) the date by which the repurchase right must be exercised,
(iii) the Repurchase Price,
(iv) a description of the procedure which a Holder must follow to
exercise a repurchase right, and
(v) the Conversion Price then in effect, the date on which the
right to convert the principal amount of the Notes to be repurchased will
terminate, and the place or places where such Notes may be surrendered for
conversion or repurchase.
No failure of the Company to give the foregoing notices or defect
therein shall limit any Holder's right to exercise a repurchase right or affect
the validity of the proceedings for the repurchase of Notes.
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If any of the foregoing provisions are inconsistent with applicable
law, such law shall govern.
(c) To exercise a repurchase right, a Holder shall deliver to the Trustee
on or before the 30th day after the date of the Company Notice (i) written
notice of the Holder's exercise of such right, which notice shall set forth the
name of the Holder, the principal amount of the Notes to be repurchased, and a
statement that an election to exercise the repurchase right is being made
thereby, and (ii) the Notes with respect to which the repurchase right is being
exercised, duly endorsed for transfer to the Company. Such written notice shall
be executed by the Holder and shall be irrevocable, except that the right of the
Holder to convert the Notes with respect to which the repurchase right is being
exercised shall continue until the close of business on the fifth Business Day
preceding the Repurchase Date.
(d) In the event a repurchase right shall be exercised in accordance with
the terms hereof, the Company shall pay or cause to be paid the Repurchase Price
in cash as provided above, to the Holder on the Repurchase Date or as promptly
after the Repurchase Date as practicable, together with accrued and unpaid
interest to the Repurchase Date payable with respect to the Notes as to which
the repurchase right has been exercised; provided, however, that installments of
interest that mature on or prior to the Repurchase Date shall be payable in cash
to the Holders of such Notes, or one or more predecessor Notes, registered as
such at the close of business on the relevant Regular Record Date according to
the terms and provisions of Article Three.
(e) If any Note surrendered for repurchase shall not be so paid on the
Repurchase Date, the principal shall, until paid, bear interest to the extent
permitted by applicable law from the Repurchase Date at the rate of 5 3/4% and
each Note shall then remain convertible into Common Stock until the principal of
such Note shall have been paid or duly provided for.
(f) Any Note which is to be repurchased only in part shall be surrendered
to the Trustee (with, if the Company or the Trustee so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the holder thereof or his attorney duly authorized
in writing), and the Company shall execute, and the Trustee shall authenticate
and deliver to the Holder of such Note without service charge, a new Note or
Notes, of any authorized denomination as requested by such Holder in aggregate
principal amount equal to and in exchange for the unrepurchased portion of the
principal of the Note so surrendered.
(g) Any issuance of shares of Common Stock in respect of the Repurchase
Price shall be deemed to have been effected
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immediately prior to the close of business on the Repurchase Date and the Person
or Persons in whose name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such repurchase shall be deemed to have
become on the Repurchase Date the holder or holders of record of the shares
represented thereby; provided that any surrender for repurchase on a date when
the stock transfer books of the Company shall be closed shall constitute the
Person or Persons in whose name or names the certificate or certificates for
such shares are to be issued as the record holder or holders thereof for all
purposes at the opening of business on the next succeeding day on which such
stock transfer books are open. No payment or adjustment shall be made for
dividends or distributions on any Common Stock issued upon repurchase of any
Note declared prior to the Repurchase Date.
(h) No fractional shares shall be issued upon repurchase of Notes.
If more than one Note shall be repurchased from the same Holder and the
Repurchase Price shall be payable in shares of Common Stock, the number of full
shares which shall be issuable upon such repurchase shall be computed on the
basis of the aggregate principal amount of the Notes so repurchased. Instead of
any fractional share of Common Stock which would otherwise be issuable on the
repurchase of any Note or Notes, the Company will deliver to the applicable
Holder its check for the current market value of such fractional share. The
current market value of a fraction of a share is determined by multiplying the
current market price of a full share by the fraction, and rounding the result to
the nearest cent. For purposes of this Section 14.3, the current market price
of a share of Common Stock is the Closing Price per share of the Common Stock on
the Trading Day immediately preceding the Repurchase Date.
(i) Any issuance and delivery of certificates for shares of Common Stock
on repurchase of Notes shall be made without charge to the Holder of Notes being
repurchased for such certificates or for any tax or duty in respect of the
issuance or delivery of such certificates or the securities represented thereby;
provided, however, that the Company shall not be required to pay any tax or duty
which may be payable in respect of (x) income of the Holder or (y) any transfer
involved in the issuance or delivery of certificates for shares of Common Stock
in a name other than that of the Holder of the Notes being repurchased, and no
such issuance or delivery shall be made unless and until the Person requesting
such issuance or delivery has paid to the Company the amount of any such tax or
duty or has established to the satisfaction of the Company, that such tax or
duty has been paid.
(j) All Notes delivered for repurchase shall be delivered to the Trustee,
the Paying Agent or any other agents (as shall be
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set forth in the Company Notice) to be cancelled by or at the direction of the
Trustee, which shall dispose of the same as provided in Section 3.9.
Section 14.4 Certain Definitions.
For purposes of this Article:
(a) the term "beneficial owner" shall be determined in accordance with
Rule 13d-3, as in effect on the date of the original execution of this
Indenture, promulgated by the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended;
(b) the term "Common Stock" shall mean capital stock of the Company that
does not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of the Company, to shares of capital stock of any other class of the Company;
(c) a "Change in Control" shall be deemed to have occurred at such time
after the original issuance of the Notes as there shall occur:
(i) the acquisition by any Person of beneficial ownership, directly
or indirectly, through a purchase, merger or other acquisition transaction or
series of transactions, of shares of capital stock of the Company entitling such
Person to exercise 50% or more of the total voting power of all shares of
capital stock of the Company entitled to vote generally in the elections of
directors (any shares of voting stock of which such Person is the beneficial
owner that are not then outstanding being deemed outstanding for purposes of
calculating such percentage) (other than any such acquisition by the Company,
any subsidiary of the Company or any employee benefit plan of the Company; or
(ii) any consolidation of the Company with, or merger of the Company
into, any other Person, any merger of another Person into the Company, or any
conveyance, sale, transfer or lease, in one transaction or a series of related
transactions, of all or substantially all of the assets (other than to a wholly
owned subsidiary of the Company) of the Company to any other Person (other than
(a) any such transaction pursuant to which the holders of 50% or more of the
total voting power of all shares of capital stock of the Company entitled to
vote generally in elections of directors immediately prior to such transaction
have, directly or indirectly, at least 50% or more of the total voting power of
all shares of capital stock of the continuing or surviving corporation entitled
to vote generally in elections of
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directors of the continuing or surviving corporation immediately after such
transaction, or (b) a merger (x) which does not result in any reclassification,
conversion, exchange or cancellation of outstanding shares of Common Stock or
(y) which is effected solely to change the jurisdiction of incorporation of the
Company and results in a reclassification, conversion or exchange of outstanding
shares of Common Stock into solely shares of common stock; or
(iii) a change in the Board of Directors of the Company in which the
individuals who constituted the Board of Directors of the Company at the
beginning of the 12-month period immediately preceding such change (together
with any other director whose election by the Board of Directors of the Company
or whose nomination for election by the stockholders of the Company was approved
by a vote of at least a majority of the directors then in office either who were
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the directors then in office;
provided, however, that a Change in Control shall not be deemed to
have occurred if either (i) the Closing Price on any five Trading Days within
the period of 10 consecutive Trading Days ending immediately after the later of
the date of the Change in Control or the date of the public announcement of the
Change in Control (in the case of a Change in Control under clause (a) above) or
the period of 10 consecutive Trading Days ending immediately prior to the date
of the Change in Control (in the case of a Change in Control under clause (b)
above) shall equal or exceed 105% of the Conversion Price in effect on each such
Trading Day or (ii) at least 90% of the consideration (excluding cash payments
for fractional shares) to be paid for the Common Stock in the transaction or
transactions constituting the Change in Control consists of shares of common
stock traded on a national securities exchange or quoted on the Nasdaq National
Market (or which will be so traded or quoted when issued or exchanged in
connection with such Change in Control) (such securities being referred to as
"Publicly Traded Securities") and as a result of such transaction or
transactions the Notes become convertible solely into such Publicly Traded
Securities;
(d) the term "Person" shall include any syndicate or group which would be
deemed to be a "person" under Section 13(d)(3) of the Securities Exchange Act of
1934, as amended, as in effect on the date of the original execution of this
Indenture.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
90
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
COMPANY
Attestation as to SIGNATURE RESORTS, INC.
the Corporate Seal:
By:/s/Andrew J. Gessow By:/s/Andrew D. Hutton
------------------- -------------------
Its: President Its: Vice President and General
--------- --------------------------
Counsel
-------
TRUSTEE:
NORWEST BANK MINNESOTA,
NATIONAL
ASSOCIATION
By:/s/Bryant Hermstadt
-------------------
Its: Vice President
--------------
91
<PAGE>
EXHIBIT 5.1
BALLARD SPAHR ANDREWS & INGERSOLL
300 EAST LOMBARD STREET
BALTIMORE, MARYLAND 21202
410-528-5600
June 26, 1997
Signature Resorts, Inc.
5933 West Century Boulevard
Suite 210
Los Angeles, California 90045
Re: Signature Resorts, Inc., a Maryland corporation
(the "Company")--Registration Statement on Form S-1
pertaining to Four Million Nine Hundred Fifty-Nine
Thousand Five Hundred Forty-Eight (4,959,548) shares
("Shares") of common stock, par value one cent
($0.01) per share ("Common Stock"), to be sold by
certain stockholders of the Company
----------------------------------------------------
Ladies and Gentlemen:
In connection with the registration of the Shares under the Securities Act
of 1933, as amended (the "Act"), by the Company on Form S-1 filed or to be
filed with the Securities and Exchange Commission (the "Commission") on or
about June 27, 1997 (the "Registration Statement"), you have requested our
opinion with respect to the matters set forth below.
We have acted as special Maryland corporate counsel for the Company in
connection with the matters described herein. In our capacity as special
Maryland corporate counsel to the Company, we have reviewed and are familiar
with proceedings taken and proposed to be taken by the Company in connection
with the authorization, issuance and sale of the Shares, and for purposes of
this opinion have assumed such proceedings will be timely completed in the
manner presently proposed. In addition, we have relied upon certificates and
advice from the officers of the Company upon which we believe we are justified
in relying and on various certificates from, and 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, Articles of
Amendment filed with the SDAT on June 13, 1996 and Articles of Amendment filed
with the SDAT on August 20, 1996. We have also examined the Bylaws of the
Company, as amended through the date hereof (the "Bylaws"), and Resolutions of
the Board of Directors of the Company adopted on or before the date hereof and
in full force and effect on the date hereof; 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 the Shares have been duly authorized
by all necessary corporate action on the part of the Company, have been
validly issued and are fully paid and non-assessable.
We consent to your filing this opinion as an exhibit to the Registration
Statement, and further consent to the filing of this opinion as an exhibit to
the applications to securities commissioners for the various states of the
<PAGE>
Signature Resorts, Inc.
June 26, 1997
Page 2
United States for registration of the Shares. We also consent to the
identification of our firm as Maryland counsel to the Company in the section
of the Prospectus (which is part of the Registration Statement) entitled
"Legal Matters."
The opinions expressed herein are limited to the laws of the State of
Maryland and we express no opinion concerning any laws other than the laws of
the State of Maryland. Furthermore, the opinions presented in this letter are
limited to the matters specifically set forth herein and no other opinion
shall be inferred beyond the matters expressly stated.
The opinions expressed in this letter are solely for your use and may not be
relied upon by any other person without our prior written consent.
Very truly yours,
/s/ Ballard Spahr Andrews & Ingersoll
<PAGE>
EXHIBIT 10.1
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (the "Agreement") is made and
entered into as of August 20, 1996 (the "Issue Date"), by and among the holders
set forth on Schedule A hereto (the "Holders") and Signature Resorts, Inc., a
Maryland corporation (the "Company").
This Agreement is made in connection with the consolidation by the
Holders of their interests in certain vacation ownership resort properties or
related service entities affiliated with Argosy/KOAR Group, Inc. (the
"Consolidation") and the exchange of such interests for an aggregate of
11,354,705 shares of common stock, $0.01 par value per share (the "Common
Stock"), of the Company. As used herein the term "Registrable Shares" shall
refer to such 11,354,705 shares of Common Stock upon original issuance thereof,
and at all times subsequent thereto, until a registration statement of the
Company that covers such Registrable Shares has been declared effective and any
such Registrable Shares have been disposed of in accordance with such effective
registration statement.
The parties hereby agree as follows:
1. Shelf Registration.
------------------
(a) The Company shall prepare and file with the Securities and
Exchange Commission (the "Commission"), a registration statement for an offering
to be made on a continuous basis pursuant to Rule 415 under the Securities Act
of 1933, as amended (the "Securities Act") covering all of the Registrable
Shares (the "Shelf Registration"). The Shelf Registration shall be on Form S-1
or another appropriate form (e.g. Form S-3 after having established eligibility
----
therefor) permitting registration of the Registrable Shares for resale by the
Holders in the manner or manners designated by them (including, without
limitation, one or more underwritten offerings). The Company shall use its best
efforts (subject in all cases to any procedures and limitations which may be
imposed by the staff of the Commission) to (i) cause the Shelf Registration to
be declared effective under the Securities Act as soon as practicable following
the date that is 180 days following the Issue Date (the "Effectiveness Date")
and (ii) keep the Shelf Registration continuously effective under the Securities
Act for a period (the "Effectiveness Period") of the shorter of (A) 18 months
from the Effectiveness Date and (B) such shorter period that will terminate when
all Registrable Shares covered by the Shelf Registration have been disposed of
in accordance with the Shelf Registration.
(b) The Company may include in any such Shelf Registration referred
to in this Section 1 other shares of Common Stock of the Company held by other
security holders of the Company who have registration rights.
2. Incidental Registration. If, at any time or from time to time
-----------------------
during a period of three years following the Issue Date, the Company shall
propose to file a registration statement (a "Registration Statement") with the
Commission with respect to the proposed sale by the Company of shares of its
Common Stock (or securities exchangeable or convertible therefor) to an
underwriter(s) for reoffering to the public (an "Underwritten Offering") (other
than in connection with an offering on Form S-4 or Form S-8 or successor forms
of such registration statements under the Act), then the Company shall in each
case give written notice (the "Notice") of such proposed filing to the Holders
not less than 30 days before the
<PAGE>
anticipated filing date, which shall offer to the Holders the opportunity to
include in such Registration Statement such number of Registrable Shares as each
Holder may request. Upon written request by any Holder given within 15 days
after the giving of the Notice, the Company shall include in any Registration
Statement relating to the Common Stock of the Company all or such portion of the
Registrable Shares as the Holders may request. Neither the delivery of the
Notice by the Company nor of such request by the Holders shall obligate the
Company to file such Registration Statement and, notwithstanding the filing of
such Registration Statement, the Company may, at any time prior to the effective
date thereof, determine not to offer the securities to which such Registration
Statement relates, without liability or obligation to the Holders. As a
condition to any Holder including any Registrable Shares in any Registration
Statement pursuant to this Section 2, such Holder agrees to effect sales of such
Registrable Shares thereunder solely under the plan of distribution established
by the Company and set forth therein.
3. Holdback Agreements.
-------------------
(a) Neither the Company nor the Holders shall offer to sell, sell,
contract to sell, pledge, hypothecate or otherwise sell or dispose of shares of
Common Stock (including the Registrable Shares), or options or warrants to
acquire shares of Common Stock (including the Registrable Shares) for a period
of 180 days following the Issue Date (one year following the Issue Date with
respect to each of Osamu Kaneko, Andrew J. Gessow and Steven C. Kenninger and
their respective affiliates (as defined in Rule 144 pursuant to the Securities
Act)), unless the Company or any Holder, as the case may be, shall have first
notified Montgomery Securities of its intention to do so and Montgomery
Securities shall have consented thereto in writing.
(b) Each Holder agrees that it will not (and it shall be a condition
to the rights of each Holder under this Agreement that such Holder does not) at
any time during any period in which such Holder is entitled to the registration
rights granted by this Agreement sell or offer for sale any Registrable
Securities in excess of any then-applicable volume limitations imposed on such
Holder by Rule 144 under the Securities Act, as if such rule were applicable to
such sale.
(c) If requested by the underwriter(s) in any Underwritten Offering
undertaken pursuant to Section 2 and upon receipt of written notice by the
Company or such underwriter(s) to the Holders not less than 15 days before the
anticipated filing date of the related Registration Statement, each Holder
agrees that it shall not effect any public sale or distribution of any
Registrable Shares during the 10 day period prior to, and during the 90 day
period beginning on, the date of effectiveness of such Underwritten Offering.
(d) Notwithstanding anything set forth in Sections 3(a) through 3(c),
Messrs. Kaneko, Gessow and Kenninger and/or their affiliates (i) may (A) pledge
up to an aggregate of $50 million of Registrable Shares to a third-party lender
to secure a margin loan in a maximum amount of $10 million and (B) pledge up to
an aggregate of $5.8 million of Registrable Shares in connection with the
purchase of by them of certain interests of a former
2
<PAGE>
partner effected concurrently with the Consolidation and (ii) at any time
following the date that is 180 days following the Issue Date, Messrs. Kaneko,
Gessow and Kenninger and/or their affiliates may pledge Common Stock registered
pursuant to the Shelf Registration in such amounts and for such purposes set
forth in (i) above.
4. Company's Obligations. In connection with the Company's
---------------------
obligation to effect a Shelf Registration pursuant to Section 1, or in the event
the Company files a Registration Statement in connection with an Underwritten
Offering pursuant to Section 2, it shall:
(a) Notify the Holders as to the filing thereof and of all amendments
or supplements thereto filed prior to the effective date of such Shelf
Registration or Registration Statement;
(b) Notify the Holders, promptly after the Company shall receive
notice thereof, of the time when such Shelf Registration or Registration
Statement became effective or any amendment or supplement to any prospectus
forming a part of such Shelf Registration or Registration Statement has been
filed;
(c) Notify the Holders promptly of any request by the Commission for
the amending or supplementing of such Shelf Registration or Registration
Statement or prospectus or for additional information;
(d) Prepare and file with the Commission any amendments or supplements
to such Shelf Registration or Registration Statement or prospectus which may be
necessary or advisable to keep such Registration Statement effective and to
comply with the provisions of the Securities Act with respect to the offer of
the Registrable Shares covered by such Registration Statement during the period
required for the distribution of such securities, which, in the case of a
Registration Statement filed pursuant to Section 2 in connection with an
Underwritten Offering, such period shall not be in excess of 120 days from the
effective date of the Registration Statement or post-effective amendment
pursuant to which such Registrable Shares may be sold;
(e) Prepare and promptly file with the Commission and promptly notify
the Holders of the filing of such amendment or supplement to such Shelf
Registration or Registration Statement or prospectus as may be necessary to
correct any statements therein or omission therefrom if, at any time when a
prospectus relating to such Registrable Shares is required to be delivered under
the Securities Act, any event with respect to the Company shall have occurred as
a result of which any prospectus would include an untrue statement of material
fact or omit to state any material fact necessary to make the statements therein
not misleading;
(f) In case the Holders or any underwriter(s) for the Holders are
required to deliver a prospectus, prepare promptly upon request such amendment
or amendments to such Shelf Registration or Registration Statement and such
prospectus or
3
<PAGE>
prospectuses as may be necessary to permit compliance with the requirements of
Section 9(a)(3) of the Securities Act;
(g) Advise the Holders promptly after the Company shall receive notice
or obtain knowledge of the issuance of any stop order by the Commission
suspending the effectiveness of any such Shelf Registration or Registration
Statement or amendment thereto or of the initiation or threatening of any
proceedings for that purpose, and promptly use its best efforts to prevent the
issuance of any stop order or to obtain its withdrawal if such stop order should
be issued;
(h) Use its best efforts to qualify such Registrable Shares for sale
under the securities or blue sky laws of such states within the United States as
the Holders may reasonably designate, except that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business in any such state or to take any action which would subject it to
general service of process in any such jurisdiction where it is not then so
subject; and
(i) Furnish to the Holders, as soon as available, copies of any such
Shelf Registration or Registration Statement and each preliminary or final
prospectus, or supplement or amendment required to be prepared thereto, all in
such quantities required as they may from time to time reasonably request.
Each Holder of Registrable Shares agrees by acquisition of such
Registrable Shares that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 4(e) hereof, such Holder
will forthwith discontinue disposition of Registrable Shares until such Holder's
receipt of the copies of the supplemented or amended prospectus contemplated by
Section 4(e) hereof, or until it is advised in writing by the Company that the
use of the prospectus may be resumed, and has received copies of any additional
or supplemental filings that are incorporated by reference in the prospectus,
and, if so directed by the Company, such Holder will deliver to the Company all
copies, other than permanent file copies, then in such Holder's possession of
the prospectus covering such Registrable Shares current at the time of receipt
of such notice.
5. Holders' Obligation to Furnish Information. In connection with
------------------------------------------
the Company's obligation to effect a Shelf Registration pursuant to Section 1,
or in the event the Company files a Registration Statement in connection with an
Underwritten Offering pursuant to Section 2, each Holder shall furnish
information to the Company concerning such Holder's holdings of securities of
the Company and the proposed method of sale or other disposition of the
Registrable Shares and such other information and undertakings as shall be
required in connection with the preparation and filing of the Shelf
Registration, any Registration Statement or any post-effective amendment
covering all or part of the Registrable Shares in order to insure full
compliance with the Securities Act and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Each Holder further agrees to enter into such
undertakings and take such other action relating to the conduct of the proposed
offering which the Company or the underwriter(s) may reasonably request as being
necessary to ensure compliance with the
4
<PAGE>
federal and state securities laws and the rules or other requirements of the
National Association of Securities Dealers, Inc. ("NASD") or otherwise to
effectuate the offering.
6. Expenses. The Company shall pay all expenses (the "Registration
--------
Expenses") incident to each registration of the Registrable Shares under
Sections 1 and 2, including, without limitation, all registration, filing and
NASD fees, all fees and expenses of complying with state securities or blue sky
laws, all word processing, duplicating and printing expenses, messenger and
delivery expenses, the fees and disbursements of counsel for the Company and of
its independent public accountants, including the expenses of any special audits
or "cold comfort" letters required by or incident to such performance and
compliance, premiums and other costs of policies of insurance purchased by the
Company at its option against liabilities arising out of the public offering of
such Registrable Shares and any fees and disbursements of underwriter(s)
customarily paid by issuers or sellers of securities (including fees paid to a
"qualified independent underwriter" required by the rules of the NASD in
connection with a distribution), but excluding underwriting discounts and
commissions and fees of underwriter(s), selling brokers, dealer managers or
similar securities industry professionals relating to the distribution of the
Registrable Shares, transfer taxes, fees and disbursements of counsel for any
shelling shareholder(s) and other selling expenses, if any.
7. Selection of Underwriter. In the event of any Registration
------------------------
Statement filed in connection with an Underwritten Offering pursuant to Section
2 and in the event any of the Registrable Shares covered by the Shelf
Registration effected pursuant to Section 1 are to be sold in an Underwritten
Offering, the investment banker or investment bankers and manager or managers
that will manage the offering will be selected by the Company. In addition, the
Company may require in its sole discretion that Registrable Shares sold pursuant
to the Shelf Registration effected pursuant to Section 1 be sold in block trades
through underwriter(s) or broker-dealers selected by the Company.
8. Priority in Incidental Registration. If in connection with an
-----------------------------------
Underwritten Offering registered pursuant to Section 2, the managing
underwriter(s) of such Underwritten Offering informs the Company and the Holders
by letter of its belief that the number of securities requested to be included
in such Registration Statement exceeds the number which should be sold in such
Underwritten Offering, then the Company will include in such Registration
Statement, to the extent of the number which the Company is so advised should be
sold in such Underwritten Offering, (i) first, all shares of Common Stock
proposed to be sold by the Company for its own account and (ii) second, the
number of Registrable Shares proposed by the Holders to be included in the
registration that, in the opinion of such managing underwriter(s), can be sold
without adversely affecting the price or probability of success of such
Underwritten Offering, allocated pro rata among such Holders, on the basis of
the relative amount of Registrable Shares requested to be included in such
Registration Statement; provided that in all cases the Holders of Registrable
--------
Shares shall be entitled to include in any such registration an aggregate of up
to 25% of the total number of shares sold in any such Underwritten Offering.
5
<PAGE>
9. Underwritten Offerings. In the event that Registrable Shares are
----------------------
to be distributed through an Underwritten Offering, each Holder offering
Registrable Shares in such Underwritten Offering shall be a party to the
underwriting agreement between the Company and such underwriter(s) and may, at
its option, require that any or all of the representations and warranties by,
and the other agreements on the part of, the Company to and for the benefit of
such underwriter(s) shall also be made to and for the benefit of such Holder.
Holders shall not be required to make any representations or warranties to or
agreements with the Company or the underwriter(s), other than representations,
warranties or agreements regarding the Holders, the Registrable Shares, and the
Holders' intended method of distribution and any other representations required
by law. Any representations or warranties to or agreements with the
underwriter(s) made by the Holders shall also be made to and for the benefit of
the Company.
10. Indemnification.
---------------
(a) By the Company. In the event of any registration of the
--------------
Registrable Shares of the Company under the Securities Act, the Company will,
and hereby does, indemnify and hold harmless the Holders with respect to the
Registrable Shares included in such registration, its directors, officers,
underwriters and each other person, if any, who controls any Holder within the
meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which the Company or such Holder or any such
director or officer or underwriter or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement
under which such securities were registered under the Securities Act, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein in light of the circumstances in which
they were made not misleading, and the Company will reimburse such Holder and
each such director, officer, underwriter and controlling person for any legal or
any other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, liability, action or proceeding; provided
--------
that the Company shall not be liable in any such case to the extent that any
such loss, claim, damage, liability (or action or proceeding in respect thereof)
or expense arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such Registration Statement,
any such preliminary prospectus, final prospectus, summary prospectus, amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by or on behalf of such underwriter or such Holder, as
the case may be, specifically for use in the preparation thereof and; provided
--------
further that the Company shall not be liable to any person in any such case to
- -------
the extent that any such loss, claim, damage, liability (or action or proceeding
in respect thereof) or expense arises out of such person's failure to send or
give a copy of the final prospectus, as the same may be then supplemented or
amended, to the person asserting an untrue statement or alleged untrue statement
or omission or alleged omission at or prior to written confirmation of the sale
of the Registrable Shares to such person if such statement or omission was
corrected in such final prospectus as amended
6
<PAGE>
or supplemented. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such underwriter or such
Holder or any such director, official, underwriter or controlling person and
shall survive the transfer of such securities by such Holder.
(b) Indemnification by the Holders. Each Holder agrees that, as a
------------------------------
condition to including any Registrable Shares in any Registration Statement
filed pursuant to Section 1 or 2, that each such Holder with Registrable Shares
included in such Registration Statement will and hereby does, indemnify and hold
harmless (in the same manner and to the same extent as set forth in paragraph
(a) of this Section 10) the Company, each director of the Company, each officer
of the Company, each other person who participates as an underwriter in the
offering or sale of such securities and each other person, if any, who controls
the Company or any such underwriter within the meaning of the Securities Act,
with respect to any statement or alleged statement in or omission or alleged
omission from such registration statement, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, if such statement or alleged statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such Holder specifically
for use in the preparation of such registration statement, preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement. Such
indemnity shall remain in full force and effect, regardless of any investigation
made by or on behalf of the Company or any such director, officer or controlling
person and shall survive the transfer of such securities by such Holder.
The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in the distribution, to the same extent as provided
above with respect to information so furnished in writing by such persons
specifically for inclusion in any prospectus or registration statement or any
amendment or supplement thereto, or any preliminary prospectus.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified
----------------------
party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding subdivisions of this Section 10, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action; provided that the failure of any indemnified party to give notice
--------
as provided herein shall not relieve the indemnifying party of its obligations
under the preceding paragraphs of this Section 10, except to the extent that the
indemnifying party is actually prejudiced by such failure to give notice. In
case any such action is brought against an indemnified party, unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such claim, the
indemnifying party shall be entitled to participate in and to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses subsequently
incurred by the party in connection with the defense thereof other than
7
<PAGE>
reasonable costs of investigation. No indemnifying party shall, without the
consent of the indemnified party, consent to entry of any judgment or enter into
any settlement which does not include as an unconditional term thereof, the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect to such claim or litigation.
(d) Other Indemnification. Indemnification similar to that specified
---------------------
in paragraphs (a) through (c) of this Section 10 (with appropriate
modifications) shall be given by the Company and the Holders with respect to any
required registration or other qualification of securities under any Federal or
state law or regulation or any governmental authority other than the Act.
(e) Indemnification Payment. The indemnification required by this
-----------------------
Section 10 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
(f) Contribution. If the indemnification provided for in this
------------
Agreement shall for any reason be unavailable or insufficient (other than by
reason of exceptions provided in those sections) to an indemnified party under
paragraphs (a), (b) and (d) of this Section 10 in respect to any loss, claim,
damage or liability, or any action in respect thereof, or referred to therein,
then each indemnifying party shall, in lieu of indemnifying such party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, in such
proportion as shall be appropriate to reflect the relative fault of the Company
on the one hand and any Holder on the other, with respect to the statements or
omissions which resulted in such loss, claim, damage or liability, or action in
respect thereof, as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the Company
or such Holder, the intent of the parties and their relative knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Company and the Holders agree that it would not be just and equitable if
contribution pursuant to this Section 10 were to be determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to in this Section 10 shall be deemed to
include, for purposes of this Section 10, any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any action or claim. No person guilty of fraudulent misrepresentation (within
the meaning of Section 10(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
11. Rule 144. So long as the Company has any securities registered
--------
under Section 12 of the Exchange Act, the Company will file the reports required
to be filed by it under the Exchange Act and the rules and regulations adopted
by the Commission thereunder (or, if the Company is not required to file such
reports, will upon the request of Holders of a
8
<PAGE>
majority of the Registrable Shares, make publicly available other information
for a period of up to four months) and will take such further action as such
Holders may reasonably request, all to the extent required from time to time to
enable the Holders to sell Registrable Shares without registration under the
Securities Act within the limitation of the exemptions provided by (a) Rule 144
under the Securities Act, as such Rule may be amended from time to time, or (b)
any similar rule or regulation hereafter adopted by the Commission. Upon the
request of such Holders, the Company will deliver to such Holders a written
statement as to whether it has complied with such requirements.
12. Amendments and Waivers. This Agreement may be amended and the
----------------------
Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of Holders of a
majority of the Registrable Shares.
13. Notices. Any notice from one party to the other shall be in
-------
writing and either delivered personally or by certified or registered mail,
postage prepaid, or by telegram, telecopier, or by overnight mail delivery by a
nationally recognized courier, and shall be deemed given when so delivered
personally or, if mailed or given by telegram or telecopier or overnight mail,
upon receipt thereof by the addressees, as follows:
If to the Company:
Signature Resorts, Inc.
911 Wilshire Boulevard, Suite 2250
Los Angeles, California 90017
Attention: Steven C. Kenninger
with a copy to:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
Attention: Edward Sonnenschein, Jr.
If to any Holder:
At its address as it appears on the register of holders of Common
Stock maintained by the Company.
14. Assignment. This Agreement shall be binding upon and inure to
----------
the benefit of and be enforceable by the parties hereto and their respective
successors and permitted assigns as hereinafter set forth in this Section 14.
In addition, and whether or not any express assignment shall have been made, the
provisions of this Agreement which are for the benefit of the Holders shall also
be for the benefit of and enforceable by any subsequent holder ("Subsequent
Holders") of any Registrable Shares, except any Subsequent Holder with
9
<PAGE>
respect to Registrable Shares acquired in a public offering pursuant to a
Registration Statement or an exemption from registration under Rule 144 under
the Securities Act.
15. Descriptive Headings. The descriptive headings of the several
--------------------
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
16. Governing Law. The validity of this Agreement and all matters
-------------
relating to its interpretation and performance shall be interpreted in
accordance with the laws of the State of California applicable to contracts made
and fully performed therein, but without regard to principles of conflicts of
law. The courts in Los Angeles, California shall have exclusive jurisdiction
over any controversy arising under this Agreement and venue in Los Angeles is
appropriate.
17. Counterparts. This Agreement may be executed simultaneously in
------------
any number of counterparts, each of which shall be deemed an original, but all
such counterparts shall together constitute one and the same instrument.
18. Entire Agreement; Amendment. This Agreement contains all of the
---------------------------
terms agreed upon by the parties with respect to the subject matter herein and
there are no representations or understandings between the parties except as
provided in this Agreement. This Agreement may not be amended or modified in
any way except by a written amendment duly executed by each of the parties.
19. Registrable Shares Held by the Company or its Affiliates.
--------------------------------------------------------
Whenever the consent or approval of Holders of a specified percentage of
Registrable Shares is required hereunder, Registrable Shares held by the Company
or its affiliates (as defined pursuant to Rule 144 under the Securities Act)
shall not be counted in determining whether such consent or approval was given
by the Holders of such required percentage.
10
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be executed and delivered as of the date first above written.
SIGNATURE RESORTS, INC.
By /s/Andrew J. Gessow
-------------------
Title: President
HOLDERS
Power of Attorney By:
/s/Steven C. Kenninger
----------------------
Steven C. Kenninger
11
<PAGE>
SCHEDULE A
J.C. Investment & Realty, Inc.
Shinko Sangyou Co. Ltd.
Peachtree, Ltd.
Kenpoh, Inc.
KPI Realty, Inc.
Centaur Corp.
Ethan Lipsig
Susan K. Kenninger
Gigi Giannoni
Charles Frey
Michael C. Ross
Michael C. Ross Pension Plan
Linda H. Vaughn
James A. Hamilton
James W. Geisz
James W. Geisz Keogh Plan
William S. Waldo
Dennis H. Vaughn IRA
Osamu Kaneko
Steven C. Kenninger
Andrew J. Gessow
Timothy Levin
James W. Geisz SEP-IRA
The Vaughn Family Trust
Kenninger & Jaquish Living Trust
MLPF&S, Inc. Cust FPO Steven Kenninger Keogh
KOAR Group Inc. Profit Sharing & Savings Plan FPO Steven Kenninger
Brains-Heart, Ltd.
Arai Development Co., Inc.
Kumagai El Paseo, Inc.
Tadaaka Chigusa
EKC Corporation
Sook Ja Kim
Trustee of Ethan Lipsig Pension Plan
Linda Hadley Vaughn, Trustee
MLPF&S, Cust FPO James Geisz Keogh
Trustee, Charles V. Thornton Pension Plan
Paul Grossman
David M. Roberts
Ruth L. Kenninger
Centaur, Inc.
James C. Anderson
12
<PAGE>
Michael Reeves, Trustee
Charles Reeves
Michael Reeves
Raymond M. Bukaty
Charles Thornton
Grace Investments, Ltd.
Randall Wooster
Canyon Partners Investments II, L.P.
Canyon Partners Investments V, L.P.
First Capital
13
<PAGE>
EXHIBIT 10.2.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is dated as of August 15,
---------
1996, between Signature Resorts, Inc., a Maryland corporation (the "Company"),
-------
and Osamu Kaneko (the "Executive").
---------
1. Employment. The Company hereby agrees to employ the Executive, and
----------
the Executive hereby agrees to be employed by the Company, on the terms and
conditions set forth herein.
2. Term. The employment of the Executive by the Company as provided in
----
Section 1 will commence on August 20, 1996 and will terminate at 12:01 a.m. on
August 14, 1998 (the "Expiration Date") unless automatically extended or sooner
---------------
terminated as hereinafter provided (such period, the "Employment Period").
-----------------
Unless terminated by the Executive or the Company prior to July 1, 1998, this
Agreement shall automatically renew on the terms set forth herein for a second
two-year period. If so renewed, no later than May 1, 2000, the Company shall
notify the Executive with written notice as to whether the Company intends to
further renew or extend the Agreement (including proposals for such further
renewal which the Executive may accept, reject or negotiate, at his discretion).
3. Position, Duties and Responsibilities.
-------------------------------------
(a) Position. The Executive hereby agrees to serve as Chairman of the
--------
Board and Chief Executive Officer of the Company. In addition, for so long as
the Executive is an employee of the Company and is elected by the Company's
stockholders, the Executive hereby agrees to serve as a member of the Board. The
Executive understands that his position as a member of the Board is subject to
the nomination by the Company; provided that the Executive shall be a member of
the Board with a three-year term prior to the time the Company consummates any
public offering of securities and the Company agrees to use permissible
commercially reasonable efforts (subject to the exercise of its fiduciary
duties) to cause the nomination and election of the Executive to the Board
following any such public offering, subject to the terms and conditions of this
Agreement. The Executive shall devote his best efforts and substantially full
business time and attention to the performance of services to the Company in his
capacity as an officer thereof and as may reasonably be requested by the Board.
The Company shall retain full direction and control of the means and methods by
which the Executive performs the above services.
(b) Place of Employment. During the term of this Agreement, the
-------------------
Executive shall perform the services required by this Agreement at the Company's
place of business in the Los Angeles, California or San Francisco, California
metropolitan area; provided, however, that the Company will require the
Executive to travel extensively to other locations on the Company's business.
(c) Other Activities. Except with the prior written approval of the
----------------
Board (which the Board may grant or withhold in its sole and absolute
discretion), the Executive, during the Employment Period, will not (i) accept
any other employment, (ii) serve on the board of directors or similar body of
any other business entity (except as otherwise set forth below), or (iii)
engage, directly or indirectly, in any other business activity (whether or not
pursued for pecuniary advantage) that is or may be competitive with, or that
might place him in a competing
<PAGE>
position to, that of the Company or any of its affiliates. Notwithstanding the
foregoing, the Company agrees that the Executive (or affiliates of the
Executive) shall be permitted (i) to undertake the activities set forth in
Section 8 and (ii) to make any other passive personal investment that is not in
a business activity that is directly or indirectly competitive with the Company.
4. Compensation and Related Matters.
--------------------------------
(a) Salary. During the Employment Period, the Company shall pay the
------
Executive a salary of not less than $280,000 during the first full year and at
such salary as determined by the Compensation Committee of the Board during the
second and subsequent years of the Executive's employment with the Company. All
salary is to be paid consistent with the standard payroll practices of the
Company (e.g., timing of payments and standard employee deductions, such as
----
income tax withholdings, social security, etc.). The Executive's performance
and salary shall be subject to review at the end of each fiscal year consistent
with the standard practices of the Company.
(b) Business Expenses. The Company shall reimburse the Executive in
-----------------
connection with the conduct of the Company's business upon presentation of
sufficient evidence of such expenditures consistent with the Company's policies
as in place from time to time.
(c) Other Benefits. The Executive shall be entitled to participate in
--------------
or receive health, welfare, life insurance, long-term disability insurance,
bonus plan and similar benefits as the Company provides generally from time to
time to its executives. The Company acknowledges that within a reasonable time
following the execution of this Agreement, it will execute an option agreement
substantially in the form attached as Exhibit A hereto (the "Option Agreement")
and will institute and grant the Executive benefits under the equity
participation plan substantially in the form attached as Exhibit B hereto (the
"Option Plan"). Except as otherwise set forth in this Section 4 and except with
respect to the Company's obligations under this Agreement with respect to the
Option Agreement and the Option Plan, nothing herein is intended, or shall be
construed to require the Company to institute or continue any, or any
particular, plan or benefits.
(d) Bonus. Upon completion of the Company's public offering, the
-----
Compensation Committee of the Board shall establish, monitor, and oversee an
incentive bonus program for the Executive which will provide for payment of a
cash bonus of up to 100% of the Executive's then annual base salary paid to the
Executive during the applicable fiscal year, if certain performance objectives
established by the Compensation Committee for the Executive (such as specified
targets of growth in revenues and earnings per share) are achieved. Such bonus
compensation would be prorated for the first fiscal year of the Executive's
employment ending on December 31, 1996. Such incentive program would provide
for specific partial bonus achievement hurdles in connection with this program
as well. Each subsequent year thereafter, the Compensation Committee of the
Board will monitor, review and modify this program as necessary to reflect the
Executive's contributions to the Company.
(e) Fringe Benefits. The Executive will be entitled to fringe
---------------
benefits as may be determined or granted from time-to-time by the Board.
2
<PAGE>
(f) Vacation. The Executive shall be entitled to four vacation weeks
--------
(20 days) in each calendar year on a pro-rated basis. The Executive will be
entitled to all Company holidays.
(g) Performance Reviews. At the end of each fiscal year, the Board
-------------------
will review the Executive's job performance and will provide the Executive a
written review of the Executive's job performance during the prior year and
implement any Board determined revisions to the Executive's base salary, the
Executive's merit bonus, the Executive's prospective incentive compensation
package (including the Executive's participation in the Option Plan), the
Executive's title and/or the Executive's responsibility at the Company;
provided, however, that the provisions set forth in this Agreement with respect
to the Executive's compensation, the Option Agreement and the terms and
conditions of the Executive's employment at the Company cannot be modified by
the Board in a manner which would result in less favorable or beneficial terms
or conditions thereof being imposed on the Executive without the Executive's
full concurrence and consent.
5. Termination. The Executive's employment hereunder shall be, or may
-----------
be, as the case may be, terminated under the following circumstances:
(a) Death. The Executive's employment hereunder shall terminate upon
-----
his death.
(b) Disability. The Executive's employment hereunder shall terminate
----------
on the Executive's physical or mental disability or infirmity which, in the
opinion of a competent physician selected by the Board, renders the Executive
unable to perform his duties under this Agreement for more than 120 days during
any 180-day period.
(c) Cause. The Company may terminate the Executive's employment
-----
hereunder for "Cause." Cause shall mean (i) Employee's material breach of any
-----
of the terms of this Agreement, (ii) his conviction of a crime involving moral
turpitude or constituting a felony under the laws of any state, the District of
Columbia or of the United States, or (iii) his gross negligence, willful
misconduct or fraud in the performance of his duties hereunder.
(d) Employment-At-Will/Termination for Any Reason. Notwithstanding
---------------------------------------------
the term of this Agreement having a duration of two years and Sections 2 and 4
hereof referring to extensions of this Agreement and the annual salary to be
paid to the Executive during each of the first five full years of his employment
with the Company, nothing in this Agreement should be construed as to confer any
right of the Executive to be employed by the Company for a fixed or definite
term. Subject to Section 6 hereof, the Executive hereby agrees that the Company
may dismiss him under this Section 5(d) without regard (i) to any general or
specific policies (whether written or oral) of the Company relating to the
employment or termination of its employees, or (ii) to any statements made to
the Executive, whether made orally or contained in any document, pertaining to
the Executive's relationship with the Company. Notwithstanding anything to the
contrary contained herein, including Sections 2 and 4, the Executive's
employment with the Company is not for any specified term, is at will and may be
terminated by the Company at any time by delivery of a notice of termination to
the Executive, for any reason, with or without cause, without liability except
with respect to the payments provided for by Section 6.
3
<PAGE>
(e) Voluntary Resignation. The Executive may voluntarily resign his
---------------------
position and terminate his employment with the Company at any time by delivery
of a written notice of resignation to the Company (the "Notice of Resignation").
---------------------
The Notice of Resignation shall set forth the date such resignation shall become
effective (the "Date of Resignation"), which date shall, in any event, be at
-------------------
least ten (10) days and no more than thirty (30) days from the date the Notice
of Resignation is delivered to the Company. At its option, the Company may
reduce such notice period to any length, upon thirty (30) days written notice to
the Executive.
(f) Notice. Any termination of the Executive's employment by the
------
Company shall be communicated by written Notice of Termination to the Executive.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
---------------------
that shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated.
(g) "Date of Termination" shall mean (i) if the Executive's employment
-------------------
is terminated by his death, the date of his death, (ii) if the Executive's
employment is terminated by reason of his disability, the date of the opinion of
the physician referred to in Section 5(b), above, (iii) if the Executive's
employment is terminated by the Company for Cause pursuant to subsection 5(c)
above, or without Cause by the Company pursuant to subsection 5(d) above, the
date specified in the Notice of Termination and (iv) if the Executive
voluntarily resigns pursuant to subsection 5(e) above, the date of the Notice of
Resignation.
(h) Termination Obligations.
-----------------------
(i) The Executive hereby acknowledges and agrees that all
personal property and equipment furnished to or prepared by the Executive
in the course of or incident to his employment, belongs to the Company and
shall be promptly returned to the Company upon termination of the
Employment Period. "Personal property" includes, without limitation, all
-----------------
books, manuals, records, reports, notes, contracts, lists, blueprints, and
other documents, or materials, or copies thereof (including computer
files), and all other proprietary information relating to the business of
the Company. Following termination, the Executive will not retain any
written or other tangible material containing any proprietary information
of the Company.
(ii) Upon termination of the Employment Period, the Executive
shall be deemed to have resigned from all offices and directorships then
held with the Company or any affiliate.
(iii) The representations and warranties contained herein and
the Executive's obligations under Sections 5(h), 7, 8, 9 and 15 through 18
shall survive termination of the Employment Period and the expiration of
this Agreement. Nothing herein shall modify Employee's mediation and other
rights under this Agreement.
(i) Release. In exchange for the Company entering into the Agreement,
-------
the Executive agrees that, at the time of his resignation or termination from
the Company, he will resign from the Board and will execute a release acceptable
to the Company of all liability of the
4
<PAGE>
Company and its officers, shareholders, employees and directors to the Executive
in connection with or arising out of his employment with the Company, except
with respect to any then-vested rights under the Company's Option Plan and
except with respect to any Severance Payments which may be payable to him under
the terms of the Agreement.
6. Compensation Upon Termination.
-----------------------------
(a) Death. If the Executive's employment shall be terminated pursuant
-----
to Section 5(a), the Company shall pay the Executive monthly his base salary
payable pursuant to Section 4(a) and one-twelfth of any bonus payable pursuant
to Section 4(d) at the most recent annual amount received, or entitled to be
received, by the Executive (the "Severance Payment") for a period of two years
following the Date of Termination. At the Executive's own expense, the
Executive's dependents shall also be entitled to any continuation of health
insurance coverage rights under any applicable law.
(b) Disability. If the Executive's employment shall be terminated by
----------
reason of disability pursuant to Section 5(c), the Executive shall receive the
Severance Payment for the lesser of two years or the duration of such
disability; provided that payments so made to the Executive during the
disability shall be reduced by the sum of the amounts, if any, payable to the
Executive at or prior to the time of any such payment under any disability
benefit plan of the Company. At the Executive's own expense, the Executive and
his dependents shall also be entitled to any continuation of health insurance
coverage rights under any applicable law.
(c) Cause. If the Executive's employment shall be terminated for
-----
Cause pursuant to Section 5(c) hereof, the Company shall pay the Executive his
salary and any bonus then payable pursuant to Section 4(d)) through the Date of
Termination. At the Executive's own expense, the Executive and his dependents
shall also be entitled to any continuation of health insurance coverage rights
under any applicable law.
(d) Other Terminations by the Company. If the Company shall terminate
---------------------------------
the Executive's employment without cause pursuant to Section 5(d) hereof, the
Company shall pay the Executive the Severance Payment for a period of two (2)
years from the Date of Termination. The Executive and his dependents shall also
be entitled to any continuation of health insurance coverage rights under any
applicable law.
(e) Voluntary Resignation. If the Executive terminates his employment
---------------------
with the Company pursuant to Section 5(g) hereof for "Good Cause", the Company
shall pay the Executive the Severance Payment for a period of two years from the
Date of Resignation. If the Executive terminates his employment with the
Company pursuant to Section 5(g) hereof without "Good Cause," the Company shall
have no obligation to compensate the Executive following the Date of
Resignation. In any event, at the Executive's own expense, the Executive and
his dependents shall be entitled to any continuation of health insurance
coverage rights under any applicable law.
For purposes of this Agreement, "Good Cause" shall mean, without the
express written consent of Executive, the occurrence of any of the following
events unless such events are substantially corrected within 30 days following
written notification by Executive to the
5
<PAGE>
Company that he intends to terminate his employment hereunder for one of the
reasons set forth below:
(i) Any material alteration, reduction or diminution in the duties,
responsibilities and status of Executive's position;
(ii) a material breach by the Company of any provision of this
Agreement; and
(iii) the occurrence of a "Change in Control."
As used in this Agreement, "Change of Control" means the occurrence of
any of the following: (i) the adoption of a plan relating to the liquidation or
dissolution of the Company, (ii) the consummation of any transaction (including,
without limitation, any merger or consolidation) the result of which is that any
person or group, other than any of Osamu Kaneko, Andrew J. Gessow and Steven C.
Kenninger or their affiliates (the "Principals"), becomes the "beneficial owner"
(as such term is defined in Rule 13d-3 and Rule 13d-5 under the Securities
Exchange Act of 1934), directly or indirectly, of more than 50% of the total
voting power of the total outstanding voting stock of the Company on a fully
diluted basis or (iii) the consummation of the first transaction (including,
without limitation, any merger or consolidation) the result of which is that any
person or group, other than the Principals, becomes the beneficial owner (as
defined above), directly or indirectly, of more than 50% of the total voting
power of the total outstanding voting stock of the Company.
The Executive understands that any voluntary resignation by him as a
result of any personal or family reasons not otherwise set forth in this Section
6(e) shall not constitute "Good Cause."
(f) The Company will be entitled to offset and reduce each month the
amount of the monthly Severance Payment otherwise payable to the Executive
hereunder by the amount of the Executive's prior month's earnings (if any) from
post-Company full time employment (including both salary, bonus and other cash
or cash equivalent compensation) at a subsequent full time employer or in
connection with a full time consulting practice or other self-employment or any
full time venture founded by the Executive; provided, however, that the Company
shall not be entitled to any Severance Payment offset or reduction as a result
of any earnings or income generated by the Executive from part-time consulting
work, unless and until such consulting work becomes a full time endeavor.
(g) In the event of any Termination pursuant to Section 5, the
Executive shall be entitled to retain any and all options to purchase capital
stock of the Company granted to the Executive pursuant to the terms and
conditions of the Option Agreement attached as Exhibit A hereto that have vested
as of the date of such Termination.
(h) Any Severance Payment made pursuant to this Section 6 shall be
payable in equal monthly installments over the required duration set forth in
Sections 6(a) through 6(e).
(i) The continuing obligation of the Company to make the Severance
Payment to the Executive is expressly conditioned upon the Executive complying
and continuing to comply
6
<PAGE>
with his obligations and covenants under Sections 7 and 8 of this Agreement
following termination of employment with the Company.
7. Confidentiality and Non-Solicitation Covenants.
----------------------------------------------
(a) Confidentiality. In addition to the agreements set forth in
---------------
Section 5(h)(i), the Executive hereby agrees that the Executive will not, during
the Employment Period or at any time thereafter directly or indirectly disclose
or make available to any person, firm, corporation, association or other entity
for any reason or purpose whatsoever, any Confidential Information (as defined
below). The Executive agrees that, upon termination of his employment with the
Company, all Confidential Information in his possession that is in written or
other tangible form (together with all copies or duplicates thereof, including
computer files) shall be returned to the Company and shall not be retained by
the Executive or furnished to any third party, in any form except as provided
herein; provided, however, that the Executive shall not be obligated to treat as
confidential, or return to the Company copies of any Confidential Information
that (i) was publicly known at the time of disclosure to the Executive,
(ii) becomes publicly known or available thereafter other than by any means in
violation of this Agreement or any other duty owed to the Company by any person
or entity or (iii) is lawfully disclosed to the Executive by a third party. As
used in this Agreement the term "Confidential Information" means: information
------------------------
disclosed to the Executive or known by the Executive as a consequence of or
through his relationship with the Company, about the owners, customers,
employees, business methods, public relations methods, organization, procedures
or finances, including, without limitation, information of or relating to owner
or customer lists of the Company and its affiliates.
(b) Non-Solicitation. In addition, the Executive hereby agrees that
----------------
during the Employment Period and at all times thereafter, regardless of the
reason or circumstances of termination of employment with the Company, the
Executive will not, either on his own account or jointly with or as a manager,
agent, officer, employee, consultant, partner, joint venturer, owner or
shareholder or otherwise on behalf of any other person, firm or corporation,
(i) carry on or be engaged or interested directly or indirectly in, or solicit,
the manufacture or sale of goods or provision of services to any person, firm or
corporation which, at any time during the Employment Period has been or is a
customer of or in the habit of dealing with the Company in its business,
(ii) endeavor directly or indirectly to canvas or solicit in competition with
Company or to interfere with the supply of orders for goods or services from or
by any person, firm or corporation which during the Employment Period has been
or is a supplier of goods or services to Company or (iii) directly or indirectly
solicit or attempt to solicit away from Company any of its officers or employees
or offer employment to any person who, on or during the 6 months immediately
preceding the date of such solicitation or offer, is or was an officer or
employee of Company.
8. Covenant Not to Compete.
-----------------------
(a) The Executive agrees that during the Employment Period he will
devote substantially full-time to the business of the Company and not engage in
any competitive businesses. Subject to such full-time requirement and the
restrictions set forth below in this Section 8 and Section 3(c) above, the
Executive shall be permitted to continue his existing business investments and
activities and may pursue additional business investments; provided that
7
<PAGE>
the Executive not serve as officer of any public company resulting from such
business investments. The Executive agrees that he shall not (i) invest in,
manage, consult or participate in any way in any other timeshare business (in
either an active or passive manner), (ii) participate in or advise any business
wherein timeshare is a relevant business segment or (iii) act for or on behalf
of any business that intends to enter or participate in the timeshare business,
in each case unless the independent members of the Company's Board of Directors
determine that such action is in the best interest of the Company.
Notwithstanding the foregoing, the Executive may purchase stock as a stockholder
in any publicly traded company, including any company which is involved in the
timeshare business; provided that the Executive does not own (together or
separately or through his affiliates) more than 5% of any company (other than
the Company) in the timeshare business. In addition, the Executive shall not
invest (directly or indirectly) in any timeshare property in the hospitality
business (including any condominium project) or any property where the business
plan therefor includes an intention to convert the property to timeshare, unless
the independent members of the Company's Board of Directors determine that such
an investment is in the best interest of the Company.
(b) Notwithstanding anything to the contrary in this Section 8 or
elsewhere in this Agreement, the Executive and/or affiliates thereof is
permitted, at his option, to pursue the development of a timeshare resort on
that certain property located on Harbor Island, San Diego, California, owed by
the Port of San Diego. In the event the Executive or affiliate thereof so
acquires such an interest, the Company has the option, at its election (which
the Company may exercise at any time), to require the Executive or affiliate
thereof to sell such interest to the Company at a price not to exceed 50% of the
cumulative actual, direct cost incurred by the Executive or affiliate thereof in
pursuing the development or acquisition of such property. In addition, at the
direction of the independent members of the Company's Board of Directors, at any
time following the decision by the Company not to acquire such interest, the
Executive agrees to sell his interest in such property, and to divest himself of
any interest in any affiliate possessing any controlling or managing interest
therein, within six months after receipt of notice from the Company to do so,
unless the independent members of the Board determine that such investment by or
interest held by the Executive is in the best interest of the Company.
(c) Further, notwithstanding anything to the contrary in this Section
8 or elsewhere in this Agreement, and without limiting the rights of the
Executive otherwise applicable under this Agreement, the Executive or affiliates
thereof is permitted to continue to meet its duties (i) as managing general
partner with respect to (A) a 225-unit condominium project in Long Beach,
California which is being marketed for whole share unit sales or long-term
residential use rather than vacation use (and with respect to which affiliates
of the Executive (the "KOAR Interests") currently own the unsold units in such
project, the balance having been sold to third parties) and (B) several retail
centers and a proposed office development project and (ii) as constituent
general partner of a number of partnerships, which partnerships include five
Embassy Suites hotels which are owned by partnerships controlled by affiliates
of the Executive (the "Prior Partnerships"). Such duties with respect to the
KOAR Interests and the Prior Partnerships may include the sale, refinancing,
restructuring and packaging thereof, and the formation of public or private
entities for such purpose, including the formation of a public real estate
investment trust ("REIT") for any or all of the properties owned by the KOAR
Interests or Prior Partnerships; provided the Executive not serve as an officer
or employee of such REIT. The Executive agrees, however, to continue to retain
third party management companies to
8
<PAGE>
manage the properties owned by the KOAR Interests and the Prior Partnerships and
to employ personnel not employed by the Company to carry out the day-to-day
responsibilities of managing and overseeing such properties.
(d) The provisions of this Section 8 shall survive for two years
following any termination of employment, regardless of whether the termination
is for "Good Cause" or otherwise.
9. Injunctive Relief and Enforcement. In the event of breach by the
---------------------------------
Executive of the terms of Sections 5(h)(i), 7 or 8, and only following mediation
or attempted mediation as set forth in Section 16 below (unless the Company is
suffering irreparable injury, in which case Section 16 will not prevent the
Company from seeking injunctive relief against the Executive in any court or
forum), the Company shall be entitled to institute legal proceedings to enforce
the specific performance of this Agreement by the Executive and to enjoin the
Executive from any further violation of Sections 5(h)(i), 7 or 8 and to exercise
such remedies cumulatively or in conjunction with all other rights and remedies
provided by law and not otherwise limited by this Agreement. The Executive
acknowledges, however, that the remedies at law for any breach by him of the
provisions of Sections 5(h)(i), 7 or 8 may be inadequate. In addition, in the
event the agreements set forth in Sections 5(h)(i), 7 or 8 shall be determined
by any court of competent jurisdiction to be unenforceable by reason of
extending for too great a period of time or over too great a geographical area
or by reason of being too extensive in any other respect, each such agreement
shall be interpreted to extend over the maximum period of time for which it may
be enforceable and to the maximum extent in all other respects as to which it
may be enforceable, and enforced as so interpreted, all as determined by such
court in such action.
10. Notice. For the purposes of this Agreement, notices, demands and all
------
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when personally delivered when
transmitted by telecopy with receipt confirmed, or one day after delivery to an
overnight air courier guaranteeing next day delivery, addressed as follows:
If to the Executive: Osamu Kaneko
519 Meadow Grove St.
La Canada, CA 91011
If to the Company: Signature Resorts, Inc.
911 Wilshire Blvd.
Suite 2250
Los Angeles, California 90017
Attention: Osamu Kaneko
With a copy to: Latham & Watkins
633 West Fifth Street Suite 4000
Los Angeles, California 90071-2007
Attention: Edward Sonnenschein, Jr., Esq.
9
<PAGE>
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. Severability. The invalidity or unenforceability of any provision or
------------
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect; provided, however, that if any one or more of the terms contained in
Sections 5(h), 7 or 8 hereto shall for any reason be held to be excessively
broad with regard to time, duration, geographic scope or activity, that term
shall not be deleted but shall be reformed and constructed in a manner to enable
it to be enforced to the extent compatible with applicable law.
12. Assignment. This Agreement may not be assigned by the Executive, but
----------
may be assigned by the Company to any successor to its business and will inure
to the benefit and be binding upon any such successor.
13. Counterparts. This Agreement may be executed in several counterparts,
------------
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
14. Headings. The headings contained herein are for reference purposes
--------
only and shall not in any way affect the meaning or interpretation of this
Agreement.
15. Choice of Law. This Agreement shall be construed, interpreted and the
-------------
rights of the parties determined in accordance with the laws of the State of
Maryland (without reference to the choice of law provisions of Maryland), except
with respect to matters of law concerning the internal corporate affairs of any
corporate entity which is a party to or the subject of this Agreement, and as to
those matters the law of the jurisdiction under which the respective entity
derives its powers shall govern.
16. Mediation. Subject to any irreparable injury being suffered by the
---------
Company giving rise to the right of the Company to seek injunctive relief
against the Executive pursuant to Section 9 hereof, in the event that there
shall be a dispute among the parties arising out of or relating to this
Agreement, or the breach thereof, the parties agree that such dispute shall be
resolved by final and binding mediation in Los Angeles, California, before a
mediator and on terms and conditions mutually acceptable to the parties;
provided, however, that if the parties cannot agree on the terms and conditions
of such mediation, such terms and conditions shall be established by the
mediator. Any award issued as a result of such mediation shall be final and
binding between the parties thereto, and shall be enforceable by any court
having jurisdiction over the party against whom enforcement is sought. The fees
and expenses relating to such mediation (with the exception of the Executive's
attorneys' fees, if any) or any action to enforce a mediation award shall be
paid by the Company.
17. LIMITATION ON LIABILITIES. IF EITHER THE EXECUTIVE OR THE COMPANY IS
-------------------------
AWARDED ANY DAMAGES AS COMPENSATION FOR ANY BREACH OR ACTION RELATED TO THIS
AGREEMENT, A BREACH OF ANY COVENANT CONTAINED IN THIS AGREEMENT (WHETHER EXPRESS
OR IMPLIED BY EITHER LAW OR FACT), OR ANY OTHER CAUSE OF ACTION BASED IN WHOLE
OR IN
10
<PAGE>
PART ON ANY BREACH OF ANY PROVISION OF THIS AGREEMENT, SUCH DAMAGES SHALL BE
LIMITED TO CONTRACTUAL DAMAGES AND SHALL EXCLUDE (I) PUNITIVE DAMAGES, AND (II)
CONSEQUENTIAL AND/OR INCIDENTAL DAMAGES (E.G., LOST PROFITS AND OTHER INDIRECT
----
OR SPECULATIVE DAMAGES). THE MAXIMUM AMOUNT OF DAMAGES THAT THE EXECUTIVE MAY
RECOVER FOR ANY REASON SHALL BE THE AMOUNT EQUAL TO ALL AMOUNTS OWED (BUT NOT
YET PAID) TO THE EXECUTIVE PURSUANT TO THIS AGREEMENT THROUGH ITS NATURAL TERM
OR THROUGH ANY SEVERANCE PERIOD, PLUS INTEREST ON ANY DELAYED PAYMENT AT THE
MAXIMUM RATE PER ANNUM ALLOWABLE BY APPLICABLE LAW FROM AND AFTER THE DATE(S)
THAT SUCH PAYMENTS WERE DUE.
18. WAIVER OF JURY TRIAL. TO THE EXTENT APPLICABLE, EACH OF THE PARTIES
--------------------
TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR
ANY
11
<PAGE>
DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT.
19. Entire Agreement. This Agreement contains the entire agreement and
----------------
understanding between the Company and the Executive with respect to the
employment of the Executive by the Company as contemplated hereby, and no
representations, promises, agreements or understandings, written or oral, not
herein contained shall be of any force or effect. This Agreement shall not be
changed unless in writing and signed by both the Executive and the Board of
Directors of the Company.
20. The Executive's Acknowledgment. The Executive acknowledges (a) that
------------------------------
he has had the opportunity to consult with independent counsel of his own choice
concerning this Agreement, and (b) that he has read and understands the
Agreement, is fully aware of its legal effect, and has entered into it freely
based on his own judgment.
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement as of the date and year first above written.
SIGNATURE RESORTS, INC.
/s/Andrew J. Gessow
---------------------------------------
Name: Andrew J. Gessow
Title:President
EXECUTIVE
/s/Osamu Kaneko
----------------------------------------
Osamu Kaneko
12
<PAGE>
Exhibit A
Form of Option Agreement
13
<PAGE>
EXHIBIT 10.2.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is dated as of August 15,
---------
1996, between Signature Resorts, Inc., a Maryland corporation (the "Company"),
-------
and Andrew J. Gessow (the "Executive").
---------
1. Employment. The Company hereby agrees to employ the Executive, and
----------
the Executive hereby agrees to be employed by the Company, on the terms and
conditions set forth herein.
2. Term. The employment of the Executive by the Company as provided in
----
Section 1 will commence on August 20, 1996 and will terminate at 12:01 a.m. on
August 14, 1998 (the "Expiration Date") unless automatically extended or sooner
---------------
terminated as hereinafter provided (such period, the "Employment Period").
-----------------
Unless terminated by the Executive or the Company prior to July 1, 1998, this
Agreement shall automatically renew on the terms set forth herein for a second
two-year period. If so renewed, no later than May 1, 2000, the Company shall
notify the Executive with written notice as to whether the Company intends to
further renew or extend the Agreement (including proposals for such further
renewal which the Executive may accept, reject or negotiate, at his discretion).
3. Position, Duties and Responsibilities.
-------------------------------------
(a) Position. The Executive hereby agrees to serve as President of
--------
the Company. In addition, for so long as the Executive is an employee of the
Company and is elected by the Company's stockholders, the Executive hereby
agrees to serve as a member of the Board. The Executive understands that his
position as a member of the Board is subject to the nomination by the Company;
provided that the Executive shall be a member of the Board with a three-year
term prior to the time the Company consummates any public offering of securities
and the Company agrees to use permissible commercially reasonable efforts
(subject to the exercise of its fiduciary duties) to cause the nomination and
election of the Executive to the Board following any such public offering,
subject to the terms and conditions of this Agreement. The Executive shall
devote his best efforts and substantially full business time and attention to
the performance of services to the Company in his capacity as an officer thereof
and as may reasonably be requested by the Board. The Company shall retain full
direction and control of the means and methods by which the Executive performs
the above services.
(b) Place of Employment. During the term of this Agreement, the
-------------------
Executive shall perform the services required by this Agreement at the Company's
place of business in the Los Angeles, California or San Francisco, California
metropolitan area; provided, however, that the Company will require the
Executive to travel extensively to other locations on the Company's business.
(c) Other Activities. Except with the prior written approval of the
----------------
Board (which the Board may grant or withhold in its sole and absolute
discretion), the Executive, during the Employment Period, will not (i) accept
any other employment, (ii) serve on the board of directors or similar body of
any other business entity (except as otherwise set forth below), or (iii)
engage, directly or indirectly, in any other business activity (whether or not
pursued for pecuniary advantage) that is or may be competitive with, or that
might place him in a competing position to, that of the Company or any of its
affiliates. Notwithstanding the foregoing, the Company agrees that the
Executive (or affiliates of the Executive) shall be permitted (i) to
<PAGE>
undertake the activities set forth in Section 8 and (ii) to make any other
passive personal investment that is not in a business activity that is directly
or indirectly competitive with the Company.
4. Compensation and Related Matters.
--------------------------------
(a) Salary. During the Employment Period, the Company shall pay the
------
Executive a salary of not less than $280,000 during the first full year and at
such salary as determined by the Compensation Committee of the Board during the
second and subsequent years of the Executive's employment with the Company. All
salary is to be paid consistent with the standard payroll practices of the
Company (e.g., timing of payments and standard employee deductions, such as
----
income tax withholdings, social security, etc.). The Executive's performance
and salary shall be subject to review at the end of each fiscal year consistent
with the standard practices of the Company.
(b) Business Expenses. The Company shall reimburse the Executive in
-----------------
connection with the conduct of the Company's business upon presentation of
sufficient evidence of such expenditures consistent with the Company's policies
as in place from time to time.
(c) Other Benefits. The Executive shall be entitled to participate in
--------------
or receive health, welfare, life insurance, long-term disability insurance,
bonus plan and similar benefits as the Company provides generally from time to
time to its executives. The Company acknowledges that within a reasonable time
following the execution of this Agreement, it will execute an option agreement
substantially in the form attached as Exhibit A hereto (the "Option Agreement")
and will institute and grant the Executive benefits under the equity
participation plan substantially in the form attached as Exhibit B hereto (the
"Option Plan"). Except as otherwise set forth in this Section 4 and except with
respect to the Company's obligations under this Agreement with respect to the
Option Agreement and the Option Plan, nothing herein is intended, or shall be
construed to require the Company to institute or continue any, or any
particular, plan or benefits.
(d) Bonus. Upon completion of the Company's public offering, the
-----
Compensation Committee of the Board shall establish, monitor, and oversee an
incentive bonus program for the Executive which will provide for payment of a
cash bonus of up to 100% of the Executive's then annual base salary paid to the
Executive during the applicable fiscal year, if certain performance objectives
established by the Compensation Committee for the Executive (such as specified
targets of growth in revenues and earnings per share) are achieved. Such bonus
compensation would be prorated for the first fiscal year of the Executive's
employment ending on December 31, 1996. Such incentive program would provide
for specific partial bonus achievement hurdles in connection with this program
as well. Each subsequent year thereafter, the Compensation Committee of the
Board will monitor, review and modify this program as necessary to reflect the
Executive's contributions to the Company.
(e) Fringe Benefits. The Executive will be entitled to fringe
---------------
benefits as may be determined or granted from time-to-time by the Board.
2
<PAGE>
(f) Vacation. The Executive shall be entitled to four vacation weeks
--------
(20 days) in each calendar year on a pro-rated basis. The Executive will be
entitled to all Company holidays.
(g) Performance Reviews. At the end of each fiscal year, the Board
-------------------
will review the Executive's job performance and will provide the Executive a
written review of the Executive's job performance during the prior year and
implement any Board determined revisions to the Executive's base salary, the
Executive's merit bonus, the Executive's prospective incentive compensation
package (including the Executive's participation in the Option Plan), the
Executive's title and/or the Executive's responsibility at the Company;
provided, however, that the provisions set forth in this Agreement with respect
to the Executive's compensation, the Option Agreement and the terms and
conditions of the Executive's employment at the Company cannot be modified by
the Board in a manner which would result in less favorable or beneficial terms
or conditions thereof being imposed on the Executive without the Executive's
full concurrence and consent.
5. Termination. The Executive's employment hereunder shall be, or may
-----------
be, as the case may be, terminated under the following circumstances:
(a) Death. The Executive's employment hereunder shall terminate upon
-----
his death.
(b) Disability. The Executive's employment hereunder shall terminate
----------
on the Executive's physical or mental disability or infirmity which, in the
opinion of a competent physician selected by the Board, renders the Executive
unable to perform his duties under this Agreement for more than 120 days during
any 180-day period.
(c) Cause. The Company may terminate the Executive's employment
-----
hereunder for "Cause." Cause shall mean (i) Employee's material breach of any
-----
of the terms of this Agreement, (ii) his conviction of a crime involving moral
turpitude or constituting a felony under the laws of any state, the District of
Columbia or of the United States, or (iii) his gross negligence, willful
misconduct or fraud in the performance of his duties hereunder.
(d) Employment-At-Will/Termination for Any Reason. Notwithstanding
---------------------------------------------
the term of this Agreement having a duration of two years and Sections 2 and 4
hereof referring to extensions of this Agreement and the annual salary to be
paid to the Executive during each of the first five full years of his employment
with the Company, nothing in this Agreement should be construed as to confer any
right of the Executive to be employed by the Company for a fixed or definite
term. Subject to Section 6 hereof, the Executive hereby agrees that the Company
may dismiss him under this Section 5(d) without regard (i) to any general or
specific policies (whether written or oral) of the Company relating to the
employment or termination of its employees, or (ii) to any statements made to
the Executive, whether made orally or contained in any document, pertaining to
the Executive's relationship with the Company. Notwithstanding anything to the
contrary contained herein, including Sections 2 and 4, the Executive's
employment with the Company is not for any specified term, is at will and may be
terminated by the Company at any time by delivery of a notice of termination to
the Executive, for any reason, with or without cause, without liability except
with respect to the payments provided for by Section 6.
3
<PAGE>
(e) Voluntary Resignation. The Executive may voluntarily resign his
---------------------
position and terminate his employment with the Company at any time by delivery
of a written notice of resignation to the Company (the "Notice of Resignation").
---------------------
The Notice of Resignation shall set forth the date such resignation shall become
effective (the "Date of Resignation"), which date shall, in any event, be at
-------------------
least ten (10) days and no more than thirty (30) days from the date the Notice
of Resignation is delivered to the Company. At its option, the Company may
reduce such notice period to any length, upon thirty (30) days written notice to
the Executive.
(f) Notice. Any termination of the Executive's employment by the
------
Company shall be communicated by written Notice of Termination to the Executive.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
---------------------
that shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated.
(g) "Date of Termination" shall mean (i) if the Executive's employment
-------------------
is terminated by his death, the date of his death, (ii) if the Executive's
employment is terminated by reason of his disability, the date of the opinion of
the physician referred to in Section 5(b), above, (iii) if the Executive's
employment is terminated by the Company for Cause pursuant to subsection 5(c)
above, or without Cause by the Company pursuant to subsection 5(d) above, the
date specified in the Notice of Termination and (iv) if the Executive
voluntarily resigns pursuant to subsection 5(e) above, the date of the Notice of
Resignation.
(h) Termination Obligations.
-----------------------
(i) The Executive hereby acknowledges and agrees that all
personal property and equipment furnished to or prepared by the Executive
in the course of or incident to his employment, belongs to the Company and
shall be promptly returned to the Company upon termination of the
Employment Period. "Personal property" includes, without limitation, all
-----------------
books, manuals, records, reports, notes, contracts, lists, blueprints, and
other documents, or materials, or copies thereof (including computer
files), and all other proprietary information relating to the business of
the Company. Following termination, the Executive will not retain any
written or other tangible material containing any proprietary information
of the Company.
(ii) Upon termination of the Employment Period, the Executive
shall be deemed to have resigned from all offices and directorships then
held with the Company or any affiliate.
(iii) The representations and warranties contained herein and
the Executive's obligations under Sections 5(h), 7, 8, 9 and 15 through 18
shall survive termination of the Employment Period and the expiration of
this Agreement. Nothing herein shall modify Employee's mediation and other
rights under this Agreement.
(i) Release. In exchange for the Company entering into the Agreement,
-------
the Executive agrees that, at the time of his resignation or termination from
the Company, he will resign from the Board and will execute a release acceptable
to the Company of all liability of the
4
<PAGE>
Company and its officers, shareholders, employees and directors to the Executive
in connection with or arising out of his employment with the Company, except
with respect to any then-vested rights under the Company's Option Plan and
except with respect to any Severance Payments which may be payable to him under
the terms of the Agreement.
6. Compensation Upon Termination.
-----------------------------
(a) Death. If the Executive's employment shall be terminated pursuant
-----
to Section 5(a), the Company shall pay the Executive monthly his base salary
payable pursuant to Section 4(a) and one-twelfth of any bonus payable pursuant
to Section 4(d) at the most recent annual amount received, or entitled to be
received, by the Executive (the "Severance Payment") for a period of two years
following the Date of Termination. At the Executive's own expense, the
Executive's dependents shall also be entitled to any continuation of health
insurance coverage rights under any applicable law.
(b) Disability. If the Executive's employment shall be terminated by
----------
reason of disability pursuant to Section 5(c), the Executive shall receive the
Severance Payment for the lesser of two years or the duration of such
disability; provided that payments so made to the Executive during the
disability shall be reduced by the sum of the amounts, if any, payable to the
Executive at or prior to the time of any such payment under any disability
benefit plan of the Company. At the Executive's own expense, the Executive and
his dependents shall also be entitled to any continuation of health insurance
coverage rights under any applicable law.
(c) Cause. If the Executive's employment shall be terminated for
-----
Cause pursuant to Section 5(c) hereof, the Company shall pay the Executive his
salary and any bonus then payable pursuant to Section 4(d)) through the Date of
Termination. At the Executive's own expense, the Executive and his dependents
shall also be entitled to any continuation of health insurance coverage rights
under any applicable law.
(d) Other Terminations by the Company. If the Company shall terminate
---------------------------------
the Executive's employment without cause pursuant to Section 5(d) hereof, the
Company shall pay the Executive the Severance Payment for a period of two (2)
years from the Date of Termination. The Executive and his dependents shall also
be entitled to any continuation of health insurance coverage rights under any
applicable law.
(e) Voluntary Resignation. If the Executive terminates his employment
---------------------
with the Company pursuant to Section 5(g) hereof for "Good Cause", the Company
shall pay the Executive the Severance Payment for a period of two years from the
Date of Resignation. If the Executive terminates his employment with the
Company pursuant to Section 5(g) hereof without "Good Cause," the Company shall
have no obligation to compensate the Executive following the Date of
Resignation. In any event, at the Executive's own expense, the Executive and
his dependents shall be entitled to any continuation of health insurance
coverage rights under any applicable law.
For purposes of this Agreement, "Good Cause" shall mean, without the
express written consent of Executive, the occurrence of any of the following
events unless such events are substantially corrected within 30 days following
written notification by Executive to the
5
<PAGE>
Company that he intends to terminate his employment hereunder for one of the
reasons set forth below:
(i) Any material alteration, reduction or diminution in the duties,
responsibilities and status of Executive's position;
(ii) a material breach by the Company of any provision of this
Agreement; and
(iii) the occurrence of a "Change in Control."
As used in this Agreement, "Change of Control" means the occurrence of
any of the following: (i) the adoption of a plan relating to the liquidation or
dissolution of the Company, (ii) the consummation of any transaction (including,
without limitation, any merger or consolidation) the result of which is that any
person or group, other than any of Osamu Kaneko, Andrew J. Gessow and Steven C.
Kenninger or their affiliates (the "Principals"), becomes the "beneficial owner"
(as such term is defined in Rule 13d-3 and Rule 13d-5 under the Securities
Exchange Act of 1934), directly or indirectly, of more than 50% of the total
voting power of the total outstanding voting stock of the Company on a fully
diluted basis or (iii) the consummation of the first transaction (including,
without limitation, any merger or consolidation) the result of which is that any
person or group, other than the Principals, becomes the beneficial owner (as
defined above), directly or indirectly, of more than 50% of the total voting
power of the total outstanding voting stock of the Company.
The Executive understands that any voluntary resignation by him as a
result of any personal or family reasons not otherwise set forth in this Section
6(e) shall not constitute "Good Cause."
(f) The Company will be entitled to offset and reduce each month the
amount of the monthly Severance Payment otherwise payable to the Executive
hereunder by the amount of the Executive's prior month's earnings (if any) from
post-Company full time employment (including both salary, bonus and other cash
or cash equivalent compensation) at a subsequent full time employer or in
connection with a full time consulting practice or other self-employment or any
full time venture founded by the Executive; provided, however, that the Company
shall not be entitled to any Severance Payment offset or reduction as a result
of any earnings or income generated by the Executive from part-time consulting
work, unless and until such consulting work becomes a full time endeavor.
(g) In the event of any Termination pursuant to Section 5, the
Executive shall be entitled to retain any and all options to purchase capital
stock of the Company granted to the Executive pursuant to the terms and
conditions of the Option Agreement attached as Exhibit A hereto that have vested
as of the date of such Termination.
(h) Any Severance Payment made pursuant to this Section 6 shall be
payable in equal monthly installments over the required duration set forth in
Sections 6(a) through 6(e).
(i) The continuing obligation of the Company to make the Severance
Payment to the Executive is expressly conditioned upon the Executive complying
and continuing to comply
6
<PAGE>
with his obligations and covenants under Sections 7 and 8 of this Agreement
following termination of employment with the Company.
7. Confidentiality and Non-Solicitation Covenants.
----------------------------------------------
(a) Confidentiality. In addition to the agreements set forth in
---------------
Section 5(h)(i), the Executive hereby agrees that the Executive will not, during
the Employment Period or at any time thereafter directly or indirectly disclose
or make available to any person, firm, corporation, association or other entity
for any reason or purpose whatsoever, any Confidential Information (as defined
below). The Executive agrees that, upon termination of his employment with the
Company, all Confidential Information in his possession that is in written or
other tangible form (together with all copies or duplicates thereof, including
computer files) shall be returned to the Company and shall not be retained by
the Executive or furnished to any third party, in any form except as provided
herein; provided, however, that the Executive shall not be obligated to treat as
confidential, or return to the Company copies of any Confidential Information
that (i) was publicly known at the time of disclosure to the Executive, (ii)
becomes publicly known or available thereafter other than by any means in
violation of this Agreement or any other duty owed to the Company by any person
or entity or (iii) is lawfully disclosed to the Executive by a third party. As
used in this Agreement the term "Confidential Information" means: information
------------------------
disclosed to the Executive or known by the Executive as a consequence of or
through his relationship with the Company, about the owners, customers,
employees, business methods, public relations methods, organization, procedures
or finances, including, without limitation, information of or relating to owner
or customer lists of the Company and its affiliates.
(b) Non-Solicitation. In addition, the Executive hereby agrees that
----------------
during the Employment Period and at all times thereafter, regardless of the
reason or circumstances of termination of employment with the Company, the
Executive will not, either on his own account or jointly with or as a manager,
agent, officer, employee, consultant, partner, joint venturer, owner or
shareholder or otherwise on behalf of any other person, firm or corporation, (i)
carry on or be engaged or interested directly or indirectly in, or solicit, the
manufacture or sale of goods or provision of services to any person, firm or
corporation which, at any time during the Employment Period has been or is a
customer of or in the habit of dealing with the Company in its business, (ii)
endeavor directly or indirectly to canvas or solicit in competition with Company
or to interfere with the supply of orders for goods or services from or by any
person, firm or corporation which during the Employment Period has been or is a
supplier of goods or services to Company or (iii) directly or indirectly solicit
or attempt to solicit away from Company any of its officers or employees or
offer employment to any person who, on or during the 6 months immediately
preceding the date of such solicitation or offer, is or was an officer or
employee of Company.
8. Covenant Not to Compete.
-----------------------
(a) The Executive agrees that during the Employment Period he will
devote substantially full-time to the business of the Company and not engage in
any competitive businesses. Subject to such full-time requirement and the
restrictions set forth below in this Section 8 and Section 3(c) above, the
Executive shall be permitted to continue his existing business investments and
activities and may pursue additional business investments; provided that
7
<PAGE>
the Executive not serve as officer of any public company resulting from such
business investments. The Executive agrees that he shall not (i) invest in,
manage, consult or participate in any way in any other timeshare business (in
either an active or passive manner), (ii) participate in or advise any business
wherein timeshare is a relevant business segment or (iii) act for or on behalf
of any business that intends to enter or participate in the timeshare business,
in each case unless the independent members of the Company's Board of Directors
determine that such action is in the best interest of the Company.
Notwithstanding the foregoing, the Executive may purchase stock as a stockholder
in any publicly traded company, including any company which is involved in the
timeshare business; provided that the Executive does not own (together or
separately or through his affiliates) more than 5% of any company (other than
the Company) in the timeshare business. In addition, the Executive shall not
invest (directly or indirectly) in any timeshare property in the hospitality
business (including any condominium project) or any property where the business
plan therefor includes an intention to convert the property to timeshare, unless
the independent members of the Company's Board of Directors determine that such
an investment is in the best interest of the Company.
(b) Notwithstanding anything to the contrary in this Section 8 or
elsewhere in this Agreement, the Executive and/or affiliates thereof is
permitted, at his option, to pursue the development of a timeshare resort on
that certain property located on Harbor Island, San Diego, California, owed by
the Port of San Diego. In the event the Executive or affiliate thereof so
acquires such an interest, the Company has the option, at its election (which
the Company may exercise at any time), to require the Executive or affiliate
thereof to sell such interest to the Company at a price not to exceed 50% of the
cumulative actual, direct cost incurred by the Executive or affiliate thereof in
pursuing the development or acquisition of such property. In addition, at the
direction of the independent members of the Company's Board of Directors, at any
time following the decision by the Company not to acquire such interest, the
Executive agrees to sell his interest in such property, and to divest himself of
any interest in any affiliate possessing any controlling or managing interest
therein, within six months after receipt of notice from the Company to do so,
unless the independent members of the Board determine that such investment by or
interest held by the Executive is in the best interest of the Company.
(c) Further, notwithstanding anything to the contrary in this Section
8 or elsewhere in this Agreement, and without limiting the rights of the
Executive otherwise applicable under this Agreement, the Executive or affiliates
thereof is permitted to continue to meet its duties (i) as managing general
partner with respect to (A) a 225-unit condominium project in Long Beach,
California which is being marketed for whole share unit sales or long-term
residential use rather than vacation use (and with respect to which affiliates
of the Executive (the "KOAR Interests") currently own the unsold units in such
project, the balance having been sold to third parties) and (B) several retail
centers and a proposed office development project and (ii) as constituent
general partner of a number of partnerships, which partnerships include five
Embassy Suites hotels which are owned by partnerships controlled by affiliates
of the Executive (the "Prior Partnerships"). Such duties with respect to the
KOAR Interests and the Prior Partnerships may include the sale, refinancing,
restructuring and packaging thereof, and the formation of public or private
entities for such purpose, including the formation of a public real estate
investment trust ("REIT") for any or all of the properties owned by the KOAR
Interests or Prior Partnerships; provided the Executive not serve as an officer
or employee of such REIT. The Executive agrees, however, to continue to retain
third party management companies to
8
<PAGE>
manage the properties owned by the KOAR Interests and the Prior Partnerships and
to employ personnel not employed by the Company to carry out the day-to-day
responsibilities of managing and overseeing such properties.
(d) The provisions of this Section 8 shall survive for two years
following any termination of employment, regardless of whether the termination
is for "Good Cause" or otherwise.
9. Injunctive Relief and Enforcement. In the event of breach by the
---------------------------------
Executive of the terms of Sections 5(h)(i), 7 or 8, and only following mediation
or attempted mediation as set forth in Section 16 below (unless the Company is
suffering irreparable injury, in which case Section 16 will not prevent the
Company from seeking injunctive relief against the Executive in any court or
forum), the Company shall be entitled to institute legal proceedings to enforce
the specific performance of this Agreement by the Executive and to enjoin the
Executive from any further violation of Sections 5(h)(i), 7 or 8 and to exercise
such remedies cumulatively or in conjunction with all other rights and remedies
provided by law and not otherwise limited by this Agreement. The Executive
acknowledges, however, that the remedies at law for any breach by him of the
provisions of Sections 5(h)(i), 7 or 8 may be inadequate. In addition, in the
event the agreements set forth in Sections 5(h)(i), 7 or 8 shall be determined
by any court of competent jurisdiction to be unenforceable by reason of
extending for too great a period of time or over too great a geographical area
or by reason of being too extensive in any other respect, each such agreement
shall be interpreted to extend over the maximum period of time for which it may
be enforceable and to the maximum extent in all other respects as to which it
may be enforceable, and enforced as so interpreted, all as determined by such
court in such action.
10. Notice. For the purposes of this Agreement, notices, demands and all
------
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when personally delivered when
transmitted by telecopy with receipt confirmed, or one day after delivery to an
overnight air courier guaranteeing next day delivery, addressed as follows:
If to the Executive: Andrew J. Gessow
540 Moore Road
Woodside, CA 94062
If to the Company: Signature Resorts, Inc.
2934 Woodside Road
Woodside, CA 94062
Attention: Andrew J. Gessow
With a copy to: Latham & Watkins
633 West Fifth Street Suite 4000
Los Angeles, California 90071-2007
Attention: Edward Sonnenschein, Jr., Esq.
9
<PAGE>
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. Severability. The invalidity or unenforceability of any provision or
------------
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect; provided, however, that if any one or more of the terms contained in
Sections 5(h), 7 or 8 hereto shall for any reason be held to be excessively
broad with regard to time, duration, geographic scope or activity, that term
shall not be deleted but shall be reformed and constructed in a manner to enable
it to be enforced to the extent compatible with applicable law.
12. Assignment. This Agreement may not be assigned by the Executive, but
----------
may be assigned by the Company to any successor to its business and will inure
to the benefit and be binding upon any such successor.
13. Counterparts. This Agreement may be executed in several counterparts,
------------
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
14. Headings. The headings contained herein are for reference purposes
--------
only and shall not in any way affect the meaning or interpretation of this
Agreement.
15. Choice of Law. This Agreement shall be construed, interpreted and the
-------------
rights of the parties determined in accordance with the laws of the State of
Maryland (without reference to the choice of law provisions of Maryland), except
with respect to matters of law concerning the internal corporate affairs of any
corporate entity which is a party to or the subject of this Agreement, and as to
those matters the law of the jurisdiction under which the respective entity
derives its powers shall govern.
16. Mediation. Subject to any irreparable injury being suffered by the
---------
Company giving rise to the right of the Company to seek injunctive relief
against the Executive pursuant to Section 9 hereof, in the event that there
shall be a dispute among the parties arising out of or relating to this
Agreement, or the breach thereof, the parties agree that such dispute shall be
resolved by final and binding mediation in Los Angeles, California, before a
mediator and on terms and conditions mutually acceptable to the parties;
provided, however, that if the parties cannot agree on the terms and conditions
of such mediation, such terms and conditions shall be established by the
mediator. Any award issued as a result of such mediation shall be final and
binding between the parties thereto, and shall be enforceable by any court
having jurisdiction over the party against whom enforcement is sought. The fees
and expenses relating to such mediation (with the exception of the Executive's
attorneys' fees, if any) or any action to enforce a mediation award shall be
paid by the Company.
17. LIMITATION ON LIABILITIES. IF EITHER THE EXECUTIVE OR THE COMPANY IS
-------------------------
AWARDED ANY DAMAGES AS COMPENSATION FOR ANY BREACH OR ACTION RELATED TO THIS
AGREEMENT, A BREACH OF ANY COVENANT CONTAINED IN THIS AGREEMENT (WHETHER EXPRESS
OR IMPLIED BY EITHER LAW OR FACT), OR ANY OTHER CAUSE OF ACTION BASED IN WHOLE
OR IN
10
<PAGE>
PART ON ANY BREACH OF ANY PROVISION OF THIS AGREEMENT, SUCH DAMAGES SHALL BE
LIMITED TO CONTRACTUAL DAMAGES AND SHALL EXCLUDE (I) PUNITIVE DAMAGES, AND (II)
CONSEQUENTIAL AND/OR INCIDENTAL DAMAGES (E.G., LOST PROFITS AND OTHER INDIRECT
----
OR SPECULATIVE DAMAGES). THE MAXIMUM AMOUNT OF DAMAGES THAT THE EXECUTIVE MAY
RECOVER FOR ANY REASON SHALL BE THE AMOUNT EQUAL TO ALL AMOUNTS OWED (BUT NOT
YET PAID) TO THE EXECUTIVE PURSUANT TO THIS AGREEMENT THROUGH ITS NATURAL TERM
OR THROUGH ANY SEVERANCE PERIOD, PLUS INTEREST ON ANY DELAYED PAYMENT AT THE
MAXIMUM RATE PER ANNUM ALLOWABLE BY APPLICABLE LAW FROM AND AFTER THE DATE(S)
THAT SUCH PAYMENTS WERE DUE.
18. WAIVER OF JURY TRIAL. TO THE EXTENT APPLICABLE, EACH OF THE PARTIES
--------------------
TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR
ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT.
19. Entire Agreement. This Agreement contains the entire agreement and
----------------
understanding between the Company and the Executive with respect to the
employment of the Executive by the Company as contemplated hereby, and no
representations, promises, agreements or understandings, written or oral, not
herein contained shall be of any force or effect. This Agreement shall not be
changed unless in writing and signed by both the Executive and the Board of
Directors of the Company.
20. The Executive's Acknowledgment. The Executive acknowledges (a) that
------------------------------
he has had the opportunity to consult with independent counsel of his own choice
concerning this Agreement, and (b) that he has read and understands the
Agreement, is fully aware of its legal effect, and has entered into it freely
based on his own judgment.
11
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement as of the date and year first above written.
SIGNATURE RESORTS, INC.
/s/Andrew J. Gessow
-------------------------------
Name: Andrew J. Gessow
Title:President
EXECUTIVE
/s/Andrew J. Gessow
-------------------------------
Andrew J. Gessow
12
<PAGE>
Exhibit A
Form of Option Agreement
13
<PAGE>
EXHIBIT 10.2.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is dated as of August 15,
---------
1996, between Signature Resorts, Inc., a Maryland corporation (the "Company"),
-------
and Steven C. Kenninger (the "Executive").
---------
1. Employment. The Company hereby agrees to employ the Executive, and
----------
the Executive hereby agrees to be employed by the Company, on the terms and
conditions set forth herein.
2. Term. The employment of the Executive by the Company as provided in
----
Section 1 will commence on August 20, 1996 and will terminate at 12:01 a.m. on
August 14, 1998 (the "Expiration Date") unless automatically extended or sooner
---------------
terminated as hereinafter provided (such period, the "Employment Period").
-----------------
Unless terminated by the Executive or the Company prior to July 1, 1998, this
Agreement shall automatically renew on the terms set forth herein for a second
two-year period. If so renewed, no later than May 1, 2000, the Company shall
notify the Executive with written notice as to whether the Company intends to
further renew or extend the Agreement (including proposals for such further
renewal which the Executive may accept, reject or negotiate, at his discretion).
3. Position, Duties and Responsibilities.
-------------------------------------
(a) Position. The Executive hereby agrees to serve as Chief Operating
--------
Officer and Secretary of the Company. In addition, for so long as the Executive
is an employee of the Company and is elected by the Company's stockholders, the
Executive hereby agrees to serve as a member of the Board. The Executive
understands that his position as a member of the Board is subject to the
nomination by the Company; provided that the Executive shall be a member of the
Board with a three-year term prior to the time the Company consummates any
public offering of securities and the Company agrees to use permissible
commercially reasonable efforts (subject to the exercise of its fiduciary
duties) to cause the nomination and election of the Executive to the Board
following any such public offering, subject to the terms and conditions of this
Agreement. The Executive shall devote his best efforts and substantially full
business time and attention to the performance of services to the Company in his
capacity as an officer thereof and as may reasonably be requested by the Board.
The Company shall retain full direction and control of the means and methods by
which the Executive performs the above services.
(b) Place of Employment. During the term of this Agreement, the
-------------------
Executive shall perform the services required by this Agreement at the Company's
place of business in the Los Angeles, California or San Francisco, California
metropolitan area; provided, however, that the Company will require the
Executive to travel extensively to other locations on the Company's business.
(c) Other Activities. Except with the prior written approval of the
----------------
Board (which the Board may grant or withhold in its sole and absolute
discretion), the Executive, during the Employment Period, will not (i) accept
any other employment, (ii) serve on the board of directors or similar body of
any other business entity (except as otherwise set forth below), or (iii)
engage, directly or indirectly, in any other business activity (whether or not
pursued for pecuniary advantage) that is or may be competitive with, or that
might place him in a competing position to, that of the Company or any of its
affiliates. Notwithstanding the foregoing, the Company agrees that the
Executive (or affiliates of the Executive) shall be permitted (i) to
<PAGE>
undertake the activities set forth in Section 8 and (ii) to make any other
passive personal investment that is not in a business activity that is directly
or indirectly competitive with the Company.
4. Compensation and Related Matters.
--------------------------------
(a) Salary. During the Employment Period, the Company shall pay the
------
Executive a salary of not less than $280,000 during the first full year and at
such salary as determined by the Compensation Committee of the Board during the
second and subsequent years of the Executive's employment with the Company. All
salary is to be paid consistent with the standard payroll practices of the
Company (e.g., timing of payments and standard employee deductions, such as
----
income tax withholdings, social security, etc.). The Executive's performance
and salary shall be subject to review at the end of each fiscal year consistent
with the standard practices of the Company.
(b) Business Expenses. The Company shall reimburse the Executive in
-----------------
connection with the conduct of the Company's business upon presentation of
sufficient evidence of such expenditures consistent with the Company's policies
as in place from time to time.
(c) Other Benefits. The Executive shall be entitled to participate in
--------------
or receive health, welfare, life insurance, long-term disability insurance,
bonus plan and similar benefits as the Company provides generally from time to
time to its executives. The Company acknowledges that within a reasonable time
following the execution of this Agreement, it will execute an option agreement
substantially in the form attached as Exhibit A hereto (the "Option Agreement")
and will institute and grant the Executive benefits under the equity
participation plan substantially in the form attached as Exhibit B hereto (the
"Option Plan"). Except as otherwise set forth in this Section 4 and except with
respect to the Company's obligations under this Agreement with respect to the
Option Agreement and the Option Plan, nothing herein is intended, or shall be
construed to require the Company to institute or continue any, or any
particular, plan or benefits.
(d) Bonus. Upon completion of the Company's public offering, the
-----
Compensation Committee of the Board shall establish, monitor, and oversee an
incentive bonus program for the Executive which will provide for payment of a
cash bonus of up to 100% of the Executive's then annual base salary paid to the
Executive during the applicable fiscal year, if certain performance objectives
established by the Compensation Committee for the Executive (such as specified
targets of growth in revenues and earnings per share) are achieved. Such bonus
compensation would be prorated for the first fiscal year of the Executive's
employment ending on December 31, 1996. Such incentive program would provide
for specific partial bonus achievement hurdles in connection with this program
as well. Each subsequent year thereafter, the Compensation Committee of the
Board will monitor, review and modify this program as necessary to reflect the
Executive's contributions to the Company.
(e) Fringe Benefits. The Executive will be entitled to fringe
---------------
benefits as may be determined or granted from time-to-time by the Board.
2
<PAGE>
(f) Vacation. The Executive shall be entitled to four vacation weeks
--------
(20 days) in each calendar year on a pro-rated basis. The Executive will be
entitled to all Company holidays.
(g) Performance Reviews. At the end of each fiscal year, the Board
-------------------
will review the Executive's job performance and will provide the Executive a
written review of the Executive's job performance during the prior year and
implement any Board determined revisions to the Executive's base salary, the
Executive's merit bonus, the Executive's prospective incentive compensation
package (including the Executive's participation in the Option Plan), the
Executive's title and/or the Executive's responsibility at the Company;
provided, however, that the provisions set forth in this Agreement with respect
to the Executive's compensation, the Option Agreement and the terms and
conditions of the Executive's employment at the Company cannot be modified by
the Board in a manner which would result in less favorable or beneficial terms
or conditions thereof being imposed on the Executive without the Executive's
full concurrence and consent.
5. Termination. The Executive's employment hereunder shall be, or may
-----------
be, as the case may be, terminated under the following circumstances:
(a) Death. The Executive's employment hereunder shall terminate upon
-----
his death.
(b) Disability. The Executive's employment hereunder shall terminate
----------
on the Executive's physical or mental disability or infirmity which, in the
opinion of a competent physician selected by the Board, renders the Executive
unable to perform his duties under this Agreement for more than 120 days during
any 180-day period.
(c) Cause. The Company may terminate the Executive's employment
-----
hereunder for "Cause." Cause shall mean (i) Employee's material breach of any
-----
of the terms of this Agreement, (ii) his conviction of a crime involving moral
turpitude or constituting a felony under the laws of any state, the District of
Columbia or of the United States, or (iii) his gross negligence, willful
misconduct or fraud in the performance of his duties hereunder.
(d) Employment-At-Will/Termination for Any Reason. Notwithstanding
---------------------------------------------
the term of this Agreement having a duration of two years and Sections 2 and 4
hereof referring to extensions of this Agreement and the annual salary to be
paid to the Executive during each of the first five full years of his employment
with the Company, nothing in this Agreement should be construed as to confer any
right of the Executive to be employed by the Company for a fixed or definite
term. Subject to Section 6 hereof, the Executive hereby agrees that the Company
may dismiss him under this Section 5(d) without regard (i) to any general or
specific policies (whether written or oral) of the Company relating to the
employment or termination of its employees, or (ii) to any statements made to
the Executive, whether made orally or contained in any document, pertaining to
the Executive's relationship with the Company. Notwithstanding anything to the
contrary contained herein, including Sections 2 and 4, the Executive's
employment with the Company is not for any specified term, is at will and may be
terminated by the Company at any time by delivery of a notice of termination to
the Executive, for any reason, with or without cause, without liability except
with respect to the payments provided for by Section 6.
3
<PAGE>
(e) Voluntary Resignation. The Executive may voluntarily resign his
---------------------
position and terminate his employment with the Company at any time by delivery
of a written notice of resignation to the Company (the "Notice of Resignation").
---------------------
The Notice of Resignation shall set forth the date such resignation shall become
effective (the "Date of Resignation"), which date shall, in any event, be at
-------------------
least ten (10) days and no more than thirty (30) days from the date the Notice
of Resignation is delivered to the Company. At its option, the Company may
reduce such notice period to any length, upon thirty (30) days written notice to
the Executive.
(f) Notice. Any termination of the Executive's employment by the
------
Company shall be communicated by written Notice of Termination to the Executive.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
---------------------
that shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated.
(g) "Date of Termination" shall mean (i) if the Executive's employment
-------------------
is terminated by his death, the date of his death, (ii) if the Executive's
employment is terminated by reason of his disability, the date of the opinion of
the physician referred to in Section 5(b), above, (iii) if the Executive's
employment is terminated by the Company for Cause pursuant to subsection 5(c)
above, or without Cause by the Company pursuant to subsection 5(d) above, the
date specified in the Notice of Termination and (iv) if the Executive
voluntarily resigns pursuant to subsection 5(e) above, the date of the Notice of
Resignation.
(h) Termination Obligations.
-----------------------
(i) The Executive hereby acknowledges and agrees that all
personal property and equipment furnished to or prepared by the Executive
in the course of or incident to his employment, belongs to the Company and
shall be promptly returned to the Company upon termination of the
Employment Period. "Personal property" includes, without limitation, all
-----------------
books, manuals, records, reports, notes, contracts, lists, blueprints, and
other documents, or materials, or copies thereof (including computer
files), and all other proprietary information relating to the business of
the Company. Following termination, the Executive will not retain any
written or other tangible material containing any proprietary information
of the Company.
(ii) Upon termination of the Employment Period, the Executive
shall be deemed to have resigned from all offices and directorships then
held with the Company or any affiliate.
(iii) The representations and warranties contained herein and
the Executive's obligations under Sections 5(h), 7, 8, 9 and 15 through 18
shall survive termination of the Employment Period and the expiration of
this Agreement. Nothing herein shall modify Employee's mediation and other
rights under this Agreement.
(i) Release. In exchange for the Company entering into the Agreement,
-------
the Executive agrees that, at the time of his resignation or termination from
the Company, he will resign from the Board and will execute a release acceptable
to the Company of all liability of the
4
<PAGE>
Company and its officers, shareholders, employees and directors to the Executive
in connection with or arising out of his employment with the Company, except
with respect to any then-vested rights under the Company's Option Plan and
except with respect to any Severance Payments which may be payable to him under
the terms of the Agreement.
6. Compensation Upon Termination.
-----------------------------
(a) Death. If the Executive's employment shall be terminated pursuant
-----
to Section 5(a), the Company shall pay the Executive monthly his base salary
payable pursuant to Section 4(a) and one-twelfth of any bonus payable pursuant
to Section 4(d) at the most recent annual amount received, or entitled to be
received, by the Executive (the "Severance Payment") for a period of two years
following the Date of Termination. At the Executive's own expense, the
Executive's dependents shall also be entitled to any continuation of health
insurance coverage rights under any applicable law.
(b) Disability. If the Executive's employment shall be terminated by
----------
reason of disability pursuant to Section 5(c), the Executive shall receive the
Severance Payment for the lesser of two years or the duration of such
disability; provided that payments so made to the Executive during the
disability shall be reduced by the sum of the amounts, if any, payable to the
Executive at or prior to the time of any such payment under any disability
benefit plan of the Company. At the Executive's own expense, the Executive and
his dependents shall also be entitled to any continuation of health insurance
coverage rights under any applicable law.
(c) Cause. If the Executive's employment shall be terminated for
-----
Cause pursuant to Section 5(c) hereof, the Company shall pay the Executive his
salary and any bonus then payable pursuant to Section 4(d)) through the Date of
Termination. At the Executive's own expense, the Executive and his dependents
shall also be entitled to any continuation of health insurance coverage rights
under any applicable law.
(d) Other Terminations by the Company. If the Company shall terminate
---------------------------------
the Executive's employment without cause pursuant to Section 5(d) hereof, the
Company shall pay the Executive the Severance Payment for a period of two (2)
years from the Date of Termination. The Executive and his dependents shall also
be entitled to any continuation of health insurance coverage rights under any
applicable law.
(e) Voluntary Resignation. If the Executive terminates his employment
---------------------
with the Company pursuant to Section 5(g) hereof for "Good Cause", the Company
shall pay the Executive the Severance Payment for a period of two years from the
Date of Resignation. If the Executive terminates his employment with the
Company pursuant to Section 5(g) hereof without "Good Cause," the Company shall
have no obligation to compensate the Executive following the Date of
Resignation. In any event, at the Executive's own expense, the Executive and
his dependents shall be entitled to any continuation of health insurance
coverage rights under any applicable law.
For purposes of this Agreement, "Good Cause" shall mean, without the
express written consent of Executive, the occurrence of any of the following
events unless such events are substantially corrected within 30 days following
written notification by Executive to the
5
<PAGE>
Company that he intends to terminate his employment hereunder for one of the
reasons set forth below:
(i) Any material alteration, reduction or diminution in the duties,
responsibilities and status of Executive's position;
(ii) a material breach by the Company of any provision of this
Agreement; and
(iii) the occurrence of a "Change in Control."
As used in this Agreement, "Change of Control" means the occurrence of
any of the following: (i) the adoption of a plan relating to the liquidation or
dissolution of the Company, (ii) the consummation of any transaction (including,
without limitation, any merger or consolidation) the result of which is that any
person or group, other than any of Osamu Kaneko, Andrew J. Gessow and Steven C.
Kenninger or their affiliates (the "Principals"), becomes the "beneficial owner"
(as such term is defined in Rule 13d-3 and Rule 13d-5 under the Securities
Exchange Act of 1934), directly or indirectly, of more than 50% of the total
voting power of the total outstanding voting stock of the Company on a fully
diluted basis or (iii) the consummation of the first transaction (including,
without limitation, any merger or consolidation) the result of which is that any
person or group, other than the Principals, becomes the beneficial owner (as
defined above), directly or indirectly, of more than 50% of the total voting
power of the total outstanding voting stock of the Company.
The Executive understands that any voluntary resignation by him as a
result of any personal or family reasons not otherwise set forth in this Section
6(e) shall not constitute "Good Cause."
(f) The Company will be entitled to offset and reduce each month the
amount of the monthly Severance Payment otherwise payable to the Executive
hereunder by the amount of the Executive's prior month's earnings (if any) from
post-Company full time employment (including both salary, bonus and other cash
or cash equivalent compensation) at a subsequent full time employer or in
connection with a full time consulting practice or other self-employment or any
full time venture founded by the Executive; provided, however, that the Company
shall not be entitled to any Severance Payment offset or reduction as a result
of any earnings or income generated by the Executive from part-time consulting
work, unless and until such consulting work becomes a full time endeavor.
(g) In the event of any Termination pursuant to Section 5, the
Executive shall be entitled to retain any and all options to purchase capital
stock of the Company granted to the Executive pursuant to the terms and
conditions of the Option Agreement attached as Exhibit A hereto that have vested
as of the date of such Termination.
(h) Any Severance Payment made pursuant to this Section 6 shall be
payable in equal monthly installments over the required duration set forth in
Sections 6(a) through 6(e).
(i) The continuing obligation of the Company to make the Severance
Payment to the Executive is expressly conditioned upon the Executive complying
and continuing to comply
6
<PAGE>
with his obligations and covenants under Sections 7 and 8 of this Agreement
following termination of employment with the Company.
7. Confidentiality and Non-Solicitation Covenants.
----------------------------------------------
(a) Confidentiality. In addition to the agreements set forth in
---------------
Section 5(h)(i), the Executive hereby agrees that the Executive will not, during
the Employment Period or at any time thereafter directly or indirectly disclose
or make available to any person, firm, corporation, association or other entity
for any reason or purpose whatsoever, any Confidential Information (as defined
below). The Executive agrees that, upon termination of his employment with the
Company, all Confidential Information in his possession that is in written or
other tangible form (together with all copies or duplicates thereof, including
computer files) shall be returned to the Company and shall not be retained by
the Executive or furnished to any third party, in any form except as provided
herein; provided, however, that the Executive shall not be obligated to treat as
confidential, or return to the Company copies of any Confidential Information
that (i) was publicly known at the time of disclosure to the Executive, (ii)
becomes publicly known or available thereafter other than by any means in
violation of this Agreement or any other duty owed to the Company by any person
or entity or (iii) is lawfully disclosed to the Executive by a third party. As
used in this Agreement the term "Confidential Information" means: information
------------------------
disclosed to the Executive or known by the Executive as a consequence of or
through his relationship with the Company, about the owners, customers,
employees, business methods, public relations methods, organization, procedures
or finances, including, without limitation, information of or relating to owner
or customer lists of the Company and its affiliates.
(b) Non-Solicitation. In addition, the Executive hereby agrees that
----------------
during the Employment Period and at all times thereafter, regardless of the
reason or circumstances of termination of employment with the Company, the
Executive will not, either on his own account or jointly with or as a manager,
agent, officer, employee, consultant, partner, joint venturer, owner or
shareholder or otherwise on behalf of any other person, firm or corporation, (i)
carry on or be engaged or interested directly or indirectly in, or solicit, the
manufacture or sale of goods or provision of services to any person, firm or
corporation which, at any time during the Employment Period has been or is a
customer of or in the habit of dealing with the Company in its business, (ii)
endeavor directly or indirectly to canvas or solicit in competition with Company
or to interfere with the supply of orders for goods or services from or by any
person, firm or corporation which during the Employment Period has been or is a
supplier of goods or services to Company or (iii) directly or indirectly solicit
or attempt to solicit away from Company any of its officers or employees or
offer employment to any person who, on or during the 6 months immediately
preceding the date of such solicitation or offer, is or was an officer or
employee of Company.
8. Covenant Not to Compete.
-----------------------
(a) The Executive agrees that during the Employment Period he will
devote substantially full-time to the business of the Company and not engage in
any competitive businesses. Subject to such full-time requirement and the
restrictions set forth below in this Section 8 and Section 3(c) above, the
Executive shall be permitted to continue his existing business investments and
activities and may pursue additional business investments; provided that
7
<PAGE>
the Executive not serve as officer of any public company resulting from such
business investments. The Executive agrees that he shall not (i) invest in,
manage, consult or participate in any way in any other timeshare business (in
either an active or passive manner), (ii) participate in or advise any business
wherein timeshare is a relevant business segment or (iii) act for or on behalf
of any business that intends to enter or participate in the timeshare business,
in each case unless the independent members of the Company's Board of Directors
determine that such action is in the best interest of the Company.
Notwithstanding the foregoing, the Executive may purchase stock as a stockholder
in any publicly traded company, including any company which is involved in the
timeshare business; provided that the Executive does not own (together or
separately or through his affiliates) more than 5% of any company (other than
the Company) in the timeshare business. In addition, the Executive shall not
invest (directly or indirectly) in any timeshare property in the hospitality
business (including any condominium project) or any property where the business
plan therefor includes an intention to convert the property to timeshare, unless
the independent members of the Company's Board of Directors determine that such
an investment is in the best interest of the Company.
(b) Notwithstanding anything to the contrary in this Section 8 or
elsewhere in this Agreement, the Executive and/or affiliates thereof is
permitted, at his option, to pursue the development of a timeshare resort on
that certain property located on Harbor Island, San Diego, California, owed by
the Port of San Diego. In the event the Executive or affiliate thereof so
acquires such an interest, the Company has the option, at its election (which
the Company may exercise at any time), to require the Executive or affiliate
thereof to sell such interest to the Company at a price not to exceed 50% of the
cumulative actual, direct cost incurred by the Executive or affiliate thereof in
pursuing the development or acquisition of such property. In addition, at the
direction of the independent members of the Company's Board of Directors, at any
time following the decision by the Company not to acquire such interest, the
Executive agrees to sell his interest in such property, and to divest himself of
any interest in any affiliate possessing any controlling or managing interest
therein, within six months after receipt of notice from the Company to do so,
unless the independent members of the Board determine that such investment by or
interest held by the Executive is in the best interest of the Company.
(c) Further, notwithstanding anything to the contrary in this Section
8 or elsewhere in this Agreement, and without limiting the rights of the
Executive otherwise applicable under this Agreement, the Executive or affiliates
thereof is permitted to continue to meet its duties (i) as managing general
partner with respect to (A) a 225-unit condominium project in Long Beach,
California which is being marketed for whole share unit sales or long-term
residential use rather than vacation use (and with respect to which affiliates
of the Executive (the "KOAR Interests") currently own the unsold units in such
project, the balance having been sold to third parties) and (B) several retail
centers and a proposed office development project and (ii) as constituent
general partner of a number of partnerships, which partnerships include five
Embassy Suites hotels which are owned by partnerships controlled by affiliates
of the Executive (the "Prior Partnerships"). Such duties with respect to the
KOAR Interests and the Prior Partnerships may include the sale, refinancing,
restructuring and packaging thereof, and the formation of public or private
entities for such purpose, including the formation of a public real estate
investment trust ("REIT") for any or all of the properties owned by the KOAR
Interests or Prior Partnerships; provided the Executive not serve as an officer
or employee of such REIT. The Executive agrees, however, to continue to retain
third party management companies to
8
<PAGE>
manage the properties owned by the KOAR Interests and the Prior Partnerships and
to employ personnel not employed by the Company to carry out the day-to-day
responsibilities of managing and overseeing such properties.
(d) The provisions of this Section 8 shall survive for two years
following any termination of employment, regardless of whether the termination
is for "Good Cause" or otherwise.
9. Injunctive Relief and Enforcement. In the event of breach by the
---------------------------------
Executive of the terms of Sections 5(h)(i), 7 or 8, and only following mediation
or attempted mediation as set forth in Section 16 below (unless the Company is
suffering irreparable injury, in which case Section 16 will not prevent the
Company from seeking injunctive relief against the Executive in any court or
forum), the Company shall be entitled to institute legal proceedings to enforce
the specific performance of this Agreement by the Executive and to enjoin the
Executive from any further violation of Sections 5(h)(i), 7 or 8 and to exercise
such remedies cumulatively or in conjunction with all other rights and remedies
provided by law and not otherwise limited by this Agreement. The Executive
acknowledges, however, that the remedies at law for any breach by him of the
provisions of Sections 5(h)(i), 7 or 8 may be inadequate. In addition, in the
event the agreements set forth in Sections 5(h)(i), 7 or 8 shall be determined
by any court of competent jurisdiction to be unenforceable by reason of
extending for too great a period of time or over too great a geographical area
or by reason of being too extensive in any other respect, each such agreement
shall be interpreted to extend over the maximum period of time for which it may
be enforceable and to the maximum extent in all other respects as to which it
may be enforceable, and enforced as so interpreted, all as determined by such
court in such action.
10. Notice. For the purposes of this Agreement, notices, demands and all
------
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when personally delivered when
transmitted by telecopy with receipt confirmed, or one day after delivery to an
overnight air courier guaranteeing next day delivery, addressed as follows:
If to the Executive: Steven C. Kenninger
213 Avenue D
Redondo Beach, California 90277
If to the Company: Signature Resorts, Inc.
911 Wilshire Blvd.
Suite 2250
Los Angeles, California 90017
Attention: Steven C. Kenninger
With a copy to: Latham & Watkins
633 West Fifth Street
Suite 4000
Los Angeles, California 90071-2007
Attention: Edward Sonnenschein, Jr., Esq.
9
<PAGE>
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. Severability. The invalidity or unenforceability of any provision or
------------
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect; provided, however, that if any one or more of the terms contained in
Sections 5(h), 7 or 8 hereto shall for any reason be held to be excessively
broad with regard to time, duration, geographic scope or activity, that term
shall not be deleted but shall be reformed and constructed in a manner to enable
it to be enforced to the extent compatible with applicable law.
12. Assignment. This Agreement may not be assigned by the Executive, but
----------
may be assigned by the Company to any successor to its business and will inure
to the benefit and be binding upon any such successor.
13. Counterparts. This Agreement may be executed in several counterparts,
------------
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
14. Headings. The headings contained herein are for reference purposes
--------
only and shall not in any way affect the meaning or interpretation of this
Agreement.
15. Choice of Law. This Agreement shall be construed, interpreted and the
-------------
rights of the parties determined in accordance with the laws of the State of
Maryland (without reference to the choice of law provisions of Maryland), except
with respect to matters of law concerning the internal corporate affairs of any
corporate entity which is a party to or the subject of this Agreement, and as to
those matters the law of the jurisdiction under which the respective entity
derives its powers shall govern.
16. Mediation. Subject to any irreparable injury being suffered by the
---------
Company giving rise to the right of the Company to seek injunctive relief
against the Executive pursuant to Section 9 hereof, in the event that there
shall be a dispute among the parties arising out of or relating to this
Agreement, or the breach thereof, the parties agree that such dispute shall be
resolved by final and binding mediation in Los Angeles, California, before a
mediator and on terms and conditions mutually acceptable to the parties;
provided, however, that if the parties cannot agree on the terms and conditions
of such mediation, such terms and conditions shall be established by the
mediator. Any award issued as a result of such mediation shall be final and
binding between the parties thereto, and shall be enforceable by any court
having jurisdiction over the party against whom enforcement is sought. The fees
and expenses relating to such mediation (with the exception of the Executive's
attorneys' fees, if any) or any action to enforce a mediation award shall be
paid by the Company.
17. LIMITATION ON LIABILITIES. IF EITHER THE EXECUTIVE OR THE COMPANY IS
-------------------------
AWARDED ANY DAMAGES AS COMPENSATION FOR ANY BREACH OR ACTION RELATED TO THIS
AGREEMENT, A BREACH OF ANY COVENANT CONTAINED IN THIS AGREEMENT (WHETHER EXPRESS
OR IMPLIED BY EITHER LAW OR FACT), OR ANY OTHER CAUSE OF ACTION BASED IN WHOLE
OR IN
10
<PAGE>
PART ON ANY BREACH OF ANY PROVISION OF THIS AGREEMENT, SUCH DAMAGES SHALL BE
LIMITED TO CONTRACTUAL DAMAGES AND SHALL EXCLUDE (I) PUNITIVE DAMAGES, AND (II)
CONSEQUENTIAL AND/OR INCIDENTAL DAMAGES (E.G., LOST PROFITS AND OTHER INDIRECT
----
OR SPECULATIVE DAMAGES). THE MAXIMUM AMOUNT OF DAMAGES THAT THE EXECUTIVE MAY
RECOVER FOR ANY REASON SHALL BE THE AMOUNT EQUAL TO ALL AMOUNTS OWED (BUT NOT
YET PAID) TO THE EXECUTIVE PURSUANT TO THIS AGREEMENT THROUGH ITS NATURAL TERM
OR THROUGH ANY SEVERANCE PERIOD, PLUS INTEREST ON ANY DELAYED PAYMENT AT THE
MAXIMUM RATE PER ANNUM ALLOWABLE BY APPLICABLE LAW FROM AND AFTER THE DATE(S)
THAT SUCH PAYMENTS WERE DUE.
18. WAIVER OF JURY TRIAL. TO THE EXTENT APPLICABLE, EACH OF THE PARTIES
--------------------
TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR
ANY
11
<PAGE>
DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT.
19. Entire Agreement. This Agreement contains the entire agreement and
----------------
understanding between the Company and the Executive with respect to the
employment of the Executive by the Company as contemplated hereby, and no
representations, promises, agreements or understandings, written or oral, not
herein contained shall be of any force or effect. This Agreement shall not be
changed unless in writing and signed by both the Executive and the Board of
Directors of the Company.
20. The Executive's Acknowledgment. The Executive acknowledges (a) that
------------------------------
he has had the opportunity to consult with independent counsel of his own choice
concerning this Agreement, and (b) that he has read and understands the
Agreement, is fully aware of its legal effect, and has entered into it freely
based on his own judgment.
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement as of the date and year first above written.
SIGNATURE RESORTS, INC.
/s/Andrew J. Gessow
------------------------------------
Name: Andrew J. Gessow
Title:President
EXECUTIVE
/s/Steven C. Kenninger
------------------------------------
Steven C. Kenninger
12
<PAGE>
Exhibit A
Form of Option Agreement
13
<PAGE>
EXHIBIT 10.2.6
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement"), dated as of August 20, 1996,
is made by and between Signature Resorts, Inc., a Maryland corporation
hereinafter referred to as "Company," and Osamu Kaneko, an employee of the
Company, hereinafter referred to as "Optionee":
WHEREAS, the Company wishes to afford the Optionee the opportunity to
purchase shares of its $.01 par value Common Stock; and
WHEREAS, the Company wishes to carry out the Plan (the terms of which are
hereby incorporated by reference and made a part of this Agreement); and
WHEREAS, the Committee, appointed to administer the Plan, has determined
that it would be to the advantage and best interest of the Company and its
shareholders to grant the Option provided for herein to the Optionee as an
inducement to enter into or remain in the service of the Company or its
Subsidiaries and as an incentive for increased efforts during such service, and
has advised the Company thereof and instructed the undersigned officers to issue
said Option;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
Whenever the following terms are used in this Agreement, they shall have
the meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter, and the
singular the plural, where the context so indicates.
Section 1.1 - Board
- ----------- -----
"Board" shall mean the Board of Directors of the Company.
Section 1.2 - Code
- ----------- ----
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.3 - Committee
- ----------- ---------
"Committee" shall mean the Compensation Committee of the Board, or a
subcommittee of the Board, appointed as provided in Section 9.1 of the Plan.
<PAGE>
Section 1.4 - Common Stock
- ----------- ------------
"Common Stock" shall mean the common stock of the Company, par value $.01
per share, and any equity security of the Company issued or authorized to be
issued in the future, but excluding any warrants, options or other rights to
purchase Common Stock. Debt securities of the Company convertible into Common
Stock shall be deemed equity securities of the Company.
Section 1.5 - Company
- ----------- -------
"Company" shall mean Signature Resorts, Inc., a Maryland corporation.
Section 1.6 - Director
- ----------- --------
"Director" shall mean a member of the Board.
Section 1.7 - Employee
- ----------- ---------
"Employee" shall mean any officer or other employee (as defined in
accordance with Section 3401(c) of the Code) of the Company, or of any
corporation which is a Subsidiary.
Section 1.8 - Exchange Act
- ----------- -------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
Section 1.9 - Fair Market Value
- ----------- ------------------
"Fair Market Value" of a share of Common Stock as of a given date shall be
(i) the mean between the highest and lowest selling price of a share of Common
Stock on the principal exchange on which shares of Common Stock are then
trading, if any, on such date, or if shares were not traded on such date, then
on the closest preceding date on which a trade occurred, or (ii) if Common Stock
is not traded on an exchange, the mean between the closing representative bid
and asked prices for the Common Stock on such date as reported by NASDAQ or, if
NASDAQ is not then in existence, by its successor quotation system; or (iii) if
Common Stock is not publicly traded, the Fair Market Value of a share of Common
Stock as established by the Committee acting in good faith.
Section 1.10 - Option
------------ -------
"Option" shall mean a non-qualified stock option granted under this
Agreement and Article III of the Plan.
Section 1.11 - Optionee
- ------------ ---------
"Optionee" shall mean an Employee or consultant granted an Option under
this Agreement and the Plan.
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<PAGE>
Section 1.12 - Plan
- ------------ ----
"Plan" shall mean The 1996 Equity Participation Plan of Signature Resorts,
Inc.
Section 1.13 - Rule 16b-3
- ------------ -----------
"Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange Act, as
such Rule may be amended from time to time.
Section 1.14 - Secretary
- ------------ ---------
"Secretary" shall mean the Secretary of the Company.
Section 1.15 - Securities Act
- ------------ --------------
"Securities Act" shall mean the Securities Act of 1933, as amended.
Section 1.16 - Subsidiary
- ------------ -----------
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
Section 1.17 - Termination of Consultancy
- ------------ --------------------------
"Termination of Consultancy" shall mean the time when the engagement of
Optionee as a Consultant to the Company or a Subsidiary is terminated for any
reason, with or without cause, including without limitation, resignation,
discharge, death or retirement; but excluding terminations where there is a
simultaneous commencement of employment with the Company or any Subsidiary. The
Committee, in its absolute discretion, shall determine the effect of all matters
and questions relating to Termination of Consultancy, including, but not by way
of limitation, the question of whether a Termination of Consultancy resulted
from a discharge for good cause, and all questions of whether particular leaves
of absence constitute Terminations of Employment. Notwithstanding any other
provision of this Plan, the Company or any Subsidiary has an absolute and
unrestricted right to terminate a consultant's service at any time for any
reason whatsoever, with or without cause, except to the extent expressly
provided otherwise in writing.
Section 1.18 - Termination of Employment
- --------- --------------------------
"Termination of Employment" shall mean the time when the employee-employer
relationship between the Optionee and the Company or any Subsidiary is
terminated for any reason, including, but not by way of limitation, a
termination by resignation, discharge, death, disability or retirement; but
excluding (i) terminations where there is a simultaneous reemployment,
continuing employment of an Optionee by the
3
<PAGE>
Company or any Subsidiary, (ii) at the discretion of the Committee,
terminations which result in a temporary severance of the employee-employer
relationship, and (iii) at the discretion of the Committee, terminations which
are followed by the simultaneous establishment of a consulting relationship by
the Company or a Subsidiary with the former employee. The Committee, in its
absolute discretion, shall determine the effect of all matters and questions
relating to Termination of Employment, including, but not by way of limitation,
the question of whether a Termination of Employment resulted from a discharge
for good cause, and all questions of whether particular leaves of absence
constitute Terminations of Employment. Notwithstanding any other provision of
this Plan, the Company or any Subsidiary has an absolute and unrestricted right
to terminate an Employee's employment at any time for any reason whatsoever,
with or without cause, except to the extent expressly provided otherwise in
writing.
ARTICLE II
GRANT OF OPTION
---------------
Section 2.1 - Grant of Option
- ----------- ---------------
In consideration of the Optionee's agreement to remain in the employ of (or
consult for) the Company or its Subsidiaries for a period of at least two (2)
years after the option is granted and for other good and valuable consideration,
on the date hereof the Company irrevocably grants to the Optionee the option to
purchase any part or all of an aggregate of one hundred fifty thousand (150,000)
shares of its $.01 par value Common Stock upon the terms and conditions set
forth in this Agreement.
Section 2.2 - Purchase Price
- ----------- --------------
The purchase price of the shares of stock covered by the Option shall be
$14.00 per share without commission or other charge.
Section 2.3 - Consideration to Company
- ----------- ------------------------
In consideration of the granting of this Option by the Company, the
Optionee agrees to render faithful and efficient services to the Company or a
Subsidiary, with such duties and responsibilities as the Company shall from time
to time prescribe, for a period of at least two (2) years from the date this
Option is granted. Nothing in the Plan or this Agreement shall confer upon any
Optionee any right to continue in the employ of, or as a consultant for, the
Company or any Subsidiary, or as a director of the Company, or shall interfere
with or restrict in any way the rights of the Company and any Subsidiary, which
are hereby expressly reserved, to discharge the Optionee at any time for any
reason whatsoever, with or without good cause.
Section 2.4 - Adjustments in Option
- ----------- ---------------------
(a) In the event that the outstanding shares of the stock subject to the
Option are changed into or exchanged for a different number or kind of shares of
the
4
<PAGE>
Company or other securities of the Company, or of another corporation, by reason
of reorganization, merger, consolidation, recapitalization, reclassification,
stock splitup, stock dividend or combination of shares, the Committee shall make
an appropriate and equitable adjustment in the number and kind of shares as to
which the Option, or portions thereof then unexercised, shall be exercisable, to
the end that after such event the Optionee's proportionate interest shall be
maintained as before the occurrence of such event. Such adjustment in the Option
may include any necessary corresponding adjustment in the Option price per
share, but shall be made without change in the total price applicable to the
unexercised portion of the Option (except for any change in the aggregate price
resulting from rounding-off of share quantities or prices). Any such adjustment
made by the Committee shall be final and binding upon the Optionee, the Company
and all other interested persons.
(b) Notwithstanding the foregoing, in the event of such a reorganization,
merger, consolidation, recapitalization, reclassification, stock splitup, stock
dividend or combination, or other adjustment or event which results in shares of
Common Stock being exchanged for or converted into cash, securities or other
property, the Company will have the right to terminate the Plan as of the date
of the exchange or conversion, in which case all options, rights and other
awards under this Plan shall become the right to receive such cash, securities
or other property, net of any applicable exercise price.
(c) In the event of a "spin-off" or other substantial distribution of
assets of the Company which has a material diminutive effect upon the Fair
Market Value of the Company's Common Stock, the Board may in its discretion make
an appropriate and equitable adjustment to the Option to reflect such
diminution.
ARTICLE III
PERIOD OF EXERCISABILITY
------------------------
Section 3.1 - Commencement of Exercisability
- ----------- ------------------------------
(a) Subject to Section 5.6, the Option shall become exercisable in three
(3) cumulative installments as follows:
(i) The first installment shall consist of fifty thousand (50,000) of
the shares covered by the Option and shall become exercisable on the
first anniversary of the date of execution of this Agreement.
(ii) The second installment shall consist of fifty thousand (50,000)
of the shares covered by the Option and shall become exercisable on the
second anniversary of the date of execution of this Agreement.
(iii) The third installment shall consist of fifty thousand (50,000)
of the shares covered by the Option and shall become exercisable on the third
anniversary of the date of execution of this Agreement.
5
<PAGE>
(b) No portion of the Option which is unexercisable at Termination of
Employment or Termination of Consultancy, as applicable, shall thereafter become
exercisable.
Section 3.2 - Duration of Exercisability
- ----------- --------------------------
The installments provided for in Section 3.1 are cumulative. Each such
installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
Section 3.3 - Expiration of Option
- ----------- --------------------
The Option may not be exercised to any extent by anyone after the first to
occur of the following events:
(a) The expiration of ten (10) years from the date the Option was granted;
or
(b) The time of the Optionee's Termination of Employment or Termination of
Consultancy unless such Termination of Employment or Termination of Consultancy,
as applicable, results from his death, his retirement, his disability or his
being discharged not for "Cause" (as defined in Section 5(c) of the Employment
Agreement dated the date hereof between Optionee and the Company); or
(c) The expiration of three (3) months from the date of the Optionee's
Termination of Employment or Termination of Consultancy by reason of his
retirement or his being discharged not for "Cause," unless the Optionee dies
within said three-month period; or
(d) The expiration of one (1) year from the date of the Optionee's
Termination of Employment or Termination of Consultancy by reason of his
disability; or
(e) The expiration of one (1) year from the date of the Optionee's death;
or
(f) The effective date of either the merger or consolidation of the
Company with or into another corporation, the exchange of all or substantially
all of the assets of the Company for the securities of another corporation, the
acquisition by another corporation or person of all or substantially all of the
Company's assets or eighty percent (80%) or more of the Company's then
outstanding voting stock, or the liquidation or dissolution of the Company,
unless the Committee waives this provision in connection with such transaction.
At least ten (10) days prior to the effective date of such merger,
consolidation, exchange, acquisition, liquidation or dissolution, the Committee
shall give the Optionee notice of such event if the Option has then neither been
fully exercised nor become unexercisable under this Section 3.3.
6
<PAGE>
Section 3.4 - Acceleration of Exercisability
- ----------- ------------------------------
In the event of the merger or consolidation of the Company with or into
another corporation, the exchange of all or substantially all of the assets of
the Company for the securities of another corporation, the acquisition by
another corporation or person of all or substantially all of the Company's
assets or eighty percent (80%) or more of the Company's then outstanding voting
stock, or the liquidation or dissolution of the Company, the Committee may, in
its absolute discretion and upon such terms and conditions as it deems
appropriate, provide by resolution, adopted prior to such event and incorporated
in the notice referred to in Section 3.3(f), that at some time prior to the
effective date of such event this Option shall be exercisable as to all the
shares covered hereby, notwithstanding that this Option may not yet have become
fully exercisable under Section 3.1(a); provided, however, that this
acceleration of exercisability shall not take place if:
(a) This Option becomes unexercisable under Section 3.3 prior to said
effective date; or
(b) In connection with such an event, provision is made for an assumption
of this Option or a substitution therefor of a new option by an employer
corporation or a parent or subsidiary of such corporation.
The Committee may make such determinations and adopt such rules and
conditions as it, in its absolute discretion, deems appropriate in connection
with such acceleration of exercisability, including, but not by way of
limitation, provisions to ensure that any such acceleration and resulting
exercise shall be conditioned upon the consummation of the contemplated
corporate transaction.
None of the foregoing discretionary terms of this Section shall be
permitted to the extent that such discretion would be inconsistent with the
requirements of Rule 16b-3.
ARTICLE IV
EXERCISE OF OPTION
------------------
Section 4.1 - Person Eligible to Exercise
- ----------- ---------------------------
During the lifetime of the Optionee, only he may exercise the Option or any
portion thereof. After the death of the Optionee, any exercisable portion of
the Option may, prior to the time when the Option becomes unexercisable under
Section 3.3, be exercised by his personal representative or by any person
empowered to do so under the Optionee's will or under the then applicable laws
of descent and distribution.
Section 4.2 - Partial Exercise
- ----------- ----------------
Any exercisable portion of the Option or the entire Option, if then wholly
exercisable, may be exercised in whole or in part at any time prior to the time
when the Option or portion thereof becomes unexercisable under Section 3.3;
provided, however, that
7
<PAGE>
each partial exercise shall be for not less than one thousand (1,000) shares and
shall be for whole shares only.
Section 4.3 - Manner of Exercise
- ----------- ------------------
The Option, or any exercisable portion thereof, may be exercised solely by
delivery to the Secretary or his office of all of the following prior to the
time when the Option or such portion becomes unexercisable under Section 3.3:
(a) Notice in writing signed by the Optionee or the other person then
entitled to exercise the Option or portion, stating that the Option or portion
is thereby exercised, such notice complying with all applicable rules
established by the Committee or the Board; and
(b) (i) Full payment (in cash) for the shares with respect to which such
Option or portion is exercised;
(ii) With the consent of the Committee, payment delayed for up to
thirty (30) days from the date the Option, or portion thereof, is
exercised; or
(iii) With the consent of the Committee, (A) shares of the Company's
Common Stock owned by the Optionee duly endorsed for transfer to the
Company or (B) subject to the timing requirements of Section 4.4, shares of
the Company's Common Stock issuable to the Optionee upon exercise of the
Option, with a Fair Market Value on the date of Option exercise equal to
the aggregate purchase price of the shares with respect to which such
Option or portion is exercised; or
(iv) With the consent of the Committee, property of any kind which
constitutes good and valuable consideration; or
(v) With the consent of the Committee, a full recourse promissory
note bearing interest (at no less than such rate as shall then preclude the
imputation of interest under the Code or successor provision) and payable
upon such terms as may be prescribed by the Committee or the Board. The
Committee may also prescribe the form of such note and the security to be
given for such note. The Option may not be exercised, however, by delivery
of a promissory note or by a loan from the Company when or where such loan
or other extension of credit is prohibited by law; or
(vi) With the consent of the Committee, any combination of the
consideration provided in the foregoing subparagraphs (iii), (iv) and (v);
and
(c) A bona fide written representation and agreement, in a form
satisfactory to the Committee or the Board, signed by the Optionee or other
person then entitled to exercise such Option or portion, stating that the shares
of stock are being acquired for his own account, for investment and without any
present intention of distributing or reselling said shares or any of them except
as may be permitted under the Securities Act and then applicable rules and
regulations thereunder, and that the Optionee or other person then
8
<PAGE>
entitled to exercise such Option or portion will indemnify the Company against
and hold it free and harmless from any loss, damage, expense or liability
resulting to the Company if any sale or distribution of the shares by such
person is contrary to the representation and agreement referred to above. The
Committee may, in its absolute discretion, take whatever additional actions it
deems appropriate to insure the observance and performance of such
representation and agreement and to effect compliance with the Securities Act
and any other federal or state securities laws or regulations. Without limiting
the generality of the foregoing, the Committee may require an opinion of counsel
acceptable to it to the effect that any subsequent transfer of shares acquired
on an Option exercise does not violate the Securities Act, and may issue stop-
transfer orders covering such shares. Share certificates evidencing stock issued
on exercise of this Option shall bear an appropriate legend referring to the
provisions of this subsection (c) and the agreements herein. The written
representation and agreement referred to in the first sentence of this
subsection (c) shall, however, not be required if the shares to be issued
pursuant to such exercise have been registered under the Securities Act, and
such registration is then effective in respect of such shares; and
(d) Full payment to the Company (or other employer corporation) of all
amounts which, under federal, state or local tax law, it is required to withhold
upon exercise of the Option; with the consent of the Committee, (i) shares of
the Company's Common Stock owned by the Optionee duly endorsed for transfer, or
(ii) subject to the timing requirements of Section 4.4, shares of the Company's
Common Stock issuable to the Optionee upon exercise of the Option, having a Fair
Market Value at the date of Option exercise equal to the sums required to be
withheld, may be used to make all or part of such payment; and
(e) In the event the Option or portion shall be exercised pursuant to
Section 4.1 by any person or persons other than the Optionee, appropriate proof
of the right of such person or persons to exercise the Option.
Section 4.4 - Certain Timing Requirements
- ----------- ---------------------------
Shares of the Company's Common Stock issuable to the Optionee upon exercise
of the Option may be used to satisfy the Option price or the tax withholding
consequences of such exercise only (i) during the period beginning on the third
(3rd) business day following the date of release of the quarterly or annual
summary statement of sales and earnings of the Company and ending on the twelfth
(12th) business day following such date or (ii) pursuant to an irrevocable
written election by the Optionee to use shares of the Company's Common Stock
issuable to the Optionee upon exercise of the Option to pay all or part of the
Option price or the withholding taxes (subject to the approval of the Committee)
made at least six (6) months prior to the payment of such Option price or
withholding taxes.
Section 4.5 - Conditions to Issuance of Stock Certificates
- ----------- --------------------------------------------
The shares of stock deliverable upon the exercise of the Option, or any
portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been reacquired by the Company. Such shares shall
be fully paid and nonassessable. The Company shall not be required to issue or
deliver any certificate or
9
<PAGE>
certificates for shares of stock purchased upon the exercise of the Option or
portion thereof prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under rulings or regulations of the
Securities and Exchange Commission or of any other governmental regulatory body,
which the Committee or Board shall, in its absolute discretion, deem necessary
or advisable; and
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee or Board shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The receipt by the Company of full payment for such shares, including
payment of all amounts which, under federal, state or local tax law, it is
required to withhold upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the exercise of
the Option as the Committee or Board may from time to time establish for reasons
of administrative convenience.
Section 4.6 - Rights as Shareholder
- ----------- ---------------------
The holder of the Option shall not be, nor have any of the rights or
privileges of, a shareholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
ARTICLE V
OTHER PROVISIONS
----------------
Section 5.1 - Administration
- ----------- --------------
The Committee shall have the power to interpret the Plan and this Agreement
and to adopt such rules for the administration, interpretation and application
of the Plan as are consistent therewith and to interpret or revoke any such
rules. All actions taken and all interpretations and determinations made by the
Committee in good faith shall be final and binding upon the Optionee, the
Company and all other interested persons. No member of the Committee shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Plan or the Option. In its absolute discretion, the
Board may at any time and from time to time exercise any and all rights and
duties of the Committee under this Plan except with respect to matters which
under Rule 16b-3 or Section 162(m) of the Code, or any regulations or rules
issued thereunder, are required to be determined in the sole discretion of the
Committee.
10
<PAGE>
Section 5.2 - Option Not Transferable
- ----------- -----------------------
Neither the Option nor any interest or right therein or part thereof shall
be liable for the debts, contracts or engagements of the Optionee or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution.
Section 5.3 - Shares to Be Reserved
- ----------- ---------------------
The Company shall at all times during the term of the Option reserve and
keep available such number of shares of stock as will be sufficient to satisfy
the requirements of this Agreement.
Section 5.4 - Notices
- ----------- -------
Any notice to be given under the terms of this Agreement to the Company
shall be addressed to the Company in care of its Secretary, and any notice to be
given to the Optionee shall be addressed to him at the address given beneath his
signature hereto. By a notice given pursuant to this Section 5.4, either party
may hereafter designate a different address for notices to be given to him. Any
notice which is required to be given to the Optionee shall, if the Optionee is
then deceased, be given to the Optionee's personal representative if such
representative has previously informed the Company of his status and address by
written notice under this Section 5.4. Any notice shall be deemed duly given
when enclosed in a properly sealed envelope or wrapper addressed as aforesaid,
deposited (with postage prepaid) in a post office or branch post office
regularly maintained by the United States Postal Service.
Section 5.5 - Titles
- ----------- ------
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of this Agreement.
Section 5.6 - Construction
- ----------- ------------
This Agreement shall be administered, interpreted and enforced under the
laws of the State of Maryland.
Section 5.7 - Conformity to Securities Laws
- ----------- -----------------------------
The Optionee acknowledges that the Plan is intended to conform to the
extent necessary with all provisions of the Securities Act and the Exchange Act
and any and all regulations and rules promulgated by the Securities and Exchange
Commission thereunder, including without limitation Rule 16b-3. Notwithstanding
anything herein to the contrary,
11
<PAGE>
the Plan shall be administered, and the Option is granted and may be exercised,
only in such a manner as to conform to such laws, rules and regulations. To the
extent permitted by applicable law, the Plan and this Agreement shall be deemed
amended to the extent necessary to conform to such laws, rules and regulations.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto.
SIGNATURE RESORTS, INC.
By /s/ Andrew J. Gessow
---------------------------------
President
By /s/ Joel Backman
---------------------------------
Assistant Secretary
/s/ Osamu Kaneko
____________________________
Optionee
____________________________
____________________________
Address
Optionee's Taxpayer
Identification Number:
____________________________
12
<PAGE>
EXHIBIT 10.2.7
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement"), dated as of August 20, 1996,
is made by and between Signature Resorts, Inc., a Maryland corporation
hereinafter referred to as "Company," and Andrew J. Gessow, an employee of the
Company, hereinafter referred to as "Optionee":
WHEREAS, the Company wishes to afford the Optionee the opportunity to
purchase shares of its $.01 par value Common Stock; and
WHEREAS, the Company wishes to carry out the Plan (the terms of which are
hereby incorporated by reference and made a part of this Agreement); and
WHEREAS, the Committee, appointed to administer the Plan, has determined
that it would be to the advantage and best interest of the Company and its
shareholders to grant the Option provided for herein to the Optionee as an
inducement to enter into or remain in the service of the Company or its
Subsidiaries and as an incentive for increased efforts during such service, and
has advised the Company thereof and instructed the undersigned officers to issue
said Option;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
Whenever the following terms are used in this Agreement, they shall have
the meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter, and the
singular the plural, where the context so indicates.
Section 1.1 - Board
- ----------- -----
"Board" shall mean the Board of Directors of the Company.
Section 1.2 - Code
- ----------- ----
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.3 - Committee
- ----------- ---------
"Committee" shall mean the Compensation Committee of the Board,
or a subcommittee of the Board, appointed as provided in Section 9.1 of the
Plan.
<PAGE>
Section 1.4 - Common Stock
- ----------- ------------
"Common Stock" shall mean the common stock of the Company, par value $.01
per share, and any equity security of the Company issued or authorized to be
issued in the future, but excluding any warrants, options or other rights to
purchase Common Stock. Debt securities of the Company convertible into Common
Stock shall be deemed equity securities of the Company.
Section 1.5 - Company
- ----------- -------
"Company" shall mean Signature Resorts, Inc., a Maryland corporation.
Section 1.6 - Director
- ----------- --------
"Director" shall mean a member of the Board.
Section 1.7 - Employee
- ----------- ---------
"Employee" shall mean any officer or other employee (as defined in
accordance with Section 3401(c) of the Code) of the Company, or of any
corporation which is a Subsidiary.
Section 1.8 - Exchange Act
- ----------- -------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
Section 1.9 - Fair Market Value
- ----------- ------------------
"Fair Market Value" of a share of Common Stock as of a given date shall be
(i) the mean between the highest and lowest selling price of a share of Common
Stock on the principal exchange on which shares of Common Stock are then
trading, if any, on such date, or if shares were not traded on such date, then
on the closest preceding date on which a trade occurred, or (ii) if Common Stock
is not traded on an exchange, the mean between the closing representative bid
and asked prices for the Common Stock on such date as reported by NASDAQ or, if
NASDAQ is not then in existence, by its successor quotation system; or (iii) if
Common Stock is not publicly traded, the Fair Market Value of a share of Common
Stock as established by the Committee acting in good faith.
Section 1.10 - Option
------------ -------
"Option" shall mean a non-qualified stock option granted under this
Agreement and Article III of the Plan.
Section 1.11 - Optionee
- ------------ ---------
"Optionee" shall mean an Employee or consultant granted an Option under
this Agreement and the Plan.
2
<PAGE>
Section 1.12 - Plan
- ------------ ----
"Plan" shall mean The 1996 Equity Participation Plan of Signature Resorts,
Inc.
Section 1.13 - Rule 16b-3
- ------------ -----------
"Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange Act, as
such Rule may be amended from time to time.
Section 1.14 - Secretary
- ------------ ---------
"Secretary" shall mean the Secretary of the Company.
Section 1.15 - Securities Act
- ------------ --------------
"Securities Act" shall mean the Securities Act of 1933, as amended.
Section 1.16 - Subsidiary
- ------------ -----------
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
Section 1.17 - Termination of Consultancy
- ------------ --------------------------
"Termination of Consultancy" shall mean the time when the engagement of
Optionee as a Consultant to the Company or a Subsidiary is terminated for any
reason, with or without cause, including without limitation, resignation,
discharge, death or retirement; but excluding terminations where there is a
simultaneous commencement of employment with the Company or any Subsidiary. The
Committee, in its absolute discretion, shall determine the effect of all matters
and questions relating to Termination of Consultancy, including, but not by way
of limitation, the question of whether a Termination of Consultancy resulted
from a discharge for good cause, and all questions of whether particular leaves
of absence constitute Terminations of Employment. Notwithstanding any other
provision of this Plan, the Company or any Subsidiary has an absolute and
unrestricted right to terminate a consultant's service at any time for any
reason whatsoever, with or without cause, except to the extent expressly
provided otherwise in writing.
Section 1.18 - Termination of Employment
- ------------ --------------------------
"Termination of Employment" shall mean the time when the employee-employer
relationship between the Optionee and the Company or any Subsidiary is
terminated for any reason, including, but not by way of limitation, a
termination by resignation, discharge, death, disability or retirement; but
excluding (i) terminations where there is a simultaneous reemployment,
continuing employment of an Optionee by the
3
<PAGE>
Company or any Subsidiary, (ii) at the discretion of the Committee, terminations
which result in a temporary severance of the employee-employer relationship, and
(iii) at the discretion of the Committee, terminations which are followed by the
simultaneous establishment of a consulting relationship by the Company or a
Subsidiary with the former employee. The Committee, in its absolute discretion,
shall determine the effect of all matters and questions relating to Termination
of Employment, including, but not by way of limitation, the question of whether
a Termination of Employment resulted from a discharge for good cause, and all
questions of whether particular leaves of absence constitute Terminations of
Employment. Notwithstanding any other provision of this Plan, the Company or any
Subsidiary has an absolute and unrestricted right to terminate an Employee's
employment at any time for any reason whatsoever, with or without cause, except
to the extent expressly provided otherwise in writing.
ARTICLE II
GRANT OF OPTION
---------------
Section 2.1 - Grant of Option
- ----------- ---------------
In consideration of the Optionee's agreement to remain in the employ of (or
consult for) the Company or its Subsidiaries for a period of at least two (2)
years after the option is granted and for other good and valuable consideration,
on the date hereof the Company irrevocably grants to the Optionee the option to
purchase any part or all of an aggregate of one hundred fifty thousand (150,000)
shares of its $.01 par value Common Stock upon the terms and conditions set
forth in this Agreement.
Section 2.2 - Purchase Price
- ----------- --------------
The purchase price of the shares of stock covered by the Option shall be
$14.00 per share without commission or other charge.
Section 2.3 - Consideration to Company
- ----------- ------------------------
In consideration of the granting of this Option by the Company, the
Optionee agrees to render faithful and efficient services to the Company or a
Subsidiary, with such duties and responsibilities as the Company shall from time
to time prescribe, for a period of at least two (2) years from the date this
Option is granted. Nothing in the Plan or this Agreement shall confer upon any
Optionee any right to continue in the employ of, or as a consultant for, the
Company or any Subsidiary, or as a director of the Company, or shall interfere
with or restrict in any way the rights of the Company and any Subsidiary, which
are hereby expressly reserved, to discharge the Optionee at any time for any
reason whatsoever, with or without good cause.
Section 2.4 - Adjustments in Option
- ----------- ---------------------
(a) In the event that the outstanding shares of the stock subject to the
Option are changed into or exchanged for a different number or kind of shares of
the
4
<PAGE>
Company or other securities of the Company, or of another corporation, by
reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock splitup, stock dividend or combination of shares, the
Committee shall make an appropriate and equitable adjustment in the number and
kind of shares as to which the Option, or portions thereof then unexercised,
shall be exercisable, to the end that after such event the Optionee's
proportionate interest shall be maintained as before the occurrence of such
event. Such adjustment in the Option may include any necessary corresponding
adjustment in the Option price per share, but shall be made without change in
the total price applicable to the unexercised portion of the Option (except for
any change in the aggregate price resulting from rounding-off of share
quantities or prices). Any such adjustment made by the Committee shall be final
and binding upon the Optionee, the Company and all other interested persons.
(b) Notwithstanding the foregoing, in the event of such a reorganization,
merger, consolidation, recapitalization, reclassification, stock splitup, stock
dividend or combination, or other adjustment or event which results in shares of
Common Stock being exchanged for or converted into cash, securities or other
property, the Company will have the right to terminate the Plan as of the date
of the exchange or conversion, in which case all options, rights and other
awards under this Plan shall become the right to receive such cash, securities
or other property, net of any applicable exercise price.
(c) In the event of a "spin-off" or other substantial distribution of
assets of the Company which has a material diminutive effect upon the Fair
Market Value of the Company's Common Stock, the Board may in its discretion make
an appropriate and equitable adjustment to the Option to reflect such
diminution.
ARTICLE III
PERIOD OF EXERCISABILITY
------------------------
Section 3.1 - Commencement of Exercisability
- ----------- ------------------------------
(a) Subject to Section 5.6, the Option shall become exercisable in three
(3) cumulative installments as follows:
(i) The first installment shall consist of fifty thousand (50,000) of
the shares covered by the Option and shall become exercisable on the first
anniversary of the date of execution of this Agreement.
(ii) The second installment shall consist of fifty thousand (50,000)
of the shares covered by the Option and shall become exercisable on the second
anniversary of the date of execution of this Agreement.
(iii) The third installment shall consist of fifty thousand (50,000)
of the shares covered by the Option and shall become exercisable on the third
anniversary of the date of execution of this Agreement.
5
<PAGE>
(b) No portion of the Option which is unexercisable at Termination of
Employment or Termination of Consultancy, as applicable, shall thereafter become
exercisable.
Section 3.2 - Duration of Exercisability
- ----------- --------------------------
The installments provided for in Section 3.1 are cumulative. Each such
installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
Section 3.3 - Expiration of Option
- ----------- --------------------
The Option may not be exercised to any extent by anyone after the first to
occur of the following events:
(a) The expiration of ten (10) years from the date the Option was
granted; or
(b) The time of the Optionee's Termination of Employment or
Termination of Consultancy unless such Termination of Employment or Termination
of Consultancy, as applicable, results from his death, his retirement, his
disability or his being discharged not for "Cause" (as defined in Section 5(c)
of the Employment Agreement dated the date hereof between Optionee and the
Company); or
(c) The expiration of three (3) months from the date of the
Optionee's Termination of Employment or Termination of Consultancy by reason of
his retirement or his being discharged not for "Cause," unless the Optionee dies
within said three-month period; or
(d) The expiration of one (1) year from the date of the
Optionee's Termination of Employment or Termination of Consultancy by reason of
his disability; or
(e) The expiration of one (1) year from the date of the
Optionee's death; or
(f) The effective date of either the merger or consolidation of
the Company with or into another corporation, the exchange of all or
substantially all of the assets of the Company for the securities of another
corporation, the acquisition by another corporation or person of all or
substantially all of the Company's assets or eighty percent (80%) or more of the
Company's then outstanding voting stock, or the liquidation or dissolution of
the Company, unless the Committee waives this provision in connection with such
transaction. At least ten (10) days prior to the effective date of such merger,
consolidation, exchange, acquisition, liquidation or dissolution, the Committee
shall give the Optionee notice of such event if the Option has then neither been
fully exercised nor become unexercisable under this Section 3.3.
6
<PAGE>
Section 3.4 - Acceleration of Exercisability
- ----------- ------------------------------
In the event of the merger or consolidation of the Company with or into
another corporation, the exchange of all or substantially all of the assets of
the Company for the securities of another corporation, the acquisition by
another corporation or person of all or substantially all of the Company's
assets or eighty percent (80%) or more of the Company's then outstanding voting
stock, or the liquidation or dissolution of the Company, the Committee may, in
its absolute discretion and upon such terms and conditions as it deems
appropriate, provide by resolution, adopted prior to such event and incorporated
in the notice referred to in Section 3.3(f), that at some time prior to the
effective date of such event this Option shall be exercisable as to all the
shares covered hereby, notwithstanding that this Option may not yet have become
fully exercisable under Section 3.1(a); provided, however, that this
acceleration of exercisability shall not take place if:
(a) This Option becomes unexercisable under Section 3.3 prior to
said effective date; or
(b) In connection with such an event, provision is made for an
assumption of this Option or a substitution therefor of a new option by an
employer corporation or a parent or subsidiary of such corporation.
The Committee may make such determinations and adopt such rules and
conditions as it, in its absolute discretion, deems appropriate in connection
with such acceleration of exercisability, including, but not by way of
limitation, provisions to ensure that any such acceleration and resulting
exercise shall be conditioned upon the consummation of the contemplated
corporate transaction.
None of the foregoing discretionary terms of this Section shall be
permitted to the extent that such discretion would be inconsistent with the
requirements of Rule 16b-3.
ARTICLE IV
EXERCISE OF OPTION
------------------
Section 4.1 - Person Eligible to Exercise
- ----------- ---------------------------
During the lifetime of the Optionee, only he may exercise the Option or any
portion thereof. After the death of the Optionee, any exercisable portion of
the Option may, prior to the time when the Option becomes unexercisable under
Section 3.3, be exercised by his personal representative or by any person
empowered to do so under the Optionee's will or under the then applicable laws
of descent and distribution.
Section 4.2 - Partial Exercise
- ----------- ----------------
Any exercisable portion of the Option or the entire Option, if then wholly
exercisable, may be exercised in whole or in part at any time prior to the time
when the Option or portion thereof becomes unexercisable under Section 3.3;
provided, however, that
7
<PAGE>
each partial exercise shall be for not less than one thousand (1,000) shares and
shall be for whole shares only.
Section 4.3 - Manner of Exercise
- ----------- ------------------
The Option, or any exercisable portion thereof, may be exercised solely by
delivery to the Secretary or his office of all of the following prior to the
time when the Option or such portion becomes unexercisable under Section 3.3:
(a) Notice in writing signed by the Optionee or the other person then
entitled to exercise the Option or portion, stating that the Option or portion
is thereby exercised, such notice complying with all applicable rules
established by the Committee or the Board; and
(b) (i) Full payment (in cash) for the shares with respect to which such
Option or portion is exercised;
(ii) With the consent of the Committee, payment delayed for up to
thirty (30) days from the date the Option, or portion thereof, is exercised; or
(iii) With the consent of the Committee, (A) shares of the Company's
Common Stock owned by the Optionee duly endorsed for transfer to the Company or
(B) subject to the timing requirements of Section 4.4, shares of the Company's
Common Stock issuable to the Optionee upon exercise of the Option, with a Fair
Market Value on the date of Option exercise equal to the aggregate purchase
price of the shares with respect to which such Option or portion is exercised;
or
(iv) With the consent of the Committee, property of any kind which
constitutes good and valuable consideration; or
(v) With the consent of the Committee, a full recourse promissory
note bearing interest (at no less than such rate as shall then preclude the
imputation of interest under the Code or successor provision) and payable upon
such terms as may be prescribed by the Committee or the Board. The Committee may
also prescribe the form of such note and the security to be given for such note.
The Option may not be exercised, however, by delivery of a promissory note or by
a loan from the Company when or where such loan or other extension of credit is
prohibited by law; or
(vi) With the consent of the Committee, any combination of the
consideration provided in the foregoing subparagraphs (iii), (iv) and (v); and
(c) A bona fide written representation and agreement, in a form
satisfactory to the Committee or the Board, signed by the Optionee or other
person then entitled to exercise such Option or portion, stating that the shares
of stock are being acquired for his own account, for investment and without any
present intention of distributing or reselling said shares or any of them except
as may be permitted under the Securities Act and then applicable rules and
regulations thereunder, and that the Optionee or other person then
8
<PAGE>
entitled to exercise such Option or portion will indemnify the Company against
and hold it free and harmless from any loss, damage, expense or liability
resulting to the Company if any sale or distribution of the shares by such
person is contrary to the representation and agreement referred to above. The
Committee may, in its absolute discretion, take whatever additional actions it
deems appropriate to insure the observance and performance of such
representation and agreement and to effect compliance with the Securities Act
and any other federal or state securities laws or regulations. Without limiting
the generality of the foregoing, the Committee may require an opinion of counsel
acceptable to it to the effect that any subsequent transfer of shares acquired
on an Option exercise does not violate the Securities Act, and may issue stop-
transfer orders covering such shares. Share certificates evidencing stock issued
on exercise of this Option shall bear an appropriate legend referring to the
provisions of this subsection (c) and the agreements herein. The written
representation and agreement referred to in the first sentence of this
subsection (c) shall, however, not be required if the shares to be issued
pursuant to such exercise have been registered under the Securities Act, and
such registration is then effective in respect of such shares; and
(d) Full payment to the Company (or other employer corporation) of all
amounts which, under federal, state or local tax law, it is required to withhold
upon exercise of the Option; with the consent of the Committee, (i) shares of
the Company's Common Stock owned by the Optionee duly endorsed for transfer, or
(ii) subject to the timing requirements of Section 4.4, shares of the Company's
Common Stock issuable to the Optionee upon exercise of the Option, having a Fair
Market Value at the date of Option exercise equal to the sums required to be
withheld, may be used to make all or part of such payment; and
(e) In the event the Option or portion shall be exercised pursuant to
Section 4.1 by any person or persons other than the Optionee, appropriate proof
of the right of such person or persons to exercise the Option.
Section 4.4 - Certain Timing Requirements
- ----------- ---------------------------
Shares of the Company's Common Stock issuable to the Optionee upon exercise
of the Option may be used to satisfy the Option price or the tax withholding
consequences of such exercise only (i) during the period beginning on the third
(3rd) business day following the date of release of the quarterly or annual
summary statement of sales and earnings of the Company and ending on the twelfth
(12th) business day following such date or (ii) pursuant to an irrevocable
written election by the Optionee to use shares of the Company's Common Stock
issuable to the Optionee upon exercise of the Option to pay all or part of the
Option price or the withholding taxes (subject to the approval of the Committee)
made at least six (6) months prior to the payment of such Option price or
withholding taxes.
Section 4.5 - Conditions to Issuance of Stock Certificates
- ----------- --------------------------------------------
The shares of stock deliverable upon the exercise of the Option, or any
portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been reacquired by the Company. Such shares shall
be fully paid and nonassessable. The Company shall not be required to issue or
deliver any certificate or
9
<PAGE>
certificates for shares of stock purchased upon the exercise of the Option or
portion thereof prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under rulings or regulations of the
Securities and Exchange Commission or of any other governmental regulatory body,
which the Committee or Board shall, in its absolute discretion, deem necessary
or advisable; and
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee or Board shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The receipt by the Company of full payment for such shares, including
payment of all amounts which, under federal, state or local tax law, it is
required to withhold upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the exercise of
the Option as the Committee or Board may from time to time establish for reasons
of administrative convenience.
Section 4.6 - Rights as Shareholder
- ----------- ---------------------
The holder of the Option shall not be, nor have any of the rights or
privileges of, a shareholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
ARTICLE V
OTHER PROVISIONS
----------------
Section 5.1 - Administration
- ----------- --------------
The Committee shall have the power to interpret the Plan and this Agreement
and to adopt such rules for the administration, interpretation and application
of the Plan as are consistent therewith and to interpret or revoke any such
rules. All actions taken and all interpretations and determinations made by the
Committee in good faith shall be final and binding upon the Optionee, the
Company and all other interested persons. No member of the Committee shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Plan or the Option. In its absolute discretion, the
Board may at any time and from time to time exercise any and all rights and
duties of the Committee under this Plan except with respect to matters which
under Rule 16b-3 or Section 162(m) of the Code, or any regulations or rules
issued thereunder, are required to be determined in the sole discretion of the
Committee.
10
<PAGE>
Section 5.2 - Option Not Transferable
- ----------- -----------------------
Neither the Option nor any interest or right therein or part thereof shall
be liable for the debts, contracts or engagements of the Optionee or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution.
Section 5.3 - Shares to Be Reserved
- ----------- ---------------------
The Company shall at all times during the term of the Option reserve and
keep available such number of shares of stock as will be sufficient to satisfy
the requirements of this Agreement.
Section 5.4 - Notices
- ----------- -------
Any notice to be given under the terms of this Agreement to the Company
shall be addressed to the Company in care of its Secretary, and any notice to be
given to the Optionee shall be addressed to him at the address given beneath his
signature hereto. By a notice given pursuant to this Section 5.4, either party
may hereafter designate a different address for notices to be given to him. Any
notice which is required to be given to the Optionee shall, if the Optionee is
then deceased, be given to the Optionee's personal representative if such
representative has previously informed the Company of his status and address by
written notice under this Section 5.4. Any notice shall be deemed duly given
when enclosed in a properly sealed envelope or wrapper addressed as aforesaid,
deposited (with postage prepaid) in a post office or branch post office
regularly maintained by the United States Postal Service.
Section 5.5 - Titles
- ----------- ------
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of this Agreement.
Section 5.6 - Construction
- ----------- ------------
This Agreement shall be administered, interpreted and enforced under the
laws of the State of Maryland.
Section 5.7 - Conformity to Securities Laws
- ----------- -----------------------------
The Optionee acknowledges that the Plan is intended to conform to the
extent necessary with all provisions of the Securities Act and the Exchange Act
and any and all regulations and rules promulgated by the Securities and Exchange
Commission thereunder, including without limitation Rule 16b-3. Notwithstanding
anything herein to the contrary,
11
<PAGE>
the Plan shall be administered, and the Option is granted and may be exercised,
only in such a manner as to conform to such laws, rules and regulations. To the
extent permitted by applicable law, the Plan and this Agreement shall be deemed
amended to the extent necessary to conform to such laws, rules and regulations.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto.
SIGNATURE RESORTS, INC.
By /s/ Andrew J. Gessow
--------------------------------
President
By /s/ Joel Backman
--------------------------------
Assistant Secretary
/s/ Andrew J. Gessow
____________________________
Optionee
____________________________
____________________________
Address
Optionee's Taxpayer
Identification Number:
____________________________
12
<PAGE>
EXHIBIT 10.2.8
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement"), dated as of August 20, 1996,
is made by and between Signature Resorts, Inc., a Maryland corporation
hereinafter referred to as "Company," and Steven C. Kenninger, an employee of
the Company, hereinafter referred to as "Optionee":
WHEREAS, the Company wishes to afford the Optionee the opportunity to
purchase shares of its $.01 par value Common Stock; and
WHEREAS, the Company wishes to carry out the Plan (the terms of which are
hereby incorporated by reference and made a part of this Agreement); and
WHEREAS, the Committee, appointed to administer the Plan, has determined
that it would be to the advantage and best interest of the Company and its
shareholders to grant the Option provided for herein to the Optionee as an
inducement to enter into or remain in the service of the Company or its
Subsidiaries and as an incentive for increased efforts during such service, and
has advised the Company thereof and instructed the undersigned officers to issue
said Option;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
Whenever the following terms are used in this Agreement, they shall have
the meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter, and the
singular the plural, where the context so indicates.
Section 1.1 - Board
- ----------- -----
"Board" shall mean the Board of Directors of the Company.
Section 1.2 - Code
- ----------- ----
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.3 - Committee
- ----------- ---------
"Committee" shall mean the Compensation Committee of the Board, or a
subcommittee of the Board, appointed as provided in Section 9.1 of the Plan.
<PAGE>
Section 1.4 - Common Stock
- ----------- ------------
"Common Stock" shall mean the common stock of the Company, par value $.01
per share, and any equity security of the Company issued or authorized to be
issued in the future, but excluding any warrants, options or other rights to
purchase Common Stock. Debt securities of the Company convertible into Common
Stock shall be deemed equity securities of the Company.
Section 1.5 - Company
- ----------- -------
"Company" shall mean Signature Resorts, Inc., a Maryland corporation.
Section 1.6 - Director
- ----------- --------
"Director" shall mean a member of the Board.
Section 1.7 - Employee
- ----------- ---------
"Employee" shall mean any officer or other employee (as defined in
accordance with Section 3401(c) of the Code) of the Company, or of any
corporation which is a Subsidiary.
Section 1.8 - Exchange Act
- ----------- -------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
Section 1.9 - Fair Market Value
- ----------- ------------------
"Fair Market Value" of a share of Common Stock as of a given date shall be
(i) the mean between the highest and lowest selling price of a share of Common
Stock on the principal exchange on which shares of Common Stock are then
trading, if any, on such date, or if shares were not traded on such date, then
on the closest preceding date on which a trade occurred, or (ii) if Common Stock
is not traded on an exchange, the mean between the closing representative bid
and asked prices for the Common Stock on such date as reported by NASDAQ or, if
NASDAQ is not then in existence, by its successor quotation system; or (iii) if
Common Stock is not publicly traded, the Fair Market Value of a share of Common
Stock as established by the Committee acting in good faith.
Section 1.10 - Option
------------ -------
"Option" shall mean a non-qualified stock option granted under this
Agreement and Article III of the Plan.
Section 1.11 - Optionee
- ------------ ---------
"Optionee" shall mean an Employee or consultant granted an Option under
this Agreement and the Plan.
2
<PAGE>
Section 1.12 - Plan
- ------------ ----
"Plan" shall mean The 1996 Equity Participation Plan of Signature Resorts,
Inc.
Section 1.13 - Rule 16b-3
- ------------ -----------
"Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange Act, as
such Rule may be amended from time to time.
Section 1.14 - Secretary
- ------------ ---------
"Secretary" shall mean the Secretary of the Company.
Section 1.15 - Securities Act
- ------------ --------------
"Securities Act" shall mean the Securities Act of 1933, as amended.
Section 1.16 - Subsidiary
- ------------ -----------
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
Section 1.17 - Termination of Consultancy
- ------------ --------------------------
"Termination of Consultancy" shall mean the time when the engagement of
Optionee as a Consultant to the Company or a Subsidiary is terminated for any
reason, with or without cause, including without limitation, resignation,
discharge, death or retirement; but excluding terminations where there is a
simultaneous commencement of employment with the Company or any Subsidiary. The
Committee, in its absolute discretion, shall determine the effect of all matters
and questions relating to Termination of Consultancy, including, but not by way
of limitation, the question of whether a Termination of Consultancy resulted
from a discharge for good cause, and all questions of whether particular leaves
of absence constitute Terminations of Employment. Notwithstanding any other
provision of this Plan, the Company or any Subsidiary has an absolute and
unrestricted right to terminate a consultant's service at any time for any
reason whatsoever, with or without cause, except to the extent expressly
provided otherwise in writing.
Section 1.18 - Termination of Employment
- ------------ --------------------------
"Termination of Employment" shall mean the time when the employee-employer
relationship between the Optionee and the Company or any Subsidiary is
terminated for any reason, including, but not by way of limitation, a
termination by resignation, discharge, death, disability or retirement; but
excluding (i) terminations where there is a simultaneous reemployment,
continuing employment of an Optionee by the
3
<PAGE>
Company or any Subsidiary, (ii) at the discretion of the Committee, terminations
which result in a temporary severance of the employee-employer relationship, and
(iii) at the discretion of the Committee, terminations which are followed by the
simultaneous establishment of a consulting relationship by the Company or a
Subsidiary with the former employee. The Committee, in its absolute discretion,
shall determine the effect of all matters and questions relating to Termination
of Employment, including, but not by way of limitation, the question of whether
a Termination of Employment resulted from a discharge for good cause, and all
questions of whether particular leaves of absence constitute Terminations of
Employment. Notwithstanding any other provision of this Plan, the Company or any
Subsidiary has an absolute and unrestricted right to terminate an Employee's
employment at any time for any reason whatsoever, with or without cause, except
to the extent expressly provided otherwise in writing.
ARTICLE II
GRANT OF OPTION
---------------
Section 2.1 - Grant of Option
- ----------- ---------------
In consideration of the Optionee's agreement to remain in the employ of (or
consult for) the Company or its Subsidiaries for a period of at least two (2)
years after the option is granted and for other good and valuable consideration,
on the date hereof the Company irrevocably grants to the Optionee the option to
purchase any part or all of an aggregate of one hundred fifty thousand (150,000)
shares of its $.01 par value Common Stock upon the terms and conditions set
forth in this Agreement.
Section 2.2 - Purchase Price
- ----------- --------------
The purchase price of the shares of stock covered by the Option shall be
$14.00 per share without commission or other charge.
Section 2.3 - Consideration to Company
- ----------- ------------------------
In consideration of the granting of this Option by the Company, the
Optionee agrees to render faithful and efficient services to the Company or a
Subsidiary, with such duties and responsibilities as the Company shall from time
to time prescribe, for a period of at least two (2) years from the date this
Option is granted. Nothing in the Plan or this Agreement shall confer upon any
Optionee any right to continue in the employ of, or as a consultant for, the
Company or any Subsidiary, or as a director of the Company, or shall interfere
with or restrict in any way the rights of the Company and any Subsidiary, which
are hereby expressly reserved, to discharge the Optionee at any time for any
reason whatsoever, with or without good cause.
Section 2.4 - Adjustments in Option
- ----------- ---------------------
(a) In the event that the outstanding shares of the stock subject to the
Option are changed into or exchanged for a different number or kind of shares of
the
4
<PAGE>
Company or other securities of the Company, or of another corporation, by
reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock splitup, stock dividend or combination of shares, the
Committee shall make an appropriate and equitable adjustment in the number and
kind of shares as to which the Option, or portions thereof then unexercised,
shall be exercisable, to the end that after such event the Optionee's
proportionate interest shall be maintained as before the occurrence of such
event. Such adjustment in the Option may include any necessary corresponding
adjustment in the Option price per share, but shall be made without change in
the total price applicable to the unexercised portion of the Option (except for
any change in the aggregate price resulting from rounding-off of share
quantities or prices). Any such adjustment made by the Committee shall be final
and binding upon the Optionee, the Company and all other interested persons.
(b) Notwithstanding the foregoing, in the event of such a reorganization,
merger, consolidation, recapitalization, reclassification, stock splitup, stock
dividend or combination, or other adjustment or event which results in shares of
Common Stock being exchanged for or converted into cash, securities or other
property, the Company will have the right to terminate the Plan as of the date
of the exchange or conversion, in which case all options, rights and other
awards under this Plan shall become the right to receive such cash, securities
or other property, net of any applicable exercise price.
(c) In the event of a "spin-off" or other substantial distribution of
assets of the Company which has a material diminutive effect upon the Fair
Market Value of the Company's Common Stock, the Board may in its discretion make
an appropriate and equitable adjustment to the Option to reflect such
diminution.
ARTICLE III
PERIOD OF EXERCISABILITY
------------------------
Section 3.1 - Commencement of Exercisability
- ----------- ------------------------------
(a) Subject to Section 5.6, the Option shall become exercisable in three
(3) cumulative installments as follows:
(i) The first installment shall consist of fifty thousand (50,000) of
the shares covered by the Option and shall become exercisable on the first
anniversary of the date of execution of this Agreement.
(ii) The second installment shall consist of fifty thousand (50,000)
of the shares covered by the Option and shall become exercisable on the
second anniversary of the date of execution of this Agreement.
(iii) The third installment shall consist of fifty thousand (50,000)
of the shares covered by the Option and shall become exercisable on the third
anniversary of the date of execution of this Agreement.
5
<PAGE>
(b) No portion of the Option which is unexercisable at Termination of
Employment or Termination of Consultancy, as applicable, shall thereafter become
exercisable.
Section 3.2 - Duration of Exercisability
- ----------- --------------------------
The installments provided for in Section 3.1 are cumulative. Each such
installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
Section 3.3 - Expiration of Option
- ----------- --------------------
The Option may not be exercised to any extent by anyone after the first to
occur of the following events:
(a) The expiration of ten (10) years from the date the Option was granted;
or
(b) The time of the Optionee's Termination of Employment or Termination of
Consultancy unless such Termination of Employment or Termination of Consultancy,
as applicable, results from his death, his retirement, his disability or his
being discharged not for "Cause" (as defined in Section 5(c) of the Employment
Agreement dated the date hereof between Optionee and the Company); or
(c) The expiration of three (3) months from the date of the Optionee's
Termination of Employment or Termination of Consultancy by reason of his
retirement or his being discharged not for "Cause," unless the Optionee dies
within said three-month period; or
(d) The expiration of one (1) year from the date of the Optionee's
Termination of Employment or Termination of Consultancy by reason of his
disability; or
(e) The expiration of one (1) year from the date of the Optionee's death;
or
(f) The effective date of either the merger or consolidation of the
Company with or into another corporation, the exchange of all or substantially
all of the assets of the Company for the securities of another corporation, the
acquisition by another corporation or person of all or substantially all of the
Company's assets or eighty percent (80%) or more of the Company's then
outstanding voting stock, or the liquidation or dissolution of the Company,
unless the Committee waives this provision in connection with such transaction.
At least ten (10) days prior to the effective date of such merger,
consolidation, exchange, acquisition, liquidation or dissolution, the Committee
shall give the Optionee notice of such event if the Option has then neither been
fully exercised nor become unexercisable under this Section 3.3.
6
<PAGE>
Section 3.4 - Acceleration of Exercisability
- ----------- ------------------------------
In the event of the merger or consolidation of the Company with or into
another corporation, the exchange of all or substantially all of the assets of
the Company for the securities of another corporation, the acquisition by
another corporation or person of all or substantially all of the Company's
assets or eighty percent (80%) or more of the Company's then outstanding voting
stock, or the liquidation or dissolution of the Company, the Committee may, in
its absolute discretion and upon such terms and conditions as it deems
appropriate, provide by resolution, adopted prior to such event and incorporated
in the notice referred to in Section 3.3(f), that at some time prior to the
effective date of such event this Option shall be exercisable as to all the
shares covered hereby, notwithstanding that this Option may not yet have become
fully exercisable under Section 3.1(a); provided, however, that this
acceleration of exercisability shall not take place if:
(a) This Option becomes unexercisable under Section 3.3 prior to said
effective date; or
(b) In connection with such an event, provision is made for an assumption
of this Option or a substitution therefor of a new option by an employer
corporation or a parent or subsidiary of such corporation.
The Committee may make such determinations and adopt such rules and
conditions as it, in its absolute discretion, deems appropriate in connection
with such acceleration of exercisability, including, but not by way of
limitation, provisions to ensure that any such acceleration and resulting
exercise shall be conditioned upon the consummation of the contemplated
corporate transaction.
None of the foregoing discretionary terms of this Section shall be
permitted to the extent that such discretion would be inconsistent with the
requirements of Rule 16b-3.
ARTICLE IV
EXERCISE OF OPTION
------------------
Section 4.1 - Person Eligible to Exercise
- ----------- ---------------------------
During the lifetime of the Optionee, only he may exercise the Option or any
portion thereof. After the death of the Optionee, any exercisable portion of
the Option may, prior to the time when the Option becomes unexercisable under
Section 3.3, be exercised by his personal representative or by any person
empowered to do so under the Optionee's will or under the then applicable laws
of descent and distribution.
Section 4.2 - Partial Exercise
- ----------- ----------------
Any exercisable portion of the Option or the entire Option, if then wholly
exercisable, may be exercised in whole or in part at any time prior to the time
when the Option or portion thereof becomes unexercisable under Section 3.3;
provided, however, that
7
<PAGE>
each partial exercise shall be for not less than one thousand (1,000) shares and
shall be for whole shares only.
Section 4.3 - Manner of Exercise
- ----------- ------------------
The Option, or any exercisable portion thereof, may be exercised solely by
delivery to the Secretary or his office of all of the following prior to the
time when the Option or such portion becomes unexercisable under Section 3.3:
(a) Notice in writing signed by the Optionee or the other person then
entitled to exercise the Option or portion, stating that the Option or portion
is thereby exercised, such notice complying with all applicable rules
established by the Committee or the Board; and
(b) (i) Full payment (in cash) for the shares with respect to which such
Option or portion is exercised;
(ii) With the consent of the Committee, payment delayed for up to
thirty (30) days from the date the Option, or portion thereof, is
exercised; or
(iii) With the consent of the Committee, (A) shares of the Company's
Common Stock owned by the Optionee duly endorsed for transfer to the
Company or (B) subject to the timing requirements of Section 4.4, shares of
the Company's Common Stock issuable to the Optionee upon exercise of the
Option, with a Fair Market Value on the date of Option exercise equal to
the aggregate purchase price of the shares with respect to which such
Option or portion is exercised; or
(iv) With the consent of the Committee, property of any kind which
constitutes good and valuable consideration; or
(v) With the consent of the Committee, a full recourse promissory
note bearing interest (at no less than such rate as shall then preclude the
imputation of interest under the Code or successor provision) and payable
upon such terms as may be prescribed by the Committee or the Board. The
Committee may also prescribe the form of such note and the security to be
given for such note. The Option may not be exercised, however, by delivery
of a promissory note or by a loan from the Company when or where such loan
or other extension of credit is prohibited by law; or
(vi) With the consent of the Committee, any combination of the
consideration provided in the foregoing subparagraphs (iii), (iv) and (v);
and
(c) A bona fide written representation and agreement, in a form
satisfactory to the Committee or the Board, signed by the Optionee or other
person then entitled to exercise such Option or portion, stating that the shares
of stock are being acquired for his own account, for investment and without any
present intention of distributing or reselling said shares or any of them except
as may be permitted under the Securities Act and then applicable rules and
regulations thereunder, and that the Optionee or other person then
8
<PAGE>
entitled to exercise such Option or portion will indemnify the Company against
and hold it free and harmless from any loss, damage, expense or liability
resulting to the Company if any sale or distribution of the shares by such
person is contrary to the representation and agreement referred to above. The
Committee may, in its absolute discretion, take whatever additional actions it
deems appropriate to insure the observance and performance of such
representation and agreement and to effect compliance with the Securities Act
and any other federal or state securities laws or regulations. Without limiting
the generality of the foregoing, the Committee may require an opinion of counsel
acceptable to it to the effect that any subsequent transfer of shares acquired
on an Option exercise does not violate the Securities Act, and may issue stop-
transfer orders covering such shares. Share certificates evidencing stock issued
on exercise of this Option shall bear an appropriate legend referring to the
provisions of this subsection (c) and the agreements herein. The written
representation and agreement referred to in the first sentence of this
subsection (c) shall, however, not be required if the shares to be issued
pursuant to such exercise have been registered under the Securities Act, and
such registration is then effective in respect of such shares; and
(d) Full payment to the Company (or other employer corporation) of all
amounts which, under federal, state or local tax law, it is required to withhold
upon exercise of the Option; with the consent of the Committee, (i) shares of
the Company's Common Stock owned by the Optionee duly endorsed for transfer, or
(ii) subject to the timing requirements of Section 4.4, shares of the Company's
Common Stock issuable to the Optionee upon exercise of the Option, having a Fair
Market Value at the date of Option exercise equal to the sums required to be
withheld, may be used to make all or part of such payment; and
(e) In the event the Option or portion shall be exercised pursuant to
Section 4.1 by any person or persons other than the Optionee, appropriate proof
of the right of such person or persons to exercise the Option.
Section 4.4 - Certain Timing Requirements
- ----------- ---------------------------
Shares of the Company's Common Stock issuable to the Optionee upon exercise
of the Option may be used to satisfy the Option price or the tax withholding
consequences of such exercise only (i) during the period beginning on the third
(3rd) business day following the date of release of the quarterly or annual
summary statement of sales and earnings of the Company and ending on the twelfth
(12th) business day following such date or (ii) pursuant to an irrevocable
written election by the Optionee to use shares of the Company's Common Stock
issuable to the Optionee upon exercise of the Option to pay all or part of the
Option price or the withholding taxes (subject to the approval of the Committee)
made at least six (6) months prior to the payment of such Option price or
withholding taxes.
Section 4.5 - Conditions to Issuance of Stock Certificates
- ----------- --------------------------------------------
The shares of stock deliverable upon the exercise of the Option, or any
portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been reacquired by the Company. Such shares shall
be fully paid and nonassessable. The Company shall not be required to issue or
deliver any certificate or
9
<PAGE>
certificates for shares of stock purchased upon the exercise of the Option or
portion thereof prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under rulings or regulations of the
Securities and Exchange Commission or of any other governmental regulatory body,
which the Committee or Board shall, in its absolute discretion, deem necessary
or advisable; and
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee or Board shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The receipt by the Company of full payment for such shares, including
payment of all amounts which, under federal, state or local tax law, it is
required to withhold upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the exercise of
the Option as the Committee or Board may from time to time establish for reasons
of administrative convenience.
Section 4.6 - Rights as Shareholder
- ----------- ---------------------
The holder of the Option shall not be, nor have any of the rights or
privileges of, a shareholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
ARTICLE V
OTHER PROVISIONS
----------------
Section 5.1 - Administration
- ----------- --------------
The Committee shall have the power to interpret the Plan and this Agreement
and to adopt such rules for the administration, interpretation and application
of the Plan as are consistent therewith and to interpret or revoke any such
rules. All actions taken and all interpretations and determinations made by the
Committee in good faith shall be final and binding upon the Optionee, the
Company and all other interested persons. No member of the Committee shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Plan or the Option. In its absolute discretion, the
Board may at any time and from time to time exercise any and all rights and
duties of the Committee under this Plan except with respect to matters which
under Rule 16b-3 or Section 162(m) of the Code, or any regulations or rules
issued thereunder, are required to be determined in the sole discretion of the
Committee.
10
<PAGE>
Section 5.2 - Option Not Transferable
- ----------- -----------------------
Neither the Option nor any interest or right therein or part thereof shall
be liable for the debts, contracts or engagements of the Optionee or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution.
Section 5.3 - Shares to Be Reserved
- ----------- ---------------------
The Company shall at all times during the term of the Option reserve and
keep available such number of shares of stock as will be sufficient to satisfy
the requirements of this Agreement.
Section 5.4 - Notices
- ----------- -------
Any notice to be given under the terms of this Agreement to the Company
shall be addressed to the Company in care of its Secretary, and any notice to be
given to the Optionee shall be addressed to him at the address given beneath his
signature hereto. By a notice given pursuant to this Section 5.4, either party
may hereafter designate a different address for notices to be given to him. Any
notice which is required to be given to the Optionee shall, if the Optionee is
then deceased, be given to the Optionee's personal representative if such
representative has previously informed the Company of his status and address by
written notice under this Section 5.4. Any notice shall be deemed duly given
when enclosed in a properly sealed envelope or wrapper addressed as aforesaid,
deposited (with postage prepaid) in a post office or branch post office
regularly maintained by the United States Postal Service.
Section 5.5 - Titles
- ----------- ------
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of this Agreement.
Section 5.6 - Construction
- ----------- ------------
This Agreement shall be administered, interpreted and enforced under the
laws of the State of Maryland.
Section 5.7 - Conformity to Securities Laws
- ----------- -----------------------------
The Optionee acknowledges that the Plan is intended to conform to the
extent necessary with all provisions of the Securities Act and the Exchange Act
and any and all regulations and rules promulgated by the Securities and Exchange
Commission thereunder, including without limitation Rule 16b-3. Notwithstanding
anything herein to the contrary,
11
<PAGE>
the Plan shall be administered, and the Option is granted and may be exercised,
only in such a manner as to conform to such laws, rules and regulations. To the
extent permitted by applicable law, the Plan and this Agreement shall be deemed
amended to the extent necessary to conform to such laws, rules and regulations.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto.
SIGNATURE RESORTS, INC.
By /s/ Andrew J. Gessow
---------------------------------
President
By /s/ Joel Backman
---------------------------------
Assistant Secretary
/s/ Steven C. Kenninger
____________________________
Optionee
____________________________
____________________________
Address
Optionee's Taxpayer
Identification Number:
____________________________
12
<PAGE>
EXHIBIT 10.2.9
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement"), dated as of June 13,
1996, is made by and between Signature Resorts, Inc., a Maryland corporation
hereinafter referred to as "Company," and James E. Noyes, an employee of the
Company, hereinafter referred to as "Optionee":
WHEREAS, the Company wishes to afford the Optionee the opportunity to
purchase shares of its $.01 par value Common Stock; and
WHEREAS, the Company wishes to carry out the Plan (the terms of which
are hereby incorporated by reference and made a part of this Agreement); and
WHEREAS, the Committee, appointed to administer the Plan, has
determined that it would be to the advantage and best interest of the Company
and its shareholders to grant the Option provided for herein to the Optionee as
an inducement to enter into or remain in the service of the Company or its
Subsidiaries and as an incentive for increased efforts during such service, and
has advised the Company thereof and instructed the undersigned officers to issue
said Option;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
Whenever the following terms are used in this Agreement, they shall
have the meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter, and the
singular the plural, where the context so indicates.
Section 1.1 - Board
- ----------- -----
"Board" shall mean the Board of Directors of the Company.
Section 1.2 - Code
- ----------- ----
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.3 - Committee
- ----------- ---------
"Committee" shall mean the Compensation Committee of the Board, or
a subcommittee of the Board, appointed as provided in Section 9.1 of the Plan.
<PAGE>
Section 1.4 - Common Stock
- ----------- ------------
"Common Stock" shall mean the common stock of the Company, par
value $.01 per share, and any equity security of the Company issued or
authorized to be issued in the future, but excluding any warrants, options or
other rights to purchase Common Stock. Debt securities of the Company
convertible into Common Stock shall be deemed equity securities of the Company.
Section 1.5 - Company
- ----------- -------
"Company" shall mean Signature Resorts, Inc., a Maryland
corporation.
Section 1.6 - Director
- ----------- --------
"Director" shall mean a member of the Board.
Section 1.7 - Employee
- ----------- ---------
"Employee" shall mean any officer or other employee (as defined in
accordance with Section 3401(c) of the Code) of the Company, or of any
corporation which is a Subsidiary.
Section 1.8 - Exchange Act
- ----------- -------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
Section 1.9 - Fair Market Value
- ----------- ------------------
"Fair Market Value" of a share of Common Stock as of a given date
shall be (i) the mean between the highest and lowest selling price of a share of
Common Stock on the principal exchange on which shares of Common Stock are then
trading, if any, on such date, or if shares were not traded on such date, then
on the closest preceding date on which a trade occurred, or (ii) if Common Stock
is not traded on an exchange, the mean between the closing representative bid
and asked prices for the Common Stock on such date as reported by NASDAQ or, if
NASDAQ is not then in existence, by its successor quotation system; or (iii) if
Common Stock is not publicly traded, the Fair Market Value of a share of Common
Stock as established by the Committee acting in good faith.
Section 1.10 - Option
- ------------ -------
"Option" shall mean a non-qualified stock option granted under
this Agreement and Article III of the Plan.
Section 1.11 - Optionee
- ------------ ---------
"Optionee" shall mean an Employee or consultant granted an Option
under this Agreement and the Plan.
2
<PAGE>
Section 1.12 - Plan
- ------------ ----
"Plan" shall mean The 1996 Equity Participation Plan of Signature
Resorts, Inc.
Section 1.13 - Rule 16b-3
- ------------ -----------
"Rule 16b-3" shall mean that certain Rule 16b-3 under the
Exchange Act, as such Rule may be amended from time to time.
Section 1.14 - Secretary
- ------------ ---------
"Secretary" shall mean the Secretary of the Company.
Section 1.15 - Securities Act
- ------------ --------------
"Securities Act" shall mean the Securities Act of 1933, as
amended.
Section 1.16 - Subsidiary
- ------------ -----------
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
Section 1.17 - Termination of Consultancy
- ------------ --------------------------
"Termination of Consultancy" shall mean the time when the
engagement of Optionee as a Consultant to the Company or a Subsidiary is
terminated for any reason, with or without cause, including without limitation,
resignation, discharge, death or retirement; but excluding terminations where
there is a simultaneous commencement of employment with the Company or any
Subsidiary. The Committee, in its absolute discretion, shall determine the
effect of all matters and questions relating to Termination of Consultancy,
including, but not by way of limitation, the question of whether a Termination
of Consultancy resulted from a discharge for good cause, and all questions of
whether particular leaves of absence constitute Terminations of Employment.
Notwithstanding any other provision of this Plan, the Company or any Subsidiary
has an absolute and unrestricted right to terminate a consultant's service at
any time for any reason whatsoever, with or without cause, except to the extent
expressly provided otherwise in writing.
Section 1.18 - Termination of Employment
- ------------ --------------------------
"Termination of Employment" shall mean the time when the
employee-employer relationship between the Optionee and the Company or any
Subsidiary is terminated for any reason, including, but not by way of
limitation, a termination by resignation, discharge, death, disability or
retirement; but excluding (i) terminations where there is a simultaneous
reemployment, continuing employment of an Optionee by the
3
<PAGE>
Company or any Subsidiary, (ii) at the discretion of the Committee, terminations
which result in a temporary severance of the employee-employer relationship, and
(iii) at the discretion of the Committee, terminations which are followed by the
simultaneous establishment of a consulting relationship by the Company or a
Subsidiary with the former employee. The Committee, in its absolute discretion,
shall determine the effect of all matters and questions relating to Termination
of Employment, including, but not by way of limitation, the question of whether
a Termination of Employment resulted from a discharge for good cause, and all
questions of whether particular leaves of absence constitute Terminations of
Employment. Notwithstanding any other provision of this Plan, the Company or any
Subsidiary has an absolute and unrestricted right to terminate an Employee's
employment at any time for any reason whatsoever, with or without cause, except
to the extent expressly provided otherwise in writing.
ARTICLE II
GRANT OF OPTION
---------------
Section 2.1 - Grant of Option
- ----------- ---------------
In consideration of the Optionee's agreement to remain in the
employ of (or consult for) the Company or its Subsidiaries for a period of at
least two (2) years after the option is granted and for other good and valuable
consideration, on the date hereof the Company irrevocably grants to the Optionee
the option to purchase any part or all of an aggregate of three hundred seventy
five thousand (375,000) shares of its $.01 par value Common Stock upon the terms
and conditions set forth in this Agreement.
Section 2.2 - Purchase Price
- ----------- --------------
The purchase price of the shares of stock covered by the Option
shall be $12.00 per share without commission or other charge.
Section 2.3 - Consideration to Company
- ----------- ------------------------
In consideration of the granting of this Option by the Company,
the Optionee agrees to render faithful and efficient services to the Company or
a Subsidiary, with such duties and responsibilities as the Company shall from
time to time prescribe, for a period of at least two (2) years from the date
this Option is granted. Nothing in the Plan or this Agreement shall confer upon
any Optionee any right to continue in the employ of, or as a consultant for, the
Company or any Subsidiary, or as a director of the Company, or shall interfere
with or restrict in any way the rights of the Company and any Subsidiary, which
are hereby expressly reserved, to discharge the Optionee at any time for any
reason whatsoever, with or without good cause.
Section 2.4 - Adjustments in Option
- ----------- ---------------------
(a) In the event that the outstanding shares of the stock subject
to the Option are changed into or exchanged for a different number or kind of
shares of the
4
<PAGE>
Company or other securities of the Company, or of another corporation, by reason
of reorganization, merger, consolidation, recapitalization, reclassification,
stock splitup, stock dividend or combination of shares, the Committee shall make
an appropriate and equitable adjustment in the number and kind of shares as to
which the Option, or portions thereof then unexercised, shall be exercisable, to
the end that after such event the Optionee's proportionate interest shall be
maintained as before the occurrence of such event. Such adjustment in the Option
may include any necessary corresponding adjustment in the Option price per
share, but shall be made without change in the total price applicable to the
unexercised portion of the Option (except for any change in the aggregate price
resulting from rounding-off of share quantities or prices). Any such adjustment
made by the Committee shall be final and binding upon the Optionee, the Company
and all other interested persons.
(b) Notwithstanding the foregoing, in the event of such a
reorganization, merger, consolidation, recapitalization, reclassification, stock
splitup, stock dividend or combination, or other adjustment or event which
results in shares of Common Stock being exchanged for or converted into cash,
securities or other property, the Company will have the right to terminate the
Plan as of the date of the exchange or conversion, in which case all options,
rights and other awards under this Plan shall become the right to receive such
cash, securities or other property, net of any applicable exercise price.
(c) In the event of a "spin-off" or other substantial distribution of
assets of the Company which has a material diminutive effect upon the Fair
Market Value of the Company's Common Stock, the Board may in its discretion make
an appropriate and equitable adjustment to the Option to reflect such
diminution.
ARTICLE III
PERIOD OF EXERCISABILITY
------------------------
Section 3.1 - Commencement of Exercisability
- ----------- ------------------------------
(a) Subject to Section 5.6, the Option shall become exercisable
in forty-nine (49) cumulative installments as follows:
(i) The first installment shall consist of seventy-five
thousand (75,000) of the shares covered by the Option and shall become
exercisable on the date of execution of this Agreement.
(ii) Each of the forty-eight (48) successive installments
shall consist of six thousand two hundred fifty (6,250) shares covered by the
Option and shall become exercisable in equal installments at the end of each of
the first forty-eight (48) months during the term of the Optionee's employment
with the Company or any Subsidiary.
5
<PAGE>
(b) No portion of the Option which is unexercisable at Termination
of Employment or Termination of Consultancy, as applicable, shall thereafter
become exercisable.
Section 3.2 - Duration of Exercisability
- ----------- --------------------------
The installments provided for in Section 3.1 are cumulative. Each
such installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
Section 3.3 - Expiration of Option
- ----------- --------------------
The Option may not be exercised to any extent by anyone after the
first to occur of the following events:
(a) The expiration of ten (10) years from the date the Option was
granted; or
(b) The time of the Optionee's Termination of Employment or
Termination of Consultancy unless such Termination of Employment or Termination
of Consultancy, as applicable, results from his death, his retirement, his
disability or his being discharged not for "Cause" (as defined in Section 5(c)
of the Employment Agreement dated the date hereof between Optionee and the
Company); or
(c) The expiration of three (3) months from the date of the
Optionee's Termination of Employment or Termination of Consultancy by reason of
his retirement or his being discharged not for "Cause," unless the Optionee dies
within said three-month period; or
(d) The expiration of one (1) year from the date of the Optionee's
Termination of Employment or Termination of Consultancy by reason of his
disability; or
(e) The expiration of one (1) year from the date of the
Optionee's death; or
(f) The effective date of either the merger or consolidation of
the Company with or into another corporation, the exchange of all or
substantially all of the assets of the Company for the securities of another
corporation, the acquisition by another corporation or person of all or
substantially all of the Company's assets or eighty percent (80%) or more of the
Company's then outstanding voting stock, or the liquidation or dissolution of
the Company, unless the Committee waives this provision in connection with such
transaction. At least ten (10) days prior to the effective date of such merger,
consolidation, exchange, acquisition, liquidation or dissolution, the Committee
shall give the Optionee notice of such event if the Option has then neither been
fully exercised nor become unexercisable under this Section 3.3.
6
<PAGE>
Section 3.4 - Acceleration of Exercisability
- ----------- ------------------------------
In the event of the merger or consolidation of the Company with or
into another corporation, the exchange of all or substantially all of the assets
of the Company for the securities of another corporation, the acquisition by
another corporation or person of all or substantially all of the Company's
assets or eighty percent (80%) or more of the Company's then outstanding voting
stock, or the liquidation or dissolution of the Company, the Committee may, in
its absolute discretion and upon such terms and conditions as it deems
appropriate, provide by resolution, adopted prior to such event and incorporated
in the notice referred to in Section 3.3(f), that at some time prior to the
effective date of such event this Option shall be exercisable as to all the
shares covered hereby, notwithstanding that this Option may not yet have become
fully exercisable under Section 3.1(a); provided, however, that this
acceleration of exercisability shall not take place if:
(a) This Option becomes unexercisable under Section 3.3 prior to
said effective date; or
(b) In connection with such an event, provision is made for an
assumption of this Option or a substitution therefor of a new option by an
employer corporation or a parent or subsidiary of such corporation.
The Committee may make such determinations and adopt such rules
and conditions as it, in its absolute discretion, deems appropriate in
connection with such acceleration of exercisability, including, but not by way
of limitation, provisions to ensure that any such acceleration and resulting
exercise shall be conditioned upon the consummation of the contemplated
corporate transaction.
None of the foregoing discretionary terms of this Section shall be
permitted to the extent that such discretion would be inconsistent with the
requirements of Rule 16b-3.
ARTICLE IV
EXERCISE OF OPTION
------------------
Section 4.1 - Person Eligible to Exercise
- ----------- ---------------------------
During the lifetime of the Optionee, only he may exercise the
Option or any portion thereof. After the death of the Optionee, any exercisable
portion of the Option may, prior to the time when the Option becomes
unexercisable under Section 3.3, be exercised by his personal representative or
by any person empowered to do so under the Optionee's will or under the then
applicable laws of descent and distribution.
Section 4.2 - Partial Exercise
- ----------- ----------------
Any exercisable portion of the Option or the entire Option, if
then wholly exercisable, may be exercised in whole or in part at any time prior
to the time when the Option or portion thereof becomes unexercisable under
Section 3.3; provided, however, that
7
<PAGE>
each partial exercise shall be for not less than one thousand (1,000) shares and
shall be for whole shares only.
Section 4.3 - Manner of Exercise
- ----------- ------------------
The Option, or any exercisable portion thereof, may be exercised
solely by delivery to the Secretary or his office of all of the following prior
to the time when the Option or such portion becomes unexercisable under Section
3.3:
(a) Notice in writing signed by the Optionee or the other person
then entitled to exercise the Option or portion, stating that the Option or
portion is thereby exercised, such notice complying with all applicable rules
established by the Committee or the Board; and
(b) (i) Full payment (in cash) for the shares with respect to
which such Option or portion is exercised;
(ii) With the consent of the Committee, payment delayed for
up to thirty (30) days from the date the Option, or portion thereof, is
exercised; or
(iii) With the consent of the Committee, (A) shares of the
Company's Common Stock owned by the Optionee duly endorsed for transfer to the
Company or (B) subject to the timing requirements of Section 4.4, shares of the
Company's Common Stock issuable to the Optionee upon exercise of the Option,
with a Fair Market Value on the date of Option exercise equal to the aggregate
purchase price of the shares with respect to which such Option or portion is
exercised; or
(iv) With the consent of the Committee, property of any kind
which constitutes good and valuable consideration; or
(v) With the consent of the Committee, a full recourse
promissory note bearing interest (at no less than such rate as shall then
preclude the imputation of interest under the Code or successor provision) and
payable upon such terms as may be prescribed by the Committee or the Board. The
Committee may also prescribe the form of such note and the security to be given
for such note. The Option may not be exercised, however, by delivery of a
promissory note or by a loan from the Company when or where such loan or other
extension of credit is prohibited by law; or
(vi) With the consent of the Committee, any combination of
the consideration provided in the foregoing subparagraphs (iii), (iv) and (v);
and
(c) A bona fide written representation and agreement, in a form
satisfactory to the Committee or the Board, signed by the Optionee or other
person then entitled to exercise such Option or portion, stating that the shares
of stock are being acquired for his own account, for investment and without any
present intention of distributing or reselling said shares or any of them except
as may be permitted under the Securities Act and then applicable rules and
regulations thereunder, and that the Optionee or other person then
8
<PAGE>
entitled to exercise such Option or portion will indemnify the Company against
and hold it free and harmless from any loss, damage, expense or liability
resulting to the Company if any sale or distribution of the shares by such
person is contrary to the representation and agreement referred to above. The
Committee may, in its absolute discretion, take whatever additional actions it
deems appropriate to insure the observance and performance of such
representation and agreement and to effect compliance with the Securities Act
and any other federal or state securities laws or regulations. Without limiting
the generality of the foregoing, the Committee may require an opinion of counsel
acceptable to it to the effect that any subsequent transfer of shares acquired
on an Option exercise does not violate the Securities Act, and may issue stop-
transfer orders covering such shares. Share certificates evidencing stock issued
on exercise of this Option shall bear an appropriate legend referring to the
provisions of this subsection (c) and the agreements herein. The written
representation and agreement referred to in the first sentence of this
subsection (c) shall, however, not be required if the shares to be issued
pursuant to such exercise have been registered under the Securities Act, and
such registration is then effective in respect of such shares; and
(d) Full payment to the Company (or other employer corporation) of
all amounts which, under federal, state or local tax law, it is required to
withhold upon exercise of the Option; with the consent of the Committee, (i)
shares of the Company's Common Stock owned by the Optionee duly endorsed for
transfer, or (ii) subject to the timing requirements of Section 4.4, shares of
the Company's Common Stock issuable to the Optionee upon exercise of the Option,
having a Fair Market Value at the date of Option exercise equal to the sums
required to be withheld, may be used to make all or part of such payment; and
(e) In the event the Option or portion shall be exercised pursuant
to Section 4.1 by any person or persons other than the Optionee, appropriate
proof of the right of such person or persons to exercise the Option.
Section 4.4 - Certain Timing Requirements
- ----------- ---------------------------
Shares of the Company's Common Stock issuable to the Optionee upon
exercise of the Option may be used to satisfy the Option price or the tax
withholding consequences of such exercise only (i) during the period beginning
on the third (3rd) business day following the date of release of the quarterly
or annual summary statement of sales and earnings of the Company and ending on
the twelfth (12th) business day following such date or (ii) pursuant to an
irrevocable written election by the Optionee to use shares of the Company's
Common Stock issuable to the Optionee upon exercise of the Option to pay all or
part of the Option price or the withholding taxes (subject to the approval of
the Committee) made at least six (6) months prior to the payment of such Option
price or withholding taxes.
Section 4.5 - Conditions to Issuance of Stock Certificates
- ----------- --------------------------------------------
The shares of stock deliverable upon the exercise of the Option,
or any portion thereof, may be either previously authorized but unissued shares
or issued shares which have then been reacquired by the Company. Such shares
shall be fully paid and nonassessable. The Company shall not be required to
issue or deliver any certificate or
9
<PAGE>
certificates for shares of stock purchased upon the exercise of the Option or
portion thereof prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges
on which such class of stock is then listed; and
(b) The completion of any registration or other qualification of
such shares under any state or federal law or under rulings or regulations of
the Securities and Exchange Commission or of any other governmental regulatory
body, which the Committee or Board shall, in its absolute discretion, deem
necessary or advisable; and
(c) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Committee or Board shall, in its
absolute discretion, determine to be necessary or advisable; and
(d) The receipt by the Company of full payment for such shares,
including payment of all amounts which, under federal, state or local tax law,
it is required to withhold upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the
exercise of the Option as the Committee or Board may from time to time establish
for reasons of administrative convenience.
Section 4.6 - Rights as Shareholder
- ----------- ---------------------
The holder of the Option shall not be, nor have any of the rights
or privileges of, a shareholder of the Company in respect of any shares
purchasable upon the exercise of any part of the Option unless and until
certificates representing such shares shall have been issued by the Company to
such holder.
ARTICLE V
OTHER PROVISIONS
----------------
Section 5.1 - Administration
- ----------- --------------
The Committee shall have the power to interpret the Plan and this
Agreement and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to interpret or revoke
any such rules. All actions taken and all interpretations and determinations
made by the Committee in good faith shall be final and binding upon the
Optionee, the Company and all other interested persons. No member of the
Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or the Option. In its
absolute discretion, the Board may at any time and from time to time exercise
any and all rights and duties of the Committee under this Plan except with
respect to matters which under Rule 16b-3 or Section 162(m) of the Code, or any
regulations or rules issued thereunder, are required to be determined in the
sole discretion of the Committee.
10
<PAGE>
Section 5.2 - Option Not Transferable
- ----------- -----------------------
Neither the Option nor any interest or right therein or part
thereof shall be liable for the debts, contracts or engagements of the Optionee
or his successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution.
Section 5.3 - Shares to Be Reserved
- ----------- ---------------------
The Company shall at all times during the term of the Option
reserve and keep available such number of shares of stock as will be sufficient
to satisfy the requirements of this Agreement.
Section 5.4 - Notices
- ----------- -------
Any notice to be given under the terms of this Agreement to the
Company shall be addressed to the Company in care of its Secretary, and any
notice to be given to the Optionee shall be addressed to him at the address
given beneath his signature hereto. By a notice given pursuant to this Section
5.4, either party may hereafter designate a different address for notices to be
given to him. Any notice which is required to be given to the Optionee shall, if
the Optionee is then deceased, be given to the Optionee's personal
representative if such representative has previously informed the Company of his
status and address by written notice under this Section 5.4. Any notice shall be
deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, deposited (with postage prepaid) in a post office or
branch post office regularly maintained by the United States Postal Service.
Section 5.5 - Titles
- ----------- ------
Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of this Agreement.
Section 5.6 - Construction
- ----------- ------------
This Agreement shall be administered, interpreted and enforced
under the laws of the State of Maryland.
Section 5.7 - Conformity to Securities Laws
- ----------- -----------------------------
The Optionee acknowledges that the Plan is intended to conform to
the extent necessary with all provisions of the Securities Act and the Exchange
Act and any and all regulations and rules promulgated by the Securities and
Exchange Commission thereunder, including without limitation Rule 16b-3.
Notwithstanding anything herein to the contrary,
11
<PAGE>
the Plan shall be administered, and the Option is granted and may be exercised,
only in such a manner as to conform to such laws, rules and regulations. To the
extent permitted by applicable law, the Plan and this Agreement shall be deemed
amended to the extent necessary to conform to such laws, rules and regulations.
IN WITNESS WHEREOF, this Agreement has been executed and delivered
by the parties hereto.
SIGNATURE RESORTS, INC.
By /s/ OSAMU KANEKO
------------------------------------
Osamu Kaneko
Chief Executive Officer
By /s/ STEVEN C. KENNINGER
------------------------------------
Steven C. Kenninger
Secretary
/s/ JAMES E. NOYES
- -------------------------------
Optionee
12
<PAGE>
Exhibit B
Form of 1996 Equity Participation Plan of Signature Resorts, Inc.
13
<PAGE>
EXHIBIT 10.2.10
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement"), dated as of September
27, 1996, is made by and between Signature Resorts, Inc.' a Maryland
corporation hereinafter referred to as "Company," and Michael A. Depatie, an
employee of the Company, hereinafter referred to as "Optionee":
WHEREAS, the Company wishes to afford the Optionee the opportunity to
purchase shares of its $.01 par value Common Stock; and
WHEREAS, the Company wishes to carry out the Plan (the terms of which
are hereby incorporated by reference and made a part of this Agreement); and
WHEREAS, the Committee, appointed to administer the Plan, has
determined that it would be to the advantage and best interest of the Company
and its shareholders to grant the Option provided for herein to the Optionee as
an inducement to enter into or remain in the service of the Company or its
Subsidiaries and as an incentive for increased efforts during such service, and
has advised the Company thereof and instructed the undersigned officers to issue
said Option;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
Whenever the following terms are used in this Agreement, they shall
have the meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter, and the
singular the plural, where the context so indicates.
Section 1.1 - Board
- ----------- -----
"Board" shall mean the Board of Directors of the Company.
Section 1.2 - Code
- -----------
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.3 - Committee
- ----------- ---------
"Committee" shall mean the Compensation Committee of the Board, or a
subcommittee of the Board, appointed as provided in Section 9.1 of the Plan.
1
<PAGE>
Section 1.4 - Common Stock
- ----------- ------------
"Common Stock" shall mean the common stock of the Company, par value
$.01 per share, and any equity security of the Company issued or authorized to
be issued in the future, but excluding any warrants, options or other rights to
purchase Common Stock. Debt securities of the Company convertible into Common
Stock shall be deemed equity securities of the Company.
Section 1.5 - Company
- ----------- -------
"Company" shall mean Signature Resorts, Inc., a Maryland corporation.
Section 1.6 - Director
- ----------- --------
"Director" shall mean a member of the Board.
Section 1.7 - Employee
- ----------- --------
"Employee" shall mean any officer or other employee as defined in
accordance wish Section 3401(c) of the Code) of the Company, or of any
corporation which is a Subsidiary.
Section 1.8 - Exchange Act
- ----------- ------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
Section l.9 - Fair Market Value
- ----------- -----------------
"Fair Market Value" of a share of Common Stock as of a given date
shall be (i) the mean between the highest and lowest selling price of a share of
Common Stock on the principal exchange on which shares of Common Stock are then
trading, if any, on such date, or if shares were not traded on such date, then
on the closest preceding date on which a trade occurred, or (ii) if Common Stock
is not traded on an exchange, the mean between the closing representative bid
and asked prices for the Common Stock on such date as reported by NASDAQ or, if
NASDAQ is not then in existence, by its successor quotation system; or (iii) if
Common Stock is not publicly traded, the Fair Market Value of a share of Common
Stock as established by the Committee acting in good faith.
Section 1.10 - Option
- ------------ ------
"Option" shall mean a non-qualified stock option granted under this
Agreement and Article III of the Plan.
Section 1.11 - Optionee
- ------------ --------
2
<PAGE>
"Optionee" shall mean an Employee or consultant granted an Option
under this Agreement and the Plan.
Section 1.12 - Plan
- ------------ ----
"Plan" shall mean The 1996 Equity Participation Plan of Signature
Resorts, Inc.
Section 1.13 - Rule l6b-3
- ------------ ----------
"Rule l6b-3" shall mean that certain Rule 16b-3 under the Exchange
Act, as such Rule may be amended from time to time.
Section 1.14 - Secretary
- ------------ ---------
"Secretary" shall mean the Secretary of the Company.
Section 1.15 - Securities Act
- ------------ --------------
"Securities Act" shall mean the Securities Act of 1933, as amended.
Section 1.16 - Subsidiary
- ------------ ----------
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
Section 1.17 - Termination of Consultancy
- ------------ --------------------------
"Termination of Consultancy" shall mean the time when the engagement
of Optionee as a Consultant to the Company or a Subsidiary is terminated for any
reason, with or without cause, including without limitation, resignation,
discharge, death or retirement; but excluding terminations where there is a
simultaneous commencement of employment with the Company or any Subsidiary. The
Committee, in its absolute discretion, shall determine the effect of all matters
and questions relating to Termination of Consultancy, including, but not by way
of limitation, the question of whether a Termination of Consultancy resulted
from a discharge for good cause, and all questions of whether particular leaves
of absence constitute Terminations of Employment. Notwithstanding any other
provision of this Plan, the Company or any Subsidiary has an absolute and
unrestricted right to terminate a consultant's service at any time for any
reason whatsoever, with or without cause, except to the extent expressly
provided otherwise in writing.
Section 1.18 - Termination of Employment
- ------------ -------------------------
"Termination of Employment" shall mean the time when the
employee/employer relationship between the Optionee and the Company or any
Subsidiary is terminated
3
<PAGE>
for any reason, including, but not by way of limitation, a termination by
resignation, discharge, death, disability or retirement; but excluding (i)
terminations where there is a simultaneous reemployment, continuing employment
of an Optionee by the Company or any Subsidiary, (ii) at the discretion of the
Committee, terminations which result in a temporary severance of the employee-
employer relationship, and (iii) at the discretion of the Committee,
terminations which are followed by the simultaneous establishment of a
consulting relationship by the Company or a Subsidiary with the former employee.
The Committee, in its absolute discretion, shall determine the effect of all
matters and questions relating to Termination of Employment, including, but not
by way of limitation, the question of whether a Termination of Employment
resulted from a discharge for good cause, and all questions of whether
particular leaves of absence constitute Terminations of Employment.
Notwithstanding any other provision of this Plan, the Company or any Subsidiary
has an absolute and unrestricted right to terminate an Employee's employment at
any time for any reason whatsoever, with or without cause, except to the extent
expressly provided otherwise in writing.
ARTICLE II
GRANT OF OPTION
---------------
Section 2.1 - Grant of Option
- ----------- ---------------
In consideration of the Optionee's agreement to remain in the employ
of (or consult for) the Company or its Subsidiaries for a period of at least two
(2) years after the option is granted and for other good and valuable
consideration, as of the date hereof the Company irrevocably grants to the
Optionee the option to purchase any part or all of an aggregate of two hundred
sixty five thousand (265,000) shares of its $.01 par value Common Stock upon the
terms and conditions set forth in this Agreement. The Company agrees that it
will promptly submit the Plan to the Board for amendment to increase the number
of shares included therein, and will submit the Plan, as amended by the Board,
for the approval of the Company's stockholders within twelve months after such
Board approval as set forth in Section 10.4 of the Plan. In the event that such
stockholder approval has not been obtained by the date which is twelve months
after such Board approval, the options granted to the Optionee pursuant to this
Section 2.1 shall thereupon be canceled and become null and void.
Section 2.2 - Purchase Price
- ----------- ---------------
The purchase price of the shares of stock covered by the Option shall
be $24.125 per share without commission or other charge, which sum is the Fair
Market Value of a share of Common Stock as of the date of this Agreement (i.e.,
the mean between the highest and lowest selling price of a share of Common Stock
as traded on NASDAQ on September 27, 1996).
Section 2.3 - Consideration to Company
- ----------- ------------------------
In consideration of the granting of this Option by the Company, the
Optionee agrees to render faithful and efficient services to the Company or a
Subsidiary, with such
4
<PAGE>
duties and responsibilities as the Company shall from time to time prescribe,
for a period of at least two (2) years from the date this Option is granted.
Nothing in the Plan or this Agreement shall confer upon any Optionee any right
to continue in the employ of, or as a consultant for, the Company or any
Subsidiary, or as a director of the Company, or shall interfere with or restrict
in any way the rights of the Company and any Subsidiary, which are hereby
expressly reserved, to discharge the Optionee at any time for any reason
whatsoever, with or without good cause.
Section 2.4 - Adjustments in Option
- ----------- ---------------------
(a) In the event that the outstanding shares of the stock subject to
the Option are changed into or exchanged for a different number or kind of
shares of the Company or other securities of the Company, or of another
corporation, by reason of reorganization, merger, consolidation,
recapitalization, reclassification, stock split up, stock dividend or
combination of shares, the Committee shall make an appropriate and equitable
adjustment in the number and kind of shares as to which the Option, or portions
thereof then unexercised, shall be exercisable, to the end that after such event
the Optionee's proportionate interest shall be maintained as before the
occurrence of such event. Such adjustment in the Option may include any
necessary corresponding adjustment in the Option price per share, but shall be
made without change in the total price applicable to the unexercised portion of
the Option (except for any change in the aggregate price resulting from
rounding-off of share quantities or prices). Any such adjustment made by the
Committee shall be final and binding upon the Optionee, the Company and all
other interested persons.
(b) Notwithstanding the foregoing, in the event of such a
reorganization, merger, consolidation, recapitalization, reclassification, stock
split up, stock dividend or combination, or other adjustment or event which
results in shares of Common Stock being exchanged for or converted into cash,
securities or other property, the Company will have the right to terminate the
Plan as of the date of the exchange or conversion, in which case all options,
rights and other awards under this Plan shall become the right to receive such
cash, securities or other property, net of any applicable exercise price.
(c) In the event of a "spin-off" or other substantial distribution of
assets of the Company which has a material diminutive effect upon the Fair
Market Value of the Company's Common Stock, the Board may in its discretion make
an appropriate and equitable adjustment to the Option to reflect such
diminution.
ARTICLE III
PERIOD OF EXERCISABILITY
------------------------
Section 3.1 - Commencement of Exercisability
- ----------- ------------------------------
(a) Subject to Section 5.6, the Option shall become exercisable in
five (5) cumulative instruments as follows:
5
<PAGE>
(i) The first installment shall consist of fifty three thousand
(53,000) of the shares covered by the Option and shall become exercisable on the
Effective Date (as defined in the Executive's Employment Agreement with the
Company).
(ii) The second installment shall consist of fifty three thousand
(53,000) of the shares covered by the Option and shall become exercisable on the
first anniversary of the date of execution of this Agreement.
(iii) The third installment shall consist of fifty three thousand
(53,000) of the shares covered by the Option and shall become exercisable on
the second anniversary of the date of execution of this Agreement.
(iv) The fourth installment shall consist of fifty three thousand
(53,000) of the shares covered by the Option and shall become exercisable on the
third anniversary of the date of execution of this Agreement.
(v) The fifth installment shall consist of fifty three thousand
(53,000) of the shares covered by the Option and shall become exercisable on the
fourth anniversary of the date of execution of this Agreement.
(b) No portion of the Option which is unexercisable at Termination of
Employment or Termination of Consultancy, as applicable, shall thereafter become
exercisable.
Section 3.2 - Duration of Exercisability
- ----------- --------------------------
The installments provided for in Section 3.1 are cumulative. Each
such installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
Section 3.3 - Expiration of Option
- ----------- --------------------
The Option may not be exercised to any extent by anyone after the
first to occur of the following events:
(a) The expiration of ten (10) years from the date the Option was
granted; or
(b) The time of the Optionee's Termination of Employment or Termination of
Consultancy unless such Termination of Employment or Termination of Consultancy,
as applicable, results from his death, his retirement, his disability or his
being discharged not for "Cause" (as defined in Section 5(c) of the Employment
Agreement dated the date hereof between Optionee and the Company); or
6
<PAGE>
(c) The expiration of three (3) months from the date of the Optionee's
Termination of Employment or Termination of Consultancy by reason of his
retirement or his being discharged not for "Cause," unless the Optionee dies
within said three-month period; or
(d) The expiration of one (1) year from the date of the Optionee's
Termination of Employment or Termination of Consultancy by reason of his
disability; or
(e) The expiration of one (1) year from the date of the Optionee's death;
or
(f) The effective date of either the merger or consolidation of the
Company with or into another corporation, the exchange of all or substantially
all of the assets of the Company for the securities of another corporation, the
acquisition by another corporation or person of all or substantially all of the
Company's assets or eighty percent (80%) or more of the Company's then
outstanding voting stock, or the liquidation or dissolution of the Company,
unless the Committee waives this provision in connection with such transaction.
At least ten (10) days prior to the effective date of such merger,
consolidation, exchange, acquisition, liquidation or dissolution, the Committee
shall give the Optionee notice of such event if the Option has then neither been
fully exercised nor become unexercisable under this Section 3.3.
Section 3.4 - Acceleration of Exercisability
- ----------- ------------------------------
In the event of the merger or consolidation of the Company with or
into another corporation, the exchange of all or substantially all of the assets
of the Company for the securities of another corporation, the acquisition by
another corporation or person of all or substantially all of the Company's
assets or eighty percent (80%) or more of the Company's then outstanding voting
stock, or the liquidation or dissolution of the Company, the Committee may, in
its absolute discretion and upon such terms and conditions as it deems
appropriate, provide by resolution, adopted prior to such event and incorporated
in the notice referred to in Section 3.3(f), that at some time prior to the
effective date of such event this Option shall be exercisable as to all the
shares covered hereby, notwithstanding that this Option may not yet have become
fully exercisable under Section 3.1(a); provided, however, that this
acceleration of exercisability shall not take place if:
(a) This Option becomes unexercisable under Section 3.3 prior to said
effective date; or
(b) In connection with such an event, provision is made for an
assumption of this Option or a substitution therefor of a new option by an
employer corporation or a parent or subsidiary of such corporation.
The Committee may make such determinations and adopt such rules and
conditions as it, in its absolute discretion, deems appropriate in connection
with such acceleration of exercisability, including, but not by way of
limitation, provisions to ensure that
7
<PAGE>
any such acceleration and resulting exercise shall be conditioned upon the
consummation of the contemplated corporate transaction.
None of the foregoing discretionary terms of this Section shall be
permitted to the extent that such discretion would be inconsistent with the
requirements of Rule 16b-3.
ARTICLE IV
EXERCISE OF OPTION
------------------
Section 4.1 - Person Eligible to Exercise
- ----------- ---------------------------
During the lifetime of the Optionee, only he may exercise the Option
or any portion thereof. After the death of the Optionee, any exercisable portion
of the Option may, prior to the time when the Option becomes unexercisable under
Section 3.3, be exercised by his personal representative or by any person
empowered to do so under the Optionee's will or under the then applicable laws
of descent and distribution.
Section 4.2 - Partial Exercise
- ----------- ----------------
Any exercisable portion of the Option or the entire Option, if then
wholly exercisable, may be exercised in whole or in part at any time prior to
the time when the Option or portion thereof becomes unexercisable under Section
3.3; provided, however, that each partial exercise shall be for not less than
one thousand (1,000) shares and shall be for whole shares only.
Section 4.3 - Manner of Exercise
- ----------- ------------------
The Option, or any exercisable portion thereof, may be exercised
solely by delivery to the Secretary or his office of all of the following prior
to the time when the Option or such portion becomes unexercisable under Section
3.3:
(a) Notice in writing signed by the Optionee or the other person then
entitled to exercise the Option or portion, stating that the Option or portion
is thereby exercised, such notice complying with all applicable rules
established by the Committee or the Board; and
(b) (i) Full payment (in cash) for the shares with respect to which
such Option or portion is exercised;
(ii) With the consent of the Committee, payment delayed for up to
thirty (30) days from the date the Option, or portion thereof, is exercised; or
(iii) With the consent of the Committee, (A) shares of the
Company's Common Stock owned by the Optionee duly endorsed for transfer to the
Company or (B) subject to the timing requirements of Section 4.4, shares of the
Company's
8
<PAGE>
Common Stock issuable to the Optionee upon exercise of the Option, with a Fair
Market Value on the date of Option exercise equal to the aggregate purchase
price of the shares with respect to which such Option or portion is exercised;
or
(iv) With the consent of the Committee, property of any kind
which constitutes good and valuable consideration; or
(v) With the consent of the Committee, a full recourse
promissory note bearing interest (at no less than such rate as shall then
preclude the imputation of interest under the Code or successor provision) and
payable upon such terms as may be prescribed by the Committee or the Board. The
Committee may also prescribe the form of such note and the security to be given
for such note. The Option may not be exercised, however, by delivery of a
promissory note or by a loan from the Company when or where such loan or other
extension of credit is prohibited by law; or
(vi) With the consent of the Committee, any combination of the
consideration provided in the foregoing subparagraphs (iii), (iv) and (v); and
(c) A bona fide written representation and agreement, in a form
satisfactory to the Committee or the Board, signed by the Optionee or other
person then entitled to exercise such Option or portion, stating that the shares
of stock are being acquired for his own account, for investment and without any
present intention of distributing or reselling said shares or any of them except
as may be permitted under the Securities Act and then applicable rules and
regulations thereunder, and that the Optionee or other person then entitled to
exercise such Option or portion will indemnify the Company against and hold it
free and harmless from any loss, damage, expense or liability resulting to the
Company if any sale or distribution of the shares by such person is contrary to
the representation and agreement referred to above. The Committee may, in its
absolute discretion, take whatever additional actions it deems appropriate to
insure the observance and performance of such representation and agreement and
to effect compliance with the Securities Act and any other federal or state
securities laws or regulations. Without limiting the generality of the
foregoing, the Committee may require an opinion of counsel acceptable to it to
the effect that any subsequent transfer of shares acquired on an Option exercise
does not violate the Securities Act, and may issue stop-transfer orders covering
such shares. Share certificates evidencing stock issued on exercise of this
Option shall bear an appropriate legend referring to the provisions of this
subsection (c) and the agreements herein. The written representation and
agreement referred to in the first sentence of this subsection (c) shall,
however, not be required if the shares to be issued pursuant to such exercise
have been registered under the Securities Act, and such registration is then
effective in respect of such shares; and
(d) Full payment to the Company (or other employer corporation) of all
amounts which, under federal, state or local tax law, it is required to withhold
upon exercise of the Option; with the consent of the Committee, (i) shares of
the Company's Common Stock owned by the Optionee duly endorsed for transfer, or
(ii) subject to the timing requirements of Section 4.4, shares of the Company's
Common Stock issuable to the Optionee upon exercise
9
<PAGE>
of the Option, having a Fair Market Value at the date of Option exercise equal
to the sums required to be withheld, may be used to make all or part of such
payment; and
(e) In the event the Option or portion shall be exercised pursuant to
Section 4.1 by any person or persons other than the Optionee, appropriate proof
of the right of such person or persons to exercise the Option.
Section 4.4 - Certain Timing Requirements
- ----------- ---------------------------
Shares of the Company's Common Stock issuable to the Optionee upon
exercise of the Option may be used to satisfy the Option price or the tax
withholding consequences of such exercise only (i) during the period beginning
on the third (3rd) business day following the date of release of the quarterly
or annual summary statement of sales and earnings of the Company and ending on
the twelfth (12th) business day following such date or (ii) pursuant to an
irrevocable written election by the Optionee to use shares of the Company's
Common Stock issuable to the Optionee upon exercise of the Option to pay all or
part of the Option price or the withholding taxes (subject to the approval of
the Committee) made at least six (6) months prior to the payment of such Option
price or withholding taxes.
Section 4.5 - Conditions to Issuance of Stock Certificates
- ----------- --------------------------------------------
The shares of stock deliverable upon the exercise of the Option, or
any portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been reacquired by the Company. Such shares shall
be fully paid and nonassessable. The Company shall not be required to issue or
deliver any certificate or certificates for shares of stock purchased upon the
exercise of the Option or portion thereof prior to fulfillment of all of the
following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under rulings or regulations of the
Securities and Exchange Commission or of any other governmental regulatory body,
which the Committee or Board shall, in its absolute discretion, deem necessary
or advisable; and
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee or Board shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The receipt by the Company of full payment for such shares,
including payment of all amounts which, under federal, state or local tax law,
it is required to withhold upon exercise of the Option; and
10
<PAGE>
(e) The lapse of such reasonable period of time following the exercise
of the Option as the Committee or Board may from time to time establish for
reasons of administrative convenience.
Section 4.6 - Rights as Shareholder
- ----------- ---------------------
The holder of the Option shall not be, nor have any of the rights or
privileges of, a shareholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
ARTICLE V
OTHER PROVISIONS
----------------
Section 5.1 - Administration
- ----------- --------------
The Committee shall have the power to interpret the Plan and this
Agreement and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to interpret or revoke
any such rules. All actions taken and all interpretations and determinations
made by the Committee in good faith shall be final and binding upon the
Optionee, the Company and all other interested persons. No member of the
Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or the Option. In its
absolute discretion, the Board may at any time and from time to time exercise
any and all rights and duties of the Committee under this Plan except with
respect to matters which under Rule 16b-3 or Section 162(m) of the Code, or any
regulations or rules issued thereunder, are required to be determined in the
sole discretion of the Committee.
Section 5.2 - Option Not Transferable
- ----------- -----------------------
Neither the Option nor any interest or right therein or part thereof
shall be liable for the debts, contracts or engagements of the Optionee or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution.
Section 5.3 - Shares to Be Reserved
- ----------- ---------------------
The Company shall at all times during the term of the Option reserve
and keep available such number of shares of stock as will be sufficient to
satisfy the requirements of this Agreement.
11
<PAGE>
Section 5.4 - Notices
- ----------- -------
Any notice to be given under the terms of this Agreement to the
Company shall be addressed to the Company in care of its Secretary, and any
notice to be given to the Optionee shall be addressed to him at the address
given beneath his signature hereto. By a notice given pursuant to this Section
5.4, either party may hereafter designate a different address for notices to be
given to him. Any notice which is required to be given to the Optionee shall,
if the Optionee is then deceased, be given to the Optionee's personal
representative if such representative has previously informed the Company of his
status and address by written notice under this Section 5.4. Any notice shall be
deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, deposited (with postage prepaid) in a post office or
branch post office regularly maintained by the United States Postal Service.
Section 5.5 - Titles
- ----------- ------
Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of this Agreement.
Section 5.6 - Construction
- ----------- ------------
This Agreement shall be administered, interpreted and enforced under
the laws of the State of Maryland.
Section 5.7 - Conformity to Securities Laws
- ----------- -----------------------------
The Optionee acknowledges that the Plan is intended to conform to the
extent necessary with all provisions of the Securities Act and the Exchange Act
and any and all regulations and rules promulgated by the Securities and Exchange
Commission thereunder, including without limitation Rule 16b-3. Notwithstanding
anything herein to the contrary, the Plan shall be administered, and the Option
is granted and may be exercised, only in such a manner as to conform to such
laws, rules and regulations. To the extent permitted by applicable law, the Plan
and this Agreement shall be deemed amended to the extent necessary to conform to
such laws, rules and regulations.
12
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto.
SIGNATURE RESORTS, INC.
By /s/ Andrew J. Gessow
-------------------------
President
By /s/ Steven C. Kenninger
-------------------------
Secretary
/s/ Michael A. Depatie
- -------------------------
Optionee
- -------------------------
- -------------------------
Address
Optionee's Taxpayer
Identification Number:
13
<PAGE>
EXHIBIT 10.3.2
FIRST AMENDMENT TO 1996 EQUITY PARTICIPATION PLAN
-------------------------------------------------
THIS FIRST AMENDMENT TO 1996 EQUITY PARTICIPATION PLAN, dated as of May 16,
1997, is made and adopted by SIGNATURE RESORTS, INC., a Maryland corporation
(the "Company"). Capitalized terms used but not otherwise defined herein shall
have the respective meanings ascribed to them in the 1996 Equity Participation
Plan (as defined below).
RECITALS
--------
WHEREAS, the Company adopted the 1996 Equity Participation Plan of
Signature Resorts, Inc. (the "1996 Equity Participation Plan") on June 13, 1996;
WHEREAS, the Company desires to amend the 1996 Equity Participation
Plan to increase the number of shares of common stock of the Company reserved
for issuance thereunder from 1,750,000 shares to 2,500,000 shares;
WHEREAS, this First Amendment was adopted by the Board of Directors of
the Company on January 31, 1997; and
WHEREAS, this First Amendment was approved by the stockholders of the
Company on May 16, 1997.
NOW THEREFORE, in consideration of the foregoing, the Company hereby
amends the 1996 Equity Participation Plan as follows:
1. The second sentence of Section 2.1(a) of the 1996 Equity
Participation Plan is hereby deleted in its entirety and the following is hereby
substituted in lieu thereof:
"The aggregate number of such shares which may be issued upon exercise of
such options or rights or upon any such awards under the Plan shall not
exceed two million five hundred thousand (2,500,000) shares of Common
Stock."
2. This First Amendment shall be and is hereby incorporated in and
forms a part of the 1996 Equity Participation Plan.
3. All other terms and provisions of the 1996 Equity Participation
Plan shall remain unchanged except as specifically modified herein.
4. The 1996 Equity Participation Plan, as amended by this First
Amendment, is hereby ratified and confirmed.
5. This First Amendment shall be interpreted and enforced under the
internal laws of the State of Maryland without regard to conflicts of laws
thereof.
I hereby certify that the foregoing Amendment was duly adopted by the
Board of Directors of Signature Resorts, Inc. on January 31, 1997.
/s/ Steven C. Kenninger
------------------------------------
Steven C. Kenninger
Director, Chief Operating Officer and
Secretary
I hereby certify that the foregoing Amendment was approved by the
stockholders of Signature Resorts, Inc. on May 16, 1997.
/s/ Steven C. Kenninger
------------------------------------
Steven C. Kenninger
Director, Chief Operating Officer and
Secretary
S-1
<PAGE>
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA (UNAUDITED)
---------------------------------------- ---------------------------------------------
THREE MONTHS ENDED
---------------------------------------------
MARCH 31, MARCH 31, MARCH 31,
1997 1996 1996
THREE MONTHS ENDED --------- --------- ---------
(UNAUDITED) CONSOLIDATION
------------------------ TRANSACTIONS/
MARCH 31, MARCH 31, DECEMBER 31, THE PRG INITIAL PUBLIC THE PRG
1997 1996 1996 MERGER OFFERING MERGER
--------- ---------- ---------- -------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
- -------------------------
Net income:
As reported $ 2,596,000 $ 1,711,000 $ 1,738,000 $ 2,596,000 $ 1,711,000 $ 1,711,000
Pro forma provision for income taxes
adjustments (933,000) (3,639,000)
Pro forma adjustments (unaudited):
Consolidation Transactions/
Initial Public Offering - - - - (110,000) (110,000)
The PRG Merger - - - 732,000 - 1,546,000
----------- ----------- ----------- ----------- ----------- -----------
Pro forma net income $ 2,596,000 $ 778,000 $(1,901,000) $ 3,328,000 $ 1,601,000 $ 3,147,000
----------- ----------- ----------- ----------- ----------- -----------
Applicable common shares:
Average outstanding common
shares during the period 19,399,402 12,237,741 14,422,604 19,399,402 18,275,241 18,275,241
Outstanding stock options (a) 591,052 - 307,664 591,052 - -
Weighted average shares issued
for PRG Merger - - - 2,401,229 - 2,401,229
----------- ----------- ----------- ----------- ----------- -----------
Total primary weighted average
number of common and common
share equivalents outstanding 19,990,454 12,237,741 14,730,268 22,391,683 18,275,241 20,676,470
----------- ----------- ----------- ----------- ----------- -----------
Pro forma net income per common
and common equivalent share $ 0.13 $ 0.06 $ (0.13) $ 0.15 $ 0.09 $ 0.15
=========== =========== =========== =========== =========== ===========
<CAPTION>
PRO FORMA (UNAUDITED)
----------------------------------
DECEMBER 31, DECEMBER 31,
1996 1996
------------ ------------
CONSOLIDATION
TRANSACTIONS/
INITIAL PUBLIC THE PRG
OFFERING MERGER
-------------- ------------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE
- -------------------------
Net income:
As reported $ 1,738,000 $ 1,738,000
Pro forma adjustments (unaudited):
Consolidation Transactions/
Initial Public Offering (1,247,000) (1,247,000)
The PRG Merger - 4,016,000
----------- -----------
Pro forma net income $ 491,000 $ 4,507,000
----------- -----------
Applicable common shares:
Average outstanding common
shares during the period 18,275,241 18,275,241
Outstanding stock options (a) 825,158 825,158
Weighted average shares issued
for PRG Merger - 2,401,229
----------- -----------
Total primary weighted average
number of common and common
share equivalents outstanding 19,100,399 21,501,628
----------- -----------
Pro forma net income per common
and common equivalent share $ 0.03 $ 0.21
=========== ===========
</TABLE>
(a) Based on the treasury stock method.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF SIGNATURE RESORTS, INC.
<TABLE>
<CAPTION>
NAME JURISDICTION OF ORGANIZATION
- ---- ----------------------------
<S> <C>
AKGI Lake Tahoe
Investments, Inc. ........ California
AKGI Poipu Investments,
Inc. ..................... California
AKGI--St. Maarten NV....... Delaware/Netherlands Antilles (dually incorporated)
All Seasons Construction,
Inc. ..................... Pennsylvania
All Seasons Realty, Inc. .. Idaho
All Seasons Resorts, Inc. . Washington
Argosy Grand Beach, Inc. .. Georgia
Argosy Hilton Head, Inc. .. Georgia
Argosy/KGI Grand Beach
Investment Partnership.... California (general partnership)
Argosy/KGI Poipu Investment
Partners, L.P. ........... Hawaii
Argosy/KGI Port Royal
Partners.................. South Carolina (general partnership)
Argosy Partners, Inc. ..... Georgia
AVCOM International, Inc. . Delaware
Grand Beach Partners,
L.P. ..................... California
Grand Beach Resort, Limited
Partnership............... Georgia
Greensprings Associates.... Virginia (joint venture)
Greensprings Plantation
Resorts, Inc.............. Virginia
KGI Grand Beach
Investments, Inc. ........ California
KGI Port Royal, Inc. ...... California
KGK Lake Tahoe Development,
Inc. ..................... California
Lake Tahoe Resort Partners,
LLC....................... California
Plantation Resorts Group,
Inc....................... Virginia
Port Royal Resort, L.P. ... South Carolina
Powhatan Associates........ Virginia (joint venture)
Premier Resort Management,
Inc. ..................... Georgia
Resort Management
International, Inc. ...... California
Resort Management
International, Inc. ...... Georgia
Resort Marketing
International, Inc. ...... California
The Ridge Spa and Racquet
Club, Inc. ............... Arizona
RKG, Corp.................. Virginia
RPM Management, Inc. ...... Arizona
Williamsburg Vacations,
Inc....................... Virginia
</TABLE>
<PAGE>
EXHIBIT 23.2
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of
our reports (and to all references to our firm) included in or made a part of
the Registration Statement on Form S-1 filed by Signature Resorts, Inc. on
June 27, 1997 pursuant to Rule 415 under the Securities Act of 1933, as
amended, to register 4,959,548 shares of common stock, $0.01 par value, to be
offered by certain selling stockholders.
Arthur Andersen LLP
June 27, 1997
Orlando, Florida
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "experts" and to
the use of our report dated May 31, 1996, except for Note 12, as to which the
date is July 1, 1996, with respect to the consolidated financial statements of
AVCOM International, Inc. as of December 31, 1995, and for each of the two years
in the period ended December 31, 1995, included in the Registration Statement
(Form S-1, No. 333- ) and related Prospectus of Signature Resorts, Inc.
for the registration of 4,959,548 shares of its common stock.
ERNST & YOUNG LLP
Phoenix, Arizona
June 27, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-END> MAR-31-1997 DEC-31-1996
<CASH> 106,545,000 7,244,000
<SECURITIES> 0 0
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<PP&E> 11,465,000 9,922,000
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<TOTAL-ASSETS> 454,208,000 325,228,000
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0 0
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<COMMON> 199,000 183,000
<OTHER-SE> 152,794,000 96,759,000
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<INTEREST-EXPENSE> 3,678,000 10,191,000
<INCOME-PRETAX> 4,327,000 (3,169,000)
<INCOME-TAX> 1,731,000 (4,907,000)
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