<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 5, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SIGNATURE RESORTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
MARYLAND 6552 95-4582157
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
1875 SOUTH GRANT STREET, SUITE 650, SAN MATEO, CALIFORNIA 94402
(650) 312-7171
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ANDREW D. HUTTON
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
SIGNATURE RESORTS, INC.
1875 SOUTH GRANT STREET, SUITE 650, SAN MATEO, CALIFORNIA 94402
(650) 312-7171
(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:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with divided or interest
reinvestment plans, check the following box. [X]
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
======================================================================================================================
PROPOSED PROPOSED
TITLE OF EACH CLASS OF MAXIMUM MAXIMUM
SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER NOTE(1) OFFERING PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------
9 1/4% Senior Notes due
2006........................ $140,000,000 100% $140,000,000 $41,300
======================================================================================================================
</TABLE>
(1) Estimated solely for calculating the registration fee pursuant to Rule 457.
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.
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<PAGE> 2
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 MAY 4, 1998
PROSPECTUS
OFFER TO EXCHANGE
9 1/4% SENIOR NOTES DUE 2006
FOR ALL OUTSTANDING 9 1/4% SENIOR NOTES DUE 2006
OF
SIGNATURE RESORTS, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON ,
1998 UNLESS EXTENDED.
Signature Resorts, Inc., a Maryland corporation (the "Company") is hereby
offering (the "Exchange Offer"), upon the terms and subject to the conditions
set forth in this Prospectus and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), to exchange $1,000 principal amount of its 9 1/4%
Senior Notes due 2006 (the "Exchange Notes"), which exchange has been registered
under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to
a registration statement of which this Prospectus is a part (the "Registration
Statement"), for each $1,000 principal amount of its outstanding 9 1/4% Senior
Notes due 2006 (the "Private Notes"), of which $140,000,000 in aggregate
principal amount was issued on April 15, 1998 and is outstanding as of the date
hereof. The form and terms of the Exchange Notes are the same as the form and
terms of the Private Notes except that (i) the exchange will have been
registered under the Securities Act, and, therefore, the Exchange Notes will not
bear legends restricting the transfer thereof and (ii) holders of the Exchange
Notes will not be entitled to certain rights of holders of the Private Notes
under the Registration Rights Agreement (as defined herein), which rights will
terminate upon the consummation of the Exchange Offer. The Exchange Notes will
evidence the same indebtedness as the Private Notes (which they replace) and
will be entitled to the benefits of an indenture dated as of April 15, 1998
governing the Private Notes and the Exchange Notes (the "Indenture"). The
Private Notes and the Exchange Notes are sometimes referred to herein
collectively as the "Notes." See "The Exchange Offer" and "Description of
Notes."
The Exchange Notes will bear interest at the same rate and on the same terms
as the Private Notes. Consequently, the Exchange Notes will bear interest at the
rate of 9 1/4% per annum and the interest thereon will be payable semi-annually
on May 15 and November 15 of each year, commencing November 15, 1998. The
Exchange Notes will bear interest from the date of the last interest payment on
the Private Notes or if no interest has been paid, from the date of original
issuance of the Private Notes. Holders whose Private Notes are accepted for
exchange will be deemed to have waived the right to receive any interest accrued
on the Private Notes.
The Notes will be redeemable, in whole or in part, at the option of the
Company on or after May 15, 2002, at the redemption prices set forth herein,
plus accrued and unpaid interest, if any, to the date of redemption. In
addition, prior to May 15, 2001, the Company, at its option, may redeem up to
40% of the aggregate principal amount of the Notes originally issued with the
net cash proceeds of one or more Equity Offerings (as defined herein) at a
redemption price equal to 109.25% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the date of redemption; provided that at least
60% of the aggregate principal amount of Notes originally issued remains
outstanding immediately after any such redemption. Upon a Change of Control (as
defined herein), each Holder (as defined herein) of the Notes will have the
right to require the Company to repurchase such Holder's Notes at a price equal
to 101% of the principal amount thereof, plus accrued and unpaid interest, if
any, to the date of repurchase. In addition, in certain circumstances, the
Company will be obligated to offer to repurchase the Notes at 100% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of repurchase in the event of certain asset sales. There can be no assurance
that in the event of a Change in Control the Company would have sufficient funds
to purchase all Notes tendered. See "Description of Notes."
The Notes will be general unsecured obligations of the Company and will rank
pari passu in right of payment with existing and future unsubordinated
Indebtedness (as defined herein) of the Company and will rank senior in right of
payment to all subordinated Indebtedness of the Company. The Notes will be
effectively subordinated to all secured Indebtedness of the Company to the
extent of the security and to all Indebtedness and other obligations (including
trade payables) of the Company's subsidiaries. At December 31, 1997, after
giving pro forma effect to the offering of the Private Notes (the "Offering")
and the application of the estimated net proceeds therefrom and the incurrence
of an additional $111.1 million of secured Indebtedness subsequent to December
31, 1997, the Company and its subsidiaries would have had approximately $589.9
million of outstanding indebtedness (including trade payables of $25.2 million),
of which $108.2 million would have been secured or structurally senior in right
of payment to the Notes and $341.7 million would have been subordinated in right
of payment to the Notes. The Notes are senior in right of payment to the Senior
Subordinated Notes (as defined herein) and the Convertible Notes (as defined
herein).
The Company will accept for exchange any and all validly tendered Private
Notes not withdrawn prior to 5.00 p.m. New York City time, on , 1998,
unless the Exchange Offer is extended by the Company in its sole discretion (the
"Expiration Date"). Tenders of Private Notes may be withdrawn at any time prior
to the Expiration Date. Private Notes may be tendered only in integral multiples
of $1,000. The Exchange Offer is subject to certain customary conditions. See
"The Exchange Offer -- Conditions."
SEE "RISK FACTORS" ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY POTENTIAL INVESTORS IN THE NOTES.
------------------------
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.
------------------------
The date of this Prospectus is , 1998.
<PAGE> 3
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Private Notes may be offered for resale, resold
and otherwise transferred by a holder thereof (other than (i) a broker-dealer
who purchases such Exchange Notes directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or (ii) a
person that is an affiliate of the Company within the meaning of Rule 405 under
the Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act; provided that the holder is acquiring
the Exchange Notes in the ordinary course of its business and is not
participating, and had no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes. Holders of Private Notes
wishing to accept the Exchange Offer must represent to the Company, as required
by the Registration Rights Agreement, that such conditions have been met. The
Company has not sought and does not intend to seek its own no-action letter in
connection with the Exchange Offer and there can be no assurance that the
Commission would make a similar determination with respect to the Exchange
Offer.
Each broker-dealer that receives Exchange Notes for its own account must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Private Notes where such Private Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities; provided such Private Notes do not constitute any portion of an
unsold allotment from the original sale of the Private Notes. To the extent
necessary to ensure that this Prospectus is available for sales of Exchange
Notes by broker-dealers, and notice is given by such broker-dealers to the
Company of such fact within 30 days of the effective date of the Registration
Statement, the Company has agreed to use its best efforts to keep the
Registration Statement continuously effective, supplemented and amended as
required by the Registration Rights Agreement, the Securities Act and the
policies, rules and regulations of the Commission as announced from time to
time, for a period of 180 days from the date the Exchange Offer is consummated,
or such shorter period as will terminate when all Private Notes covered by the
Registration Statement have been sold. See "Plan of Distribution."
Prior to the Exchange Offer, there has been no public market for the Notes.
The Company does not intend to list the Notes on any securities exchange or to
seek approval for quotation through any automated quotation system. There can be
no assurance that an active market for the Notes will develop. To the extent
that a market for the Notes does develop, the market value of the Notes will
depend on market conditions (such as yields on alternative investments), general
economic conditions, the Company's financial condition and certain other
factors. Such conditions might cause the Notes, to the extent that they are
traded, to trade at a significant discount from face value. See "Risk
Factors -- Absence of Public Market."
The Company will not receive any proceeds from, and has agreed to bear the
expenses of, the Exchange Offer. No underwriter is being used in connection with
this Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF PRIVATE NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
The Exchange Notes will be available initially only in book-entry form. The
Company expects that the Exchange Notes issued pursuant to the Exchange Offer
will be issued in the form of one or more fully registered global notes that
will be deposited with, or on behalf of, the Depository Trust Company ("DTC" or
the "Depository") and registered in its name or in the name of Cede & Co., as
its nominee. Beneficial interests in the global note representing the Exchange
Notes will be shown on, and transfers thereof will be effected only through,
records maintained by the Depository and its participants. So long as DTC or its
nominee is the registered owner or holder of the global note, DTC or such
nominee, as the case may be, will be considered the sole owner or holder of the
notes represented by such global note for all purposes under the Indenture.
Payments of the principal of, premium (if any), interest and liquidated damages
(if any) on, the global note will be made to DTC or its nominee, as the case may
be, as the registered owners thereof. None of the Company, the Trustee or any
Paying Agent will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the global note or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interest. After the initial
issuance of such global note, Exchange Notes in certificated form will be issued
in exchange for the global note only in accordance with the terms and conditions
set forth in the Indenture. See "Description of the Notes -- Book Entry."
i
<PAGE> 4
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (together with all amendments, exhibits and schedules thereto, the
"Registration Statement") under the Securities Act with respect to the Notes
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 Notes offered hereby, reference is hereby made to such
Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus, or in any document incorporated by reference
herein, 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 by such reference.
The Company is also subject to the informational requirements of the
Securities Act of 1934, as amended ("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). In
addition, such reports, proxy statements and other information concerning the
Company can be inspected and copied at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005, on which the Common Stock
of the Company is traded.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which the Company has filed with the Commission
pursuant to the Exchange Act, are hereby incorporated by reference in, and shall
be deemed to be a part of, this Prospectus:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 filed with the Commission on March 30, 1998
(Commission file #001-13815);
(b) The Company's amended Annual Report on Form 10-K/A for the fiscal year
ended December 31, 1997 filed with the Commission on April 6, 1998
(Commission file #001-13815);
(c) The Company's Proxy Statement dated April 13, 1998 relating to the
Annual Meeting of Stockholders to be held on May 15, 1998 filed with
the Commission on April 13, 1998 (Commission file #001-13815); and
(d) The Company's Current Report on Form 8-K filed with the Commission on
April 21, 1998 (Commission file #001-13815).
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering made hereby shall be deemed to be incorporated
by reference into this Prospectus and to be a part thereof from the respective
dates of filing of such documents. Any statement contained in this Prospectus or
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in any other subsequently filed
document which also is incorporated or deemed to be incorporated by reference in
this Prospectus modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed to constitute a part of this
Prospectus except as so modified or superseded.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. The Company will provide without charge to any
person to whom this Prospectus is delivered, on the written or oral request of
such person, a copy of any or all of the foregoing documents incorporated herein
by reference (other than exhibits to such documents unless such exhibits are
specifically incorporated by reference therein). Requests should be directed to
the attention of Andrew D. Hutton, Vice President, General Counsel and
Secretary, Signature Resorts, Inc., 1875 South Grant Street, Suite 650, San
Mateo, California 94402 (Telephone: (650) 312-7171).
ii
<PAGE> 5
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 or incorporated
by reference in this Prospectus. Unless the context otherwise indicates, the
"Company" means Signature Resorts, Inc. and its subsidiaries and affiliates.
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."
Unless the context otherwise indicates, the "Company" refers to 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 in February 1997 (the "AVCOM
Acquisition"); Plantation Resorts Group, Inc. ("PRG") and its subsidiaries,
which were acquired in May 1997 (the "PRG Acquisition"); LSI Group Holdings, plc
("LSI") and its subsidiaries, which were acquired in August 1997 (the "LSI
Acquisition"); Marc Hotels & Resorts, Inc. ("Marc"), which was acquired in
October 1997 (the "Marc Acquisition"); Vacation Internationale, Ltd. ("VI") and
its subsidiaries, which were acquired in November 1997 (the "VI Acquisition");
and Global Development Ltd. and certain of its subsidiaries (the "Global Group")
which was acquired in December 1997 (the "Global Acquisition").
THE COMPANY
Signature Resorts, Inc. is the world's largest vacation ownership company,
as measured by the number of resort locations. The Company currently has 82
resort locations in eight North American and European countries. The Company
also manages units at an additional 22 resorts in Hawaii. The Company's resort
locations are in a variety of popular vacation destinations, including
California, Hawaii, Arizona, Florida, the Caribbean, Mexico, France, the United
Kingdom, Spain and the Canary Islands. Through both internal development and
strategic acquisitions, the Company has expanded the number of its vacation
ownership resort locations and its owner family base from nine resort locations
and approximately 25,000 owner families at the time of its August 1996 initial
public offering to its current 82 resort locations and approximately 200,000
owner families. As a result of the successful implementation of the Company's
growth and operations strategy, the Company's revenues have grown to $337.7
million in 1997 from $219.8 million in 1996 and $168.3 million in 1995. By
taking advantage of synergies resulting from the implementation of the Company's
business strategy, the Company has increased 1997 EBITDA (as defined) by 91%
over 1996 EBITDA and increased EBITDA as a percentage of total revenues to 25.3%
in 1997 from 20.3% in 1996.
The Company's operations consist of (i) marketing and selling vacation
ownership interests at its resort locations, which entitle the buyer to use a
fully-furnished vacation residence, generally for a one-week period each year in
perpetuity ("Vacation Intervals"), and vacation points which may be redeemed for
occupancy rights at participating resort locations ("Vacation Points," and
together with Vacation Intervals, "vacation interests"), (ii) acquiring,
developing and operating vacation ownership resorts and (iii) providing consumer
financing to individual purchasers for the purchase of vacation interests at its
resort locations. The Company also provides resort management and maintenance
services for which it receives fees paid by the resorts' homeowners'
associations.
The Company markets resort locations as Sunterra Resorts, Embassy Vacation
Resorts and Westin Vacation Club Resorts and offers points-based vacation clubs
in Europe and North America. The Company's Sunterra Resorts are marketed under
the Company's Sunterra brand. The Company's Embassy Vacation Resorts and Westin
Vacation Club resort are operated under agreements with Promus Hotel Corporation
("Promus") (the owner of the Embassy Suites brand) and Westin Hotels & Resorts
("Westin"), respectively. The Company offers points-based vacation clubs in
Europe through its LSI and Global Group subsidiaries, and in North America
through its VI subsidiary.
The Company provides mortgage financing for approximately 75% of its
vacation ownership sales. In addition to enhancing the sales process, financing
customer receivables generates attractive profit margins and
1
<PAGE> 6
cash flows from the spread between interest rates charged by the Company on its
mortgage receivables and the Company's cost of capital. This financing is
typically collateralized by the underlying Vacation Interval or Vacation Points.
The Company's principal executive offices are located at 1875 South Grant
Street, Suite 650, San Mateo, California 94402, and its telephone number is
(650) 312-7171.
BUSINESS STRATEGY
The Company's objective is to capitalize on its position as the world's
largest vacation ownership company, as measured by resort locations, and its
base of approximately 200,000 owner families by continuing to (i) expand sales
at its resort locations, (ii) strategically acquire and develop resort inventory
and acquire operating companies and other vacation ownership-related assets,
(iii) improve operating margins by reducing operating costs through efficiencies
gained by operating as a large multi-resort system and (iv) develop and
introduce new vacation ownership products including its planned "Club Sunterra"
worldwide points-based vacation exchange system.
Signature has expanded to its current 82 resort locations from nine at the
time of its August 1996 initial public offering through the successful
implementation of its growth and operations strategy. The Company believes it
has achieved sufficient size to enable it to capitalize on the strategic
advantages of operating and purchasing leverage and the ability to provide
choice and flexibility to its customers. The key elements of the Company's
growth strategy are described below:
Expand Sales. The Company intends to expand sales of vacation ownership
interests at its existing resorts by adding additional inventory through the
construction of new development units and through broader marketing efforts. As
of December 31, 1997, the Company had available inventory of 29,168 Vacation
Intervals and 599,554 Vacation Points. The Company believes it is well
positioned to continue to expand its existing supply of inventory.
Acquisition and Development. Signature has achieved its leading position in
the industry by identifying and acquiring resorts in desirable locations at
prices which the Company believes will allow it to achieve excellent returns.
The Company's acquisition and development of new resort locations allows it to
add new vacation ownership inventory and increase the number of owner families
within the Company's resort system. The Company targets operating companies,
resort properties and other vacation ownership assets for potential acquisition
and development opportunities to generate a high return on invested capital to
replenish vacation ownership sales inventory while entering new markets and
creating a larger resort and customer base from which to develop and market its
products.
The Company evaluates each acquisition candidate based on certain criteria,
including return on invested capital, the strategic location of the resort
properties and consumer demand for vacation ownership inventory, in each case
taking into consideration the Company's existing locations and operations. The
Company analyzes the potential economic impact of each transaction to maximize
its return on investment, as well as potential strategic synergies. Management
believes that its proven acquisition and development record and public company
status give the Company a competitive advantage in acquiring assets, businesses
and operations in the fragmented vacation ownership industry.
Improve Operating Margins. As the Company continues to expand the number of
its resort locations as well as its owner family base, management believes that
it will be able to realize improved operating margins through the realization of
increased efficiencies, reduced on-site administrative requirements and reduced
operating costs through its multi-resort management system. In addition, the
Company believes that additional acquisitions will allow it to experience
increased margins by leveraging operating and corporate overhead costs over a
larger revenue base.
Signature's base of approximately 200,000 owner families also provides an
established market to which to sell additional vacation and leisure products
which the Company believes will reduce marketing and advertising expenses as a
percentage of sales. Because existing owners of vacation ownership interests
are, in
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<PAGE> 7
effect, a pre-screened pool of potential customers, repeat sales and customer
referrals increase sales while marketing expenses associated with these sales
are significantly reduced. As the Company's owner family base continues to
expand and these type of sales represent a larger percentage of overall sales,
the Company believes operating margins will continue to improve.
Develop New Vacation Ownership Products. The Company believes its growing
resort portfolio and base of approximately 200,000 owner families will enable it
to offer a wider variety of vacation ownership products. The Company's planned
Club Sunterra worldwide points-based vacation exchange system is one such
product that will allow owners to create vacations custom tailored to their
individual needs. Member families will be able to purchase intervals entitling
them to an annual allotment of "points" to use as a currency to reserve the
specific resort location, season, unit type and length of stay they desire from
among Club Sunterra's resort locations throughout the world. This type of
points-based system will provide the consumer more flexibility in their vacation
plans compared to traditional one week intervals.
INDUSTRY OVERVIEW
The Market. The vacation ownership industry represents one of the fastest
growing segments of the lodging industry. According to the American Resort
Development Association ("ARDA") and other industry sources, during the
seventeen year period ending in 1997, worldwide vacation ownership sales volume
increased from $490 million in 1980 to an estimated $6.2 billion in 1997, a
compounded annual growth rate of 16.1%.
As shown in the following charts, according to ARDA, the worldwide vacation
ownership industry has expanded significantly since 1980 both in vacation
interest sales volume and in the number of vacation interest owners.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year 80 81 82 83 84 85 86 87 88
Vacation Interest Sales Volume
($ in billions) 0.49 0.965 1.165 1.34 1.735 1.58 1.61 1.94 2.39
Year 80 81 82 83 84 85 86 87 88
No. of Vacation
Interest Owners 0.155 0.22 0.335 0.47 0.62 0.805 0.97 1.125 1.31
(in millions)
Year 89 90 91 92 93 94 95e 96e 97e
Vacation Interest Sales Volume
($ in billions) 2.97 3.24 3.74 4.25 4.505 4.76 5.2 5.7 5.95
Year 89 90 91 92 93 94 95e 96e 97e
No. of Vacation
Interest Owners 1.53 1.8 2.07 2.363 2.76 3.144 3.49 3.98 4.48
(in millions)
</TABLE>
Source: ARDA (includes, with respect to 1995, 1996 and 1997, unpublished
estimates provided by ARDA)
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.
The Consumer. According to the most recent information compiled by ARDA,
the three primary reasons cited by consumers for purchasing vacation interests
are (i) the ability to exchange vacation interests for accommodations at other
resorts through exchange networks (cited by 75% of vacation interest
purchasers), (ii) the money savings over traditional resort vacations (cited by
72% of purchasers), and (iii) the quality service and upkeep of the resort at
which they purchased vacation interests (cited by 80% of purchasers). According
to ARDA, vacation interest purchasers have a high rate of repeat purchases:
approximately 41% of all vacation interest owners own more than one vacation
interest representing approximately 65% of the industry inventory and
approximately 51% of all owners who bought their first vacation interest before
1985 have since purchased a second vacation interest. In addition, ARDA
indicates that customer satisfaction increases with length of ownership, age,
income, multiple location ownership and accessibility to vacation interest
exchange networks.
3
<PAGE> 8
RECENT DEVELOPMENTS
Securitized Notes. The Company expects to securitize approximately $100
million of its mortgages receivable, of which $50 million has been
pre-committed. The Company expects to convey the mortgages receivable to a
bankruptcy remote subsidiary, which would issue notes secured by such mortgages
receivable (the "Securitized Notes"). The Securitized Notes would be nonrecourse
to the Company. The Company is finalizing negotiations and expects to complete
the securitization by May 1998. If completed, the securitization would be
treated as a financing transaction for accounting purposes. The mortgages
receivable and the Securitized Notes would remain on the Company's balance
sheet. The Company would recognize no gain or loss on the Securitized Notes
transaction.
Name Change. The Company's Board of Directors has approved, subject to
stockholder approval, a proposal to change the Company's corporate name to
"Sunterra Corporation." The name change proposal will be presented for
stockholder approval at the Company's May 15, 1998 annual meeting.
Senior Credit Facility. On February 18, 1998, the Company entered into a
$100 million Senior Bank Credit facility (as amended from time to time, the
"Senior Credit Facility"). The Senior Credit Facility has variable borrowing
based on the percentage of the Company's mortgage receivables pledged under such
facility and the amount of funds advanced thereunder. The interest rate under
the Senior Credit Facility will vary between LIBOR plus 7/8% and LIBOR plus
1 3/8%, depending on the amount advanced against mortgage receivables. The
Senior Credit Facility has a three-year term and contains customary covenant
representations and warranties and conditions to borrow. On April 1, 1998, the
Company and its bank syndicate amended the Senior Credit Facility to increase
the amount available thereunder to $117.5 million. As of May 1, 1998, no amounts
were outstanding under the Senior Credit Facility.
Acquisition of MMG Holding Corp. and Affiliated Companies. On February 3,
1998, the Company acquired 100% of the capital stock of MMG Holding Corp., MMG
Development Corp. and certain affiliated companies ("MMG") for approximately
$26.5 million, comprised of $18.5 million in cash and the assumption of
approximately $8.0 million of indebtedness (the "MMG Acquisition"). The acquired
assets include MMG's approximately $6.6 million mortgages receivable portfolio.
MMG is an Orlando, Florida based developer, operator and manager of vacation
ownership resorts, with sales or management operations at six resorts in the
southeastern United States. In addition, the Company assumed MMG's commitment to
purchase an additional resort in Gatlinburg, Tennessee, which the Company
purchased on February 18, 1998 and which the Company plans to convert to
vacation ownership.
Acquisition of Westin Carambola Beach Resort. On January 26, 1998, the
Company acquired the Westin Carambola Beach Resort (the "Carambola Beach
Resort") on the island of St. Croix, United States Virgin Islands for a purchase
price of approximately $13.0 million. The Carambola Beach Resort contains 156
one-bedroom suites and one two-bedroom suite located in 27 separate two-story
bungalows. The Company plans to begin vacation ownership sales and commence the
first phase of renovations at the Carambola Beach Resort during the second
quarter of 1998.
Development Agreement with Westin Hotels & Resorts. On January 19, 1998,
the Company and Westin modified their existing joint development agreement to
make their relationship non-exclusive. Under their modified relationship, the
Company and Westin each will be free to independently pursue all vacation
ownership development opportunities. Under the parties' prior exclusive
agreement, the Company and Westin each were restricted from developing four and
five star vacation ownership resorts with third parties. The Company and Westin,
however, will continue to jointly own and operate the Westin Vacation Club St.
John, located in the U.S. Virgin Islands. As part of the modification, the
Company's and Westin's representatives no longer serve on the other's board of
directors.
Additional Acquisitions and Developments. In addition to the MMG
Acquisition and the acquisition of the Carambola Beach Resort, on December 31,
1997, the Company acquired the 46 unit Coral Reef Resort in Miami, Florida, and,
during the first and second quarters of 1998, acquired the 105 unit Homewood
Suites located in Santa Fe, New Mexico, the 58 unit Club Mougins Resort, located
near Cannes, France, a 22 unit property located in the West End of London,
England and 10 units at the Sunset View Resort, located in
4
<PAGE> 9
Tenerife, Canary Islands, in individual transactions with an aggregate purchase
price of approximately $30.2 million. The Company intends to begin vacation
ownership sales at each of these newly-acquired resorts during the second
quarter of 1998. When added to the Company's 70 resort locations at December 31,
1997, as well as the Carambola Beach Resort and the seven resort locations
acquired in the MMG Acquisition, these acquisitions currently give the Company
82 resort locations.
In addition, in March 1998, the Company received final planning, zoning and
development approval for the planned development of the 158 unit Westin Vacation
Club in Rancho Mirage, California, the Company's second joint venture with
Westin. In March 1998, the Company also received final planning, zoning and
development approval for the 58 unit Sunterra Harbor Lights Resort in San Diego,
California. The Company expects to complete the initial phase of development of
each of the Rancho Mirage and San Diego resorts and begin vacation ownership
sales at the resorts during 1999.
5
<PAGE> 10
THE EXCHANGE OFFER
The Exchange Offer......... The Company is hereby offering to exchange $1,000
principal amount of Exchange Notes for each $1,000
principal amount of Private Notes that are properly
tendered and accepted. The Company will issue
Exchange Notes on or promptly after the Expiration
Date. As of the date hereof, there is $140,000,000
aggregate principal amount of Private Notes
outstanding. See "The Exchange Offer."
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that the
Exchange Notes issued pursuant to the Exchange
Offer in exchange for Private Notes may be offered
for resale, resold and otherwise transferred by a
holder thereof (other than (i) a broker-dealer who
purchases such Exchange Notes directly from the
Company to resell pursuant to Rule 144A or any
other available exemption under the Securities Act
or (ii) a person that is an affiliate of the
Company within the meaning of Rule 405 under the
Securities Act), without compliance with the
registration and prospectus delivery provisions of
the Securities Act; provided that the holder is
acquiring Exchange Notes in the ordinary course of
its business and is not participating, and had no
arrangement or understanding with any person to
participate, in the distribution of the Exchange
Notes. Each broker-dealer that receives Exchange
Notes for its own account in exchange for Private
Notes, where such Private Notes were acquired by
such broker-dealer as a result of market-making
activities or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
See "The Exchange Offer -- Resale of the Exchange
Notes."
Registration Rights
Agreement.................. The Private Notes were sold by the Company on April
15, 1998 (the "Offering") to the Initial Purchasers
pursuant to a Purchase Agreement, dated April 9,
1998, between the Company and the Initial
Purchasers (the "Purchase Agreement"). Pursuant to
the Purchase Agreement, the Company and the Initial
Purchasers entered into a Registration Rights
Agreement, dated as of April 15, 1998 (the
"Registration Rights Agreement"), which grants the
holders of the Private Notes certain exchange and
registration rights. The Exchange Offer is intended
to satisfy such rights, which will terminate upon
the consummation of the Exchange Offer. The holders
of the Exchange Notes will not be entitled to any
exchange or registration rights with respect to the
Exchange Notes. See "The Exchange
Offer -- Termination of Certain Rights."
Expiration Date............ The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 1998 unless the
Exchange Offer is extended by the Company in its
sole discretion, in which case the term "Expiration
Date" shall mean the latest date and time to which
the Exchange Offer is extended. See "The Exchange
Offer -- Expiration Date; Extensions; Amendments."
Accrued Interest on the
Exchange Notes and the
Private Notes............ The Exchange Notes will bear interest from the date
of the last interest payment on the Private Notes
or if no interest has been paid, from the date of
original issuance of the Private Notes. Holders
whose Private Notes are accepted for exchange will
be deemed to have waived the right
6
<PAGE> 11
to receive any interest accrued on the Private
Notes. See "The Exchange Offer -- Interest on the
Exchange Notes."
Conditions to the
Exchange Offer........... The Exchange Offer is subject to certain customary
conditions that may be waived by the Company. The
Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Private Notes being
tendered for exchange. See "The Exchange
Offer -- Conditions."
Procedures for Tendering
Private Notes............ Each holder of Private Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with such Private Notes and any other required
documentation to Norwest Bank Minnesota, National
Association, as exchange agent (the "Exchange
Agent"), at the address set forth herein. By
executing the Letter of Transmittal, the holder
will represent to and agree with the Company that,
among other things, (i) the Exchange Notes to be
acquired by such holder of Private Notes in
connection with the Exchange Offer are being
acquired by such holder in the ordinary course of
its business, (ii) such holder is not engaged in,
and does not intend to engage in, and has no
arrangement or understanding with any person to
participate in, a distribution of the Exchange
Notes, (iii) that if such holder is a broker-dealer
registered under the Exchange Act or is
participating in the Exchange Offer for the
purposes of distributing the Exchange Notes, such
holder will comply with the registration and
prospectus delivery requirements of the Securities
Act in connection with a secondary resale
transaction of the Exchange Notes acquired by such
person and cannot rely on the position of the staff
of the Commission set forth in no-action letters
(see "The Exchange Offer -- Resale of the Exchange
Notes"), (iv) such holder understands that a
secondary resale transaction described in clause
(iii) above and any resales of Exchange Notes
obtained by such holder in exchange for Private
Notes acquired by such holder directly from the
Company should be covered by an effective
registration statement containing the selling
security holder information required by Item 507 or
Item 508, as applicable, of Regulation S-K of the
Commission and (v) such holder is not an
"affiliate," as defined in Rule 405 under the
Securities Act, of the Company. If the holder is
not a broker-dealer, such holder will be required
to represent in the Letter of Transmittal that it
is not engaged in, and does not intend to engage
in, a distribution of the Exchange Notes. If the
holder is a broker-dealer that will receive
Exchange Notes for its own account in exchange for
Private Notes such holder will be required to
acknowledge in the Letter of Transmittal that the
Private Notes to be exchanged for New securities
were acquired by it as a result of market-making
activities or other trading activities and that
such holder will deliver a prospectus in connection
with any resale of such Exchange Notes; however, by
so acknowledging and by delivering a prospectus,
such holder will not be deemed to admit that it is
an "underwriter" within the meaning of the
Securities Act. See "The Exchange
Offer -- Procedures for Tendering."
7
<PAGE> 12
Special Procedures for
Beneficial Owners........ Any beneficial owner whose Private Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
who wishes to tender such Private Notes in the
Exchange Offer should contact such registered
holder promptly and instruct such registered holder
to tender on such beneficial owner's behalf. If
such beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior to
completing and executing the Letter of Transmittal
and delivering such owner's Private Notes, either
make appropriate arrangements to register ownership
of the Private Notes in such owner's name or obtain
a properly completed bond power from the registered
holder. The transfer of registered ownership may
take considerable time and may not be able to be
completed prior to the Expiration Date. See "The
Exchange Offer -- Procedures for Tendering."
Guaranteed Delivery
Procedures............... Holders of Private Notes who wish to tender their
Private Notes and whose Private Notes are not
immediately available or who cannot deliver their
Private Notes, the Letter of Transmittal or any
other documentation required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date must tender their Private Notes
according to the guaranteed delivery procedures set
forth under "The Exchange Offer -- Guaranteed
Delivery Procedures."
Acceptance of the Private
Notes and Delivery of
the Exchange Notes....... Subject to the satisfaction or waiver of the
conditions to the Exchange Offer, the Company will
accept for exchange any and all Private Notes that
are properly tendered in the Exchange Offer prior
to the Expiration Date. The Exchange Notes issued
pursuant to the Exchange Offer will be delivered on
the earliest practicable date following the
Expiration Date. See "The Exchange Offer -- Terms
of the Exchange Offer."
Withdrawal Rights.......... Tenders of Private Notes may be withdrawn at any
time prior to the Expiration Date. See "The
Exchange Offer -- Withdrawal of Tenders."
Certain Federal Income
Tax Considerations....... The exchange of Private Notes for Exchange Notes
will be treated as a "non-event" for federal income
tax purposes because the Exchange Notes will not be
considered to differ materially from the Private
Notes. As a result, no material federal income tax
consequences will result to holders exchanging
Private Notes for Exchange Notes. See "Certain
Federal Income Tax Considerations" for a
discussion, which, in the opinion of Latham &
Watkins, counsel to the Company, describes the
material federal income tax consequences expected
to result to holders whose Private Notes are
exchanged for Exchange Notes in the Exchange Offer.
Exchange Agent............. Norwest Bank Minnesota, National Association is
serving as the Exchange Agent in connection with
the Exchange Offer.
8
<PAGE> 13
THE EXCHANGE NOTES
The Exchange Offer applies to $140,000,000 aggregate principal amount of
the Private Notes. The form and terms of the Exchange Notes are the same as the
form and terms of the Private Notes except that (i) the exchange will have been
registered under the Securities Act and, therefore, the Exchange Notes will not
bear legends restricting the transfer thereof and (ii) holders of the Exchange
Notes will not be entitled to certain rights of holders of the Private Notes
under the Registration Rights Agreement, which rights will terminate upon
consummation of the Exchange Offer. The Exchange Notes will evidence the same
indebtedness as the Private Notes (which they replace) and will be issued under,
and be entitled to the benefits of, an indenture governing the Private Notes and
the Exchange Noes dated April 15, 1998 (the "Indenture") among the Company and
Norwest Bank Minnesota, National Association, as Trustee (the "Trustee"). The
Exchange Notes and the Private Notes are sometimes collectively referred to
herein as the "Notes." For further information and for definitions of certain
capitalized terms used below, see "Description of Notes."
SECURITIES OFFERED.............. $140 million aggregate principal amount of
the Company's 9 1/4% Senior Notes due 2006.
MATURITY DATE................... May 15, 2006.
INTEREST PAYMENT DATES.......... May 15 and November 15, commencing November
15, 1998.
RANKING......................... The Notes will be general unsecured
obligations of the Company and will rank pari
passu in right of payment with all existing
and future unsubordinated Indebtedness of the
Company and will rank senior in right of
payment to all subordinated Indebtedness of
the Company. The Notes will be effectively
subordinated to all secured Indebtedness of
the Company to the extent of the security and
to all Indebtedness and other obligations
(including trade payables) of the Company's
subsidiaries. At December 31, 1997, after
giving pro forma effect to the Offering and
the application of the estimated net proceeds
therefrom and the incurrence of an additional
$108 million of secured Indebtedness
subsequent to December 31, 1997, the Company
and its subsidiaries would have had
approximately $589.9 million of outstanding
indebtedness (including trade payables of
$25.2 million), of which $108.2 million would
have been secured or structurally senior in
right of payment to the Notes and $341.7
million would have been subordinated in right
of payment to the Notes. The Notes are senior
in right of payment to the Company's 9 3/4%
Senior Subordinated Notes due 2007 (the
"Senior Subordinated Notes") and the
Company's 5 3/4% Convertible Notes due 2007
(the "Convertible Notes").
OPTIONAL REDEMPTION............. The Notes will be redeemable, in whole or in
part, at the option of the Company on or
after May 15, 2002 at the redemption prices
(expressed as a percentage of principal
amount) set forth herein, plus accrued and
unpaid interest, if any, to the date of
redemption. In addition, prior to May 15,
2001, the Company may redeem up to 40% of the
aggregate principal amount of the Notes with
the proceeds of one or more Equity Offerings
(as defined), at a redemption price equal to
109.25% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the
date of redemption (subject to the right of
holders of record on the relevant record date
to receive interest due on the relevant
interest payment date); provided, however,
that at least
9
<PAGE> 14
60% of the aggregate principal amount of the
Notes originally issued remains outstanding
after any such redemption.
CHANGE OF CONTROL............... Upon a Change of Control (as defined),
Holders of the Notes will have the right to
require the Company to repurchase all or a
portion of such Holder's Notes at a purchase
price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if
any, to the date of repurchase.
CERTAIN COVENANTS............... The Indenture contains certain covenants
that, among other things, limit the ability
of the Company and its Restricted
Subsidiaries (as defined herein) to (i) incur
additional indebtedness, (ii) pay dividends
or make other distributions with respect to
Capital Stock (as defined) of the Company and
its Restricted Subsidiaries, (iii) create
certain liens, (iv) sell certain assets of
the Company or its Restricted Subsidiaries
and (v) enter into certain mergers and
consolidations. See "Description of the
Notes -- Certain Covenants."
USE OF PROCEEDS................. The Company will not receive any proceeds
from the issuance of the Exchange Noes
offered hereby. In consideration for issuing
the Exchange Notes as contemplated in this
Prospectus, the Company will receive in
exchange Private Notes in like principal
amount, the terms of which are identical to
the Exchange Notes. The issuance of the
Exchange Notes in exchange for the surrender
of the Private Notes will not result in any
increase in the indebtedness of the Company.
RISK FACTORS
Prospective investors in the Notes should carefully consider the matters
set forth herein under "Risk Factors."
10
<PAGE> 15
SUMMARY CONSOLIDATED AND UNAUDITED PRO FORMA
FINANCIAL DATA
The following table sets forth summary consolidated and unaudited pro forma
financial data of the Company. For all of the periods presented, the financial
data presented below gives effect to the AVCOM, PRG and LSI Acquisitions by
combining the historical information of AVCOM, PRG, LSI and the Company and
restating the historical financial data of the Company using the
pooling-of-interests method of accounting. Prior to its acquisition by the
Company on February 7, 1997, AVCOM recognized a net loss of $12.4 million for
the year ended December 31, 1996. As a result of the pooling-of-interests
accounting treatment, this net loss has been reflected in the Company's
consolidated financial statements for the year ended December 31, 1996, reducing
the Company's 1996 reported consolidated net income. In addition, as a result of
the Company's 1997 acquisitions, the Company incurred $10.0 million of
non-recurring merger-related costs, reducing the Company's 1997 reported
consolidated net income.
The financial data presented below includes the effect of the exchange of
direct and indirect interests in, and obligations of, certain predecessor
limited partnerships, limited liability companies and other corporations of the
Company for shares of common stock (the "Common Stock") of the Company (the
"Consolidation Transactions") and the Company's initial public offering of
shares of Common Stock (the "Initial Public Offering"), both of which were
consummated on August 20, 1996.
The following table also sets forth summary unaudited pro forma financial
data of the Company as of December 31, 1997, after giving effect to the
concurrent offerings of the Convertible Notes and 2,400,000 shares of Common
Stock sold by the Company in February 1997 (together, the "Concurrent
Offerings"), the Company's offering of the Senior Subordinated Notes in August
1997 (the "Senior Subordinated Note Offering") and the Offering, in each case
after giving effect to the application of the proceeds therefrom (excluding the
repayment of approximately $111 million due under the Senior Credit Facility,
which was incurred subsequent to December 31, 1997) as if such transactions had
taken place on January 1, 1997, with respect to the Income Statement Data and
Other Data and as of December 31, 1997 with respect to the Balance Sheet Data.
The pro forma data do not purport to represent what the consolidated results of
operations or consolidated financial position of the Company would have been had
the Offering, the Concurrent Offerings and the Senior Subordinated Note Offering
and the application of the net proceeds therefrom actually occurred at the
beginning of the relevant period, and do not purport to project the consolidated
financial position or the consolidated results of operations of the Company for
the current year or any future date or period.
The following financial data should be read in conjunction with "Use of
Proceeds," "Selected Financial Data," "Unaudited Pro Forma Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements for the Company and the
notes thereto, each of which are contained elsewhere in this Prospectus.
11
<PAGE> 16
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
PRO FORMA
1995 1996 1997 1997
-------- -------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Vacation Interval and Vacation Point sales... $139,426 $182,300 $281,063 $281,063
Interest income.............................. 20,339 25,415 42,856 42,856
Other income................................. 8,553 12,132 13,774 13,774
-------- -------- -------- --------
Total revenues....................... 168,318 219,847 337,693 337,693
-------- -------- -------- --------
Costs and operating expenses:
Vacation Interval and Vacation Point cost of
sales..................................... $ 39,810 $ 48,218 $ 71,437 $ 71,437
Advertising, sales, and marketing............ 62,258 89,040 126,739 126,739
Loan portfolio:
Interest expense -- treasury.............. 10,077 13,482 13,032 9,225
Other expenses............................ 2,034 4,523 5,522 5,522
Provision for doubtful accounts(a)........ 3,666 8,311 8,579 8,579
General and administrative(a)................ 19,263 37,436 42,254 42,254
Resort property valuation allowance(a)....... -- 2,620 -- --
Depreciation and amortization(a)............. 2,514 5,027 6,499 6,499
Merger-related costs(a)(b)................... -- -- 9,973 9,973
-------- -------- -------- --------
Total costs and operating expenses... 139,622 208,657 284,035 280,228
-------- -------- -------- --------
Income from operations....................... 28,696 11,190 53,658 57,465
Interest expense -- other, net............... 1,728 3,763 9,394 29,271
Equity loss on investment in joint
ventures.................................. 1,649 299 639 639
Minority interest in income of consolidated
limited partnership....................... -- 199 181 181
-------- -------- -------- --------
Income before provision (benefit) for
income taxes and extraordinary
item............................... $ 25,319 $ 6,929 $ 43,444 $ 27,374
======== ======== ======== ========
OTHER DATA:
EBITDA(c).................................... $ 41,553 $ 44,622 $ 85,424 $ 85,424
EBITDA margin................................ 24.7% 20.3% 25.3% 25.3%
Net interest expense......................... $ 15,120 $ 23,968 $ 28,698 $ 43,576(d)
Ratio of EBITDA to net interest expense...... 2.0
Ratio of net debt to EBITDA.................. 4.6
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-----------------------
ACTUAL PRO FORMA
--------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents, including
escrow.................................... $ 47,972 $167,641
Mortgages receivable, net.................... 331,735 331,735
Total assets................................. 761,145 885,614
Total debt................................... 435,208 559,677(e)
Stockholders' equity......................... 207,910 207,910
</TABLE>
12
<PAGE> 17
- ---------------
(a) Non-recurring costs for the year ended December 31, 1997, are merger costs
relating to the AVCOM, PRG and LSI Acquisitions. Non-recurring costs for the
year ended December 31, 1996 include costs incurred at AVCOM for (i) an
increase in the provision for doubtful accounts of $2.0 million, (ii) $9.1
million in severance costs, lease cancellations, litigation reserves, other
integration costs and a reserve for leases associated with certain property
management and related contracts, (iii) a $2.6 million write-down of certain
property to estimated fair market value and (iv) a $0.7 million charge
relating to amortization of start-up costs over a period of one year.
(b) Merger-related costs include expenses related to fees paid to financial
advisors, legal fees, and other transaction expenses in connection with the
AVCOM, PRG and LSI Acquisitions.
(c) EBITDA represents net income before interest expense-treasury, interest
expense-other, capitalized interest expense included in Vacation Interval
and Vacation Point cost of sales, income taxes, non-recurring costs,
depreciation and amortization and extraordinary item, net of tax. 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 a substitute for income from operations, net income or cash
flows from operating activities in analyzing the Company's operating
performance, financial position and cash flows. The EBITDA measure presented
herein may not be comparable to EBITDA as presented by other companies. The
following table reconciles EBITDA to net income:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
PRO FORMA
1995 1996 1997 1997
------- ------- ------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income.................................................. $21,299 $11,034 $19,522 $ 16,446
Interest expense-treasury................................... 10,077 13,482 13,032 9,225
Interest expense-other...................................... 1,728 3,763 9,394 29,271
Capitalized interest expense included in Vacation Interval
and Vacation Point cost of sales.......................... 1,915 1,718 3,082 3,082
Income taxes (benefit)...................................... 4,020 (4,105) 23,156 10,928
Non-recurring costs......................................... -- 14,381(a) 9,973(a) 9,973(a)
Depreciation and amortization............................... 2,514 4,349(a) 6,499 6,499
Extraordinary item, net of tax.............................. -- -- 766 --
------- ------- ------- ---------
EBITDA.............................................. $41,553 $44,622 $85,424 $ 85,424
======= ======= ======= =========
</TABLE>
(d) Net interest expense is defined as interest expense plus capitalized
interest less amortization of debt issuance costs. The 1997 pro forma amount
gives effect to interest income of approximately $6.3 million (based on an
assumed investment rate of 5.25% per annum) on the assumed investment of the
net excess proceeds from the Offering of approximately $120 million,
including approximately $111 million that the Company applied to the
repayment of indebtedness which was outstanding under the Senior Credit
Facility as of April 15, 1998 and that was incurred subsequent to December
31, 1997.
(e) Approximately $111 million of the net proceeds from the Offering were used
to retire indebtedness under the Senior Credit Facility which was
outstanding as of April 15, 1998. The amounts outstanding under the Senior
Credit Facility were incurred subsequent to the year ended December 31, 1997
primarily to finance the MMG Acquisition and the acquisition of resort
inventory and for other working capital purposes. As of May 1, 1998, no
amounts were outstanding under such facility.
13
<PAGE> 18
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 Notes offered hereby. The Company
cautions the reader that this list of material 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 this Prospectus generally. In addition, when used in this
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 this 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.
RISK OF INCREASING LEVERAGE; LIQUIDITY
The Company has, and after giving effect to the Offering will continue to
have, significant levels of indebtedness. At December 31, 1997, after giving pro
forma effect to the Offering and the application of the estimated net proceeds
therefrom and the incurrence of an additional $111.1 million of secured
Indebtedness subsequent to December 31, 1997, the Company and its subsidiaries
would have had approximately $589.9 million of outstanding indebtedness
(including trade payables of $25.2 million), of which $108.2 million would have
been secured or structurally senior in right of payment to the Notes and $341.7
million would have been subordinated in right of payment to the Notes. In
addition, subject to the restrictions contained in documents governing the
Senior Credit Facility, the Notes, the Senior Subordinated Notes and the
Convertible Notes, the Company may incur additional senior or other indebtedness
from time to time to finance acquisitions or capital expenditures or for other
general corporate purposes.
For the year ended December 31, 1997, the Company had $50.0 million in
negative cash flows from operations. On a pro forma basis for the Offering, the
Concurrent Offerings and the Senior Subordinated Note Offering and the
application of the proceeds therefrom, cash flows from operations would have
been insufficient to service the Company's interest costs by an aggregate of
$53.1 million. Because the Company typically finances 90% of the purchase price
of the vacation interests it sells, it typically incurs significant operating
costs in excess of the actual cash proceeds initially received from the sale of
vacation interests. To meet the Company's cash requirements to finance these
customer receivables, the Company borrows funds available under its credit
facilities. The Company expects to repay its credit facilities with proceeds
from the issuance of pass-through mortgage-backed securities under which the
Company sells the mortgages receivable and principal and interest payments from
its portfolio of mortgages receivable. The Company may also sell or factor
additional mortgages receivable or borrow under existing or future lines of
credit. There can be no assurance that the Company will be able to successfully
securitize any of its mortgages receivable or otherwise sell, factor or finance
such mortgages receivable on terms favorable to the Company, if at all or that
the inability to do so would not have a material adverse effect on the Company's
results of operations.
The level of the Company's indebtedness could have important consequences
to the Holders of the Notes, including, but not limited to, the following: (i)
the Company's ability to obtain future financing for working capital, capital
expenditures, acquisitions, product development or other corporate purposes may
be materially limited or impaired; (ii) a significant portion of the Company's
cash flow from operations may be dedicated to the interest on its indebtedness,
thereby reducing the funds available to the Company to conduct its operations
and future business opportunities; (iii) significant amounts of the Company's
borrowings will bear interest at variable rates, which could result in higher
interest expense in the event of interest rate increases; (iv) the agreements
governing the Company's indebtedness contain financial and restrictive
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covenants, the failure to comply with which may result in an event of default
which, if not cured or waived, could have a material adverse effect on the
Company; (v) the indebtedness outstanding under the Senior Credit Facility is
secured and matures prior to the maturity of the Notes; (vi) the Company may be
substantially more leveraged than certain of its competitors, which may place
the Company at a competitive disadvantage; and (vii) the Company's substantial
degree of leverage may limit its flexibility to adjust to changing market
conditions, reduce its ability to withstand competitive pressures and make it
more vulnerable to a downturn in general economic conditions or in its business.
The Company's ability to make scheduled payments or to refinance its debt
obligations will depend upon its future financial and operating performance,
which may be affected by prevailing economic conditions and financial, business
and other factors, certain of which are beyond its control, including interest
rates, increased operating costs, regulatory developments and the ability of the
Company to repatriate cash generated outside of the United States without
incurring a substantial tax liability. There can be no assurance that the
Company's operating results, cash flow and capital resources will be sufficient
for payment of its indebtedness in the future.
STRUCTURAL SUBORDINATION OF NOTES
The Notes will be general unsecured obligations of the Company and will
rank pari passu in right of payment with all existing and future unsubordinated
Indebtedness of the Company and will rank senior in right of payment to all
subordinated Indebtedness of the Company. The Notes will be effectively
subordinated to all secured Indebtedness of the Company to the extent of the
security and to all Indebtedness and other obligations (including trade
payables) of the Company's subsidiaries. In the event of bankruptcy,
liquidation, or reorganization of the Company, the assets serving as collateral
for the Company's secured Indebtedness will be available to pay obligations on
the Notes only after all secured Indebtedness has been paid to the full extent
of such security, and there may not be sufficient assets to pay any interest,
premium, if any, or principal due on any or all of the Notes then outstanding.
At December 31, 1997, after giving pro forma effect to the Offering and the
application of the estimated net proceeds therefrom and the incurrence of an
additional $108 million of secured Indebtedness subsequent to December 31, 1997,
the Company and its subsidiaries would have had approximately $589.9 million of
outstanding indebtedness (including trade payables of $25.2 million), of which
$108.2 million would have been secured or structurally senior in right of
payment to the Notes and $341.7 million would have been subordinated in right of
payment to the Notes. The incurrence of additional indebtedness and other
liabilities by the Company or its subsidiaries could adversely affect the
Company's ability to pay its obligations on the Notes. In addition, the cash
flow and ability of the Company to service debt, including the Notes, is
dependent in part upon the ability of its subsidiaries to make cash payments to
the Company. Any right of the Company and its creditors to participate in the
assets of any such subsidiary will be subject to the prior claims of the
subsidiaries and creditors, including trade creditors. Upon any acceleration of
the principal due on the Notes or payment or distribution of assets of the
Company to creditors upon any dissolution, winding-up, liquidation or
reorganization, all principal, premium, if any, and interest due on all secured
Indebtedness must be paid to the full extent of such security before the Holders
of the Notes are entitled to receive any payment as a result of such assets.
FAILURE TO EXCHANGE PRIVATE NOTES
Exchange Notes will be issued in exchange for Private Notes only after
timely receipt by the Exchange Agent of such Private Notes, a properly completed
and duly executed Letter of Transmittal and all other required documentation.
Therefore, holders of Private Notes desiring to tender such Private Notes in
exchange for Exchange Notes should allow sufficient time to ensure timely
delivery. Neither the Exchange Agent nor the Company is under any duty to give
notification of defects or irregularities with respect to tenders of Private
Notes for exchange. Private Notes that are not tendered or are tendered but not
accepted will, following consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof. In addition, any
holder of Private Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes will be required to comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. Each broker-
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<PAGE> 20
dealer that receives Exchange Notes for its own account in exchange for Private
Notes, where such Private Notes were acquired by such broker-dealer as a result
of market-making activities or any other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. To the extent that Private Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered but unaccepted
Private Notes could be adversely affected due to the limited amount, or "float,"
of the Private Notes that are expected to remain outstanding following the
Exchange Offer. Generally, a lower "float" of a security could result in less
demand to purchase such security and could, therefore, result in lower prices
for such security. For the same reason, to the extent that a large amount of
Private Notes are not tendered or are tendered and not accepted in the Exchange
Offer, the trading market for the Exchange Notes could be adversely affected.
See "Plan of Distribution" and "The Exchange Offer."
LIMITATION ON REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
Upon a Change of Control (as defined in the Indenture), each Holder of the
Notes will have certain rights, at the holder's option, to require the Company
to repurchase all or a portion of such Holder's Notes. If a Change of Control
were to occur, there can be no assurance that the Company would have sufficient
financial resources, or would be able to arrange financing, to pay the
repurchase price for all Notes tendered by the Holders thereof. In addition, the
Company's repurchase of Notes as a result of the occurrence of a Change of
Control may create an event of default under the Company's various credit
agreements. The Change of Control provision may not, in some instances, prevent
a decrease in the value of the Notes in the event the Company incurs additional
leverage through certain types of recapitalizations, leveraged buyouts, or
similar transactions. See "Description of Notes -- Change of Control."
ACQUISITION STRATEGY AND RISKS RELATED TO RAPID GROWTH
A principal component of the Company's strategy is to continue to grow by
acquiring additional resort locations and/or vacation ownership operating
companies. 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 resort
locations and profitably sell Vacation Intervals and Vacation Points at such
resort locations. There can be no assurance that the Company will be successful
with respect to such factors and any failure to be successful could have a
material adverse effect on the Company's results of operations. Acquisitions
involve a number of special risks, including the diversion of management's
attention to the assimilation of the operations from other business concerns,
difficulties in the integration of operations and systems, the assimilation and
retention of the personnel of the acquired companies and potential adverse
short-term effects on operating results. The Company's ability to execute its
growth strategy depends to a significant degree on the existence of attractive
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 potential buyers of resort real estate which are well
capitalized 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 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.
RISKS RELATED TO DEVELOPMENT OF A POINTS-BASED VACATION EXCHANGE SYSTEM
The Company currently is developing its Club Sunterra points-based vacation
exchange system which will offer points-based exchanges throughout the Company's
worldwide network of resorts. The Company has not previously developed or
operated a company-wide points-based vacation exchange system and no
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assurance can be given as to management's ability to efficiently develop or
operate such a company-wide system. Although management believes such a system
will be developed and placed into operation in the second half of 1998, there
can be no assurance that such a system will be developed and placed into
operation by such time. Risks associated with the development and operation of
the Company's Club Sunterra company-wide points-based vacation exchange system,
and expansion of LSI's and VI's existing points-based systems, may include the
risks that: such development and/or expansion may be abandoned; the North
American and European points-based vacation exchange systems cannot be
efficiently combined or operated with the Company's current vacation ownership
operations; the North American and European points-based vacation exchange
systems may be or become subject to extensive regulation by federal, state and
local jurisdictions, or the equivalent thereof in Europe, possibly making such
points-based system uneconomical or unprofitable; and financing may not be
available on favorable terms for development of a North American points-based
vacation exchange system or the expansion of a European points-based vacation
exchange system.
RISKS RELATED TO CERTAIN ACQUISITIONS
Uncertainty as to Future Financial Results. The Company believes that the
acquisitions of AVCOM, PRG, LSI, Marc, VI and Global (collectively, the
"Acquisitions") each offer opportunities for long-term efficiencies in
operations that should positively affect future results of the combined
operations of the Company. However, until the Company is able to offset earnings
dilution resulting from the issuance of Common Stock in certain of the
Acquisitions with the positive effect of expected long-term efficiencies, the
Acquisitions may adversely affect the Company's financial performance in 1998
and future years. In addition, the combined companies will be more complex and
diverse than the Company prior to the Acquisitions, 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.
In order to maintain and increase profitability, the combined companies
will need to successfully integrate and streamline overlapping functions. There
can be no assurance that such integration will be successfully accomplished or,
if successfully accomplished, that such integration will not be more costly to
accomplish than contemplated by the Company. The difficulties of such
integration may be increased by the necessity of coordinating geographically
separate organizations. The integration of certain operations (such as customer
service, loan servicing and loan processing) following the Acquisitions will
require the dedication of management resources which may distract attention from
the day-to-day business of the combined companies in the short and long term.
Failure to effectively accomplish the integration of the acquired company's
operations could have an adverse effect on the Company's results of operations
and financial condition.
Accounting Treatment. The AVCOM, PRG and LSI Acquisitions have been
accounted for by the Company 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 have been carried forward at their book values to
the Company and the reported income of the Company, AVCOM, PRG and LSI for prior
periods has been combined and restated as income of the Company. Although the
Company has received an opinion from its independent public accountants that the
Acquisitions will qualify for pooling-of-interests accounting treatment,
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 over a period of years,
which would adversely affect the Company's future earnings. The VI, Marc and
Global Acquisitions have been accounted for using the purchase method of
accounting.
VARIABILITY OF QUARTERLY RESULTS; ABSENCE OF PUBLIC MARKET FOR THE NOTES;
POSSIBLE VOLATILITY OF NOTE PRICE
The Company's earnings may be impacted by the timing of the implemention of
the Company's acquisition and development strategy. Additionally, 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
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Intervals and Vacation Points. This seasonality may cause significant variations
in quarterly operating results. If sales of Vacation Intervals and Vacation
Points 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 between the time
that the Company acquires an additional resort and the commencement of Vacation
Interval and Vacation Points 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 securities market analysts and investors, which could have an
adverse effect on the market value of the Notes. Numerous factors, including
announcements of fluctuations in the Company's or its competitors' operating
results and market conditions for hospitality and vacation ownership industry
securities in general, could have a significant impact on the future price of
the Notes. In addition, the securities 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 Notes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Private Notes have not been registered under the Securities Act and are
subject to significant restrictions on resale. The Exchange Notes have no
established trading market. The Initial Purchasers have advised the Company that
they intend to make a market in the Notes. The Initial Purchasers are not
obligated, however, to make a market in the Notes and any such market making may
be discontinued at any time at the sole discretion of any such Initial Purchaser
without notice. In addition, such market making activity will be subject to the
limits imposed by the Securities Act and the Exchange Act, and may be limited
during the Exchange Offer. Accordingly, there can be no assurance that an active
market for the Notes will develop or be sustained after the Offering or that the
market price of the Notes will not decline. If an active market for the Notes
fails to develop or be sustained, the trading price of such Notes could be
materially adversely affected. The Notes will not be listed on any securities
exchange or quoted on the Nasdaq National Market.
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture will contain, and the Subordinated Notes Indenture does
contain, certain covenants that, among other things, limit the ability of the
Company and its Restricted Subsidiaries to (i) incur additional indebtedness,
(ii) pay dividends or make other distributions with respect to capital stock of
the Company and its Restricted Subsidiaries, (iii) create certain liens, (iv)
sell certain assets of the Company or its Restricted Subsidiaries and (v) enter
into certain mergers and consolidations. In addition, certain of the Company's
other Senior Indebtedness contain other and more restrictive covenants that,
among other things, restrict the following: the making of investments, loans,
and advances and the paying of dividends and other restricted payments; the
incurrence of additional indebtedness; the granting of liens, other than certain
permitted liens; mergers, consolidations and sales of all or a substantial part
of the Company's business or property; the sale of assets; and the making of
capital expenditures.
Certain of the Company's other Senior Indebtedness, including the Senior
Credit Facility, also require the Company to maintain certain financial ratios,
including interest coverage, leverage and fixed charge ratios. There can be no
assurance that these requirements will be met in the future. If they are not,
the holders of the indebtedness under certain of the Company's other Senior
Indebtedness may be entitled to declare such indebtedness immediately due and
payable.
RISKS OF DEVELOPMENT AND CONSTRUCTION ACTIVITIES
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
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abandoned; construction costs of a resort may exceed original estimates,
possibly making the resort uneconomical or unprofitable; sales of Vacation
Intervals at a newly completed resort may not be sufficient to make the resort
profitable; financing may not be available on favorable terms for development
of, or the continued sales of Vacation Intervals at, a resort; and construction
may not be completed on schedule, resulting in decreased revenues and increased
interest expense. The failure of the Company to successfully complete its
development, construction, redevelopment, conversion and expansion activities
may have a material adverse effect on the Company's results of operations.
In addition, the Company's construction activities typically are performed
by third-party contractors, and, accordingly, the timing, quality and completion
of which cannot be controlled by the Company. Nevertheless, construction claims
may be asserted against the Company for construction defects and such claims may
give rise to liabilities. New development activities, regardless of whether or
not they are ultimately successful, typically require a substantial portion of
management's time and attention. Development activities are also subject to
risks relating to the inability to obtain, or delays in obtaining, all necessary
zoning, land-use, building, occupancy and other required governmental permits
and authorizations, the ability of the Company to coordinate construction
activities with the process of obtaining such permits and authorizations, and
the ability of the Company to obtain the financing necessary to complete the
necessary acquisition, construction, and/or conversion work at the resorts. 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
Resort Locations."
RISKS ASSOCIATED WITH PARTNERSHIP INVESTMENTS
The Company owns, and may in the future acquire, certain resorts through
partnerships or other joint ventures. Property ownership through a partnership
or other joint venture involves additional risks, including requirements of
partner or venturer consents for major decisions (including approval of
budgets), capital contributions and entry into material agreements. If the
Company and its partner or venturer are unable to agree on major decisions,
either partner or venturer may elect to invoke a buy/sell right, which could
require the Company to either sell its interest in such partnership or venture
or to buy out the interest of its partner or venturer at a time when the Company
is not prepared to do so. In addition, under certain circumstances, the other
partner or venturer can require the Company to purchase such partner's or
venturer's interest or sell its interest to the other partner or venturer, and
in either case, such purchase or sale could have a material adverse effect on
the Company. If a dispute arises under these types of partnerships or joint
ventures, an adverse resolution could have a material adverse effect on the
operations of the Company. In addition, as a general partner or venturer, 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.
Additionally, as a matter of partnership law, if other partners or venturers
fail to honor their obligation (including as a result of insolvency), the
Company may incur losses in excess of its pro rata share of the partnership or
venture. See "Business -- Description of the Company's Resort Locations."
LIMITED OPERATING HISTORY
The Company was formed in May 1996 in order to effectuate the consolidation
of the Company's predecessor partnerships, limited liability companies and
corporations (the "Consolidation Transactions") and the Company's initial public
offering (the "Initial Public Offering"), each of which was consummated in
August 1996. Although predecessors of the Company have operating histories in
the vacation ownership and hospitality industries, the Company has limited
operating history as an integrated entity both prior to and following the
Acquisitions, has limited experience operating as a public company and no
experience operating a company-wide points-based vacation exchange system, any
of which could result in an adverse impact on the Company's operations and
future profitability. The Company conducts its management operations out of a
number of geographically diverse locations. As the Company grows and diversifies
into additional geographic markets, including new markets entered as a result of
the Acquisitions, no assurance can be given as to management's ability to
efficiently manage operations and control functions without a centrally located
management team.
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GENERAL ECONOMIC CONDITIONS; CONCENTRATION IN VACATION OWNERSHIP INDUSTRY
Any downturn in economic conditions or any price increases (e.g., airfares)
related to the travel and tourism industry could depress discretionary consumer
spending and have a material adverse effect on the Company's business. Any such
economic conditions, including recession, may also adversely affect the future
availability of attractive financing rates for the Company or its customers and
may materially adversely affect the Company's business. Furthermore, adverse
changes in general economic conditions may adversely affect the collectibility
of the Company's loans to vacation interest 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.
RISKS ASSOCIATED WITH CUSTOMER FINANCING
The Company offers financing to the purchasers of vacation interests at the
Company's resort locations 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
interest. The Company has entered into agreements with lenders for the financing
of customer receivables. As of December 31, 1997, the Company had approximately
$199 million of additional borrowing capacity available thereunder.
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 promissory notes. Payments under these promissory notes are made
by the buyer/borrowers directly to a third-party 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 arrangements or for any replacement
financing arrangements 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 interests 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 interests. If the Company is required to sell its
customer receivables to lenders, discounts from the face value of such
receivables may be required by such lenders, if lenders are available at all.
The inability to finance the Company's mortgages receivable on terms favorable
to the Company or at all could have a material adverse effect on the Company's
results of operations.
The Company has historically derived income from its financing activities.
At December 31, 1997, the Company's mortgage portfolio included approximately
37,000 promissory notes totaling approximately $355 million, with a stated
maturity of typically seven to ten years and a weighted average interest rate of
14.4% per annum. Additionally, at December 31, 1997, the weighted average
maturity of all outstanding consumer loans was approximately 8.4 years and the
total borrowings secured by promissory notes were approximately $91 million,
bearing a weighted average interest rate of 10.3%. However, because the
Company's borrowings bear interest at variable rates and the Company's loans to
buyers of vacation interests bear interest at fixed rates (which, as of December
31, 1997, equal 14.4% per annum on a weighted average basis), the Company bears
the risk of increases in interest rates with respect to the loans it has from
its lenders. The promissory notes are prepayable at any time without penalty. 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."
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RISKS OF HEDGING ACTIVITIES AND EXCHANGE RATE FLUCTUATIONS
The Company does not engage in speculative or profit motivated hedging
activities. However, to manage risks associated with the Company's borrowings
bearing interest at variable rates, the Company may from time to time purchase
interest rate caps, interest rate swaps or similar instruments. As of and for
the fiscal year ending December 31, 1997, the Company was not engaging in any
interest rate hedging transactions. The nature and quantity of any future
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.
The Company's international operations subject the Company to certain
risks, including increased exposure to currency exchange rate fluctuations.
Although the Company does not currently engage in foreign currency hedging
transactions, as it continues to expand its international operations, exposure
to losses in foreign currency transactions may increase or occur. The Company
may choose to limit such exposure by the purchase of forward foreign exchange
contracts or similar hedging strategies. However, there can be no assurance that
any currency hedging strategy would be successful in avoiding exchange-related
losses. In addition, there can be no assurance that such exchange-related losses
would not have a material adverse effect on the Company's future international
revenue and, consequently, on the Company's business, operating results and
financial condition.
RISKS ASSOCIATED WITH CUSTOMER LOAN DEFAULT
The Company bears the risk of defaults by buyers who financed the purchase
of their vacation interests through the Company. As of December 31, 1997,
approximately 4.6% of the Company's consumer loans were considered by the
Company to be delinquent (scheduled payment past due by 60 or more days). The
Company had completed or commenced foreclosure or deed-in-lieu of foreclosure
(which is typically commenced once a scheduled payment is more than 120 days
past due) on an additional approximately 2.2% of its consumer loans. As of
December 31, 1997, the Company's allowance for doubtful accounts as a percentage
of gross mortgages receivable was 6.5%, which management believes is an adequate
reserve for expected loan losses.
If a buyer of a vacation interest defaults on the consumer 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 interest and replace it with a performing mortgage. In
connection with the Company taking back any such vacation interest, the
relatively substantial 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 interest has been returned to the Company's
inventory for resale (commissions paid in connection with the sale of vacation
interests 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 interests, the Company has never purchased such insurance and has no
present intention of doing so. In addition, although the Company in many cases
may have recourse against vacation interest purchasers, sales personnel and
independent contractors for the purchase price paid and for commissions paid,
respectively, no assurance can be given that the vacation interest purchase
price or any commissions will be fully or partially recovered in the event of a
buyer default under such financing arrangements. The Company is subject to the
costs and delays associated with the foreclosure process and no assurance can be
given that the value of the underlying vacation interests 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 or that the costs
of any such foreclosures will not have a material adverse effect on the
Company's results of operations. See "Business -- Customer Financing."
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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 vacation interest ownership, condominiums, hotels and
motels. Many of the world's most recognized lodging, hospitality and
entertainment companies have begun to develop and sell vacation interests in
resort properties. Other major companies that now operate or are developing or
planning to develop vacation ownership resorts include Marriott Ownership
Resorts ("Marriott"), The Walt Disney Company ("Disney"), Hilton Hotels
Corporation ("Hilton"), Hyatt Corporation ("Hyatt"), Four Seasons Hotels &
Resorts ("Four Seasons"), Inter-Continental Hotels and Resorts
("Inter-Continental") and Westin. 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. See "Business -- Competition."
The Company also competes with companies with non-branded resorts such as
Central Florida Investments, Inc. ("CFI"), Vistana, Inc. ("Vistana"), Fairfield
Communities, Inc. ("Fairfield"), Silverleaf Resorts, Inc. ("Silverleaf"),
Trendwest Resorts, Inc. ("Trendwest") and ILX Incorporated ("ILX"). Under the
terms of an exclusive five year agreement, Promus and Vistana 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 will designate selected markets for development (which markets currently
include Kissimmee, Florida and Myrtle Beach, South Carolina, and in which
markets Vistana will have exclusive development rights). The Company is not
precluded from using the Embassy Vacation Resort name in connection with resorts
acquired during the term of the agreement in markets not otherwise exclusive to
Vistana. 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. Promus has indicated
that it intends to expand its branded vacation ownership business only with 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. See "Business -- Competition."
In addition, the Company also competes with the buyers of its Vacation
Intervals who subsequently decide to resell those intervals. While the Company
believes, based on experience at its resorts, that the market for resale of
Vacation Intervals by buyers is presently limited, such resales are typically at
prices substantially less than the original purchase price. 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.
DEPENDENCE ON VACATION INTERVAL EXCHANGE NETWORKS; RISK OF INABILITY TO QUALIFY
RESORTS
The attractiveness of vacation interest ownership is enhanced significantly
by the availability of exchange networks that allow vacation interest owners to
exchange in a particular year the occupancy right in their vacation interest for
an occupancy right in another participating network resort. According to ARDA,
the ability to exchange vacation interests was cited by buyers as a primary
reason for purchasing a vacation interest. Resort Condominiums International
("RCI") and Interval International ("II") provide broad-based vacation interest
exchange services and the Company's resort locations are currently qualified for
participation in either the RCI and II exchange networks.
If such exchange networks cease to function effectively, or if the
Company's resorts are no longer included in such exchange networks, the
Company's sales of vacation interests could be materially adversely affected.
See "Business -- Participation in Vacation Interest 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 Chairman, Chief Executive Officer and
President, respectively, as well as the abilities of James E. Noyes and Michael
A. Depatie, the Company's Chief Operating Officer and Chief Financial Officer,
respectively. The Company's success in Europe depends to a large extent upon the
experience and abilities of Ian Ganney and Richard Harrington, LSI's founders,
who serve as LSI's Chairman and Chief Executive Officer, respectively.
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The loss of the services of any of the Founders or Messrs. Noyes, Depatie,
Ganney or Harrington could have a material adverse effect on the Company, its
operations and its business prospects. The Company does not maintain "keyman"
life insurance with respect to any of the Founders or Messrs. Noyes, Depatie,
Ganney and Harrington. 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.
APPLICABILITY OF FEDERAL SECURITIES LAWS TO THE SALE OF VACATION INTERESTS
It is possible that the vacation interests may be deemed to be a security
as defined in Section 2(1) of the Securities Act. If the vacation interests were
determined to be a security for such purpose, their sale would require
registration under the Securities Act. The Company has not registered the sale
of the vacation interests under the Securities Act and does not intend to do so
in the future. If the sale of the vacation interests were found to have violated
the registration provisions of the Securities Act, purchasers of the vacation
interests would have the right to rescind their purchases of vacation interests.
If a substantial number of purchasers sought rescission and were successful, the
Company's business, results of operations and financial condition could be
materially adversely affected. The Company has been advised by its vacation
ownership counsel, Schreeder, Wheeler & Flint, LLP, that in the opinion of such
counsel, based on its review of the Company's description of its Vacation
Interval programs and the sales practices utilized in such program, the Vacation
Intervals do not constitute a security within the meaning of Section 2(1) of the
Securities Act.
REGULATION OF MARKETING AND SALES OF VACATION INTERESTS; OTHER LAWS
The Company's marketing and sales of vacation interests 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 interests 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 vacation 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 interests. Laws in each state where
the Company sells vacation interests generally grant the purchaser of a vacation
interest 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 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."
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.
In addition, from time to time, potential buyers of vacation interests
assert claims with applicable regulatory agencies against vacation interest
salespersons for unlawful sales practices. Such claims could have adverse
implications for the Company in negative public relations and potential
litigation and regulatory
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sanctions. However, the Company does not believe that such claims will have a
material adverse effect on the Company or its business.
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various federal, state, local and foreign environmental, health,
safety and land use laws, ordinances, regulations and similar requirements
(collectively, "Environmental Laws"), the owner or operator of real property may
be liable for the costs of removal or remediation of certain hazardous or toxic
substances or wastes located on or in, or emanating from, such property, as well
as related costs of investigation and associated damages. Such laws may impose
liability without regard to whether the owner knew of, or caused, the presence
of such hazardous or toxic substances or wastes. The presence of such substances
or wastes, or the failure to properly remediate them, may adversely affect an
owner's ability to sell or lease a property or to borrow using such real
property as collateral. In addition, certain Environmental Laws impose liability
on prior owners or operators of property to the extent that hazardous or toxic
substances or wastes were present during or resulted from such owner's or
operator's prior ownership or operation. Transfer of the property may not
relieve an owner of such liability. Thus, a company could incur liability for
contamination at or from previously owned properties. Other Environmental Laws
may 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, or impose specific requirements pertaining to the
removal of underground storage tanks. Noncompliance with these and other
Environmental Laws could adversely impact operations at a property. Further, the
owner or operator of a site may be subject to common law claims by third parties
based on damages resulting from violations of Environmental Laws or from
contamination associated with the site. The Company is not aware of
environmental liability that would have a material adverse effect on the
Company's business, assets or results of operations, nor has the Company been
notified by any governmental authority or any third party, and is not otherwise
aware, of any material noncompliance, liability or other claim relating to
hazardous or toxic substance or petroleum products in connection with any of its
present or former properties. The Company believes that it is in compliance in
all material respects with all Environmental Laws. No assurance, however, can be
given that the Company is aware of all environmental liabilities or that no
prior owner, operator or third party caused a material environmental condition
at any such property not currently known to the Company. 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 may impose further burdens or restrictions on
property owners with respect to access by disabled persons. If a homeowners'
association at a resort was required to make significant improvements as a
result of non-compliance with the ADA, vacation interest 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, Mexico and the Caribbean (including the St. John resort which was
damaged by Hurricane
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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. The Company currently maintains insurance coverage
which, in management's opinion, is at least as comprehensive as the coverage
maintained by other prudent entities in the Company's line of business. However,
there are certain types of losses (such as losses arising from acts of war and
civil unrest) 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.
RISKS RELATED TO INTERNATIONAL OPERATIONS
The Company expects that international operations will account for an
increasingly significant percentage of the Company's operations. As a result,
the Company is subject to a number of risks, including, among other things,
difficulties relating to administering its business globally, managing foreign
operations, currency fluctuations, restrictions against the repatriation of
earnings, export requirements and restrictions and multiple and possibly
overlapping tax structures. These risks could have a material adverse effect on
the Company's business, results of operations and financial condition.
Additionally, changes in inflation, interest rates, taxation, regulation or
other social, political, economic or diplomatic developments affecting the
countries in which the Company has (or intends to have) international operations
could have a material adverse effect on the Company's business, operating
results and financial condition.
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 and other businesses and to meeting their duties and
responsibilities to investors in such entities. In addition, the Founders will
continue to devote a portion of their time to certain funds, limited liability
companies or partnerships with investments in commercial or residential real
estate developments that do not present a prospect for conversion to vacation
ownership or resort related use. The Company's Board of Directors (including the
Company's independent directors) has determined that the Company does not
presently intend to invest in such commercial or residential real estate
developments that do not present a prospect for conversion to vacation ownership
or resort related use.
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. However, any such acquisition from the Founders would be
subject to the approval of the Company's independent directors and the Founders
are prohibited from actively engaging in the vacation ownership business outside
of the Company.
RISK OF TAX RE-CLASSIFICATION OF INDEPENDENT CONTRACTORS AND RESULTING TAX
LIABILITY
The Company sells vacation interests at its resort locations 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
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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.
YEAR 2000
The Company uses software that will be affected by the date change in the
year 2000 and recognizes that the arrival of the year 2000 poses challenges that
will require modifications of portions of its software to enable it to function
properly. As the year 2000 approaches, date sensitive systems will recognize the
year 2000 as 1900, or not at all. This may cause systems to process critical
financial and operational information incorrectly. The Company, like many other
companies, is expected to incur expenditures over the next few years to address
this issue. The Company has several information system improvement initiatives
under way to determine the full scope and related costs to insure that the
Company's systems continue to meet its needs and those of its customers. These
initiatives include upgrading and replacing some computer systems and the
conversion of others to be Year 2000 compliant. Although final cost estimates
have yet to be determined, it is anticipated that these Year 2000 costs will
result in an increase to Company expenses during 1998 and 1999. Suppliers,
customers, mortgage receivable servicers and creditors of the Company also face
Year 2000 issues. Their failure to successfully address the Year 2000 issue
could have a material adverse effect on the Company's business or results of
operations.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Private Notes were sold by the Company on April 15, 1998 (the "Closing
Date") to the Initial Purchasers pursuant to the Purchase Agreement. The Initial
Purchasers subsequently sold the Private Notes (i) to "qualified institutional
buyers" ("QIBs"), as defined in Rule 144A under the Securities Act ("Rule
144A"), in reliance on Rule 144A and (ii) in offshore transactions in reliance
on Regulation S. As a condition to the sale of the Private Notes, the Company
and the Initial Purchasers entered into the Registration Rights Agreement on
April 15, 1998. Pursuant to the Registration Rights Agreement, the Company
agreed that, unless the Exchange Offer is not permitted by applicable law or
Commission policy, it would (i) file with the Commission a Registration
Statement under the Securities Act with respect to the Exchange Notes within 75
days after the Issue Date (as defined herein), (ii) cause such Registration
Statement to become effective under the Securities Act not later than 150 days
after the Issue Date, (iii) promptly commence the Exchange Offer upon the
effectiveness of the Registration Statement and (iv) keep the Exchange Offer
open for not less than 30 days (or longer if required by applicable law) after
the date notice thereof is mailed to Holders of the Private Notes. A copy of the
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The Registration Statement is
intended to satisfy certain of the Company's obligations under the Registration
Rights Agreement and the Purchase Agreement.
RESALE OF THE EXCHANGE NOTES
With respect to the Exchange Notes, based upon an interpretation by the
staff of the Commission set forth in certain no-action letters issued to third
parties, the Company believes that a holder (other than (i) a broker-dealer who
purchases such Exchange Notes directly from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (ii) any
such holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) who exchanges Private Notes for Exchange Notes in the
ordinary course of business and who is not participating, does not intend to
participate, and has no arrangement with any person to participate, in a
distribution of the Exchange Notes, will be allowed to resell Exchange Notes to
the public without further registration under the Securities Act and without
delivering to the purchasers of the Exchange Notes a prospectus that satisfies
the requirements of Section 10 of the Securities Act. However, if any holder
acquires Exchange Notes in the Exchange Offer for
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the purpose of distributing or participating in the distribution of the Exchange
Notes or is a broker-dealer, such holder cannot rely on the position of the
staff of the Commission enumerated in certain no-action letters issued to third
parties and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction,
unless an exemption from registration is otherwise available. Each broker-dealer
that receives Exchange Notes for its own account must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Notes received in exchange for Private
Notes where such Private Notes were acquired by such broker-dealer as a result
of market-making or other trading activities; provided such Private Notes do not
constitute any portion of an unsold allotment from the original sale of the
Private Notes. To the extent necessary to ensure that this Prospectus is
available for sales of Exchange Notes by broker-dealers, and notice is given by
such broker-dealers to the Company of such fact within 30 days of the effective
date of the Registration Statement, the Company has agreed to use its best
efforts to keep the Registration Statement continuously effective, supplemented
and amended as required by the Registration Rights Agreement, the Securities Act
and the policies, rules and regulations of the Commission as announced from time
to time, for a period of 180 days from the date the Exchange Offer is
consummated, or such shorter period as will terminate when all Private Notes
covered by the Registration Statement have been sold. See "Plan of
Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Private
Notes validly tendered and not withdrawn prior to the Expiration Date. The
Company will issue $1,000 principal amount of Exchange Notes in exchange for
each $1,000 principal amount of outstanding Private Notes surrendered pursuant
to the Exchange Offer. Private Notes may be tendered only in integral multiples
of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Private Notes except that (i) the exchange will be registered under the
Securities Act and, therefore, the Exchange Notes will not bear legends
restricting the transfer thereof and (ii) holders of the Exchange Notes will not
be entitled to any of the rights of holders of Private Notes under the
Registration Rights Agreement, which rights will terminate upon the consummation
of the Exchange Offer. The Exchange Notes will evidence the same indebtedness as
the Private Notes (which they replace) and will be issued under, and be entitled
to the benefits of, the Indenture, which also authorized the issuance of the
Private Notes, such that both series of Notes will be treated as a single class
of debt securities under the Indenture.
As of the date of this Prospectus, $140 million in aggregate principal
amount of the Private Notes are outstanding and registered in the name of Cede &
Co., as nominee for the Depository Trust Company (the "Depositary"). Only a
registered holder of the Private Notes (or such holder's legal representative or
attorney-in-fact) as reflected on the records of the Trustee under the Indenture
may participate in the Exchange Offer. There will be no fixed record date for
determining registered holders of the Private Notes entitled to participate in
the Exchange Offer.
Holders of the Private Notes do not have any appraisal or dissenters'
rights under the Indenture in connection with the Exchange Offer. The Company
intends to conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the Securities
Act, the Exchange Act and the rules and regulations of the Commission
thereunder.
The Company shall be deemed to have accepted validly tendered Private Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Private Notes for the purposes of receiving the Exchange Notes from the
Company.
Holders who tender Private Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to
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the exchange of Private Notes pursuant to the Exchange Offer. The Company has
agreed to pay all expenses incident to the Exchange Offer (including the
expenses of one counsel for the holders of the Private Notes, up to a maximum of
$35,000), other than commissions or concessions of any brokers or dealers and
certain taxes described below under "-- Fees and Expenses," and will indemnify
the holders of the Private Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act. See "-- Fees and
Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will (i) notify the
Exchange Agent of any extension by oral or written notice, (ii) mail to the
registered holders an announcement thereof and (iii) issue a press release or
other public announcement which shall include disclosure of the approximate
number of Private Notes deposited to date, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date. Without limiting the manner in which the Company may choose to make a
public announcement of any delay, extension, amendment or termination of the
Exchange Offer, the Company shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Private Notes, (ii) to extend the Exchange Offer or (iii) if any
conditions set forth below under "-- Conditions" shall not have been satisfied,
to terminate the Exchange Offer by giving oral or written notice of such delay,
extension or termination to the Exchange Agent. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by oral or written notice thereof to the registered holders. If the Exchange
Offer is amended in a manner determined by the Company to constitute a material
change, the Company will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered holders, and
the Company will extend the Exchange Offer for a period of five to ten business
days, depending upon the significance of the amendment and the manner of
disclosure to the registered holders, if the Exchange Offer would otherwise
expire during such five to ten business day period.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate equal to 9 1/4% per annum.
Interest on the Exchange Notes will be payable semi-annually on each May 15 and
November 15, commencing November 15, 1998. Holders of Exchange Notes will
receive interest on November 15, 1998 from the date of initial issuance of the
Exchange Notes, plus an amount equal to the accrued interest on the Private
Notes from the date of the last interest payment thereon or if no interest has
been paid, from the date of original issuance of the Private Notes (April 15,
1998) to the date of exchange thereof for Exchange Notes. Holders of Private
Notes that are accepted for exchange will be deemed to have waived the right to
receive any interest accrued on the Private Notes.
PROCEDURES FOR TENDERING
Only a registered holder of Private Notes may tender such Private Notes in
the Exchange Offer. To tender in the Exchange Offer, a holder of Private Notes
must complete, sign and date the Letter of Transmittal, or a facsimile thereof,
have the signatures thereon guaranteed if required by the Letter of Transmittal
and mail or otherwise deliver such Letter of Transmittal or such facsimile to
the Exchange Agent at the address set forth below under "-- Exchange Agent" for
receipt prior to the Expiration Date. In addition, either (i) certificates for
such Private Notes must be received by the Exchange Agent along with the Letter
of Transmittal, (ii) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Private Notes, if such procedure is
available, into the Exchange Agent's account at the Depositary pursuant to
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the procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date or (iii) the holder must comply with
the guaranteed delivery procedures described below.
The tender by a holder that is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF PRIVATE NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR PRIVATE NOTES SHOULD BE
SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner(s) of the Private Notes whose Private Notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should contact the registered holder
promptly and instruct such registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering such owner's Private Notes, either make appropriate
arrangements to register ownership of the Private Notes in such owner's name or
obtain a properly completed bond power from the registered holder. The transfer
of registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "-- Withdrawal of Tenders"), as the case may be, must be guaranteed
by an Eligible Institution (as defined below) unless the Private Notes tendered
pursuant thereto are tendered (i) by a registered holder who has not completed
the box titled "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be made by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act which is a member of one of
the recognized signature guarantee programs identified in the Letter of
Transmittal (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Private Notes listed therein, such Private Notes must
be endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Private
Notes.
If the Letter of Transmittal or any Private Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
The Exchange Agent and the Depositary have confirmed that any financial
institution that is a participant in the Depositary's system may utilize the
Depositary's Automated Tender Offer Program to tender Private Notes.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Private Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Private
Notes not properly tendered or any Private Notes the Company's acceptance of
which would, in the opinion of counsel for the Company, be unlawful. The Company
also reserves the right to waive any defects, irregularities or conditions of
tender as to particular Private Notes. The Company's interpretation of the terms
and conditions of the Exchange Offer (including the instructions in the Letter
of Transmittal) will be final and binding on all
29
<PAGE> 34
parties. Unless waived, any defects or irregularities in connection with tenders
of Private Notes must be cured within such time as the Company shall determine.
Although the Company intends to notify holders of defects or irregularities with
respect to tenders of Private Notes, neither the Company, the Exchange Agent nor
any other person shall incur any liability for failure to give such
notification. Tenders of Private Notes will not be deemed to have been made
until such defects or irregularities have been cured or waived.
While the Company has no present plan to acquire any Private Notes that are
not tendered in the Exchange Offer or to file a registration statement to permit
resales of any Private Notes that are not tendered pursuant to the Exchange
Offer, the Company reserves the right in its sole discretion to purchase or make
offers for any Private Notes that remain outstanding subsequent to the
Expiration Date or, as set forth below under "-- Conditions," to terminate the
Exchange Offer and, to the extent permitted by applicable law, purchase Private
Notes in the open market, in privately negotiated transactions or otherwise. The
terms of any such purchases or offers could differ from the terms of the
Exchange Offer.
By tendering, each holder of Private Notes will represent to the Company
that, among other things, (i) Exchange Notes to be acquired by such holder of
Private Notes in connection with the Exchange Offer are being acquired by such
holder in the ordinary course of business of such holder, (ii) such holder is
not engaged in, and does not intend to engage in, and has no arrangement or
understanding with any person to participate in, a distribution of the Exchange
Notes, (iii) such holder acknowledges and agrees that any person who is a
broker-dealer registered under the Exchange Act or is participating in the
Exchange Offer for the purposes of distributing the Exchange Notes must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction of the Exchange Notes acquired
by such person and cannot rely on the position of the staff of the Commission
set forth in certain no-action letters, (iv) such holder understands that a
secondary resale transaction described in clause (iii) above and any resales of
Exchange Notes obtained by such holder in exchange for Private Notes acquired by
such holder directly from the Company should be covered by an effective
registration statement containing the selling securityholder information
required by Item 507 or Item 508, as applicable, of Regulation S-K of the
Commission and (v) such holder is not an "affiliate," as defined in Rule 405
under the Securities Act, of the Company. If the holder is not a broker-dealer,
such holder will be required to acknowledge in the Letter of Transmittal that
such holder is not engaged in, and does not intend to engage in, a distribution
of Exchange Notes. If the holder is a broker-dealer that will receive Exchange
Notes for such holder's own account in exchange for Private Notes, such holder
will be required to acknowledge in the Letter of Transmittal that the Private
Notes to be exchanged for new securities were acquired by it as a result of
market-making activities or other trading activities and that such holder will
deliver a prospectus in connection with any resale of such Exchange Notes;
however, by so acknowledging and by delivering a prospectus, such holder will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
RETURN OF PRIVATE NOTES
If any tendered Private Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Private Notes are withdrawn
or are submitted for a greater principal amount than the holders desire to
exchange, such unaccepted, withdrawn or non-exchanged Private Notes will be
returned without expense to the tendering holder thereof (or, in the case of
Private Notes tendered by book-entry transfer into the Exchange Agent's account
at the Depositary pursuant to the book-entry transfer procedures described
below, such Private Notes will be credited to an account maintained with the
Depositary) as promptly as practicable.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Private Notes at the Depositary for purposes of the Exchange Offer within
two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depositary's systems may make
book-entry delivery of Private Notes by causing the Depositary to transfer such
Private Notes into the Exchange Agent's account at the Depositary in accordance
with the Depositary's procedures for transfer. However, although delivery of
Private Notes may be effected through book-entry transfer at the Depositary, the
Letter of Transmittal or
30
<PAGE> 35
facsimile thereof, with any required signature guarantees and any other required
documents, must, in any case, be transmitted to and received by the Exchange
Agent at the address set forth below under "-- Exchange Agent" on or prior to
the Expiration Date or pursuant to the guaranteed delivery procedures described
below.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Private Notes and (i) whose Private Notes
are not immediately available or (ii) who cannot deliver their Private Notes,
the Letter of Transmittal or any other required documents to the Exchange Agent
prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery) setting forth the name and
address of the holder, the certificate number(s) of such Private Notes and
the principal amount of Private Notes tendered, stating that the tender is
being made thereby and guaranteeing that, within five New York Stock
Exchange trading days after the Expiration Date, the Letter of Transmittal
(or a facsimile thereof), together with the certificate(s) representing the
Private Notes in proper form for transfer or a Book-Entry Confirmation, as
the case may be, and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) Such properly executed Letter of Transmittal (or facsimile
thereof), as well as the certificate(s) representing all tendered Private
Notes in proper form for transfer and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within five New
York Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Private Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Private Notes may be
withdrawn at any time prior to the Expiration Date.
To withdraw a tender of Private Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Private Notes to be withdrawn (the "Depositor"), (ii) identify the Private
Notes to be withdrawn (including the certificate number or numbers and principal
amount of such Private Notes) and (iii) be signed by the holder in the same
manner as the original signature on the Letter of Transmittal by which such
Private Notes were tendered (including any required signature guarantees). All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company in its sole discretion, whose
determination shall be final and binding on all parties. Any Private Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Private Notes so withdrawn are validly retendered. Properly withdrawn
Private Notes may be retendered by following one of the procedures described
above under "The Exchange Offer -- Procedures for Tendering" at any time prior
to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange the Exchange Notes for, any
Private Notes, and may terminate the Exchange Offer as provided herein before
the acceptance of such Private Notes, if the Exchange Offer violates applicable
law, rules or regulations or an applicable interpretation of the staff of the
Commission.
31
<PAGE> 36
If the Company determines in its sole discretion that any of these
conditions are not satisfied, the Company may (i) refuse to accept any Private
Notes and return all tendered Private Notes to the tendering holders, (ii)
extend the Exchange Offer and retain all Private Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of holders to
withdraw such Private Notes (see "-- Withdrawal of Tenders") or (iii) waive such
unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Private Notes that have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders of the Private Notes, and the Company will
extend the Exchange Offer for a period of five to ten business days, depending
upon the significance of the waiver and the manner of disclosure to the
registered holders, if the Exchange Offer would otherwise expire during such
five to ten business day period.
TERMINATION OF CERTAIN RIGHTS
All rights under the Registration Rights Agreement (including registration
rights) of holders of the Private Notes eligible to participate in the Exchange
Offer will terminate upon consummation of the Exchange Offer except with respect
to the Company's continuing obligations (i) to indemnify such holders (including
any broker-dealers) and certain parties related to such holders against certain
liabilities (including liabilities under the Securities Act), (ii) to use its
reasonable best efforts to keep the Registration Statement continuously
effective during the Exchange Offer and (iii) to provide copies of the latest
version of the Prospectus to broker-dealers upon their request during the
Exchange Offer.
SHELF REGISTRATION
In the event that applicable interpretations of the staff of the Commission
do not permit the Company to effect the Exchange Offer, or if for any other
reason the Exchange Offer is not consummated within 45 days after the date on
which the Registration Statement of which this Prospectus is a part is declared
effective by the Commission, or, if any Initial Purchaser so requests with
respect to Private Notes not eligible to be exchanged for Exchange Notes in the
Exchange Offer, or if any Holder of Private Notes (other than an Initial
Purchaser) is not eligible to participate in the Exchange Offer, or in the case
of any Initial Purchaser that participates in but does not receive freely
tradeable (except for certain prospectus delivery requirements) Exchange Notes
in exchange for Private Notes constituting an unsold allotment from the original
sale of the Private Notes in the Exchange Offer, the Company will at its cost,
(a) as promptly as practicable (but in no event more than 75 days after so
required or requested), file a shelf registration statement covering resales of
the Notes (a "Shelf Registration Statement"), (b) use its best efforts to cause
such Shelf Registration Statements to be declared effective under the Securities
Act within the time period specified in the Registration Rights Agreement and
(c) use its best efforts to keep such Shelf Registration Statement effective
until one year after its effective date (or shorter period that will terminate
when all of the applicable Notes have been sold thereunder). The Company will,
in the event of the filing of a Shelf Registration Statement, provide to each
holder for whom such Shelf Registration Statement was filed copies of the
prospectus which is a part of such Shelf Registration Statement, notify each
such holder when such Shelf Registration Statement has become effective and take
certain other actions as are required to permit unrestricted resales of the
Notes. A holder that sells its Notes pursuant to a Shelf Registration Statement
generally will be required to be named as a selling securityholder in the
related prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in connection
with such sales and will be bound by the provisions of the Registration Rights
Agreement which are applicable to such a holder (including certain
indemnification obligations).
LIQUIDATED DAMAGES
If (i) within 75 days after the Issue Date, the Registration Statement has
not been filed with the Commission, or the Shelf Registration Statement has not
been filed with the Commission within 75 days after such obligation arises; (ii)
within 150 days after the Issue Date, the Registration Statement has not been
declared effective; (iii) within 45 days after the date on which the
Registration Statement is declared effective
32
<PAGE> 37
by the Commission, the Exchange Offer has not been consummated, or within the
time period specified in the Registration Rights Agreement, the Shelf
Registration Statement has not been declared effective; or (iv) after either the
Registration Statement or the Shelf Registration Statement has been declared
effective, such Registration Statement thereafter ceases to be effective or
usable (subject to certain exceptions) in connection with resales of Notes or
Exchange Notes in accordance with and during the periods specified in the
Registration Rights Agreement (each such event referred to in clauses (i)
through (iv), a "Registration Default"), then the Company will pay liquidated
damages ("Liquidated Damages") from and including the date on which any such
Registration Default shall occur to but excluding the date on which all
Registration Defaults have been cured. Liquidated Damages will accrue at a rate
of 0.25% per annum during the 90-day period immediately following the occurrence
of any Registration Default and shall increase by 0.25% per annum at the end of
each subsequent 90-day period, but in no event shall such rate exceed 1.00% per
annum.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all the provisions of the Registration Rights Agreement, a copy
of which has been filed as an exhibit to the registration statement of which
this Prospectus is a part.
EXCHANGE AGENT
Norwest Bank Minnesota, National Association has been appointed as Exchange
Agent of the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
<TABLE>
<CAPTION>
By Hand: By Registered or Certified Mail: By Overnight Courier:
<S> <C> <C>
Northwest Bank Minnesota, N.A. Norwest Bank Minnesota, N.A. Norwest Bank Minnesota, N.A.
Northstar East Building Corporate Trust Operations Corporate Trust Services
608 Second Avenue South P.O. Box 1517 Sixth and Marquette Avenue
12th Floor Minneapolis, MN 55480-1517 Minneapolis, MN 55479-0113
Corporate Trust Services
Minneapolis, MN
</TABLE>
By Facsimile:
(612) 667-4927
Confirm by Telephone:
(612) 667-9764
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA A
FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$75,000. Such expenses include registration fees, fees and expenses of the
Exchange Agent and the Trustee, accounting and legal fees and printing costs,
among others.
33
<PAGE> 38
The Company will pay all transfer taxes, if any, applicable to the exchange
of Private Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of the Private Notes pursuant to
the Exchange Offer, then the amount of any such transfer taxes (whether imposed
on the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
CONSEQUENCE OF FAILURES TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Private
Notes are urged to consult their financial and tax advisors in making their own
decisions on what action to take.
The Private Notes that are not exchanged for the Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such Private
Notes may be resold only (i) to a person whom the seller reasonably believes is
a QIB in a transaction meeting the requirements of Rule 144A, (ii) in a
transaction meeting the requirements of Rule 144 under the Securities Act, (iii)
outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, (iv) in accordance with
another exemption from the registration requirements of the Securities Act (and
based upon an opinion of counsel if the Company so requests), (v) to the Company
or (vi) pursuant to an effective registration statement and, in each case, in
accordance with any applicable securities laws of any state of the United States
or any other applicable jurisdiction. See "Risk Factors -- Failure to Exchange
Private Notes."
ACCOUNTING TREATMENT
For accounting purposes, the Company will recognize no gain or loss as a
result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the Exchange Notes.
34
<PAGE> 39
USE OF PROCEEDS
The Company will not receive any proceeds from the issuance of the Exchange
Noes offered hereby. In consideration for issuing the Exchange Notes as
contemplated in this Prospectus, the Company will receive in exchange Private
Notes in like principal amount, the terms of which are identical to the Exchange
Notes. The issuance of the Exchange Notes in exchange for the surrender of the
Private Notes will not result in any increase in the indebtedness of the
Company.
CONSOLIDATED CAPITALIZATION
The following table sets forth, as of December 31, 1997, the total
consolidated capitalization of the Company. The unaudited as adjusted
information gives effect to the Offering and the application of the net proceeds
therefrom (excluding the repayment of approximately $111 million due under the
Senior Credit Facility, which was incurred subsequent to December 31, 1997).
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 "Selected Financial Data."
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
------------------------------------------
(DOLLARS IN THOUSANDS)
AS ADJUSTED
ACTUAL THE OFFERING FOR THE OFFERING
-------- ------------ ----------------
<S> <C> <C> <C>
Cash and cash equivalents(a)............................. $ 47,972 $119,669 $167,641
======== ======== ========
Debt:
Notes payable(b)....................................... $ 97,208 $(15,531) $ 81,677
9 1/4% Senior Notes due 2006........................... -- 140,000 140,000
9 3/4% Senior Subordinated Notes due 2007.............. 200,000 -- 200,000
5 3/4% Convertible Notes due 2007...................... 138,000 -- 138,000
-------- -------- --------
Total debt(a).................................. 435,208 124,469 559,677
-------- -------- --------
Stockholders' equity..................................... 207,910 -- 207,910
-------- -------- --------
Total capitalization................................... $643,118 $124,469 $767,587
======== ======== ========
</TABLE>
- ------------------------------
(a) Approximately $111 million of the net proceeds from the Offering were used
to retire indebtedness under the Senior Credit Facility which was
outstanding as of April 15, 1998. The amounts outstanding under the Senior
Credit Facility were incurred subsequent to the year ended December 31, 1997
primarily to finance the MMG Acquisition and the acquisition of resort
inventory and for other working capital purposes. As of May 1, 1998, no
amounts were outstanding under such facility.
(b) Includes notes collateralized by mortgages receivable.
RATIO OF EARNINGS TO FIXED CHARGES
The following are the consolidated ratios of earnings to fixed charges for
the Company for each of the years ended December 31, 1997, 1996, 1995, 1994 and
1993.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995 1994 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
2.3 1.1 2.5 2.4 2.4
</TABLE>
The ratio of earnings to fixed charges has been computed by dividing
earnings before income tax, plus fixed charges (excluding capitalized interest)
and amortization of previously capitalized interest by fixed charges. Fixed
charges consist of interest and other finance expenses and capitalized interest.
35
<PAGE> 40
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data have been derived by the
application of pro forma adjustments to the Company's historical financial data
included elsewhere herein. The unaudited pro forma statements of operations data
for the year ended December 31, 1997, give effect, individually and in the
aggregate, to the Concurrent Offerings, the Senior Subordinated Note Offering
and the Offering, in each case after giving effect to the application of the net
proceeds therefrom (excluding the repayment of approximately $111 million due
under the Senior Credit Facility, which was incurred subsequent to December 31,
1997) 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, AVCOM, PRG and LSI using pooling-of-interests accounting for business
combinations for the period presented. The Company's actual statements of
operations data also give effect to the Marc, the VI and the Global Acquisitions
since their respective acquisition dates using purchase accounting for business
combinations. The unaudited pro forma data do not purport to represent what the
consolidated results of operations or consolidated financial position of the
Company would have been had the Offering, the Concurrent Offerings and the
Senior Subordinated Note Offering and the application of the net proceeds
therefrom actually occurred at the beginning of the relevant period, and do not
purport to project the consolidated financial position or the consolidated
results of operations of the Company for the current year or any future date or
period. The summary financial data set forth below should be read in conjunction
with "Use of Proceeds," "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements of the Company and the related notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------
CONCURRENT OFFERINGS/
SR. SUB. NOTE THE
ACTUAL OFFERING(A) OFFERING(B) PRO FORMA
-------- --------------------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Vacation Interval and Vacation Point sales...... $281,063 $281,063
Interest income................................. 42,856 42,856
Other income.................................... 13,774 13,774
-------- -------- -------- --------
Total revenues........................... 337,693 -- -- 337,693
-------- -------- -------- --------
Costs and operating expenses:
Vacation Interval and Vacation Point cost of
sales 71,437 71,437
Advertising, sales, and marketing............... 126,739 126,739
Loan portfolio:
Interest expense-treasury..................... 13,032 $ (2,201) $ (1,606)(c) 9,225
Other expenses................................ 5,522 5,522
Provision for doubtful accounts............... 8,579 8,579
General and administrative...................... 42,254 42,254
Depreciation and amortization................... 6,499 6,499
Merger-related costs............................ 9,973 9,973
-------- -------- -------- --------
Total costs and operating expenses....... 284,035 (2,201) (1,606) 280,228
-------- -------- -------- --------
Income from operations.......................... 53,658 2,201 1,606 57,465
Interest expense-other, net..................... 9,394 12,610 7,267 29,271
Equity loss on investment in joint venture...... 639 639
Minority interest in income of consolidated
limited partnership........................... 181 181
-------- -------- -------- --------
Income before provision (benefit) for
income taxes and extraordinary item.... 43,444 (10,409) (5,661) 27,374
-------- -------- -------- --------
Provision (benefit) for income taxes from
continuing operations......................... 17,196 (4,060) (2,208) 10,928
Provision for deferred income taxes resulting
from the cumulative effect of previously
non-taxable acquired entities(d).............. 5,960 (5,960)(d)
-------- -------- -------- --------
Total provision (benefit) for income taxes...... 23,156 (10,020) (2,208) 10,928
-------- -------- -------- --------
Income before extraordinary item......... 20,288 (389) (3,453) 16,446
Extraordinary item, net of income taxes......... 766 (766)(d)
-------- -------- -------- --------
Net income............................... $ 19,522 $ 377 $ (3,453) $ 16,446
======== ======== ======== ========
OTHER DATA:
EBITDA(e)....................................... $ 85,424 $ 85,424
Net interest expense............................ 28,698 43,576(f)
</TABLE>
36
<PAGE> 41
- ---------------
(a) Reflects the Concurrent Offerings and the Senior Subordinated Note Offering
and the application of the proceeds therefrom as if such transactions had
occurred on January 1, 1997.
(b) Gives effect to the issuance of the Notes and the application of the net
proceeds therefrom (excluding the repayment of approximately $103 million
due under the Senior Credit Facility, which was incurred subsequent to
December 31, 1997) as if such transactions had occurred on January 1, 1997.
See footnote (f) below.
(c) Reflects the elimination or reduction of interest expense due to the
retirement of $15.5 million of indebtedness as if such transactions had
occurred on January 1, 1997.
(d) Reflects the elimination of a non-recurring provision for deferred income
taxes resulting from the cumulative effect of previously non-taxable
acquired entities and the extraordinary loss from the early extinguishment
of debt.
(e) EBITDA represents net income before capitalized interest expense included in
Vacation Interval and Vacation Point cost of sales, interest
expense-treasury, interest expense-other, income taxes, merger-related
costs, depreciation and amortization and extraordinary item, net of income
tax. 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 a substitute for income from operations, net
income or cash flows from operating activities in analyzing the Company's
operating performance, financial position and cash flows. The EBITDA measure
presented herein may not be comparable to EBITDA as presented by other
companies. The following table reconciles actual and pro forma EBITDA to net
income.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-------------------------
(ACTUAL) (PRO FORMA)
-------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net income........................................... $19,522 $16,446
Capitalized interest expense included in Vacation
Interval and Vacation Point cost of sales.......... 3,082 3,082
Interest expense -- treasury......................... 13,032 9,225
Interest expense -- other............................ 9,394 29,271
Income taxes......................................... 23,156.. 10,928
Merger-related costs................................. 9,973(g) 9,973
Depreciation and amortization........................ 6,499 6,499
Extraordinary item, net of tax....................... 766 --
------- -------
EBITDA............................................. $85,424 $85,424
======= =======
</TABLE>
(f) Net interest expense is defined as interest expense plus capitalized
interest less amortization of debt issuance costs. The 1997 pro forma amount
gives effect to interest income of approximately $6.3 million (based on an
assumed investment rate of 5.25% per annum) on the assumed investment of the
net excess proceeds from the Offering of approximately $120 million,
including approximately $111 million that the Company applied to the
repayment of indebtedness which was outstanding under the Senior Credit
Facility as of April 15, 1998 and that was incurred subsequent to December
31, 1997.
(g) Merger-related costs include expenses related to fees paid to financial
advisers, legal fees, and other transaction expenses in connection with the
AVCOM, PRG and LSI Acquisitions.
37
<PAGE> 42
SELECTED FINANCIAL DATA
The following table sets forth summary consolidated financial data of the
Company. For all of the periods presented, the financial data presented below
gives effect to the AVCOM, PRG and LSI Acquisitions by combining the historical
information of AVCOM, PRG, LSI and the Company and restating the historical
financial data of the Company using the pooling-of-interests method of
accounting.
Prior to its acquisition by the Company on February 7, 1997, AVCOM
recognized a net loss of $12.4 million for the year ended December 31, 1996. As
a result of the pooling-of-interests accounting treatment, this net loss has
been reflected in the Company's consolidated financial statements for the year
ended December 31, 1996, reducing the Company's 1996 reported consolidated net
income. In addition, as a result of the Company's 1997 acquisitions, the Company
incurred $10.0 million of non-recurring merger-related costs, reducing the
Company's 1997 reported consolidated net income.
The financial data presented below includes the effect of the Consolidation
Transactions and the Initial Public Offering, both of which were consummated on
August 20, 1996. The following financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements for the Company and the
notes thereto, each of which are contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1993 1994 1995 1996 1997
----------- -------- -------- -------- --------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Vacation Interval and Vacation Point
sales................................. $68,867 $116,356 $139,426 $182,300 $281,063
Interest income.......................... 12,770 15,965 20,339 25,415 42,856
Other income............................. 1,110 1,547 8,553 12,132 13,774
------- -------- -------- -------- --------
Total revenues................... 82,747 133,868 168,318 219,847 337,693
------- -------- -------- -------- --------
Costs and operating expenses:
Vacation Interval and Vacation Point cost
of sales.............................. 18,548 33,082 39,810 48,218 71,437
Advertising, sales and marketing......... 32,711 54,098 62,258 89,040 126,739
Loan portfolio:
Interest expense -- treasury.......... 7,435 8,224 10,077 13,482 13,032
Other expenses........................ 840 1,466 2,034 4,523 5,522
Provision for doubtful accounts(a).... 1,703 2,045 3,666 8,311 8,579
General and administrative(a)............ 6,852 12,629 19,263 37,436 42,254
Resort property valuation allowance(a)... -- -- -- 2,620 --
Depreciation and amortization(a)......... 616 1,196 2,514 5,027 6,499
Merger-related costs(a)(b)............... -- -- -- -- 9,973
------- -------- -------- -------- --------
Total costs and operating
expenses....................... 68,705 112,740 139,622 208,657 284,035
------- -------- -------- -------- --------
Income from operations................... 14,042 21,128 28,696 11,190 53,658
Interest expense -- other, net........... 519 1,517 1,728 3,763 9,394
Equity loss on investment in joint
venture............................... -- 271 1,649 299 639
Minority interest in income of
consolidated limited partnership...... -- -- -- 199 181
------- -------- -------- -------- --------
Income before provision (benefit)
for income taxes and
extraordinary item............. 13,523 19,340 25,319 6,929 43,444
------- -------- -------- -------- --------
Provision (benefit) for income taxes from
continuing operations................. 3,064 2,768 4,020 (4,105) 17,196
Provision for deferred income taxes
resulting from the cumulative effect
of previously non-taxable acquired
entities.............................. -- -- -- -- 5,960
------- -------- -------- -------- --------
Total provision (benefit) for income
taxes................................. 3,064 2,768 4,020 (4,105) 23,156
------- -------- -------- -------- --------
Income before extraordinary item...... 10,459 16,572 21,299 11,034 20,288
Extraordinary item, net of tax........... -- -- -- -- 766
------- -------- -------- -------- --------
Net income....................... $10,459 $ 16,572 $ 21,299 $ 11,034 $ 19,522
======= ======== ======== ======== ========
Pro forma net income(c).................. $ 8,249 $ 11,954 $ 15,310 $ 4,380 $ 19,522
</TABLE>
38
<PAGE> 43
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE PRICES)
<S> <C> <C> <C> <C> <C>
OTHER DATA (UNAUDITED FOR ALL PERIODS):
EBITDA(d)................................. $ 22,622 $ 31,553 $ 41,553 $ 44,622 $ 85,424
Ratio of earnings to fixed charges(e)..... 2.4 2.4 2.5 1.1 2.3
Number of resorts at period end........... 5 16 20 31 70
Number of Vacation Intervals sold......... 5,917 10,695 10,024 11,946 17,271
Number of Vacation Intervals in inventory
at period end.......................... 2,830 6,915 23,439 30,399 29,168
Average price of Vacation Intervals
sold................................... $ 11,639 $ 10,078 $ 12,298 $ 13,146 $ 13,885
Number of Vacation Points in inventory at
period end............................. -- 233,802 205,943 291,674 599,554(f)
Number of Vacation Points sold............ -- 65,325 102,270 132,878 194,055(g)
Average price of Vacation Points sold..... $ -- $ 198 $ 181 $ 186 $ 213(h)
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents, including
escrow................................. $ 16,451 $ 17,015 $ 22,779 $ 22,469 $ 47,972
Mortgages receivable, net................. 78,079 102,470 147,405 215,518 331,735
Total assets.............................. 136,607 210,218 295,771 445,884 761,145
Total debt................................ 87,839 123,009 177,032 236,122 435,208
Stockholders' equity...................... 34,232 61,187 75,448 126,425 207,910
</TABLE>
- ---------------
(a) Non-recurring costs for the year ended December 31, 1997, are merger costs
relating to the AVCOM, PRG and LSI Acquisitions. Non-recurring costs for the
year ended December 31, 1996 include costs incurred at AVCOM for (i) an
increase in the provision for doubtful accounts of $2.0 million, (ii) $9.1
million in severance costs, lease cancellations, litigation reserves and
other integration costs and a reserve for losses associated with certain
property management and related contracts, (iii) a $2.6 million write-down
of certain property to estimated fair market value and (iv) a $0.7 million
charge relating to amortization of start-up costs over a period of one year.
(b) Merger-related costs include expenses related to fees paid to financial
advisors, legal fees, and other transaction expenses in connection with the
AVCOM, PRG and LSI Acquisitions.
(c) Reflects the effect on the 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, and reflects actual net income for December 31, 1997.
(d) EBITDA represents net income before interest expense-treasury, interest
expense-other, capitalized interest expense included in Vacation Interval
and Vacation Point cost of sales, income taxes, non-recurring costs,
depreciation and amortization and extraordinary item, net of tax. 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 a substitute for income from operations, net income or cash
flows from operating activities in analyzing the Company's operating
performance, financial position and cash flows. The EBITDA measure presented
herein may not be comparable to EBITDA as presented by other companies. The
following table reconciles EBITDA to net income:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net income................................ $ 10,459 $ 16,572 $ 21,299 $ 11,034 $ 19,522
Interest expense-treasury................. 7,435 8,224 10,077 13,482 13,032
Interest expense-other.................... 519 1,517 1,728 3,763 9,394
Capitalized interest expense included in
Vacation Interval and Vacation Point
cost of sales........................... 529 1,276 1,915 1,718 3,082
Income taxes (benefit).................... 3,064 2,768 4,020 (4,105) 23,156
Non-recurring costs....................... -- -- -- 14,381(a) 9,973(a)
Depreciation and amortization............. 616 1,196 2,514 4,349(a) 6,499
Extraordinary item, net of tax............ -- -- -- -- 766
-------- -------- -------- -------- --------
EBITDA........................... $ 22,622 $ 31,553 $ 41,553 $ 44,622 $ 85,424
======== ======== ======== ======== ========
</TABLE>
39
<PAGE> 44
(e) The ratio of earnings to fixed charges has been computed by dividing
earnings before income tax, plus fixed charges (excluding capitalized
interest) and amortization of previously capitalized interest by fixed
charges. Fixed charges consist of interest and other finance expenses and
capitalized interest.
(f) Includes 461,473 Vacation Points in Grand Vacation Club and 138,081 Vacation
Points in the Vacation Time Share Program (the "VTS Program"). Vacation
Points assumed through the Global Acquisition have been converted to the
Grand Vacation Club at a rate of ten to one.
(g) Includes 180,426 Vacation Points sold by the Grand Vacation Club and 13,629
Vacation Points sold by the VTS Program. Vacation Points assumed through the
Global Acquisition have been converted into the Grand Vacation Club at a
rate of ten to one.
(h) Calculated as the weighted average price per Vacation Point of Grand
Vacation Club ($220 per Vacation Point) and the VTS Program ($119 per
Vacation Point). Vacation Points assumed through the Global Acquisition have
been converted to the Grand Vacation Club at a rate of ten to one.
40
<PAGE> 45
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the preceding
Selected Financial Data and the Company's Financial Statements and the notes
thereto and the other financial data included elsewhere in this Prospectus.
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.
RESULTS OF OPERATIONS
The following discussion of the results of operations includes the
Company's corporate and partnership predecessors and wholly-owned subsidiaries
and affiliates including AVCOM, PRG, LSI and their subsidiaries. The AVCOM, PRG
and LSI Acquisitions were accounted for using pooling-of-interests accounting
treatment for business combinations. Under such accounting treatment, the
results of operations are restated to include the operations of each acquired
entity of the years ended December 31, 1997, 1996 and 1995. The following
discussion also includes the results of operations for Marc, VI and the Global
Group. The Marc, VI and Global Acquisitions were each accounted for using the
purchase method of accounting for the business combinations.
Prior to its acquisition by the Company on February 7, 1997, AVCOM
recognized a net loss of $12.4 million for the year ended December 31, 1996. As
a result of applying pooling-of-interests accounting treatment to the AVCOM
Acquisition, this net loss has been reflected in the Company's consolidated
financial statements for the year ended December 31, 1996, reducing the
Company's 1996 reported consolidated net income. In addition, as a result of the
Company's 1997 acquisitions, the Company incurred $10.0 million of non-recurring
merger-related costs, reducing the Company's 1997 reported consolidated net
income. Therefore, to allow for a more meaningful comparison of the 1997 and
1996 financial results and management's discussion and analysis of such
financial results, reported total revenues and operating expenses have been
adjusted for non-recurring charges resulting from the AVCOM, PRG and the LSI
Acquisitions. The following table details the adjustments to reported total
revenues and costs and operating expenses for such non-recurring charges and
revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Total reported revenues..................................... $168.3 $219.8 $337.7
Other income(a)............................................. -- (1.7) --
------ ------ ------
Adjusted total revenues........................... $168.3 $218.1 $337.7
====== ====== ======
Total reported costs and expenses........................... $139.6 $208.7 $284.0
Provision for doubtful accounts(b).......................... -- (2.0) --
General and administrative expenses(b)...................... -- (9.1) --
Resort property valuation allowance(b)...................... -- (2.6) --
Merger-related costs(c)..................................... -- -- (10.0)
Amortization of start-up costs(b)........................... -- (0.7) --
------ ------ ------
Adjusted total costs and expenses................. $139.6 $194.3 $274.0
====== ====== ======
Adjusted operating income......................... $ 28.7 $ 23.8 $ 63.7
====== ====== ======
</TABLE>
- ---------------
(a) For the year ended December 31, 1996, the Company recognized $1.7 million of
other income as the result of the settlement of certain receivables from the
former owners of the St. Maarten Resorts.
(b) As the result of the AVCOM Acquisition, the Company recognized the following
non-recurring charges for the year ended December 31, 1996: (i) $2.0 million
in the provision for doubtful accounts; (ii) $9.1 million in general and
administrative expenses for severance costs, lease cancellations, litigation
reserves, and a reserve for losses associated with certain property
management and related expenses;
41
<PAGE> 46
(iii) $2.6 million in resort property valuation allowance for the write-down
of certain property to fair market value; and (iv) $0.7 million in
depreciation and amortization for the amortization of startup costs over a
period of one year.
(c) For the year ended December 31, 1997, the Company recognized $10.0 million
in non-recurring merger costs for the AVCOM, PRG and LSI Acquisitions. These
charges include investment banking, legal, accounting and other professional
fees.
The following table sets forth certain operating information, as adjusted
for the non-recurring charges and revenues described above.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
AS A PERCENTAGE OF TOTAL REVENUES:
Vacation Interval and Vacation Point sales.................. 82.8% 83.6% 83.2%
Interest income............................................. 12.1% 11.6% 12.7%
Other income................................................ 5.1% 4.8% 4.1%
------- ------- -------
Total revenues.............................................. 100.0% 100.0% 100.0%
AS A PERCENTAGE OF VACATION INTERVAL AND VACATION POINT
SALES:
Vacation Interval and Vacation Point cost of sales.......... 28.6% 26.4% 25.4%
Advertising, sales and marketing............................ 44.7% 48.8% 45.1%
AS A PERCENTAGE OF TOTAL REVENUES:
General and administrative.................................. 11.4% 13.0% 12.5%
SELECTED OPERATING DATA:
Vacation Intervals sold..................................... 10,024 11,946 17,271
Vacation Points sold........................................ 102,270 132,878 194,055(a)
Average sales price per Vacation Interval................... $12,298 $13,146 $13,885
Average sales price per Vacation Point...................... $ 181 $ 186 $ 213(b)
Number of Vacation Intervals in inventory at end period..... 23,439 30,399 29,168
Number of Vacation Points in inventory at end period........ 205,943 291,674 599,554(c)
Number of resorts at period end(d).......................... 20 31 70
</TABLE>
- ---------------
(a) Includes 180,426 Vacation Points sold by the Grand Vacation Club and 13,629
Vacation Points sold by the VTS Program. Vacation Points assumed through the
Global Acquisition have been converted into the Grand Vacation Club at a
rate of ten to one.
(b) Calculated as the weighted average price per Vacation Point of Grand
Vacation Club ($220 per Vacation Point) and the VTS Program ($119 per
Vacation Point). Vacation Points assumed through the Global Acquisition have
been converted to the Grand Vacation Club at a rate of ten to one.
(c) Includes 461,473 Vacation Points in Grand Vacation Club and 138,081 Vacation
Points in the VTS Program. Vacation Points assumed through the Global
Acquisition have been converted to the Grand Vacation Club at a rate of ten
to one.
(d) Includes resort locations of AVCOM, PRG and LSI acquired by the Company in
1997 and accounted for by the pooling-of-interests method.
COMPARISON OF 1996 TO 1997
The following discussion of financial results adjusts the reported
statement of operations data for the non-recurring charges incurred during the
years ended December 31, 1997 and 1996. For the year ended December 31, 1997,
the Company recognized $10.0 million in non-recurring merger-related expenses
for the acquisition by merger of AVCOM, PRG and LSI and a $6.0 million charge to
record deferred taxes related to cumulative temporary differences between
financial and tax reporting for entities acquired in the PRG Acquisition that
were previously taxed as partnerships at the partner level. For the year ended
December 31, 1996, the Company incurred the following non-recurring charges
related to the AVCOM Acquisition:
42
<PAGE> 47
(i) general and administrative expense increased by $9.1 million for severance
costs, lease cancellations, litigation reserves, reserves for losses associated
with certain property management and related contracts; (ii) provision for
doubtful accounts increased by $2.0 million; (iii) resort property valuation
allowance increased by $2.6 million to write down certain property to market
value for projects initiated by AVCOM which were subsequently abandoned; and
(iv) depreciation and amortization increased by $0.7 million related to the
amortization of startup costs over a period of one year. Also, in 1996, the
Company recognized $1.7 million of other income as the result of a settlement of
certain receivables from the former owners of the St. Maarten resorts.
In 1997, total reported revenues were $337.7 million, compared with
adjusted total revenues of $218.1 million in 1996, an increase of $119.6
million, or 55%. This increase was due primarily to a 53% increase in Vacation
Interval sales, a 66% increase in Vacation Points sales, and a 69% increase in
interest income. The growth in Vacation Interval sales was due to both an
increase in the number of Vacation Intervals sold to 17,271 in 1997 from 11,946
in 1996, an increase of 45%, and an increase in the average price of Vacation
Intervals sold to $13,885 in 1997 from $13,146 in 1996, a 6% increase. The
average sales price will change from period to period depending upon the mix of
resorts in sales and the types of intervals sold.
Vacation Points sales during 1997 increased 66% to $41.1 million from $24.7
million in 1996. The number of Vacation Points sold in 1997 increased 46%, to
194,055, from 132,878 in 1996, while the average price per Vacation Point sold
increased 15% to $213 from $186 in 1996. The increase in the number of Vacation
Points sold in 1997 is the result of a 30% increase in Vacation Points sold in
LSI, along with the addition of Vacation Points sales by VI, which was acquired
in November 1997, and the Global Group, which was acquired in December 1997.
Interest income increased 69% to $42.9 million from $25.4 million in 1996.
The increase is the result of an increase in portfolio interest income from
increased gross mortgages receivable, and interest income from investments.
Gross mortgages receivable increased $121.9 million, or 52%, to $354.7 million
in 1997 from $232.8 million in 1996. Interest income from investments increased
by $4.9 million in 1997. Other income, which includes rental income, management
fees, commissions on the sale of European receivables, and other interest
income, increased $3.4 million to reported other income of $13.8 million in 1997
from adjusted other income of $10.4 million in 1996, an increase of 33%.
Vacation Interval and Vacation Point cost of sales, as a percentage of
Vacation Interval and Vacation Point sales, was 25% for 1997, compared with 26%
for the prior year as the Company continued to purchase and construct vacation
units at a discount to historical development costs, reducing the unit cost on
average for each vacation interest sold.
Advertising, sales and marketing expenses increased $37.7 million to $126.7
million for 1997 from $89.0 million for 1996. As a percentage of Vacation
Interval and Vacation Point sales, advertising, sales and marketing expenses
decreased to 45% for 1997 from 49% for 1996. The decrease resulted primarily
from decreased expenses at the resorts acquired in the AVCOM Acquisition as well
as from the company-wide application of best marketing practices taken from the
Company's best performing resorts.
Interest expense-treasury decreased as a percentage of reported total
revenues to 4% in 1997 from 6% of adjusted total revenues in the prior year. The
Company began financing mortgages receivable with the proceeds from the
Concurrent Offerings and the Senior Subordinated Note Offering, rather than with
hypothecation debt. Interest expense relating to these offerings is classified
as interest expense-other. Other loan portfolio expenses increased $1.0 million
during 1997 to $5.5 million from $4.5 million during the prior year. However, as
a percentage of gross mortgages receivable, other loan portfolio expense
decreased to 1.6% in 1997 from 1.9% in 1996.
The provision for doubtful accounts increased $2.3 million during 1997 to
$8.6 million at year end from an adjusted $6.3 million at the end of 1996. The
allowance for doubtful accounts as a percentage of gross mortgages receivable
decreased to a reported 6.5% at December 31, 1997 from an adjusted 6.6% at
December 31, 1996. The charge off rate as a percentage of the average mortgages
receivable loan balance was 0.7% for 1997 compared to 2.1% for 1996.
43
<PAGE> 48
General and administrative expenses increased to a reported $42.3 million
in 1997 from adjusted general and administrative expenses of $28.3 million in
1996, an increase of 49%. General and administrative expenses were 13% of 1997
reported total revenues and 1996 adjusted total revenues. 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
growth, (ii) increased overhead due to the acquisition of additional resorts,
and (iii) added salary, travel and office expenses attributable to the growth in
the size of the Company.
Depreciation and amortization increased $2.2 million, or 51%, to a reported
$6.5 million during 1997 from adjusted depreciation and amortization of $4.3
million in 1996, reflecting an increase in capital expenditures and intangible
assets. Depreciation and amortization was 1.9% of reported total revenues in
1997 and 2.0% of adjusted total revenues in 1996.
Interest expense-other, reported net of capitalized interest of $6.8
million and $6.7 million at December 31, 1997 and 1996, respectively, increased
$5.6 million, or 147%, to $9.4 million for 1997 from $3.8 million in 1996. The
increase was due primarily to the interest on the Convertible Notes and the
Senior Subordinated Notes issued in 1997.
As a result of the factors discussed above and the $2.6 million resort
property valuation allowance, total costs and operating expenses increased by
$79.7 million, or 41%, to an adjusted $274.0 million in 1997 from an adjusted
$194.3 million in 1996. Total adjusted costs and operating expenses as a
percentage of reported total revenues was 81% in 1997. This represents a
decrease of 8% from adjusted total costs and operating expenses as a percentage
of adjusted total revenues of 89% in 1996.
In addition, as a result of the factors discussed above, adjusted income
before provision for income taxes and extraordinary item and non-recurring costs
increased 172% to $53.4 million in 1997 from $19.6 million for 1996. An
extraordinary item of $0.8 million, net of income taxes, was charged to net
income in 1997 as the result of the early retirement of notes payable to
financial institutions.
For 1997, income taxes increased $27.3 million over 1996, reflecting a
change in the Company's status to a C corporation subsequent to its August 1996
initial public offering, as well as a $6.0 million charge to income tax expense
taken in the fourth quarter resulting from recording deferred taxes for
previously non-taxable entities acquired in the PRG Acquisition. Previously, the
Company's predecessor entities only incurred federal income taxes with regard to
AVCOM and foreign income taxes with respect to LSI and the Company's
wholly-owned subsidiaries located in St. Maarten, Netherlands Antilles.
Income before extraordinary item and non-recurring charges (net of taxes)
was $20.3 million for 1997, an increase of $9.3 million, or 85%, from $11.0
million in 1996. Net income was $19.5 million for 1997, compared with $11.0
million for 1996, an increase of $8.5 million or 77%. Assuming the Company had
been taxed as a C corporation in 1996, pro forma net income would have been $4.4
million, compared with $19.5 million net income for 1997, an increase of 343%.
COMPARISON OF 1995 TO 1996
The following discussion of financial results adjusts the reported
statement of operations data for the following non-recurring charges and
revenues. In 1996, the Company incurred the following non-recurring charges
related to the AVCOM Acquisition: (i) general and administrative expense
increased by $9.1 million for severance costs, lease cancellations, litigation
reserves, reserves for losses associated with certain property management and
related contracts; (ii) provision for doubtful accounts increased by $2.0
million; (iii) resort property valuation allowance increased by $2.6 million to
write down certain property to market value for projects initiated by AVCOM
which were subsequently abandoned; and (iv) depreciation and amortization
increased by $0.7 million related to the amortization of startup costs over a
period of one year. Also, in 1996, the Company recognized $1.7 million of other
income as the result of a settlement of certain receivables from the former
owners of the St. Maarten resorts.
For 1996, the Company achieved adjusted total revenues of $218.1 million,
compared with reported total revenues of $168.3 million for 1995, an increase of
$49.8 million or 30%. The increase was due to the growth of
44
<PAGE> 49
Vacation Intervals sold to 11,946 in 1996 from 10,024 in 1995, a 19% increase,
coupled with a 7% increase in the average sales price to $13,146 in 1996 from
$12,298 in 1995. The growth in Vacation Intervals sold was due to the
commencement of sales at Sunterra Resorts San Luis Bay, Sedona Summit and
Scottsdale Villa Mirage and Embassy Vacation Resort Lake Tahoe, combined with a
full year of Vacation Interval sales at Sunterra Resorts Royal Palm Beach and
Sunterra Resorts Flamingo Beach. The average price per Vacation Point sold at
the Company's European resorts increased 3% to $186 for 1996 from $181 in 1995.
In addition, Vacation Point sales at the Company's European resorts increased
30% to 132,878 sold in 1996 from 102,270 sold in 1995.
Interest income increased $5.1 million, or 25%, due to an increase in gross
mortgages receivable to $232.8 million in 1996 from $160.7 million in 1995.
Other income, which includes rental income, management fees, other interest
income, commission on the sale of European receivables, and portfolio income
from the $10.2 million portfolio acquired with the two St. Maarten resorts in
1995, increased $1.8 million to an adjusted $10.4 million in 1996 from a
reported $8.6 million in 1995.
As a percentage of Vacation Interval and Vacation Point sales, Vacation
Interval and Vacation Point cost of sales decreased to 26% in 1996, compared
with 29% in 1995, as the Company was able to purchase and construct vacation
units at a discount to historical development costs, reducing the unit cost and
points cost on average for each Vacation Interval and Vacation Point sold.
Advertising sales and marketing expenses increased $26.7 million to $89.0
million in 1996 from $62.3 million in 1995. As a percentage of Vacation Interval
and Vacation Point sales, advertising, sales and marketing expenses increased to
49% for 1996 from 45% in 1995. The increase was primarily due to advertising,
sales and marketing expenses incurred at AVCOM which were 58% and 42% of total
Vacation Interval and Vacation Point sales in 1996 and 1995, respectively.
Interest expense-treasury increased $3.4 million to $13.5 million in 1996
from $10.1 million in 1995, as the result of notes payable to financial
institutions and notes payable to related parties increasing from $177.0 million
to $236.1 million, or 33%, and the prime rate increasing during the year. Other
expenses increased 125% to $4.5 million in 1996 from $2.0 million in 1995. Other
expenses increased to 2% of adjusted total revenues in 1996 from 1% of reported
total revenues in 1995. The provision for doubtful accounts increased by $2.6
million to an adjusted $6.3 million from a reported $3.7 million in 1995.
General and administrative expenses increased $9.0 million to an adjusted
$28.3 million in 1996 from reported general and administrative expenses of $19.3
million in 1995. As a percentage of adjusted total revenues, adjusted general
and administrative expenses were 13% in 1996. This amount compares to reported
general and administrative expenses as a percentage of reported total revenues
of 11% in 1995. The increase in adjusted general and administrative expenses was
the result of (i) 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, (ii)
the Company's expenses and reporting obligations as a public company, (iii)
increased overhead due to the acquisition and development of additional resorts,
and (iv) added salary, travel, and office expenses attributable to the then
current and planned growth of the Company.
Depreciation and amortization increased $1.8 million, or 72%, to an
adjusted $4.3 million in 1996 from a reported depreciation and amortization of
$2.5 million in 1995, reflecting an increase in capital expenditures and
intangible assets.
As a result of the factors discussed above, costs and operating expenses
for 1996 increased by $54.7 million to an adjusted $194.3 million in 1996 from a
reported $139.6 million in 1995. Adjusted costs and operating expenses increased
to 89% of adjusted total revenues in 1996, compared with 83% of reported costs
and operating expenses as a percentage of reported total revenues in 1995.
Equity loss on investment in joint venture decreased to $0.3 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.
45
<PAGE> 50
Income before provision for income taxes decreased to $6.9 million in 1996
from $25.3 million in 1995, primarily due to the significant charges incurred by
AVCOM during the fourth quarter of 1996, as discussed previously. However,
income before provision for taxes for the Company (excluding AVCOM) increased
17%, to $27.3 million in 1996, from $23.4 million 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 non-recurring charges
related to accrued expenses and the write-down and write-off of certain assets
of AVCOM.
Provision (benefit) for income taxes changed from an expense of $4.0
million in 1995 to a tax benefit of $4.1 million in 1996. The 1996 tax benefit
results from the recognition of AVCOM's operating loss carryforward. Previously,
the Company's predecessor entities incurred federal income taxes only with
respect to AVCOM, as well as foreign income taxes with respect to LSI and the
Company's wholly-owned subsidiaries in St. Maarten, Netherlands Antilles.
As a result of the factors discussed above, net income decreased 48% to
$11.0 million in 1996 from $21.3 million in 1995.
The Company has grown significantly from its August 1996 Initial Public
Offering from nine to 70 resort locations at December 31, 1997. This growth has
been achieved in part through the acquisition for cash of individual properties
and operating companies and by the issuance of Common Stock for operating
companies which were accounted for using the pooling-of-interests method of
accounting for business combinations. An indication of the change in the
financial results of the Company as a result of these acquisitions is shown in
the table below which reconciles the Company's total revenues, EBITDA and income
before provision for income taxes as reported for the years ended December 31,
1996 and 1995 in its Annual Reports on Form 10-K to the restated and combined
amounts for the same periods reflecting pooling-of-interests accounting:
<TABLE>
<CAPTION>
EFFECT OF REPORTED
FORM 10-K POOLING TRANSACTIONS HEREIN
--------- -------------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Total revenues....................................... $95,054 $124,793 $219,847
EBITDA............................................... 27,678 16,944 44,622
Income before provision for income taxes............. 17,243 (10,314) 6,929
YEAR ENDED DECEMBER 31, 1995
Total revenues....................................... $72,608 $ 95,710 $168,318
EBITDA............................................... 19,057 22,496 41,553
Income before provision for income taxes............. 11,554 13,765 25,319
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company generates cash for operations from the sale of vacation
ownership interests, the financing of the sales of vacation interest units, the
rental of unsold vacation interests, and the receipt of management fees. With
respect to the sale of vacation interests, the Company generates cash from (i)
vacation ownership interests, (ii) the receipt of down payments from customers,
and (iii) the financing of mortgages receivable ranging from 85% to 90% of the
amount borrowed. The Company generates cash from the financing of vacation
interests from the interest charged on mortgages receivable, which averaged
approximately 14.4% for the year ended December 31, 1997.
The Company entered into a $100 million Senior Credit Facility on February
18, 1998. On April 1, 1998, the Senior Credit Facility was amended to increase
the amount available thereunder to $117.5 million. The Senior Credit Facility
has a variable borrowing rate based on the percentage of the Company's mortgages
receivable pledged under such facility and the amount of funds advanced
thereunder. The interest rate will vary between LIBOR plus 7/8% and LIBOR plus
1 3/8%, depending on the amount of advances against mortgages receivable. The
Senior Credit Facility has a three-year term and contains customary covenants,
representations and warranties and conditions to borrow the funds. As of May 1,
1998, no amounts were outstanding under the Senior Credit Facility.
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<PAGE> 51
The Company expects to securitize approximately $100 million of its
mortgages receivable, of which $50 million has been pre-committed. The Company
expects to convey the mortgages receivable to a bankruptcy remote subsidiary,
which would issue the Securitized Notes. The Securitized Notes would be
nonrecourse to the Company. The Company is finalizing negotiations and expects
to complete the securitization by May 1998. If completed, the securitization
would be treated as a financing transaction for accounting purposes. The
mortgages receivable and the Securitized Notes would remain on the Company's
balance sheet. The Company would recognize no gain or loss on the Securitized
Notes transaction.
For the year ended December 31, 1997, the Company had $50.0 million in
negative cash flows from operations. Because the Company typically finances 90%
of the purchase price of the vacation interests it sells, it typically incurs
significant operating costs in excess of the actual cash proceeds initially
received from the sale of a vacation interest. To meet the Company's cash
requirements to finance these customer receivables, the Company borrows funds
available under its credit facilities. The Company expects to repay its credit
facilities with proceeds from the issuance of pass-through mortgage-backed
securities under which the Company sells the mortgages receivable and principal
or interest payments from its portfolio of mortgages receivable. The Company may
also sell or factor additional mortgages receivable or borrow under existing or
future lines of credit.
In August 1997, the Company consummated the $200.0 million Senior
Subordinated Note Offering. After deducting underwriters discounts and expenses,
and giving effect to original issue discount of approximately $1.5 million, the
net proceeds to the Company were $191.0 million. The Company has exchanged new
registered notes (the "Senior Subordinated Exchange Notes") for the
privately-issued Senior Subordinated Notes, such exchange being registered with
the Securities and Exchange Commission. The form and terms of the Senior
Subordinated Exchange Notes are identical to the Senior Subordinated Notes,
except that the Senior Subordinated Exchange Notes are registered under the
Securities Act of 1933, as amended.
In February 1997, the Company consummated its public offering of $138.0
million aggregate principal amount of Convertible Notes and its offering of 6.0
million shares of Common Stock (comprised of 2.4 million newly-issued shares
sold by the Company and 3.6 million secondary shares sold by certain selling
stockholders). The net proceeds to the Company from the sale of the 2.4 million
newly-issued shares of Common Stock and from the sale of the $138.0 million
aggregate principal amount of Convertible Notes, based on a public price of 100%
of the principal amount thereof, in each case after deducting underwriting
discounts and expenses, were $53.2 million and $134.9 million, respectively. The
Convertible Notes may be exchanged for shares of the Company's Common Stock at
any time prior to maturity on January 15, 2007 at a conversion price of $30.417
per share, subject to adjustment under certain circumstances as stated in the
related indenture.
The Company requires funds to finance the future acquisition and
development of vacation ownership resorts and properties and to finance customer
purchases of vacation interests. Such capital has been provided by secured
financings on vacation ownership inventory, secured financings on mortgages
receivable generally funded by third-party lenders and unsecured notes
(including the Convertible Notes and the Senior Subordinated Notes issued in
1997). As of December 31, 1997, the Company had approximately $199 million of
additional borrowing capacity under certain third-party lending agreements. As
of December 31, 1997, the Company had $91.0 million outstanding under its notes
payable secured by mortgages receivable and $6.2 million outstanding under its
notes payable secured by unsold vacation interest inventory or other assets.
During 1997, the Company spent approximately $137 million for expansion and
development activities at the Company's resort locations. The Company funded
these expenditures primarily with the net proceeds of the Concurrent Offerings,
the Senior Subordinated Note Offering, available capacity on credit facilities,
and cash generated from operations.
The Company expects to incur approximately $20 million in 1998 to complete
projects currently under construction. For a description of potential expansion
plans, see "Business -- Description of the Company's Resort Locations."
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<PAGE> 52
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 interests; 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, in addition to the financing activities described, the
Company may issue corporate debt, equity securities, or collateralized
mortgage-backed securities to finance its acquisition activities. 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
Senior Credit Facility and borrowing capacity under certain third-party lending
agreements, together with cash generated from operations, future borrowings, and
securities offerings, will be sufficient to meet the Company's working capital
and capital expenditure needs for the period ended December 31, 1998. However,
depending upon conditions in the capital and other financial markets, other
factors and the Company's growth, development and expansion plans, the Company
may from time to time consider the issuance of other debt or equity securities,
the proceeds of which would be used to finance acquisitions, refinance debt,
finance mortgage receivables or for other purposes.
AVCOM ACQUISITION AND RELATED EXPENSES
In February 1997, the Company consummated the AVCOM Acquisition, acquiring
AVCOM for 1,324,554 shares of the Company's Common Stock, representing on a pro
forma basis approximately 4.4% of the shares of the Company's Common Stock
outstanding following such acquisition. Based upon the closing price of the
Common Stock on February 7, 1997, the 1,324,554 shares issued in the AVCOM
Acquisition were valued at an aggregate of approximately $32.2 million. The
Company also assumed approximately $68.3 million in debt and $53.7 million of
mortgages receivable in the AVCOM Acquisition. The Company has accounted for the
AVCOM Acquisition under the pooling-of-interests method of accounting for
business combinations.
Transaction costs relating to the negotiation of, preparation for, and
consummation of the AVCOM Acquisition 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 includes the fees and
expenses payable to financial advisors, legal fees and other transaction
expenses related to the AVCOM Acquisition.
PRG ACQUISITION AND RELATED EXPENSES
On May 15, 1997, the Company consummated its merger with PRG, a developer,
marketer and operator of two vacation ownership resorts in Williamsburg,
Virginia. The PRG Acquisition was consummated through the issuance of 3,601,844
shares of the Company's Common Stock, representing on a pro forma basis
approximately 10.7% of the shares of the Company's Common Stock outstanding
following such merger. Based upon the closing price of the Common Stock on May
15, 1997, the shares issued in the PRG Acquisition were valued at an aggregate
of $59.1 million. The Company also assumed approximately $58.4 million of debt,
$66.0 million of mortgages receivable and $5.7 million in cash in the PRG
Acquisition. The Company has accounted for the PRG Acquisition under the
pooling-of-interests method of accounting for business combinations.
The Company recorded a one-time charge of $4.2 million during the second
quarter 1997 for charges related to the PRG Acquisition including fees paid to
financial advisors, legal, and other transaction-related expenses. Certain
entities acquired in the PRG Acquisition were taxed as partnerships at the
partner level. As a result of the PRG Acquisition, the Company recorded a
deferred tax liability for cumulative temporary
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<PAGE> 53
differences between financial and tax reporting. This liability was established
through a charge to the Company's provision for income taxes in 1997.
LSI ACQUISITION AND RELATED EXPENSES
On August 28, 1997, the Company consummated the LSI Acquisition, acquiring
100% of LSI's capital stock in exchange for 1,996,401 newly issued shares of the
Company's Common Stock, representing on a pro forma basis approximately 5.6% of
the shares of the Company's Common Stock outstanding as of June 30, 1997. Based
upon the closing price of the Common Stock on August 28, 1997, the 1,996,401
shares issued in the LSI Acquisition were valued at an aggregate of
approximately $48.2 million. In addition to the Common Stock issued in the LSI
Acquisition, the Company also assumed $0.5 million in debt, $1.7 million of
mortgages receivable and $6.0 million in cash. The Company also paid cash
consideration of approximately $1 million to a former LSI shareholder. The
Company has accounted for the LSI Acquisition under the pooling-of-interests
method of accounting for business combinations.
Transaction costs relating to the negotiation of and preparation for the
LSI Acquisition and the anticipated combination of certain operations resulted
in a one-time charge to the Company's earnings of $4.1 million in the third
quarter of 1997. These charges include the fees and expenses payable to
financial advisors, legal fees and other transaction expenses related to the LSI
Acquisition.
MARC HOTELS & RESORTS ACQUISITION
On October 10, 1997, the Company consummated the Marc Acquisition acquiring
100% of the capital stock of Marc Resorts for 212,717 newly issued shares of the
Company's Common Stock. The Company has accounted for the Marc Acquisition using
the purchase method of accounting for business combinations.
VACATION INTERNATIONALE ACQUISITION
On November 7, 1997, the Company consummated its acquisition of 100% of the
capital stock of VI for approximately $24.3 million, comprised of $8.0 million
in cash and promissory notes and the assumption of approximately $16.3 million
of long-term indebtedness. The Company has accounted for the VI Acquisition
using the purchase method of accounting for business combinations.
ACQUISITION OF EMBASSY SUITES RESORT AT KAANAPALI BEACH
On November 14, 1997, a partnership of which the Company is a managing
general partner consummated its acquisition of the Embassy Suites Resort at
Kaanapali Beach, Maui, Hawaii for approximately $78 million. The acquiring
entity is a partnership formed by a wholly-owned subsidiary of the Company (as
the managing general partner), the Whitehall Street Real Estate Limited
Partnership VII and Apollo Real Estate Advisors, L.P. The Company's subsidiary
owns a 24% partnership interest in the acquiring entity.
ACQUISITION OF GLOBAL GROUP
On December 5, 1997, the Company consummated its acquisition of the
European vacation ownership business of the Global Group through an asset
purchase for cash consideration of approximately $18 million. The Company
assumed no debt as part of this transaction, but assumed approximately $7.0
million in current liabilities and acquired assets valued at approximately $15.8
million. The Company has accounted for the Global Acquisition using the purchase
method of accounting.
YEAR 2000
The Company uses software that will be affected by the date change in the
year 2000 and recognizes that the arrival of the year 2000 poses challenges that
will require modifications of portions of its software to enable it to function
properly. As the year 2000 approaches, date sensitive systems will recognize the
year 2000 as 1900, or not at all. This may cause systems to process critical
financial and operational information incorrectly. The Company, like many other
companies, is expected to incur expenditures over the next few years to
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<PAGE> 54
address this issue. The Company has several information system improvement
initiatives under way to determine the full scope and related costs to insure
that the Company's systems continue to meet its needs and those of its
customers. These initiatives include upgrading and replacing some computer
systems and the conversion of others to be Year 2000 compliant. Although final
cost estimates have yet to be determined, it is anticipated that these Year 2000
costs will result in an increase to Company expenses during 1998 and 1999.
Suppliers, customers, mortgages receivable servicers and creditors of the
Company also face Year 2000 issues. Their failure to successfully address the
Year 2000 issue could have a material adverse effect on the Company's business
or results of operations.
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BUSINESS
THE COMPANY
Signature Resorts, Inc. is the world's largest vacation ownership company,
as measured by the number of resort locations. The Company currently has 82
resort locations in eight North American and European countries. The Company
also manages units at an additional 22 resorts in Hawaii. The Company's resort
locations are in a variety of popular vacation destinations, including
California, Hawaii, Arizona, Florida, the Caribbean, Mexico, France, the United
Kingdom, Spain and the Canary Islands. Through both internal development and
strategic acquisitions, the Company has expanded the number of its resort
locations and its owner family base from nine resort locations and approximately
25,000 owner families at the time of its August 1996 initial public offering to
its current 82 resort locations and approximately 200,000 owner families. As a
result of the successful implementation of the Company's growth and operations
strategy, the Company's revenues have grown to $337.7 million in 1997 from
$219.8 million in 1996 and $168.3 million in 1995. By taking advantage of
synergies resulting from the implementation of the Company's business strategy,
the Company has increased 1997 EBITDA (as defined) by 91% over 1996 EBITDA and
increased EBITDA as a percentage of total revenues to 25.3% in 1997 from 20.3%
in 1996.
The Company's operations consist of (i) marketing and selling Vacation
Intervals and Vacation Points, (ii) acquiring, developing and operating vacation
ownership resorts and (iii) providing consumer financing to individual
purchasers for the purchase of vacation interests at its resort locations. The
Company also provides resort management and maintenance services for which it
receives fees paid by the resorts' homeowners' associations.
The Company markets resort locations as Sunterra Resorts, Embassy Vacation
Resorts and Westin Vacation Club Resorts and offers points-based vacation clubs
in Europe and North America. The Company's Sunterra Resorts are marketed under
the Company's Sunterra brand. The Company's Embassy Vacation Resorts and Westin
Vacation Club resort are operated under agreements with Promus (the owner of the
Embassy Suites brand) and Westin, respectively. The Company offers points-based
vacation clubs in Europe through its LSI and Global Group subsidiaries, and in
North America through its VI subsidiary.
The Company provides mortgage financing for approximately 75% of its
vacation ownership sales. In addition to enhancing the sales process, financing
customer receivables generates attractive profit margins and cash flows from the
spread between interest rates charged by the Company on its mortgage receivables
and the Company's cost of capital. This financing is typically collateralized by
the underlying Vacation Interval or Vacation Points.
BUSINESS STRATEGY
The Company's objective is to capitalize on its position as the world's
largest vacation ownership company, as measured by resort locations, and its
base of approximately 200,000 owner families by continuing to (i) expand sales
at its resort locations, (ii) strategically acquire and develop resort inventory
and acquire operating companies and other vacation ownership-related assets,
(iii) improve operating margins by reducing operating costs through efficiencies
gained by operating as a large multi-resort system and (iv) develop and
introduce new vacation ownership products including its planned "Club Sunterra"
worldwide points-based vacation exchange system.
Signature has expanded to its current 82 resort locations from nine at the
time of its August 1996 initial public offering through the successful
implementation of its growth and operations strategy. The Company believes it
has achieved sufficient size to enable it to capitalize on the strategic
advantages of operating and purchasing leverage and the ability to provide
choice and flexibility to its customers. The key elements of the Company's
growth strategy are described below:
Expand Sales. The Company intends to expand sales of vacation ownership
interests at its existing resorts by adding additional inventory through the
construction of new development units and through broader marketing efforts. As
of December 31, 1997, the Company had available inventory of 29,168 Vacation
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Intervals and 599,554 Vacation Points. The Company believes it is well
positioned to continue to expand its existing supply of inventory.
Acquisition and Development. Signature has achieved its leading position in
the industry by identifying and acquiring resorts in desirable locations at
prices which the Company believes will allow it to achieve excellent returns.
The Company's acquisition and development of new resort locations allows it to
add new vacation ownership inventory and increase the number of owner families
within the Company's resort system. The Company targets operating companies,
resort properties and other vacation ownership assets for potential acquisition
and development opportunities to generate a high return on invested capital to
replenish vacation ownership sales inventory while entering new markets and
creating a larger resort and customer base from which to develop and market its
products.
The Company evaluates each acquisition candidate based on certain criteria
including return on invested capital, the strategic location of the resort
properties and consumer demand for vacation ownership inventory, in each case
taking into consideration the Company's existing locations and operations. The
Company analyzes the potential economic impact of each transaction to maximize
its return on investment, as well as potential strategic synergies. Management
believes that its proven acquisition and development record and public company
status give the Company a competitive advantage in acquiring assets, businesses
and operations in the fragmented vacation ownership industry.
Improve Operating Margins. As the Company continues to expand the number of
its resort locations as well as its owner family base, management believes that
it will be able to realize improved operating margins through the realization of
increased efficiencies, reduced on-site administrative requirements and reduced
operating costs through its multi-resort management system. In addition, the
Company believes that additional acquisitions will allow it to experience
increased margins by leveraging operating and corporate overhead costs over a
larger revenue base.
Signature's base of approximately 200,000 owner families also provides an
established market to which to sell additional vacation and leisure products
which the Company believes will reduce marketing and advertising expenses as a
percentage of sales. Because existing owners of vacation ownership interests
are, in effect, a pre-screened pool of potential customers, repeat sales and
customer referrals increase sales while marketing expenses associated with these
sales are significantly reduced. As the Company's owner family base continues to
expand and these type of sales represent a larger percentage of overall sales,
the Company believes operating margins will continue to improve.
Develop New Vacation Ownership Products. The Company believes its growing
resort portfolio and base of approximately 200,000 owner families will enable it
to offer a wider variety of vacation ownership products. The Company's planned
Club Sunterra worldwide points-based vacation exchange system is one such
product that will allow owners to create vacations custom tailored to their
individual needs. Member families will be able to purchase intervals entitling
them to an annual allotment of "points" to use as a currency to reserve the
specific resort location, season, unit type and length of stay they desire from
among Club Sunterra's resort locations throughout the world. This type of
points-based system will provide the consumer more flexibility in their vacation
plans compared to traditional one week intervals.
In general, under a points-based vacation exchange system, members purchase
an annual allotment of points which can be redeemed for occupancy rights at the
club's participating resorts. Compared to other vacation ownership arrangements,
the points-based system provides members significant flexibility in planning
vacations as the number of points that are required for a stay at any one resort
varies depending upon a variety of factors, including the resort location, the
size of the unit, the vacation season and the length of stay. Under this system,
members can select vacations according to their schedules, space needs and
available points. Subject to certain restrictions, members are typically allowed
to carry over for one year any unused points and to "borrow" points from the
forthcoming year. In addition, members are required to pay annual fees for
certain maintenance and management costs associated with the operation of the
resorts based on the number of points to which they are entitled.
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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 some
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 vacation ownership industry represents one of the fastest growing
segments of the lodging industry. According to ARDA and other industry sources,
during the seventeen year period ending in 1997, worldwide vacation ownership
sales volume increased from $490 million in 1980 to an estimated $6.2 billion in
1997, a compounded annual growth rate of 16.1%.
As shown in the following charts, according to ARDA, the worldwide vacation
ownership industry has expanded significantly since 1980 both in vacation
interest sales volume and in the number of vacation interest owners.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year 80 81 82 83 84 85 86 87 88
Vacation Interest Sales Volume
($ in billions) 0.49 0.965 1.165 1.34 1.735 1.58 1.61 1.94 2.39
Year 80 81 82 83 84 85 86 87 88
No. of Vacation
Interest Owners 0.155 0.22 0.335 0.47 0.62 0.805 0.97 1.125 1.31
(in millions)
Year 89 90 91 92 93 94 95e 96e 97e
Vacation Interest Sales Volume
($ in billions) 2.97 3.24 3.74 4.25 4.505 4.76 5.2 5.7 5.95
Year 89 90 91 92 93 94 95e 96e 97e
No. of Vacation
Interest Owners 1.53 1.8 2.07 2.363 2.76 3.144 3.49 3.98 4.48
(in millions)
</TABLE>
Source: ARDA (includes, with respect to 1995, 1996 and 1997, unpublished
estimates provided by ARDA)
ARDA reports and other industry data indicate that during the past decade
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:
- increased consumer awareness of the value and benefits of vacation
ownership, including the cost savings relative to other lodging
alternatives;
- increased flexibility of vacation ownership due to the growth of
international exchange organizations;
- improvement in the quality of accommodations and management of vacation
ownership resorts;
- increased consumer confidence resulting from new consumer protection
regulations and the entrance of brand name national lodging companies to
the industry; and
- increased availability of consumer financing for purchasers of vacation
interests.
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, Disney, Hilton, Hyatt, Four Seasons,
Inter-Continental, Promus and Westin. Unlike the Company, however, the vacation
ownership operations of each of Marriott, Disney,
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Hilton, Hyatt, Four Seasons, Inter-Continental, Westin and Promus comprise only
a small portion of such companies' overall operations.
The Company believes that national lodging and hospitality companies are
attracted to the vacation ownership concept because of the industry's relatively
rapid recent growth rate and relatively 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 the most recent information compiled by ARDA,
the three primary reasons cited by consumers for purchasing vacation interests
are (i) the ability to exchange vacation interests for accommodations at other
resorts through exchange networks (cited by 75% of vacation interest
purchasers), (ii) the money savings over traditional resort vacations (cited by
72% of purchasers) and (iii) the quality service and upkeep of the resort at
which they purchased a vacation interest (cited by 80% of purchasers). According
to ARDA, vacation interest purchasers have a high rate of repeat purchases:
approximately 41% of all vacation interest owners own more than one vacation
interest representing approximately 65% of the industry inventory and
approximately 51% of all owners who bought their first vacation interest before
1985 have since purchased a second vacation interest. In addition, ARDA
indicates that customer satisfaction increases with length of ownership, age,
income, multiple location ownership and accessibility to vacation interest
exchange networks.
The Company believes it is well positioned to take advantage of current
demographic trends, primarily because of the variety and quality of its resort
locations and its participation in the RCI and II exchange networks. 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, according to ARDA, the
age group most likely to purchase Vacation Intervals and Vacation Points.
DESCRIPTION OF THE COMPANY'S RESORT LOCATIONS
The Company has 82 resort locations, which include 35 resort locations sold
as Vacation Intervals and 47 resort locations sold in points-based vacation
exchange systems. Of the 35 resort locations sold as Vacation Intervals, 22
resort locations are currently in sales, sales have yet to begin at four resort
locations, and sales at nine resort locations have been substantially completed.
Of the 47 resort locations sold in points-based vacation exchange systems, the
Company owns or has sold, in the aggregate, all of the unit inventory at 26 of
the resort locations and owns a portion of the unit inventory at the other 21
resort locations.
Through its primary resort brands, the Company offers Vacation Intervals in
each of the three principal price segments of the market (value, upscale
(characterized by high quality accommodations and service) and luxury
(characterized by elegant accommodations and personalized service)). In
addition, the Company operates points-based vacation clubs in North America and
Europe.
Sunterra Resorts. The Company's Sunterra Resorts, includes resorts in both
the value and upscale price segments which are not affiliated with any hotel
chain. Vacation Intervals at the Company's Sunterra Resorts generally sell for
$6,000 to $25,000 and are targeted to buyers with annual incomes ranging from
$35,000 to $80,000. The Company believes its Sunterra Resorts offer buyers an
economical alternative to resorts affiliated with brand-name lodging companies
(such as Embassy Vacation Resorts and Westin Vacation Club resorts) and
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
four 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 same high quality and value that is represented by the more than 140
Embassy Suites hotels throughout North America. The Company is one of two
licensees and operators of Embassy Vacation Resorts, and is currently evaluating
additional resorts that could be operated as Embassy Vacation Resorts.
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Westin Vacation Club Resort. The Company's Westin Vacation Club resort is
positioned in the luxury price segment of the market and is characterized by
elegant accommodations and personalized service. Vacation Intervals at Westin
Vacation Club resort generally sell for $16,000 to $25,000 and are targeted to
buyers with annual incomes ranging from $80,000 to $250,000.
LSI's Grand Vacation Club. As a result of the LSI Acquisition, the Company
acquired LSI's Grand Vacation Club points-based system and as a result of the
Global Acquisition, the Company acquired the Global Group's Global Vacation
Club, which it is integrating into the LSI system. Grand Vacation Club allows
members to purchase an annual allotment of points that can be redeemed for
occupancy rights at Grand Vacation Club's European resorts and at other
participating resorts. The Company markets the Grand Vacation Club in the United
Kingdom, Spain, France and Austria. Points in the Grand Vacation Club can
typically be purchased for approximately $220 a point. A typical one week stay
at a Grand Vacation Club resort requires approximately 46 points. Each Grand
Vacation Club member receives a new allotment of points each year throughout the
term of its membership in the club.
VI's Vacation Time Share Program. As a result of the VI Acquisition, the
Company acquired VI's VTS Program which it markets to buyers in the United
States, Canada and Mexico. The VTS Program is a points-based system much like
LSI's Grand Vacation Club in that it allows members to purchase points that are
redeemed for occupancy rights at participating VTS Program resorts. Points in
the VTS Program typically can be purchased for approximately $119 a point. A
typical one week stay at a VI resort requires approximately 91 points. Each VTS
Program member receives a new allotment of points each year throughout the term
of its membership in the program.
55
<PAGE> 60
The following tables set forth certain information, as of December 31,
1997, regarding each of the Company's 70 resort locations on such date,
including location, date acquired by the Company, the number of existing and
total potential units at the resort and, where applicable, the number of
Vacation Intervals or Vacation Points currently available for sale and occupancy
and additional expansion potential. Of the resort locations set forth below, the
Embassy Vacation Resorts Poipu Point and Kaanapali Beach, the Sunterra Resorts
NorthBay at Lake Arrowhead and the Westin Vacation Club St. John are partially
owned by the Company. In addition, the Company only owns a portion of the units
comprising five of the Grand Vacation Club Resorts and 16 of the Vacation
Internationale Resorts. The exact number of units, Vacation Intervals and
Vacation Points ultimately achieved may differ from the following estimates
based on future land planning and site layout considerations, as well as other
factors described under "Risk Factors."
<TABLE>
<CAPTION>
UNITS AT RESORT
---------------------------------
DATE POTENTIAL
RESORT LOCATION ACQUIRED CURRENT(A) EXPANSION(B) TOTAL
- ------------------------------ ---------------------------- -------------- ---------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
SUNTERRA RESORTS
Sunterra Resorts Cypress November 1992 224 276(e) 500
Pointe....................... Lake Buena Vista, Florida
Sunterra Resorts The July 1993 130 286(f) 416
Plantation at Fall Creek..... Branson, Missouri
Sunterra Resorts Royal April 1994 40 15(g) 55
Dunes........................ Hilton Head, S. Carolina
Sunterra Resorts Royal Palm July 1995 140 --(h) 140
Beach........................ St. Maarten, Netherlands
Antilles
Sunterra Resorts Flamingo July 1995 172 85(i) 257
Beach........................ St. Maarten, Netherlands
Antilles
Sunterra Resorts San Luis June 1996 98 32(j) 130
Bay.......................... Avila Beach, California
Sunterra Resorts Scottsdale February 1997 64 104(k) 168
Villa Mirage................. Scottsdale, Arizona
Sunterra Resorts The Ridge on February 1997 12 106(l) 118
Sedona Golf.................. Sedona, Arizona
Sunterra Resorts Sedona February 1997 40 -- 40
Springs...................... Sedona, Arizona
Sunterra Resorts Sedona February 1997 60 -- 60
Summit....................... Sedona, Arizona
Sunterra Resorts Villas at February 1997 33 -- 33
Poco Diablo.................. Sedona, Arizona
Sunterra Resorts Villas of February 1997 40 -- 40
Sedona....................... Sedona, Arizona
Sunterra Resorts NorthBay at February 1997 13 -- 13
Lake Arrowhead(m)............ Lake Arrowhead, California
Sunterra Resorts Tahoe Beach February 1997 140 -- 140
& Ski........................ South Lake Tahoe, California
Sunterra Resorts Villas on February 1997 37 64(n) 101
the Lake..................... Montgomery, Texas
Sunterra Resorts Powhatan May 1997 419 81(o) 500
Plantation................... Williamsburg, Virginia
Sunterra Resorts Greensprings May 1997 76 424(p) 500
Plantation................... Williamsburg, Virginia
Sunterra Resorts The Savoy on August 1997 40 28(q) 68
South Beach.................. Miami Beach, Florida
Sunterra Resorts Bent Creek September 1997 -- 217(r) 217
Golf Village................. Gatlinburg, Tennessee
Sunterra Resorts Coral December 1997 -- 46(s) 46
Reef......................... Miami Beach, Florida
----- ----- -----
TOTAL................................................................ 1,778 1,764 3,542
OTHER SUNTERRA AFFILIATED
RESORTS
Tahoe Seasons(t)............. South Lake Tahoe, California February 1997 21 -- 21
Other(u)..................... -- -- --
----- ----- -----
TOTAL................................................................ 21 -- 21
EMBASSY VACATION RESORTS
Embassy Vacation Resort Poipu November 1994 219(w) -- 219
Point(v)..................... Kauai, Hawaii
Embassy Vacation Resort Grand January 1995 126 248(x) 374
Beach........................ Orlando, Florida
Embassy Vacation Resort Lake May 1996 102 108(y) 210
Tahoe........................ South Lake Tahoe, California
Embassy Vacation Resort November 1997 -- 157(z) 157
Kaanapali Beach(z)........... Maui, Hawaii
----- ----- -----
TOTAL................................................................ 447 513 960
WESTIN VACATION CLUB
Westin Vacation Club St. May 1997 48 48 96(bb)
John(aa)..................... St. John, U.S. Virgin
Islands
----- ----- -----
TOTAL................................................................ 48 48 96
----- ----- -----
TOTAL VACATION UNITS AND VACATION INTERVALS................................ 2,294 2,325 4,619
<CAPTION>
VACATION INTERVAL
INVENTORY AT RESORT
-------------------------------------
CURRENT POTENTIAL
RESORT INVENTORY(C) EXPANSION(D) TOTAL
- ------------------------------ ------------ ------------ -------
<S> <C> <C> <C>
SUNTERRA RESORTS
Sunterra Resorts Cypress 779 14,076(e) 14,855
Pointe.......................
Sunterra Resorts The 1,116 14,586(f) 15,702
Plantation at Fall Creek.....
Sunterra Resorts Royal 165 765(g) 930
Dunes........................
Sunterra Resorts Royal Palm 842 -- 842
Beach........................
Sunterra Resorts Flamingo 1,337 4,335(i) 5,672
Beach........................
Sunterra Resorts San Luis 1,443 1,632(j) 3,075
Bay..........................
Sunterra Resorts Scottsdale 446 5,304(k) 5,750
Villa Mirage.................
Sunterra Resorts The Ridge on 90 5,406(l) 5,496
Sedona Golf..................
Sunterra Resorts Sedona 61 -- 61
Springs......................
Sunterra Resorts Sedona 602 -- 602
Summit.......................
Sunterra Resorts Villas at 71 -- 71
Poco Diablo..................
Sunterra Resorts Villas of 220 -- 220
Sedona.......................
Sunterra Resorts NorthBay at 92 -- 92
Lake Arrowhead(m)............
Sunterra Resorts Tahoe Beach 634 -- 634
& Ski........................
Sunterra Resorts Villas on 1,111 3,264(n) 4,375
the Lake.....................
Sunterra Resorts Powhatan 913 4,131(o) 5,044
Plantation...................
Sunterra Resorts Greensprings 819 21,624(p) 22,443
Plantation...................
Sunterra Resorts The Savoy on 2,040 1,428(q) 3,468
South Beach..................
Sunterra Resorts Bent Creek -- 11,067(r) 11,067
Golf Village.................
Sunterra Resorts Coral -- 2,346(s) 2,346
Reef.........................
------ ------ -------
TOTAL.................. 12,781 89,964 102,745
OTHER SUNTERRA AFFILIATED
RESORTS
Tahoe Seasons(t)............. 201 -- 201
Other(u)..................... 62 -- 62
------ ------ -------
TOTAL.................. 263 -- 263
EMBASSY VACATION RESORTS
Embassy Vacation Resort Poipu 8,512 -- 8,512
Point(v).....................
Embassy Vacation Resort Grand 1,913 12,648(x) 14,561
Beach........................
Embassy Vacation Resort Lake 3,984 5,508(y) 9,492
Tahoe........................
Embassy Vacation Resort -- 8,007(z) 8,007
Kaanapali Beach(z)...........
------ ------ -------
TOTAL.................. 14,409 26,163 40,572
WESTIN VACATION CLUB
Westin Vacation Club St. 1,715 2,448 4,163
John(aa).....................
------ ------ -------
TOTAL.................. 1,715 2,448 4,163
------ ------ -------
TOTAL VACATION UNITS AND VACA 29,168 118,575 147,743
</TABLE>
56
<PAGE> 61
<TABLE>
<CAPTION>
VACATION POINTS
UNITS AT RESORT AT RESORT
----------------------------------- -------------
DATE POTENTIAL CURRENT
RESORT LOCATION ACQUIRED CURRENT(DD) EXPANSION(EE) TOTAL INVENTORY(FF)
- ------------------------------ ---------------------------- -------------- ----------- ------------- ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
GRAND VACATION CLUB
RESORTS(CC)
The Alpine Club.............. Schladming, Austria August 1997 68 -- 68E
Club del Carmen.............. Lanzarote, Canary Islands August 1997 67 -- 67G
Flanesford Priory Country August 1997 16 -- 16G
Estate....................... Herefordshire, England
Los Amigos Beach Club........ Costa del Sol, Spain August 1997 140 50 190G
Pine Lake Resort............. Lancashire, England August 1997 100 -- 100G
Royal Oasis Club at Benal August 1997 108 -- 108G
Beach........................ Costa del Sol, Spain
Royal Oasis Club at La August 1997 68 -- 68G
Quinta....................... Costa del Sol, Spain
White Sands Beach Club....... Menorca, Balearic Islands August 1997 48 -- 48G
White Sands Country Club..... Menorca, Balearic Islands August 1997 51 -- 51G
Woodford Bridge Country August 1997 72 50 122G
Club......................... North Devon, England
Wychnor Park Country Club.... Stratfordshire, England August 1997 44 20 64F 461,473
Burnside Park Owners Club.... Lancashire, England December 1997 14 -- 14G
Kenmore Club................. Perthshire, Scotland December 1997 26 -- 26G
Los Claveles................. Tenerife, Canary Islands December 1997 5 -- 5G
Le Moulin de Connelles....... Normandy, France December 1997 3 -- 3G
Playa Paraiso................ Mallorca, Spain December 1997 3 -- 3G
Royal Sunset Beach Club...... Tenerife, Canary Islands December 1997 126 -- 126G
Royal Tenerife Country December 1997 77 -- 77G
Club......................... Tenerife, Canary Islands
Sahara Sunset Club........... Costa del Sol, Spain December 1997 150 -- 150G
Sunset Bay Club.............. Tenerife, Canary Islands December 1997 206 -- 206G
Sunset Harbour Club.......... Tenerife, Canary Islands December 1997 124 -- 124G
Malibu Village............... Roussilon, France December 1997 3 -- 3G
Marina Baie des Anges........ Nice, France December 1997 22 -- 22G
----- ----- -----
TOTAL.................. 1,541 120 1,661H
VACATION INTERNATIONALE
RESORTS
Clock Tower.................. Whistler, British Columbia November 1997 15 -- 15E
Sea Mountain................. Big Island, Hawaii November 1997 28 -- 28G
Elkhorn Village.............. Sun Valley, Idaho November 1997 20 -- 20G
Embarcadero.................. Newport, Oregon November 1997 41 -- 41G
Fairway Villa................ Oahu, Hawaii November 1997 19 -- 19G
Hololani..................... Maui, Hawaii November 1997 9 -- 9G
Kapaa Shore.................. Kauai, Hawaii November 1997 14 -- 14G
Kihei Kai Nani............... Maui, Hawaii November 1997 6 -- 6G
Kingsbury.................... Stateline, Nevada November 1997 20 -- 20G
Oasis Resort................. Palm Springs, California November 1997 116 -- 116G
Marina Inn................... Oceanside, California November 1997 7 -- 7F 138,081
Papakea...................... Maui, Hawaii November 1997 25 -- 25G
Point Brown Resort........... Ocean Shores, Washington November 1997 24 -- 24G
Pono Kai..................... Kauai, Hawaii November 1997 22 -- 22G
Royal Kuhio.................. Oahu, Hawaii November 1997 14 -- 14G
Sea Village.................. Big Island, Hawaii November 1997 51 -- 51G
The Pines.................... Sunriver, Oregon November 1997 68 -- 68G
The Village at Steamboat..... Steamboat Springs, Colorado November 1997 26 263 289G
Torres Mazatlan.............. Mazatlan, Mexico November 1997 126 -- 126G
Vallarta Torre............... Puerto Vallarta, Mexico November 1997 64 -- 64G
Valley Isle.................. Maui, Hawaii November 1997 21 -- 21G
----- ----- -----
TOTAL.................. 736 263 999H
<CAPTION>
VACATION POINTS
AT RESORT
-----------------------
POTENTIAL
RESORT EXPANSION(GG) TOTAL
- ------------------------------ ------------- -------
<S> <C> <C>
GRAND VACATION CLUB
RESORTS(CC)
The Alpine Club..............
Club del Carmen..............
Flanesford Priory Country
Estate.......................
Los Amigos Beach Club........
Pine Lake Resort.............
Royal Oasis Club at Benal
Beach........................
Royal Oasis Club at La
Quinta.......................
White Sands Beach Club.......
White Sands Country Club.....
Woodford Bridge Country
Club.........................
Wychnor Park Country Club.... 276,000 737,473
Burnside Park Owners Club....
Kenmore Club.................
Los Claveles.................
Le Moulin de Connelles.......
Playa Paraiso................
Royal Sunset Beach Club......
Royal Tenerife Country
Club.........................
Sahara Sunset Club...........
Sunset Bay Club..............
Sunset Harbour Club..........
Malibu Village...............
Marina Baie des Anges........
TOTAL..................
VACATION INTERNATIONALE
RESORTS
Clock Tower..................
Sea Mountain.................
Elkhorn Village..............
Embarcadero..................
Fairway Villa................
Hololani.....................
Kapaa Shore..................
Kihei Kai Nani...............
Kingsbury....................
Oasis Resort.................
Marina Inn................... 1,192,626 1,330,707
Papakea......................
Point Brown Resort...........
Pono Kai.....................
Royal Kuhio..................
Sea Village..................
The Pines....................
The Village at Steamboat.....
Torres Mazatlan..............
Vallarta Torre...............
Valley Isle..................
TOTAL..................
</TABLE>
57
<PAGE> 62
- ---------------
(a) Current units at each resort represents only those units that have received
their certificate of occupancy as of December 31, 1997. The Company
generally is able to sell 51 Vacation Intervals with respect to each unit
at its resorts (the 52nd week is generally utilized for maintenance).
(b) Potential expansion units at each resort includes, as of December 31, 1997,
(i) units then under construction that have not yet received their
certificate of occupancy and (ii) units planned to be developed on land
then owned by the Company or under option to be acquired which have not yet
received their certificate of occupancy and which were not then under
construction.
(c) Current inventory of Vacation Intervals at each resort represents only
those unsold Vacation Intervals that have received their certificate of
occupancy as of December 31, 1997.
(d) Potential expansion of Vacation Intervals at each resort includes, as of
December 31, 1997, (i) Vacation Intervals then under development that have
not yet received their certificate of occupancy and (ii) Vacation Interval
development potential on land then owned by the Company or under option to
be acquired which have not yet received their certificate of occupancy and
which were not then under construction.
(e) Includes an estimated 276 units which the Company plans to construct on
land which it owns at the Sunterra Resorts Cypress Pointe 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.
(f) Includes an estimated 270 units which the Company plans to construct on
land that it acquired in September 1997. An additional 16 units were
completed during the first quarter 1998.
(g) Includes the construction of 15 units that were completed in the first
quarter 1998.
(h) The Company has not committed to any expansion of the Sunterra Resorts
Royal Palm Beach. The Company is considering the acquisition of additional
land adjacent to the Sunterra Resorts Royal Palm Beach for the addition of
an estimated 60 units (and a corresponding number of Vacation Intervals)
but has yet to enter into an agreement with respect to such additional land
or to obtain the necessary governmental approvals and permits for such
expansion.
(i) In May 1996, the Company acquired a five-acre parcel of land adjacent to
the Sunterra Resorts Flamingo Beach on which, as of December 31, 1997, the
Company planned to develop approximately 85 units (and create a
corresponding number of Vacation Intervals). During the first quarter of
1998, the Company increased the number of units to be developed on such
land from 85 to 127. The Company plans to begin construction on 10 units
during the second quarter 1998.
(j) Includes an estimated 32 units currently under construction which should be
completed during the third quarter of 1998. The Company is considering the
acquisition of additional land near the Sunterra Resorts San Luis Bay for
the addition of an estimated 100 units, but has yet to enter into an
agreement with respect to such land or to obtain any of the necessary
governmental approvals and permits for such proposed expansion.
(k) Includes 64 units currently under construction and scheduled to be
completed during the second quarter of 1998. The Company plans to commence
construction on an additional 40 units during 1999. All necessary
discretionary approvals and permits have been received for all units to be
constructed at the resort.
(l) Construction began in December 1996 on Sunterra Resorts The Ridge on Sedona
Golf, which, upon completion, will consist of 118 units. The first 12 units
received certificates of occupancy during the fourth quarter 1997.
Currently, 22 of the additional 106 units are under construction and
scheduled to be completed during the third quarter of 1998. Governmental
approvals and permits have not been sought or received for the remaining
planned 84 units. Vacation Interval sales began in May 1997.
(m) 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 Sunterra Resorts NorthBay
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. AVCOM
has an exclusive sales and marketing contract for sales at Sunterra Resorts
NorthBay at Lake Arrowhead, and is the property manager of the resort.
Although Arrowhead Capital Partners, L.P. owns undeveloped land and
buildings under construction at the Sunterra Resorts NorthBay at Lake
Arrowhead, no definitive expansion plans have been made.
(n) Sunterra Resorts 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 64 units in Phase II. The Phase II construction is scheduled to
begin during the second quarter of 1998 and all necessary discretionary
government approvals and permits have been received for the additional 64
units.
(o) Includes 14 units that were completed during the fourth quarter of 1997 but
did not receive certificates of occupancy until the first quarter of 1998.
The Company's development schedule for the remaining 67 units will be
determined based on market demand and other factors.
(p) Includes 30 units that were completed and received certificates of
occupancy during the first quarter 1998. The Company's development schedule
for the remaining 394 units will be determined based on market demand and
other factors.
(q) Construction of an additional 28 units is scheduled to begin during the
second quarter of 1998.
(r) The Company acquired the Sunterra Resorts Bent Creek Golf Village and
surrounding property in September 1997. The Company plans to convert the
property into 108 units and develop an additional 109 units. Construction
of four units is in process and sales are expected to begin in the second
quarter of 1998.
(s) In December 1997, the Company purchased a 46 unit apartment complex which
it plans to convert to vacation ownership. The property is already
registered and renovations are scheduled to begin during the second quarter
of 1998.
(t) 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 continue foreclosing on the
remaining notes and acquiring clear title to the applicable Vacation
Intervals.
(u) Includes weekly intervals owned by the Company at three additional
properties that are not owned or managed by the Company.
(v) 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 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 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.
58
<PAGE> 63
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
general partner in the partnership, the Company is entitled to receive
approximately 50% of the net profits of the Poipu Partnership. In the event
certain internal rates of return specified in the Poipu Partnership
agreement are achieved, the Company is entitled to receive approximately
55% of the net profits of the Poipu Partnership.
(w) Includes 179 units that the Company currently rents on a nightly basis,
pending their sale as Vacation Intervals.
(x) The Company is currently constructing 30 units which are expected to be
completed during the third quarter of 1998. The Company has received all
necessary governmental approvals and permits to construct an additional 218
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.
(y) The Company has received all necessary governmental approvals and permits
(excluding building permits which the Company intends to apply for and
obtain on a phase-by-phase basis) to construct an additional estimated 108
units on land that it owns at the Embassy Vacation Resort Lake Tahoe. The
Company, subject to market demand, currently plans to commence construction
of an additional 40 of such units in the second quarter of each of 1998 and
1999 and the remaining 28 units commencing in May 2000.
(z) In November 1997, a partnership of which the Company is a managing general
partner acquired the Embassy Suites Resort at Kaanapali Beach, Maui,
Hawaii. A subsidiary of the Company owns a 24% partnership interest in the
acquiring entity. The Company intends to convert 157 of the 413 suites at
the resort into vacation ownership units. Sales are expected to commence
during the second quarter of 1998.
(aa) 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 sales
of Vacation Intervals commenced in the fourth quarter of 1997.
(bb) Includes 48 units which are completed and in sales. 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 beginning the renovation of such 48
additional units during the second quarter of 1998 and completing all
renovations by year-end 1998. The Company also owns adjacent land at the
St. John resort which may accommodate the development of additional units
but with respect to which no permits or approvals have been sought or
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.
(cc) Includes resorts acquired as a result of the Global Acquisition.
(dd) Represents the aggregate number of units and Vacation Intervals (as opposed
to Vacation Points) within the Company's Grand Vacation Club system and the
VTS Program. Certain of these resorts are not wholly-owned by the Company
and current units at these resorts represent only those units owned by the
Company.
(ee) Potential expansion units at each resort includes, as of December 31,
1997, (i) units currently under construction that have not yet received
their certificate of occupancy (or other equivalent certificate) and (ii)
units planned to be developed on land currently owned by Grand Vacation
Club or VI or under option to be acquired which have not yet received
their certificate of occupancy (or other equivalent certificate) and which
are not currently under construction.
(ff) Current inventory of Vacation Points represents, as of December 31, 1997,
the number of unsold Vacation Points in the Grand Vacation Club system and
VTS Program, as well as the number of points allocable to current unit
inventory owned by LSI or VI but not yet contributed to the Grand Vacation
Club system or VTS Program, respectively.
(gg) Potential expansion of Vacation Points represents, as of December 31,
1997, the estimated number of Vacation Points assignable to potential
expansion units within the Grand Vacation Club system and the VTS Program.
59
<PAGE> 64
The following table sets forth certain information, as of December 31,
1997, with respect to the Company's resorts owned on such date. All of the units
are fully-furnished, including telephones, televisions, VCRs and stereos, and
all but the studio units feature full kitchens. Most of the units contain a
washer and dryer, microwave and private outdoor barbecue grill. Many units also
include a private deck.
<TABLE>
<CAPTION>
RESORT AMENITIES
TYPES OF UNITS OFFERED --------------------------------------------
-------------------------- SWIMMING WHIRLPOOL/ RESTAURANT/
RESORTS LOCATION S 1BR 2BR 3BR 4BR TENNIS POOL JACUZZI LOUNGE
------- -------- --- --- --- --- --- ------ -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SUNTERRA RESORTS:
Sunterra Resorts Cypress Lake Buena Vista, Florida X X X X X X X
Pointe
Sunterra Resorts The Branson, Missouri X X X X X X X
Plantation at Fall
Creek
Sunterra Resorts Royal Hilton Head, South X X X
Dunes Carolina
Sunterra Resorts Royal St. Maarten, Netherlands X X X X X
Palm Beach Antilles
Sunterra Resorts Flamingo St. Maarten, Netherlands X X X X X
Beach Antilles
Sunterra Resorts San Luis Avila Beach, California X X X X X
Bay
Sunterra Resorts Scottsdale, Arizona X X X X X X
Scottsdale Villa Mirage
Sunterra Resorts The Sedona, Arizona X X X X X X X
Ridge on Sedona Golf
Sunterra Resorts Sedona Sedona, Arizona X X X X X
Springs
Sunterra Resorts Sedona Sedona, Arizona X X X X X
Summit
Sunterra Resorts Villas Sedona, Arizona X X X X
at Poco Diablo
Sunterra Resorts Villas Sedona, Arizona X X X X X
of Sedona
Sunterra Resorts NorthBay Lake Arrowhead, X X X X X
at Lake Arrowhead California
Sunterra Resorts Tahoe South Lake Tahoe, X X X X
Beach and Ski California
Sunterra Resorts Villas Lake Conroe, Texas X X X
on the Lake
Sunterra Resorts Powhatan Williamsburg, Virginia X X X X X X X
Plantation
Sunterra Resorts Williamsburg, Virginia X X X X X
Greensprings Plantation
Sunterra Resorts The Miami Beach, Florida X X X X X
Savoy on South Beach
Sunterra Resorts Bent Gatlinburg, Tennessee X X X X
Creek Golf Village
Sunterra Resorts Coral Miami Beach, Florida X X X
Reef
OTHER SUNTERRA AFFILIATED
RESORTS:
Tahoe Seasons South Lake Tahoe, X X X X X X X
California
EMBASSY VACATION RESORTS:
Embassy Vacation Resort Kauai, Hawaii X X X X X
Poipu Point
Embassy Vacation Resort Orlando, Florida X X X
Grand Beach
Embassy Vacation Resort South Lake Tahoe, X X X X X
Lake Tahoe California
Embassy Vacation Resort Maui, Hawaii, X X X X X
Kaanapali Beach
WESTIN VACATION CLUB:
Westin Vacation Club St. St. John, U.S. Virgin X X X X X X X X
John Islands
</TABLE>
60
<PAGE> 65
<TABLE>
<CAPTION>
RESORT AMENITIES
TYPES OF UNITS OFFERED --------------------------------------------
-------------------------- SWIMMING WHIRLPOOL/ RESTAURANT/
RESORTS LOCATION S 1BR 2BR 3BR 4BR TENNIS POOL JACUZZI LOUNGE
------- -------- --- --- --- --- --- ------ -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GRAND VACATION CLUB RESORTS:
The Alpine Club Schladming, Austria X X X X X X X
Burnside Park Owners Club Lancashire, England
Club del Carmen Lanzarote, Canary Islands X X X X X
Flanesford Priory Country Herefordshire, England X X X X
Estate
Kenmore Club Loch Tay, Scotland X X X X X X X
Los Claveles Tenerife, Canary Islands X X X X X
Le Moulin de Connelles Normandy, France X X X X X X
Los Amigos Beach Club Costa del Sol, Spain X X X X X X X X
Malibu Village Roussilon, France
Marina Baie des Anges Nice, France X X X X X X
Pine Lake Resort Lancashire, England X X X X X X
Playa Paraiso Mallorca, Spain X
Royal Oasis Club at Benal Costa del Sol, Spain X X X X X
Beach
Royal Oasis Club at La Costa del Sol, Spain X X X X X
Quinta
Royal Sunset Beach Club Tenerife, Canary Islands X X X X X X
Royal Tenerife Country Tenerife, Canary Islands X X X X X
Club
Sahara Sunset Club Costa del Sol, Spain X X X X X X
Sunset Bay Club Tenerife, Canary Islands X X X X X X
Sunset Harbor Club Tenerife, Canary Islands X X X X X
White Sands Beach Club Menorca, Spain X X X X X X
White Sands Country Club Menorca, Spain X X X X
Woodford Bridge Country North Devon, England X X X X X X
Club
Wychnor Park Country Club Stratfordshire, England X X X X X X X
VACATION INTERNATIONALE:
Clock Tower Village Whistler, British X X
Columbia
Sea Mountain Big Island, Hawaii X X X X X X
Elkhorn Village Sun Valley, Idaho X X X X X X X
Embarcadero Newport, Oregon X X X X X X
Fairway Villa Oahu, Hawaii X X X X
Hololani Maui, Hawaii X X
Kapaa Shore Kauai, Hawaii X X X X X
Kihei Kai Nani Maui, Hawaii X X
Kingsbury of Tahoe Stateline, Nevada X X X X
The Oasis Resort Palm Springs, California X X X X X X
Marina Inn Oceanside, California X X X X
Papakea Maui, Hawaii X X X X X
Point Brown Resort Ocean Shores, Washington X X X X X
Pono Kai Kauai, Hawaii X X X X X
Royal Kuhio Oahu, Hawaii X X
Sea Village Big Island, Hawaii X X X X X
The Pines Sunriver, Oregon X X X X X X
The Village at Steamboat Steamboat Springs, X X X X X X
Colorado
Torres Mazatlan Mazatlan, Mexico X X X X X X X
Vallarte Torre Puerto Vallarta, Mexico X X X X X X
Valley Isle Maui, Hawaii X X X X X
</TABLE>
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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 $25,000 for a three
bedroom residence. The Company offers consumer financing to the purchasers of
vacation interests at the Company's resort locations 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 interest.
The Company has entered into agreements with lenders for the Company's
financing of customer receivables. At December 31, 1997, the Company had
approximately $199 million of additional borrowing capacity available.
At December 31, 1997, the Company's mortgage portfolio included
approximately 37,000 promissory notes totaling approximately $355 million, with
a stated maturity of typically seven to ten years and a weighted average
interest rate of 14.4% per annum. As of December 31, 1997, approximately 4.6% of
the Company's consumer loans were considered by the Company to be delinquent
(scheduled payment past due by 60 or more days). The Company had completed or
commenced foreclosure or deed-in-lieu of foreclosure (which is typically
commenced once a scheduled payment is more than 120 days past due) on an
additional approximately 2.2% of its consumer loans. During 1997, the Company
charged off approximately 0.7% of the average outstanding principal balance of
its consumer loans. As of December 31, 1997, the Company's allowance for
doubtful accounts as a percentage of gross mortgages receivable was 6.5%, which
management believes is an adequate reserve for expected loan losses.
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 (which is
generally 120 days after the date a scheduled payment is due), at which point it
expenses the interest accrued on such loan, commences foreclosure proceedings
and, upon obtaining title, returns the Vacation Interval or Vacation Points to
the Company's inventory for resale. The Company closely monitors its loan
accounts and determines whether to foreclose on a case-by-case basis.
LSI currently contracts with a third-party bank to provide financing to
purchasers of points in its Grand Vacation Club. LSI is paid an upfront
commission of approximately 14% (which includes a 1% commission contingent on
the Company meeting certain volume thresholds) of the principal amount of
eligible consumer loans on a non-recourse basis.
SALES AND MARKETING
As the world's largest vacation ownership company, as measured by the
number of resort locations, 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 and Vacation Points. The
Company's primary means of selling Vacation Intervals and Vacation Points 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
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of profiling, and are intended to include current owners of Vacation Intervals
and Vacation Points. Cross-marketing targets current owners of Vacation
Intervals and Vacation Points at the Company's resort locations, both to sell
additional Vacation Intervals and Vacation Points at the owner's home resort, or
to sell a Vacation Interval or Vacation Points at another of the Company's
resort locations. The Company also sells Vacation Points through 13 off-site
sales centers.
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 and Vacation Point 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 generally 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
ownership resorts 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 location and the resulting demand for the converted
units, (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 location, 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 and
alternate uses of the resort are considered, including the prospects for
obtaining liquidity through sale or refinancing of the resort location.
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 environmental consulting firms. 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 the 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 and Vacation
Points, the Company rents units with respect to such unsold or unused Vacation
Intervals and Vacation Points for use as a hotel. The Company offers these
unoccupied units both through direct consumer sales, travel agents and/or
vacation package 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 and
Vacation Points. As part of the management services provided by the Company to
Vacation Interval and Vacation Points owners, the Company receives a fee for
services provided to rent an owner's Vacation Interval in the event the owner is
unable to use or exchange the Vacation Interval. In addition, the Embassy
Vacation Resort Poipu Point was acquired as a traditional resort condominium and
the Sunterra Resorts Carambola Beach and Embassy Vacation Resort Kaanapali Beach
were acquired as traditional hotels, with the intention of converting each such
resort location 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 Sunterra 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 are managed by Westin with
respect to the Westin Vacation Club resort. The Company manages 27 of its
Sunterra Resorts, two of its Embassy Vacation Resorts, 19 of its VI resorts and
18 of its Grand Vacation Club resorts. The Company's Marc Resorts subsidiary
manages units at an additional 22 resorts in Hawaii. The remaining resort
locations are managed by third party management companies. The Company pays
Promus a licensing fee of 2% of Vacation Interval sales at the Embassy Vacation
Resorts.
At each of the Company's managed resort locations, the Company enters into
a management agreement to provide for management and maintenance of the resort.
Pursuant to each such management agreement the Company is typically paid a
monthly management fee equal to 10% of monthly maintenance fees (15% of monthly
maintenance fees with respect to its Grand Vacation Club resorts). 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
managed resort locations, including administrative services, procurement of
inventories and supplies and promotion and publicity. With respect to each
managed resort location, 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 managed resort locations, 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.
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 interest 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.
POINTS-BASED VACATION OWNERSHIP PROGRAMS
In general, under a points-based system, owners (usually referred to as
members) purchase points which act as an annual currency entitlement for
occupancy rights at any of the club's participating resorts. The Company's Club
Sunterra points-based system will operate on a basis very similar to the
standard vacation interval ownership structure in that members have a home
resort, and have a deeded, fee-simple interest in a particular unit at that home
resort. The advantages of a points-based system relate to the flexibility given
to members with respect to the usage of their points versus the usage of a
traditional interval. In traditional interval ownership, owners can generally
only use their interval for a one week stay in a specific unit size in a
specific resort or exchange through an external exchange organization (i.e. RCI
or II). Under a points-based system, members can select vacations according to
their schedules and space needs, based on their available points. Owners can
"spend" their points as they wish, for example using them all for one extended
stay or dividing them up into multiple shorter stays. Owners may also choose
between larger or smaller units which have different point values. (The number
of points required for a stay varies depending upon a variety of factors,
including the resort location, the size of the unit, the vacation season and the
length of stay.) Additionally, in a points-based system, owners can redeem their
points for a stay in any one of the resorts included in the club without having
to exchange through an external exchange company such as RCI or II. Members of
the proposed Club Sunterra points system will, however, be able to exchange
through RCI or II for vacation stays at resorts outside of their club systems if
they desire.
The Company currently operates two points-based vacation ownership
programs: the Grand Vacation Club (consisting of the Company's 26 European
resorts) and the VTS Program (consisting of 21 resorts in North America). Over
time, the Company intends to continue its expansion of the Grand Vacation Club
system in Europe. It also intends to integrate the VTS Program and the Company's
29 Sunterra Resorts into Club Sunterra. Club Sunterra will operate as an
umbrella points-based vacation exchange program for its European and North
American operations. In addition to attracting new owners, the Company will
market Club Sunterra to its existing base of owner families.
PARTICIPATION IN VACATION INTEREST EXCHANGE NETWORKS
The Company believes that its vacation interests are made more attractive
by the Company's participation in vacation interest exchange networks operated
by RCI and II. In a 1997 study sponsored by ARDA, the exchange opportunity was
cited by purchasers of vacation interests as one of the most significant factors
in determining whether to purchase a vacation interest. Participation in RCI and
II allows the Company's customers to exchange in a particular year their
occupancy right in the unit in which they own a vacation interest 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.
Members may exchange their vacation interests for occupancy rights in another
participating resort by listing their vacation interests 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. Both RCI and II assign ratings to each listed vacation
interest, 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
interest is available, and attempts to satisfy the exchange request by providing
an occupancy right in another vacation interest with a similar rating. If RCI or
II 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 interest
exchange organization, which has a total of more than 3,000 participating resort
facilities and over 2.2 million members worldwide. The cost of the annual
membership fee in RCI, which typically is at the option and expense of the owner
of the vacation
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interest, is $78 per year, plus an exchange fee of $110 and $145 for domestic
and international exchanges, respectively. RCI has assigned high ratings to the
vacation interests in the Company's resort locations, and such vacation
interests have in the past been exchanged for vacation interests at other
highly-rated member resorts. Established in 1976, II has more than 1,500
participating resort facilities and over 750,000 members worldwide. The cost of
the annual membership fee in II, which typically is at the option and expense of
the owner of the vacation interest, is $68 per year, plus an exchange fee of $99
and $119 for domestic and international exchanges, respectively. II has assigned
high ratings to the vacation interests in the Company's resort properties, and
such vacation interests have in the past been exchanged for vacation interests
at other highly-rated member resorts.
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 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. 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 than the Company as result.
The Company also competes with companies with non-branded resorts such as
CFI, Vistana, Fairfield, Silverleaf, Trendwest and ILX. Under the terms of a
five-year agreement, Promus and Vistana will jointly acquire, develop, manage
and market vacation ownership resorts in North America under Promus brand names.
As part of the agreement, Promus and Vistana will designate selected markets for
development (which markets currently include Kissimmee, Florida and Myrtle
Beach, South Carolina and in which markets Vistana will have exclusive
development rights). The Company is not precluded from using the Embassy
Vacation Resort name in connection with resorts acquired during the term of the
agreement in markets not otherwise exclusive to Vistana. The Company has been
identified by Promus as the only other licensee to whom Promus may license the
Embassy Vacation Resort name. 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.
As a result of the LSI and Global Acquisitions, the Company is also subject
to competition in the European vacation ownership market, which is highly
fragmented. In addition to LSI and the Global Group, there is one other operator
in Europe operating multi-resort points clubs -- Club la Costa. LSI and the
Global Group also have competition from individual vacation ownership resorts
(including Marriott) in several of the areas in which it operates.
In addition, the Company also competes with the buyers of its Vacation
Intervals who subsequently decide to resell those intervals. While the Company
believes, based on experience at its resorts, that the market for resale of
Vacation Intervals by buyers is presently limited, such resales are typically at
prices substantially less than the original purchase price. 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.
GOVERNMENTAL REGULATION
General. The Company's marketing and sales of vacation interests 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 interests 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 and
Abuse Prevention Act, Fair Housing Act and the Civil Rights Act of
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1964 and 1968. In addition, many states have adopted specific laws and
regulations regarding the sale of vacation interest ownership programs. The laws
of most states, including Florida, South Carolina and Hawaii require the Company
to file with a designated state authority for its approval a detailed offering
statement describing the Company and all material aspects of the project and
sale of vacation interests. 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 interests.
When the California Department of Real Estate determines that a project has
complied with California law, it will issue a public report for the project. The
Company is required to deliver an offering statement or public report to all
prospective purchasers of vacation interests, together with certain additional
information concerning the terms of the purchase. The laws of Illinois, Florida,
Hawaii and Virginia impose similar requirements. Laws in each state where the
Company sells vacation interests generally grant the purchaser of a vacation
interest 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. The Company is in the process of
determining whether it must offer rescission rights to purchasers of up to 227
Vacation Intervals at the San Luis Bay Resort in order to comply with California
Department of Real Estate regulations. Although these sales currently remain in
escrow, if any such purchaser exercises a rescission right, the Company would
refund the purchaser's deposit and will take the subject Vacation Interval back
into inventory to be resold at a later date. No assurance can be given that the
cost of qualifying under vacation interest 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.
The marketing and sales of the Company's Grand Vacation Club points system
and its other operations are subject to national and European regulation and
legislation. Within the European Community (which includes all the countries in
which the Company conducts its operations), the European Timeshare Directive of
1994 regulates vacation ownership activities. For it to have direct effect, the
European Timeshare Directive must have been implemented by European Community
Member States prior to May 1997. As of the date of this Offering Memorandum,
Spain and France have not implemented the Directive. The terms of the Directive
require the Company to issue a disclosure statement providing specific
information about its resorts and its vacation ownership operations as well as
making mandatory a 10 day rescission period and a prohibition on the taking of
advance payments prior to the expiration of that rescission period. Member
States are permitted to introduce legislation which is more protective of the
consumer when implementing the European Timeshare Directive. In the United
Kingdom, where the majority of the Company's marketing and sales operations take
place, the Directive has been implemented by way of an amendment to the
Timeshare Act 1992. In the United Kingdom, a 14 day rescission period is
mandatory. There are other United Kingdom laws which the Company is or may be
subject to including the Consumer Credit Act 1974, the Unfair Terms in Consumer
Contracts Regulations 1994, the Unfair Contract Terms Act 1977, the Data
Protection Act 1984 and the Package Travel, Package Holidays and Package Tours
Regulations 1992. While Spain and France have no specific timeshare legislation,
it is expected that they will implement the Timeshare Directive in the near
future. Until they do so, however, the European Timeshare Directive has no
direct effect in Spain or France. The Timeshare Act 1992 does appear to have
extra-territorial effect in that United Kingdom resident purchasers buying
timeshare in other European Economic Area States may rely upon it. All the
countries in which the Company operates have consumer and other laws which
regulate its activities in those countries. The Company is member of the
Timeshare Council which is the United Kingdom's self regulating trade body for
vacation ownership companies. As a member, it is obligated to comply with all
laws as well as with certain
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codes of conduct (including a code of conduct for the operating of points
systems) promulgated by the Timeshare Council.
Environmental Matters. Under various Environmental Laws, a current or
previous owner or operator of real estate may be required to investigate and
clean up hazardous or toxic substances or wastes or releases of petroleum
products or wastes at such property, and may be held liable to a governmental
entity or to third parties for associated damages and for investigation and
clean-up costs incurred by such parties in connection with the contamination.
Such laws may 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. In addition, 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 or wastes 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 statutory or 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 potentially may be liable for such
costs. In addition, as a result of the consummation of the Acquisitions, the
Company could be held liable for the pre-existing environmental and other
liabilities of the acquired companies, if any.
Certain Environmental Laws 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 operators of real
properties for personal injury associated with ACMs. In connection with its
ownership and operation of its properties, the Company potentially may be liable
for such costs.
In addition, recent studies have linked radon, a naturally-occurring
substance, to increased risks of lung cancer. While there are currently no state
or federal requirements regarding the monitoring for, presence of, or exposure
to, radon in indoor air, the EPA and the Surgeon General recommend testing
residences for the presence of radon in indoor air, and the EPA further
recommends that concentrations of radon in indoor air be limited to less than 4
picocuries per liter of air (pCi/L) (the "Recommended Action Level"). The
presence of radon in concentrations equal to or greater than the Recommended
Action Level in one or more of the Company's resorts may adversely affect the
Company's ability to sell vacation interests at such resorts and the market
value of such resort. In addition, the Company is required to disclose to
potential purchasers and owners of vacation interests at the Company's resorts
that were constructed prior to 1978 any known lead-paint hazards and failure to
so notify could impose damages on the Company.
The Company has conducted Phase I environmental assessments (which
typically involve inspection without soil sampling or groundwater analysis)
performed by independent environmental consultants at each of the resort
locations at which it has sold or owns a material amount of inventory in order
to identify potential environmental concerns. These Phase I assessments have
been carried out in accordance with accepted industry practices, and generally
have included a preliminary investigation of the sites and identification of
publicly known conditions concerning properties in the vicinity of the sites,
physical site inspections, review of aerial photographs and relevant
governmental records where readily available, interviews with knowledgeable
parties, investigation for the presence of above ground and underground storage
tanks presently or formerly at the sites, a visual inspection of potential
lead-based paint and suspect friable ACMs where appropriate, and the preparation
and issuance of written reports.
The Company's assessments of its resorts 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
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Company's assessments do not reveal all environmental liabilities or that there
are material environmental liabilities of which the Company is unaware. The
Company believes that its properties are in compliance in all material respects
with all Environmental Laws regarding hazardous or toxic substances or wastes.
The Company does not believe that continued 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 Sunterra Resorts San Luis Bay, several areas of
environmental concern have been identified. The areas of concern at the Embassy
Vacation Resort Lake Tahoe relate to possible soil and groundwater contamination
that has migrated onto the resort site from an upgradient source; in addition,
residual contamination may exist on the resort site as a result of leaking
underground storage tanks that were removed prior to the Company's acquisition
of the resort site. California regulatory authorities are monitoring the
off-site contamination and have required or are in the process of requiring the
responsible parties to undertake remedial action. The Company has been
indemnified by Chevron (USA), Inc. for certain costs and expenses in connection
with the off-site contamination. The Company does not believe that it will be
held liable for this contamination and does not anticipate incurring material
costs in connection therewith; however, there can be no assurance that the
indemnitor will meet its obligations in a complete and timely manner. Sunterra
Resorts San Luis Bay is located in an area of Avila Beach, California which has
experienced soil and groundwater contamination resulting from a nearby oil
refinery. California regulatory authorities have required the installation of
groundwater monitoring wells on the beach near the resort site (among other
locations). As of the present time, the Company does not believe that any
remedial action has been undertaken. It is possible that the Company's
operations could be adversely impacted, including possible temporary
interference with access to the resort site, once remediation is underway. The
Company does not believe that it is liable for this contamination and does not
anticipate incurring material costs in connection therewith; however, there can
be no assurance that claims will not be asserted against the Company with
respect to this matter. In addition, the Company is evaluating whether any
remediation or corrective action may be necessary at its Malaga Bay resorts.
The Company is not aware of environmental liability that would have a
material adverse effect on the Company's business, assets or results of
operations, nor has the Company been notified by any governmental authority or
any third party, and is not otherwise aware, of any material noncompliance,
liability or other claim relating to hazardous or toxic substances or petroleum
products in connection with any of its present or former properties. The Company
believes that it is in compliance in all material respects with all
Environmental Laws. No assurance, however, can be given that the Company is
aware of all environmental liabilities or that no prior owner, operator or third
party caused a material environmental condition at such property not currently
known to the Company. See "Risk Factors -- Possible Environmental Liabilities."
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 December 31, 1997, the Company had approximately 4,150 employees. The
Company believes that its employee relations are good. Except for certain
employees located at the St. Maarten, Netherlands Antilles resorts, none of the
Company's employees are represented by a labor union.
The Company sells Vacation Intervals and Vacation Points at its resorts
through approximately 1,250 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
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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.
INSURANCE
The Company carries comprehensive liability, fire, hurricane, storm,
earthquake and business interruption insurance with respect to the Company's
resorts locations, 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. 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.
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, including the "Sunterra" and "Own Your World" service marks 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 to "Sunterra
Corporation." The name change proposal will be presented for stockholder
approval at the Company's May 15, 1998 annual meeting.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information, as of March 31, 1998,
concerning each person who is a director or executive officer of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Osamu Kaneko......................... 50 Chairman of the Board
Andrew J. Gessow..................... 40 Director and Chief Executive Officer
Steven C. Kenninger.................. 45 Director and President
Michael A. Depatie................... 41 Director, Executive Vice President and Chief
Financial Officer
James E. Noyes....................... 51 Director and Chief Operating Officer
Charles C. Frey...................... 43 Senior Vice President, Accounting and Administration
Loren V. Gallagher................... 51 Senior Vice President, Asia
Genevieve Giannoni................... 34 Senior Vice President, Operations
Michael V. Paulin.................... 56 Senior Vice President, Hospitality Management
Dewey W. Chambers.................... 40 Vice President and Treasurer
Andrew D. Hutton..................... 33 Vice President, General Counsel and Secretary
Timothy D. Levin..................... 41 Vice President, Architecture
David D. Philp....................... 36 Vice President, Acquisitions
Peter J. Shoobridge.................. 32 Vice President, Business Development
James D. Wheat....................... 40 Vice President and Corporate Controller
Adam M. Aron......................... 43 Director
Sanford R. Climan.................... 42 Director
J. Taylor Crandall................... 43 Director
Joshua S. Friedman................... 42 Director
W. Leo Kiely III..................... 51 Director
</TABLE>
OSAMU KANEKO has served as a Chairman of the Board of the Company since
June 1996, previously serving as Chief Executive Officer of the Company from
June 1996 to July 1997 and as Co-Chief Executive Officer from July 1997 to
February 1998. Mr. Kaneko, a Japanese national, received a 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 Japanese real estate development company. In this
capacity, Mr. Kaneko was responsible for the development of income producing
properties in Hawaii, including resort condominiums and hotels. In 1985, Mr.
Kaneko co-founded KOAR Group, Inc. ("KOAR") (a real estate acquisition and
development company) with Mr. Kenninger and since that time has served as its
Chief Executive Officer.
ANDREW J. GESSOW has served as a Director of the Company since its
inception in May 1996 and as Chief Executive Officer since February 1998,
previously serving as Co-Chief Executive Officer since July 1997 and as
President since June 1996. Mr. Gessow founded Argosy Group Inc. ("Argosy")(a
real estate acquisition and development company and one of the Company's
predecessor entities) in 1990 and served as its President from 1990 through
August 1996. Prior thereto, Mr. Gessow served as a Partner with Trammell Crow
Company (a real estate development, management and investment company) and was
President of Trammell Crow Residential Services, Florida and West Coast from
1987 to 1990. From 1981 through 1987, Mr. Gessow was Founder and President of
Travel, Inc., and Home Search, Inc. which he co-founded with Citicorp Venture
Capital. Mr. Gessow received a 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 of the Company since its
inception and as President of the Company since February 1998. Previously, Mr.
Kenninger served as Chief Operating Officer and Secretary of the Company from
June 1996 to February 1998. Mr. Kenninger co-founded KOAR with Mr. Kaneko in
1985 and most recently served as its President. Mr. Kenninger was a practicing
attorney at the law firm of Paul,
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Hastings, Janofsky & Walker, located in Los Angeles, California from 1977
through 1981 and at the law firm of Riordan & McKinzie, located in Los Angeles,
California from 1981 through 1985, where he was a partner. Mr. Kenninger
received a B.S. degree in Mechanical Engineering from Purdue University 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.
MICHAEL A. DEPATIE has served as a Director of the Company since October
1997 and as Executive Vice President and Chief Financial Officer of the Company
since November 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. Mr. Depatie received a B.A. degree from Michigan State University in
1979 and a M.B.A. degree from Harvard Business School in 1983.
JAMES E. NOYES has served as a Director of the Company since July 1996 and
as Chief Operating Officer since February 1998. Previously, Mr. Noyes served as
Executive Vice President of the Company since July 1996. 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 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.
CHARLES C. FREY has served as Senior Vice President, Accounting and
Administration of the Company since January 1997. Previously, he served as
Senior Vice President and Treasurer of the Company since July 1996. Prior
thereto, Mr. Frey had served as Senior Vice President of Administration and
Treasurer of Argosy (one of the Company's predecessor entities) since 1992.
Prior thereto, 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 and a licensed real estate broker in Florida. He
received a B.S. degree in Accounting and Economics from the Indiana University
of Pennsylvania in 1977.
LOREN V. GALLAGHER has served as Senior Vice President, Asia of the Company
since January 1997. Prior to joining the Company, Mr. Gallagher held executive
management positions with Vacation Resorts International (a vacation ownership
management company) from 1979 through December 1996, most recently serving as
its President and Chief Operating Officer. In addition, Mr. Gallagher was a
practicing attorney from 1983 to 1996, specializing in real estate acquisition
and vacation ownership. Prior thereto, he was an independent real estate broker
in California from 1977 to 1979 and was a licensed real estate sales associate
at Coldwell-Banker from 1975 to 1977. He is a licensed real estate broker in
California and is a member of the State Bar of California. Mr. Gallagher
received a B.A. degree from Winona State University, M.A. degrees from San Diego
State University and National Chengchi University in Taiwan (Chinese language)
and a J.D. degree from Loyola Law School.
GENEVIEVE GIANNONI has served as Senior Vice President, Operations of the
Company since July 1996. Ms. Giannoni joined Argosy (one of the Company's
predecessor entities) in May 1992 as Director of Marketing, became a Vice
President in 1993, and Senior Vice President, Operations in 1994. 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 a B.A. degree from Rollins College in 1985
and graduated from the Crummer Management Program at Rollins College in 1990.
MICHAEL V. PAULIN has served as Senior Vice President, Hospitality
Management of the Company since January 1998. Mr. Paulin also serves as
President of the Company's Marc Hotels & Resorts subsidiary which he founded in
1987 and the Company acquired in October 1997. Prior to forming Marc Hotels &
Resorts, Mr. Paulin served as Senior Vice President of Aston Hotels & Resorts
form 1978 to 1987 and Vice President
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of Colony Hotels from 1970 to 1978. From 1964 to 1970, Mr. Paulin was President
and Founder of World Wide Living, Inc., a tourist apartment, home, and yacht
rentals provider. Mr. Paulin has served as Chairman of the Hawaii Hotel
Association and Chairman of the Pacific Asia Travel Association. Mr. Paulin
received a B.S. degree in Business Economics and International Trade from the
University of Southern California in 1963.
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 -- 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
is a Certified Public Accountant. 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.
ANDREW D. HUTTON has served as Vice President and General Counsel of the
Company since October 1996 and as Secretary of the Company since February 1998.
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
from the University of Minnesota Law School in 1991 and received 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, Architecture of the Company
since July 1996. Prior thereto, Mr. Levin was Vice President, Architecture, of
KOAR since December 1995. From 1989 through December 1995, Mr. Levin was
President of Sevelex Consultants, Inc., a project management and design
consulting firm affiliated with Messrs. Kaneko and Kenninger. 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
and has been a licensed General Contractor in the State of California since
1980. Mr. Levin received his Bachelor of Architecture degree from Southern
California Institute of Architecture in 1986.
DAVID D. PHILP has served as Vice President, Acquisitions of the Company
since September 1997, previously serving as Senior Director of Acquisitions
since February 1996. Prior to joining the Company, Mr. Philp was a Director of
Development for Doubletree Hotels Corporation from October 1994 through August
1995 and from 1991 through September 1994 was a Director of the Hospitality
Consulting Group for Kenneth Leventhal & Company. Prior thereto, Mr. Philp was a
Manager of Development for IDG Development (a real estate development company)
from 1990 to 1991, was a Senior Consultant for the accounting firm of Pannell
Kerr Forster from 1987 to 1990 and held operations management positions with
Hyatt Hotels Corporation from 1984 to 1987. He received a B.A. degree from the
Cornell University School of Hotel Administration in 1984.
PETER J. SHOOBRIDGE has served as Vice President of Business Development of
the Company since September 1997. From January 1994 to September 1997 he served
as Chief Financial Officer and from July 1996 to September 1997, as Director of
Business Development of LSI Group Holdings Plc, which was acquired by the
Company in August 1997. Prior to joining LSI, Mr. Shoobridge served with the
accounting firm of BDO Sloy Hayward in London, England from January 1984 to
August 1987, most recently as manager in the Corporate Finance department. Mr.
Shoobridge holds a degree in music from the Royal Northern College of Music in
Manchester, England, and is a member of the Institute of Chartered Accountants
in England and Wales.
JAMES D. WHEAT has served as Vice President and Corporate Controller of the
Company since November 1997. Prior to joining the Company, Mr. Wheat served with
Raychem Corporation (a materials science manufacturing company) from 1991 to
November 1997 as internal auditor, division controller and external reporting
manager. Mr. Wheat is a Certified Public Accountant, Certified Management
Accountant, Certified Internal Auditor and is a licensed real estate broker in
California. He received a B.B.A. degree from the University of Michigan in 1980
and a M.B.A. degree from The Wharton School of Business at the University of
Pennsylvania in 1985.
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ADAM M. ARON has served as Director of the Company since October 1997. Mr.
Aron has served as Chairman of the Board and Chief Executive Officer of Vail
Resorts, Inc. since July 1996. Prior to joining Vail Resorts, Mr. Aron served as
President and Chief Executive Officer of Norwegian Cruise Line Ltd. from July
1993 to July 1996, as Senior Vice President of Marketing for United Airlines
from November 1990 to July 1993 and as Senior Vice President of Marketing for
Hyatt Hotels Corporation from 1987 to 1990. Mr. Aron also serves as a director
of Florsheim Group, Inc. Mr. Aron holds a B.A. degree from Harvard College and a
M.B.A. degree from Harvard Business School.
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. From October 1995 through May 1997, Mr. Climan
was Executive Vice President and President Worldwide Business Development of
Universal Studios, Inc. 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.
J. TAYLOR CRANDALL has served as a Director of the Company since October
1997. Mr. Crandall has served as Vice President and Chief Financial Officer of
Keystone, Inc., the principal investment vehicle of Robert M. Bass of Fort
Worth, Texas since October 1996 and as President, Director and sole stockholder
of Acadia MGP, Inc. (managing general partner of Acadia Investment Partners,
L.P., the sole general partner of Acadia Partners, L.P. (an investment
partnership)) since 1992. Mr. Crandall also serves as a director of Bell &
Howell Company, Quaker State, Specialty Foods Corporation and Washington Mutual.
Mr. Crandall holds a B.A. degree from Bowdoin College, where he has served as a
trustee.
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 served with Drexel Burnham Lambert
Incorporated (an investment banking firm), most recently as Executive Vice
President and Co-Director, Capital Markets. Mr. Friedman also serves as a
director of First Aviation Services, Inc. (an 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., a 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.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The Company's indebtedness at December 31, 1997 consists principally of the
Senior Subordinated Notes, the Convertible Notes, hypothecated notes and other
indebtedness with balances of $200.0 million, $138.0 million, $74.6 million and
$22.6 million, respectively. The Company has also entered into a $117.5 million
Senior Credit Facility. As of May 1, 1998, no amounts were outstanding under the
Senior Credit Facility. The Company is also in negotiations to issue up to
approximately $100 million of Securitized Notes. The material terms of such
indebtedness are summarized below.
SENIOR SUBORDINATED NOTES
In August 1997, the Company consummated its offering of the Senior
Subordinated Notes. The Senior Subordinated Notes are unsecured senior
subordinated obligations of the Company, are limited to an aggregate principal
amount of $200 million and will mature on October 1, 2007. The Senior
Subordinated Notes bear interest at a rate of 9 3/4% per annum, payable
semiannually on April 1 and October 1 of each year. The Senior Subordinated
Notes are redeemable, in whole or in part, at the option of the Company on or
after October 1, 2002, at certain redemption prices plus accrued and unpaid
interest, if any, to the date of redemption. In addition, prior to October 1,
2000 the Company, at its option, may redeem up to 40% of the aggregate principal
amount of the Senior Subordinated Notes originally issued with the net cash
proceeds of one or more equity offerings at a redemption price equal to 109.75%
of the principal amount thereof, plus accrued and unpaid interest, if any, to
the date of redemption. Upon a change of control, each holder of the Senior
Subordinated Notes will have the right to require the Company to repurchase such
holder's Senior Subordinated Notes at a price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
repurchase. In addition, in certain circumstances, the Company will be obligated
to offer to repurchase the Senior Subordinated Notes at 100% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
repurchase in the event of certain asset sales.
The Senior Subordinated Notes are subordinated in right of payment to all
existing and future senior indebtedness of the Company (including the Notes) and
are effectively subordinated to all indebtedness and other obligations of the
Company's subsidiaries. The Senior Subordinated Notes are senior in right of
payment to the Convertible Notes. The indenture governing the Senior
Subordinated Notes contains covenants that, among other things, limit the
ability of the Company and its restricted subsidiaries to (i) incur additional
indebtedness, (ii) pay dividends or make other distributions with respect to
capital stock of the Company and its restricted subsidiaries, (iii) create
certain liens, (iv) sell material assets of the Company or its restricted
subsidiaries and (v) enter into certain mergers and consolidations.
CONVERTIBLE NOTES
In February 1997, the Company consummated its offering of $138.0 million
aggregate principal amount of its Convertible Notes. The Convertible Notes are
convertible into Common Stock at any time prior to maturity, unless previously
redeemed, at a conversion price of $30.417 per share, subject to adjustment in
certain events. The Convertible Notes bear interest at an annual rate of 5.75%,
which interest is payable on January 15 and July 15 of each year, commencing on
July 15, 1997. The Convertible Notes are redeemable, in whole or in part, at the
option of the Company at any time on or after January 15, 2000, at certain
redemption prices, plus accrued interest, if any, to the redemption date. If a
Change in Control occurs, each holder of Convertible Notes will have the right,
subject to certain conditions and restrictions, to require the Company to offer
to repurchase for cash (subject to the Company's right to make such offer in
Common Stock under certain circumstances) all outstanding Convertible Notes, in
whole or in part, owned by such holder at 100% of their principal amount, plus
accrued interest, if any, to the date of repurchase. The Convertible Notes are
subordinated to all existing and future Senior Indebtedness of the Company
including the Notes and the Senior Subordinated Notes and will be effectively
subordinated to all indebtedness and other obligations of the Company's
subsidiaries.
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HYPOTHECATED NOTES
The Company has entered into hypothecation agreements with lenders for the
Company's financing of customer receivables. The hypothecated notes, which
totaled $74.6 million at December 31, 1997, typically bear interest from LIBOR
plus 3% to the prime rate plus 3% and mature three to seven years from the date
of the last advance. Under the Company's hypothecated note 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 promissory notes. Payments under these promissory notes are made by the
vacation interest purchaser directly to an unaffiliated 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, with
corresponding maturities ranging from five to seven years. The Company does not
presently have binding agreements to extend the terms of such existing financing
arrangements or for any replacement financing arrangements 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 interests 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
interests.
OTHER INDEBTEDNESS
At December 31, 1997, the Company's other indebtedness totaled $22.6
million. Of this total, $11.6 million is primarily secured by consumer mortgages
bearing interest at 7.75% and maturing April 2004. This debt has been sold to a
trust with recourse to the Company and is therefore not classified as
hypothecated debt. An additional $6.2 million of indebtedness is secured by land
and other assets and bears interest at rates ranging from 7.75% to 9.00% and has
final maturities ranging from 1999 to 2014. The Company also has $4.8 million in
advances on mortgages sold with recourse to a third party. The principal and
interest on the mortgages receivable sold with recourse are remitted directly to
the purchaser and are therefore not classified as hypothecated debt.
SENIOR CREDIT FACILITY
The Company entered into a $100 million Senior Credit Facility on February
18, 1998. On April 1, 1998, the Senior Credit Facility was amended to increase
the amount available thereunder to $117.5 million. The Senior Credit Facility
has variable borrowing based on the percentage of the Company's mortgage
receivables pledged under such facility and the amount of funds advanced
thereunder. The interest rate under the Senior Credit Facility will vary between
LIBOR plus 7/8% and LIBOR plus 1 3/8%, depending on the amount advanced against
mortgages receivable. The Senior Credit Facility has a three-year term and
contains covenants such as, but not limited to, limits on maximum total
indebtedness to total capitalization, limits on maximum total senior debt to
total capitalization, minimum tangible net worth requirements, minimum interest
coverage ratio requirements, as well as restrictions on dividends and
investments, covenants, representations and warranties and conditions to borrow
the funds. As of May 1, 1998, no amounts were outstanding under the Senior
Credit Facility.
SECURITIZED NOTES
The Company expects to securitize approximately $100 million of its
mortgages receivable, of which $50 million has been pre-committed. The Company
expects to convey the mortgages receivable to a bankruptcy remote subsidiary,
which would issue the Securitized Notes. The Securitized Notes would be
nonrecourse to the Company. The Company is finalizing negotiations and expects
to complete the securitization by May 1998. If completed, the securitization
would be treated as a financing transaction for accounting purposes. The
mortgages receivable and the Securitized Notes would remain on the Company's
balance sheet. The Company would recognize no gain or loss on the Securitized
Notes transaction.
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DESCRIPTION OF NOTES
The Private Notes were, and the Exchange notes will be, issued under an
Indenture dated as of April 15, 1998, between the Company and Norwest Bank
Minnesota, National Association, as Trustee (the "Trustee"), a copy of which is
available as set forth under "Available Information." The following summaries of
certain provisions of the Indenture do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all the
provisions of the Indenture, including the definitions therein of certain terms.
Whenever particular Sections, Articles or defined terms of the Indenture are
referred to, such Sections, Articles or defined terms are incorporated herein by
reference. As used in this "Description of Notes," the "Company" refers to
Signature Resorts, Inc. and does not include its subsidiaries or affiliates.
GENERAL
The Notes are general unsecured obligations of the Company and will rank
pari passu in right of payment with all existing and future unsubordinated
Indebtedness of the Company and will rank senior in right of payment to all
subordinated Indebtedness of the Company. The Notes are effectively subordinated
to all secured Indebtedness of the Company to the extent of the security and to
all Indebtedness and other obligations (including trade payables) of the
Company's subsidiaries. In addition, the operations of the Company are conducted
in part through its Subsidiaries and, therefore, the Company is dependent in
part upon the cash flow of its Subsidiaries to meet its obligations, including
its obligations under the Notes. The Company's Subsidiaries will not guarantee
the Company's payment of obligation under the Notes. See "Risk
Factors -- Structural Subordination of Notes." The Notes are limited to an
aggregate principal amount of $140.0 million and will mature on May 15, 2006.
The Notes will bear interest at the rate per annum shown on the front cover of
this Prospectus from the date of initial issuance or from the most recent
Interest Payment Date to which interest has been paid or duly provided for,
payable semiannually on May 15 and November 15 of each year, commencing on
November 15, 1998, to the Person in whose name the Note (or any predecessor
Note) is registered at the close of business on the preceding May 1 or November
1, as the case may be. Principal of and interest on the Notes will be payable
at, and the transfer of Notes will be registrable at, the office of the
Trustee's agent in New York, New York. In addition, payment of interest may, at
the option of the Company, be made by check mailed to the address of the person
entitled thereto as it appears in the Security Register. Interest will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple thereof. No service charge
will be made 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 payable in connection therewith.
The Company may be required to pay liquidated damages in certain
circumstances if the Company does not file a registration statement relating to
the Registered Exchange Offer on a timely basis, if the registration statement
is not declared effective on a timely basis or if certain other conditions are
not satisfied, all as further described under "Exchange Offer -- Liquidated
Damages."
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Notes may not be
redeemed at the option of the Company prior to May 15, 2002. Thereafter, the
Notes may be redeemed, in whole or in part, at the option of the Company, upon
not less than 30 nor more than 60 days' notice by mail.
The Redemption Prices (expressed as a percentage of 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
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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 May 15 of
the following years:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2002.............................. 104.625%
2003.............................. 103.083%
2004.............................. 101.542%
2005 and thereafter............... 100.000%
</TABLE>
In addition, at any time and from time to time prior to May 15, 2001, the
Company may redeem in the aggregate up to 40% of the original principal amount
of the Notes with the proceeds of one or more Equity Offerings, at a redemption
price (expressed as a percentage of principal amount) of 109.25% plus accrued
and unpaid interest, if any, to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date); provided, however, that at least 60% of the
original aggregate principal amount of the Notes must remain outstanding after
each such redemption.
If less than all of the Notes are to be redeemed, the Trustee will select
the particular Notes (or the portions thereof) to be redeemed either by lot, pro
rata or by such other method as the Trustee shall deem fair or appropriate.
No sinking fund is provided for the Notes.
CHANGE OF CONTROL
If a Change of Control occurs, each Holder of Notes shall have the right,
at the Holder's option, to require the Company to repurchase all of such
Holder's Notes, or any portion 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), at a price equal to 101% of the principal amount of
the Notes to be repurchased (the "Repurchase Price"), together with accrued
interest to the Repurchase Date.
Within 30 days after the occurrence of a Change of Control, the Company is
obligated to mail to all Holders of record of the Notes a notice (the "Company
Notice") of the occurrence of such Change of Control and of the repurchase right
arising as a result thereof. The Company must also deliver a copy of the Company
Notice to the Trustee. To exercise the repurchase right, a Holder of Notes must
deliver on or before the 30th day after the date of the Company Notice
irrevocable written notice to the Trustee of the holder's exercise of such
right, together with the Notes with respect to which the right is being
exercised, duly endorsed for transfer to the Company.
The Company's Credit Agreements contain, and future indebtedness of the
Company may contain, restrictions on certain transactions that could constitute
a Change of Control. In addition, the financial effect on the Company of the
exercise by the Holders of the Notes of their right to require the Company to
repurchase the Notes could cause a default under outstanding Indebtedness, even
if the Change of Control itself does not. In addition, the Company's ability to
pay cash to the Holders of the Notes upon a repurchase may be limited by the
Company's then existing financial resources.
The Company will comply with Rule 14e-1 and all other applicable federal
and state securities laws in connection with such repurchase option. To the
extent that the provisions of any securities laws or regulations conflict with
the provisions of the covenant described hereunder, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under the covenant described hereunder by virtue
thereof.
The right to require the Company to repurchase Notes as a result of a
Change of Control could have the effect of delaying, deferring or preventing a
Change of Control or other attempts to acquire control of the Company unless
arrangements have been made to enable the Company to repurchase all the Notes at
the Repurchase Date. Consequently, this right may render more difficult or
discourage a merger, consolidation or tender offer (even if such transaction is
supported by the Company's Board of Directors or is favorable to the
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stockholders), the assumption of control by a holder of a large block of the
Company's shares and the removal of incumbent management.
The foregoing provisions would not necessarily afford Holders of the Notes
protection in the event of a highly leveraged transaction, reorganization,
restructuring, merger, spin-off or similar transaction involving the Company
that may adversely affect Holders of the Notes.
BOOK-ENTRY; DELIVERY; FORM AND TRANSFER
Except as set forth below, the Exchange Notes will be issued in registered,
global form in minimum denominations of $1,000 and integral multiples of $1,000
in excess thereof.
The Exchange Notes initially will be represented by one or more Exchange
Notes in registered, global form without interest coupons (collectively, the
"Global Note"). The Global Notes will be deposited upon issuance with the
Trustee as custodian for The Depository Trust Company ("DTC"), in New York, New
York and registered in the name of DTC or its nominee, in each case for credit
to an account of a direct or indirect participant in DTC as described below.
The Global Notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the Global Notes may be exchanged
for Notes in certificated form in certain limited circumstances. See
"-- Transfer of Interests in Global Notes for Certificated Notes."
Initially, the Trustee will act as Paying Agent and Registrar. The Notes
may be presented for registration of transfer and exchange at the offices of the
Registrar.
Depositary Procedures. DTC has advised the issuers that DTC is a
limited-purpose trust company created to hold securities for its participating
organizations (collectively, the "Direct Participants") and to facilitate the
clearance and settlement of transactions in those securities between Direct
Participants through electronic book-entry changes in accounts of Participants.
The Direct Participants include securities brokers and dealers (including the
Initial Purchasers), banks, trust companies, clearing corporation and certain
other organizations, including Euroclear and CEDEL. Access to DTC's system is
also available to other entities that clear through or maintain a direct or
indirect, custodial relationship with a Direct Participant (collectively, the
"Indirect Participants"). DTC may hold securities beneficially owned by other
persons only through the Direct Participants or Indirect Participants and such
other persons' ownership interest and transfer or ownership interest will be
recorded only on the records of the Direct Participant and/or Indirect
Participant, and not on the records maintained by DTC.
DTC has also advised the Company that, pursuant to DTC's procedures, (i)
upon deposit of the Global Notes, DTC will credit the accounts of the Direct
Participants designated by the Exchange Agent with portions of the principal
amount of the Global Notes allocated by the Exchange Agent to such Direct
Participants, and (ii) DTC will maintain records of the ownership interests of
such Direct Participants in the Global Notes and the transfer of ownership
interests by and between Direct Participants. DTC will not maintain records of
the ownership interests of, or the transfer of ownership interests by and
between, Indirect Participants or other owners of beneficial interest in the
Global Notes. Direct Participants and Indirect Participants must maintain their
own records of the ownership interests of, and the transfer of ownership
interests by and between, Indirect Participants and other owners of beneficial
interests in the Global Notes.
The laws of some states require that certain persons take physical delivery
in definitive, certificated form of securities that they own. This may limit or
curtail the ability to transfer beneficial interests in a Global Note to such
persons. Because DTC can act only on behalf of Direct Participants, which in
turn act on behalf of Indirect Participants and others, the ability of a person
having a beneficial interest in a Global Note to pledge such interest to persons
or entities that are not Direct Participants in DTC, or to otherwise take
actions in respect of such interests, may be affected by the lack of physical
certificates evidencing such interests. For certain other restrictions on the
transferability of the Notes see "-- Transfers of Interests in Global Notes for
Certificated Notes."
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EXCEPT AS DESCRIBED IN "TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR
CERTIFICATED NOTES," OWNERS OF BENEFICIAL INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF THE
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
HOLDERS UNDER THE INDENTURE FOR ANY PURPOSE.
Under the terms of the Indenture, the Company and the Trustee will treat
the persons in whose names the Notes are registered (including Notes represented
by Global Notes) as the owners thereof for the purpose of receiving payments and
for any and all other purposes whatsoever. Payments in respect of the principal,
premium, Liquidated Damages, if any, and interest on Global Notes registered in
the name of DTC or its nominee will be payable by the Trustee to DTC or its
nominee as the registered holder under the Indenture. Consequently, neither the
Company, the Trustee nor any agent of the Company or the Trustee has or will
have any responsibility or liability for (i) any aspect of DTC's records or any
Direct Participant's or Indirect Participant's records relating to or payments
made on account of beneficial ownership interests in the Global Notes or for
maintaining, supervising or reviewing any of DTC's records or any Direct
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in any Global Note or (ii) any other matter relating to the
actions and practices of DTC or any of its Direct Participants or Indirect
Participants.
DTC has advised the Company that their current payment practice (for
payments of principal, interest and the like) with respect to securities such as
the Notes is to credit the accounts of the relevant Direct Participants with
such payment on the payment date in amounts proportionate to such Direct
Participant's respective ownership interests in the Global Notes as shown on
DTC's records. Payments by Direct Participants and Indirect Participants to the
beneficial owners of the Notes will be governed by standing instructions and
customary practices between them and will not be the responsibility of DTC, the
Trustee, or the Company. Neither the Company, nor the Trustee will be liable for
any delay by DTC or its Direct Participants or Indirect Participants in
identifying the beneficial owners of the Notes and the Company and the Trustee
may conclusively rely on and will be protected in relying on instructions from
DTC or its nominee as the registered owner of the Notes for all purposes.
The Global Notes will trade in DTC's Same-Day Funds Settlement System and,
therefore, transfers between Direct Participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in immediately available
funds. Transfers between Indirect Participants who hold an interest through a
Direct Participant will be effected in accordance with the procedures of such
Direct Participant but generally will settle in immediately available funds.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes only at the direction of one or more Direct
Participants to whose account interests in the Global Notes are credited and
only in respect of such portion of the aggregate principal amount of the Notes
as to which such Direct Participant or Direct Participants has or have given
direction. However, if there is an Event of Default under the Notes, DTC
reserves the right to exchange Global Notes (without the direction of one or
more of its Direct Participants) for legended Notes in certificated form, and to
distribute such certificated forms of Notes to its Direct Participants. See
"-- Transfers of Interests in Global Notes for Certificated Notes."
The information in this section concerning DTC and its book-entry system
has been obtained from sources that the Company believes to be reliable, but the
Company takes no responsibility for the accuracy thereof.
Transfers of Interests in Global Notes for Certificated Notes. An entire
Global Note may be exchanged for definitive Notes in registered, certificated
form without interest coupons ("Certificated Notes") if (i) DTC (x) notifies the
Company that it is unwilling or unable to continue as depositary for the Global
Notes and the Company thereupon fails to appoint a successor depositary within
90 days or (y) has ceased to be a clearing agency registered under the Exchange
Act, (ii) the Company, at its option, notifies the Trustee in writing that it
elects to cause the issuance of Certificated Notes or (iii) there shall have
occurred and be continuing a Default or an Event of Default with respect to the
Notes. In any such case, the Company will notify the Trustee in writing that,
upon surrender by the Direct and Indirect Participants of their interest in such
Global Note, Certificated Notes will be issued to each person that such Direct
and Indirect Participants and the DTC identify as being the beneficial owner of
the related Notes.
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Beneficial interests in Global Notes held by any Direct or Indirect
Participant may be exchanged for Certificated Notes upon request to DTC, by such
Direct Participant (for itself or on behalf of an Indirect Participant), to the
Trustee in accordance with customary DTC procedures. Certificated Notes
delivered in exchange for any beneficial interest in any Global Note will be
registered in the names, and issued in any approved denominations, requested by
DTC on behalf of such Direct or Indirect Participants (in accordance with DTC's
customary procedures).
Neither the Company nor the Trustee will be liable for any delay by the
holder of the Global Notes or DTC in identifying the beneficial owners of Notes,
and the Company and the Trustee may conclusively rely on, and will be protected
in relying on, instructions from the holder of the Global Note or DTC for all
purposes.
Transfers of Certificated Notes for Interests in Global Notes. Certificated
Notes may only be transferred if the transferor first delivers to the Trustee a
written certificate (and in certain circumstances, an opinion of counsel)
confirming that, in connection with such transfer, it has complied with the
restrictions on transfer described under "-- Notice to Investors."
Same Day Settlement and Payment. The Indenture requires that payments in
respect of the Notes represented by the Global Notes (including principal,
premium, if any, interest and Liquidated Damages, if any) be made by wire
transfer of immediately available same day funds to the accounts specified by
the holder of interests in such Global Note. With respect to Certificated Notes,
the Company will make all payments of principal, premium, if any, interest and
Liquidated Damages, if any, by wire transfer of immediately available same day
funds to the accounts specified by the holders thereof or, if no such account is
specified, by mailing a check to each such holder's registered address. The
Company expects that secondary trading in the Certificated Notes will also be
settled in immediately available funds.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) The Company shall not, and shall not permit
any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness
unless, immediately after giving effect to such Incurrence, the Consolidated
Coverage Ratio exceeds 2.0 to 1.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur any or all of the following Indebtedness: (1)
Indebtedness Incurred pursuant to the Credit Agreements; provided, however,
that, after giving effect to any such Incurrence, the aggregate principal amount
of such Indebtedness then outstanding does not exceed the greater of (i) $200
million and (ii) 90% of the Mortgages Receivable of the Company and its
Restricted Subsidiaries; (2) Indebtedness represented by the Notes issued in the
Offering (and the Exchange Notes); (3) Indebtedness outstanding pursuant to the
Senior Subordinated Notes and the Convertible Notes, or, in the event that all
or any portion of the Convertible Notes have been converted into the Capital
Stock of the Company, other Indebtedness of the Company which is subordinated to
the Notes at least to the same extent that the Convertible Notes are
subordinated to the Notes, in a principal amount not to exceed the principal
amount of the Convertible Notes that have been so converted; (4) Indebtedness of
the Company owed to and held by any Restricted Subsidiary, or Indebtedness of a
Restricted Subsidiary owed to and held by the Company or a Wholly Owned
Subsidiary; provided, however, that any subsequent issuance or transfer of any
Capital Stock which results in any such Wholly Owned Subsidiary ceasing to be a
Wholly Owned Subsidiary or any subsequent transfer of such Indebtedness (other
than to the Company or a Wholly Owned Subsidiary) shall be deemed, in each case,
to constitute the Incurrence of such Indebtedness by the issuer thereof; (5)
Refinancing Indebtedness in respect of Indebtedness Incurred pursuant to
paragraph (a) or pursuant to clause (2), (3) or this clause (5); (6)
Indebtedness in respect of performance bonds, bankers' acceptances, letters of
credit and surety or appeal bonds entered into by the Company and the Restricted
Subsidiaries in the ordinary course of their business; (7) Hedging Obligations
consisting of Interest Rate Agreements and Currency Agreements entered into in
the ordinary course of business and not for the purpose of speculation; (8)
Purchase Money Indebtedness and Capital Lease Obligations Incurred to finance
the acquisition, lease or improvement, either directly or indirectly
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through the purchase of Capital Stock, by the Company or a Restricted Subsidiary
of any assets in the ordinary course of business and which do not exceed $25
million in the aggregate at any time outstanding; (9) Indebtedness arising from
the honoring by a bank or other financial institution of a check, draft or
similar instrument inadvertently (except in the case of daylight overdrafts)
drawn against insufficient funds in the ordinary course of business, provided
that such Indebtedness is extinguished within five business days of Incurrence;
(10) Indebtedness of the Company and its Restricted Subsidiaries arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, in any case Incurred in connection with the disposition of
any assets of the Company or any Restricted Subsidiary (other than Guarantees of
Indebtedness Incurred by any Person acquiring all or any portion of such assets
for the purpose of financing such acquisition), in a principal amount not to
exceed the gross proceeds actually received by the Company or any Restricted
Subsidiary in connection with such disposition; (11) Indebtedness incurred by
the Company or any of its Restricted Subsidiaries constituting reimbursement
obligations with respect to letters of credit issued in the ordinary course of
business, including without limitation, letters of credit in respect of workers'
compensation claims or self-insurance, or other Indebtedness with respect to
reimbursement type obligations regarding workers' compensation claims; provided,
however, that upon the drawing of such letters of credit or the incurrence of
such Indebtedness, such obligations are reimbursed within 30 days following such
drawing or incurrence; (12) Indebtedness or Disqualified Capital Stock of
Persons that are acquired by the Company or any of its Restricted Subsidiaries
or merged into the Company or a Restricted Subsidiary in accordance with the
terms of the Indenture; provided that such Indebtedness or Disqualified Capital
Stock is not incurred in contemplation of such acquisition or merger; and
provided further that after giving effect to such acquisition, either (i) the
Company would be permitted to incur at least $1.00 of additional Indebtedness or
(ii) the Consolidated Coverage Ratio is greater than immediately prior to such
acquisitions; (13) Finance Subsidiary Indebtedness and (14) Indebtedness in an
aggregate principal amount which, together with all other Indebtedness of the
Company and its Restricted Subsidiaries outstanding on the date of such
Incurrence (other than Indebtedness permitted by clauses (1) through (13) above
or paragraph (a)), does not exceed $25 million.
(c) For purposes of determining compliance with the foregoing covenant, (i)
in the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, the Company, in its sole discretion,
will classify such item of Indebtedness and only be required to include the
amount and type of such Indebtedness in one of the above clauses and (ii) an
item of Indebtedness may be divided and classified in more than one of the types
of Indebtedness described above. Notwithstanding anything contained in clause
(b)(1) above, the amount of Indebtedness permitted to be Incurred pursuant to
clause (b)(1) above will be reduced by the amount of any Indebtedness of the
Company owed to and held by any Restricted Subsidiary that is not a Wholly Owned
Subsidiary if such Indebtedness was Incurred pursuant to clause (b)(4) above.
Limitation on Restricted Payments. (a) The Company shall not, and shall not
permit any Restricted Subsidiary, directly or indirectly, to make a Restricted
Payment if at the time the Company or such Restricted Subsidiary makes such
Restricted Payment: (1) a Default shall have occurred and be continuing (or
would result therefrom); (2) the Company is not able to Incur an additional
$1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under
"-- Limitation on Indebtedness"; or (3) the aggregate amount of such Restricted
Payment together with all other Restricted Payments (the amount of any payments
made in property other than cash to be valued at the fair market value of such
property, as determined in good faith by the Board of Directors) declared or
made since August 1, 1997 would exceed the sum of: (A) 50% of the Consolidated
Net Income accrued during the period (treated as one accounting period) from
August 1, 1997 to the end of the most recent fiscal quarter prior to the date of
such Restricted Payment for which financial statements are available (or, in
case such Consolidated Net Income accrued during such period (treated as one
accounting period) shall be a deficit, minus 100% of such deficit); (B) the
aggregate Net Cash Proceeds received by the Company from the issuance or sale of
its Capital Stock (other than Disqualified Stock) subsequent to August 1, 1997
(other than an issuance or sale to a Subsidiary of the Company); (C) the amount
by which Indebtedness of the Company or its Restricted Subsidiaries is reduced
on the Company's balance sheet upon the conversion or exchange (other than by a
Subsidiary of the Company unless such Subsidiary is a Finance Subsidiary)
subsequent to August 1, 1997, of any Indebtedness (issued subsequent to
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August 1, 1997) of the Company or its Restricted Subsidiaries convertible or
exchangeable for Capital Stock (other than Disqualified Capital Stock) of the
Company (less the amount of any cash, or the fair market value of any other
property, distributed by the Company or any Restricted Subsidiary upon such
conversion or exchange); (D) an amount equal to the sum of (i) the reduction in
Investments in Unrestricted Subsidiaries resulting from dividends, repayments of
loans or advances or other transfers of assets subsequent to August 1, 1997, in
each case to the Company or any Restricted Subsidiary from Unrestricted
Subsidiaries, and (ii) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of an
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a
Restricted Subsidiary; provided, however, that the foregoing sum shall not
exceed, in the case of any Unrestricted Subsidiary, the amount of Investments
previously made (and treated as a Restricted Payment) by the Company or any
Restricted Subsidiary in such Unrestricted Subsidiary; and (E) $15 million.
(b) The provisions of the foregoing paragraph (a) shall not prohibit: (i)
any purchase or redemption of Capital Stock or Subordinated Obligations of the
Company or any Restricted Subsidiary made in exchange for, or out of the
proceeds of the substantially concurrent sale of, Capital Stock of the Company
(other than Disqualified Capital Stock and other than Capital Stock issued or
sold to a Subsidiary of the Company); provided, however, that (A) such purchase
or redemption shall be excluded from the calculation of the amount of Restricted
Payments and (B) the Net Cash Proceeds from such sale (to the extent used for
such purchase or redemption) shall be excluded from the calculation of amounts
under clause (3)(B) of paragraph (a) above; (ii) any purchase or redemption of
Subordinated Obligations of the Company made in exchange for, or out of the
proceeds of the substantially concurrent sale of, Indebtedness of the Company
which is permitted to be Incurred pursuant to paragraphs (a), (b) or (c) of the
covenant described under "-- Limitation on Indebtedness;" provided, however, any
such Indebtedness shall be subordinated to the Notes, to at least the same
extent as such Subordinated Obligations; provided, further, that such purchase
or redemption shall be excluded from the calculation of the amount of Restricted
Payments; (iii) any purchase or redemption of Disqualified Capital Stock of the
Company made in exchange for, or out of the proceeds of the substantially
concurrent sale of, Disqualified Capital Stock of the Company; provided,
however, that (1) at the time of such exchange, no Default or Event of Default
shall have occurred and be continuing or would result therefrom and (2) such
purchase or redemption will be excluded from the calculation of the amount of
Restricted Payments; (iv) dividends paid within 60 days after the date of
declaration thereof if at such date of declaration such dividend would have
complied with this covenant; provided, however, that such dividend shall be
included in the calculation of the amount of Restricted Payments; (v)
repurchases of Capital Stock of the Company from current or former directors,
officers or employees, employee benefit plans or 401(k) plans of the Company;
provided, that such repurchases shall not exceed $1 million in any year plus any
amounts available for such repurchases under this clause (v) since August 1,
1997 which have not been used for such purpose but in no event shall such
repurchases exceed $5 million in any year; provided, further, that (1) at the
time of such repurchase no Default or Event of Default shall have occurred and
be continuing or result therefrom, and (2) such repurchases shall be included in
the calculation of the amount of the Restricted Payments; (vi) repurchases of
Capital Stock deemed to occur upon exercise of stock options if such Capital
Stock represents a portion of the exercise price of such options; (vii) the
payment of any dividend by a Subsidiary of the Company to the holders of its
Capital Stock; provided, however, that any such payment of any dividend made to
holders of the Capital Stock of any Subsidiary of the Company on a pro rata
basis or on a basis that results in the receipt by the Company or a Restricted
Subsidiary of dividends or distributions of greater value than it would receive
on a pro rata basis will be excluded from the calculation of the amount of
Restricted Payments or (viii) the payment of any dividend or distribution by a
Finance Subsidiary to the holders of its Capital Stock.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or consensual restriction on the ability of any
Restricted Subsidiary: (a) to pay dividends or make any other distributions on
its Capital Stock to the Company or a Restricted Subsidiary or pay any
Indebtedness owed to the Company, (b) to make any loans or advances to the
Company or (c) transfer any of its property or assets to the Company, except, in
each case, (i) any encumbrance or restriction pursuant to the Senior Credit
Agreements, or any other agreement in effect at or entered into on
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the Issue Date, including without limitation, the Senior Subordinated Notes
Indenture, the Senior Subordinated Notes, the Notes, the Indenture and the
Credit Agreements, if any; (ii) any encumbrance or restriction with respect to a
Person acquired by the Company or any Restricted Subsidiary pursuant to an
agreement relating to any Indebtedness Incurred by such Person which was entered
into on or prior to the date on which such Person was acquired by the Company or
such Restricted Subsidiary (other than as consideration in, or to provide all or
any portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such Person was
acquired by the Company or such Restricted Subsidiary) and outstanding on such
date; (iii) any encumbrance or restriction pursuant to any agreement effecting
Refinancing Indebtedness Incurred pursuant to an agreement referred to in
clauses (i)-(xi) of this covenant (or effecting a Refinancing of such
Refinancing Indebtedness pursuant to this clause (iii)) or contained in any
amendment, modification, restatement, renewal, or supplement to an agreement
referred to in clauses (i)-(xi) of this covenant or this clause (iii); provided,
however, that the encumbrances or restrictions with respect to such Restricted
Subsidiary contained in any such agreements or amendments effecting Refinancing
Indebtedness are no more restrictive in any material respect than the
encumbrances and restrictions with respect to such Restricted Subsidiary
contained in such agreements or amendments; (iv) any such encumbrance or
restriction consisting of customary provisions in leases governing leasehold
interests or other agreements entered into in the ordinary course of business;
(v) in the case of clause (c) above, restrictions contained in security
agreements or mortgages securing Indebtedness of a Restricted Subsidiary to the
extent such restrictions restrict the transfer of the property subject to such
security agreements or mortgages; (vi) any restriction with respect to a
Restricted Subsidiary imposed pursuant to an agreement entered into for the sale
or disposition of all or substantially all the Capital Stock or assets of such
Restricted Subsidiary pending the closing of such sale or disposition; (vii) any
restriction imposed by applicable law, rule, regulation or order; (viii) any
encumbrance or restriction pursuant to Purchase Money Indebtedness for property
acquired in the ordinary course of business that imposes restrictions of the
nature discussed in clause (c) above on the property so acquired; (ix)
restrictions on cash or other deposits or net worth imposed by customers under
contracts entered into in the ordinary course of business; (x) any encumbrance
or restriction pursuant to other Indebtedness of Receivables Subsidiaries
permitted to be incurred subsequent to the Issue Date pursuant to the provisions
of the covenant described under "-- Limitation on Indebtedness;" (xi) any
encumbrance or restriction pursuant to customary provisions in joint venture
agreements and other similar agreements entered into in the ordinary course of
business and (xii) any encumbrance or restriction relating to a Finance
Subsidiary.
Limitation on Sales of Assets and Subsidiary Stock. The Company shall not,
and shall not permit any Restricted Subsidiary to, consummate any Asset
Disposition unless the Company or such Restricted Subsidiary receives
consideration at the time of such Asset Disposition at least equal to the fair
market value (including as to the value of all non-cash consideration), as
determined in good faith by the Board of Directors, of the shares and assets
subject to such Asset Disposition and at least 75% of the consideration therefor
received by the Company or such Restricted Subsidiary is in the form of cash or
cash equivalents. For the purposes of this covenant, the following are deemed to
be cash or cash equivalents: (x) the assumption of Indebtedness of the Company
or any Restricted Subsidiary, (y) securities received by the Company or any
Restricted Subsidiary from the transferee that are converted by the Company or
such Restricted Subsidiary into cash within 180 days after receipt thereof and
(z) any Designated Noncash Consideration received by the Company or any of its
Restricted Subsidiaries in such Asset Sale having an aggregate fair market
value, taken together with all other Designated Noncash Consideration received
pursuant to this clause (z) that is at that time outstanding and taken together
with all Permitted Investments made pursuant to clause (ix)(l) of the definition
of "Permitted Investment" that are at that time outstanding, not to exceed 10%
of the Company's Total Assets at the time of the receipt of such Designated
Noncash Consideration (with the fair market value of each item of Designated
Noncash Consideration being measured at the time received and without giving
effect to subsequent changes in value), shall be deemed to be cash or cash
equivalents for the purposes of this provision.
With respect to any Asset Disposition occurring on or after the Issue Date
from which the Company or any Restricted Subsidiary receives Net Available Cash,
the Company or such Restricted Subsidiary shall (i) within 360 days after the
date such Net Available Cash is received and to the extent the Company or such
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Restricted Subsidiary elects (or is required) to (A) apply an amount equal to
such Net Available Cash to prepay, repay or purchase Indebtedness under the
Senior Credit Agreements or Indebtedness secured by a Permitted Lien, in each
case owing to a Person other than the Company or any Affiliate of the Company,
or (B) invest an equal amount, or the amount not so applied pursuant to clause
(A), in Additional Assets (including by means of an Investment in Additional
Assets by a Restricted Subsidiary with Net Available Cash received by the
Company or another Restricted Subsidiary) and (ii) apply such excess Net
Available Cash (to the extent not applied pursuant to clause (i)) as provided in
the following paragraphs of the covenant described hereunder; provided, however,
that in connection with any prepayment, repayment or purchase of Indebtedness
pursuant to clause (A) above, the Company or such Restricted Subsidiary shall
retire such Indebtedness and shall cause the related loan commitment (if any) to
be permanently reduced in an amount equal to the principal amount so prepaid,
repaid or purchased. The amount of Net Available Cash required to be applied
pursuant to clause (ii) above and not theretofore so applied shall constitute
"Excess Proceeds." Pending application of Net Available Cash pursuant to this
provision, such Net Available Cash shall be invested in Temporary Cash
Investments.
If at any time the aggregate amount of Excess Proceeds not theretofore
subject to an Excess Proceeds Offer (as defined below) totals at least $15
million the Company shall, not later than 30 days after the end of the period
during which the Company is required to apply such Excess Proceeds pursuant to
clause (i) of the immediately preceding paragraph (or, if the Company so elects,
at any time within such period), make an offer (an "Excess Proceeds Offer") to
purchase from the Holders on a pro rata basis an aggregate principal amount of
Notes equal to the Excess Proceeds (rounded down to the nearest multiple of
$1,000) on such date, at a purchase price equal to 100% of the principal amount
of such Notes, plus, in each case, accrued interest (if any) to the date of
purchase (the "Excess Proceeds Payment"). Upon completion of an Excess Proceeds
Offer the amount of Excess Proceeds remaining after application pursuant to such
Excess Proceeds Offer (including payment of the purchase price for Notes duly
tendered), may be used by the Company for any corporate purpose (to the extent
not otherwise prohibited by the Indenture).
The Company shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations thereunder in the event that such Excess Proceeds are received by
the Company under the covenant described hereunder and the Company is required
to repurchase Notes as described above. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the covenant
described hereunder, the Company shall comply with the applicable securities
laws and regulations and shall not be deemed to have breached its obligations
under the covenant described hereunder by virtue thereof.
Limitation on Affiliate Transactions. (a) The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into or permit to exist any
transaction or series of related transactions (including the purchase, sale,
lease or exchange of any property, employee compensation arrangements or the
rendering of any service) with any Affiliate of the Company (an "Affiliate
Transaction") unless the terms thereof (1) are materially no less favorable to
the Company or such Restricted Subsidiary than those that could be obtained at
the time of such transaction in arm's-length dealings with a Person who is not
such an Affiliate, (2) if such Affiliate Transaction (or series of related
Affiliate Transactions) involve aggregate payments in an amount in excess of $5
million in any one year, (i) comply with clause (1) and (ii) have been approved
by a majority of the disinterested members of the Board of Directors and (3) if
such Affiliate Transaction (or series of related Affiliate Transactions) involve
aggregate payments in an amount in excess of $10 million in any one year, (i)
comply with clause (2) and (ii) have been determined by a nationally recognized
investment banking, accounting or qualified appraisal firm to be fair, from a
financial standpoint, to the Company and its Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i)
any Restricted Payment permitted to be paid pursuant to the covenant described
under "-- Limitation on Restricted Payments," (ii) any issuance of securities,
or other payments, awards or grants in cash, securities or otherwise, pursuant
to, or the funding of, employment arrangements, stock options and stock
ownership plans in the ordinary course of business and approved by the Board of
Directors, (iii) the grant of stock options or similar rights to employees,
officers and directors of the Company or any Subsidiary in the ordinary course
of business and pursuant to
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plans approved by the Board of Directors, (iv) loans or advances to employees,
officers or directors in the ordinary course of business of the Company or its
Subsidiaries, (v) fees, compensation or employee benefit arrangements paid to
and indemnity provided for the benefit of directors, officers or employees of
the Company or any Subsidiary in the ordinary course of business, (vi) any
Affiliate Transaction (including any purchase of Receivables and Related Assets)
between the Company and a Subsidiary or Joint Venture, or between Subsidiaries
or Joint Ventures, in the ordinary course of business (so long as the other
stockholders of any participating Subsidiaries or Joint Ventures which are not
Wholly Owned Restricted Subsidiaries are not themselves Affiliates of the
Company), (vii) any transactions effected pursuant to agreements in effect on
the Issue Date provided, that such transactions are effected pursuant to the
terms of such agreements as in effect on the Issue Date and (viii) any Affiliate
Transactions between the Company and any Finance Subsidiary.
Limitation on Liens. The Company shall not, directly or indirectly, Incur
or permit to exist any Lien of any nature whatsoever on any property of the
Company or any Restricted Subsidiary (including Capital Stock of a Restricted
Subsidiary), whether owned at the Issue Date or thereafter acquired, which
secures Indebtedness that ranks pari passu with or is subordinated to the Notes
unless (i) such lien is a Permitted Lien, (ii) if such Lien secures Indebtedness
that ranks pari passu with the Notes, the Notes are secured on an equal and
ratable basis with the obligation so secured until such time as such obligation
is no longer secured by a Lien or (iii) if such Lien secures Indebtedness that
is subordinated to the Notes, such Lien shall be subordinated to a Lien granted
to the Holders on the same collateral as that securing such Lien to the same
extent as such subordinated Indebtedness is subordinated to the Notes.
Merger and Consolidation. The Company may 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 (a) the Person formed by such
consolidation or into which the Company is merged or the Person to which the
properties and assets of the Company are so transferred or leased (the
"Successor Company") (i) shall be a corporation, partnership or trust organized
and existing under the laws of the United States, any State thereof or the
District of Columbia and (ii) shall expressly assume the payment of the
principal of and interest on the Notes and the performance of the other
covenants of the Company under the Indenture; (b) 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
occurred and be continuing; and (c) except in the case of a merger, the sole
purpose of which is to change the Company's jurisdiction of incorporation,
immediately after such transaction the Successor Company would be able to Incur
an additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant
described under "-- Limitation on Indebtedness."
Upon any consolidation, merger of, or any transfer of all or substantially
all of the assets of the Company in accordance with the foregoing, the Successor
Company shall succeed to, and be substituted for, and may exercise every right
and power of, the Company under the Indenture with the same effect as if such
Successor Company had been named therein as the Company, and the Company will be
released from its obligations under the Indenture and the Notes.
SEC Reports. Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall file with the SEC and provide the Trustee and Noteholders
and prospective Noteholders (upon request) with such annual reports and such
information, documents and other reports as are specified in such Sections and
applicable to a U.S. corporation subject to such Sections, such information,
documents and other reports to be so filed and provided within 15 days after the
times specified for the filing of such information, documents and reports under
such Sections; provided, however, that the Company shall not be required to file
any report, document or other information with the SEC if the SEC does not
permit such filing.
DEFAULTS
The following will be Events of Default under the Indenture: (a) failure to
pay principal on any Note when due, (b) failure to pay any interest on any Note
when due, continuing for 30 days, (c) failure to perform any other covenant of
the Company in the Indenture, continuing for 30 days after written notice as
provided in the Indenture; (d) failure of the Company or any Significant
Subsidiary to make payment in respect of
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Indebtedness (other than Non-Recourse Debt) in an amount in excess of $15
million and continuance of such failure for at least 90 days; (e) default by the
Company or any Significant Subsidiary with respect to any Indebtedness, which
default results in the acceleration of Indebtedness in an amount in excess of
$15 million without such Indebtedness having been discharged or such
acceleration having been cured, waived, rescinded or annulled within 90 days of
such acceleration; (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 (i) 60 days after the entry of such judgment, as
extended by any effective stay of its execution, or (ii) the date on which any
payment is or becomes due and payable pursuant to such judgment in accordance
with its terms, other than final judgments with respect to Non-recourse Debt of
the Company or any of its Significant Subsidiaries, provided that the aggregate
of all such outstanding judgments exceeds $15 million (excluding any amounts
covered by insurance as to which the insurer has not denied liability); and (g)
certain events in bankruptcy, insolvency or reorganization with respect to the
Company or any of its Significant Subsidiaries. Subject to the provisions of the
Indenture relating to the duties of the Trustee in the case of an Event of
Default shall occur and be continuing, the Trustee will be under no obligation
to exercise any of its rights or powers under the Indenture at the request or
direction of any of the Holders, unless such Holders shall have offered to the
Trustee reasonable indemnity. Subject to such provisions for the indemnification
of the Trustee, the Holders of a majority in aggregate principal amount of the
Outstanding Notes will 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.
If an Event of Default (other than an Event of Default specified in
subsection (g) above with respect to the Company) shall occur and be continuing,
either the Trustee or the Holders of at least 25% in principal amount of the
Outstanding Notes may accelerate the maturity of all Notes; provided, however,
that after such acceleration, the Holders of a majority in aggregate principal
amount of Outstanding Notes may, under certain circumstances, rescind and annul
such acceleration after all Events of Default, other than the non-payment of
accelerated principal and interest, have been cured or waived as provided in the
Indenture. If an Event of Default specified in subsection (g) with respect to
the Company occurs and is continuing, the principal and any accrued interest on
all of the then Outstanding Notes shall ipso facto become due and payable
immediately without any declaration or other act on the part of the Trustee or
any Holder. For information as to waiver of defaults, see "-- Modification and
Waiver."
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless also the Holders of at least 25% in aggregate principal
amount of the Outstanding Notes shall have made written request, and offered
reasonable indemnity, to the Trustee to institute such proceeding as Trustee,
and the Trustee shall not have received from the Holders of a majority in
aggregate principal amount of the Outstanding Notes a direction inconsistent
with such request and shall have failed to institute such proceeding within 60
days. However, such limitations do not apply to a suit instituted by a Holder of
a Note for the enforcement of payment of the principal of or interest on such
Note on or after the respective due dates expressed in such Note.
The Company will be required to furnish to the Trustee annually a statement
as to the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of a majority in aggregate
principal amount of the Outstanding Notes; provided, however, that no such
modification or amendment may, without the consent of the Holder of each
Outstanding Note affected thereby, (a) change the Stated Maturity of the
principal of, or any installment of interest on, any Note, (b) reduce the
principal amount of, or interest on, any Note, (c) reduce the amount payable
upon an optional redemption, (d) modify the provisions with respect to the
repurchase rights of the Holders in a manner adverse to the Holders, (e) change
the place or currency of payment of principal of, or interest on, any Note, (f)
impair the right to institute suit for the enforcement of any payment on or with
respect to any Note, (g) reduce the percentage of aggregate principal amount of
outstanding Notes necessary
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for waiver of compliance with certain provisions of the Indenture or for waiver
of certain defaults, or (h) reduce the above stated percentage of Outstanding
Notes necessary to modify or amend the Indenture.
The Holders of a majority in aggregate principal amount of the Outstanding
Notes may waive compliance by the Company with certain restrictive provisions of
the Indenture. The Holders of a majority in aggregate principal amount of the
Outstanding Notes may waive any past default under the Indenture, except a
default in the payment of principal or interest.
TRANSFER
Certificated Notes will be issued in registered form and will be
transferable only upon the surrender of the Notes being transferred for
registration of transfer. The Company may require payment of a sum sufficient to
cover any tax, assessment or other governmental charge payable in connection
with certain transfers and exchanges.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the Outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of Outstanding Notes to
receive payments in respect of the principal of, and interest on such Notes when
such payments are due from the trust described below, (ii) the Company's
obligations with respect to the Notes concerning issuing temporary Notes,
registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trusts, duties, and immunities of the
Trustee, and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company may, at
its option and at any time, elect to have the obligations of the Company and its
Restricted Subsidiaries, released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. Dollars, U.S. Government Obligations,
or a combination thereof, in such amounts as will be sufficient, in the opinion
of a nationally recognized firm of independent public accountants, to pay the
principal and interest on the outstanding Notes on the stated maturity or on the
applicable redemption date, as the case may be, of such principal or installment
of principal or interest on the outstanding Notes; (ii) in the case of Legal
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel (which counsel may be an employee of the Company or any Subsidiary of
the Company) reasonably acceptable to the Trustee confirming that (A) the
Company has received from, or there has been published by, the Internal Revenue
Service a ruling or (B) since the Issuance Date, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred; (iii) in the
case of Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel (which counsel may be an employee of the Company or any
Subsidiary of the Company) reasonably acceptable to the Trustee confirming that
the Holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Covenant Defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds applied to such deposit) or insofar as
Events of Default from bankruptcy or insolvency events are concerned, at any
time the period ending on the 91st day after the date of deposit (or greater
period of time in which any such deposit of
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trust funds may remain subject to bankruptcy or insolvency laws insofar as those
apply to the deposit by the Company); (v) such Legal Defeasance or Covenant
Defeasance shall not result in a breach or violation of, or constitute a default
under, any material agreement or instrument (other than the Indenture) to which
the Company or any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries is bound; (vi) the Company shall have delivered to the
Trustee an opinion of counsel to the effect that, as of the date of such
opinion, (A) the trust funds will not be subject to any rights of holders of
Indebtedness other than the Notes and (B) assuming no intervening bankruptcy of
the Company between the date of deposit and the 91st day following the deposit
and assuming no Holder of Notes is an insider of the Company, after the 91st day
following the deposit, the trust funds will not be subject to the effects of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors rights generally under any applicable United States or state law;
(vii) the Company shall have delivered to the Trustee an officers certificate
stating that the deposit was not made by the Company with the intent of
preferring the Holders of Notes over the other creditors of the Company with the
intent of defeating, hindering, delaying or defrauding creditors of the Company
or others; and (viii) the Company shall have delivered to the Trustee an
officers certificate and an opinion of counsel (which counsel may be an employ
ee of the Company), each stating, that all conditions precedent provided for
relating to the Legal Defeasance or the Covenant Defeasance have been complied
with.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the right of the Trustee, in
the event it becomes a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; provided, however, that if it acquires any conflicting interest
(as defined), it must eliminate such conflict or resign. In addition to serving
as Trustee under the Notes, Norwest Bank Minnesota, National Association, serves
as trustee under the Senior Subordinated Notes and the Convertible Notes.
GOVERNING LAW
The Indenture and the Notes provide that they are to be governed in
accordance with the laws of the State of New York.
NO PERSONAL LIABILITY OF SHAREHOLDERS, OFFICERS, DIRECTORS
No shareholder, officer or director, as such, past, present or future of
the Company or any successor corporation shall have any personal liability in
respect of the obligations of the Company under the Indenture or the Notes by
reason of his or its status as such shareholder, officer or director.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by the Company or another Restricted Subsidiary; provided,
however, that any such Restricted Subsidiary is primarily engaged in a Related
Business; (iii) additions to property, plant and equipment of the Company and
its Restricted Subsidiaries; and (iv) investments in Receivables and Related
Assets.
"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.
"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Company
or any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of (i) any shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying
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shares and, to the extent required by local ownership laws in foreign countries,
shares owned by foreign shareholders), (ii) all or substantially all the assets
of any division, business segment or comparable line of business of the Company
or any Restricted Subsidiary or (iii) any other assets of the Company or any
Restricted Subsidiary outside of the ordinary course of business of the Company
or such Restricted Subsidiary. Notwithstanding the foregoing, the term "Asset
Disposition" shall not include (w) sales, in the ordinary course of business, of
Vacation Intervals, points in a points based vacation club system or Receivables
and Related Assets, (x) a disposition by a Restricted Subsidiary to the Company
or by the Company or a Restricted Subsidiary to a Restricted Subsidiary, (y) for
purposes of the covenant described under "Certain Covenants -- Limitation on
Sales of Assets and Subsidiary Stock," a disposition that constitutes a
Permitted Investment or a Restricted Payment permitted by the covenant described
under "Certain Covenants -- Limitation on Restricted Payments", and (z) a
disposition of assets having a fair market value of less than $1 million.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
implicit in such transactions in accordance with GAAP) of the total obligations
of the lessee for rental payments during the remaining term of the lease
included in such Sale/Leaseback Transaction (including any period for which such
lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of numbers of years from the date of determination to the dates
of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligation" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Cash Equivalents" means (a) securities with maturities of one year or less
from the date of acquisition, issued, fully guaranteed or insured by the United
States Government or any agency thereof, (b) certificates of deposit, time
deposits, overnight bank deposits, bankers' acceptances and repurchase
agreements issued by a Qualified Issuer having maturities of 270 days or less
from the date of acquisition, (c) commercial paper of an issuer rated at least
A-2 by Standard & Poor's Corporation or P-2 by Moody's Investors Service, Inc.,
or carrying an equivalent rating by a nationally recognized rating agency if
both of the two named rating agencies cease publishing ratings of investments,
and having maturities of 270 days or less from the date of acquisition, and (d)
money market accounts or funds with or issued by Qualified Issuers.
"Change of Control" means the occurrence of any of the following events:
(i) the acquisition by any Person (including any syndicate or group
deemed to be a "person" under Section 13(d)(3) of the Exchange Act) 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 elections of directors (other than any such
acquisition by the Company, any Subsidiary of the Company or any employee
benefit plan of the Company); or
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(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 Restricted 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 directors of the continuing or surviving corporation
immediately after such transaction, and (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.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days (or, if less, the
number of days after the end of such fiscal quarter as the consolidated
financial statements of the Company shall be available) prior to the date of
such determination to (ii) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that (1) if the Company or any Restricted
Subsidiary has Incurred any Indebtedness since the beginning of such period that
remains outstanding on such date of determination or if the transaction giving
rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence
of Indebtedness, or both, EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been Incurred on the first day of such
period and the discharge of any other Indebtedness repaid, repurchased, defeased
or otherwise discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period (except that, in the case
of Indebtedness used to finance working capital needs incurred under a revolving
credit or similar arrangement, the amount thereof shall be deemed to be the
average daily balance of such Indebtedness during such four-fiscal-quarter
period), (2) if since the beginning of such period the Company or any Restricted
Subsidiary shall have made any Asset Disposition, the EBITDA for such period
shall be reduced by an amount equal to the EBITDA (if positive) directly
attributable to the assets which are the subject of such Asset Disposition for
such period, or increased by an amount equal to the EBITDA (if negative)
directly attributable thereto for such period, and Consolidated Interest Expense
for such period shall be reduced by an amount equal to the Consolidated Interest
Expense directly attributable to any Indebtedness of the Company or any
Restricted Subsidiary repaid, repurchased, defeased, assumed by a third person
(to the extent the Company and its Restricted Subsidiaries are no longer liable
for such Indebtedness) or otherwise discharged with respect to the Company and
its continuing Restricted Subsidiaries in connection with such Asset Disposition
for such period (or, if the Capital Stock of any Restricted Subsidiary is sold,
the Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent the Company and its
continuing Restricted Subsidiaries are no longer liable for such Indebtedness
after such sale), (3) if since the beginning of such period the Company shall
have consummated an Equity Offering, Consolidated Interest Expense for such
period shall be reduced by an amount equal to the Consolidated Interest Expense
directly attributable to any Indebtedness of the Company or any Restricted
Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to
the Company and its Restricted Subsidiaries in connection with such Equity
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Offering for such period, (4) if since the beginning of such period the Company
or any Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any Person which becomes a
Restricted Subsidiary) or an acquisition of assets, which acquisition
constitutes all or substantially all of an operating unit of a business,
including any such Investment or acquisition occurring in connection with a
transaction requiring a calculation to be made hereunder, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto (including the Incurrence of any Indebtedness) as if
such Investment or acquisition occurred on the first day of such period and (5)
if since the beginning of such period any Person (that subsequently became a
Restricted Subsidiary or was merged with or into the Company or any Restricted
Subsidiary since the beginning of such period) shall have made any Asset
Disposition, any Investment or acquisition of assets that would have required an
adjustment pursuant to clause (3) or (4) above if made by the Company or a
Restricted Subsidiary during such period, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving pro forma effect
thereto as if such Asset Disposition, Investment or acquisition occurred on the
first day of such period. If any Indebtedness bears a floating rate of interest
and is being given pro forma effect, the interest of such Indebtedness shall be
calculated as if the rate in effect on the date of determination had been the
applicable rate for the entire period (taking into account any Interest Rate
Agreement applicable to such Indebtedness if such Interest Rate Agreement has a
remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, (i) interest expense
attributable to Capital Lease Obligations, (ii) amortization of debt discount,
(iii) capitalized interest, (iv) non-cash interest expenses, (v) commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, (vi) net costs associated with Hedging
Obligations (including amortization of fees), (vii) Preferred Stock dividends in
respect of all Preferred Stock held by Persons other than the Company or a
Wholly Owned Subsidiary, and (viii) interest actually paid on any Indebtedness
of any other Person that is Guaranteed by the Company or any Restricted
Subsidiary.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income: (i) any net income (or loss) of
any Person if such Person is not a Restricted Subsidiary, except that the
Company's equity in the net income of any such Person for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution; (ii) for purposes of
subclause (a)(3)(A) of the covenant described under "Certain
Covenants -- Limitation on Restricted Payments" only, any net income (or loss)
of any Person acquired by the Company or a Subsidiary in a pooling of interests
transaction for any period prior to the date of such acquisition; (iii) any net
income of any Restricted Subsidiary if such Restricted Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the making
of distributions by such Restricted Subsidiary, directly or indirectly, to the
Company, except that (A) the Company's equity in the net income of any such
Restricted Subsidiary for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash that could have been distributed by
such Restricted Subsidiary consistent with such restriction during such period
to the Company or another Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution paid to
another Restricted Subsidiary, to the limitation contained in this clause) and
(B) the Company's equity in a net loss of any such Restricted Subsidiary for
such period shall be included in determining such Consolidated Net Income; (iv)
any gain (or loss) realized upon the sale or other disposition of any assets of
the Company or its consolidated Subsidiaries (including pursuant to any
sale-and-leaseback arrangement) which is not sold or otherwise disposed of in
the ordinary course of business and any gain (or loss) realized upon the sale or
other disposition of any Capital Stock of any Person; (v) extraordinary gains or
losses; and (vi) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purposes of the covenant described under
"Certain Covenants -- Limitation on Restricted Payments" only, there shall be
excluded from Consolidated Net Income any dividends, repayments of loans or
advances or other transfers of assets from Unrestricted Subsidiaries to the
Company or a Restricted Subsidiary to the
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extent such dividends, repayments or transfers increase the amount of Restricted
Payments permitted under such covenant pursuant to clause (a)(3)(D) thereof.
"Convertible Notes" means the 5 3/4% Convertible Notes due 2007 issued by
the Company, as the same may be amended, waived, modified or replaced from time
to time, provided such amendment, waiver, modification or replacement does not
shorten the maturity, increase the principal amount outstanding, or change the
subordination provisions in a manner that makes them less subordinated.
"Credit Agreements" means the Senior Credit Facility and any credit
agreement or similar facility or any other agreement governing Indebtedness
entered into by the Company or any Restricted Subsidiary, as any of the same may
be amended, waived, modified, Refinanced or replaced from time to time (except
to the extent that any such amendment, waiver, modification, replacement or
Refinancing would be prohibited by the terms of the Indenture).
"Currency Agreement" means, with respect to any Person, any foreign
exchange contract, currency swap agreement or other similar agreement to which
such Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Noncash Consideration" means the fair market value of noncash
consideration received by the Company or one of its Restricted Subsidiaries in
connection with an Asset Disposition that is so designated as Designated Noncash
Consideration pursuant to an Officers' Certificate, which sets forth the basis
of such valuation and is executed by the principal executive officer and the
principal financial officer of the Company, less the amount of cash or Cash
Equivalents received in connection with a sale of such Designated Noncash
Consideration.
"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; provided, however, that any Preferred Stock issued by a Finance
Subsidiary shall not constitute Disqualified Capital Stock.
"EBITDA" for any period means the sum of Consolidated Net Income plus
Consolidated Interest Expense plus, without duplication, the following to the
extent deducted in calculating such Consolidated Net Income: (i) income tax
expense, (ii) depreciation expense, (iii) amortization expense, (iv)
non-recurring charges incurred as a result of business combinations and (v) all
other non-cash items reducing Consolidated Net Income (other than items that
will require cash payments and for which an accrual or reserve is, or is
required by GAAP to be made), less all non-cash items increasing Consolidated
Net Income, in each case for such period. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, and the depreciation and
amortization of, a Subsidiary of the Company shall be added to Consolidated Net
Income to compute EBITDA only to the extent (and in the same proportion) that
the net income of such Subsidiary was included in calculating Consolidated Net
Income.
"Equity Offering" means a primary offering (either public or private) of
any Capital Stock of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended and
the rules and regulations promulgated thereunder.
"Exchange Notes" means another series of Senior Indebtedness of the Company
registered under the Securities Act with terms substantially identical to the
terms of the Senior Notes due 2006 of the Company offered hereby which will be
exchanged pursuant to a registration statement.
"Finance Subsidiary" means any Subsidiary of the Company organized for the
sole purpose of issuing Capital Stock and loaning the proceeds thereof to the
Company and which engages in no other transactions except those incidental
thereto.
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"Finance Subsidiary Indebtedness" means Indebtedness of the Company owed to
and held by a Finance Subsidiary which Indebtedness (a) has a maturity date
after the maturity date of the Convertible Notes and (b) is subordinated in
right of payment to the Convertible Notes.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time, including those set forth in (i) the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants, (ii) statements and pronouncements of
the Financial Accounting Standards Board and (iii) such other statements by such
other entity as approved by a significant segment of the accounting profession.
"Guarantee" means (a) any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness or other obligation
of any other Person, and (b) any obligation, direct or indirect, contingent or
otherwise, of any Person (i) to purchase or pay (or advance or supply funds for
the purchase or payment of) any Indebtedness or other obligation of any other
Person (whether arising by virtue of partnership arrangements, or by agreements
to keep-well, to purchase assets, goods, securities or services, to take-or-pay
or to maintain financial statement conditions or otherwise) or (ii) entered into
for the purpose of assuring in any other manner any Indebtedness or other
obligation (for the payment thereof) of any other Person or to protect any other
Person against loss in respect thereof (in whole or in part); provided, however,
that the term "Guarantee" shall not include endorsements for collection or
deposit in the ordinary course of business. The term "Guarantee" used as a verb
has a corresponding meaning. The term "Guarantor" shall mean any Person
Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Note Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary; provided, further, however, that
in the case of a discount security, neither the accrual of interest nor the
accretion of original issue discount shall be considered an Incurrence of
Indebtedness, but the entire face amount of such security shall be deemed
Incurred upon the issuance of such security. The term "Incurrence" when used as
a noun shall have a correlative meaning.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of (A) indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar instruments
for the payment of which such Person is responsible or liable; (ii) all Capital
Lease Obligations of such Person and all Attributable Debt in respect of
Sale/Leaseback Transactions entered into by such Person; (iii) all obligations
of such Person issued or assumed as the deferred purchase price of property or
services, all conditional sale obligations of such Person and all obligations of
such Person under any title retention agreement (but excluding trade accounts
payables arising in the ordinary course of business and which are not more than
90 days past due and not in dispute), which purchase price or obligation is due
more than six months after the date of placing such property in service or
taking delivery and title thereto or the completion of such services (provided
that, in the case of obligations of an acquired Person assumed in connection
with an acquisition of such Person, such obligations would constitute
Indebtedness of such Person); (iv) all obligations of such Person for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction (other than obligations with respect to letters of
credit securing obligations (other than obligations described in (i) through
(iii) above) entered into in the ordinary course of business of such Person to
the extent such letters of credit are not drawn upon or, if and to the extent
drawn upon, such drawing is reimbursed no later than the tenth Business Day
following receipt by such Person of a demand for reimbursement following payment
on the letter of credit); (v) the amount of all obligations of such Person with
respect to the redemption, repayment or other repurchase of any Disqualified
Capital Stock or, with respect to any Subsidiary of such Person (other than a
Finance Subsidiary), any Preferred Stock (but
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excluding, in each case, any accrued dividends); (vi) all obligations of the
type referred to in clauses (i) through (v) of other Persons and all dividends
of other Persons for the payment of which, in either case, such Person is
responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise, including by means of any Guarantee; (vii) all obligations of the
type referred to in clauses (i) through (vi) of other Persons secured by any
Lien on any property or asset of such Person (whether or not such obligation is
assumed by such Person), the amount of such obligation being deemed to be the
lesser of the value of such property or assets or the amount of the obligation
so secured; and (viii) to the extent not otherwise included in this definition,
Hedging Obligations of such Person. Notwithstanding the foregoing, (i) any
Guarantee of any obligations of a Joint Venture or a Finance Subsidiary given by
or entered into by any Person shall not constitute, or be deemed to be the
Incurrence of, any Indebtedness of such Person, provided, such Guarantee would
be permitted under the covenant described under "Covenants -- Limitation on
Restricted Payments" and (ii) any obligation, contingent or otherwise, of any
Person arising as a result of such Person's ownership of, or control over, the
Capital Stock of another Person, shall not constitute, or be deemed to be the
Incurrence of, Indebtedness of such Person, provided, the Incurrence of such
obligation would be permitted under the covenant described under
"Covenants -- Limitation on Restricted Payments." The amount of Indebtedness of
any Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability, upon the
occurrence of the contingency giving rise to the obligation, of any contingent
obligations as described above at such date; provided, however, that the amount
outstanding at any time of any Indebtedness issued with original issue discount
shall be deemed to be the face amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at such
time as determined in conformity with GAAP.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement designed to
protect the Company or any Restricted Subsidiary against fluctuations in
interest rates.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances or loans to customers or other Persons in the ordinary
course of business that are recorded as accounts or mortgages receivable on the
balance sheet of such Person) or other extensions of credit (including by way of
Guarantee or similar arrangement) or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition of
Capital Stock, Indebtedness or other similar instruments issued by, such Person.
For purposes of the definition of "Unrestricted Subsidiary," the definition of
"Restricted Payment" and the covenant described under "Certain
Covenants -- Limitation on Restricted Payments," (i) "Investment" shall include
the portion (proportionate to the Company's equity interest in such Subsidiary)
of the fair market value of the net assets of any Subsidiary of the Company at
the time that such Subsidiary is designated an Unrestricted Subsidiary;
provided, however, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, the Company shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary equal to an amount (if positive)
equal to (x) the Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time of such redesignation; and (ii) any property transferred
to or from an Unrestricted Subsidiary shall be valued at its fair market value
at the time of such transfer, in each case as determined in good faith by the
Board of Directors.
"Issue Date" means the date on which the Notes are originally issued.
"Joint Venture" means a corporation, partnership or other entity engaged in
a Related Business as to which the Company (directly or through one or more
Restricted Subsidiaries) owns any Capital Stock.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the State of New York.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
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"Mortgages Receivable" means the gross mortgages receivable of the Company
and its Restricted Subsidiaries (including any mortgages receivable acquired as
a result of any business combination) determined on a consolidated basis in
accordance with GAAP.
"Net Available Cash" from an Asset Disposition means cash payments received
by the Company or any of its Subsidiaries therefrom (including any cash payments
received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise, but only as and when received, but
excluding any other consideration received in the form of assumption by the
acquiring Person of Indebtedness or other obligations relating to such
properties or assets or received in any other noncash form) in each case net of
(i) all legal, title and recording tax expenses, commissions and other fees and
expenses incurred, and all Federal, state, provincial, foreign and local taxes
required to be paid or accrued as a liability under GAAP, as a consequence of
such Asset Disposition, (ii) all payments made on any Indebtedness which is
secured by any assets subject to such Asset Disposition, in accordance with the
terms of any Lien upon or other security agreement of any kind with respect to
such assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition, or by applicable law, be repaid out of the
proceeds from such Asset Disposition, (iii) all distributions and other payments
required to be made to minority interest holders in Subsidiaries or Joint
Ventures as a result of such Asset Disposition and (iv) the deduction of
appropriate amounts provided by the seller as a reserve, in accordance with
GAAP, against any liabilities associated with the property or other assets
disposed in such Asset Disposition and retained by the Company or any Restricted
Subsidiary after such Asset Disposition, including without limitation
liabilities under any indemnification obligations associated with such Asset
Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys fees,
accountants fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"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 the 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.
"Notes" means the Senior Notes due 2006 of the Company offered hereby and
the Exchange Notes, as the case may be.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) the Company, (ii) a Restricted Subsidiary or a Person that
will, upon the making of such Investment, become a Restricted Subsidiary;
provided, however, that the primary business of such Subsidiary is a Related
Business; (iii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(iv) Temporary Cash Investments; (v) purchases or acquisitions of mortgage
receivables by the Company or any Restricted Subsidiary created or acquired in
the ordinary course of business; (vi) payroll, travel and similar advances to
cover matters that are expected at the time of such advances ultimately to be
treated as expenses for accounting purposes and that are made in the ordinary
course of business; (vii) loans or advances to employees made in the ordinary
course of business consistent with past practices of the Company or such
Restricted Subsidiary; (viii) stock, obligations or securities received in
settlement of debts created in the ordinary course of business and owing to the
Company or any Restricted Subsidiary or in satisfaction of judgments; (ix)
Persons other than Restricted Subsidiaries that are primarily engaged in a
Related Business, in an aggregate amount (taken together with all Designated
Noncash Consideration at that time outstanding) not to exceed the sum of (1) 10%
of the Total Assets of the Company and its Restricted Subsidiaries determined on
a consolidated basis in accordance with GAAP and (2) the fair market value of
assets (other than Net Cash Proceeds) received by the Company, as determined in
good faith by the Board of Directors of the Company at the time of such receipt,
from the issuance of its Capital Stock (other than Disqualified Capital Stock)
subsequent to the Issue Date (to the
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extent utilized for an Investment, such aggregate amount will be reinstated to
the extent that the Company or any Restricted Subsidiary receives dividends,
repayments of loans or other transfers of assets as a return of such
Investment); and (x) any Person to the extent such Investment represents the
non-cash portion of the consideration received for an Asset Disposition as
permitted pursuant to the covenant described under "Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock," (xi) any
Investment existing as of the Issue Date, (xii) any Investment acquired by the
Company or any of its Restricted Subsidiaries (i) in exchange for any other
Investment or accounts receivable held by the Company or any such Restricted
Subsidiary in connection with or as a result of a bankruptcy, workout,
reorganization or recapitalization of the issuer of such other Investment or
accounts receivable or (ii) as a result of a foreclosure (or deed in lieu of) by
the Company or any of its Restricted Subsidiaries with respect to any secured
Investment or other transfer of title with respect to any secured Investment in
default; or (xiii) Hedging Obligations permitted under clause (7) of the
"Limitations on Indebtedness" covenant.
"Permitted Liens" means any (i) Liens on assets securing Indebtedness and
related obligations incurred under clauses (2), (6), (7), (8), (9), (10), (11)
and (13) of the second paragraph of the covenant described under the caption
"-- Certain Covenants -- Limitation on Indebtedness"; (ii) Liens arising by
reason of (1) operation of law in favor of carriers, warehousemen, landlords,
mechanics, materialmen, laborers, employees or suppliers, incurred in the
ordinary course of business for sums which are not yet delinquent or are being
contested in good faith by negotiations or by appropriate proceedings which
suspend the collection thereof or (2) any interest or title of a lessor under
any lease; (iii) Liens in favor of the Company; (iv) Liens on property of a
Person existing at the time such Person is acquired by, merged into or
consolidated with the Company or any Subsidiary of the Company; provided that
such Liens were in existence prior to the contemplation of such acquisition,
merger or consolidation and do not extend to any assets other than those of the
Person acquired by, merged into or consolidated with the Company; (v) Liens on
property existing at the time of acquisition thereof by the Company or any
Subsidiary of the Company, provided that such Liens were in existence prior to
the contemplation of such acquisition; (vi) Liens arising on any of the property
described in either clause (iv) or (v) above, or on any other property of the
Company or any Restricted Subsidiary, in each case securing Indebtedness and
related obligations incurred pursuant to any development or construction
agreement or any other similar agreement relating to such property, provided
that, such Liens secure Indebtedness (except, with respect to property not
described in either clause (iv) or (v) above, Indebtedness that would constitute
a security) permitted to be incurred under the covenant described under the
caption "-- Certain Covenants -- Limitation on Indebtedness"; (vii) Liens
existing on the date of the Indenture; (viii) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor; (ix)
Liens on assets securing Indebtedness and related obligations incurred under the
Senior Credit Agreements; (x) Liens on assets securing Refinancing Indebtedness
and related obligations in respect of Indebtedness represented by the Notes and
any subsequent Refinancing Indebtedness thereof; (xi) easements, rights-of-way,
restrictions, minor defects or irregularities in title and other similar charges
or encumbrances not interfering in any material respect with the business of the
Company or any of its Restricted Subsidiaries; (xii) Liens pursuant to any
judgment, attachment, decree or order of any court provided that, such Liens do
not give rise to an Event of Default; (xiii) Liens on any Receivables and
Related Assets and (xiv) Liens on any asset securing Non-recourse Debt of the
Company or any Restricted Subsidiary; provided that, such Non-recourse Debt does
not exceed, in the aggregate at any time outstanding, $50 million.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation or
the equity securities of any trust, means Capital Stock of any class or classes
(however designated) which is preferred as to the payment of dividends or
distributions, or as to the distribution of assets upon any voluntary or
involuntary liquidation or dissolution of such corporation or trust, over shares
of Capital Stock of any other class of such corporation or trust.
97
<PAGE> 102
"principal" of any Indebtedness (including a Note) means the principal of
such Indebtedness plus the premium, if any, payable on such Indebtedness which
is due or overdue or is to become due at the relevant time.
"Purchase Money Indebtedness" means Indebtedness (i) consisting of the
deferred purchase price of property, conditional sale obligations, obligations
under any title retention agreement, other purchase money obligations or similar
Indebtedness, in each case where the maturity of such Indebtedness does not
exceed the anticipated useful life of the asset being financed, and (ii)
incurred to finance the acquisition by the Company or a Restricted Subsidiary of
such asset, including additions and improvements; provided, however, that any
Lien arising in connection with any such Indebtedness shall be limited to the
specified asset being financed or, in the case of real property or fixtures,
including additions and improvements, the real property on which such asset is
attached; and provided, further, however, that such Indebtedness is Incurred
within 90 days after such acquisition of such asset by the Company or Restricted
Subsidiary.
"Qualified Issuer" means (A) any lender that is a party to any Credit
Agreement and (B) any commercial bank (i) which has capital and surplus in
excess of $100,000,000, and (ii) the outstanding short-term debt securities of
which are rated at least A-2 by Standard & Poor's Corporation or at least P-2 by
Moody's Investors Service, Inc., or carry an equivalent rating by a nationally
recognized rating agency if both the two named rating agencies cease publishing
ratings of investments.
"Receivables and Related Assets" means Mortgages Receivable and
instruments, chattel paper, obligations, general intangibles and other similar
assets, in each case relating to such Mortgages Receivable.
"Receivables Subsidiary" means a Restricted Subsidiary which is established
for the limited purpose of acquiring and financing Receivables and Related
Assets.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture; provided, however, that (i)
in the case of Indebtedness that has a Stated Maturity after the Stated Maturity
of the Notes, such Refinancing Indebtedness has a Stated Maturity no earlier
than the Stated Maturity of the Indebtedness being Refinanced, (ii) in the case
of Indebtedness that has a Stated Maturity after the Stated Maturity of the
Notes, such Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being Refinanced and (iii) such Refinancing
Indebtedness has an aggregate principal amount (or if Incurred with original
issue discount, an aggregate issue price) that is equal to or less than the
aggregate principal amount (or if Incurred with original issue discount, the
aggregate accreted value) then outstanding or committed (plus fees and expenses,
including any premium and defeasance costs) under the Indebtedness being
Refinanced; provided further, however, that Refinancing Indebtedness shall not
include (x) Indebtedness of a Subsidiary that Refinances Indebtedness of the
Company or (y) Indebtedness of the Company or a Restricted Subsidiary that
Refinances Indebtedness of an Unrestricted Subsidiary.
"Related Business" means, at any time, any business related, ancillary or
complementary (as determined in good faith by the Board of Directors) to the
businesses conducted by the Company and the Restricted Subsidiaries at such
time.
"Representative" means any trustee, agent or representative (if any) for an
issue of Senior Indebtedness of the Company.
"Restricted Payment" means, with respect to any Person, (i) the declaration
or payment of any dividends or any other distributions on or in respect of its
Capital Stock (including any payment in connection with any merger or
consolidation involving such Person) or similar payment to the holders of its
Capital Stock, except dividends or distributions payable solely in its Capital
Stock (other than Disqualified Capital Stock) and except dividends or
distributions payable to the Company or a Restricted Subsidiary, (ii) the
purchase,
98
<PAGE> 103
redemption or other acquisition or retirement for value of any Capital Stock of
the Company held by any Person including the exercise of any option to exchange
any Capital Stock (other than into Capital Stock of the Company that is not
Disqualified Capital Stock), (iii) the purchase, repurchase, redemption,
defeasance or other acquisition or retirement for value, prior to scheduled
maturity, scheduled repayment or scheduled sinking fund payment of any
Subordinated Obligations of the Company (other than the purchase, repurchase or
other acquisition of Subordinated Obligations purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of acquisition) or (iv) the making
of any Investment in any Person (other than a Permitted Investment).
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Senior Credit Agreements" means the Company's $117.5 million senior bank
credit facility dated February 18, 1998, as amended to date and any other senior
bank credit agreement or bank credit facility entered into by the Company or any
Restricted Subsidiary, as any of the same may be amended, waived or modified
from time to time (except to the extent that any such amendment, waiver or
modification would be prohibited by the terms of the Indenture).
"Senior Indebtedness" of the Company means the Notes and any other
Indebtedness of the Company that is not subordinated by its terms in right of
payment to any Indebtedness or other obligation of the Company.
"Senior Subordinated Notes" means the Company's 9 3/4% Senior Subordinated
Notes due October 1, 2007, as amended, waived, modified or replaced from time to
time, provided such amendment, waiver, modification or replacement does not
shorten the maturity, increase the principal amount outstanding, or change the
subordination provisions in a manner that makes them less subordinated.
"Senior Subordinated Notes Indenture" means the Indenture between Norwest
Bank Minnesota, National Association, as trustee, and the Company relating to
the Senior Subordinated Notes, as amended, waived, modified or replaced from
time to time, provided such amendment, waiver, modification or replacement does
not shorten the maturity, increase the principal amount outstanding, or change
the subordination provisions in a manner that makes them less subordinated.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any instrument, the date specified
in such instrument as the fixed date on which the final payment of principal of
such instrument is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase,
redemption or repayment of such instrument at the option of the holder thereof
upon the happening of any contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement to that
effect.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) such Person, (ii) such
Person and one or more Subsidiaries of such Person or (iii) one or more
Subsidiaries of such Person.
99
<PAGE> 104
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $50,000,000 (or the foreign currency
equivalent thereof) and has outstanding debt which is rated "A" (or such similar
equivalent rating) or higher by at least one nationally recognized statistical
rating organization (as defined in Rule 436 under the Securities Act) or any
money-market fund sponsored by an registered broker dealer or mutual fund
distributor, (iii) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii) above, (iv)
investments in commercial paper, maturing not more than 90 days after the date
of acquisition, issued by a corporation (other than an Affiliate of the Company)
organized and in existence under the laws of the United States of America, any
state thereof or the District of Columbia or any foreign country recognized by
the United States of America with a rating at the time as of which any
investment therein is made of "P-1" (or higher) according to Moody's Investors
Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings
Group, and (v) investments in securities with maturities of six months or less
from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least "A" by Standard &
Poor's Ratings Group or "A" by Moody's Investors Service, Inc.
"Total Assets" means the total consolidated assets of the Company and its
Restricted Subsidiaries, as shown on the most recent balance sheet (excluding
the footnotes thereto) of the Company.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, such designation would be permitted
under the covenant described under "Certain Covenants -- Limitation on
Restricted Payments." The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that immediately
after giving effect to such designation (x) the Company could Incur $1.00 of
additional Indebtedness under paragraph (a) of the covenant described under
"Certain Covenants -- Limitation on Indebtedness" and (y) no Default shall have
occurred and be continuing. Any such designation by the Board of Directors shall
be notified by the Company to the Trustee by promptly filing with the Trustee a
copy of the board resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the Company
and/or one or more Wholly Owned Subsidiaries.
100
<PAGE> 105
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Latham & Watkins, counsel to the Company, the following
discussion describes the material federal income tax consequences expected to
result to holders whose Private Notes are exchanged for Exchange Notes in the
Exchange Offer. Such opinion is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable Treasury regulations,
judicial authority and administrative rulings and practice. There can be no
assurance that the Internal Revenue Service (the "Service") will not take a
contrary view, and no ruling from the Service has been or will be sought with
respect to the Exchange Offer. Legislative, judicial or administrative changes
or interpretations may be forthcoming that could alter or modify the statements
and conclusions set forth herein. Any such changes or interpretations may or may
not be retroactive and could affect the tax consequences to holders. Certain
holders (including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) may be subject to special rules not
discussed below. EACH HOLDER OF PRIVATE NOTES SHOULD CONSULT ITS OWN TAX ADVISOR
AS TO THE PARTICULAR TAX CONSEQUENCES OF EXCHANGING PRIVATE NOTES FOR EXCHANGE
NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN
LAWS.
The exchange of Private Notes for Exchange Notes will be treated as a
"non-event" for federal income tax purposes because the Exchange Notes will not
be considered to differ materially in kind or extent from the Private Notes. As
a result, no material federal income tax consequences will result to holders
exchanging Private Notes for Exchange Notes.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Private Notes where such Private Notes were acquired as a result of
market-making activities or other trading activities; provided such Private
Notes do not constitute any portion of an unsold allotment from the original
sale of the Private Notes. To the extent necessary to ensure that this
Prospectus is available for sales of Exchange Notes by broker-dealers, and
notice is given by such broker-dealers to the Company of such fact within 30
days of the effective date of the Registration Statement, the Company has agreed
to use its best efforts to keep the Registration Statement continuously
effective, supplemented and amended as required by the Registration Rights
Agreement, the Securities Act and the policies, rules and regulation of the
Commission as announced from time to time, for a period of 180 days from the
date the Exchange Offer is consummated, or such shorter period as will terminate
when all Private Notes covered by the Registration Statement have been sold.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit of any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. During the
Exchange Offer, the Company will promptly send additional copies of this
Prospectus and any amendment or
101
<PAGE> 106
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Notes, up to a maximum of $35,000) other than commissions or
concessions of any brokers or dealers and will indemnify the holders of the
Notes (including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters relating to the Exchange Notes offered hereby will be
passed upon for the Company by Latham & Watkins, Los Angeles, California and,
with respect to certain matters of Maryland law, by Ballard Spahr Andrews &
Ingersoll, Baltimore, Maryland.
EXPERTS
The consolidated financial statements of Signature Resorts, Inc. and
subsidiaries as of December 31, 1996 and 1997 and for each of the three years in
the period ended December 31, 1997, appearing in this Prospectus and the related
Registration Statement have been audited by Arthur Andersen LLP, independent
certified public accountants, as indicated in their report appearing elsewhere
herein and are included 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 the year then ended, not presented
separately in this Prospectus and the related Registration Statement or the
documents incorporated by reference herein, 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 LSI Group Holdings, plc and
subsidiaries as of December 31, 1995 and 1996, and for each of the three years
in the period ended December 31, 1996, not presented separately in this
Prospectus and the related Registration Statement or the documents incorporated
by reference herein, have been audited by KPMG, independent chartered
accountants and registered auditors, as indicated in their report appearing
elsewhere herein, given upon the authority of such firm as experts in accounting
and auditing.
102
<PAGE> 107
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
Independent Auditors' Report................................ F-4
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... F-5
Consolidated Statements of Income for each of the three
years ended December 31, 1997............................. F-6
Consolidated Statements of Cash Flows for each of the three
years ended December 31, 1997............................. F-7
Consolidated Statements of Equity for each of the three
years ended December 31, 1997............................. F-8
Notes to Consolidated Financial Statements.................. F-9
</TABLE>
F-1
<PAGE> 108
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, 1997
and 1996, and the related consolidated statements of income, equity and cash
flows for each of the years in the three-year period ended December 31, 1997.
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 1996 and 1995 financial statements of LSI
Group Holdings plc and the 1995 financial statements of AVCOM International,
Inc. and subsidiaries, both companies acquired during 1997 in transactions
accounted for as pooling of interests, as discussed in Note 1. Such statements
are included in the consolidated financial statements of Signature Resorts, Inc.
and subsidiaries, and reflect total assets and total revenues of 5 percent and
13 percent in 1996, respectively, and total revenues of 34 percent in 1995, of
the related consolidated totals. These statements were audited by other auditors
whose reports have been furnished to us and our opinion, insofar as it relates
to amounts included for LSI Group Holdings plc and AVCOM International, Inc. and
subsidiaries, is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors,
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, 1997 and 1996, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
1997, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Orlando, Florida
January 26, 1998 (except with respect
to the matters discussed in Note 6, as to which
the date is February 18, 1998, and Note 13, as
to which the dates are February 3 and February 18, 1998)
F-2
<PAGE> 109
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 the year then ended (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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 audit
provides 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 the year then ended, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Phoenix, Arizona
May 31, 1996, except for
Note 12, as to which the
date is July 1, 1996
F-3
<PAGE> 110
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
LSI Group Holdings Plc
We have audited the consolidated balance sheet of LSI Group Holdings Plc
and subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, equity, and cash flows for each of the years in the
three-year period ended December 31, 1996 (not presented separately herein).
These financial statements are the responsibility of 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 in the United States of America. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of LSI Group
Holdings Plc and subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted accounting
principles in the United States of America.
KPMG
Chartered Accountants
Registered Auditors
Preston, England
March 27, 1997
F-4
<PAGE> 111
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Cash and cash equivalents................................... $ 38,487 $ 20,757
Cash in escrow.............................................. 9,485 1,712
Mortgages receivable, net of an allowance of $22,916 and
$17,328 at December 31, 1997 and 1996, respectively....... 331,735 215,518
Due from related parties.................................... 25,576 11,897
Other receivables, net...................................... 17,669 11,847
Income tax refund receivable................................ 4,719 --
Prepaid expenses and other assets........................... 13,047 14,738
Investment in joint ventures................................ 15,657 7,397
Real estate and development costs........................... 219,299 142,870
Property and equipment, net................................. 35,024 14,612
Intangible assets, net...................................... 50,447 4,536
-------- --------
Total assets...................................... $761,145 $445,884
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable............................................ $ 25,196 $ 24,418
Accrued liabilities......................................... 68,047 49,198
Due to related parties...................................... 1,032 1,656
Income taxes payable........................................ -- 3,268
Deferred taxes.............................................. 23,752 3,259
Notes payable............................................... 435,208 236,122
-------- --------
Total liabilities................................. 553,235 317,921
-------- --------
Commitments and Contingencies (Note 8)......................
Minority interest in consolidated limited partnership....... -- 1,538
-------- --------
Stockholders' equity:
Preferred stock (25,000,000 shares authorized; none issued
or outstanding)........................................ -- --
Common stock ($0.01 par value, 50,000,000 shares
authorized; 35,875,287 and 33,011,106 shares
outstanding at December 31, 1997 and 1996,
respectively).......................................... 359 330
Additional paid-in capital................................ 162,969 101,978
Retained earnings......................................... 43,797 23,544
Cumulative foreign currency translation adjustment........ 785 573
-------- --------
Total stockholders' equity........................ 207,910 126,425
-------- --------
Total liabilities and stockholders' equity........ $761,145 $445,884
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 112
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Vacation Interval and Vacation Point sales.................. $281,063 $182,300 $139,426
Interest income............................................. 42,856 25,415 20,339
Other income................................................ 13,774 12,132 8,553
-------- -------- --------
Total revenues..................................... 337,693 219,847 168,318
-------- -------- --------
COSTS AND OPERATING EXPENSES:
Vacation Interval and Vacation Point cost of sales.......... 71,437 48,218 39,810
Advertising, sales, and marketing........................... 126,739 89,040 62,258
Loan portfolio:
Interest expense-treasury................................. 13,032 13,482 10,077
Other expenses............................................ 5,522 4,523 2,034
Provision for doubtful accounts........................... 8,579 8,311 3,666
General and administrative.................................. 42,254 37,436 19,263
Resort property valuation allowance......................... -- 2,620 --
Depreciation and amortization............................... 6,499 5,027 2,514
Merger-related costs........................................ 9,973 -- --
-------- -------- --------
Total costs and operating expenses................. 284,035 208,657 139,622
-------- -------- --------
Income from operations...................................... 53,658 11,190 28,696
Interest expense-other (net of capitalized interest of
$6,774, $6,723, and $3,315 in 1997, 1996 and 1995,
respectively)............................................. 9,394 3,763 1,728
Equity loss on investment in joint ventures................. 639 299 1,649
Minority interest in income of consolidated limited
partnership............................................... 181 199 --
-------- -------- --------
Income before provision (benefit) for income taxes and
extraordinary item........................................ 43,444 6,929 25,319
-------- -------- --------
Provision (benefit) for income taxes from continuing
operations................................................ 17,196 (4,105) 4,020
Provision for deferred income taxes resulting from the
cumulative effect of previously non-taxable acquired
entities.................................................. 5,960 -- --
-------- -------- --------
Total provision (benefit) for income taxes.................. 23,156 (4,105) 4,020
-------- -------- --------
Income before extraordinary item............................ 20,288 11,034 21,299
Extraordinary item, net of income taxes..................... 766 -- --
-------- -------- --------
Net income.................................................. $ 19,522 $ 11,034 $ 21,299
======== ======== ========
Pro forma income data (unaudited):
Income before provision for income taxes.................... -- $ 6,929 $ 25,319
Pro forma provision for income taxes........................ -- 2,549 10,009
-------- -------- --------
Pro forma net income........................................ -- $ 4,380 $ 15,310
======== ======== ========
EARNINGS PER SHARE:
Basic:
Income before extraordinary item..................... $ 0.57 $ 0.41 $ 0.89
Extraordinary item, net of income taxes.............. (0.02) -- --
-------- -------- --------
Net income........................................... $ 0.55 $ 0.41 $ 0.89
======== ======== ========
Diluted:
Income before extraordinary item..................... $ 0.56 $ 0.40 $ 0.89
Extraordinary item, net of income taxes.............. (0.02) -- --
-------- -------- --------
Net income........................................... $ 0.54 $ 0.40 $ 0.89
======== ======== ========
Pro forma earnings per share: (unaudited)
Basic..................................................... -- $ 0.16 $ 0.64
Diluted................................................... -- $ 0.16 $ 0.64
Weighted average number of common shares outstanding........ 35,373 27,232 23,955
Weighted average number of common and potentially dilutive
common shares outstanding................................. 36,180 27,640 23,955
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 113
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................. $ 19,522 $ 11,034 $ 21,299
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization........................... 6,499 5,027 2,514
Provision for doubtful accounts......................... 8,579 8,311 3,666
Resort property valuation allowance..................... -- 2,620 --
Equity loss on investment in joint venture.............. 639 299 1,649
Minority interest in income of consolidated limited
partnership............................................ 181 199 --
Other................................................... -- 573 (566)
Changes in operating assets and liabilities, net of
effect of acquisitions:
Cash in escrow..................................... (6,916) 1,037 473
Due from related parties........................... (12,504) (1,712) (4,083)
Prepaid expenses and other assets.................. 2,068 (5,878) (3,753)
Real estate and development costs.................. (65,595) (73,086) (19,012)
Other receivables, net............................. (4,448) (2,017) (5,797)
Accounts payable and accrued liabilities........... (10,398) 36,499 14,204
Income taxes....................................... (6,518) 1,653 353
Deferred income taxes.............................. 19,481 (8,605) 497
Due to related parties............................. (636) (250) 1,267
--------- --------- --------
Net cash (used in) provided by operating activities......... (50,046) (24,296) 12,711
--------- --------- --------
INVESTING ACTIVITIES:
Cash (paid) received for acquisition of subsidiaries........ (31,296) -- 129
Investment in joint venture................................. (8,899) (63) --
Property and equipment...................................... (19,973) (8,214) (4,601)
Intangible assets........................................... (1,637) (2,206) (2,608)
Mortgages receivable........................................ (108,942) (76,424) (48,601)
--------- --------- --------
Net cash used in investing activities....................... (170,747) (86,907) (55,681)
--------- --------- --------
FINANCING ACTIVITIES:
Proceeds from notes payable................................. 28,088 170,394 98,733
Payments on notes payable................................... (167,229) (101,436) (46,890)
Proceeds from subordinated and convertible notes, net of
debt issuance costs....................................... 325,176 -- --
Proceeds from notes payable to related parties.............. -- 5,606 3,711
Payments on notes payable to related parties................ -- (15,074) (1,343)
Proceeds from stock offerings............................... 52,643 73,324 885
Acquisition of minority limited partners' interests......... -- (7,465) --
Distributions............................................... (738) (14,413) (9,241)
Other....................................................... 648 420 2,447
--------- --------- --------
Net cash provided by financing activities................... 238,588 111,356 48,302
--------- --------- --------
Net increase in cash and cash equivalents................... 17,795 153 5,332
Effect of exchange rates on cash and cash equivalents....... (65) 574 (41)
Cash and cash equivalents, beginning of period.............. 20,757 20,030 14,739
--------- --------- --------
Cash and cash equivalents, end of period.................... $ 38,487 $ 20,757 $ 20,030
========= ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest...................................... $ 18,508 $ 24,127 $ 14,466
Cash paid for taxes......................................... $ 7,918 $ 1,629 $ 2,753
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION:
Stock issued in connection with acquisition of Marc
Resorts................................................... $ 6,010 -- --
Costs incurred in conjunction with debt issuances........... $ 12,824 -- --
Tax benefit resulting from exercise of common stock
options................................................... $ 1,469 -- --
Stock issued and goodwill recorded in connection with the
acquisition of investment in joint venture................ -- $ 4,989 --
Deferred taxes recorded in connection with the Consolidation
Transactions.............................................. -- $ 9,464 --
Interest accrued on deferred installment gains in connection
with the Consolidation Transactions....................... -- $ 820 --
Net assets of predecessor partnership acquired in exchange
for 17,032,058 shares of common stock in connection with
the Consolidation Transactions............................ -- $ 37,380 --
Assignment to venturers of receivable due from related party
recorded as a reduction of venturers' equity.............. -- $ 3,449 --
Write-off of receivable from related party recorded as a
reduction of stockholders' equity......................... -- $ 3,890 --
Conversion of convertible notes payable to AVCOM common
stock..................................................... -- $ 400 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 114
CONSOLIDATED STATEMENTS OF EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL GENERAL LIMITED
SHARES PAID-IN RETAINED MEMBERS PARTNERS' PARTNERS'
OUTSTANDING AMOUNT CAPITAL EARNINGS EQUITY (DEFICIT) EQUITY EQUITY
----------- ------ ---------- -------- ---------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994............ 6,923 $ 69 $ 2,703 $27,326 $ -- $3,329 $ 27,722
------ ---- -------- ------- ------- ------ --------
Issuance of Common Stock................ -- 20 157 -- -- -- --
Distributions........................... -- -- -- (4,811) (2,437) (43) (1,950)
Net income.............................. -- -- -- 12,437 1,004 516 7,342
Other................................... -- -- 1,035 655 1 374 --
------ ---- -------- ------- ------- ------ --------
BALANCE AT DECEMBER 31, 1995............ 6,923 89 3,895 35,607 (1,432) 4,176 33,114
------ ---- -------- ------- ------- ------ --------
Distributions of partnership equity and
other equity interests................ -- -- -- (7,191) (5,394) -- (1,633)
Conversion of convertible notes payable
to AVCOM common stock................. -- -- 400 -- -- -- --
Proceeds from the sale of common stock
to the public, net of offering costs,
including 16,212 shares issued in
exchange for partners' and members'
equity................................ 25,268 253 73,071 -- -- -- --
Stock issued and goodwill recorded in
connection with the acquisition of
investment in joint venture........... 820 8 4,981 -- -- -- --
Acquisition of minority limited
partners' interests................... -- -- (7,465) -- -- -- --
Deferred taxes recorded in connection
with the Consolidation Transactions... -- -- (9,464) -- -- -- --
Net income (loss)....................... -- -- -- 3,875 3,568 (164) 3,755
Exchange of partners' and members'
equity for stock in connection with
the Consolidation Transactions........ -- (20) 37,380 (1,370) 3,258 (4,012) (35,236)
Assignment to venturers' of receivable
due from related party................ -- -- -- (3,449) -- -- --
Write-off of receivable from related
party................................. -- -- -- (3,890) -- -- --
Other................................... -- -- (820) (38) -- -- --
------ ---- -------- ------- ------- ------ --------
BALANCE AT DECEMBER 31, 1996............ 33,011 330 101,978 23,544 -- -- --
------ ---- -------- ------- ------- ------ --------
Net income.............................. -- -- -- 19,522 -- -- --
Proceeds from the sale of common stock,
net of offering costs................. 2,400 24 52,619 -- -- -- --
Common stock issued in connection with
purchase of subsidiary................ 213 2 6,008 -- -- -- --
Distributions........................... -- -- -- (738) -- -- --
Other................................... 251 3 2,364 1,469 -- -- --
------ ---- -------- ------- ------- ------ --------
BALANCE AT DECEMBER 31, 1997............ 35,875 $359 $162,969 $43,797 $ -- $ -- $ --
====== ==== ======== ======= ======= ====== ========
<CAPTION>
CUMULATIVE
FOREIGN
CURRENCY
TRANSLATIONS
ADJUSTMENTS TOTAL EQUITY
------------ ------------
<S> <C> <C>
BALANCE AT DECEMBER 31, 1994............ $ 40 $ 61,189
---- --------
Issuance of Common Stock................ -- 177
Distributions........................... -- (9,241)
Net income.............................. -- 21,299
Other................................... (41) 2,024
---- --------
BALANCE AT DECEMBER 31, 1995............ (1) 75,448
---- --------
Distributions of partnership equity and
other equity interests................ -- (14,218)
Conversion of convertible notes payable
to AVCOM common stock................. -- 400
Proceeds from the sale of common stock
to the public, net of offering costs,
including 16,212 shares issued in
exchange for partners' and members'
equity................................ -- 73,324
Stock issued and goodwill recorded in
connection with the acquisition of
investment in joint venture........... -- 4,989
Acquisition of minority limited
partners' interests................... -- (7,465)
Deferred taxes recorded in connection
with the Consolidation Transactions... -- (9,464)
Net income (loss)....................... -- 11,034
Exchange of partners' and members'
equity for stock in connection with
the Consolidation Transactions........ -- --
Assignment to venturers' of receivable
due from related party................ -- (3,449)
Write-off of receivable from related
party................................. -- (3,890)
Other................................... 574 (284)
---- --------
BALANCE AT DECEMBER 31, 1996............ 573 126,425
---- --------
Net income.............................. -- 19,522
Proceeds from the sale of common stock,
net of offering costs................. -- 52,643
Common stock issued in connection with
purchase of subsidiary................ -- 6,010
Distributions........................... -- (738)
Other................................... 212 4,048
---- --------
BALANCE AT DECEMBER 31, 1997............ $785 $207,910
==== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE> 115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
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
its resorts, which entitle the buyer to use a fully-furnished vacation
residence, generally for a one-week period each year, in perpetuity (Vacation
Intervals). The Company's principal operations consist of (i) acquiring,
developing and operating vacation ownership resort locations, (ii) marketing and
selling Vacation Intervals in certain of its resorts, (iii) marketing and
selling vacation points at certain of its resort locations which may be redeemed
for occupancy rights at participating resorts ("Vacation Points") and (iv)
providing consumer financing to individual purchasers of Vacation Intervals and
Vacation Points at its resorts. The Company also provides resort management and
maintenance services at its resorts for which it receives fees paid by the
resorts' homeowners' associates.
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 9,056,250 shares to the public. The gross
proceeds from the public offering were $84.5 million. The Company incurred $11.2
million of costs 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 16,211,558 shares of the
Company's common stock (the "Consolidation Transactions"). The accompanying
consolidated financial statements reflect the financial position and results of
operations of the Entities since the date they were acquired or formed, which
range from November 1986 to June 1996. Concurrent with the Initial Public
Offering, the Company exchanged 820,500 shares of Common Stock with the former
holders of interests in the Embassy Vacation Resort at Poipu Point, Koloa,
Kauai, Hawaii.
On February 7, 1997 the Company consummated its acquisition by merger of
AVCOM International, Inc. ("AVCOM") and its subsidiaries (the "AVCOM
Acquisition"). AVCOM is the parent company of All Seasons Resorts, Inc., a
developer, marketer and operator of vacation ownership resorts in Arizona,
California and Texas. Under the terms of the AVCOM merger agreement, the Company
issued 1,324,554 shares of its common stock in exchange for all the outstanding
capital stock of AVCOM. The AVCOM Acquisition has been treated as a
pooling-of-interests and is reflected in the accompanying consolidated financial
statements as if it took place at the beginning of the earliest period
presented.
On May 15, 1997, the Company consummated its acquisition by merger ("the
PRG Acquisition") of Plantation Resorts Group, Inc. ("PRG"), a Williamsburg,
Virginia, based developer, owner and operator of vacation ownership resorts in
Williamsburg, Virginia. PRG was incorporated in April 1997 through a private
placement of its common stock in which certain predecessor joint ventures and
corporations (the "PRG Entities") exchanged their interests for shares of PRG's
common stock (the "PRG Exchange"). The PRG Acquisition was consummated through
the issuance of 3,601,844 shares of the Company's common stock. The PRG
Acquisition has been treated as a pooling-of-interests and is reflected in the
accompanying consolidated financial statements as if it took place at the
beginning of the earliest period presented.
On August 28, 1997, the Company consummated its acquisition by merger of
100% of the capital stock of LSI Group Holdings plc ("LSI"), in exchange for
1,996,401 newly-issued shares of the Company's common stock and approximately
$1.0 million in cash (the "LSI Acquisition"). United Kingdom-based LSI is a
developer, owner and operator of vacation ownership resorts located in Europe.
Through its Grand Vacation Club, LSI operates a points-based club system. The
LSI Acquisition has been treated as a pooling-of-interests and is reflected in
the accompanying consolidated financial statements as if it took place at the
beginning of the earliest period presented.
F-9
<PAGE> 116
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
Total revenues and net income for the Company, AVCOM, PRG, and LSI are
shown in the following table (amounts in millions) for the years ended 1996 and
1995, which represent the periods prior to the poolings, which occurred in 1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995
-------- --------
<S> <C> <C>
Revenues
Consolidated......................................... $219.8 $168.3
AVCOM................................................ 48.4 34.3
PRG.................................................. 48.4 38.8
LSI.................................................. 27.9 22.6
Net income (loss)
Consolidated......................................... $ 11.0 $ 21.3
AVCOM................................................ (12.4) 1.0
PRG.................................................. 7.0 7.5
LSI.................................................. 2.3 1.8
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The accompanying financial statements
include the combined accounts of Signature Resorts, Inc., AVCOM, PRG, LSI and
the Company's wholly-owned subsidiaries that were acquired or formed prior to
August 20, 1996, which became wholly-owned subsidiaries in connection with 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 Entities
were recorded at the Entities' historical cost. In addition, the accompanying
consolidated financial statements reflect the historical results of operations
of the predecessor partnerships on a combined basis.
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 and vacation points that are held in
escrow until a certificate of occupancy is obtained or the legal rescission
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 and Vacation Points. 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 the estimated useful life of 39 to 40
years.
Depreciation and amortization expense related to property and equipment was
$2.8 million, $1.5 million and $1.0 million in 1997, 1996 and 1995,
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
F-10
<PAGE> 117
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
costs relate to costs incurred to develop marketing programs 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. Debt issuance costs in connection with the 9.75%
Senior Subordinated Notes due 2007 (the "Senior Notes") and the 5.75%
Convertible Subordinated Notes due 2007 (the "Convertible Notes") are being
amortized on the effective interest method over the 10 year life of the notes.
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. Goodwill in connection with the acquisition of subsidiaries is being
amortized over the estimated useful lives of 10 to 40 years.
At each balance sheet date, the Company evaluates the realizability of its
goodwill based upon expectations of nondiscounted cash flows and operating
income. Based upon its most recent analysis, the Company believes that no
material impairment of its goodwill exists at December 31, 1997.
Foreign Currency Translation -- Financial statements for the Company's
subsidiaries outside the United States are translated into U.S. dollars at
year-end exchange rates for assets and liabilities and weighted average exchange
rates for income and expenses. The resulting translation adjustments are
recorded as a separate component of equity.
Revenue Recognition -- The Company recognizes sales of Vacation Intervals
and Vacation Points on an accrual basis after a binding sales contract has been
executed, a 10% 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.
Income Taxes -- Prior to August 20, 1996, the 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. 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 and 1995.
As a result of the AVCOM Acquisition, AVCOM's results of operations have
been included in the accompanying consolidated financial statements under the
pooling-of-interests method of accounting. During each period presented, AVCOM
was taxed as a C corporation.
Prior to the PRG Acquisition, certain of the PRG Entities were not subject
to federal and state income taxes at the consolidated level for all periods
presented. In connection with the PRG Exchange and the PRG Acquisition, the PRG
Entities became subject to federal and state income taxes from the date of
incorporation. As a result, the pro forma provision for income taxes assumes the
PRG Entities were treated as C corporations for federal income tax purposes.
As a result of the LSI Acquisition, LSI's results have been included in the
accompanying consolidated financial statements under the pooling-of-interests
method of accounting. During each period presented, LSI was subject to income
taxes levied by the various local and country taxing authorities in the foreign
countries in which it operates.
F-11
<PAGE> 118
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
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.
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.
Long-Lived Assets -- 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 $2.6 million in 1996
and has been recorded as a resort property valuation allowance to reduce real
estate and development costs. During 1997, there was no change in the resort
property valuation allowance.
Stock-Based Compensation -- 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 only the
disclosure requirements (see Note 10, "Stock Options").
Newly Issued Accounting Standards -- During February 1997, the Financial
Accounting Standards Board issued SFAS 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 Company implemented SFAS No. 128 in the
fourth quarter of 1997.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income
(SFAS 130). SFAS 130 establishes standards for reporting and the display of
comprehensive income and its components in a financial statement that is
displayed with the same prominence as other financial statements. Comprehensive
income as defined includes all changes in equity (net assets) during a period
from nonowner sources. Examples of items to be included in comprehensive income,
which are excluded from net income, include foreign currency translation
adjustments and unrealized gain/loss on available-for-sale securities. The
disclosures prescribed by SFAS 130 must be made beginning with the first quarter
of fiscal 1999.
F-12
<PAGE> 119
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
In June 1997, the FASB issued Statement No. 131, Disclosures about Segments
of an Enterprise and Related Information (SFAS 131). This statement establishes
standards for the way companies report information about operating segments in
annual financial statements. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The company is in the process of reassessing current business segment reporting
to determine if changes in reporting will be required in adopting this new
standard. Any required disclosures prescribed by SFAS 131 will first be adopted
in the Company's 1999 annual report.
In February 1998, the FASB issued Statement No. 132, Employers Disclosures
about Pensions and Other Postretirement Benefits (SFAS 132). This statement
establishes standards for footnote disclosure requirements relating to pension
and other retiree benefits. The Company is currently in the process of
reassessing current retiree benefit disclosures to determine if changes in
footnote disclosure will be required in adopting this new standard. The new
standard will not have a financial impact on the company. Any required
disclosures prescribed by SFAS 132 will first be adopted in the Company's 1998
annual report.
Reclassifications -- Certain reclassifications were made to the 1996 and
1995 accompanying consolidated financial statements to conform to the 1997
presentation.
3. MORTGAGES RECEIVABLE, NET
The Company provides financing to the purchasers of Vacation Intervals and
Vacation Points which are collateralized by their interest in such Vacation
Intervals and Vacation Points. The mortgages receivable generally bear interest
at the time of issuance of between 12% and 17%, which remain fixed over the term
of the loan, which typically averages seven to ten years. The mortgages
receivable may be prepaid at any time without penalty. The weighted average rate
of interest on outstanding mortgages receivable is 14.4% as of December 31,
1997.
As of December 31, 1997, approximately 4.6% of the Company's consumer loans
were considered by the Company to be delinquent (scheduled payment past due 60
or more days). In addition, the Company had commenced deed-in-lieu of
foreclosure or foreclosure action on approximately 2.2% of its consumer loans as
of December 31, 1997.
At December 31, 1997 and 1996, approximately $5.8 million and $4.4 million,
respectively, of mortgages receivable are non-interest bearing. These mortgages,
which generally have a stated maturity of one to three years, have not been
discounted as management has determined that the effect would not be material to
the accompanying consolidated financial statements.
Additionally, the Company has accrued interest receivable related to
mortgages receivable of $4.1 million and $2.5 million at December 31, 1997 and
1996, respectively. The accrued interest receivable at December 31, 1997 and
1996 is net of an allowance for doubtful accounts of $1.0 million and $0.2
million, respectively, and is included in other receivables, net.
F-13
<PAGE> 120
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
The following schedule reflects the scheduled principal maturities of
mortgages receivable (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
<S> <C>
1998........................................................ $ 50,564
1999........................................................ 46,367
2000........................................................ 44,615
2001........................................................ 43,907
2002........................................................ 41,760
Thereafter.................................................. 127,438
--------
Total principal maturities of mortgages receivable.......... 354,651
Less allowance for doubtful accounts........................ (22,916)
--------
Net principal maturities of mortgages receivable............ $331,735
========
</TABLE>
The activity in the mortgages receivable allowance for doubtful accounts is
as follows (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Balance, beginning of the period......................... $17,328 $13,271
Decrease in allowance for purchased mortgages
receivable............................................. (718) (400)
Increase in allowance for company acquired............... 1,265 --
Provision for mortgages receivable doubtful accounts..... 7,234 8,311
Receivables charged off.................................. (2,193) (3,854)
------- -------
Balance, end of the period..................... $22,916 $17,328
======= =======
</TABLE>
The provision for doubtful accounts for 1997 includes $1,345,000 for other
receivables.
4. REAL ESTATE AND DEVELOPMENT COSTS
Real estate and development costs and accumulated Vacation Interval and
Vacation Point cost of sales consist of the following (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
Land................................................. $ 74,527 $ 54,614
Development costs, excluding capitalized interest.... 370,151 248,972
Capitalized interest................................. 20,050 13,276
--------- ---------
Total real estate and development costs.... 464,728 316,862
Less accumulated Vacation Interval and Vacation Point
cost of sales...................................... (242,809) (171,372)
Less resort property valuation allowance............. (2,620) (2,620)
--------- ---------
Net real estate and development costs...... $ 219,299 $ 142,870
========= =========
</TABLE>
As of December 31, 1997, the Company commenced sales of Vacation Intervals
at certain properties, or phases of certain properties, that are expected to be
completed during 1998. The estimated cost to complete the projects, or the
specific phases of the projects, is approximately $20 million.
F-14
<PAGE> 121
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
5. INTANGIBLE ASSETS
Intangible assets and accumulated amortization consist of the following
(amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Organizational costs..................................... $ 2,569 $ 2,569
Start-up costs........................................... 1,933 2,433
Debt issuance costs...................................... 15,257 933
Loan origination fees.................................... 1,265 2,712
Financing fees........................................... 1,704 1,620
Goodwill................................................. 35,227 41
------- -------
Total intangible assets.................................. 57,955 10,308
Less accumulated amortization............................ (7,508) (5,772)
------- -------
Net intangible assets.................................. $50,447 $ 4,536
======= =======
</TABLE>
Amortization expense was $3.7 million, $3.5 million and $1.6 million in
1997, 1996 and 1995, respectively. In addition, $2.0 million of amortized
intangibles were retired from the related asset and accumulated amortization
accounts in 1997.
6. NOTES PAYABLE
Notes payable consists of the following at December 31 (amounts in
thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Revolving lines of credit not to exceed $241 million in the
aggregate (limited by eligible collateral), with interest
payable monthly at prime plus 2% to prime plus 3% (10.5% to
11.5% at December 31, 1997), 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............................... $ 62,676 $ 91,617
Revolving line of credit not to exceed $20 million,
collateralized by certain mortgages receivable with interest
payable at prime plus 1.5% to prime plus 1.75% (10.0% to
10.25% at December 31, 1997) or LIBOR plus 4.25% (9.97% at
December 31, 1997), 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
from September 2000 to October 2003......................... 11,931 14,654
Revolving line of credit of $100.0 million and $40 million
during 1997 and 1996, respectively, with interest payable
monthly at LIBOR plus 2.75% (8.47% at December 31, 1997)
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
</TABLE>
F-15
<PAGE> 122
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Construction loan payable not to exceed $47 million in the
aggregate, with monthly interest payable at prime plus 2%
(10.5% at December 31, 1997) principal payable with a
portion of the proceeds received on the sale of Vacation
Intervals, collateralized by specific land and unsold
interval inventory, due from January 1998 to April 2004..... 2,694 16,476
Mortgages receivable, sold with option to repurchase,
collateralized by certain mortgages receivable.............. 4,823 6,281
Bonds payable, due April 2004 with interest at 7.75%,
payable from collections of mortgages receivable,
collateralized by mortgages receivable...................... 11,572 17,460
Endpaper loan, due dates from December 2002 to June 2005
with interest at prime plus 1.25% (9.75% at December 31,
1997), payable from collections of mortgages receivable,
collateralized by mortgages receivable...................... -- 5,259
Various acquisition notes payable with interest rates
ranging from 6.75% to 11.5% and due dates ranging from
January 1998 to February 2014, collateralized by certain
real property and proceeds from the sale of Vacation
Intervals................................................... -- 5,999
Noninterest bearing land loans payable from proceeds of
Vacation Intervals sold with final maturity of May 1999..... 433 3,995
Other notes payable......................................... 3,079 37,155
9.75% Senior Subordinated Notes with semi-annual interest
payments due April and October and principal due October
2007........................................................ 200,000 --
5.75% Convertible Subordinated Notes with semi-annual
interest payments due January and July and principal due
January 2007................................................ 138,000 --
-------- --------
Total notes payable......................................... $435,208 $236,122
======== ========
</TABLE>
On February 18, 1998, the Company consummated a $100.0 million Senior Bank
Credit Facility (the "Credit Facility"). The Credit Facility has a variable
borrowing rate based on the percentage of the Company's mortgages receivable
pledged under such facility and the amount of funds advanced thereunder. The
interest rate will vary between LIBOR plus 7/8% and LIBOR plus 1 3/8%, depending
on the amount of advances against mortgages receivable. The Credit Facility has
a three year term and contains covenants, representations and warranties and
conditions to borrow on the funds.
The Convertible Notes are convertible into Common Stock at any time prior
to maturity, unless previously redeemed, at a conversion price of $30.417 per
share, subject to adjustment under certain events.
At December 31, 1997, under the terms of the revolving lines of credit
agreements, the Company may typically borrow from 85% to 90% of the balances of
the pledged mortgages receivable. A total of approximately $199 million is
available under these certain agreements.
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,
1997, the Company was in compliance with all covenants.
F-16
<PAGE> 123
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
Dividends are restricted by certain of the Company's debt agreements which
require tangible net worth of at least $140 million.
The expected maturities of the remaining notes payable are as follows
(amounts in thousands):
<TABLE>
<CAPTION>
DUE IN FISCAL YEAR
------------------
<S> <C>
1998..................... $ 29,537
1999..................... 28,794
2000..................... 18,108
2001..................... 11,503
2002..................... 9,223
2003 and thereafter...... 338,043
--------
$435,208
========
</TABLE>
7. RELATED PARTY TRANSACTIONS
At December 31, 1997 and 1996, respectively, the Company, had accrued $7.0
million and $4.4 million as a receivable from various homeowners' associations
at its resorts. At December 31, 1997 and 1996, respectively, the Company had
accrued $1.0 million and $1.6 million as a payable to the homeowners'
associations at its resorts. The Company generally accrues receivables from
homeowners' associations for management fees and certain other expenses.
Payables to the homeowners' associations consist primarily 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.
As of December 31, 1997, the Company had accounts receivable and notes
receivable of $2.7 million and $11.8 million, respectively, from the Company's
joint ventures in Poipu Point, Hawaii, Kaanapali, Hawaii and St. John, U.S.
Virgin Islands. As of December 31, 1996, these accounts receivable and notes
receivable balances were $0.3 million and $2.0 million, respectively. The
accounts receivable relate to certain reimbursable operating and development
expenses. The notes receivable represent loans made to the projects for start-up
and development activities.
8. COMMITMENTS AND CONTINGENCIES
The Company is currently subject to litigation and claims regarding
employment, tort, contract, construction, and commission disputes, among others.
In the judgment of management, none of such litigation or claims against the
Company is likely to have a material adverse effect on the Company's financial
statements or its business.
The Company owns a partnership interest in the Embassy Vacation Resort at
Poipu Point, Koloa, Kauai, Hawaii. Under the terms of the partnership agreement,
the Company could be required to purchase the other partner's interest. At
December 31, 1997, the Company does not believe that the events requiring such
purchase are likely to occur.
9. 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.
F-17
<PAGE> 124
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
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: 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.
10. STOCK OPTIONS
The Company issued 1,054,500 and 2,653,500 stock options during 1997 and
1996, respectively. 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 would have been
$16.9 million and basic and diluted earnings per share would have been, $0.48
and $0.47, respectively, on an unaudited pro forma basis for the year ended
December 31, 1997. The Company's unaudited, pro forma net income would have been
$1.6 million, and basic and diluted unaudited earnings per share would have been
$0.06 on an unaudited pro forma basis for the year ended December 31, 1996. SFAS
123 would not have affected the Company's net income and earnings per share for
the year ended December 31, 1995. A summary of the Company's stock options for
the years ended December 31, 1997 and 1996 is presented in the following table:
<TABLE>
<CAPTION>
1997 1996
----------------------------- -----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
---------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C>
Outstanding options, beginning
of year...................... 2,653,500 $10.29 --
Granted........................ 1,054,500 23.99 2,653,500 $10.29
Exercised...................... (250,180) 9.33 -- --
Forfeited...................... (168,413) 16.42 -- --
Expired........................ -- -- -- --
---------- ------ ---------- ------
Outstanding options, end of
year......................... 3,289,407 $14.45 2,653,500 $10.29
Exercisable at end of year..... 817,528 $10.50 522 $10.18
========== ====== ========== ======
Weighted average fair value of
options granted.............. $ 5.32 $ 4.23
</TABLE>
All stock options issued by the Company were issued to employees at fair
market value on the grant date. The options range from 3 to 5 years for full
maturity and the exercise prices range from $8.00 to $28.25.
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 4.1 years in 1997 and 5 years in 1996.
Options to purchase an aggregate of 2,653,500 shares of Common stock were
granted to directors, executive officers and other employees of the Company in
1996 and were outstanding on January 1, 1997. The number of options granted
exceeded the limit of 2,625,000 shares approved under the 1996 Equity
Participation Plan by 28,500 shares. The options that were granted in excess of
the limit were granted subject to the approval of the Company's stockholders of
an amendment to such plan increasing the number of shares of Common stock
reserved for issuance thereunder from 2,625,000 shares to 3,750,000 shares.
On May 16, 1997, shareholders approved a new limit of 3,750,000 total
shares reserved for issuance under the Company's 1996 Equity Participation Plan.
As of December 31, 1997 the number of shares available for option grants was
460,593 under the plan.
F-18
<PAGE> 125
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
11. EMPLOYEE BENEFIT PLANS
The Company has established the Signature Resorts, Inc. Employee Stock
Purchase Plan to assist eligible employees to acquire stock ownership in the
Company and to encourage them to remain in the employment of the Company. The
Employee Stock Purchase Plan is intended to meet the requirements of an
"employee stock purchase plan" under Section 423 of the Internal Revenue Code of
1986, as amended, and generally allows eligible employees to purchase common
stock at 85% of fair market value, subject to dollar limitations. The Company
has reserved a maximum of 750,000 shares of Common Stock for issuance pursuant
to the Employee Stock Purchase Plan. As of December 31, 1997 and 1996, an
aggregate of 2,482 and no shares, respectively, had been issued pursuant to the
Employee Stock Purchase Plan.
The Company also has established a qualified retirement plan, with a salary
deferral feature designed to qualify under Section 401 of the Internal Revenue
Code of 1986, as amended. Subject to certain limitations, the 401(k) Plan allows
participating employees to defer up to 10% of their eligible compensation on a
pre-tax basis. Although the 401(k) Plan allows the Company to make discretionary
matching contributions of up to 50% of employee contributions, the Company did
not make any such matching contributions during 1997 or 1996.
12. INCOME TAXES
Prior to August 20, 1996, the 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. In addition, PRG entities were
taxed as a corporation at the corporate level or as a partnership 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 and LSI's actual deferred income taxes and provision
for income taxes are included in the pro forma schedules and 1996 actual
schedule on the next page. The Company's actual income tax provision is
presented for the periods subsequent to August 20, 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1997 1996 1996 1995
------- ------- ------------ ------------
(PRO FORMA) (PRO FORMA)
(UNAUDITED) (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Current:
Federal.................................... $ 2,194 $ 2,785 $ 4,990 $ 5,654
State...................................... 461 481 846 711
Foreign.................................... 2,533 1,240 1,233 1,645
------- ------- ------- -------
Total current provision for income taxes..... 5,188 4,506 7,069 8,010
------- ------- ------- -------
Deferred:
Federal.................................... 16,125 (7,182) (3,675) 1,363
State...................................... 1,843 (1,393) (809) 594
Foreign.................................... -- (36) (36) 42
------- ------- ------- -------
Total deferred provision (benefit) for income
taxes...................................... 17,968 (8,611) (4,520) 1,999
------- ------- ------- -------
Provision (benefit) for income taxes......... $23,156 $(4,105) $ 2,549 $10,009
======= ======= ======= =======
</TABLE>
F-19
<PAGE> 126
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
The reconciliation between the statutory provision for income taxes and the
actual provision (benefit) for income taxes is shown as follows (amounts in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1997 1996 1996 1995
------- ------- ------------ ------------
(PRO FORMA) (PRO FORMA)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Income tax at U.S. federal statutory
rate............................... $15,205 $ 2,357 $2,357 $ 8,862
State tax, net of federal benefit.... 1,738 163 163 1,037
Difference in foreign tax rates...... (994) (34) (34) (56)
Write-off of receivable from related
party.............................. -- (1,478) -- --
Non-deductible expenses.............. 3,192 598 63 166
Deferred income taxes recorded upon
acquisition of previously
non-taxable entities............... 5,960 -- -- --
Other................................ (895) -- -- --
Non-taxable income from entities..... (1,050) (5,711) -- --
------- ------- ------ -------
Provision (benefit) for income
taxes........................... $23,156 $(4,105) $2,549 $10,009
======= ======= ====== =======
</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 (amounts in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts........................... $ 8,867 $ 5,659
Fixed assets and inventory................................ 1,305 3,389
Accrued expenses.......................................... 4,152 2,386
Adjustment to basis of partnership property............... 3,474 --
Net operating loss carryover.............................. 29,439 15,763
Capital loss carryover.................................... 367 --
Federal benefit of state deferred tax..................... -- --
Foreign tax credit carryover.............................. 62 332
Minimum tax credit carryover.............................. 5,776 1,629
-------- --------
Total gross deferred tax assets................... 53,442 29,158
-------- --------
Valuation Allowance......................................... (2,367) --
-------- --------
Total net deferred tax asset...................... 51,075 29,158
-------- --------
Deferred tax liabilities:
Installment sales......................................... (73,818) (27,191)
Percentage of completion.................................. (160) (4,370)
Other..................................................... (849) (856)
-------- --------
Total deferred tax liabilities.................... (74,827) (32,417)
-------- --------
Net deferred taxes..................................... $(23,752) $ (3,259)
======== ========
</TABLE>
At December 31, 1997, the Company has available approximately $79 million
of unused net operating loss carryforwards (the "NOLs") that may be applied
against future taxable income. These NOLs expire on various dates from 2004
through 2012.
F-20
<PAGE> 127
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
During the fourth quarter of 1997, the Company changed its estimate
regarding its tax provision by $6.0 million or $0.17 per share to reflect the
tax effects of certain acquired entities, primarily PRG, that were either
previously non-taxable or were taxed in foreign jurisdictions.
13. SUBSEQUENT EVENTS
On February 3, 1998, the Company acquired 100% of the capital stock of MMG
Holding Corp., MMG Development Corp. and certain affiliated companies for
approximately $26.5 million, comprised of $18.5 million in cash and the
assumption of approximately $8.0 million of debt. The acquired assets include
MMG's approximately $6.6 million mortgages receivable portfolio. MMG is an
Orlando, Florida based developer, operator and manager of vacation ownership
resorts, with sales or management operations at six resorts. In addition on
February 18, 1998, the Company consummated MMG's commitment to purchase an
additional resort in Gatlinburg, Tennessee. The Company will account for the
acquisition using the purchase method of accounting for business combinations.
In January 1998, the Company acquired the Westin Carambola Beach Resort
(the "Carambola Beach Resort") on the island of St. Croix, United States Virgin
Islands for a cash purchase price of $13 million. The Carambola Beach Resort
contains 156 one-bedroom suites and one two-bedroom suite. The Company will
account for the acquisition using the purchase method of accounting for business
combinations.
In January 1998, the Company announced that it and Westin Hotels & Resorts
("Westin") modified their existing joint development agreement to make the
relationship non-exclusive between the parties. Under their modified
relationship, the Company and Westin each will be free to independently pursue
all vacation ownership development opportunities. Under the parties' prior
exclusive agreement, the Company and Westin each were restricted from developing
four and five star vacation ownership resorts with third parties. The Company
and Westin, however, will continue to jointly own and operate the Westin
Vacation Club St. John located in the U.S. Virgin Islands. As part of the
modification, the Company's and Westin's representatives no longer serve on the
other's board of directors.
14. SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one industry segment, which includes the
development, acquisition, marketing, sales, financing and management of vacation
ownership resorts. The Company's areas of operation outside of the United States
include Mexico, Canada, Netherlands Antilles, United Kingdom, Spain, Austria and
France. The Company's customers are not concentrated in any specific geographic
region and no single customer accounts for a significant amount of the Company's
sales.
F-21
<PAGE> 128
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
Information about the Company's operations in different geographic
locations is shown below (amounts in thousands):
<TABLE>
<CAPTION>
UNITED STATES FOREIGN TOTAL
------------- ------- --------
<S> <C> <C> <C>
1997
Total revenues.................................. $270,296 $67,397 $337,693
Income before provision for income taxes........ 31,177 12,267 43,444
Identifiable assets............................. 701,509 59,636 761,145
1996
Total revenues.................................. $179,003 $40,844 $219,847
Income before provision for income taxes........ 356 6,573 6,929
Identifiable assets............................. 412,339 33,545 445,884
1995
Total revenues.................................. $138,925 $29,393 $168,318
Income before provision for income taxes........ 18,162 7,157 25,319
Identifiable Assets............................. 267,162 28,609 295,771
</TABLE>
NOTE 15. ACQUISITIONS
On October 10, 1997, the Company consummated its acquisition (the "Marc
Acquisition") of Hawaii-based Marc Hotels & Resorts, Inc. ("Marc Resorts"),
acquiring 100% of the capital stock of Marc Resorts for 212,717 newly issued
shares of the Company's Common Stock. Marc Resorts is a Hawaiian hospitality
management company and operator of hotels, resort condominiums and all-suite
resorts with 22 managed resort locations on Hawaii's five major islands. The
Company accounted for the Marc Acquisition using the purchase method of
accounting for business combinations.
On November 7, 1997, the Company consummated its acquisition of 100% of the
capital stock of Vacation Internationale, Ltd. ("VI") and its subsidiaries for
approximately $24.3 million, comprised of $8.0 million in cash and promissory
notes and the assumption of approximately $16.3 million of long-term
indebtedness (the "VI Acquisition"). VI is a Bellevue, Washington based
developer and operator of vacation ownership resorts. VI's vacation time share
program includes 21 resort locations in the Western United States, Hawaii,
Mexico and Canada. The Company accounted for the VI Acquisition using the
purchase method of accounting for business combinations.
On November 14, 1997, a partnership of which the Company is a managing
general partner consummated its acquisition of the Embassy Suites Resort at
Kaanapali Beach, Maui, Hawaii for approximately $78 million. The acquiring
entity is a partnership formed by a wholly-owned subsidiary of the Company (as
the managing general partner), the Whitehall Street Real Estate Limited
Partnership VII and Apollo Real Estate Advisors, L.P. The Company's subsidiary
owns a 24% partnership interest in the acquiring entity. The Company accounts
for this investment under the equity method of accounting.
On December 5, 1997, the Company consummated its acquisition of the
European vacation ownership business of Global Development Ltd. ("Global") and
certain of its affiliated companies through an asset purchase for cash
consideration of approximately $18 million. Global has 13 resort locations in
Europe. The Company assumed no long-term debt as part of this transaction, but
assumed approximately $7.0 million in liabilities and acquired assets valued at
approximately $15.8 million. The Company accounted for the asset purchase using
the purchase method of accounting.
F-22
<PAGE> 129
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
Assets acquired and liabilities assumed in connection with the Company's
acquisitions are as follows (amounts in thousands):
<TABLE>
<S> <C>
Assets acquired in acquisitions:
Cash in escrow............................................ $ 857
Mortgages receivable, net................................. 14,509
Due from related parties.................................. 1,175
Other receivables, net.................................... 2,719
Prepaid expenses and other................................ 377
Real estate and development costs......................... 10,834
Property and equipment, net............................... 3,202
Goodwill in conjunction with acquisitions................. 35,186
-------
Total assets acquired in acquisitions............. $68,859
=======
Liabilities assumed in acquisitions:
Accounts payable.......................................... $ 8,666
Accrued liabilities....................................... 21,359
Due to related parties.................................... 12
Deferred income taxes..................................... 1,012
Notes payable............................................. 227
Cumulative translation adjustments........................ 277
-------
Total liabilities assumed in acquisitions......... $31,553
=======
</TABLE>
The following tables sets forth certain unaudited pro forma information for
the Company's acquisitions as if they had occurred as of the beginning of 1997
and 1996 (amounts in thousands, except per share amounts):
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL ADJUSTMENTS TOTAL
--------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Year ended December 31, 1997
Total revenues................................. $337,693 $ 53,094 $390,787
Net Income..................................... 19,522 (2,951) 16,571
Basic EPS...................................... $ 0.55 $ 0.47
Diluted EPS.................................... $ 0.54 $ 0.46
Year ended December 31, 1996
Total revenues................................. $219,847 $ 74,014 $293,861
Net Income..................................... 11,034 261 11,295
Basic EPS...................................... $ 0.41 $ 0.41
Diluted EPS.................................... $ 0.40 $ 0.41
</TABLE>
F-23
<PAGE> 130
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE 16. EARNINGS PER SHARE
Basic earnings per share was calculated by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share was calculated by dividing the sum of the weighted average
number of common shares outstanding plus all additional common shares that would
have been outstanding if potentially dilutive common shares had been issued. The
following table reconciles the number of shares utilized in the earnings per
share calculations for each of the three years in the period ended December 31,
1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
(AMOUNT IN THOUSANDS)
<S> <C> <C> <C>
Net income............................................ $19,522 $11,034 $21,299
======= ======= =======
Net income available to common stockholders after
assumed conversion of dilutive securities(a)........ $19,522 $11,034 $21,299
======= ======= =======
Weighted average number of common shares used in basic
EPS................................................... 35,373 27,232 23,955
Effect of dilutive stock options...................... 807 408 --
------- ------- -------
Weighted average number of common shares and dilutive
potential common shares used in diluted EPS(a)...... 36,180 27,640 23,955
======= ======= =======
</TABLE>
(a) The potential effect on net income and on common stock shares related
to the Convertible Notes have not been included in the calculation of net income
or weighted average number of common shares and dilutive potential common shares
outstanding used in diluted EPS because the effect would be anti-dilutive.
F-24
<PAGE> 131
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR THE
ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. 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
EXCHANGE OF EXCHANGE NOTES FOR PRIVATE NOTES MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Summary............................... 1
Risk Factors.......................... 14
The Exchange Offer.................... 26
Use of Proceeds....................... 35
Consolidated Capitalization........... 35
Ratio of Earnings to Fixed Charges.... 35
Unaudited Pro Forma Financial Data.... 36
Selected Financial Data............... 38
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 41
Business.............................. 51
Management............................ 71
Description of Certain Indebtedness... 75
Description of Notes.................. 77
Certain Federal Income Tax
Consequences........................ 101
Plan of Distribution.................. 101
Legal Matters......................... 102
Independent Auditors.................. 102
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
$140,000,000
LOGO
SIGNATURE RESORTS, INC.
9 1/4% SENIOR NOTES DUE 2006
------------------------------------------
PROSPECTUS
------------------------------------------
, 1998
======================================================
<PAGE> 132
PART II
ITEM 20. 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 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
Unless otherwise indicated, all exhibits have been previously filed.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<C> <S>
*1.1 Purchase Agreement dated as of April 15, 1998 by and among
Signature Resorts, Inc. and the several Initial Purchasers
named therein relating to the 9 1/4% Senior Notes of
Signature Resorts, Inc. due 2006
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 Agreement for Purchase and Sale of the Entire Issued Share
Capital of LSI Group Holdings plc dated as of June 5, 1997
between Signature Resorts, Inc. and shareholders of LSI
Group Holdings plc (incorporated by reference to Exhibit 2.3
to Amendment No. 1 on Form S-3 to Registrant's Registration
Statement on Form S-1 (No. 333-30285))
2.4 Amendment to the Agreement for Purchase and Sale of the
Entire Issued Share Capital of LSI Group Holdings plc dated
as of August 28, 1997 between Signature Resorts, Inc. and
shareholders of LSI Group Holdings plc (incorporated by
reference to Exhibit 2.2 to Registrant's current report on
Form 8-K filed with the Commission on September 12, 1997)
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)
4.1 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
(incorporated by reference to Exhibit 4 to Registrant's
Registration Statement on Form S-1 (No. 333-30285))
4.2 Indenture dated as of August 1, 1997 by and between
Signature Resorts, Inc. and Norwest Bank Minnesota, National
Association, as trustee, for the 9 3/4% Senior Subordinated
Notes of Signature Resorts, Inc. due 2007 (incorporated by
reference to Exhibit 4.2 to Amendment No. 1 on Form S-3 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
*4.3 Indenture dated as of April 15, 1998 by and between
Signature Resorts, Inc. and Norwest Bank Minnesota, National
Association, as trustee for the 9 1/4% Senior Notes of
Signature Resorts, Inc. due 2006
</TABLE>
II-1
<PAGE> 133
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<C> <S>
*5.1 Opinion of Latham & Watkins regarding the enforceability of
the Exchange Notes being registered (including consent)
*5.2 Opinion of Ballard Spahr Andrews & Ingersoll regarding the
validity of the Exchange Notes being registered (including
consent)
*8 Opinion of Latham & Watkins regarding certain federal income
tax matters (including consent)
10.1.1 Registration Rights Agreement dated as of August 20, 1996 by
and among Signature Resorts, Inc. and the persons named
therein (incorporated by reference to Exhibit 10.1 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
10.1.2 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)
10.1.3 Registration Rights Agreement dated as of August 28, 1997 by
and among Signature Resorts, Inc. and Ian K. Ganney and
Richard Harrington (incorporated by reference to Exhibit
10.10 to Amendment No. 1 on Form S-3 to Registrant's
Registration Statement on Form S-1 (No. 333-30285))
10.1.4 Registration Rights Agreement dated as of August 8, 1997 by
and among Signature Resorts, Inc. and the persons named
therein relating to the 9 3/4% Senior Subordinated Notes due
2007 of Signature Resorts, Inc. (incorporated by reference
to Exhibit 10.11 to Amendment No. 1 on Form S-3 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
10.1.5 Registration Rights Agreement dated as of October 10, 1997
by and among Signature Resorts, Inc. and Michael V. Paulin,
Rosemarie Paulin, Maya K. Paulin and Annemarie H. Paulin
(incorporated by reference to Exhibit 10.1.5 to Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997)
*10.1.6 Registration Rights Agreement dated as of April 15, 1998 by
and among Signature Resorts, Inc. and the persons named
therein relating to the 9 1/4% Senior Notes of Signature
Resorts, Inc. due 2006
10.2.1 Employment Agreement between Signature Resorts, Inc. and
Osamu Kaneko (incorporated by reference to Exhibit 10.2.1 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
10.2.2 Employment Agreement between Signature Resorts, Inc. and
Andrew J. Gessow (incorporated by reference to Exhibit
10.2.2 to Registrant's Registration Statement on Form S-1
(No. 333-30285))
10.2.3 Employment Agreement between Signature Resorts, Inc. and
Steven C. Kenninger (incorporated by reference to Exhibit
10.2.3 to Registrant's Registration Statement on Form S-1
(No. 333-30285))
10.2.4 Employment Agreement between Signature Resorts, Inc. and
James E. Noyes (incorporated by reference to Exhibit 10.2.4
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 (incorporated by reference to Exhibit 10.2.6 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
10.2.7 Option Agreement between Signature Resorts, Inc. and Andrew
J. Gessow (incorporated by reference to Exhibit 10.2.7 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
</TABLE>
II-2
<PAGE> 134
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<C> <S>
10.2.8 Option Agreement between Signature Resorts, Inc. and Steven
C. Kenninger (incorporated by reference to Exhibit 10.2.8 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
10.2.9 Option Agreement between Signature Resorts, Inc. and James
E. Noyes (incorporated by reference to Exhibit 10.2.9 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
10.2.10 Option Agreement between Signature Resorts, Inc. and Michael
A. Depatie (incorporated by reference to Exhibit 10.2.10 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
10.2.11 Form of Amendment No. 1 to Employment Agreement between
Signature Resorts, Inc. and Osamu Kaneko (incorporated by
reference to Exhibit 10.2.11 to Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997)
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
(incorporated by reference to Exhibit 10.3.2 to Registrant's
Registration Statement on Form S-1 (No. 333-30285))
10.3.3 Second Amendment to 1996 Equity Participation Plan of
Signature Resorts, Inc. dated as of October 24, 1997
(incorporated by reference to Exhibit 10.1 to Registrant's
Registration statement on Form S-8 (No. 333-15361))
10.3.4 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))
10.3.5 First Amendment to Employee Stock Plan of Signature Resorts,
Inc. effective as of November 1, 1997 (incorporated by
reference to Exhibit 10.2 to Registrant's Registration
Statement on Form S-8 (No. 333-15361))
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 Joint Development Agreement dated as of January 16, 1998
between Westin Hotel Company and Signature Resorts, Inc.
(incorporated by reference to Exhibit 10.1 to Registrant's
Current Report on Form 8-K filed with the Securities and
Exchange Commission on January 20, 1998))
10.6.1 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))
10.6.2 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))
</TABLE>
II-3
<PAGE> 135
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<C> <S>
10.6.3 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))
10.6.4 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))
10.6.5 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))
10.6.6 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))
10.6.7 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))
10.6.8 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))
10.6.9 Lender's Certification and Consent from Resort Capital
Corporation to Signature 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))
10.6.10 Lender's Certification and Consent from FINOVA Capital
Corporation to Signature Resorts, Inc. dated as of August
15, 1996 (incorporated by reference to Exhibit 10.6.2 to
Registrant's Registration Statement on Form S-4 (No.
333-16339))
10.6.11 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))
10.6.12 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))
10.6.13 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))
10.6.14 Credit Agreement dated as of February 18, 1998 by and among
Signature Resorts, Inc., certain lender parties thereto,
NationsBank of Texas, N.A., as administrative lender and
Societe Generale, as document agent (incorporated by
reference to Exhibit 10.6.14 to Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997)
10.6.15 Amendment to Various Loan and Commitment Agreements dated as
of February 18, 1998, by and between FINOVA Capital
Corporation, the Company, Lake Tahoe Resort Partners, LLC,
Grand Beach Resort, Limited Partnership, Port Royal Resort
L.P., AKGI-Sint Maarten, N.V., All Seasons Resorts, Inc.,
AVCOM International, Inc. and Kabushiki Gaisha Kei, L.L.C.
(incorporated by reference to Exhibit 10.6.15 to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997)
</TABLE>
II-4
<PAGE> 136
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<C> <S>
10.6.16 Loan Agreement between Powhatan Associates and Marine
Midland Bank dated as of June 28, 1995 (incorporated by
reference to Exhibit 10.6.16 to Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997)
10.6.17 Loan and Security Agreement dated as of December 17, 1990,
as amended, between Greyhound Real Estate Finance Company
and Powhatan Associates (incorporated by reference to
Exhibit 10.6.17 to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997)
10.6.18 Development and Receivables Loan and Security Agreement by
and between FINOVA Capital Corporation and Greensprings
Associates dated as of June 30, 1995 and as amended by the
Amendment to Development and Receivables Loan and Security
Agreement dated as of July 15, 1996 (incorporated by
reference to Exhibit 10.6.18 to Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997)
10.7 Amended Consulting Agreement dated as of August 1, 1997 by
and between Signature Resorts, Inc., Resort Services, Inc.
and Dr. Kay F. Gow and Robert T. Gow (incorporated by
reference to Exhibit 10.12 to Amendment No. 1 on Form S-3 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
*12 Statement re Computation of Ratios of Earnings to Fixed
Charges
16.1 Letter from Ernst & Young LLP regarding change in certifying
accountant (incorporated by reference to Exhibit 16.1 to
Registrant's current report on Form 8-K filed with the
Commission on September 18, 1996)
*21 Subsidiaries of Signature Resorts, Inc.
*23.1 Consent of Latham & Watkins (included as part of Exhibit 5.1
and Exhibit 8)
*23.2 Consent of Arthur Andersen LLP
*23.3 Consent of Ernst & Young LLP
*23.4 Consent of KPMG
*23.5 Consent of Schreeder, Wheeler & Flint, LLP
*23.6 Consent of Ballard Spahr Andrews & Ingersoll (included as
part of Exhibit 5.2)
*24 Power of Attorney (included on page II-7)
*25 Statement of Eligibility and Qualification on Form T-1 of
Norwest Bank Minnesota, National Association, as trustee,
re: 9 1/4% Senior Notes of Signature Resorts, Inc. due 2006
*99.1 Letter of Transmittal with respect to the Exchange Offer
*99.2 Notice of Guaranteed Delivery with respect to the Exchange
Offer
*99.3 Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9
</TABLE>
- ---------------
* Filed herewith
(b) Financial Statement Schedules.
None. Schedules are omitted because of the absence of the conditions under
which they are required or because the information required by such omitted
schedules is set forth in the financial statements or the notes thereto.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act of 1933, as
amended (the "Act"), 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 of
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or the
II-5
<PAGE> 137
registrant in the successful defense of any action, suit 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.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into this prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) 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
Act;
(ii) To reflect in the prospectus and 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. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of the securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) of the Act if, in the
aggregate, the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective 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 Act,
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 at the
termination of the offering.
II-6
<PAGE> 138
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized in the City of San Mateo,
State of California, on May 4, 1998.
SIGNATURE RESORTS, INC.
(Registrant)
By: /s/ ANDREW D. HUTTON
------------------------------------
Andrew D. Hutton
Vice President, General Counsel and
Secretary
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 below on behalf of the Registrant in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ OSAMU KANEKO Chairman of the Board May 4, 1998
- --------------------------------------------------------
Osamu Kaneko
/s/ ANDREW J. GESSOW Director and Chief Executive May 4, 1998
- -------------------------------------------------------- Officer (Principal Executive
Andrew J. Gessow Officer)
/s/ STEVEN C. KENNINGER Director and President May 4, 1998
- --------------------------------------------------------
Steven C. Kenninger
/s/ MICHAEL A. DEPATIE Director, Executive Vice May 4, 1998
- -------------------------------------------------------- President and Chief Financial
Michael A. Depatie Officer (Principal Financial
Officer)
/s/ JAMES E. NOYES Chief Operating Officer and May 4, 1998
- -------------------------------------------------------- Director
James E. Noyes
</TABLE>
II-7
<PAGE> 139
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ CHARLES C. FREY Senior Vice President and May 4, 1998
- -------------------------------------------------------- Chief Accounting Officer
Charles C. Frey (Principal Accounting
Officer)
/s/ ADAM M. ARON Director May 4, 1998
- --------------------------------------------------------
Adam M. Aron
/s/ SANFORD R. CLIMAN Director May 4, 1998
- --------------------------------------------------------
Sanford R. Climan
/s/ J. TAYLOR CRANDALL Director May 4, 1998
- --------------------------------------------------------
J. Taylor Crandall
/s/ JOSHUA S. FRIEDMAN Director May 4, 1998
- --------------------------------------------------------
Joshua S. Friedman
/s/ W. LEO KILEY III Director May 4, 1998
- --------------------------------------------------------
W. Leo Kiley III
</TABLE>
II-8
<PAGE> 140
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- -------- ----------- ------------
<C> <S> <C>
*1.1 Purchase Agreement dated as of April 15, 1998 by and among
Signature Resorts, Inc. and the several Initial Purchasers
named therein relating to the 9 1/4% Senior Notes of
Signature Resorts, Inc. due 2006
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 Agreement for Purchase and Sale of the Entire Issued Share
Capital of LSI Group Holdings plc dated as of June 5, 1997
between Signature Resorts, Inc. and shareholders of LSI
Group Holdings plc (incorporated by reference to Exhibit 2.3
to Amendment No. 1 on Form S-3 to Registrant's Registration
Statement on Form S-1 (No. 333-30285))
2.4 Amendment to the Agreement for Purchase and Sale of the
Entire Issued Share Capital of LSI Group Holdings plc dated
as of August 28, 1997 between Signature Resorts, Inc. and
shareholders of LSI Group Holdings plc (incorporated by
reference to Exhibit 2.2 to Registrant's current report on
Form 8-K filed with the Commission on September 12, 1997)
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)
4.1 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
(incorporated by reference to Exhibit 4 to Registrant's
Registration Statement on Form S-1 (No. 333-30285))
4.2 Indenture dated as of August 1, 1997 by and between
Signature Resorts, Inc. and Norwest Bank Minnesota, National
Association, as trustee, for the 9 3/4% Senior Subordinated
Notes of Signature Resorts, Inc. due 2007 (incorporated by
reference to Exhibit 4.2 to Amendment No. 1 on Form S-3 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
*4.3 Indenture dated as of April 15, 1998 by and between
Signature Resorts, Inc. and Norwest Bank Minnesota, National
Association, as trustee for the 9 1/4% Senior Notes of
Signature Resorts, Inc. due 2006
*5.1 Opinion of Latham & Watkins regarding the enforceability of
the Exchange Notes being registered (including consent)
*5.2 Opinion of Ballard Spahr Andrews & Ingersoll regarding the
validity of the Exchange Notes being registered (including
consent)
*8 Opinion of Latham & Watkins regarding certain federal income
tax matters (including consent)
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10.1.1 Registration Rights Agreement dated as of August 20, 1996 by
and among Signature Resorts, Inc. and the persons named
therein (incorporated by reference to Exhibit 10.1 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
10.1.2 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)
10.1.3 Registration Rights Agreement dated as of August 28, 1997 by
and among Signature Resorts, Inc. and Ian K. Ganney and
Richard Harrington (incorporated by reference to Exhibit
10.10 to Amendment No. 1 on Form S-3 to Registrant's
Registration Statement on Form S-1 (No. 333-30285))
10.1.4 Registration Rights Agreement dated as of August 8, 1997 by
and among Signature Resorts, Inc. and the persons named
therein relating to the 9 3/4% Senior Subordinated Notes due
2007 of Signature Resorts, Inc. (incorporated by reference
to Exhibit 10.11 to Amendment No. 1 on Form S-3 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
10.1.5 Registration Rights Agreement dated as of October 10, 1997
by and among Signature Resorts, Inc. and Michael V. Paulin,
Rosemarie Paulin, Maya K. Paulin and Annemarie H. Paulin
(incorporated by reference to Exhibit 10.1.5 to Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997)
*10.1.6 Registration Rights Agreement dated as of April 15, 1998 by
and among Signature Resorts, Inc. and the persons named
therein relating to the 9 1/4% Senior Notes of Signature
Resorts, Inc. due 2006
10.2.1 Employment Agreement between Signature Resorts, Inc. and
Osamu Kaneko (incorporated by reference to Exhibit 10.2.1 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
10.2.2 Employment Agreement between Signature Resorts, Inc. and
Andrew J. Gessow (incorporated by reference to Exhibit
10.2.2 to Registrant's Registration Statement on Form S-1
(No. 333-30285))
10.2.3 Employment Agreement between Signature Resorts, Inc. and
Steven C. Kenninger (incorporated by reference to Exhibit
10.2.3 to Registrant's Registration Statement on Form S-1
(No. 333-30285))
10.2.4 Employment Agreement between Signature Resorts, Inc. and
James E. Noyes (incorporated by reference to Exhibit 10.2.4
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 (incorporated by reference to Exhibit 10.2.6 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
10.2.7 Option Agreement between Signature Resorts, Inc. and Andrew
J. Gessow (incorporated by reference to Exhibit 10.2.7 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
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10.2.8 Option Agreement between Signature Resorts, Inc. and Steven
C. Kenninger (incorporated by reference to Exhibit 10.2.8 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
10.2.9 Option Agreement between Signature Resorts, Inc. and James
E. Noyes (incorporated by reference to Exhibit 10.2.9 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
10.2.10 Option Agreement between Signature Resorts, Inc. and Michael
A. Depatie (incorporated by reference to Exhibit 10.2.10 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
10.2.11 Form of Amendment No. 1 to Employment Agreement between
Signature Resorts, Inc. and Osamu Kaneko (incorporated by
reference to Exhibit 10.2.11 to Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997)
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
(incorporated by reference to Exhibit 10.3.2 to Registrant's
Registration Statement on Form S-1 (No. 333-30285))
10.3.3 Second Amendment to 1996 Equity Participation Plan of
Signature Resorts, Inc. dated as of October 24, 1997
(incorporated by reference to Exhibit 10.1 to Registrant's
Registration statement on Form S-8 (No. 333-15361))
10.3.4 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))
10.3.5 First Amendment to Employee Stock Plan of Signature Resorts,
Inc. effective as of November 1, 1997 (incorporated by
reference to Exhibit 10.2 to Registrant's Registration
Statement on Form S-8 (No. 333-15361))
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 Joint Development Agreement dated as of January 16, 1998
between Westin Hotel Company and Signature Resorts, Inc.
(incorporated by reference to Exhibit 10.1 to Registrant's
Current Report on Form 8-K filed with the Securities and
Exchange Commission on January 20, 1998))
10.6.1 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))
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10.6.2 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))
10.6.3 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))
10.6.4 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))
10.6.5 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))
10.6.6 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))
10.6.7 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))
10.6.8 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))
10.6.9 Lender's Certification and Consent from Resort Capital
Corporation to Signature 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))
10.6.10 Lender's Certification and Consent from FINOVA Capital
Corporation to Signature Resorts, Inc. dated as of August
15, 1996 (incorporated by reference to Exhibit 10.6.2 to
Registrant's Registration Statement on Form S-4 (No.
333-16339))
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10.6.11 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))
10.6.12 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))
10.6.13 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))
10.6.14 Credit Agreement dated as of February 18, 1998 by and among
Signature Resorts, Inc., certain lender parties thereto,
NationsBank of Texas, N.A., as administrative lender and
Societe Generale, as document agent (incorporated by
reference to Exhibit 10.6.14 to Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997)
10.6.15 Amendment to Various Loan and Commitment Agreements dated as
of February 18, 1998, by and between FINOVA Capital
Corporation, the Company, Lake Tahoe Resort Partners, LLC,
Grand Beach Resort, Limited Partnership, Port Royal Resort
L.P., AKGI-Sint Maarten, N.V., All Seasons Resorts, Inc.,
AVCOM International, Inc. and Kabushiki Gaisha Kei, L.L.C.
(incorporated by reference to Exhibit 10.6.15 to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997)
10.6.16 Loan Agreement between Powhatan Associates and Marine
Midland Bank dated as of June 28, 1995 (incorporated by
reference to Exhibit 10.6.16 to Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997)
10.6.17 Loan and Security Agreement dated as of December 17, 1990,
as amended, between Greyhound Real Estate Finance Company
and Powhatan Associates (incorporated by reference to
Exhibit 10.6.17 to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997)
10.6.18 Development and Receivables Loan and Security Agreement by
and between FINOVA Capital Corporation and Greensprings
Associates dated as of June 30, 1995 and as amended by the
Amendment to Development and Receivables Loan and Security
Agreement dated as of July 15, 1996 (incorporated by
reference to Exhibit 10.6.18 to Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997)
10.7 Amended Consulting Agreement dated as of August 1, 1997 by
and between Signature Resorts, Inc., Resort Services, Inc.
and Dr. Kay F. Gow and Robert T. Gow (incorporated by
reference to Exhibit 10.12 to Amendment No. 1 on Form S-3 to
Registrant's Registration Statement on Form S-1 (No.
333-30285))
*12 Statement re Computation of Ratios of Earnings to Fixed
Charges
16.1 Letter from Ernst & Young LLP regarding change in certifying
accountant (incorporated by reference to Exhibit 16.1 to
Registrant's current report on Form 8-K filed with the
Commission on September 18, 1996)
*21 Subsidiaries of Signature Resorts, Inc.
*23.1 Consent of Latham & Watkins (included as part of Exhibit 5.1
and Exhibit 8)
*23.2 Consent of Arthur Andersen LLP
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*23.3 Consent of Ernst & Young LLP
*23.4 Consent of KPMG
*23.5 Consent of Schreeder, Wheeler & Flint, LLP
*23.6 Consent of Ballard Spahr Andrews & Ingersoll (included as
part of Exhibit 5.2)
*24 Power of Attorney (included on page II-7)
*25 Statement of Eligibility and Qualification on Form T-1 of
Norwest Bank Minnesota, National Association, as trustee,
re: 9 1/4% Senior Notes of Signature Resorts, Inc. due 2006
*99.1 Letter of Transmittal with respect to the Exchange Offer
*99.2 Notice of Guaranteed Delivery with respect to the Exchange
Offer
*99.3 Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9
</TABLE>
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* Filed herewith
<PAGE> 1
EXHIBIT 1.1
SIGNATURE RESORTS, INC.
$140,000,000
9.25% Senior Notes due 2006
Purchase Agreement
April 9, 1998
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
NATIONSBANC MONTGOMERY SECURITIES LLC
BT ALEX. BROWN INCORPORATED
SALOMON BROTHERS INC AND
SOCIETE GENERALE SECURITIES CORPORATION
<PAGE> 2
$140,000,000
9.25% Senior Notes due 2006
of SIGNATURE RESORTS, INC.
PURCHASE AGREEMENT
April 9, 1998
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
NATIONSBANC MONTGOMERY SECURITIES LLC
BT ALEX. BROWN INCORPORATED
SALOMON BROTHERS INC and
SOCIETE GENERALE SECURITIES CORPORATION
As Initial Purchasers
c/o Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
Signature Resorts, Inc., a Maryland corporation (the "COMPANY"),
proposes to issue and sell to Donaldson, Lufkin & Jenrette Securities
Corporation, NationsBanc Montgomery Securities LLC, BT Alex. Brown Incorporated,
Salomon Brothers Inc and Societe Generale Securities Corporation (each, an
"INITIAL PURCHASER" and collectively, the "INITIAL PURCHASERS") an aggregate of
$140,000,000 in principal amount of its 9.25% Senior Notes due 2006 (the "SERIES
A NOTES"), subject to the terms and conditions set forth herein. The Series A
Notes are to be issued pursuant to the provisions of an indenture (the
"INDENTURE"), to be dated as of the Closing Date (as defined below), between the
Company and Norwest Bank Minnesota, National Association, as trustee (the
"TRUSTEE"). The Series A Notes and the Series B Notes (as defined below)
issuable in exchange therefor are collectively referred to herein as the
"NOTES." Capitalized terms used but not defined herein shall have the meanings
given to such terms in the Indenture.
1. OFFERING MEMORANDUM. The Series A Notes will be offered and
sold to the Initial Purchasers pursuant to one or more exemptions from the
registration requirements under the Securities Act of 1933, as amended (the
"ACT"). The Company has prepared a preliminary offering memorandum, delivered to
the Initial Purchasers on March 30, 1998 (the "PRELIMINARY OFFERING MEMORANDUM")
and a final offering memorandum, dated April 9, 1998 (the "OFFERING
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<PAGE> 3
MEMORANDUM"), relating to the Series A Notes.
Upon original issuance thereof, and until such time as the same
is no longer required pursuant to the Indenture, the Series A Notes (and all
securities issued in exchange therefor, in substitution thereof or upon
conversion thereof) shall bear the following legend:
"THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS, EXCEPT AS SET FORTH IN THE THIRD SENTENCE HEREOF. BY ITS
ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2),
(3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"), OR (C)
IT IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT
RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY
OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES
IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE
TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE
SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144 UNDER THE SECURITIES ACT, (E) TO AN IAI THAT, PRIOR TO SUCH
TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THIS NOTE
(THE FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH
TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS
THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (F) IN ACCORDANCE
WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY) OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN
EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3)
AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN
INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS
2
<PAGE> 4
LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION"
AND "UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM BY
RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE
INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO
REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION
OF THE FOREGOING."
2. AGREEMENTS TO SELL AND PURCHASE. On the basis of the
representations, warranties and covenants contained in this Agreement, and
subject to the terms and conditions contained herein, the Company agrees to
issue and sell to the Initial Purchasers, and the Initial Purchasers agree,
severally and not jointly, to purchase from the Company, the principal amounts
of Series A Notes set forth opposite the name of such Initial Purchaser on
Schedule A hereto at a purchase price equal to 97.25% of the principal amount
thereof (the "PURCHASE PRICE").
3. TERMS OF OFFERING. The Initial Purchasers have advised the
Company that the Initial Purchasers will make offers (the "EXEMPT RESALES") of
the Series A Notes purchased hereunder on the terms set forth in the Offering
Memorandum, as amended or supplemented, solely to (i) persons whom the Initial
Purchasers reasonably believe to be "qualified institutional buyers" as defined
in Rule 144A under the Act ("QIBS"), and (ii) to persons permitted to purchase
the Series A Notes in offshore transactions in reliance upon Regulation S under
the Act (each, a "REGULATION S PURCHASER") (such persons specified in clauses
(i) and (ii) being referred to herein as the "ELIGIBLE PURCHASERS"). The Initial
Purchasers will offer the Series A Notes to Eligible Purchasers initially at a
price equal to 100% of the principal amount thereof. Such price may be changed
at any time without notice.
Holders (including subsequent transferees) of the Series A Notes
will have the registration rights set forth in the registration rights agreement
(the "REGISTRATION RIGHTS AGREEMENT"), to be dated the Closing Date, in
substantially the form of Exhibit H hereto, for so long as such Series A Notes
constitute "TRANSFER RESTRICTED SECURITIES" (as defined in the Registration
Rights Agreement). Pursuant to the Registration Rights Agreement, the Company
will agree to file with the Securities and Exchange Commission (the
"COMMISSION") under the circumstances set forth therein, (i) a registration
statement under the Act (the "EXCHANGE OFFER REGISTRATION STATEMENT") relating
to the Company's 9.25% Series B Senior Notes due 2006 (the "SERIES B NOTES"), to
be offered in exchange for the Series A Notes (such offer to exchange being
referred to as the "EXCHANGE OFFER") and (ii) a shelf registration statement
pursuant to Rule 415 under the Act (the "SHELF REGISTRATION STATEMENT" and,
together with the Exchange Offer Registration Statement, the "REGISTRATION
STATEMENTS") relating to the resale by certain holders of the Series A Notes and
to use its reasonable best efforts to cause such Registration Statements to be
declared and remain effective and usable for the periods specified in the
Registration Rights Agreement and to consummate the Exchange Offer. This
Agreement, the Indenture, the Notes, and the Registration Rights Agreement are
hereinafter sometimes referred to collectively as the "OPERATIVE DOCUMENTS."
3
<PAGE> 5
4. DELIVERY AND PAYMENT.
(a) Delivery of, and payment of the Purchase Price for, the
Series A Notes shall be made at the offices of Latham & Watkins, New York, New
York or such other location as may be mutually acceptable. Such delivery and
payment shall be made at 9:00 a.m. New York City time, on April 15, 1998 or at
such other time as shall be agreed upon by the Initial Purchasers and the
Company. The time and date of such delivery and the payment are herein called
the "CLOSING DATE."
(b) One or more of the Series A Notes in definitive global
form, registered in the name of Cede & Co., as nominee of the Depository Trust
Company ("DTC"), having an aggregate principal amount corresponding to the
aggregate principal amount of the Series A Notes (collectively, the "GLOBAL
NOTE"), shall be delivered by the Company to the Initial Purchasers (or as the
Initial Purchasers direct) against payment by the Initial Purchasers of the
Purchase Price thereof by wire transfer in same day funds to the order of the
Company. The Global Note shall be made available to the Initial Purchaser for
inspection not later than 9:30 a.m., New York City time, on the business day
immediately preceding the Closing Date.
5. AGREEMENTS OF THE COMPANY. The Company hereby agrees with the
Initial Purchasers as follows:
(a) Prior to amending or supplementing the Offering
Memorandum, the Company shall furnish to the Initial Purchasers for review a
copy of each such proposed amendment or supplement, and the Company shall
deliver any such proposed amendment or supplement to which the Initial
Purchasers reasonably object.
(b) If, prior to the completion of the placement of the Series
A Notes by the Initial Purchasers with the Eligible Purchasers (as evidenced by
a notice in writing from the Initial Purchasers to the Company), any event shall
occur or condition exist as a result of which it is necessary to amend or
supplement the Offering Memorandum in order to make the statements therein, in
the light of the circumstances when the Offering Memorandum is delivered to a
purchaser, not misleading, or if in the opinion of the Initial Purchasers or
counsel for the Initial Purchasers it is otherwise necessary to amend or
supplement the Offering Memorandum to comply with law, the Company agrees
promptly to prepare (subject to Section 5(a) hereof), and furnish at its own
expense to the Initial Purchasers, amendments or supplements to the Offering
Memorandum so that the statements in the Offering Memorandum as so amended or
supplemented will not, in the light of the circumstances when the Offering
Memorandum is delivered to a purchaser, be misleading or so that the Offering
Memorandum, as amended or supplemented, will comply with law.
The Company hereby expressly acknowledges that the
indemnification and contribution provisions of Section 8 hereof are specifically
applicable and relate to each Offering Memorandum, amendment or supplement
referred to in this Section 5(b).
(c) The Company agrees to furnish the Initial Purchasers,
without
4
<PAGE> 6
charge, as many copies of the Offering Memorandum and any amendments and
supplements thereto as they may reasonably request.
(d) The Company shall cooperate with the Initial Purchasers
and counsel for the Initial Purchasers to qualify or register the Series A Notes
for sale under (or obtain exemptions from the application of) the Blue Sky Laws
of those jurisdictions designated by the Initial Purchasers and shall comply
with such laws and shall continue such qualifications, registrations and
exemptions in effect so long as required for the completion of the placement of
the Series A Notes by the Initial Purchasers with the Eligible Purchasers. The
Company shall not be required to qualify as a foreign corporation or to take any
action that would subject it to general service of process in any such
jurisdiction where it is not presently qualified or where it would be subject to
taxation as a foreign corporation. The Company will advise the Initial
Purchasers promptly of the suspension of the qualification or registration of
(or any such exemption relating to) the Series A Notes for offering, sale or
trading in any jurisdiction or any initiation or threat of any proceeding for
any such purpose, and in the event of the issuance of any order suspending such
qualification, registration or exemption, the Company shall use its reasonable
best efforts to obtain the withdrawal thereof at the earliest possible moment.
(e) The Company shall take all reasonable action necessary to
enable Standard & Poor's Ratings Group, a division of McGraw Hill, Inc., Moody's
Investors Service, Inc. and Duff & Phelps to provide their respective credit
ratings of the Notes.
(f) The Company will cooperate with the Initial Purchasers and
use its reasonable best efforts to permit the Notes to be eligible for clearance
and settlement through the facilities of DTC.
(g) Prior to the completion of the placement of the Notes by
the Initial Purchasers with the Eligible Purchasers (as evidenced by a notice in
writing from the Initial Purchasers to the Company), the Company shall file, on
a timely basis, with the Commission and the New York Stock Exchange all reports
and documents required to be filed under Section 13 or 15(d) of the Exchange
Act. Additionally, at any time when the Company is not subject to Section 13 or
15(d) of the Exchange Act, for the benefit of holders and beneficial owners from
time to time of Notes, the Company shall furnish, at its expense, upon request,
to holders and beneficial owners of Notes and prospective purchasers of Notes
information satisfying the requirements of subsection (d)(4)(i) of Rule 144A
("Rule 144A Information").
(h) The Company shall comply in all material respects with all
provisions and obligations of, and shall cause the Exchange Offer to be made on
the appropriate form as contemplated by, the Registration Rights Agreement, and
shall comply in all material respects with all applicable federal and state
securities laws in connection with the Exchange Offer.
(i) The Company agrees that it will not and will cause its
Affiliates not to make any offer or sale of securities of the Company of any
class if as a result of the doctrine of "INTEGRATION" referred to in Rule 502
under the Securities Act, such offer or sale would render
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invalid (for the purpose of (i) the sale of the Series A Notes by the Company to
the Initial Purchasers, (ii) the resale of the Series A Notes by the Initial
Purchasers to the Eligible Purchasers) the exemption from the registration
requirements of the Securities Act provided by Section 4(1) or 4(2) thereof or
by Rule 144A or Regulation S thereunder or otherwise.
(j) Each certificate for a Note will bear the legend contained
in "Notice to Investors" in the Offering Memorandum for the time period and upon
the other terms stated in the Offering Memorandum.
(k) The Company will use its best efforts to cause the Notes
to qualify for initial designation and continued designation as PORTAL
securities in the NASD PORTAL Market (the "PORTAL MARKET").
(l) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or cause to be
paid all expenses incident to the performance of the obligations of the Company
under this Agreement, including: (i) the fees, disbursements and expenses of
counsel to the Company and accountants of the Company in connection with the
sale and delivery of the Series A Notes to the Initial Purchasers and pursuant
to Exempt Resales, and all other fees and expenses in connection with the
preparation, printing, filing and distribution of the Preliminary Offering
Memorandum, the Offering Memorandum and all amendments and supplements to any of
the foregoing (including financial statements), including the mailing and
delivering of copies thereof to the Initial Purchasers and persons designated by
them in the quantities specified herein, (ii) all costs and expenses related to
the transfer and delivery of the Series A Notes to the Initial Purchasers and
pursuant to Exempt Resales, (iii) all costs of printing or reproducing this
Agreement, the other Operative Documents and any other agreements or documents
in connection with the offering, purchase, sale or delivery of the Series A
Notes, (iv) all expenses in connection with the registration or qualification of
the Series A Notes for offer and sale under the securities or Blue Sky laws of
the several states and all costs of printing or reproducing any preliminary and
supplemental Blue Sky memoranda in connection therewith (including the filing
fees and fees and disbursements of counsel for the Initial Purchasers in
connection with such registration or qualification and memoranda relating
thereto not to exceed $10,000), (v) the cost of printing certificates
representing the Series A Notes, (vi) all expenses and listing fees in
connection with the application for quotation of the Series A Notes in the
PORTAL Market, (vii) the fees and expenses of the Trustee in connection with the
Indenture and the Notes, (viii) the costs and charges of any transfer agent,
registrar and/or depositary (including DTC), (ix) any fees charged by rating
agencies for the rating of the Notes, (x) all costs and expenses of the Exchange
Offer and any Registration Statement, as set forth in the Registration Rights
Agreement, and (xi) and all other costs and expenses incident to the perfor
mance of the obligations of the Company hereunder for which provision is not
otherwise made in this Section.
(m) To advise the Initial Purchasers promptly and, if
requested by the Initial Purchasers, confirm such advice in writing, (i) of the
issuance by any state securities commission of any stop order suspending the
qualification or exemption from qualification of any Series A Notes for offering
or sale in any jurisdiction designated by the Initial Purchasers pursuant
to Section 5(d) hereof, or the initiation of any proceeding by any state
securities commission or
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<PAGE> 8
any other federal or state regulatory authority for such purpose and (ii) of the
happening of any event during the period referred to in Section 5(c) below that
makes any statement of a material fact made in the Preliminary Offering
Memorandum or the Offering Memorandum untrue or that requires any additions to
or changes in the Preliminary Offering Memorandum or the Offering Memorandum in
order to make the statements therein not misleading. The Company shall use its
reasonable best efforts to prevent the issuance of any stop order or order
suspending the qualification or exemption of any Series A Notes under any state
securities or Blue Sky laws and, if at any time any state securities commission
or other federal or state regulatory authority shall issue an order suspending
the qualification or exemption of any Series A Notes under any state securities
or Blue Sky laws, the Company shall use its best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time.
(n) During the period beginning on the date hereof and
continuing to and including the Closing Date, not to offer, sell, contract to
sell or otherwise transfer or dispose of any debt securities of the Company or
any warrants, rights or options to purchase or otherwise acquire debt securities
of the Company substantially similar to the Notes (other than (i) the Notes and
(ii) commercial paper issued in the ordinary course of business), without the
prior written consent of the Initial Purchasers.
Donaldson, Lufkin & Jenrette Securities Corporation, on behalf of
the several Initial Purchasers, may, in its sole discretion, waive in writing
the performance by the Company of any one or more of the foregoing covenants or
extend the time for their performance.
6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. As
of the date hereof, the Company represents and warrants to, and agrees with, the
Initial Purchasers that:
(a) Subject to compliance by the Initial Purchasers with the
representations and warranties and agreements set forth in Section 7 hereof, it
is not necessary in connection with the offer, sale and delivery of the Series A
Notes to the Initial Purchasers and to each Eligible Purchaser in the manner
contemplated by this agreement and the Offering Memorandum to register the
Series A Notes under the Securities Act or to qualify the Indenture under the
Trust Indenture Act of 1939, as amended (the "TRUST INDENTURE ACT," which term,
as used herein, includes the rules and regulations of the Commission promulgated
thereunder). The Company meets the requirement for use of Form S-3 under the
Securities Act.
(b) The Company has not, directly or indirectly, solicited any
offer to buy or offered to sell, and will not, directly or indirectly, solicit
any offer to buy or offer to sell, in the United States or to any United States
citizen or resident, any security which is or would be integrated with the sale
of the Series A Notes in a manner that would require the Series A Notes to be
registered under the Securities Act. None of the Company, its affiliates (as
such term is defined in Rule 501(b) under the Securities Act (each, an
"AFFILIATE"), or any person acting on its or any of their behalf (other than the
Initial Purchasers, as to whom the Company makes no representation or warranty)
has engaged or will engage, in connection with the offering of the Series A
Notes, in any form of general solicitation or general advertising within the
meaning of Rule 502(c) under the Securities Act. With respect to Series A Notes
sold in reliance upon
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<PAGE> 9
Regulation S, (i) none of the Company, its Affiliates or any person acting on
its or their behalf (other than the Initial Purchasers, as to whom the Company
makes no representation or warranty) has engaged or will engage in any directed
selling efforts within the meaning of Regulation S and (ii) each of the Company
and its Affiliates and any person acting on its or their behalf (other than the
Initial Purchasers, as to whom the Company makes no representation or warranty)
has complied and will comply with the offering restrictions set forth in
Regulation S.
(c) The Series A Notes are eligible for resale pursuant to
Rule 144A and will not be, at the Closing Date, of the same class as securities
listed on a national securities exchange registered under Section 6 of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT," which term, as
used herein, includes the rules and regulations of the Commission promulgated
thereunder) or quoted in a U.S. automated interdealer quotation system.
(d) The Offering Memorandum does not, and at the Closing Date
will not, include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided that no
representation, warranty or agreement contained in this Section 6(d) shall be
applicable to information contained in or omitted from the Offering Memorandum
in reliance upon and in conformity with written information furnished by or on
behalf of any Initial Purchaser specifically for use in the preparation thereof.
Each of the Preliminary Offering Memorandum and the Offering Memorandum, as of
its date, contains all the information specified in, and meeting the
requirements of, Rule l44(A)(d)(4). The Company has not distributed and will not
distribute, prior to the later of the Closing Date and the completion of the
Initial Purchasers' distribution of the Series A Notes, any offering material in
connection with the offering and sale of the Series A Notes other than a
Preliminary Offering Memorandum, the Offering Memorandum and other materials
permitted or not prohibited by the Securities Act.
(e) This Agreement has been duly authorized, executed and
delivered by, and constitutes a valid and binding obligation of, the Company,
enforceable in accordance with its terms, except as rights to indemnification
hereunder may be limited by applicable law and except as the enforcement hereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights and remedies of creditors or by
general equitable principles.
(f) At the Closing Date, the Registration Rights Agreement
will be duly authorized, executed and delivered by, and will be a valid and
binding agreement of, the Company, enforceable in accordance with its terms,
except as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights and remedies of creditors or by general equitable principles.
(g) (i) The Series A Notes to be purchased by the Initial
Purchasers from the Company have been duly and validly authorized for issuance
by the Company, and when issued, delivered and paid for in accordance with the
terms of this Agreement and the Indenture, will be duly executed, authenticated
and delivered and will constitute valid and legally binding obligations of the
Company entitled to the benefits provided by the Indenture under which they
8
<PAGE> 10
are to be issued, except as the enforcement thereof may be limited by
bankruptcy, insolvency, fraudulent transfer, moratorium, reorganization and
similar laws of general applicability relating to or affecting enforcement of
the rights and remedies of creditors and to general principles of equity and
(ii) the Series B Notes have been duly and validly authorized for issuance by
the Company, and when issued and authenticated in accordance with the terms of
the Indenture, the Registration Rights Agreement and the Exchange Offer, will
constitute valid and legally binding obligations of the Company, enforceable
against the Company in accordance with their terms, except as the enforcement
thereof may be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium, and similar laws of general applicability relating
to or affecting enforcement of the rights and remedies of creditors and to
general principles of equity and will be entitled to the benefits of the
Indenture.
(h) The Indenture has been duly authorized by the Company and,
when executed and delivered by the Company and the Trustee, will constitute a
valid and legally binding instrument enforceable in accordance with its terms,
except as the enforcement thereof may be limited by bankruptcy, insolvency,
fraudulent transfer, moratorium, reorganization and similar laws of general
applicability relating to or affecting enforcement of the rights and remedies of
creditors and to general principles of equity.
(i) The Notes, the Registration Rights Agreement and the
Indenture will conform in all material respects to the descriptions thereof in
the Offering Memorandum.
(j) Since the respective dates as of which information is
given in the Offering Memorandum other than as set forth in the Offering
Memorandum (exclusive of any amendments or supplements thereto subsequent to the
date of this Agreement), (i) there has not occurred any material adverse change
or any development involving a prospective material adverse change in the
condition, financial or otherwise, or the business, management or operations of
the Company and its Affiliates and Subsidiaries (as defined), taken as a whole
(a "MATERIAL ADVERSE CHANGE") and (ii) there has not been any material adverse
change in the stockholders equity or in the long-term debt of the Company or any
of its subsidiaries, taken as a whole (other than the sale of the Notes under
this Agreement and other than draw-downs under the Company's revolving credit
facility in the ordinary course of business).
(k) Arthur Andersen LLP, Ernst & Young LLP and KPMG, who have
expressed their opinion with respect to the financial statements (which term as
used in this Agreement includes the related notes thereto) included in the
Offering Memorandum are independent public or chartered or certified public
accountants within the meaning of Regulation S-X under the Securities Act and
the Exchange Act.
(l) The consolidated financial statements of the Company
together with the related notes thereto, set forth in the Offering Memorandum
fairly present the financial condition of such entities as of the dates
indicated and the results of operations and changes in financial position for
the periods presented. Such statements, schedules and related notes have been
prepared in accordance with generally accepted accounting principles as applied
in the United States applied on a consistent basis as certified by the
applicable independent accountants named
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<PAGE> 11
in Section 6(k). The selected financial data set forth in the Offering
Memorandum under the captions "Consolidated Capitalization," "Selected Financial
Data," "Unaudited Pro Forma Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" fairly present the
information set forth therein on the basis stated in the Offering Memorandum.
The Company's ratios of earnings to fixed charges set forth in the Offering
Memorandum, under the caption "Selected Financial Data" have been calculated in
compliance with Item 503(d) of Regulation S-K under the Securities Act.
(m) The Company has been duly formed and is validly existing
as a corporation, is in good standing under the laws of the State of Maryland,
with full power and authority (corporate and other) to conduct its business as
currently conducted or as described in the Offering Memorandum. Each of the
Company's affiliates (as defined in Rule 144(a) under the Securities Act) and
subsidiaries which is material to the operation of the Company, considered as
whole (the "COMPANY AFFILIATES AND SUBSIDIARIES") has been duly formed and is
validly existing as a partnership, limited liability company or corporation, as
applicable, in good standing under the laws of its jurisdiction of formation,
with full power and authority (partnership and other) to own and lease its
properties and conduct its respective businesses as currently conducted or
described in the Offering Memorandum, except where the failure to be in good
standing would not result in a Material Adverse Change. The Company has full
legal right, power and authority to enter into this Agreement, the Registration
Rights Agreement, the Notes, and the Indenture and to perform the transactions
contemplated hereby and thereby. The Company and each of the Company Affiliates
and Subsidiaries are duly qualified to do business and in good standing as a
foreign corporation, partnership or limited liability company, as applicable, in
each jurisdiction in which the conduct of their respective businesses requires
such qualification, except where the failure to be so qualified and in good
standing would not result in a Material Adverse Change; and to the Company's
knowledge no proceeding has been instituted or threatened in any such
jurisdiction revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification.
(n) As of December 31, 1997, on a consolidated basis, after
giving pro forma effect to the issuance and sale of the Series A Notes on the
basis indicated in the Offering Memorandum, the Company would have an authorized
and outstanding capitalization as set forth in the Offering Memorandum under the
caption "Consolidated Capitalization" (other than for subsequent issuances of
capital stock, if any, pursuant to employee benefit plans described or
incorporated by reference in the Offering Memorandum or upon exercise of
outstanding options described or incorporated by reference in the Offering
Memorandum).
(o) Each of the Company and each Company Affiliate and
Subsidiary is not in violation of any of its articles of organization or
by-laws, and is not in breach or default (either by itself or upon notice or the
passage of time or both) ("DEFAULT") with respect to any provision of any
agreement, judgment, decree, order, mortgage, deed of trust, lease, franchise,
license, indenture, permit or other instrument to which it is a party or by
which it or any of its properties are bound, or to which any of its property or
assets is subject (each, an "EXISTING INSTRUMENT"), except for any such
violation, breach or Default that will not result in a Material Adverse Change.
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(p) The making and performance of this Agreement, the
Registration Rights Agreement, and the Indenture, and the issuance and delivery
of the Notes and the consummation of the transactions contemplated herein and
therein, (i) will not violate any provisions of any partnership agreement,
certificate of partnership, charter, bylaws or other organizational documents,
as applicable, of the Company or any of the Company Affiliates and Subsidiaries,
(ii) will not conflict with, result in the breach or violation of, or constitute
a Default under (A) any Existing Instrument or (B) any statute or any
authorization, rule or regulation of any court or any regulatory body,
administrative agency or other governmental body applicable to the Company, any
of the Company Affiliates and Subsidiaries or any of the Resorts (as defined
herein), and (iii) will not result in the imposition or creation of (or the
obligation to create or impose) any security interest, claim, lien, encumbrance
or adverse interest of any nature under, any agreement or instrument to which
the Company or any of its subsidiaries, is a party or by which the Company or
any of its subsidiaries or their respective property is bound, in each case
except as would not, individually or in the aggregate, result in a Material
Adverse Change.
(q) No consent, approval, authorization or other order of any
court, regulatory body, administrative agency or other governmental body is
required, including the satisfaction of any requirements pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, for the
execution and delivery of this Agreement, the Registration Rights Agreement or
the Indenture, or the issuance and delivery of the Notes or the consummation of
the transactions otherwise contemplated hereby and thereby except for compliance
with the Securities Act, the Exchange Act, the Trust Indenture Act, the Blue Sky
or state or foreign securities laws (collectively, the "BLUE SKY LAWS")
applicable to the offering of the Series A Notes by the several Initial
Purchasers, the issuance of the Series B Notes or the consummation of the
Exchange Offer, and except for any such consent, approval, authorization or
other order as has been or will be obtained prior to the Closing Date, or in the
case of the Series B Notes, prior to the date of issuance.
(r) Except as disclosed in the Offering Memorandum, there are
no legal or governmental actions, suits or proceedings pending or threatened to
which the Company or any of the Company Affiliates and Subsidiaries are a party
or of which any resort owned or leased by the Company Affiliates and
Subsidiaries is the subject, or related to environmental or discrimination
matters, which actions, suits or proceedings could reasonably be anticipated to
individually or in the aggregate, prevent or adversely affect the transactions
contemplated by this Agreement or result in a Material Adverse Change. Neither
the Company nor any of the Company Affiliates and Subsidiaries is a party or
subject to the provisions of any material injunction, judgment, decree or order
of any court, regulatory body, administrative agency or other governmental body.
To the Company's knowledge, no labor problem exists or is imminent with respect
to the employees of any of the resorts operated by the Company, directly or
through the Company Affiliates and Subsidiaries, as described in the Offering
Memorandum (the "RESORTS") which could result in a Material Adverse Change.
(s) Except as specifically disclosed in or specifically
contemplated by the Offering Memorandum, the Company and the Company Affiliates
and Subsidiaries have
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sufficient trademarks, trade names, patent rights, copyrights, licenses or other
similar rights and proprietary knowledge (collectively, "INTANGIBLES"),
approvals and governmental authorizations to conduct its businesses as now
conducted or as described in the Offering Memorandum; the expiration of any
Intangibles, approvals or governmental authorizations will not result in a
Material Adverse Change; and the Company has no knowledge of any material
infringement by it or any of the Company Affiliates and Subsidiaries of any
Intangibles, and there is no claim being made against the Company or any of the
Company Affiliates and Subsidiaries regarding any Intangible or other
infringement which could result in a Material Adverse Change.
(t) Except as set forth in the Offering Memorandum, the
Company and each of the Company Affiliates and Subsidiaries are in possession of
and operating in compliance with all authorizations, licenses, permits,
consents, certificates and orders material to the conduct of their respective
businesses, all of which are valid and in full force and effect; and to the
Company's knowledge, no proceeding has been instituted or threatened in any such
jurisdiction revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, any such authorization, license, permit, consent, certificate or order,
except, in each case, as would not, individually or in the aggregate, result in
a Material Adverse Change.
(u) Except as set forth in the Offering Memorandum, each of
the Company and each of the Company Affiliates and Subsidiaries has good and
marketable title to all the properties and assets reflected as owned in the
financial statements referred to in Section 6(k) above, in each case free and
clear of any security interests, mortgages, liens, encumbrances, equities,
claims and other defects, except such as would not, individually or in the
aggregate, result in a Material Adverse Change. The Company and each of the
Company Affiliates and Subsidiaries owns or leases all such properties as are
necessary to conduct the Company's business at the Resorts as now conducted or
as proposed to be conducted as described in the Offering Memorandum.
(v) The Company and each of the Company Affiliates and
Subsidiaries has filed all necessary federal, state and foreign income and
franchise tax returns and have paid all taxes shown as due thereon; except as
set forth in the Offering Memorandum, the Company has no knowledge of any tax
deficiency which has been or might be asserted or threatened against the
Company, any of the Company Affiliates and Subsidiaries, in each case except as
would not, individually or in the aggregate, result in a Material Adverse
Change.
(w) The Company is not, nor will it conduct its business in a
manner in which it would become an "INVESTMENT COMPANY" or an entity
"CONTROLLED" by an "INVESTMENT COMPANY" as such terms are defined in the
Investment Company Act of 1940, as amended (the "1940 ACT").
(x) The Company and the Company Affiliates and Subsidiaries
have and will maintain liability, property and casualty insurance (insured by
insurers of recognized financial responsibility) in favor of the Company, or the
Company Affiliates and Subsidiaries, with respect to each of the Resorts in an
amount and on such terms as is reasonable and customary for businesses of the
type proposed to be conducted by the Company, including, among other things,
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<PAGE> 14
insurance against theft, damage, destruction and acts of vandalism except where
the failure to maintain such insurance could result in a Material Adverse
Change. The Company has not received from any insurance company notice of any
material defects or deficiencies affecting the insurability of any such resort.
Title insurance in favor of the Company or the Company Affiliates and
Subsidiaries, is in force with respect to each of the Resorts in an amount
reasonably acceptable to a reasonably prudent company in a similar line of
business (except with respect to the St. Maarten Resort and the Grand Vacation
Club Resorts), and the Company shall have received title opinions in favor of
the Company or the Company Affiliates and Subsidiaries with respect to the St.
Maarten Resorts and the Grand Vacation Club Resorts.
(y) Subsequent to the respective dates as of which information
is given in the Offering Memorandum, the Company has not sustained any loss or
interference with its respective businesses or properties from fire, flood,
windstorm, accident or other calamity, whether or not covered by insurance, that
would result in a Material Adverse Change.
(z) Neither the Company nor any of the Company Affiliates and
Subsidiaries has taken or will take, directly or indirectly, any action designed
to or that might be reasonably expected to cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Series A Notes.
(aa) None of the Company, any of the Company Affiliates and
Subsidiaries or, to the Company's knowledge has at any time during the last five
years (i) made any unlawful contribution to any candidate for foreign office or
failed to disclose fully any contribution in violation of law or (ii) made any
payment to any federal or state governmental officer or official, or other
person charged with similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States or any jurisdiction
thereof.
(bb) The Company and each of the Company Affiliates and
Subsidiaries maintain and will maintain a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to financial and corporate
books and records is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(cc) Except as set forth in the Offering Memorandum, the
Company and each of the Company Affiliates and Subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and local rules,
laws and regulations relating to the protection of human health and safety, the
environment or any Hazardous Material (as hereinafter defined) ("ENVIRONMENTAL
LAWS"), (ii) have received, or will have received, as of the Closing Date, as
the case may be, all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are or will be, as of the Closing Date, as the case may be, in compliance with
all terms and conditions of any such permit,
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<PAGE> 15
license or approval, in each case except as would not result in a Material
Adverse Change. As used herein, "HAZARDOUS MATERIAL" shall mean (a) any
"HAZARDOUS SUBSTANCE" as defined by the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA"), (b) any
"HAZARDOUS WASTE" as defined by the Resource Conservation and Recovery Act, as
amended, (c) any petroleum or petroleum product, (d) any polychlorinated
biphenyl and (e) any pollutant or contaminant or hazardous, dangerous, or toxic
chemical, material, waste or substance regulated under or within the meaning of
any other Environmental Law, foreign or domestic. Except as set forth in the
Offering Memorandum, to the Company's knowledge, there is no liability, alleged
liability or potential liability (including, without limitation, liability,
alleged liability or potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damages, property damages,
personal injuries or penalties), of the Company or any Company Affiliate and
Subsidiary arising out of, based on or resulting from (a) the presence or
release into the environment of any Hazardous Material at any location, whether
or not owned by such entity, or (b) any violation or alleged violation of any
Environmental Law, which liability, alleged liability or potential liability is
material to the Company or such Company Affiliate and Subsidiary, as applicable.
(dd) No environmental engineering firm which prepared Phase I
environmental assessment reports (or other similar reports with respect to the
Resorts as set forth in the Offering Memorandum) was, at the time such reports
were delivered, employed for such purpose on a contingent basis or had any
substantial interest in the Company or any of the Company Affiliates and
Subsidiaries.
(ee) None of the assets of the Company or any of the Company
Affiliates and Subsidiaries constitute "PLAN ASSETS" under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
(ff) The Company and the Company Affiliates and Subsidiaries
are in compliance with all federal, state, local and foreign laws and
regulations applicable to such entity, including without limitation, all
applicable local, state, federal and foreign environmental laws and regulations
and all applicable local, state, federal and foreign laws and regulations
regarding the marketing, offers to sell and sales of vacation intervals in each
state in which the Company is doing business, including, but not limited to, the
Federal Trade Commission Act, Regulation Z (the truth-in-lending act), Equity
Opportunity Credit Act and Regulation B, Interstate Land Sales Full Disclosure
Act, Telephone Consumer Protection Act, Telemarketing and Consumer Fraud and
Abuse Prevention Act, Fair Housing Act, the Americans with Disabilities Act and
Civil Rights Acts of 1964 and 1968 and all corresponding foreign laws, in each
case as applicable to the Company and/or the Company Affiliates and
Subsidiaries, including, without limitation, the European Timeshare Directive of
1994, the Consumer Credit Act of 1974, the Unfair Terms in Consumer Contracts
Regulations 1995, the Package Travel, Package Holidays and Package Tours
Regulations 1992 and the Timeshare Act 1992; and in each case except as would
not result in a Material Adverse Change. The Company and the Company Affiliates
and Subsidiaries have filed all required documents and supporting information in
compliance with federal, state, local and foreign laws and regulations, and the
Company and the Company Affiliates and Subsidiaries are in compliance with all
licensure, anti-fraud, telemarketing, price, gift and sweepstakes and labor
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<PAGE> 16
laws to which it is subject, in each case except as would not result in a
Material Adverse Change. The Company and each of the Company Affiliates and
Subsidiaries have, or upon the Closing Date will have, all permits and licenses
which are required to sell vacation interests in each state and foreign
jurisdiction where any of them currently sells vacation interests, in each case
except as would not result in a Material Adverse Change.
(gg) The mortgages and deeds of trust encumbering the Resorts
are not convertible into equity securities of the Company, nor does the Company
hold a participating interest therein and such mortgages and deeds of trust are
not cross-defaulted or cross-collateralized to any property not owned, directly
or indirectly by the Company.
(hh) Neither the Company nor any of the Company Affiliates and
Subsidiaries has incurred any liability for a fee, commission or other
compensation on account of the employment of a broker or finder in connection
with the transactions contemplated by this Agreement other than as disclosed in
the Offering Memorandum.
(ii) Except as disclosed in the Offering Memorandum, no person
has an option or right of first refusal to purchase all or part of any of the
Resorts (other than the Embassy Vacation Resort Poipu Point, Embassy Vacation
Resort Kaanapali Beach, Westin Vacation Club St. John, and the Sunterra Resorts
Northbay at Lake Arrowhead) or any interest therein. Except as set forth in the
Offering Memorandum, each of the Resorts complies with all applicable codes,
laws and regulations (including, without limitation, building and zoning codes
and laws relating to handicapped access), except for such noncompliance as will
not result in a Material Adverse Change. The Company has no knowledge of any
pending or threatened condemnation proceedings, zoning changes, or other
proceedings or actions that will in any manner affect the size of, number of
vacation intervals planned for, the use of any improvements on, or access to,
the Resorts.
(jj) Except as publicly announced on April 7, 1998, by
"nationally recognized statistical rating organizations," as such term is
defined for purposes of Rule 436(g)(2) under the Act, no "nationally recognized
statistical rating organization" has indicated to the Company that it is
considering (i) the downgrading, suspension or withdrawal of, or any review for
a possible change that does not indicate the direction of the possible change
in, any rating assigned to the Company or any securities of the Company or (ii)
any change in the outlook for any rating of the Company or any securities of the
Company.
(kk) The Company and its controlled Affiliates and all persons
acting, upon their request, on their behalf (other than the Initial Purchasers
and their Affiliates and any persons acting, upon their request, on their
behalf), as to whom the Company makes no representation) have complied with and
will comply with the offering restrictions requirements of Regulation S in
connection with the offering of the Series A Notes outside the United States
and, in connection therewith, the Offering Memorandum will contain the
disclosure required by Rule 902(h).
(ll) The Series A Notes sold in reliance on Regulation S will
be
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<PAGE> 17
represented upon issuance by a temporary global security that may not be
exchanged for definitive securities until the expiration of the 40-day
restricted period referred to in Rule 903(c)(3) of the Act and only upon
certification of beneficial ownership of such Series A Notes by non-U.S. persons
or U.S. persons who purchased such Series A Notes in transactions that were
exempt from the registration requirements of the Act.
(mm) The entities listed on Exhibit 21 to the Company's
Registration Statement on Form S-3 (No. 333-46511) ("Exhibit 21") hereto are the
only subsidiaries, direct or indirect, of the Company. Except as listed on
Exhibit 21, all of the outstanding shares of capital stock of each of the
Company's subsidiaries are owned by the Company, directly or indirectly, through
one or more subsidiaries, free and clear of any security interest, claim, lien,
encumbrance or adverse interest of any nature (except where such security
interest, claim, lien, encumbrance or adverse interest would not give rise to a
Material Adverse Change).
Any certificate signed by an officer of the Company and delivered
to the Initial. Purchasers or to counsel for the Initial Purchasers shall be
deemed to be a representation and warranty by the Company to each Initial
Purchaser as to the matters set forth therein.
The Company acknowledges that the Initial Purchasers and, for
purposes of the opinions to be delivered to the Initial Purchasers pursuant to
Section 9 hereof, counsel to the Company and counsel to the Initial Purchasers
will rely upon the accuracy and truth of the foregoing representations and
hereby consents to such reliance.
7. INITIAL PURCHASER'S REPRESENTATIONS AND WARRANTIES AND
COVENANTS.
Each of the Initial Purchasers, severally and not jointly,
represents and warrants to the Company, and agrees that:
(a) Such Initial Purchaser is a QIB, with such knowledge and
experience in financial and business matters as is necessary in order to
evaluate the merits and risks of an investment in the Series A Notes.
(b) Such Initial Purchaser (A) is not acquiring the Series A
Notes with a view to any distribution thereof or with any present intention of
offering or selling any of the Series A Notes in a transaction that would
violate the Act or the securities laws of any state of the United States or any
other applicable jurisdiction and (B) will be reoffering and reselling the
Series A Notes only to (x) QIBs in reliance on the exemption from the
registration requirements of the Act provided by Rule 144A, and (y) in offshore
transactions in reliance upon Regulation S under the Act.
(c) Such Initial Purchaser agrees that no form of general
solicitation or general advertising (within the meaning of Regulation D under
the Act) has been or will be used by such Initial Purchaser or any of its
controlled affiliates or representatives in connection with the offer and sale
of the Series A Notes pursuant hereto, including, but not limited to, articles,
notices or other communications published in any newspaper, magazine or similar
medium or
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<PAGE> 18
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or general advertising.
(d) Such Initial Purchaser agrees that, in connection with
Exempt Resales, such Initial Purchaser will solicit offers to buy the Series A
Notes only from, and will offer to sell the Series A Notes only to, Eligible
Purchasers. Each Initial Purchaser further agrees that it will offer to sell the
Series A Notes only to, and will solicit offers to buy the Series A Notes only
from (A) Eligible Purchasers that the Initial Purchaser reasonably believes are
QIBs, and (B) Regulation S Purchasers, in each case, that agree that (x) the
Series A Notes purchased by them may be resold, pledged or otherwise transferred
within the time period referred to under Rule 144(k) (taking into account the
provisions of Rule 144(d) under the Act, if applicable) under the Act, as in
effect on the date of the transfer of such Series A Notes, only (I) to the
Company or any of its subsidiaries, (II) to a person whom the seller reasonably
believes is a QIB purchasing for its own account or for the account of a QIB in
a transaction meeting the requirements of Rule 144A under the Act, (III) in an
offshore transaction (as defined in Rule 902 under the Act) meeting the
requirements of Rule 904 of the Act, (IV) in a transaction meeting the
requirements of Rule 144 under the Act, (V) to an Accredited Institution that,
prior to such transfer, furnishes the Trustee a signed letter containing such
representations and agreements that the Trustee or the Company shall reasonably
request relating to the registration of transfer of such Series A Note and, if
such transfer is in respect of an aggregate principal amount of Series A Notes
less than $250,000, an opinion of counsel acceptable to the Company that such
transfer is in compliance with the Act, (VI) in accordance with another
exemption from the registration requirements of the Act (and based upon an
opinion of counsel acceptable to the Company) or (VII) pursuant to an effective
registration statement and, in each case, in accordance with the applicable
securities laws of any state of the United States or any other applicable
jurisdiction and (y) they will deliver to each person to whom such Series A
Notes or an interest therein is transferred a notice substantially to the effect
of the foregoing.
(e) None of such Initial Purchaser nor any of its affiliates
or any person acting on its or their behalf has engaged or will engage in any
directed selling efforts within the meaning of Regulation S with respect to the
Series A Notes.
(f) The Series A Notes offered and sold by such Initial
Purchaser pursuant hereto in reliance on Regulation S have been and will be
offered and sold only in offshore transactions.
(g) The sale of the Series A Notes offered and sold by such
Initial Purchaser pursuant hereto in reliance on Regulation S is not part of a
plan or scheme to evade the registration provisions of the Act.
(h) Such Initial Purchaser further represents and agrees that
(1) it has not offered or sold and will not offer or sell any Series A Notes to
persons in the United Kingdom prior to the expiration of the period of six
months from the issue date of the Series A Notes, except to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their business or
otherwise in
17
<PAGE> 19
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995, (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Series A Notes in, from or otherwise
involving the United Kingdom and (iii) it has only issued or passed on and will
only issue or pass on in the United Kingdom any document received by it in
connection with the issuance of the Series A Notes to a person who is of a kind
described in Article 11(3) of the Financial Services Act of 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom the document may
otherwise lawfully be issued or passed on.
(i) Such Initial Purchaser agrees that it will not offer, sell
or deliver any of the Series A Notes in any jurisdiction outside the United
States except under circumstances that will result in compliance with the
applicable laws thereof, and that it will take at its own expense whatever
action is required to permit its purchase and resale of the Series A Notes in
such jurisdictions. Such Initial Purchaser understands that no action has been
taken to permit a public offering in any jurisdiction outside the United States
where action would be required for such purpose.
(j) Such Initial Purchaser agrees that it has not offered or
sold and will not offer or sell the Series A Notes in the United States or to,
or for the benefit or account of, a U.S. Person (other than a distributor), in
each case, as defined in Rule 902 under the Act (i) as part of its distribution
at any time and (ii) otherwise until 40 days after the later of the commencement
of the offering of the Series A Notes pursuant hereto and the Closing Date,
other than in accordance with Regulation S of the Act or another exemption from
the registration requirements of the Act. Such Initial Purchaser agrees that,
during such 40-day restricted period, it will not cause any advertisement with
respect to the Series A Notes (including any "tombstone" advertisement) to be
published in any newspaper or periodical or posted in any public place and will
not issue any circular relating to the Series A Notes, except such
advertisements as permitted by and include the statements required by Regulation
S.
(k) Such Initial Purchaser agrees that, at or prior to
confirmation of a sale of Series A Notes by it to any distributor, dealer or
person receiving a selling concession, fee or other remuneration during the
40-day restricted period referred to in Rule 903(c)(3) under the Act, it will
send to such distributor, dealer or person receiving a selling concession, fee
or other remuneration a confirmation or notice to substantially the following
effect:
"The Series A Notes covered hereby have not been registered
under the U.S. Securities Act of 1933, as amended (the
"SECURITIES ACT"), and may not be offered and sold within the
United States or to, or for the account or benefit of, U.S.
persons (i) as part of your distribution at any time or (ii)
otherwise until 40 days after the later of the commencement of
the Offering and the Closing Date, except in either case in
accordance with Regulation S under the Securities Act (or Rule
144A or to Accredited Institutions in transactions that are
exempt from the registration requirements of the Securities
Act),
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<PAGE> 20
and in connection with any subsequent sale by you of the
Series A Notes covered hereby in reliance on Regulation S
during the period referred to above to any distributor, dealer
or person receiving a selling concession, fee or other
remuneration, you must deliver a notice to substantially the
foregoing effect. Terms used above have the meanings assigned
to them in Regulation S."
Each Initial Purchaser agrees that the Series A Notes offered
and sold in reliance on Regulation S will be represented upon issuance by a
global security that may not be exchanged for definitive securities until the
expiration of the 40-day restricted period referred to in Rule 903(c)(3) of the
Act and only upon certification of beneficial ownership of such Series A Notes
by non-U.S. persons or U.S. persons who purchased such Series A Notes in
transactions that were exempt from the registration requirements of the Act.
(l) Each of the Initial Purchasers represents and warrants to
the Company that the information set forth (i) on the cover page of the Offering
Memorandum with respect to price, commissions and terms of offering and (ii) in
paragraphs one, three, six, seven (fourth sentence thereof only), eight (with
respect to the first sentence only and therein with respect to actions by the
Initial Purchasers only), nine and ten (first and second sentences thereof only)
and under the caption "Plan of Distribution" in the Offering Memorandum was
furnished to the Company by and on behalf of the Initial Purchasers for use in
connection with the preparation of the Offering Memorandum and is correct in all
material respects.
(m) Each Initial Purchaser will deliver to each purchaser of
the Notes from such Initial Purchaser, in connection with its sale of the Series
A Notes to the Eligible Purchasers, a copy of the Offering Memorandum, as
amended and supplemented at the date of such delivery.
Each Initial Purchaser acknowledges that the Company and, for
purposes of the opinions to be delivered to each Initial Purchaser pursuant to
Section 9 hereof, counsel to the Company and counsel to the Initial Purchasers
will rely upon the accuracy and truth of the foregoing representations and each
Initial Purchaser hereby consents to such reliance.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Initial Purchaser, its respective directors, officers and each person, if any,
who controls such Initial Purchaser within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act, from and against any and all losses, claims,
damages, liabilities and judgments (including, without limitation, any
reasonable legal or other expenses incurred in connection with investigating or
defending any matter, including any action, that could give rise to any such
losses, claims, damages, liabilities or judgments) caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Offering Memorandum (or any amendment or supplement thereto), the Preliminary
Offering Memorandum or any Rule 144A Information provided by the Company to any
holder or prospective purchaser of Series A Notes pursuant to Section 5(h) or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or
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<PAGE> 21
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or judgments are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information relating to the Initial Purchasers furnished in writing to the
Company by the Initial Purchasers. For purposes of this Section 8, the parties
agree that the only information furnished to the Company by the Initial
Purchasers for inclusion in the Offering Memorandum or Preliminary Offering
Memorandum is set forth in Section 7(l) hereof.
(b) Each Initial Purchaser agrees, severally and not jointly,
to indemnify and hold harmless the Company, and its directors and officers and
each person, if any, who controls (within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act) the Company, to the same extent as the
foregoing indemnity from the Company to the Initial Purchasers but only with
reference to information relating to such Initial Purchaser furnished in writing
to the Company by such Initial Purchaser (and not with respect to information
provided to the Company by any other Initial Purchaser) expressly for use in the
Preliminary Offering Memorandum or the Offering Memorandum.
(c) In case any action shall be commenced involving any person
in respect of which indemnity may be sought pursuant to Section 8(a) or 8(b)
(the "INDEMNIFIED PARTY"), the indemnified party shall promptly notify the
person against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in
writing and the indemnifying party shall assume the defense of such action,
including the employment of counsel reasonably satisfactory to the indemnified
party and the payment of all fees and expenses of such counsel, as incurred
(except that in the case of any action in respect of which indemnity may be
sought pursuant to both Sections 8(a) and 8(b), the Initial Purchasers shall not
be required to assume the defense of such action pursuant to this Section 8(c),
but may employ separate counsel and participate in the defense thereof, but the
fees and expenses of such counsel, except as provided below, shall be at the
expense of the Initial Purchasers). Any indemnified party shall have the right
to employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
the indemnified party unless (i) the employment of such counsel shall have been
specifically authorized in writing by the indemnifying party, (ii) the
indemnifying party shall have failed to assume the defense of such action or
employ counsel reasonably satisfactory to the indemnified party or (iii) the
named parties to any such action (including any impleaded parties) include both
the indemnified party and the indemnifying party, and the indemnified party
shall have been advised by such counsel that there may be one or more legal
defenses available to it which are different from or additional to those
available to the indemnifying party (in which case the indemnifying party shall
not have the right to assume the defense of such action on behalf of the
indemnified party). In any case, the indemnifying party shall not, in connection
with any one action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (in addition to any local counsel) for all indemnified parties
and all such fees and expenses shall be reimbursed as they are incurred. Such
firm shall be designated in writing by Donaldson, Lufkin & Jenrette Securities
Corporation, in the case of the parties indemnified pursuant to Section 8(a),
and by the Company, in the case of parties indemnified pursuant to Section 8(b).
The indemnifying party shall indemnify and hold
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<PAGE> 22
harmless the indemnified party from and against any and all losses, claims,
damages, liabilities and judgments by reason of any settlement of any action (i)
effected with its written consent or (ii) effected without its written consent
if the settlement is entered into more than 40 business days after the
indemnifying party shall have received a request from the indemnified party for
reimbursement for the fees and expenses of counsel (but in only those cases
where such fees and expenses are at the expense of the indemnifying party
pursuant to this Section 8) and, prior to the date of such settlement, the
indemnifying party shall have failed to comply with such reimbursement request.
No indemnifying party shall, without the prior written consent of the
indemnified party, which consent shall not be unreasonably withheld, effect any
settlement or compromise of, or consent to the entry of judgment with respect
to, any pending or threatened action in respect of which the indemnified party
is or could have been a party and indemnity or contribution may be or could have
been sought hereunder by the indemnified party, unless such settlement,
compromise or judgment (i) includes an unconditional release of the indemnified
party from all liability on claims that are or could have been the subject
matter of such action and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act, by or on behalf of the
indemnified party.
(d) To the extent the indemnification provided for in this
Section 8 is unavailable to an indemnified party or insufficient in respect of
any losses, claims, damages, liabilities or judgments referred to therein, then
each indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company, on the one hand, and the Initial Purchasers on the other hand from the
offering of the Series A Notes or (ii) if the allocation provided by clause
8(d)(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
8(d)(i) above but also the relative fault of the Company, on the one hand, and
the Initial Purchasers, on the other hand, in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The relative
benefits received by the Company, on the one hand and the Initial Purchasers, on
the other hand, shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Series A Notes (before deducting expenses)
received by the Company, and the total discounts and commissions received by the
Initial Purchasers bear to the total price to investors of the Series A Notes,
in each case as set forth in the table on the cover page of the Offering
Memorandum. The relative fault of the Company, on the one hand, and the Initial
Purchasers, on the other hand, shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company, on the one hand, or the Initial Purchasers, on the
other hand, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company and the Initial Purchasers agree that it would not
be just and equitable if contribution pursuant to this Section 8(d) were
determined by pro rata allocation (even if the Initial Purchasers were treated
as one entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to in the
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<PAGE> 23
immediately preceding paragraph. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, liabilities or judgments
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any matter, including any action, that could have given rise to
such losses, claims, damages, liabilities or judgments. Notwithstanding the
provisions of this Section 8, no Initial Purchaser shall be required to
contribute any amount in excess of the amount by which the total discounts and
commissions received by such Initial Purchaser exceeds the amount of any damages
which such Initial Purchaser has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Initial Purchasers' obligations
to contribute pursuant to this Section 8(d) are several in proportion to the
respective principal amount of Series A Notes purchased by each of the Initial
Purchasers hereunder and not joint.
(e) The remedies provided for in this Section 8 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
9. CONDITIONS OF INITIAL PURCHASER'S OBLIGATIONS. The obligations
of the Initial Purchasers to purchase the Series A Notes under this Agreement
are subject to the satisfaction of each of the following conditions:
(a) On the date hereof, the Initial Purchasers shall have
received from Arthur Andersen LLP, independent public accountants for the
Company, a letter dated the date hereof addressed to the Initial Purchasers, in
form and substance satisfactory to the Initial Purchasers, containing statements
and information of the type ordinarily included in accountant's "COMFORT
LETTERS" to Initial Purchasers, delivered according to Statement of Auditing
Standards Nos. 72 and 76 (or any successor bulletins), with respect to the
audited and unaudited financial statements and certain financial information
contained in the Offering Memorandum.
(b) For the period from and after the date of this Agreement
and prior to the Closing Date there shall not have occurred any downgrading, nor
shall any notice have been given of any intended or potential downgrading or of
any review for a possible change that does not indicate the direction of the
possible change, in the rating accorded any securities of the Company or any of
its subsidiaries by any "NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION"
as such term is defined for purposes of Rule 436(g)(2) under the Securities Act.
(c) On the Closing Date the Initial Purchasers shall have
received the favorable opinions of:
(i) Latham & Watkins, counsel for the Company, dated as of the
Closing Date, substantially in the form attached hereto as
Exhibit A;
(ii) Andrew D. Hutton, Vice President and General Counsel of the
Company,
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<PAGE> 24
dated as of the Closing Date, substantially in the form
attached hereto as Exhibit B;
(iii) Ballard Spahr Andrews & Ingersoll, special Maryland counsel
for the Company, dated as of the Closing Date, substantially
in the form attached hereto as Exhibit C;
(iv) Schreeder, Wheeler & Flint, special Georgia and Florida
counsel for the Company, dated as of the Closing Date,
substantially in the form attached hereto as Exhibit D;
(v) Paul, Hastings, Janofsky & Walker, special regulatory counsel
for the Company, dated as of the Closing Date, substantially
in the form attached hereto as Exhibit E;
(vi) SJ Berwin & Co. as special British counsel for the Company,
dated as of the Closing Date, substantially in the form
attached hereto as Exhibit F; and
(vii) Rowe & Maw, as special British counsel for the Company, dated
as of the Closing Date, substantially in the form attached
hereto as Exhibit G.
(d) On the Closing Date the Initial Purchasers shall have
received an opinion of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the
Initial Purchasers, dated as of the Closing Date, in form and substance
reasonably satisfactory to the Initial Purchasers.
(e) On the Closing Date the Initial Purchasers shall have
received a written certificate executed by the Chairman of the Board, Chief
Executive Officer or President of the Company and the Chief Financial Officer or
Chief Accounting Officer of the Company, dated as of the Closing Date, to the
effect that:
(i) the representations, warranties and covenants of the Company
set forth in Section 5 of this Agreement are true and correct
with the same force and effect as though expressly made on and
as of the Closing Date;
(ii) the Company has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied at
or prior to the Closing Date; and
(iii) each of the respective signers of each certificate has
carefully examined the Offering Memorandum; in his opinion and
to the knowledge of the Company the Offering Memorandum does
not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading;
provided, however, that such certificate shall not require any
representation concerning statements in, or omitted from, the
Offering Memorandum, in reliance upon and in conformity with
written information furnished to the Company by the Initial
Purchasers expressly for use in preparation of the Offering
Memorandum.
(f) On the Closing Date the Initial Purchasers shall have
received from Arthur Andersen LLP independent public accountants for the Company
a letter dated such date, in form and substance satisfactory to the Initial
Purchasers, to the effect that they reaffirm the
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<PAGE> 25
statements made in the letter furnished by them pursuant to subsection (a) of
this Section 9, except that the specified date referred to therein for the
carrying out of procedures shall be no more than three business days prior to
the Closing Date.
(g) At the Closing Date, the Notes shall have been designated
for trading in the PORTAL Market.
(h) The Company shall have entered into the Registration
Rights Agreement and the Indenture and the Initial Purchasers shall have
received executed counterparts thereof.
(i) On or before the Closing Date, counsel for the Initial
Purchasers shall have received such information, documents and opinions as they
may reasonably require for the purposes of enabling them to pass upon the
issuance and sale of the Notes as contemplated herein, or in order to evidence
the accuracy of any of the representations and warranties, or the satisfaction
of any of the conditions or agreements, herein contained.
(j) Since the respective dates as of which information is
given in the Offering Memorandum other than as set forth in the Offering
Memorandum (exclusive of any amendments or supplements thereto subsequent to the
date of this Agreement), (i) there shall not have occurred any change or any
development involving a prospective change in the condition, financial or
otherwise, or the earnings, business, management or operations of the Company
and its subsidiaries, taken as a whole, (ii) there shall not have been any
change or any development involving a prospective change in the stockholders
equity or in the long-term debt of the Company or any of its subsidiaries, taken
as a whole (other than the sale of the Notes under this Agreement and other than
draw-downs under the Company's revolving credit facility in the ordinary course
of business) and (iii) neither the Company nor any of its subsidiaries shall
have incurred any liability or obligation, direct or contingent (except for any
such liability or obligation incurred in the ordinary course of business), the
effect of which, in any such case described in clause 9(j)(i), 9(j)(ii) or
9(j)(iii), in your reasonable judgment, is material and adverse and, in your
reasonable judgment, makes it impracticable to market the Series A Notes on the
terms and in the manner contemplated in the Offering Memorandum.
If any condition specified in this Section 9 is not satisfied
when and as required to be satisfied, this Agreement may be terminated by the
Initial Purchasers by notice to the Company at any time on or prior to the
Closing Date, which termination shall be without liability on the part of any
party to any other party, except that Section 5(o), and Section 8 shall at all
times be effective and shall survive such termination.
10. EFFECTIVENESS OF AGREEMENT AND TERMINATION. This Agreement
shall become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time on or prior to the
Closing Date by the Initial Purchaser by written notice to the Company if any of
the following has occurred: (i) any outbreak or escalation of hostilities or
other national or international calamity or crisis or
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<PAGE> 26
change in economic conditions or in the financial markets of the United States
or elsewhere that, in the Initial Purchasers' reasonable judgment, is material
and adverse and, in the Initial Purchasers' reasonable judgment, makes it
impracticable to market the Series A Notes on the terms and in the manner
contemplated in the Offering Memorandum, (ii) the suspension or material
limitation of trading in securities or other instruments on the New York Stock
Exchange, the American Stock Exchange, the Chicago Board of Options Exchange,
the Chicago Mercantile Exchange, the Chicago Board of Trade or the Nasdaq
National Market or limitation on prices for securities or other instruments on
any such exchange or the Nasdaq National Market, (iii) the suspension of trading
of any securities of the Company on any exchange or in the over-the-counter
market, (iv) the enactment, publication, decree or other promulgation of any
federal or state statute, regulation, rule or order of any court or other
governmental authority which in your reasonable opinion materially and adversely
affects, or will materially and adversely affect, the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, (v) the declaration of a banking moratorium by
either federal or New York State authorities or (vi) the taking of any action by
any federal, state or local government or agency in respect of its monetary or
fiscal affairs which in your reasonable opinion has a material adverse effect on
the financial markets in the United States.
If on the Closing Date any one or more of the Initial Purchasers
shall fail or refuse to purchase the Series A Notes which it or they have agreed
to purchase hereunder on such date and the aggregate principal amount of the
Series A Notes which such defaulting Initial Purchaser or Initial Purchasers, as
the case may be, agreed but failed or refused to purchase is not more than
one-tenth of the aggregate principal amount of the Series A Notes to be
purchased on such date by all Initial Purchasers, each non-defaulting Initial
Purchaser shall be obligated severally, in the proportion which the principal
amount of the Series A Notes set forth opposite its name in Schedule A bears to
the aggregate principal amount of the Series A Notes which all the
non-defaulting Initial Purchasers, as the case may be, have agreed to purchase,
or in such other proportion as you may specify, to purchase the Series A Notes
which such defaulting Initial Purchaser or Initial Purchasers, as the case may
be, agreed but failed or refused to purchase on such date; provided that in no
event shall the aggregate principal amount of the Series A Notes which any
Initial Purchaser has agreed to purchase pursuant to Section 2 hereof be
increased pursuant to this Section 10 by an amount in excess of one-ninth of
such principal amount of the Series A Notes without the written consent of such
Initial Purchaser. If on the Closing Date any Initial Purchaser or Initial
Purchasers shall fail or refuse to purchase the Series A Notes and the aggregate
principal amount of the Series A Notes with respect to which such default occurs
is more than one-tenth of the aggregate principal amount of the Series A Notes
to be purchased by all Initial Purchasers and arrangements satisfactory to the
Initial Purchasers and the Company for purchase of such the Series A Notes are
not made within 48 hours after such default, this Agreement will terminate
without liability on the part of any non-defaulting Initial Purchaser and the
Company. In any such case which does not result in termination of this
Agreement, either you or the Company shall have the right to postpone the
Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Offering Memorandum or any other documents or
arrangements may be effected. Any action taken under this paragraph shall
not relieve any defaulting Initial Purchaser from liability in respect of any
default of any such Initial Purchaser under this Agreement.
25
<PAGE> 27
11. MISCELLANEOUS. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (i) if to the Company, to
Signature Resorts, Inc., 1875 South Grant Street, Suite 650, San Mateo,
California 94402, Facsimile (650) 312-7174, Attention: Andrew D. Hutton, Esq.
and (ii) if to the Initial Purchasers, Donaldson, Lufkin & Jenrette Securities
Corporation, 277 Park Avenue, New York, New York 10172, Attention: Syndicate
Department, or in any case to such other address as the person to be notified
may have requested in writing.
The respective indemnities, contribution agreements,
representations, warranties and other statements of the Company and the Initial
Purchasers set forth in or made pursuant to this Agreement shall remain
operative and in full force and effect, and will survive delivery of and payment
for the Series A Notes, regardless of (i) any investigation, or statement as to
the results thereof, made by or on behalf of the Initial Purchasers, the
officers or directors of the Initial Purchaser, any person controlling the
Initial Purchasers, the Company, the officers or directors of the Company, or
any person controlling the Company, (ii) acceptance of the Series A Notes and
payment for them hereunder and (iii) termination of this Agreement.
If for any reason the Series A Notes are not delivered by or on
behalf of the Company as provided herein (other than as a result of any material
breach by you of any representations, warranties or covenants in Section 7
hereof or any termination of this Agreement pursuant to Section 10), the Company
agrees to reimburse the Initial Purchasers for all out-of-pocket expenses
(including the reasonable fees and disbursements of counsel) incurred by them.
Notwithstanding any termination of this Agreement (but subject to the
parenthetical in the foregoing sentence), the Company shall be liable for all
expenses which it has agreed to pay pursuant to Section 5(o) hereof. Each of the
parties hereto agrees to reimburse the other parties hereto and its officers,
directors and each person, if any, who controls such other parties hereto within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act for any
and all fees and expenses (including without limitation the reasonable fees and
expenses of counsel) incurred by them in connection with enforcing their rights
under this Agreement (including without limitation its rights under Section 8).
Except as otherwise provided herein (including without limitation
Section 8), this Agreement has been and is made solely for the benefit of and
shall be binding upon the Company, the Initial Purchasers, and no other person
shall acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include a purchaser of any of the Series A
Notes from the Initial Purchasers merely because of such purchase.
This Agreement shall be governed and construed in accordance with
the laws of the State of New York.
This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument.
26
<PAGE> 28
Please confirm that the foregoing correctly sets forth the
agreement among the Company and the Initial Purchasers.
Very truly yours,
SIGNATURE RESORTS, INC.
By: /s/ ANDREW D. HUTTON
-------------------------------------
Name: Andrew D. Hutton
Title: Vice President, General
Counsel & Secretary
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ WILLIAM BAUMGART
---------------------------------
Name: William Baumgart
Title: Vice President
NATIONSBANC MONTGOMERY SECURITIES LLC
By: /s/ RICHARD SMITH
---------------------------------
Name: Richard Smith
Title:
BT ALEX. BROWN INCORPORATED
By: /s/ BRUCE HABLEY
---------------------------------
Name: Bruce Habley
Title: Principal
SALOMON BROTHERS INC
By: /s/ JEFFREY HOROWITZ
---------------------------------
Name: Jeffrey Horowitz
Title: Managing Director
SOCIETE GENERALE SECURITIES CORPORATION
By: /s/ CARL A. MAYER III
---------------------------------
Name: Carl A. Mayer III
Title: Managing Director
27
<PAGE> 29
SCHEDULE A
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
AMOUNT OF SERIES A
INITIAL PURCHASER NOTES TO BE PURCHASED
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation 70,000,000
NationsBanc Montgomery Securities LLC............................. 35,000,000
BT Alex. Brown Incorporated....................................... 11,667,000
Salomon Brothers Inc.............................................. 11,667,000
Societe Generale Securities Corporation........................... 11,666,000
Total $140,000,000
============
</TABLE>
A-1
<PAGE> 1
EXHIBIT 4.3
================================================================================
SIGNATURE RESORTS, INC.
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
as Trustee
INDENTURE
Dated as of April 15, 1998
$140,000,000
9.25% Senior Notes due May 15, 2006
================================================================================
<PAGE> 2
Reconciliation and tie between Trust Indenture Act
of 1939 and Indenture, dated as of August 1, 1997*****
<TABLE>
<CAPTION>
Trust
Indenture
Act Indenture
Section Section
- --------- ----------
<S> <C>
310 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.09
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.09
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.08, 6.01
311 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.13
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.13
312 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01, 7.02(a)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.02(b)
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.02(c)
313 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.03(a)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.03(a)
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.03(a)
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.03(b)
314 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.04
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.02
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.02
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.02
315 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01(a)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.02, 7.03(a)
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01(b)
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01(c)
(d)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01(a)(i)
(d)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01(c)(ii)
(d)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01(c)(iii)
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.14
316 (a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.12
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.13
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.08
317 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.03
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.04
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.03
318 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.07
</TABLE>
- ----------
*** Note: This reconciliation and tie shall not, for any purpose, be deemed to
be a part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE 1 DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.01. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Compliance Certificates and Opinions. . . . . . . . . . . . . . . . . . . . . . . 26
Section 1.03. Form of Documents Delivered to Trustee. . . . . . . . . . . . . . . . . . . . . . 27
Section 1.04. Acts of Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 1.05. Notices, Etc., to Trustee and Company. . . . . . . . . . . . . . . . . . . . . . . 30
Section 1.06. Notice to Holders; Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 1.07. Conflict with Trust Indenture Act. . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 1.08. Book-Entry System. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 1.09. Effect of Headings and Table of Contents. . . . . . . . . . . . . . . . . . . . . 31
Section 1.10. Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 1.11. Separability Clause. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 1.12. Benefits of Indenture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 1.13. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 1.14. Legal Holidays. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 1.15. Immunity of Incorporators, Stockholders, Officers and Directors. . . . . . . . . . 32
ARTICLE 2 NOTE FORMS
Section 2.01. Generally. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 2.02. Form and Dating. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 2.03. Execution and Authentication. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 2.04. Registrar and Paying Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 2.05. Paying Agent To Hold Money in Trust. . . . . . . . . . . . . . . . . . . . . . . . 35
Section 2.06. Noteholder Lists. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 2.07. Transfer and Exchange. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 2.08. Replacement Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 2.09. Outstanding Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 2.10. Temporary Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 2.11. Cancellation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 2.12. Defaulted Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 2.13. CUSIP Numbers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 2.14. Restrictive Legends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE 3 THE NOTES
Section 3.01. Title and Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 3.02. Denominations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 3.03. Payment of Interest; Interest Rights Preserved . . . . . . . . . . . . . . . . . . 54
Section 3.04. Persons Deemed Owners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 3.05. Computation of Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
</TABLE>
i
<PAGE> 4
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE 4 SATISFACTION AND DISCHARGE; DEFEASANCE
Section 4.01. Satisfaction and Discharge of Indenture. . . . . . . . . . . . . . . . . . . . . . 56
Section 4.02. Option To Effect Legal Defeasance
Or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 4.03. Legal Defeasance and Discharge. . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 4.04. Covenant Defeasance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 4.05. Conditions to Defeasance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 4.06. Application of Trust Money. . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
ARTICLE 5 DEFAULTS AND REMEDIES
Section 5.01. Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 5.02. Acceleration of Maturity; Rescission and Annulment . . . . . . . . . . . . . . . . 62
Section 5.03. Collection of Indebtedness and Suits for
Enforcement by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 5.04. Trustee May File Proofs of Claim. . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 5.05. Trustee May Enforce Claims Without
Possession of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 5.06. Application of Money Collected. . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 5.07. Limitation on Suits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 5.08. Unconditional Right of Holders To
Receive Principal and Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 5.09. Restoration of Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . 66
Section 5.10. Rights and Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 5.11. Delay or Omission Not Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 5.12. Control by Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 5.13. Waiver of Past Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 5.14. Undertaking for Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 5.15. Waiver of Stay or Extension Laws. . . . . . . . . . . . . . . . . . . . . . . . . 68
ARTICLE 6 THE TRUSTEE
Section 6.01. Certain Duties and Responsibilities. . . . . . . . . . . . . . . . . . . . . . . . 68
Section 6.02. Notice of Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 6.03. Certain Rights of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 6.04. Not Responsible for Recitals or Issuance of Notes. . . . . . . . . . . . . . . . . 71
Section 6.05. May Hold Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 6.06. Money Held in Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 6.07. Compensation and Reimbursement. . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 6.08. Disqualification; Conflicting Interests. . . . . . . . . . . . . . . . . . . . . . 72
Section 6.09. Corporate Trustee Required; Eligibility. . . . . . . . . . . . . . . . . . . . . . 72
Section 6.10. Resignation and Removal; Appointment of Successor. . . . . . . . . . . . . . . . . 73
Section 6.11. Acceptance of Appointment by Successor. . . . . . . . . . . . . . . . . . . . . . 74
Section 6.12. Merger, Consolidation or Succession to Business. . . . . . . . . . . . . . . . . . 75
Section 6.13. Preferential Collection of Claims Against Company. . . . . . . . . . . . . . . . . 75
Section 6.14. Appointment of Authenticating Agent. . . . . . . . . . . . . . . . . . . . . . . . 75
</TABLE>
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<S> <C>
ARTICLE 7 HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.01. Company to Furnish Trustee Names and
Addresses of Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 7.02. Preservation of Information;
Communications to Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 7.03. Reports by Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 7.04. Reports by Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
ARTICLE 8 CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 8.01. Company May Consolidate, Etc., Only on Certain Terms. . . . . . . . . . . . . . . 79
Section 8.02. Successor Substituted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
ARTICLE 9 SUPPLEMENTAL INDENTURES
Section 9.01. Supplemental Indentures Without Consent of Holders. . . . . . . . . . . . . . . . 80
Section 9.02. Supplemental Indentures with Consent of Holders. . . . . . . . . . . . . . . . . . 80
Section 9.03. Execution of Supplemental Indentures. . . . . . . . . . . . . . . . . . . . . . . 81
Section 9.04. Effect of Supplemental Indentures. . . . . . . . . . . . . . . . . . . . . . . . . 81
Section 9.05. Conformity with Trust Indenture Act. . . . . . . . . . . . . . . . . . . . . . . . 81
Section 9.06. Reference in Notes to Supplemental Indentures. . . . . . . . . . . . . . . . . . . 82
Section 9.07. Notice of Supplemental Indentures. . . . . . . . . . . . . . . . . . . . . . . . . 82
ARTICLE 10 COVENANTS
Section 10.01. Payment of Principal and Interest. . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 10.02. Maintenance of Office or Agency. . . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 10.03. Money for Note Payments to Be Held in Trust. . . . . . . . . . . . . . . . . . . . 83
Section 10.04. Statement by Officers as to Default. . . . . . . . . . . . . . . . . . . . . . . . 84
Section 10.05. Existence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 10.06. Maintenance of Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 10.07. Payment of Taxes and Other Claims. . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 10.08. Waiver of Certain Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Section 10.09. Book-Entry System. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Section 10.10. Limitation on Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Section 10.11. Limitation on Restricted Payments. . . . . . . . . . . . . . . . . . . . . . . . . 89
Section 10.12. Limitation on Restrictions on Distributions
from Restricted Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Section 10.13. Limitation on Sales of Assets
and Subsidiary Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Section 10.14. Limitation on Affiliate Transactions. . . . . . . . . . . . . . . . . . . . . . . 96
Section 10.15. Change of Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Section 10.16. Further Instruments and Acts. . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Section 10.17. Limitation on Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Section 10.18. Commission Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
ARTICLE 11 REDEMPTION OF NOTES
</TABLE>
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<S> <C>
Section 11.01. Right of Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Section 11.02. Applicability of Article. . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Section 11.03. Election to Redeem; Notice to Trustee. . . . . . . . . . . . . . . . . . . . . . 102
Section 11.04. Selection by Trustee of Notes To Be Redeemed. . . . . . . . . . . . . . . . . . 102
Section 11.05. Notice of Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Section 11.06. Deposit of Redemption Price. . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Section 11.07. Notes Payable on Redemption Date. . . . . . . . . . . . . . . . . . . . . . . . 103
Section 11.08. Notes Redeemed in Part. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
</TABLE>
iv
<PAGE> 7
INDENTURE, dated as of April 15, 1998, 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
San Mateo, 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 9.25% Senior Notes due May 15, 2006 (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 1.01. 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
<PAGE> 8
(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.
"Accredited Investor" has the meaning set forth in Rule
501(a)(1),(2), (3) or (7) of the Securities Act.
"Act," when used with respect to any Holder, has the meaning
specified in Section 1.04.
"Additional Assets" means (i) any property or assets (other
than Indebtedness and Capital Stock) in a Related Business; (ii) the Capital
Stock of a Person that becomes a Restricted Subsidiary as a result of the
acquisition of such Capital Stock by the Company or another Restricted
Subsidiary; provided, however, that any such Restricted Subsidiary is primarily
engaged in a Related Business; (iii) additions to property, plant and equipment
of the Company and its Restricted Subsidiaries; and (iv) investments in
Receivables and Related Assets.
"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
Depository.
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Global Note or beneficial interest therein, the rules
and procedures of the Depository, Euroclear or Cedel Bank, as the case may be,
for such Global Note to the extent applicable to such transaction and as in
effect from time to time.
"Asset Disposition" means any sale, lease, transfer or other
disposition (or series of related sales, leases, transfers or dispositions) by
the Company or any Restricted Subsidiary, including any disposition by means of
a merger, consolidation or similar transaction (each referred to for the
purposes of this definition as a "disposition"), of (i) any shares of Capital
Stock of a Restricted Subsidiary (other than directors' qualifying shares and,
to the extent required by local ownership laws in foreign countries, shares
owned by foreign shareholders), (ii) all or substantially all the assets of any
division, business segment or comparable line of business of the Company or any
Restricted Subsidiary or (iii) any other assets of the Company or any
Restricted Subsidiary outside of
2
<PAGE> 9
the ordinary course of business of the Company or such Restricted Subsidiary.
Notwithstanding the foregoing, the term "Asset Disposition" shall not include
(w) sales, in the ordinary course of business, of Vacation Intervals, points in
a points based vacation club system or Receivables and Related Assets, (x) a
disposition by a Restricted Subsidiary to the Company or by the Company or a
Restricted Subsidiary to a Restricted Subsidiary, (y) for purposes of the
covenant described under Section 10.13, a disposition that constitutes a
Permitted Investment or a Restricted Payment permitted by the covenant
described under Section 10.11, and (z) a disposition of assets having a fair
market value of less than $1 million.
"Attributable Debt" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest rate implicit in such transaction in accordance with GAAP) of the
total obligations of the lessee for rental payments during the remaining term
of the lease included in such Sale/Leaseback Transaction (including any period
for which such lease has been extended).
"Authenticating Agent" means any Person authorized by the
Trustee to act on behalf of the Trustee to authenticate Notes.
"Average Life" means, as of the date of determination, with
respect to any Indebtedness or Preferred Stock, the quotient obtained by
dividing (i) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment of
such Indebtedness or redemption or similar payment with respect to such
Preferred Stock multiplied by the amount of such payment by (ii) the sum of all
such payments.
"Board of Directors" means the Board of Directors of the
Company or any committee thereof duly authorized to act on behalf of such
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.
"Broker-Dealer" shall mean any broker or dealer registered
under the 1934 Act.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligation" means an obligation that is
required to be classified and accounted for as a capital lease for financial
reporting purposes in accordance with GAAP, and the amount of Indebtedness
represented by such obligation shall be the capitalized amount of such
obligation determined in accordance with GAAP;
3
<PAGE> 10
and the Stated Maturity thereof shall be the date of the last payment of rent
or any other amount due under such lease prior to the first date upon which
such lease may be terminated by the lessee without payment of a penalty.
"Capital Stock" of any Person means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) equity of such Person,
including any Preferred Stock, but excluding any debt securities convertible
into such equity.
"Cash Equivalents" means (a) securities with maturities of one
year or less from the date of acquisition, issued, fully guaranteed or insured
by the United States Government or any agency thereof, (b) certificates of
deposit, time deposits, overnight bank deposits, bankers' acceptances and
repurchase agreements issued by a Qualified Issuer having maturities of 270
days or less from the date of acquisition, (c) commercial paper of an issuer
rated at least A-2 by Standard & Poor's Corporation or P-2 by Moody's Investors
Service, Inc., or carrying an equivalent rating by a nationally recognized
rating agency if both of the two named rating agencies cease publishing ratings
of investments, and having maturities of 270 days or less from the date of
acquisition, and (d) money market accounts or funds with or issued by Qualified
Issuers.
"Certificated Notes" means Restricted Certificated Notes and
Unrestricted Certificated Notes.
"Change of Control" means the occurrence of any of the
following events:
(i) the acquisition by any Person (including any
syndicate or group deemed to be a "person" under Section 13(d)(3) of
the Exchange Act) 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
elections of directors (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 Restricted 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
4
<PAGE> 11
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
directors of the continuing or surviving corporation immediately after
such transaction, and (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 solely into 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.
"Code" means the Internal Revenue Code of 1986, as amended.
"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.
"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 (ii) by its Treasurer, an Assistant
Treasurer, its Secretary or an Assistant Secretary, and delivered to the
Trustee.
"Consolidated Coverage Ratio" as of any date of determination
means the ratio of (i) the aggregate amount of EBITDA for the period of the
most recent four consecutive fiscal quarters ending at least 45 days (or, if
less, the number of days after the end of such
5
<PAGE> 12
fiscal quarter as the consolidated financial statements of the Company shall be
available) prior to the date of such determination to (ii) Consolidated
Interest Expense for such four fiscal quarters; provided, however, that (1) if
the Company or any Restricted Subsidiary has Incurred any Indebtedness since
the beginning of such period that remains outstanding on such date of
determination or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving effect on a pro forma basis to such Indebtedness as if such Indebtedness
had been Incurred on the first day of such period and the discharge of any
other Indebtedness repaid, repurchased, defeased or otherwise discharged with
the proceeds of such new Indebtedness as if such discharge had occurred on the
first day of such period (except that, in the case of Indebtedness used to
finance working capital needs incurred under a revolving credit or similar
arrangement, the amount thereof shall be deemed to be the average daily balance
of such Indebtedness during such four-fiscal-quarter period), (2) if since the
beginning of such period the Company or any Restricted Subsidiary shall have
made any Asset Disposition, the EBITDA for such period shall be reduced by an
amount equal to the EBITDA (if positive) directly attributable to the assets
which are the subject of such Asset Disposition for such period, or increased
by an amount equal to the EBITDA (if negative) directly attributable thereto
for such period, and Consolidated Interest Expense for such period shall be
reduced by an amount equal to the Consolidated Interest Expense directly
attributable to any Indebtedness of the Company or any Restricted Subsidiary
repaid, repurchased, defeased, assumed by a third person (to the extent the
Company and its Restricted Subsidiaries are no longer liable for such
Indebtedness) or otherwise discharged with respect to the Company and its
continuing Restricted Subsidiaries in connection with such Asset Disposition
for such period (or, if the Capital Stock of any Restricted Subsidiary is sold,
the Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent the Company and its
continuing Restricted Subsidiaries are no longer liable for such Indebtedness
after such sale), (3) if since the beginning of such period the Company shall
have consummated an Equity Offering, Consolidated Interest Expense for such
period shall be reduced by an amount equal to the Consolidated Interest Expense
directly attributable to any Indebtedness of the Company or any Restricted
Subsidiary repaid, repurchased, defeased or otherwise discharged with respect
to the Company and its Restricted Subsidiaries in connection with such Equity
Offering for such period, (4) if since the beginning of such period the Company
or any Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any Person which becomes a
Restricted Subsidiary) or an acquisition of assets which acquisition
constitutes all or substantially all of an operating unit of a business,
including any such Investment or acquisition occurring in connection with a
transaction requiring a calculation to be made hereunder, EBITDA and Consoli-
6
<PAGE> 13
dated Interest Expense for such period shall be calculated after giving pro
forma effect thereto (including the Incurrence of any Indebtedness) as if such
Investment or acquisition occurred on the first day of such period and (5) if
since the beginning of such period any Person (that subsequently became a
Restricted Subsidiary or was merged with or into the Company or any Restricted
Subsidiary since the beginning of such period) shall have made any Asset
Disposition, any Investment or acquisition of assets that would have required
an adjustment pursuant to clause (3) or (4) above if made by the Company or a
Restricted Subsidiary during such period, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving pro forma effect
thereto as if such Asset Disposition, Investment or acquisition occurred on the
first day of such period. If any Indebtedness bears a floating rate of
interest and is being given pro forma effect, the interest on such Indebtedness
shall be calculated as if the rate in effect on the date of determination had
been the applicable rate for the entire period (taking into account any
Interest Rate Agreement applicable to such Indebtedness if such Interest Rate
Agreement has a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the
total interest expense of the Company and its consolidated Restricted
Subsidiaries, plus to the extent not included in such total interest expense,
and to the extent incurred by the Company or its Restricted Subsidiaries, (i)
interest expense attributable to Capital Lease Obligations, (ii) amortization
of debt discount, (iii) capitalized interest, (iv) non-cash interest expenses,
(v) commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing, (vi) net costs associated
with Hedging Obligations (including amortization of fees), (vii) Preferred
Stock dividends in respect of all Preferred Stock held by Persons other than
the Company or a Wholly-Owned Subsidiary and (viii) interest actually paid on
any Indebtedness of any other Person that is Guaranteed by the Company or any
Restricted Subsidiary.
"Consolidated Net Income" means, for any period, the net
income of the Company and its consolidated Subsidiaries; provided, however,
that there shall not be included in such Consolidated Net Income: (i) any net
income (or loss) of any Person if such Person is not a Restricted Subsidiary,
except that the Company's equity in the net income of any such Person for such
period shall be included in such Consolidated Net Income up to the aggregate
amount of cash actually distributed by such Person during such period to the
Company or a Restricted Subsidiary as a dividend or other distribution; (ii)
for purposes of subclause (a)(iii)(A) of Section 10.11 only, any net income (or
loss) of any Person acquired by the Company or a Subsidiary in a pooling of
interests transaction for any period prior to the date of such acquisition;
(iii) any net income of any Restricted Subsidiary if such Restricted Subsidiary
is subject to restrictions, directly or indirectly, on the payment of dividends
or
7
<PAGE> 14
the making of distributions by such Restricted Subsidiary, directly or
indirectly, to the Company, except that (A) the Company's equity in the net
income of any such Restricted Subsidiary for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash that could have
been distributed by such Restricted Subsidiary consistent with such restriction
during such period to the Company or another Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution paid to another Restricted Subsidiary, to the limitation contained
in this clause) and (B) the Company's equity in a net loss of any such
Restricted Subsidiary for such period shall be included in determining such
Consolidated Net Income; (iv) any gain (or loss) realized upon the sale or
other disposition of any assets of the Company or its consolidated Subsidiaries
(including pursuant to any sale-and-leaseback arrangement) which is not sold or
otherwise disposed of in the ordinary course of business and any gain (or loss)
realized upon the sale or other disposition of any Capital Stock of any Person;
(v) extraordinary gains or losses; and (vi) the cumulative effect of a change
in accounting principles. Notwithstanding the foregoing, for the purposes of
Section 10.11 only, there shall be excluded from Consolidated Net Income any
dividends, repayments of loans or advances or other transfers of assets from
Unrestricted Subsidiaries to the Company or a Restricted Subsidiary to the
extent such dividends, repayments or transfers increase the amount of
Restricted Payments permitted under Section 10.11 pursuant to clause
(a)(iii)(D) thereof.
"Convertible Notes" means the 5 3/4% Convertible Notes due
2007 issued pursuant to an indenture dated January 15, 1997 by and between the
Company and Norwest Bank Minnesota, National Association, as trustee, as the
same may be amended, waived, modified or replaced from time to time, provided
such amendment, waiver, modification or replacement does not shorten the
maturity, increase the principal amount outstanding, or change the
subordination provisions in a manner that makes them less subordinated.
"Corporate Trust Office" means the principal office of the
Trustee at which at any particular time its corporate trust business shall be
administered.
"Corporation" means a corporation, association, company,
joint-stock company or business trust.
"Credit Agreements" means the Senior Credit Facility and any
credit agreement or similar facility or any other agreement governing
Indebtedness entered into by the Company or any Restricted Subsidiary, as any
of the same may be amended, waived, modified, Refinanced or replaced from time
to time (except to the extent that any such amendment, waiver, modification,
replacement or Refinancing would be prohibited by the terms of the Indenture).
8
<PAGE> 15
"Currency Agreement" means, with respect to any Person, any
foreign exchange contract, currency swap agreement or other similar agreement
to which such Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage
of time or both would be, an Event of Default.
"Defaulted Interest" has the meaning specified in Section
3.03.
"Depository" means The Depository Trust Company, a New York
corporation and its nominees and their respective successors.
"Designated Noncash Consideration" means the fair market value
of noncash consideration received by the Company or one of its Restricted
Subsidiaries in connection with an Asset Disposition that is so designated as
Designated Noncash Consideration pursuant to an Officers' Certificate, which
sets forth the basis of such valuation and is executed by the principal
executive officer and the principal financial officer of the Company, less the
amount of cash or Cash Equivalents received in connection with a sale of such
Designated Noncash Consideration.
"Direct Participants" means any participating organization of
the Depository Trust Company.
"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; provided, however, that any Preferred Stock issued by a
Finance Subsidiary shall not constitute Disqualified Capital Stock.
"EBITDA" for any period means the sum of Consolidated Net
Income plus Consolidated Interest Expense plus, without duplication, the
following to the extent deducted in calculating such Consolidated Net Income:
(i) income tax expense, (ii) depreciation expense, (iii) amortization expense,
(iv) non-recurring charges incurred as a result of business combinations and
(v) all other non-cash items reducing Consolidated Net Income (other than items
that will require cash payments and for which an accrual or reserve is, or is
required by GAAP to be, made), less all non-cash items increasing Consolidated
Net Income, in each case for such period. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, and the depreciation and
amortization of, a Subsidiary of the Company shall be added to Consolidated Net
Income to compute EBITDA only to the extent (and in the same proportion)
9
<PAGE> 16
that the net income of such Subsidiary was included in calculating Consolidated
Net Income.
"Equity Offering" means a primary offering (either public or
private) of any Capital Stock of the Company.
"Event of Default" has the meaning specified in Section 5.01.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended and the rules and regulations promulgated thereunder.
"Exchanging Dealer" has the meaning set forth in the
Registration Rights Agreement.
"Exchange Notes" means another series of Senior Indebtedness
of the Company registered under the Securities Act with terms substantially
identical to the terms of the Private Placement Notes governed hereby which
will be exchanged pursuant to a registration statement.
"Expiration Date" has the meaning specified in Section
1.04(f).
"Exchange Offer" means the offer that may be made by the
Company pursuant to the Registration Rights Agreement to exchange Private
Placement Notes for Exchange Notes.
"Finance Subsidiary" means any Subsidiary of the Company
organized for the sole purpose of issuing Capital Stock and loaning the
proceeds thereof to the Company and which engages in no other transactions
except those incidental thereto.
"Finance Subsidiary Indebtedness" means Indebtedness of the
Company owed to and held by a Finance Subsidiary which Indebtedness (a) has a
maturity date after the maturity date of the Convertible Notes and (b) is
subordinated in right of payment to the Convertible Notes.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect from time to time, including those set
forth in (i) the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board and (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession.
"Guarantee" means (a) any obligation, contingent or otherwise,
of any Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person, and (b) any
10
<PAGE> 17
obligation, direct or indirect, contingent or otherwise, of any Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) any
Indebtedness or other obligation of any other Person (whether arising by virtue
of partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay or to maintain financial
statement conditions or otherwise) or (ii) entered into for the purpose of
assuring in any other manner any Indebtedness or other obligation (for the
payment thereof) of any other Person or to protect any other Person against
loss in respect thereof (in whole or in part); provided, however, that the term
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning. The term "Guarantor" shall mean any Person Guaranteeing
any obligation.
"Global Note" means, individually and collectively, the
Regulation S Global Note, the Rule 144A Global Note and the Unrestricted Global
Note.
"Global Note Legend" means the legend initially set forth on
the Global Note in the form set forth in Section 2.14.
"Hedging Obligations" of any Person means the obligations of
such Person pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means a Person in whose name a Note
is registered on the Note Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise
become liable for; provided, however, that any Indebtedness or Capital Stock of
a Person existing at the time such Person becomes a Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred
by such Subsidiary at the time it becomes a Subsidiary; provided, further,
however, that in the case of a discount security, neither the accrual of
interest nor the accretion of original issue discount shall be considered an
Incurrence of Indebtedness, but the entire face amount of such security shall
be deemed Incurred upon the issuance of such security. The term "Incurrence"
when used as a noun shall have a correlative meaning.
"Indebtedness" means, with respect to any Person on any date
of determination (without duplication), (i) the principal of and premium (if
any) in respect of (A) indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar instruments
for the payment of which such Person is responsible or liable; (ii) all Capital
Lease Obligations of such Person and all Attributable Debt in respect of
Sale/Leaseback Transactions entered into by such Person; (iii) all obligations
of such Person issued or assumed as the deferred
11
<PAGE> 18
purchase price of property or services, all conditional sale obligations of
such Person and all obligations of such Person under any title retention
agreement (but excluding trade accounts payable arising in the ordinary course
of business and which are not more than 90 days past due and not in dispute),
which purchase price or obligation is due more than six months after the date
of placing such property in service or taking delivery and title thereto or the
completion of such services (provided that, in the case of obligations of an
acquired Person assumed in connection with an acquisition of such Person, such
obligations would constitute Indebtedness of such Person); (iv) all obligations
of such Person for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction (other than obligations with
respect to letters of credit securing obligations (other than obligations
described in (i) through (iii) above) entered into in the ordinary course of
business of such Person to the extent such letters of credit are not drawn upon
or, if and to the extent drawn upon, such drawing is reimbursed no later than
the tenth Business Day following receipt by such Person of a demand for
reimbursement following payment on the letter of credit); (v) the amount of all
obligations of such Person with respect to the redemption, repayment or other
repurchase of any Disqualified Capital Stock or, with respect to any Subsidiary
of such Person (other than a Finance Subsidiary), any Preferred Stock (but
excluding, in each case, any accrued dividends); (vi) all obligations of the
type referred to in clauses (i) through (v) of other Persons and all dividends
of other Persons for the payment of which, in either case, such Person is
responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise, including by means of any Guarantee; (vii) all obligations of the
type referred to in clauses (i) through (vi) of other Persons secured by any
Lien on any property or asset of such Person (whether or not such obligation is
assumed by such Person), the amount of such obligation being deemed to be the
lesser of the value of such property or assets or the amount of the obligation
so secured; and (viii) to the extent not otherwise included in this definition,
Hedging Obligations of such Person. Notwithstanding the foregoing, (i) any
Guarantee of any obligations of a Joint Venture or a Finance Subsidiary given
by or entered into by any Person shall not constitute, or be deemed to be the
Incurrence of, any Indebtedness of such Person, provided, such Guarantee would
be permitted under Section 10.11 hereof and (ii) any obligation, contingent or
otherwise, of any Person arising as a result of such Person's ownership of, or
control over, the Capital Stock of another Person, shall not constitute, or be
deemed to be the Incurrence of, Indebtedness of such Person, provided, the
Incurrence of such obligation would be permitted under Section 10.11. The
amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and
the maximum liability, upon the occurrence of the contingency giving rise to
the obligation, of any contingent obligations as described above at such date;
provided, however, that
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the amount outstanding at any time of any Indebtedness issued with original
issue discount shall be deemed to be the face amount of such Indebtedness less
the remaining unamortized portion of the original issue discount of such
Indebtedness at such time as determined in conformity with GAAP.
"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.
"Indirect Participants" means any entity that clears through
or maintains a direct or indirect, custodial relationship with a Direct
Participant.
"Initial Purchasers" means Donaldson, Lufkin & Jenrette
Securities Corporation, NationsBanc Montgomery Securities LLC, BT Alex. Brown
Incorporated, Salomon Brothers Inc and Societe Generale Securities Corporation.
"Interest Payment Date" means the Stated Maturity of an
installment of interest on the Notes.
"Interest Rate Agreement" means any interest rate swap
agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect the Company or any Restricted Subsidiary
against fluctuations in interest rates.
"Investment" in any Person means any direct or indirect
advance, loan (other than advances or loans to customers or other Persons in
the ordinary course of business that are recorded as accounts or mortgages
receivable on the balance sheet of such Person) or other extension of credit
(including by way of Guarantee or similar arrangement) or capital contribution
to (by means of any transfer of cash or other property to others or any payment
for property or services for the account or use of others), or any purchase or
acquisition of Capital Stock, Indebtedness or other similar instruments issued
by such Person. For purposes of the definition of "Unrestricted Subsidiary,"
the definition of "Restricted Payment" and the covenant described in Section
10.11 hereof, (i) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of any Subsidiary of the Company at the time that such Subsidiary is
designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall
be deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary equal to an amount (if positive) equal to (x) the Company's
"Investment" in such Subsidiary at the time of such redesignation less (y) the
portion (proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of such Subsidiary at the time of such
redesignation; and (ii) any property
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transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer, in each case as determined in good
faith by the Board of Directors.
"Issue Date" means the date on which the Notes are originally
issued.
"Joint Venture" means a corporation, partnership or other
entity engaged in a Related Business as to which the Company (directly or
through one or more Restricted Subsidiaries) owns any Capital Stock.
"Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions are not required to be open in the State of New York.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any conditional sale or
other title retention agreement or lease in the nature thereof).
"Mortgages Receivable" means the gross mortgages receivable of
the Company and its Restricted Subsidiaries (including any mortgages receivable
acquired as a result of any business combination) determined on a consolidated
basis in accordance with GAAP.
"Net Available Cash" from an Asset Disposition means cash
payments received by the Company or any of its Subsidiaries therefrom
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations
relating to such properties or assets or received in any other noncash form) in
each case net of (i) all legal, title and recording tax expenses, commissions
and other fees and expenses incurred, and all Federal, state, provincial,
foreign and local taxes required to be paid or accrued as a liability under
GAAP, as a consequence of such Asset Disposition, (ii) all payments made on any
Indebtedness which is secured by any assets subject to such Asset Disposition,
in accordance with the terms of any Lien upon or other security agreement of
any kind with respect to such assets, or which must by its terms, or in order
to obtain a necessary consent to such Asset Disposition, or by applicable law,
be repaid out of the proceeds from such Asset Disposition, (iii) all
distributions and other payments required to be made to minority interest
holders in Subsidiaries or Joint Ventures as a result of such Asset Disposition
and (iv) the deduction of appropriate amounts provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with the
property or other assets disposed of in such Asset Disposition and retained by
the Company or any Restricted
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<PAGE> 21
Subsidiary after such Asset Disposition, including without limitation
liabilities under any indemnification obligations associated with such Asset
Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of
Capital Stock, means the cash proceeds of such issuance or sale net of
attorneys' fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"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 the 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.
"Note Offering" means the issuance of the Notes by the
Company.
"Note Register" and "Note Registrar" have the respective
meanings specified in Section 2.04.
"Notes" shall mean the Private Placement Notes and the
Exchange Notes.
"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,
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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 2.07
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
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" shall have the meaning set forth in Section
2.04 hereof.
"Permitted Investment" means an Investment by the Company or
any Restricted Subsidiary in (i) the Company, (ii) a Restricted Subsidiary or a
Person that will, upon the making of such Investment, become a Restricted
Subsidiary; provided, however, that the primary business of such Subsidiary is
a Related Business; (iii) another Person if as a result of such Investment such
other Person is merged or consolidated with or into, or transfers or conveys
all or substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(iv) Temporary Cash Investments; (v) purchases or acquisitions of mortgage
receivables by the Company or any Restricted Subsidiary created or acquired in
the ordinary course of business; (vi) payroll, travel and similar advances to
cover matters that are expected at the time of such advances ultimately to be
treated as expenses for accounting purposes and that are made in the ordinary
course of business; (vii) loans or advances to employees made in the ordinary
course of business consistent with past practices of the Company or such
Restricted Subsidiary; (viii) stock, obligations or securities received in
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<PAGE> 23
settlement of debts created in the ordinary course of business and owing to the
Company or any Restricted Subsidiary or in satisfaction of judgments; (ix)
Persons other than Restricted Subsidiaries that are primarily engaged in a
Related Business, in an aggregate amount (taken together with all Designated
Noncash Consideration at that time outstanding) not to exceed the sum of (1)
10% of the Total Assets of the Company and its Restricted Subsidiaries
determined on a consolidated basis in accordance with GAAP and (2) the fair
market value of assets (other than Net Cash Proceeds) received by the Company,
as determined in good faith by the Board of Directors of the Company at the
time of such receipt, from the issuance of its Capital Stock (other than
Disqualified Capital Stock) subsequent to the Issue Date (to the extent
utilized for an Investment, such aggregate amount will be reinstated to the
extent that the Company or any Restricted Subsidiary receives dividends,
repayments of loans or other transfers of assets as a return of such
Investment); and (x) any Person to the extent such Investment represents the
non-cash portion of the consideration received for an Asset Disposition as
permitted pursuant to Section 10.13 hereof; (xi) any Investment existing as of
the Issue Date; (xii) any Investment acquired by the Company or any of its
Restricted Subsidiaries (i) in exchange for any other Investment or accounts
receivable held by the Company or any such Restricted Subsidiary in connection
with or as a result of a bankruptcy, workout, reorganization or
recapitalization of the issuer of such other Investment or accounts receivable
or (ii) as a result of a foreclosure (or deed in lieu of) by the Company or any
of its Restricted Subsidiaries with respect to any secured Investment or other
transfer of title with respect to any secured Investment in default; or (xiii)
Hedging Obligations permitted under clause (7) of Section 10.10.
"Permitted Liens" means any (i) Liens on assets securing
Indebtedness and related obligations incurred under clauses (ii), (vi), (vii),
(viii), (ix), (x), (xi) and (xiii) of the second paragraph of the covenant
described in Section 10.10 hereof, (ii) Liens arising by reason of (1)
operation of law in favor of carriers, warehousemen, landlords, mechanics,
materialmen, laborers, employees or suppliers, incurred in the ordinary course
of business for sums which are not yet delinquent or are being contested in
good faith by negotiations or by appropriate proceedings which suspend the
collection thereof or (2) any interest or title of a lessor under any lease;
(iii) Liens in favor of the Company; (iv) Liens on property of a Person
existing at the time such Person is acquired by, merged into or consolidated
with the Company or any Subsidiary of the Company; provided that such Liens
were in existence prior to the contemplation of such acquisition, merger or
consolidation and do not extend to any assets other than those of the Person
acquired by, merged into or consolidated with the Company; (v) Liens on
property existing at the time of acquisition thereof by the Company or any
Subsidiary of the Company, provided that such Liens were in existence prior to
the contemplation of such acquisition; (vi) Liens arising on any of the
property described in either clause (iv) or
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(v) above, or on any other property of the Company or any Restricted
Subsidiary, in each case securing Indebtedness and related obligations incurred
pursuant to any development or construction agreement or any other similar
agreement relating to such property, provided that such Liens secure
Indebtedness (except, with respect to property not described in either clauses
(iv) or (v) above, Indebtedness that would constitute a security) permitted to
be incurred under the covenant described in Section 10.10 hereof; (vii) Liens
existing on the date of the Indenture; (viii) Liens for taxes, assessments or
governmental charters or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor,
(ix) Liens on assets securing Indebtedness and related obligations incurred
under the Senior Credit Agreements; (x) Liens on assets securing Refinancing
Indebtedness and related obligations in respect of Indebtedness represented by
the Notes and any subsequent Refinancing Indebtedness thereof; (xi) easements,
rights-of-way, restrictions, minor defects or irregularities in title and other
similar charges or encumbrances not interfering in any material respect with
the business of the Company or any of its Restricted Subsidiaries; (xii) Liens
pursuant to any judgment, attachment, decree or order of any court provided
that, such Liens do not give rise to an Event of Default; (xiii) Liens on any
Receivables and Related Assets and (xiv) Liens on any asset securing
Non-recourse Debt of the Company or any Restricted Subsidiary; provided, that,
such Non-recourse Debt does not exceed, in the aggregate at any time
outstanding, $50 million.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"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 2.16 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.
"Preferred Stock," as applied to the Capital Stock of any
corporation or the equity securities of any trust, means Capital Stock of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation or trust.
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"principal" of any Indebtedness (including a Note) means the
principal of such Indebtedness plus the premium, if any, payable on such
Indebtedness which is due or overdue or is to become due at the relevant time.
"Private Placement Legend" means the legend initially set
forth on the Notes in the form set forth in Section 2.14.
"Private Placement Notes" means the 9.25% Senior Notes due
2006 of the Company issued on the Issue Date for so long as such Notes
constitute Restricted Securities.
"Purchase Money Indebtedness" mean Indebtedness (i) consisting
of the deferred purchase price of property, conditional sale obligations,
obligations under any title retention agreement, other purchase money
obligations or similar Indebtedness, in each case where the maturity of such
Indebtedness does not exceed the anticipated useful life of the asset being
financed, and (ii) incurred to finance the acquisition by the Company or a
Restricted Subsidiary of such asset, including additions and improvements;
provided, however, that any Lien arising in connection with any such
Indebtedness shall be limited to the specified asset being financed or, in the
case of real property or fixtures, including additions and improvements, the
real property on which such asset is attached; and provided, further, however,
that such Indebtedness is Incurred within 90 days after such acquisition of
such asset by the Company or such Restricted Subsidiary.
"Qualified Institutional Buyer" or "QIB" shall have the
meaning specified in Rule 144A under the Securities Act.
"Qualified Issuer" means (A) any lender that is a party to any
Credit Agreement; and (B) any commercial bank (i) which has capital and surplus
in excess of $100,000,000, and (ii) the outstanding short-term debt securities
of which are rated at least A-2 by Standard & Poor's Corporation or at least
P-2 by Moody's Investors Service, Inc., or carry an equivalent rating by a
nationally recognized rating agency if both the two named rating agencies cease
publishing ratings of investments.
"Receivables and Related Assets" means Mortgages Receivable
and instruments, chattel paper, obligations, general intangibles and other
similar assets, in each case relating to such Mortgages Receivable.
"Receivables Subsidiary" means a Restricted Subsidiary which
is established for the limited purpose of acquiring and financing Receivables
and Related Assets.
"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.
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"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.
"Refinance" means, in respect of any Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue other Indebtedness in exchange or replacement for, such Indebtedness.
"Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances
any Indebtedness of the Company or any Restricted Subsidiary existing on the
Issue Date or Incurred in compliance with this Indenture; provided, however,
that (i) in the case of Indebtedness that has a Stated Maturity after the
Stated Maturity of the Notes, such Refinancing Indebtedness has a Stated
Maturity no earlier than the Stated Maturity of the Indebtedness being
Refinanced, (ii) in the case of Indebtedness that has a Stated Maturity after
the Stated Maturity of the Notes, such Refinancing Indebtedness has an Average
Life at the time such Refinancing Indebtedness is Incurred that is equal to or
greater than the Average Life of the Indebtedness being Refinanced and (iii)
such Refinancing Indebtedness has an aggregate principal amount (or if Incurred
with original issue discount, an aggregate issue price) that is equal to or
less than the aggregate principal amount (or if Incurred with original issue
discount, the aggregate accreted value) then outstanding or committed (plus
fees and expenses, including any premium and defeasance costs) under the
Indebtedness being Refinanced; provided, further, however, that Refinancing
Indebtedness shall not include (x) Indebtedness of a Subsidiary that Refinances
Indebtedness of the Company or (y) Indebtedness of the Company or a Restricted
Subsidiary that Refinances Indebtedness of an Unrestricted Subsidiary.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the May 1 or November 1 (whether or not a Business Day), as
the case may be, next preceding such Interest Payment Date.
"Registration Rights Agreement" means the Registration Rights
Agreement dated April 15, 1998, by and among the Company and the Initial
Purchasers.
"Regulation S" means Regulation S under the Securities Act.
"Regulation S Global Note" means a Regulation S Temporary
Global Note or Regulation S Permanent Global Note, as appropriate.
"Regulation S Permanent Global Note" means a permanent global
Note in the form of Exhibit A hereto bearing the Global Note
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Legend and the Private Placement Legend and deposited with or on behalf of and
registered in the name of the Depository or its nominee, issued in a
denomination equal to the outstanding principal amount of the Regulation S
Temporary Global Note upon expiration of the Restricted Period.
"Regulation S Temporary Global Note" means a temporary global
Note in the form of Exhibit A hereto bearing the Private Placement Legend, the
Global Note Legend and the Regulation S Temporary Global Note Legend and
deposited with or on behalf of and registered in the name of the Depository or
its nominee, issued in a denomination equal to the outstanding principal amount
of Notes initially sold in reliance on Rule 903 of Regulation S.
"Regulation S Temporary Global Note Legend" means the legend
initially set forth on the Regulation S Temporary Global Note in the form set
forth in Section 2.14.
"Related Business" means, at any time, any business related,
ancillary or complementary (as determined in good faith by the Board of
Directors) to the businesses conducted by the Company and the Restricted
Subsidiaries at such time.
"Representative" means any trustee, agent or representative
(if any) for an issue of Senior Indebtedness of the Company.
"Repurchase Date" has the meaning specified in Section 10.15.
"Repurchase Price" has the meaning specified in Section 10.15.
"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 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.
"Restricted Certificated Notes" means Notes that are in the
form of the Notes attached hereto as Exhibit A, bearing the Private Placement
Legend but not the Global Note Legend.
"Restricted Global Notes" means the Regulation S Global Notes
and the Rule 144A Global Notes.
"Restricted Payment" means, with respect to any Person, (i)
the declaration or payment of any dividends or any other distributions on or in
respect of its Capital Stock (including any
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payment in connection with any merger or consolidation involving such Person)
or similar payment to the holders of its Capital Stock, except dividends or
distributions payable solely in its Capital Stock (other than Disqualified
Capital Stock) and except dividends or distributions payable to the Company or
a Restricted Subsidiary, (ii) the purchase, redemption or other acquisition or
retirement for value of any Capital Stock of the Company held by any Person
including the exercise of any option to exchange any Capital Stock (other than
into Capital Stock of the Company that is not Disqualified Capital Stock),
(iii) the purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment, of any Subordinated Obligations of the Company
(other than the purchase, repurchase or other acquisition of Subordinated
Obligations purchased in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case due within one year of
the date of acquisition) or (iv) the making of any Investment in any Person
(other than a Permitted Investment).
"Restricted Period" means the 40-day restricted period as
defined in Regulation S.
"Restricted Security" has the meaning assigned to such term in
Rule 144(a)(3) under the Securities Act; provided, however, that the Trustee
shall be entitled to request and conclusively rely on an Opinion of Counsel
with respect to whether any Note constitutes a Restricted Security.
"Restricted Subsidiary" means any Subsidiary of the Company
that is not an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
"Rule 144A Global Note" means a permanent Global Note in the
form of Exhibit A hereto bearing the Global Note Legend and the Private
Placement Legend and deposited with or on behalf of and registered in the name
of the Depository or its nominee, representing Notes sold in reliance on Rule
144A.
"Rule 903" means Rule 903 promulgated under the Securities
Act.
"Rule 904" means Rule 904 promulgated under the Securities
Act.
"Sale/Leaseback Transaction" means an arrangement relating to
property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such property to a Person and the Company or a Restricted
Subsidiary leases it from such Person.
"SEC" means the Securities Exchange Commission.
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"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Senior Credit Agreements" means the Company's $117.5 million
senior bank credit facility dated February 18, 1998, as amended to date and any
other senior bank credit agreement or bank credit facility entered into by the
Company or any Restricted Subsidiary, as any of the same may be amended, waived
or modified from time to time (except to the extent that any such amendment,
waiver or modification would be prohibited by the terms of the Indenture).
"Senior Credit Facility" means the Company's $117.5 million
senior bank credit facility dated February 18, 1998, as amended from time to
time.
"Senior Indebtedness" of the Company means the Notes and any
other Indebtedness of the Company that is not subordinated by its terms in
right of payment to any Indebtedness or other obligation of the Company.
"Senior Subordinated Notes" means the Company's 9 3/4% Senior
Subordinated Notes due October 1, 2007, as amended, waived, modified or
replaced from time to time, provided such amendment, waiver, modification or
replacement does not shorten the maturity, increase the principal amount
outstanding, or change the subordination provisions in a manner that makes them
less subordinated.
"Senior Subordinated Notes Indenture" means the Indenture
between Norwest Bank Minnesota, National Association, as trustee, and the
Company relating to the Senior Subordinated Notes, as amended, waived, modified
or replaced from time to time, provided such amendment, waiver, modification or
replacement does not shorten the maturity, increase the principal amount
outstanding, or change the subordination provisions in a manner that makes them
less subordinated.
"Significant Subsidiary" means any Restricted Subsidiary which
would be a "Significant Subsidiary" of the Company within the meaning of Rule
1-02 under Regulation S-X promulgated by the SEC.
"Special Record Date" for the payment of any Defaulted
Interest means a date fixed by the Trustee pursuant to Section 3.03.
"Stated Maturity" means, with respect to any instrument, the
date specified in such instrument as the fixed date on which the final payment
of principal of such instrument is due and payable, including pursuant to any
mandatory redemption provision (but excluding any provision providing for the
repurchase, redemption or repayment of such instrument at the option of the
holder thereof
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<PAGE> 30
upon the happening of any contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the
Company (whether outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Notes pursuant to a written
agreement to that effect.
"Subsidiary" means, in respect of any Person, any corporation,
association, partnership or other business entity of which more than 50% of the
total voting power of shares of Capital Stock or other interests (including
partnership interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by (i) such Person,
(ii) such Person and one or more Subsidiaries of such Person or (iii) one or
more Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following: (i)
any investment in direct obligations of the United States of America or any
agency thereof or obligations guaranteed by the United States of America or any
agency thereof, (ii) investments in time deposit accounts, certificates of
deposit and money market deposits maturing within 180 days of the date of
acquisition thereof issued by a bank or trust company which is organized under
the laws of the United States of America, any state thereof or any foreign
country recognized by the United States, and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of $50,000,000 (or
the foreign currency equivalent thereof) and has outstanding debt which is
rated "A" (or such similar equivalent rating) or higher by at least one
nationally recognized statistical rating organization (as defined in Rule 436
under the Securities Act) or any money-market fund sponsored by a registered
broker dealer or mutual fund distributor, (iii) repurchase obligations with a
term of not more than 30 days for underlying securities of the types described
in clause (i) above entered into with a bank meeting the qualifications
described in clause (ii) above, (iv) investments in commercial paper, maturing
more than 90 days after the date of acquisition, issued by a corporation (other
than an Affiliate of the Company) organized and in existence under the laws of
the United States of America, any state thereof or the District of Columbia or
any foreign country recognized by the United States of America, with a rating
at the time as of which any investment therein is made of "P-1" (or higher)
according to Moody's Investors Service, Inc. or "A-1" (or higher) according to
Standard and Poor's Ratings Group, and (v) investments in securities with
maturities of six months or less from the date of acquisition issued or fully
guaranteed by any state, commonwealth or territory of the United States of
America, or by any political subdivision or taxing authority thereof, and rated
at least "A" by Standard & Poor's Ratings Group or "A" by Moody's Investors
Service, Inc.
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"Total Assets" means the total consolidated assets of the
Company and its Restricted Subsidiaries, as shown on the most recent balance
sheet (excluding the footnotes thereto) of the Company.
"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 amended, and as in force at the date as of which this instrument was
executed, except as provided in Section 9.05; 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.
"Unrestricted Global Note" means a permanent Global Note in
the form of Exhibit B bearing the Global Note Legend and deposited with or on
behalf of and registered in the name of the Depository or its nominee.
"Unrestricted Certificated Notes" means Notes that are in the
form of the Notes attached hereto as Exhibit B, that do not include the Global
Note Legend.
"Unrestricted Notes" means the Unrestricted Global Notes and
Unrestricted Certificated Notes.
"Unrestricted Subsidiary" means (i) any Subsidiary of the
Company that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of
its Subsidiaries owns any Capital Stock or Indebtedness of, or holds any Lien
on any property of, the Company or any other Subsidiary of the Company that is
not a Subsidiary of the Subsidiary to be so designated; provided, however, that
either (A) the Subsidiary to be so designated has total assets of $1,000 or
less or (B) if such Subsidiary has assets greater than $1,000, such designation
would be permitted under Section 10.11 hereof. The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided,
however, that immediately after
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giving effect to such designation (x) the Company could Incur $1.00 of
additional Indebtedness under paragraph (a) of Section 10.10 hereof and (y) no
Default shall have occurred and be continuing. Any such designation by the
Board of Directors shall be notified by the Company to the Trustee by promptly
filing with the Trustee a copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"U.S. Global Notes" means one or more registered global notes
without interest coupons.
"U.S. Government Obligation" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock
or other interests (including partnership interests) of such Person then
outstanding and normally entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees
thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all
the Capital Stock of which (other than directors' qualifying shares) is owned
by the Company and/or one or more Wholly Owned Subsidiaries.
Section 1.02. 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;
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(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 1.03. 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 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 1.04. 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,
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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 6.01) 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 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
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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 1.06.
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
5.02, (iii) any request to institute proceedings referred to in Section
5.07(b), or (iv) any direction referred to in Section 5.12. If any record date
is set pursuant to this Section 1.04(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 shall 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 1.04(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 1.04(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 1.04(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
1.04(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 1.06.
(f) With respect to any record date set pursuant to
Sections 1.04(e) or 1.04(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 1.06, 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 or Section 1.04(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
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Expiration Date as provided in this Section 1.04(f). Notwithstanding the
foregoing, no Expiration Date shall be later than the 180th day after the
applicable record date.
Section 1.05. 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 at Sixth Street and Marquette Avenue,
Minneapolis, Minnesota 55479-0069, Attention: Corporate Trust Department, 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 1875 South Grant
Avenue, Suite 650, San Mateo, California 94402 or at any other address
previously furnished in writing to the Trustee by the Company.
Section 1.06. 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 1.07. Conflict with Trust Indenture Act.
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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 1.08. Book-Entry System.
If the Notes cease to trade in the Depository'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 1.09. Effect of Headings and Table of Contents.
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.
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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 on 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, provided that
no interest shall accrue for the period from and after such Interest Payment
Date, Redemption Date, or Stated Maturity, as the case may be.
Section 1.15. Immunity of Incorporators, Stockholders, Officers and
Directors.
No recourse shall be had for the payment of the principal of
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 whatsoever 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 2.01. Generally.
The Private Placement Notes and the Trustee's certificate of
authentication shall be in substantially the form of Exhibit A, and the
Exchange Notes shall be in substantially the form of Exhibit B hereto, which
exhibits are part of this Indenture with such appropriate insertions,
omissions, substitutions and other variations as are required or permitted by
this Indenture, and may have such notations, letters, numbers or other marks of
identification and such notations, legends or endorsements placed
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thereon as may be required to comply with law, the rules of any securities
exchange, the Code 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 Notes shall bear legends as appropriate in
accordance with Sections 2.02 and 2.07 hereof.
Section 2.02. Form and Dating.
The Notes offered and sold to QIBs in reliance on Rule 144A
will be issued initially in the form of one or more registered U.S. Global
Notes without interest coupons. Upon issuance, the U.S. Global Notes will be
delivered to the Trustee, as custodian for the Depository, in New York, New
York, and registered in the name of the Depository or its nominee, in each case
for credit to the accounts of the Depository's Direct and Indirect
Participants. The Notes offered and sold in offshore transactions in reliance
on Regulation S, if any, will be issued initially in the form of one or more
Regulation S Temporary Global Notes without interest coupons. The Regulation S
Temporary Global Notes will be deposited with the Trustee, as custodian for the
Depository, in New York, New York, and registered in the name of a nominee of
the Depository for credit to the accounts of Indirect Participants at the
Euroclear System ("Euroclear") and Cedel Bank, societe anonyme ("CEDEL").
During the 40-day period commencing on the day after the later of the offering
date and the original Issue Date of the Notes (the "40-Day Restricted Period"),
beneficial interests in the Regulation S Temporary Global Notes may be held
only through Euroclear or CEDEL and, pursuant to the Depository procedures,
Indirect Participants that hold a beneficial interest in the Regulation S
Temporary Global Note will not be able to transfer such interest to a person
that takes delivery thereof in the form of an interest in the U.S. Global
Notes. Within a reasonable time after the expiration of the 40-Day Restricted
Period, the Regulation S Temporary Global Notes will be exchanged for one or
more Regulation S Permanent Global Notes (collectively with the Regulation S
Temporary Global Notes, the "Regulation S Global Notes"). The 40-day
Restricted Period shall be terminated upon the receipt by the Trustee of (i) a
written certificate from the Depository, together with copies of certificates
from Euroclear and Cedel Bank certifying that they have received certification
of non-United States beneficial ownership of 100% of the aggregate principal
amount of the Regulation S Temporary Global Note, and (ii) an Officers'
Certificate from the Company to such effect. After the 40-Day restricted
Period, (i) beneficial interests in the Regulation S Permanent Global Notes may
be transferred to a person that takes delivery in the form of an interest in
the U.S. Global Notes and (ii) beneficial interests in the U.S. Global Notes
may be transferred to a person that takes delivery in the form of an interest
in the Regulation S Permanent Global Notes, pursuant to Section 2.07(b) hereof,
provided, in each case, that the certification requirements described below are
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complied with. All registered global notes are referred to herein collectively
as "Global Notes."
Notes issued in global form shall be substantially in the form
of Exhibit A and B attached hereto (including the Global Note Legend). Notes
issued in certificated form shall be substantially in the form of Exhibit A or
B attached hereto (but without the Global Note Legend). Each Global Note shall
represent such of the outstanding Notes as shall be specified therein and each
shall provide that it shall represent the aggregate principal amount of
outstanding Notes from time to time endorsed thereon and that the aggregate
principal amount of Outstanding Notes represented thereby may from time to time
be reduced or increased, as appropriate, to reflect exchanges and redemptions.
Any endorsement of a Global Note to reflect the amount of any increase or
decrease in the aggregate principal amount of outstanding Notes represented
thereby shall be made by the Trustee or in the Depository, at the direction of
the Trustee, in accordance with instructions given by the Holder thereof as
required by Section 2.07 hereof.
The provisions of the "Operating Procedures of the Euroclear
System" and "Terms and Conditions Governing Use of Euroclear" and the "General
Terms and Conditions of Cedel Bank" and "Customer Handbook" of Cedel Bank shall
be applicable to transfers of beneficial interests in the Regulation S
Temporary Global Note and the Regulation S Permanent Global Notes that are held
by the Agent Members through Euroclear or Cedel Bank.
Section 2.03. Execution and Authentication.
An Officer of the Company shall sign the Notes by manual or
facsimile signature. If an Officer whose signature is on a Note no longer
holds that office at the time the Trustee authenticates the Note, the Note
shall be valid nevertheless. A Note shall not be valid until an authorized
signatory of the Trustee manually signs the certificate of authentication on
the Note. The signature shall be conclusive evidence that the Note has been
authenticated under this Indenture. The Trustee shall authenticate and make
available for delivery (i) Private Placement Notes for original issue in an
aggregate principal amount of $140,000,000 and (ii) Exchange Notes from time to
time for issue only in exchange for a like principal amount of Private
Placement Notes, in each case, upon a written order of the Company signed by an
Officer of the Company. Such order shall specify the amount of the Notes to be
authenticated and the date on which the Notes are to be authenticated. The
aggregate principal amount of Notes outstanding at any time may not exceed
$140,000,000 except as provided in Section 2.08. The Trustee may appoint an
authenticating agent acceptable to the Company to authenticate the Notes, upon
the consent of the Company to such appointment. Unless limited by the terms of
such appointment, an authenticating agent may authenticate Notes whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
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Trustee includes authentication by such agent. An authenticating agent has the
same rights as any Note Registrar, Paying Agent or agent for service of notices
and demands.
Section 2.04. Registrar and Paying Agent.
The Company shall maintain an office or agency where Notes may
be presented for registration of transfer or for exchange (the "Note
Registrar") and an office or agency where Notes may be presented for payment
(the "Paying Agent"). The Note Registrar, acting on behalf of and as agent for
the Company, shall keep a register (the "Notes Register") of the Notes and of
their transfer and exchange. The Company may appoint one or more co-registrars
and one or more additional Paying Agents, the term "Note Registrar" includes
any co-registrar and the term "Paying Agent" includes any additional paying
agent. The Company may change any Note Registrar or Paying Agent without
notice to any Holder.
The Company shall enter into an appropriate agency agreement
with any Note Registrar, Paying Agent or co-registrar not a party to this
Indenture, which shall incorporate the terms of the Trust Indenture Act. The
agreement shall implement the provisions of this Indenture that relate to such
agent. The Company shall notify the Trustee of the name and address of any
agent not a party to this Indenture. If the Company fails to maintain a Note
Registrar or Paying Agent, the Trustee shall act as such and shall be entitled
to appropriate compensation therefor pursuant to Section 6.07. The Company or
any of its Subsidiaries may act as Paying Agent, Note Registrar, co-Registrar
or transfer agent.
The Company initially appoints the Trustee as Registrar and
Paying Agent in connection with the Notes, until such time as the Trustee has
resigned or a successor has been appointed. Any of the Note Registrar, the
Paying Agent, the Depository or any other agent may resign upon 30 days' notice
to the Company.
Section 2.05. Paying Agent To Hold Money in Trust.
On or prior to each due date of the principal and interest on
any Note, the Company shall deposit with the Paying Agent a sum sufficient to
pay such principal and interest when so becoming due. The Company shall
require each Paying Agent (other than the Trustee) to agree in writing that the
Paying Agent shall hold in trust for the benefit of Noteholders or the Trustee
all money held by the Paying Agent for the payment of the principal of or
interest on the Notes and shall notify the Trustee of any default by the
Company in making any such payment. If the Company or a Subsidiary acts as
Paying Agent, it shall segregate the money held by it as Paying Agent and hold
it as a separate trust fund. The Company at any time may require a Paying
Agent to pay all money held by it to the Trustee and to account for any funds
disbursed by the Paying Agent. Upon complying with this Section 2.05, the
Paying
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Agent shall have no further liability for the money delivered to the Trustee.
Section 2.06. Noteholder Lists.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of Noteholders and shall otherwise comply with Section 312(a) of the
Trust Indenture Act. If the Trustee is not the Note Registrar, the Company
shall furnish to the Trustee, in writing at least five Business Days before
each interest payment date and at such other times as the Trustee may request
in writing, a list in such form and as of such date as the Trustee may
reasonably require of the names and addresses of Noteholders; provided that as
long as the Trustee is the Note Registrar, no such list need be furnished.
Section 2.07. Transfer and Exchange.
(a) Transfer and Exchange of Global Notes. A Global Note
may not be transferred as a whole except by the Depository to a nominee of the
Depository, by a nominee of the Depository to the Depository or to another
nominee of the Depository, or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository. All Global
Notes will be exchanged by the Company for Certificated Notes in registered
certificated form if (i) the Company delivers to the Trustee notice from the
Depository that it is unwilling or unable to continue to act as Depository or
that it is no longer a clearing agency registered under the Exchange Act and, in
either case, a successor Depository is not appointed by the Company within 90
days after the date of such notice from the Depository, (ii) the Company in its
sole discretion determines that the Global Notes (in whole but not in part)
should be exchanged for Certificated Notes and delivers a written notice to such
effect to the Trustee or (iii) there shall have occurred and be continuing an
Event of Default or any event which after notice or lapse of time or both would
be an Event of Default with respect to the Notes; provided that in no event
shall the Regulation S Temporary Global Note be exchanged by the Company for
Certificated Notes prior to (x) the expiration of the Restricted Period and (y)
the receipt by the Note Registrar of any certificates identified by the Company
or its counsel to be required pursuant to Rule 903 under the Securities Act.
Upon the occurrence of any of the preceding events in (i), (ii) or (iii) above
the Company will notify the Trustee in writing that, upon surrender by the
Direct and Indirect Participants of their interest in such Global Notes,
Certificated Notes will be issued in such names as the Direct and Indirect
Participants and the Depository shall instruct the Trustee. Global Notes also
may be exchanged or replaced in whole or in part, as provided in Sections 2.08
and 2.10 hereof. Every Note authenticated and delivered in exchange for, or in
lieu of, a Global Note or any portion thereof, pursuant to Section 2.08 or 2.10
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hereof, shall be authenticated and delivered in the form of, and shall be, a
Global Note. A Global Note may not be exchanged for another Note other than as
provided in this Section 2.07(a); however, beneficial interests in a Global Note
may be transferred and exchanged as provided in Section 2.07(b), (c) or (f)
hereof.
(b) Transfer and Exchange of Beneficial Interests in
Global Notes. The transfer and exchange of beneficial interests in the Global
Notes shall be effected through the Depository, in accordance with the
provisions of this Indenture and the Applicable Procedures. Beneficial
interests in the Restricted Global Notes shall be subject to restrictions on
transfer described in the Private Placement Legend to the extent required by
the Securities Act. Transfers of beneficial interests in the Global Notes also
shall require compliance with either subparagraph (i) or (ii) below, as
applicable, as well as one or more of the other following subparagraphs as
applicable:
(i) Transfer of Beneficial Interests in the Same Global
Note. Beneficial interests in any Restricted Global Note may be
transferred to Persons who take delivery thereof in the form of a
beneficial interest in the same Restricted Global Note in accordance
with the transfer restrictions set forth in the Private Placement
Legend; provided, however, that prior to the expiration of the 40-day
Restricted Period transfers of beneficial interests in the Temporary
Regulation S Global Note may not be made to a U.S. Person or for the
account or benefit of a U.S. Person (other than an Initial Purchaser).
Beneficial interests in any Unrestricted Global Note may be
transferred only to Persons who take delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note. No written orders
or instructions shall be required to be delivered to the Registrar to
effect the transfers described in this Section 2.07(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial
Interests in Global Notes. In connection with all transfers and
exchanges of beneficial interests (other than a transfer of a
beneficial interest in a Global Note to a Person who takes delivery
thereof in the form of a beneficial interest in the same Global Note),
the transferor of such beneficial interest must deliver to the Note
Registrar either (A) (1) a written order from an Agent Member to the
Depository in accordance with the Applicable Procedures directing the
Depository to credit or cause to be credited a beneficial interest in
another Global Note in an amount equal to the beneficial interest to
be transferred or exchanged and (2) instructions given in accordance
with the Applicable Procedures containing information regarding the
Agent Member account to be credited with such increase or (B) (1) a
written order from an Agent Member given to the Depository in
accordance with the Applicable Procedures directing the
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Depository to cause to be issued a Certificated Note in an amount
equal to the beneficial interest to be transferred or exchanged and
(2) instructions given by the Depository to the Note Registrar
containing information regarding the Person in whose name such
Certificated Note shall be registered to effect the transfer or
exchange referred to in (1) above; provided that in no event shall
Certificated Notes be issued upon the transfer or exchange of
beneficial interests in the Regulation S Temporary Global Note prior
to (x) the expiration of the 40-day Restricted Period and (y) the
receipt by the Note Registrar of any certificates identified by the
Company or its counsel to be required pursuant to Rule 903 under the
Securities Act. Upon an Exchange Offer by the Company in accordance
with Section 2.07(f) hereof, the requirements of this Section
2.07(b)(ii) shall be deemed to have been satisfied upon receipt by the
Note Registrar of the instructions contained in the Letter of
Transmittal delivered by the Holder of such beneficial interests in
the Restricted Global Notes. Upon satisfaction of all of the
requirements for transfer or exchange of beneficial interests in
Global Notes contained in this Indenture, the Notes and otherwise
applicable under the Securities Act, the Trustee shall adjust the
principal amount of the relevant Global Note(s) pursuant to Section
2.07(g) hereof.
(iii) Transfer of Beneficial Interests to Another
Restricted Global Note. A beneficial interest in any Restricted
Global Note may be transferred to a Person who takes delivery thereof
in the form of a beneficial interest in another Restricted Global Note
if the transfer complies with the requirements of clause (ii) above
and the Note Registrar receives the following:
(A) if the transferee will take delivery in the
form of a beneficial interest in the 144A Global Note, then
the transferor must deliver a certificate in the form of
Exhibit C hereto, including the certifications in item (1)
thereof; and
(B) if the transferee will take delivery in the
form of a beneficial interest in the Regulation S Temporary
Global Note or the Regulation S Global Note, then the
transferor must deliver a certificate in the form of Exhibit C
hereto, including the certifications in item (2) thereof.
(iv) Transfer and Exchange of Beneficial Interests in a
Restricted Global Note for Beneficial Interests in the Unrestricted
Global Note. A beneficial interest in any Restricted Global Note may
be exchanged by any holder thereof for a beneficial interest in an
Unrestricted Global Note or transferred to a Person who takes delivery
thereof in the form
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of a beneficial interest in an Unrestricted Global Note if the
exchange or transfer complies with the requirements of clause (ii)
above and:
(A) such exchange or transfer is effected
pursuant to the Exchange Offer in accordance with the
Registration Rights Agreement and the holder of the beneficial
interest to be transferred, in the case of an exchange, or the
transferee, in the case of a transfer, is not (1) a
Broker-Dealer, (2) a Person participating in the distribution
of the Notes issued in the Exchange Offer or (3) a Person who
is an affiliate (as defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the
Shelf Registration Statement (as defined in the Registration
Rights Agreement) in accordance with the Registration Rights
Agreement;
(C) any such transfer is effected by an
Exchanging Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights
Agreement; or
(D) the Note Registrar receives the following:
(1) if the holder of such beneficial
interest in a Restricted Global Note proposes to
exchange such beneficial interest for a beneficial
interest in an Unrestricted Global Note, a
certificate from such holder in the form of Exhibit D
hereto, including the certifications in item (1)(a)
thereof;
(2) if the holder of such beneficial
interest in a Restricted Global Note proposes to
transfer such beneficial interest to a Person who
shall take delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note, a
certificate from such holder in the form of Exhibit C
hereto, including the certifications in item (4)
thereof; and
(3) in each such case set forth in this
subparagraph (D), an Opinion of Counsel in form
reasonably acceptable to the Note Registrar to the
effect that such exchange or transfer is in
compliance with the Securities Act and that the
restrictions on transfer contained herein and in the
Private Placement Legend are not required in order to
maintain compliance with the Securities Act.
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If any such transfer is effected pursuant to subparagraph (B)
or (D) above at a time when an Unrestricted Global Note has not yet
been issued, the Company shall issue and, upon receipt of an
authentication order in accordance with Section 2.03 hereof, the
Trustee shall authenticate one or more Unrestricted Global Notes in an
aggregate principal amount equal to the principal amount of beneficial
interests transferred pursuant to subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot be
exchanged for, or transferred to Persons who take delivery thereof in
the form of, a beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests in
Global Notes for Certificated Notes.
(i) If any holder of a beneficial interest in a
Restricted Global Note proposes to exchange such beneficial interest
for a Restricted Certificated Note or to transfer such beneficial
interest to a Person who takes delivery thereof in the form of a
Restricted Certificated Note then, upon receipt by the Note Registrar
of the following documentation:
(A) if the holder of such beneficial interest
proposes to exchange such beneficial interest for a Restricted
Certificated Note, a certificate from such holder in the form
of Exhibit D hereto, including the certifications in item
(2)(a) thereof;
(B) if such beneficial interest is being
transferred to a QIB in accordance with Rule 144A under the
Securities Act, a certificate to the effect set forth in
Exhibit C hereto, including the certifications in item (1)
thereof;
(C) if such beneficial interest is being
transferred to a Non-U.S. Person in an offshore transaction in
accordance with Rule 903 or Rule 904 under the Securities Act,
a certificate to the effect set forth in Exhibit C hereto,
including the certifications in item (2) thereof;
(D) if such beneficial interest is being
transferred pursuant to an exemption from the registration
requirements of the Securities Act in accordance with Rule 144
under the Securities Act, a certificate to the effect set
forth in Exhibit C hereto, including the certifications in
item (3)(a) thereof;
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(E) if such beneficial interest is being
transferred to an Accredited Investor in reliance on an
exemption from the registration requirements of the Securities
Act other than those listed in subparagraphs (B) through (D)
above, a certificate to the effect set forth in Exhibit C
hereto, including the certifications, certificates and Opinion
of Counsel required by item (3)(d) thereof, if applicable;
(F) if such beneficial interest is being
transferred to the Company or any of its Subsidiaries, a
certificate to the effect set forth in Exhibit C hereto,
including the certifications in item (3)(b) thereof;
(G) if such beneficial interest is being
transferred pursuant to an effective registration statement
under the Securities Act, a certificate to the effect set
forth in Exhibit C hereto, including the certifications in
item (3)(c) thereof,
the Trustee shall cause the aggregate principal amount of the
applicable Restricted Global Note to be reduced accordingly pursuant
to Section 2.07(g) hereof, and the Company shall execute and the
Trustee shall authenticate and deliver to the Person designated in the
instructions a Restricted Certificated Note in the appropriate
principal amount. Any Restricted Certificated Note issued in exchange
for a beneficial interest in a Restricted Global Note pursuant to this
Section 2.07(c) shall be registered in such name or names and in such
authorized denomination or denominations as the holder of such
beneficial interest shall instruct the Note Registrar through
instructions from the Depository and the Agent Member. The Trustee
shall deliver such Restricted Certificated Notes to the Persons in
whose names such Notes are so registered. Any Restricted Certificated
Note issued in exchange for a beneficial interest in a Restricted
Global Note pursuant to this Section 2.07(c)(i) shall bear the Private
Placement Legend and shall be subject to all restrictions on transfer
contained therein.
(ii) Notwithstanding Sections 2.07(c)(i)(A) and (C)
hereof, a beneficial interest in the Regulation S Temporary Global
Note may not be (A) exchanged for a Certificated Note prior to (x) the
expiration of the Restricted Period and (y) the receipt by the Note
Registrar of any certificates required pursuant to Rule 903(c)(B)
under the Securities Act or (B) transferred to a Person who takes
delivery thereof in the form of a Certificated Note prior to the
satisfaction of the conditions set forth in clause (A) above or unless
the transfer is pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 903 or Rule 904.
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(iii) Notwithstanding Section 2.07(c)(i) hereof, a holder
of a beneficial interest in a Restricted Global Note may exchange such
beneficial interest for an Unrestricted Certificated Note or may
transfer such beneficial interest to a Person who takes delivery
thereof in the form of an Unrestricted Certificated Note if:
(A) such exchange or transfer is effected
pursuant to the Exchange Offer in accordance with the
Registration Rights Agreement and the holder of such
beneficial interest, in the case of an exchange, or the
transferee, in the case of a transfer, is not (1) a
Broker-Dealer, (2) a Person participating in the distribution
of the Notes issued in the Exchange Offer or (3) a Person who
is an affiliate (as defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the
Shelf Registration Statement in accordance with the
Registration Rights Agreement;
(C) any such transfer is effected by an
Exchanging Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights
Agreement; or
(D) the Note Registrar receives the following:
(1) if the holder of such beneficial
interest in a Restricted Global Note proposes to
exchange such beneficial interest for an Unrestricted
Certificated Note, a certificate from such holder in
the form of Exhibit D hereto, including the
certifications in item (1)(b) thereof;
(2) if the holder of such beneficial
interest in a Restricted Global Note proposes to
transfer such beneficial interest to a Person who
shall take delivery thereof in the form of an
Unrestricted Certificated Note, a certificate from
such holder in the form of Exhibit C hereto,
including the certifications in item (4) thereof; and
(3) in each such case set forth in this
subparagraph (D), an Opinion of Counsel in form
reasonably acceptable to the Company, to the effect
that such exchange or transfer is in compliance with
the Securities Act and that the restrictions on
transfer contained herein and in the Private
Placement Legend are not required in
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order to maintain compliance with the Securities Act.
(iv) If any holder of a beneficial interest in an
Unrestricted Global Note proposes to exchange such beneficial interest
for an Unrestricted Certificated Note or to transfer such beneficial
interest to a Person who takes delivery thereof in the form of an
Unrestricted Certificated Note, then, upon satisfaction of the
conditions set forth in Section 2.07(b)(ii) hereof, the Trustee shall
cause the aggregate principal amount of the applicable Unrestricted
Global Note to be reduced accordingly pursuant to Section 2.07(g)
hereof, and the Company shall execute and the Trustee shall
authenticate and deliver to the Person designated in the instructions
an Unrestricted Certificated Note in the appropriate principal amount.
Any Unrestricted Certificated Note issued in exchange for a beneficial
interest pursuant to this Section 2.07(c)(iv) shall be registered in
such name or names and in such authorized denominations as the holder
of such beneficial interest shall instruct the Note Registrar through
instructions from the Depository and the Agent Member. The Trustee
shall deliver such Unrestricted Certificated Notes to the Persons in
whose names such Notes are so registered. Any Unrestricted
Certificated Note issued in exchange for a beneficial interest
pursuant to this Section 2.07(c)(iv) shall not bear the Private
Placement Legend. A beneficial interest in an Unrestricted Global
Note cannot be exchanged for a Restricted Certificated Note or
transferred to a Person who takes delivery thereof in the form of a
Restricted Certificated Note.
(d) Transfer and Exchange of Certificated Notes for
Beneficial Interests in Global Note.
(i) If any Holder of a Restricted Certificated Note
proposes to exchange such Note for a beneficial interest in a
Restricted Global Note or to transfer such Restricted Certificated
Notes to a Person who takes delivery thereof in the form of a
beneficial interest in a Restricted Global Note, then, upon receipt by
the Note Registrar of the following documentation:
(A) if the Holder of such Restricted Certificated
Note proposes to exchange such Note for a beneficial interest
in a Restricted Global Note, a certificate from such Holder in
the form of Exhibit D hereto, including the certifications in
item (2)(b) thereof;
(B) if such Restricted Certificated Note is being
transferred to a QIB in accordance with Rule 144A under the
Securities Act, a certificate to the effect
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set forth in Exhibit C hereto, including the certifications in
item (1) thereof; or
(C) if such Restricted Certificated Note is being
transferred to a Non-U.S. Person in an offshore transaction in
accordance with Rule 903 or Rule 904 under the Securities Act,
a certificate to the effect set forth in Exhibit C hereto,
including the certifications in item (2) thereof,
the Trustee shall cancel the Restricted Certificated Note, increase or
cause to be increased the aggregate principal amount of, in the case
of clause (A) above, the appropriate Restricted Global Note, in the
case of clause (B) above, the 144A Global Note and, in the case of
clause (C) above, the Regulation S Global Note.
(ii) A Holder of a Restricted Certificated Note may
exchange such Note for a beneficial interest in an Unrestricted Global
Note or transfer such Restricted Certificated Note to a Person who
takes delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note if:
(A) such exchange or transfer is effected
pursuant to the Exchange Offer in accordance with the
Registration Rights Agreement and the Holder, in the case of
an exchange, or the transferee, in the case of a transfer, is
not (1) a Broker-Dealer, (2) a Person participating in the
distribution of the Notes issued in the Exchange Offer or (3)
a Person who is an affiliate (as defined in Rule 144) of the
Company;
(B) any such transfer is effected pursuant to the
Shelf Registration Statement in accordance with the
Registration Rights Agreement;
(C) any such transfer is effected by an
Exchanging Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights
Agreement; or
(D) the Note Registrar receives the following:
(1) if the Holder of such Restricted
Certificated Notes proposes to exchange such Notes
for a beneficial interest in the Unrestricted Global
Note, a certificate from such Holder in the form of
Exhibit D hereto, including the certifications in
item (1)(c) thereof;
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(2) if the Holder of such Restricted
Certificated Notes proposes to transfer such Notes to
a Person who shall take delivery thereof in the form
of a beneficial interest in the Unrestricted Global
Note, a certificate from such Holder in the form of
Exhibit C hereto, including the certifications in
item (4) thereof; and
(3) in each such case set forth in this
subparagraph (D), an Opinion of Counsel in form
reasonably acceptable to the Company to the effect
that such exchange or transfer is in compliance with
the Securities Act, that the restrictions on transfer
contained herein and in the Private Placement Legend
are not required in order to maintain compliance with
the Securities Act, and that such Restricted
Certificated Notes are being exchanged or transferred
in compliance with any applicable blue sky or
securities laws of any State of the United States.
Upon satisfaction of the conditions of any of the subparagraphs in
this Section 2.07(d)(ii), the Trustee shall cancel the Restricted
Certificated Notes and increase or cause to be increased the aggregate
principal amount of the Unrestricted Global Note.
(iii) A Holder of an Unrestricted Certificated Note may
exchange such Note for a beneficial interest in an Unrestricted Global
Note or transfer such Unrestricted Certificated Note to a Person who
takes delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note at any time. Upon receipt of a request for
such an exchange or transfer, the Trustee shall cancel the applicable
Unrestricted Certificated Note and increase or cause to be increased
the aggregate principal amount of the Unrestricted Global Note.
If any such exchange or transfer from a Certificated Note to a
beneficial interest is effected pursuant to subparagraph (ii)(B),
(ii)(D) or (iii) above at a time when an Unrestricted Global Note has
not yet been issued, the Company shall issue and, upon receipt of an
authentication order in accordance with Section 2.O3 hereof, the
Trustee shall authenticate one or more Unrestricted Global Notes in an
aggregate principal amount equal to the principal amount of beneficial
interests transferred pursuant to subparagraph (ii)(B), (ii)(D) or
(iii) above.
(e) Transfer and Exchange of Certificated Notes for
Certificated Notes. Upon request by a Holder of Certificated Notes and such
Holder's compliance with the provisions of this Section
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2.07(e), the Note Registrar shall register the transfer or exchange, the
requesting Holder shall present or surrender to the Note Registrar the
Certificated Notes duly endorsed or accompanied by a written instrument of
transfer in form satisfactory to the Note Registrar duly executed by such
Holder or by his attorney, duly authorized in writing. In addition, the
requesting Holder shall provide any additional certifications, documents and
information, as applicable, pursuant to the provisions of this Section 2.07(e).
(i) Restricted Certificated Notes may be transferred to
and registered in the name of Persons who take delivery thereof if the
Note Registrar receives the following:
(A) if the transfer will be made pursuant to Rule
144A under the Securities Act, then the transferor must
deliver a certificate in the form of Exhibit C hereto,
including the certifications in item (1) thereof;
(B) if the transfer will be made pursuant to Rule
903 or Rule 904, then the transferor must deliver a
certificate in the form of Exhibit C hereto, including the
certifications in item (2) thereof; and
(C) if the transfer will be made pursuant to any
other exemption from the registration requirements of the
Securities Act, then the transferor must deliver a certificate
in the form of Exhibit C hereto, including the certifications,
certificates and Opinion of Counsel required by item (3)
thereof, if applicable.
(ii) Any Restricted Certificated Note may be exchanged by
the Holder thereof for an Unrestricted Certificated Note or
transferred to a Person or Persons who take delivery thereof in the
form of an Unrestricted Certificated Note if:
(A) such exchange or transfer is effected
pursuant to the Exchange Offer in accordance with the
Registration Rights Agreement and the Holder, in the case of
an exchange, or the transferee, in the case of a transfer, is
not (1) a Broker-Dealer, (2) a Person participating in the
distribution of the Notes issued in the Exchange Offer or (3)
a Person who is an affiliate (as defined in Rule 144) of the
Company;
(B) any such transfer is effected pursuant to the
Shelf Registration Statement in accordance with the
Registration Rights Agreement;
(C) any such transfer is effected by an
Exchanging Dealer pursuant to the Exchange Offer
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registration statement in accordance with the Registration
Rights Agreement; or
(D) the Note Registrar receives the following:
(1) if the Holder of such Restricted
Certificated Notes proposes to exchange such Notes
for an Unrestricted Certificated Note, a certificate
from such Holder in the form of Exhibit D hereto,
including the certifications in item (1)(d) thereof;
(2) if the Holder of such Restricted
Certificated Notes proposes to transfer such Notes to
a Person who shall take delivery thereof in the form
of an Unrestricted Certificated Note, a certificate
from such Holder in the form of Exhibit C hereto,
including the certifications in item (4) thereof; and
(3) in each such case set forth in this
subparagraph (D), an Opinion of Counsel in form
reasonably acceptable to the Company to the effect
that such exchange or transfer is in compliance with
the Securities Act, that the restrictions on transfer
contained herein and in the Private Placement Legend
are not required in order to maintain compliance with
the Securities Act, and that such Restricted
Certificated Note is being exchanged or transferred
in compliance with any applicable blue sky or
securities laws of any State of the United States.
(iii) A Holder of Unrestricted Certificated Notes may
transfer such Notes to a Person who takes delivery thereof in the form
of an Unrestricted Certificated Note. Upon receipt of a request for
such a transfer, the Note Registrar shall register the Unrestricted
Certificated Notes pursuant to the instructions from the Holder
thereof. Unrestricted Certificated Notes cannot be exchanged for or
transferred to Persons who take delivery thereof in the form of a
Restricted Certificated Note.
(f) Exchange Offer. Upon the occurrence of the Exchange Offer
in accordance with the Registration Rights Agreement, the Company shall issue
and, upon receipt of an authentication order in accordance with Section 2.03,
the Trustee shall authenticate (i) one or more Unrestricted Global Notes in an
aggregate principal amount equal to the principal amount of the beneficial
interests in the Restricted Global Notes tendered for acceptance by Persons
that are not (x) Broker-Dealers, (y) Persons participating in the distribution
of the Notes issued in the Exchange Offer or (z)
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Persons who are Affiliates (as defined in Rule 144) of the Company and accepted
for exchange in the Exchange Offer and (ii) Unrestricted Certificated Notes in
an aggregate principal amount equal to the principal amount of the Restricted
Certificated Notes accepted for exchange in the Exchange Offer. Concurrent
with the issuance of such Notes, the Trustee shall cause the aggregate
principal amount of the applicable Restricted Global Notes to be reduced
accordingly, and the Company shall execute and the Trustee shall authenticate
and deliver to the Persons designated by the Holders of Certificated Notes so
accepted Unrestricted Certificated Notes in the appropriate principal amount.
(g) Cancellation and/or Adjustment of Global Notes. At
such time as all beneficial interests in a particular Global Note have been
exchanged for Certificated Notes or a particular Global Note has been redeemed,
repurchased or cancelled in whole and not in part, each such Global Note shall
be returned to or retained and cancelled by the Trustee in accordance with
Section 2.11 hereof. At any time prior to such cancellation, if any beneficial
interest in a Global Note is exchanged for or transferred to a Person who will
take delivery thereof in the form of a beneficial interest in another Global
Note or for Certificated Notes, the principal amount of Notes represented by
such Global Note shall be reduced accordingly and an endorsement shall be made
on such Global Note, by the Trustee or by the Depository at the direction of
the Trustee, to reflect such reduction; and if the beneficial interest is being
exchanged for or transferred to a Person who will take delivery thereof in the
form of a beneficial interest in another Global Note, such other Global Note
shall be increased accordingly and an endorsement shall be made on such Global
Note, by the Trustee or by the Depository at the direction of the Trustee, to
reflect such increase.
(h) General Provisions Relating to Transfers and
Exchanges.
(i) To permit registrations of transfers and
exchanges, the Company shall execute and the Trustee shall
authenticate Global Notes and Certificated Notes upon receipt
of a Company Order or at the Registrar's request.
(ii) No service charge shall be made to a holder of a
beneficial interest in a Global Note or to a Holder of a Certificated
Note for any registration of transfer or exchange, but the Company may
require payment of a sum sufficient to cover any tax or similar
governmental charge payable in connection therewith (other than any
such transfer taxes or similar governmental charge payable upon
exchange or transfer pursuant to Sections 2.10, 9.06, 10.13, 10.15 and
11.01 hereof).
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(iii) The Note Registrar shall not be required to register
the transfer of or exchange any Note selected for redemption in whole
or in part, except the unredeemed portion of any Note being redeemed
in part.
(iv) All Global Notes and Certificated Notes issued upon
any registration of transfer or exchange of Global Notes or
Certificated Notes shall be the valid obligations of the Company,
evidencing the same debt, and entitled to the same benefits under this
Indenture, as the Global Notes or Certificated Notes surrendered upon
such registration of transfer or exchange.
(v) The Company shall not be required (A) to issue, to
register the transfer of or to exchange Notes during a period
beginning at the opening of business 15 days before the day of any
selection of Notes for redemption under Section 11.03 hereof and
ending at the close of business on the day of selection, (B) to
register the transfer of or to exchange any Note so selected for
redemption in whole or in part, except the unredeemed portion of any
Note being redeemed in part, or (C) to register the transfer of or to
exchange a Note between a record date and the next succeeding Interest
Payment Date.
(vi) Prior to due presentment for the registration of a
transfer of any Note, the Trustee, any Agent and the Company may deem
and treat the Person in whose name any Note is registered as the
absolute owner of such Note for the purpose of receiving payment of
principal of and interest on such Notes and for all other purposes,
and none of the Trustee, any Agent or the Company shall be affected by
notice to the contrary.
(vii) The Trustee shall authenticate Global Notes and
Certificated Notes in accordance with the provisions of Section 2.03
hereof.
(viii) All certifications, certificates and Opinions of
Counsel required to be submitted to the Note Registrar pursuant to
this Section 2.07 to effect a transfer or exchange may be submitted by
facsimile.
Section 2.08. Replacement Notes.
If a mutilated Note is surrendered to the Trustee or Note
Registrar or if the Holder of a Note claims that the Note has been lost,
destroyed or wrongfully taken, the Company shall issue and the Trustee, upon
written order of the Company signed by an officer of the Company, shall
authenticate a replacement Note if the requirements of Section 8-405 of the
Uniform Commercial Code are met and the Holder satisfies any other reasonable
requirements of the Trustee and the Company. Such Holder shall furnish an
indemnity
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bond sufficient in the judgment of the Company and the Trustee to protect the
Company, the Trustee, the Paying Agent, the Note Registrar and any co-registrar
from any loss which any of them may suffer if a Note is replaced. The Company
and the Trustee may charge the Holder for their expenses in replacing a Note.
Every replacement Note issued pursuant to the terms of this
Section shall constitute an additional obligation of the Company under this
Indenture.
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 2.09. Outstanding Notes.
Notes outstanding at any time are all Notes authenticated by
the Trustee except for those canceled by it, those delivered to it for
cancellation and those described in this Section as not outstanding. Except as
otherwise provided herein, a Note does not cease to be Outstanding because the
Company or an Affiliate of the Company holds the Note.
If a Note is replaced pursuant to Section 2.08, it ceases to
be Outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Note is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in
accordance with this Indenture, on a redemption date or Stated Maturity or,
pursuant to Section 4.02, within 91 days prior thereto, money sufficient to pay
all principal and interest payable on that redemption or Stated Maturity date
with respect to the Notes (or portions thereof) to be redeemed or maturing, as
the case may be, then on and after such date such Notes (or portions thereof)
cease to be outstanding and on and after such redemption or Stated Maturity
interest on them ceases to accrue.
Section 2.10. Temporary Notes.
Until Certificated Notes are ready for delivery, the Company
may prepare and the Trustee shall authenticate temporary Notes. Temporary
Notes shall be substantially in the form of Certificated Notes but may have
variations that the Company considers appropriate for temporary Notes. Without
unreasonable delay, the Company shall prepare and the Trustee shall
authenticate Certificated Notes and deliver them in exchange for temporary
Notes. Holders of temporary Notes shall be entitled to all the benefits of
this Indenture.
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Section 2.11. Cancellation.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Note Registrar and the Paying Agent shall forward to the
Trustee any Notes surrendered to them for registration of transfer, exchange or
payment. The Trustee and no one else shall cancel all Notes surrendered for
registration of transfer, exchange, payment or cancellation and deliver such
canceled Notes to the Company. The Trustee shall from time to time provide the
Company a list of all Notes that have been canceled as requested by the
Company. The Company may not issue new Notes to replace Notes it has redeemed,
paid or delivered to the Trustee for cancellation.
Section 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the Notes,
the Company shall pay defaulted interest (plus interest on such defaulted
interest to the extent lawful) in any lawful manner in accordance with Section
3.03. The Company may pay the defaulted interest to the persons who are
Noteholders on a subsequent Special Record Date. The Company shall fix or
cause to be fixed any such Special Record Date and payment date to the
reasonable satisfaction of the Trustee and shall promptly mail to each
Noteholder a notice that states the Special Record Date, the payment date and
the amount of defaulted interest to be paid.
Section 2.13. CUSIP Numbers.
The Company in issuing the Notes may use "CUSIP" numbers (if
then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in
notices of redemption as a convenience to Holders; provided that any such
notice may state that no representation is made as to the correctness of such
numbers either as printed on the Notes or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Notes, and any such redemption shall not be affected by
any defect in or omission of such numbers. The Company will promptly notify
the Trustee of any change in the CUSIP numbers.
Section 2.14. Restrictive Legends.
The legends set forth in this Section 2.14 shall appear on the
face of all Global Notes and Certificated Notes issued under this indenture
unless specifically stated otherwise in the applicable provisions of this
Indenture.
(a) Private Placement Legend.
(A) Except as permitted by subparagraph (b)
below, each Global Note and each Certificated Note (and
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all Notes issued in exchange therefor or in substitution
thereof) shall bear the legend in substantially the following
form:
"THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE THIRD SENTENCE
HEREOF, BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN,
THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"),
(B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT)
(AN "IAI") OR (C) IT IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION
IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES
THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO
THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE
SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF
RULE 903 OR RULE 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) TO
AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE WITH A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE TRANSFER OF THIS NOTE (THE FORM OF WHICH CAN BE
OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN
AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS THAN $250,000, AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE
WITH THE SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY) OR (G) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH
THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR
ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL DELIVER
TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED
A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN,
THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE MEANINGS
GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT.
THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO
REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING."
(B) Notwithstanding the foregoing, any
Unrestricted Global Note or Certificated Note issued pursuant
to subparagraph (b)(iv), (c)(iii), (c)(iv), d(ii), (d)(iii),
(e)(ii), (e)(iii) or (f) of Section
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2.07 (and all Notes issued in exchange therefor or
substitution thereof) shall not bear the Private Placement
Legend.
(b) Global Note Legend. Each Global Note shall also bear
the following legend on the face thereof:
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES
IN CERTIFICATED FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A
WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH
NOMINEE OF THE DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH
SUCCESSOR DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR
A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS
PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY, A NEW YORK CORPORATION ("DTC"), TO AN ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
HEREON 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.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO
TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO.
OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND
TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH
IN SECTION 2.07 OF THE INDENTURE.
(c) Regulation S Temporary Global Note Legend.
The Regulation S Temporary Global Note shall also bear the
following legend on the face thereof:
"THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL
NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR
CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED
HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS
REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE CASH
PAYMENTS OF INTEREST DURING THE PERIOD WHICH SUCH HOLDER HOLDS THIS
NOTE. NOTHING IN THIS LEGEND SHALL BE DEEMED TO PREVENT INTEREST FROM
ACCRUING ON THIS NOTE."
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ARTICLE 3
THE NOTES
Section 3.01. Title and Terms.
The aggregate principal amount of Notes which may be
authenticated and delivered under this Indenture is limited to $140,000,000,
except for Notes authenticated and delivered upon registration of transfer of,
or in exchange for, or in lieu of, other Notes pursuant to Section 2.07, 2.08,
2.10, 9.06, or 11.08.
The Notes shall be known and designated as the "9.25% Senior
Notes due May 15, 2006" of the Company. Their final Stated Maturity shall be
May 15, 2006, and they shall bear interest at the rate of 9.25% 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, payable semi-annually on May
15 and November 15, commencing November 15, 1998 until the principal thereof is
paid or made available for payment.
The principal of and interest on the Notes shall be payable at
the office of the Trustee's agent in New York, New York. In addition, payment
of interest may, at the option of the Company 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 subject to repurchase at the option of the
Holder as provided in Sections 10.13 and 10.15.
Section 3.02. Denominations.
The Notes shall be issuable only in fully registered form
without coupons and only in denominations of $1,000 and any integral multiple
thereof.
Section 3.03. 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
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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 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 3.03, 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.
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Section 3.04. 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 (subject to
Section 3.03) 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.
Section 3.05. 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; DEFEASANCE
Section 4.01. Satisfaction and Discharge of Indenture.
(a) This Indenture shall cease to be of further effect
(except as to any surviving rights of 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
(i) either
(A) 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 2.08 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 10.03)
have been delivered to the Trustee for cancellation; or
(B) 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 pursuant to Article 11 hereof and under arrangements
satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of
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
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trust in trust for the purpose an amount of United States
dollars or U.S. Government Obligations sufficient to pay and
discharge the entire indebtedness on such Notes not
theretofore delivered to the Trustee for cancellation of
principal 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; and
(ii) the Company has paid or caused to be paid all
other sums payable hereunder by the Company; and
(iii) 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 6.07,
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
(i)(B) of clause (a) of this Section, the obligations of the Trustee under
Section 4.05 and the last paragraph of Section 10.03 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 4.02. Option To Effect Legal Defeasance Or Covenant Defeasance.
The Company may, at its option and, at any time, elect to have
either Section 4.03 or 4.04 hereof be applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article Four.
Section 4.03. Legal Defeasance and Discharge.
Upon the Company's exercise under Section 4.02 hereof of the
option applicable to this Section 4.03, the Company shall, subject to the
satisfaction of the conditions set forth in Section 4.05 hereof, be deemed to
have been discharged from their obligations with respect to all outstanding
Notes on the date the conditions set forth below are satisfied (hereinafter,
"Legal Defeasance"). For this purpose, Legal Defeasance means that the Company
shall be deemed to have paid and discharged the entire Indebtedness represented
by the outstanding Notes, which shall thereafter be deemed to be outstanding
only for the purposes of Section 4.06 hereof and the other Sections of this
Indenture referred to in (i) and (ii) below, and to have satisfied all their
other obligations under such Notes and this Indenture (and the
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Trustee, on demand of and at the expense of the Company, shall execute proper
instruments acknowledging the same), except for the following provisions which
shall survive until otherwise terminated or discharged hereunder: (i) the
rights of Holders of outstanding Notes to receive payments in respect of the
principal of, and interest on, the Notes when such payments are due from the
trust referred to in Section 4.06 hereof, (ii) the Company's, obligations with
respect to such Notes under Article Two and Section 10.02 hereof, (iii) the
rights, powers, trusts, duties and immunities of the Trustee hereunder, and the
Company's obligations in connection therewith and (iv) this Article Four.
Subject to compliance with this Article Four, the Company may exercise their
option under this Section 4.03 notwithstanding the prior exercise of their
option under Section 4.04 with respect to the Notes.
Section 4.04. Covenant Defeasance.
Upon the Company's exercise under Section 4.02 hereof of the
option applicable to this Section 4.04, the Company shall, subject to the
satisfaction of the conditions set forth in Section 4.05 hereof, be released
from its obligations under the covenants contained in Sections 10.10, 10.11,
10.12, 10.13, 10.14, 10.15, 10.17 and 10.18 hereof with respect to the
outstanding Notes on and after the date the conditions set forth below are
satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter
be deemed not outstanding for the purposes of any direction, waiver, consent or
declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder (it being understood that such Notes shall not
be deemed outstanding for accounting purposes). For this purpose, Covenant
Defeasance means that, with respect to the outstanding Notes, the Company may
omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such covenant or
by reason of any reference in any such covenant to any other provision herein
or in any other document and such omission to comply shall not constitute a
Default or an Event of Default under Section 5.01 hereof, but, except as
specified above, the remainder of this Indenture and such Notes shall be
unaffected thereby. In addition, upon the Company's exercise under Section
4.02 hereof of the option applicable to this Section 4.04, subject to the
satisfaction of the conditions set forth in Section 4.05 hereof, Sections
5.01(c) through 5.01(g) hereof shall not constitute Events of Default.
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Section 4.05. Conditions to Defeasance.
The Company may exercise Legal Defeasance or Covenant
Defeasance only if:
(1) the Company irrevocably deposits with the Trustee, in
trust (the "defeasance trust") for the benefit of the Holders, cash in
U.S. dollars, U.S. Government Obligations or a combination thereof, in
such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay principal
and interest on the outstanding Notes on the Stated Maturity or the
applicable Redemption Date, as the case may be, of such principal or
installment of principal or interest on the Outstanding Notes;
(2) in the case of Legal Defeasance, the Company shall
have delivered to the Trustee an Opinion of Counsel (which counsel may
be an employee of the Company or any Subsidiary of the Company)
reasonably acceptable to the Trustee confirming that (A) the Company
has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the Issuance Date, there has
been a change in the applicable federal income tax law, in either case
to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders of the Outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of
such Legal Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have
been the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Company shall
have delivered to the Trustee an opinion of counsel (which counsel may
be an employee of the Company or any Subsidiary of the Company)
reasonably acceptable to the Trustee confirming that the Holders of
the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance
and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such
Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred
and be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time during the period ending on the 91st
day after the date of deposit (or greater period of time in which any
such deposit of trust funds may remain subject to bankruptcy or
insolvency laws insofar as those apply to the deposit by the Company);
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(5) such Legal Defeasance or Covenant Defeasance shall
not result in a breach or violation of, or constitute a default under,
any material agreement or instrument (other than this Indenture) to
which the Company or any of its Subsidiaries is a party or by which
the Company or any of its Subsidiaries is bound;
(6) the Company shall have delivered to the Trustee an
opinion of counsel to the effect that, as of the date of such opinion,
(A) the trust funds will not be subject to any rights of holders of
Indebtedness other than the Notes and (B) assuming no intervening
bankruptcy of the Company between the date of deposit and the 91st day
following the deposit and assuming no Holder of Notes is an insider of
the Company, after the 91st day following the deposit, the trust funds
will not be subject to the effects of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally under any applicable United States or state law;
(7) the Company shall have delivered to the Trustee an
officers' certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders of Notes over the
other creditors of the Company with the intent of defeating,
hindering, delaying or defrauding creditors of the Company or others;
and
(8) the Company shall have delivered to the Trustee an
officers' certificate and an opinion of counsel (which counsel may be
an employee of the Company), each stating that all conditions
precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
Opinions of Counsel required to be delivered under this
Section 4.05 may have qualifications customary for opinions of the type
required and counsel delivering such Opinions of Counsel may rely on
certificates of the Company or government or other officials customary for
opinions of the type required, including certificates certifying as to matters
of fact.
Section 4.06. 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 4.03 or 4.04
shall be held in trust and applied by the Trustee, 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.
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ARTICLE 5
DEFAULTS AND REMEDIES
Section 5.01. 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 Twelve 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; or
(b) default in the payment of the principal of any Note when
due; or
(c) default in the performance, or breach, of any covenant of
the Company in this Indenture (other than a covenant a default in whose
performance or whose breach is elsewhere in this Section 5.01 specifically
dealt with), and continuance of such default or breach for a period of 30 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
(d) a failure by the Company or any Significant Subsidiary to
make any payment in respect of any Indebtedness (other than Non-Recourse Debt)
in an amount in excess of $15 million and continuance of such failure for at
least 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 million, without
such Indebtedness having been discharged or such acceleration having been
cured, waived, rescinded or annulled within 90 days of such acceleration; or
(e) 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 (i) 60 days after the entry of such
judgment, as extended by any effective stay of its execution; or (ii) the date
on which any payment is or becomes due and payable pursuant to such judgment in
accordance with its terms, other than final judgments 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
million
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(excluding any amounts covered by insurance as to which the insurer has not
denied liability); or
(f) the entry by a court having jurisdiction in the premises
of (i) a decree or order for relief in respect of the Company or any of its
Significant Subsidiaries 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 or any of its
Significant Subsidiaries a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment or composition
of or in respect of the Company or any of its Significant Subsidiaries under
any applicable Federal or state law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator or similar official of the Company
or any of its Significant Subsidiaries or of any substantial part of their
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
(g) the commencement by the Company or any of its Significant
Subsidiaries 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 or any of its Significant Subsidiaries 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 any of
its Significant Subsidiaries 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 or any of its Significant
Subsidiaries in substantial furtherance of any such action.
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Section 5.02. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default
specified in Section 5.01(f) or 5.01(g) with respect to the Company) occurs and
is continuing, then and in every such case either the Trustee or the Holders of
at least 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 5.01(f) or 5.01(g) occurs and is
continuing with respect to the Company, the principal and any accrued interest
thereon, of all the then Outstanding Notes shall ipso facto become due and
payable immediately 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 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 any Notes which have become due
otherwise than by such declaration of acceleration and interest thereon at the
rate of 9.25% per annum,
(c) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate of 9.25% per annum,
(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
(e) all Events of Default, other than the non-payment of the
accelerated principal and interest 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.
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Section 5.03. 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
(b) default is made in the payment of the principal of
any Note when due, 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 interest, and, to the extent that payment of
such interest shall be legally enforceable, interest on any overdue principal
and on any overdue interest, at a rate of 9.25% 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 5.04. 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,
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(a) to file and prove a claim for the whole amount of
principal 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 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 6.07.
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 5.05. 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 5.06. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article
Five 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 interest, upon presentation of the
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Notes 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 6.07; and
SECOND: To the payment of the amounts then due and unpaid for
principal of 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 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 5.07. 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 aggregate
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, except in the manner herein provided
and for the equal and ratable benefit of all the Holders.
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Section 5.08. Unconditional Right of Holders To Receive Principal
and Interest.
Notwithstanding any other provision in this Indenture, but
subject to the provisions of Article Twelve, the Holder of any Note shall have
the right, which is absolute and unconditional, to receive payment of the
principal of and (subject to Section 3.03) 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 institute suit for the enforcement
of any such payment, and such right shall not be impaired without the prior
written consent of such Holder.
Section 5.09. 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 2.08, 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. Every right and remedy given by this
Article Five 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.
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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 5.07, 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 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 6.07 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 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 interest on any Note on or after the
respective Stated Maturities expressed in such Note (or, in the case of
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redemption, on or after the Redemption Date) or for the enforcement of the
right to require the Company to repurchase any Notes in accordance with the
provisions of Section 10.15.
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 6.01. 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.
(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,
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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 6.01;
(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 6.02. 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 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 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.
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Section 6.03. Certain Rights of Trustee.
Subject to the provisions of Section 6.01:
(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
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
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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 6.04. 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 6.05. 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 6.08 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 6.06. 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.
Section 6.07. 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);
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(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 6.08. 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 6.09. 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 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.
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(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 6.08
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
6.09 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 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,
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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, Consolidation or Succession to Business.
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 Six, 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.
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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, or
partial redemption or pursuant to Section 2.07, 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 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.
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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 6.07.
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:
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
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ARTICLE 7
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.01. 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 7.02. 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 7.01 and the
names and addresses of Holders received by the Trustee in its capacity as Note
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 7.01 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 7.03. 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.
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(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 7.04. 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.
ARTICLE 8
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 8.01. 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:
(a) the Person formed by such consolidation or into which the
Company is merged or the Person to which the properties and assets of the
Company are so transferred or leased (the "Successor Company") (i) shall be a
corporation, partnership or trust, organized and existing under the laws of the
United States, any State thereof or the District of Columbia and (ii) shall
expressly assume, by an indenture supplemental hereto, executed and delivered
to the Trustee, in form satisfactory to the Trustee, the payment of the
principal of and interest on the Notes and the performance of the other
covenants of the Company under this Indenture;
(b) immediately after giving effect to such consolidation,
merger, transfer or lease of all or substantially all of its properties and
assets, no Event of Default, and no event which, after notice or lapse of time
or both, would become an Event of Default, shall have occurred and be
continuing;
(c) except in the case of a merger, the sole purpose of which
is to change the Company's jurisdiction of incorporation, immediately after
giving effect to such transaction, the Successor Company would be able to Incur
an additional $1.00 of Indebtedness pursuant to Section 10.10(a); and
(d) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that
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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 Eight, and that all conditions precedent herein
provided relating to such transaction have been complied with.
Section 8.02. Successor Substituted.
Upon any consolidation of, merger of, transfer or lease of all
or substantially all of the assets of the Company in accordance with Section
8.01 the Successor Company 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 Company had been named as the Company herein,
and the Company shall be released from its obligations under this Indenture and
the Notes.
ARTICLE 9
SUPPLEMENTAL INDENTURES
Section 9.01. Supplemental Indentures Without Consent of Holders.
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 repurchase
obligations of the Company pursuant to the requirements of Section 10.13 or
Section 10.15; 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
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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 9.02. 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 principal amount of,
or interest on, any Note, (iii) reduce the amount payable upon an optional
redemption, (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 interest on, any Note, (vii) impair the
right to institute suit for the enforcement of any payment on or with respect
to any Note, 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) reduce the above stated percentage of Outstanding
Notes necessary to modify or amend the Indenture.
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 9.03. 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 6.01) 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
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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 9.04. 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 theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
Section 9.05. 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 9.06. 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 9.07. Notice of Supplemental Indentures.
Promptly after the execution by the Company and the Trustee of
any supplemental indenture pursuant to the provisions of Section 9.01 or
Section 9.02, the Company shall give notice to all Holders of Notes of such
fact, setting forth in general terms the substance of such supplemental
indenture, in the manner provided in Section 1.06. 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 10.01. Payment of Principal and Interest.
The Company will duly and punctually pay the principal of and
interest on the Notes in accordance with the terms of the Notes and this
Indenture.
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Section 10.02. 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, may be 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 interest on
the Notes and appoints the Corporate Trust Office of the Trustee as transfer
agent where Notes may be surrendered for registration of transfer or exchange.
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 10.03, the Company will maintain
in the city of New York, New York 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
redemption 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 1.06 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 redemption 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 10.03. 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 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 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. Whenever the Company shall have one or more Paying Agents, it will, prior
to each due date of the principal of or interest on any Notes, deposit with a
Paying Agent a sum sufficient to pay the principal or interest so becoming due,
such sum to be held in trust for the
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benefit of the Persons entitled to such principal 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 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 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 or
interest on any Note and remaining unclaimed for two years after such principal
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 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
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publication, any unclaimed balance of such money then remaining will be repaid
to the Company.
Section 10.04. 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. The Company shall also comply with Trust
Indenture Act Section 314(a)(4).
Any notice required to be given under this Section 10.04 shall
be delivered to the Trustee at its Corporate Trust Office.
Section 10.05. 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 10.06. 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, 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 10.06 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.
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Section 10.07. 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 10.08. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with
any covenant or condition set forth in Sections 10.02, 10.03, 10.05, 10.06,
10.10, 10.11, 10.12, 10.13, 10.14, 10.15, 10.17 and 10.18 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 10.09. Book-Entry System.
If the Notes cease to trade in the Depository'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 10.10. Limitation on Indebtedness.
(a) The Company will not, and will not permit any Restricted
Subsidiary to, Incur, directly or indirectly, any Indebtedness unless,
immediately after giving effect to such Incurrence, the Consolidated Coverage
Ratio exceeds 2.0 to 1.
(b) Notwithstanding Section 10.10(a), the Company and its
Restricted Subsidiaries may Incur any or all of the following Indebtedness:
(i) Indebtedness Incurred pursuant to the Credit
Agreements; provided, however, that, after giving effect to any such
Incurrence, the aggregate principal amount of such
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Indebtedness then outstanding does not exceed the greater of (x) $200
million and (y) 90% of the Mortgages Receivable of the Company and its
Restricted Subsidiaries;
(ii) Indebtedness represented by the Notes issued in the
Note Offering (and the Exchange Notes);
(iii) Indebtedness outstanding pursuant to the Senior
Subordinated Notes and the Convertible Notes, or, in the event that
all or any portion of the Convertible Notes have been converted into
the Capital Stock of the Company, other Indebtedness of the Company
which is subordinated to the Notes at least to the same extent that
the Convertible Notes are subordinated to the Notes, in a principal
amount not to exceed the principal amount of the Convertible Notes
that have been so converted;
(iv) Indebtedness of the Company owed to and held by any
Restricted Subsidiary, or Indebtedness of a Restricted Subsidiary owed
to and held by the Company or a Wholly Owned Subsidiary; provided,
however, that any subsequent issuance or transfer of any Capital Stock
which results in any such Wholly Owned Subsidiary ceasing to be a
Wholly Owned Subsidiary or any subsequent transfer of such
Indebtedness (other than to the Company or Wholly Owned Subsidiary)
shall be deemed, in each case, to constitute the Incurrence of such
Indebtedness by the issuer thereof;
(v) Refinancing Indebtedness in respect of Indebtedness
Incurred pursuant to paragraph (a) or pursuant to clause (ii) or (iii)
or this clause (v) of this Section 10.10(b);
(vi) Indebtedness in respect of performance bonds,
bankers' acceptances, letters of credit and surety or appeal bonds
entered into by the Company and the Restricted Subsidiaries in the
ordinary course of their business;
(vii) Hedging Obligations consisting of Interest Rate
Agreements and Currency Agreements entered into in the ordinary course
of business and not for the purpose of speculation;
(viii) Purchase Money Indebtedness and Capital Lease
Obligations Incurred to finance the acquisition, lease or improvement
either directly or indirectly, through the purchase of Capital Stock,
by the Company or a Restricted Subsidiary of any assets in the
ordinary course of business and which do not exceed $25 million in the
aggregate at any time outstanding;
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(ix) Indebtedness arising from the honoring by a bank or
other financial institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts) drawn
against insufficient funds in the ordinary course of business,
provided that such Indebtedness is extinguished within five business
days of Incurrence;
(x) Indebtedness of the Company and its Restricted
Subsidiaries arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations, in any case
Incurred in connection with the disposition of any assets of the
Company or any Restricted Subsidiary (other than Guarantees of
Indebtedness Incurred by any Person acquiring all or any portion of
such assets for the purpose of financing such acquisition), in a
principal amount not to exceed the gross proceeds actually received by
the Company or any Restricted Subsidiary in connection with such
disposition;
(xi) Indebtedness incurred by the Company or any of its
Restricted Subsidiaries constituting reimbursement obligations with
respect to letters of credit issued in the ordinary course of
business, including, without limitation, letters of credit in respect
of workers' compensation claims or self-insurance, or other
Indebtedness with respect to reimbursement type obligations regarding
workers' compensation claims; provided, however, that upon the drawing
of such letters of credit or the incurrence of such Indebtedness, such
obligations are reimbursed within 30 days following such drawing or
incurrence;
(xii) Indebtedness or Disqualified Capital Stock of Persons
that are acquired by the Company or any of its Restricted Subsidiaries
or merged into the Company or a Restricted Subsidiary in accordance
with the terms of this Indenture; provided that such Indebtedness or
Disqualified Capital Stock is not incurred in contemplation of such
acquisition or merger; and provided further that after giving effect
to such acquisition, either (x) the Company would be permitted to
incur at least $1.00 of additional Indebtedness or (y) the
Consolidated Coverage Ratio is greater than immediately prior to such
acquisitions; and
(xiii) Finance Subsidiary Indebtedness; and
(xiv) Indebtedness in an aggregate principal amount which,
together with all other Indebtedness of the Company and its Restricted
Subsidiaries outstanding on the date of such Incurrence (other than
Indebtedness permitted by clauses (i) through (xiii) above or
paragraph (a)), does not exceed $25 million.
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(c) For purposes of determining compliance with this Section
10.10, (i) in the event that an item of Indebtedness meets the criteria of more
than one of the types of Indebtedness described in Section 10.10(b), the
Company, in its sole discretion, will classify such item of Indebtedness and
only be required to include the amount and type of such Indebtedness in one of
the above clauses and (ii) an item of Indebtedness may be divided and
classified in more than one of the types of Indebtedness described in Section
10.10(b). Notwithstanding anything contained in clause (b)(i) above, the
amount of Indebtedness permitted to be Incurred pursuant to clause (b)(i) above
will be reduced by the amount of any Indebtedness of the Company owed to and
held by any Restricted Subsidiary that is not a Wholly Owned Subsidiary if such
Indebtedness was Incurred pursuant to clause (b)(iv) above.
Section 10.11. Limitation on Restricted Payments.
(a) The Company will not, and will not permit any Restricted
Subsidiary, directly or indirectly, to make a Restricted Payment if at the time
the Company or such Restricted Subsidiary makes such Restricted Payment: (i) a
Default shall have occurred and be continuing (or would result therefrom); (ii)
the Company is not able to Incur an additional $1.00 of Indebtedness under
Section 10.10(a); or (iii) the aggregate amount of such Restricted Payment
together with all other Restricted Payments (the amount of any payments made in
property other than cash to be valued at the fair market value of such
property, as determined in good faith by the Board of Directors) declared or
made since August 1, 1997 would exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during the
period (treated as one accounting period) from August 1, 1997 to the
end of the most recent fiscal quarter prior to the date of such
Restricted Payment for which financial statements of the Company are
available (or, in case such Consolidated Net Income accrued during
such period (treated as one accounting period) shall be a deficit,
minus 100% of such deficit);
(B) the aggregate Net Cash Proceeds received by the
Company from the issuance or sale of its Capital Stock (other than
Disqualified Stock) subsequent to August 1, 1997 (other than an
issuance or sale to a Subsidiary of the Company);
(C) the amount by which Indebtedness of the Company or
its Restricted Subsidiaries is reduced on the Company's balance sheet
upon the conversion or exchange (other than by a Subsidiary of the
Company unless such Subsidiary is a Finance Subsidiary) subsequent to
August 1, 1997, of any Indebtedness (issued subsequent to August 1,
1997) of the Company or its Restricted Subsidiaries convertible or
exchangeable for Capital Stock (other than Disqualified Capital Stock)
of the
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Company (less the amount of any cash, or the fair market value of any
other property, distributed by the Company or any Restricted
Subsidiary upon such conversion or exchange);
(D) an amount equal to the sum of (i) the reduction in
Investments in Unrestricted Subsidiaries resulting from dividends,
repayments of loans or advances or other transfers of assets
subsequent to August 1, 1997, in each case to the Company or any
Restricted Subsidiary from Unrestricted Subsidiaries, and (ii) the
portion (proportionate to the Company's equity interest in such
Subsidiary) of the fair market value of the net assets of an
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary; provided, however, that the
foregoing sum shall not exceed, in the case of any Unrestricted
Subsidiary, the amount of Investments previously made (and treated as
a Restricted Payment) by the Company or any Restricted Subsidiary in
such Unrestricted Subsidiary; and
(E) $15 million.
(b) The provisions of Section 10.11(a) will not prohibit:
(i) any purchase or redemption of Capital Stock or
Subordinated Obligations of the Company or any Restricted Subsidiary
made in exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of the Company (other than
Disqualified Capital Stock and other than Capital Stock issued or sold
to a Subsidiary of the Company); provided, however, that (x) such
purchase or redemption shall be excluded from the calculation of the
amount of Restricted Payments and (y) the Net Cash Proceeds from such
sale (to the extent used for such purchase or redemption) shall be
excluded from the calculation of amounts under Section
10.11(a)(iii)(B);
(ii) any purchase or redemption of Subordinated
Obligations of the Company made in exchange for, or out of the
proceeds of the substantially concurrent sale of, Indebtedness of the
Company which is permitted to be Incurred pursuant to Section
10.10(a), (b) or (c); provided, however, any Indebtedness incurred
pursuant to this clause 10.11(b)(ii) shall be subordinated to the
Notes, to at least the same extent as such Subordinated Obligations;
provided, further, that such purchase or redemption shall be excluded
from the calculation of the amount of Restricted Payments;
(iii) any purchase or redemption of Disqualified Capital
Stock of the Company made in exchange for, or out of the proceeds of
the substantially concurrent sale of, Disqualified Capital Stock of
the Company; provided, however, that (x) at
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the time of such exchange, no Default or Event of Default shall have
occurred and be continuing or would result therefrom and (y) such
purchase or redemption will be excluded from the calculation of the
amount of Restricted Payments;
(iv) dividends paid within 60 days after the date of
declaration thereof if at such date of declaration such dividend would
have complied with this Section 10.11; provided, however; that such
dividend shall be included in the calculation of the amount of
Restricted Payments;
(v) repurchase of Capital Stock of the Company from
current or former directors, officers or employees, employee benefit
plans or 401(k) plans of the Company; provided that such repurchases
shall not exceed $1 million in any year plus any amounts available for
such repurchases under this Section 10.11(b)(v) since August 1, 1997
which have not been used for such purpose but in no event shall such
repurchases exceed $5 million in any year; provided, further, that (x)
at the time of such repurchase, no Default or Event of Default shall
have occurred and be continuing or would result therefrom and (y) such
repurchases shall be included in the calculation of the amount of the
Restricted Payments;
(vi) repurchases of Capital Stock deemed to occur upon
exercise of stock options if such Capital Stock represents a portion
of the exercise price of such options; or
(vii) the payment of any dividend by a Subsidiary of the
Company to the holders of its Capital Stock; provided, however, that
any such payment of any dividend made to holders of the Capital Stock
of any Subsidiary of the Company on a pro rata basis or on a basis
that results in the receipt by the Company or a Restricted Subsidiary
of dividends or distributions of greater value than it would receive
on a pro rata basis will be excluded from the calculation of the
amount of Restricted Payments or
(viii) the payment of any dividend or distribution by a
Finance Subsidiary to the holders of its Capital Stock.
Section 10.12. Limitation on Restrictions on Distributions from
Restricted Subsidiaries.
The Company will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or consensual restriction on the ability of any
Restricted Subsidiary (a) to pay dividends or make any other distributions on
its Capital Stock to the Company or a Restricted Subsidiary or pay any
Indebtedness owed to the Company, (b) to make any loans or advances to the
Company or
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(c) to transfer any of its property or assets to the Company, except, in each
case:
(i) any encumbrance or restriction pursuant to the Senior
Credit Agreements, or any other agreement in effect at or entered into
on the Issue Date, including, without limitation, the Senior
Subordinated Notes Indenture, the Senior Subordinated Notes, the
Notes, the Indenture and the Credit Agreements, if any;
(ii) any encumbrance or restriction with respect to a
Person acquired by the Company or any Restricted Subsidiary pursuant
to an agreement relating to any Indebtedness Incurred by such Person
which was entered into on or prior to the date on which such Person
was acquired by the Company or such Restricted Subsidiary (other than
as consideration in, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Person was acquired by the
Company or such Restricted Subsidiary) and outstanding on such date;
(iii) any encumbrance or restriction pursuant to an
agreement effecting Refinancing Indebtedness Incurred pursuant to an
agreement referred to in clauses (i)-(xi) of this Section 10.12 (or
effecting a Refinancing of such Refinancing Indebtedness pursuant to
this clause (iii)) or contained in any amendment, modification,
restatement, renewal or supplement to an agreement referred to in
clauses (i)-(xi) of this Section 10.12 or this clause (iii); provided,
however, that the encumbrances or restrictions with respect to such
Restricted Subsidiary contained in any such agreements or amendments
effecting Refinancing Indebtedness are no more restrictive in any
material respect than encumbrances and restrictions with respect to
such Restricted Subsidiary contained in such agreements or amendments;
(iv) any such encumbrance or restriction consisting of
customary provisions in leases governing leasehold interests or other
agreements entered into in the ordinary course of business;
(v) in the case of Section 10.12(c), restrictions
contained in security agreements or mortgages securing Indebtedness of
a Restricted Subsidiary to the extent such restrictions restrict the
transfer of the property subject to such security agreements or
mortgages;
(vi) any restriction with respect to a Restricted
Subsidiary imposed pursuant to an agreement entered into for the sale
or disposition of all or substantially all the
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Capital Stock or assets of such Restricted Subsidiary pending the
closing of such sale or disposition;
(vii) any restriction imposed by applicable law, rule,
regulation or order;
(viii) any encumbrance or restriction pursuant to Purchase
Money Indebtedness for property acquired in the ordinary course of
business that imposes restrictions of the nature discussed in clause
10.12(c) on the property so acquired;
(ix) restrictions on cash or other deposits or net worth
imposed by customers under contracts entered into in the ordinary
course of business;
(x) any encumbrance or restriction pursuant to other
Indebtedness of Receivables Subsidiaries permitted to be incurred
subsequent to the Issue Date pursuant to the provisions of Section
10.10; and
(xi) any encumbrance or restriction pursuant to customary
provisions in joint venture agreements and other similar agreements
entered into in the ordinary course of business; and
(xii) any encumbrance or restriction relating to a Finance
Subsidiary.
Section 10.13. Limitation on Sales of Assets and Subsidiary Stock.
(a) The Company will not, and will not permit any
Restricted Subsidiary to, consummate any Asset Disposition unless the Company
or such Restricted Subsidiary receives consideration at the time of such Asset
Disposition at least equal to the fair market value (including as to the value
of all non-cash consideration), as determined in good faith by the Board of
Directors, of the shares and assets subject to such Asset Disposition and at
least 75% of the consideration thereof received by the Company or such
Restricted Subsidiary is in the form of cash or cash equivalents.
For the purposes of this Section 10.13, the following are
deemed to be cash or cash equivalents: (x) the assumption of Indebtedness of
the Company or any Restricted Subsidiary, (y) securities received by the
Company or any Restricted Subsidiary from the transferee that are converted by
the Company or such Restricted Subsidiary into cash within 180 days after
receipt thereof and (z) any Designated Noncash Consideration received by the
Company or any of its Restricted Subsidiaries in such Asset Sale having an
aggregate fair market value, taken together with all other Designated Noncash
Consideration received pursuant to this clause
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(z) that is at that time outstanding and taken together with all Permitted
Investments made pursuant to clause (ix)(1) of the definition of "Permitted
Investment" that are at that time outstanding, not to exceed 10% of the
Company's Total Assets at the time of the receipt of such Designated Noncash
Consideration (with the fair market value of each item of Designated Noncash
Consideration being measured at the time received and without giving effect to
subsequent changes in value), shall be deemed to be cash or cash equivalents
for the purposes of this provision.
With respect to any Asset Disposition occurring on or after
the Issue Date from which the Company or any Restricted Subsidiary receives Net
Available Cash, the Company or such Restricted Subsidiary shall (i) within 360
days after the date such Net Available Cash is received and to the extent the
Company or such Restricted Subsidiary elects (or is required by the terms of
any Senior Indebtedness) to (A) apply an amount equal to such Net Available
Cash to prepay, repay or purchase Indebtedness under the Senior Credit
Agreements or Indebtedness secured by a Permitted Lien, in each case owing to a
Person other than the Company or any Affiliate of the Company, or (B) invest an
equal amount, or the amount not so applied pursuant to clause (A), in
Additional Assets (including by means of an Investment in Additional Assets by
a Restricted Subsidiary with Net Available Cash received by the Company or
another Restricted Subsidiary) and (ii) apply such excess Net Available Cash
(to the extent not applied pursuant to clause (i)) as provided in the following
paragraphs of this Section 10.13; provided, however, that in connection with
any prepayment, repayment or purchase of Indebtedness pursuant to clause (A)
above, the Company or such Restricted Subsidiary shall retire such Indebtedness
and shall cause the related loan commitment (if any) to be permanently reduced
in an amount equal to the principal amount so prepaid, repaid or purchased.
The amount of Net Available Cash required to be applied pursuant to clause (ii)
above and not theretofore so applied shall constitute "Excess Proceeds."
Pending application of Net Available Cash pursuant to this provision, such Net
Available Cash shall be invested in Temporary Cash Investments.
If at any time the aggregate amount of Excess Proceeds not
theretofore subject to an Excess Proceeds Offer (as defined below) totals at
least $15 million the Company shall, not later than 30 days after the end of
the period during which the Company is required to apply such Excess Proceeds
pursuant to clause (i) of the immediately preceding paragraph of this Section
10.13(a) (or, if the Company so elects, at any time within such period), make
an offer (an "Excess Proceeds Offer") to purchase from the Holders on a pro
rata basis an aggregate principal amount of Notes equal to the Excess Proceeds
(rounded down to the nearest multiple of $1,000) on such date, at a purchase
price equal to 100% of the principal amount of such Notes, plus, in each case,
accrued interest (if any) to the date of purchase (the "Excess Proceeds
Payment"). Upon completion of an Excess Proceeds Offer the amount of Excess
Proceeds remaining
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after application pursuant to such Excess Proceeds Offer, (including payment of
the purchase price for Notes duly tendered) may be used by the Company for any
corporate purpose (to the extent not otherwise prohibited by this Indenture).
(b) Unless the Company shall have theretofore called for
redemption all the outstanding Notes pursuant to Article Eleven hereof, on or
before the 30th day after its becomes obligated to make an Excess Proceeds
Offer, the Company or, at the written request of the Company, the Trustee,
shall be obligated to mail to each Holder (and the Trustee, if applicable) at
the address appearing on the Note Register, a written notice as prepared by the
Company stating that the Holder may elect to have his Notes purchased by the
Company either in whole or in part (subject to prorationing as hereinafter
described in the event the Excess Proceeds Offer is oversubscribed) in integral
multiples of $1,000 of principal amount, at the applicable purchase price on a
date that is 60 days after the date of such notice (the "Purchase Date"). The
Company shall also deliver a copy of such notice of Excess Proceeds Offer to
the Trustee.
(c) Each notice, which shall govern the terms of the
Excess Proceeds Offer, shall state:
(i) that an Excess Proceeds Offer is being made
and that such Holder has the right to require the Company to purchase
such Notes on the Purchase Date pursuant to this Section 10.13;
(ii) the date by which the purchase right must be
exercised;
(iii) the price at which such Notes will be
purchased pursuant to the Excess Proceeds Offer; (iv) a description of
the procedures that a Holder must follow in order to tender their
Notes pursuant to such Excess Proceeds Offer;
(v) the place or places where such Notes must be
tendered for payment pursuant to the Excess Proceeds Offer.
(vi) that Holders will be entitled to withdraw
their election if the Paying Agent receives, not later than three
business day prior to the Purchase Date, a telex, facsimile
transmission or letter setting forth the name of the Holder, the
principal amount of Notes the Holder delivered for purchase, the Note
certificate number (if any) and a statement that such Holder is
withdrawing its election to have such Notes purchased.
(d) Not later than the date upon which written notice of
an Excess Proceeds Offer is delivered to the Trustee as provided
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below, the Company shall deliver to the Trustee an Officers' Certificate as to
(i) the amount of the Excess Proceeds Offer (the "Excess Proceeds Offer
Amount"), (ii) the allocation of the Net Available Cash from the Asset
Dispositions pursuant to which such Excess Proceeds Offer is being made and
(iii) the compliance of such allocation with the provisions of Section
10.13(a). Upon the expiration of the period for which the Excess Proceeds
Offer remains open (the "Excess Proceeds Offer Period"), the Company shall
deliver to the Trustee for cancellation the Notes or portions thereof which
have been properly tendered to and are to be accepted by the Company. Not
later than 11:00 a.m. (New York City time) on the Purchase Date, the Company
shall irrevocably deposit with the Trustee or with a paying agent (or, if the
Company is acting as Paying Agent, segregate and hold in trust) an amount in
cash sufficient to pay the Excess Proceeds Offer Amount for all Notes properly
tendered to and accepted by the Company. The Trustee shall, on the Purchase
Date, mail or deliver payment to each tendering Holder in the amount of the
purchase price.
(e) Holders electing to have a Note purchased will be
required to surrender the Note, together with all necessary endorsements and
other appropriate materials duly completed, to the Company at the address
specified in the notice at least eight Business Days prior to the Purchase
Date. Holders will be entitled to withdraw their election in whole or in part
if the Trustee or the Company receives not later than three Business Days prior
to the Purchase Date, a facsimile transmission or letter setting forth the name
of the Holder, the principal amount of the Note (which shall be $1,000 or an
integral multiple thereof) which was delivered for purchase by the Holder, the
aggregate principal amount of such Note (if any) that remains subject to the
original notice of the Excess Proceeds Offer and that has been or will be
delivered for purchase by the Company and a statement that such Holder is
irrevocably withdrawing his election to have such Note purchased. If at the
expiration of the Excess Proceeds Offer Period the aggregate principal amount
of Notes surrendered by Holders exceeds the Excess Proceeds Offer Amount, the
Company shall select the Notes to be purchased on a pro rata basis (with such
adjustments as may be deemed appropriate by the Company so that only Notes in
denominations of $1,000, or integral multiples thereof, shall be purchased).
Holders whose Notes are purchased only in part will be issued new Notes equal
in principal amount to the unpurchased portion of the Notes surrendered.
(f) A Note shall be deemed to have been accepted for
purchase at the time the Trustee, directly or through an agent, mails or
delivers payment therefor to the surrendering Holder.
(g) The Company shall comply, to the extent applicable,
with the requirements of Section 14(e) of the Exchange Act and any other
securities laws or regulations thereunder in the event that Excess Proceeds are
received by the Company in connection
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with the repurchase of Notes pursuant to this Section 10.13 and the Company is
required to repurchase Notes pursuant to this Section 10.13. To the extent
that the provisions of any securities laws or regulations conflict with
provisions of this Section 10.13, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under this Section by virtue thereof.
Section 10.14. Limitation on Affiliate Transactions.
(a) The Company will not, and will not permit any
Restricted Subsidiary to, enter into or permit to exist any transaction or
series of related transactions (including the purchase, sale, lease or exchange
of any property, employee compensation arrangements or the rendering of any
service) with any Affiliate of the Company (an "Affiliate Transaction") unless
the terms thereof (1) are materially no less favorable to the Company or such
Restricted Subsidiary than those that could be obtained at the time of such
transaction in arm's-length dealings with a Person who is not such an
Affiliate, (2) if such Affiliate Transaction (or series of related Affiliate
Transactions) involves aggregate payments in an amount in excess of $5.0
million in any one year, (i) comply with clause (1) of this Section 10.14 and
(ii) have been approved by a majority of the disinterested members of the Board
of Directors, and (3) if such Affiliate Transaction (or series of related
Affiliate Transactions) involve aggregate payments in an amount in excess of
$10.0 million in any one year, (i) comply with clause (2) of this Section 10.14
and (ii) have been determined by a nationally recognized investment banking,
accounting or qualified appraisal firm to be fair, from a financial standpoint,
to the Company and its Restricted Subsidiaries.
(b) Section 10.14(a) shall not prohibit (i) any
Restricted Payment permitted to be paid pursuant to Section 10.11, (ii) any
issuance of securities, or other payments, awards or grants in cash, securities
or otherwise, pursuant to, or the funding of, employment arrangements, stock
options and stock ownership plans in the ordinary course of business and
approved by the Board of Directors, (iii) the grant of stock options or similar
rights to employees, officers and directors of the Company or any Subsidiary in
the ordinary course of business and pursuant to plans approved by the Board of
Directors, (iv) loans or advances to employees, officers or directors in the
ordinary course of business of the Company or its Subsidiaries, (v) fees,
compensation or employee benefit arrangements paid to and indemnity provided
for the benefit of directors, officers or employees of the Company or any
Subsidiary in the ordinary course of business, (vi) any Affiliate Transaction
(including any purchase of Receivables and Related Assets) between the Company
and a Subsidiary or Joint Venture, or between Subsidiaries or Joint Ventures,
in the ordinary course of business (so long as the other stockholders of any
participating Subsidiaries or Joint Ventures which are not Wholly Owned
Restricted Subsidiaries
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are not themselves Affiliates of the Company), (vii) any transactions effected
pursuant to agreements in effect on the Issue Date; provided that such
transactions are effected pursuant to the terms of such agreements as in effect
on the Issue Date and (viii) any Affiliate Transactions between the Company and
any Finance Subsidiary.
Section 10.15. Change of Control.
(a) In the event that a Change of Control shall occur,
then each Holder shall have the right, at 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 10.15(b)) at a price in cash equal to 101% 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 of Control shall have occurred prior to such discharge. The
failure of the Company to pay the Repurchase Price in cash on the Repurchase
Date shall constitute an Event of Default for purposes of Section 5.01(b)
hereof notwithstanding the Company's inability to comply with provisions of or
satisfy any conditions set forth in this Section 10.15. Whenever in this
Indenture (including Sections 3.01, 5.01(b) and 5.08) 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.
(b) Unless the Company shall have theretofore called for
redemption all the outstanding Notes pursuant to Article Eleven hereof, on or
before the 30th day after the occurrence of a Change of Control, the Company
shall be obligated to mail, by first class mail, to each Holder (and the
Trustee, if applicable) at the address appearing on the Note Register, a
written notice (the "Company Notice") as prepared by the Company of the
occurrence of the Change of 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.
(c) Each notice of a repurchase right shall state:
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(i) that a Change of Control has occurred and
that such Holder has the right to require the Company to
purchase such Holder's Notes on the Repurchase Date,
(ii) the date by which the repurchase right must
be exercised,
(iii) the Repurchase Price,
(iv) the circumstances and relevant facts and
relevant financial information regarding such Change of
Control,
(v) a description of the procedure which a Holder
must follow to exercise a repurchase right, and
(vi) the place or places where such Notes may be
surrendered for 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.
If any of the foregoing provisions are inconsistent with
applicable law, such law shall govern.
(d) 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.
(e) 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, 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.
(f) If any Note surrendered for repurchase shall not be
so paid on the Repurchase Date, the principal shall, until paid,
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bear interest to the extent permitted by applicable law from the Repurchase
Date at the rate of 9.25%.
(g) All Notes delivered for repurchase shall be delivered
to the Trustee the Paying Agent or any other agents (as shall be 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 2.11.
(h) 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 portion of the principal of the Note so surrendered and
not so repurchased.
(i) The Company shall comply, to the extent applicable,
with the requirements of Rule 14e-1 of the Exchange Act and any other
securities laws or regulations in connection with the repurchase of Notes
pursuant to this Section. To the extent that the provisions of any securities
laws or regulations conflict with provisions of this Section, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this Section by virtue thereof.
Section 10.16. Further Instruments and Acts.
Upon request of the Trustee, the Company will execute and
deliver such further instruments and do such further acts as may be reasonably
necessary or proper to carry out more effectively the purpose of this
Indenture.
Section 10.17. Limitation on Liens.
The Company shall not, directly or indirectly, Incur or permit
to exist any Lien of any nature whatsoever on any property of the Company or
any Restricted Subsidiary (including Capital Stock of a Restricted Subsidiary),
whether owned at the Issue Date or thereafter acquired, which secures
Indebtedness that ranks pari passu with or is subordinated to the Notes unless
(i) such Lien is a Permitted Lien;
(ii) if such Lien secures Indebtedness that ranks pari
passu with the Notes, the Notes are secured on an equal and ratable
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basis with the obligation so secured until such time as such obligation is no
longer secured by a Lien; or
(iii) if such Lien secures Indebtedness that is
subordinated to the Notes, such Lien shall be subordinated to a Lien granted to
the Holders on the same collateral as that securing such Lien to the same
extent as such subordinated Indebtedness is subordinated to the Notes.
Section 10.18. Commission Reports.
Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall file with the Commission and provide the Trustee, the
Noteholders and prospective Noteholders (upon request) with such annual reports
and such information, documents and other reports as are specified in Section
13 or 15(d) of the Exchange Act and applicable to a U.S. corporation subject to
such Sections, and such information, documents and other reports to be so
provided within 15 days after the times specified for filing of such
information, documents and reports under such Sections; provided, however, that
the Company shall not be required to file any report, document or other
information with the Commission if the Commission does not permit such filing.
ARTICLE 11
REDEMPTION OF NOTES
Section 11.01. Right of Redemption.
(a) Except as set forth in the following paragraph, the
Notes may not be redeemed at the option of the Company prior to May 15, 2002.
Thereafter, the Notes may be redeemed, in whole or in part, at the option of
the Company, upon not less than 30 nor more than 60 days' notice by mail.
(b) The Redemption Prices (expressed as a percentage of
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 May 15 of the following years:
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<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . 104.625%
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . 103.083%
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . 101.542%
2005 and thereafter . . . . . . . . . . . . . . . . . . . 100.000%
</TABLE>
(c) In addition, at any time and from time to time prior
to May 15, 2001, the Company may redeem in the aggregate up to 40% of the
original principal amount of the Notes with the proceeds of one or more Equity
Offerings, at a redemption price (expressed as a percentage of principal
amount) of 109.25% plus accrued and unpaid interest, if any, to the redemption
date (subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date); provided, however,
that at least 60% of the original aggregate principal amount of the Notes must
remain outstanding after each such redemption.
Section 11.02. 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 11.03. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Notes pursuant to
Section 11.01 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 11.04. 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.
The Trustee shall promptly notify the Company and each Note
Registrar in writing of the Notes selected for redemption and, in the case of
any Notes selected for partial redemption, the principal amount thereof to be
redeemed.
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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 11.05. 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 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 11.06. 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 Agent (or, if the
Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 10.03) 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.
103
<PAGE> 110
Section 11.07. 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 specified in Section 11.01, 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 3.03.
If any Note called for redemption shall not be so paid upon
surrender thereof for redemption, the principal thereof shall, until paid, bear
interest from the Redemption Date at the rate of 9.25% per annum.
Section 11.08. 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 10.02 (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
unredeemed portion of the principal of the Note so surrendered.
104
<PAGE> 111
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, as of the day and year first above written.
SIGNATURE RESORTS, INC.
By: /s/ ANDREW D. HUTTON
------------------------------------
Its: Vice President, General
Counsel and Secretary
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By: /s/ JANE SCHWEIGER
-------------------------------------
Its: Corporate Trust Officer
<PAGE> 112
EXHIBIT A
[THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND, ACCORDINGLY, MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES
OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN
THE THIRD SENTENCE HEREOF, BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST
HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS
AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3)
OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "IAI") OR (C) IT IS
ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S
UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE
TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO
A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903
OR RULE 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS
OF RULE 144 UNDER THE SECURITIES ACT, (E) TO AN IAI THAT, PRIOR TO SUCH
TRANSFER, FURNISHES THE TRUSTEE WITH A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THIS NOTE (THE FORM
OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT
OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS THAN $250,000, AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY) OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3)
AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST
HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS
USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE
MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE
INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE
A-1
<PAGE> 113
TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE
FOREGOING.](1)
[UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN
CERTIFICATED FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE
DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH SUCCESSOR DEPOSITORY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO AN ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON 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.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.07 OF THE INDENTURE.(2)
[THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS
SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE
BENEFICIAL OWNER OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO
RECEIVE CASH PAYMENTS OF INTEREST DURING THE PERIOD WHICH
- ----------
(1) Legend appears on all Private Placement Notes.
(2) Legend appears on all Global Notes.
A-2
<PAGE> 114
SUCH HOLDER HOLDS THIS NOTE. NOTHING IN THIS LEGEND SHALL BE DEEMED TO PREVENT
INTEREST FROM ACCRUING ON THIS NOTE.](3)
- ----------
(3) Legend appears on all Regulation S Temporary Global Notes.
A-3
<PAGE> 115
REGISTERED $___________
NO. _________________ CUSIP: ___________
Signature Resorts, Inc.
9.25% Senior Subordinated Note due May 15, 2006
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 Cede & Co. or registered assigns, the
principal sum of $________ on May 15, 2006, 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 May 15
and November 15 in each year, commencing November 15, 1998, at the rate of
9.25% 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 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 May 1 or November 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
interest on this Note will be made at the office or agency of the Company
maintained for that purpose in The
A-4
<PAGE> 116
City of New York, New York, 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.
A-5
<PAGE> 117
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed under its corporate seal.
Dated: SIGNATURE RESORTS, INC.
Attest:____________________________ By: ___________________________
Name: _____________________________ Name:__________________________
Title:_____________________________ Title:_________________________
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as Trustee,
certifies that this is one of the Notes referred to in the within-mentioned
Indenture.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By:_____________________________
Name:_______________________
Title:______________________
A-6
<PAGE> 118
[Form of Reverse of Note]
This Note is one of a duly authorized issue of securities of
the Company designated as its 9.25% Senior Subordinated Notes due May 15, 2006
(herein called the "Notes"), limited in aggregate principal amount to
$140,000,000 issued and to be issued under an Indenture, dated as of April 15,
1998 (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 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.
The holder of this Note is entitled to the benefits of a
Registration Rights Agreement, dated as of April 15, 1998, among the Company
and the Initial Purchasers named therein.
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 May 15,
2002, 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 May 15 of the following years:
<TABLE>
<CAPTION>
Year Redemption Price
- ---- ----------------
<S> <C>
2002 . . . . . . . . . . . . . . . . . . . . . 104.625%
2003 . . . . . . . . . . . . . . . . . . . . . 103.083%
2004 . . . . . . . . . . . . . . . . . . . . . 101.542%
2005 and thereafter . . . . . . . . . . . . . . 100.000%
</TABLE>
In addition, at any time and from time to time prior to May
15, 2001, the Company at its option may redeem in the aggregate up to 40% of
the original principal amount of the Notes with the
A-7
<PAGE> 119
proceeds of one or more Equity Offerings at a redemption price (expressed as a
percentage of principal amount) of 109.25% plus accrued and unpaid interest, if
any, to the redemption date (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date); provided, however, that at least 60% of the original aggregate principal
amount of the Notes must remain outstanding after each such redemption.
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.
In the event of redemption of this Note in part only, a new
Note or Notes for the unredeemed portion hereof will be issued in the name of
the Holder hereof upon the cancellation hereof.
Upon a Change of Control (as defined in the Indenture), the
Company will be required to offer to repurchase all of the Notes at 101% of
their principal amount plus accrued interest. In addition in the event of
certain Asset Dispositions, the Company will be required to make an offer to
purchase the Notes at a purchase price of 100% of their principal amount plus
accrued interest (if any) to the date of purchase (subject to the rights of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date) as provided in, and subject to the terms of the
Indenture.
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.
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
A-8
<PAGE> 120
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 interest on
this Note at the times, place and rate, and in the coin or currency, herein
prescribed.
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 (iii) 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, if any, or interest hereon on or after the
respective due date expressed herein.
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 in The City of New York, New York, 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.
A-9
<PAGE> 121
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 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.
A-10
<PAGE> 122
ASSIGNMENT FORM
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
membership in an approved signature guarantee program pursuant to Rule 17Ad-15
under the Securities Exchange Act of 1934.
___________________________ Signature Guaranteed
A-11
<PAGE> 123
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the
Company pursuant to Section 10.13 or 10.15 of the Indenture, check the box: [ ]
If you want to elect to have only part of this Security
purchased by the Company pursuant to Section 10.13 or 10.15 of the Indenture,
state the amount you elect to have purchased: $
Date: ______________ Your Signature: _______________________
(Sign exactly as your
name appears on the
other side of the
Security)
Signature Guarantee:__________________________________
(Signature must be guaranteed)
A-12
<PAGE> 124
EXHIBIT B
[UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN
CERTIFICATED FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE
DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH SUCCESSOR DEPOSITORY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
TO AN ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT HEREON 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.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.07 OF THE INDENTURE.](4)
- ----------
(4) Legend appears on all Global Notes.
B-1
<PAGE> 125
REGISTERED $___________
NO. _________________ CUSIP: ___________
Signature Resorts, Inc.
9.25% Senior Note due May 15, 2006
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 Cede & Co. or registered assigns, the
principal sum of $___________ on May 15, 2006, 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 May 15
and November 15 in each year, commencing November 15, 1998, at the rate of
9.25% 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 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 May 1 or November 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
interest on this Note will be made at the office or agency of the Company
maintained for that purpose in The City of New York, New York, 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.
B-2
<PAGE> 126
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed under its corporate seal.
Dated: SIGNATURE RESORTS, INC.
Attest:____________________________ By: ___________________________
Name: _____________________________ Name:__________________________
Title:_____________________________ Title:_________________________
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as Trustee,
certifies that this is one of the Notes referred to in the within-mentioned
Indenture.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By:_____________________________
Name:_______________________
Title:______________________
B-3
<PAGE> 127
[Form of Reverse of Note]
This Note is one of a duly authorized issue of securities of
the Company designated as its 9.25% Senior Notes due May 15, 2006 (herein
called the "Notes"), limited in aggregate principal amount to $140,000,000
issued and to be issued under an Indenture, dated as of April 15, 1998 (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 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.
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 May 15, 2002, 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 May 15 of the following years:
<TABLE>
<CAPTION>
Year Redemption Price
- ---- ----------------
<S> <C>
2002 . . . . . . . . . . . . . . . . . . . . . . . . 104.625%
2003 . . . . . . . . . . . . . . . . . . . . . . . . 103.083%
2004 . . . . . . . . . . . . . . . . . . . . . . . . 101.542%
2005 and thereafter . . . . . . . . . . . . . . . . . 100.000%
</TABLE>
In addition, at any time and from time to time prior to
May 15, 2001, the Company at its option may redeem in the aggregate up to 40%
of the original principal amount of the Notes with the proceeds of one or more
Equity Offerings at a redemption price (expressed as a percentage of principal
amount) of 109.25% plus accrued and unpaid interest, if any, to the redemption
date (subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date); provided, however,
that at least 60% of the original aggregate principal amount of the Notes must
remain outstanding after each such redemption.
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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.
In the event of redemption of this Note in part only, a new
Note or Notes for the unredeemed portion hereof will be issued in the name of
the Holder hereof upon the cancellation hereof.
Upon a Change of Control (as defined in the Indenture), the
Company will be required to offer to repurchase all of the Notes at 101% of
their principal amount plus accrued interest. In addition in the event of
certain Asset Dispositions, the Company will be required to make an offer to
purchase the Notes at a purchase price of 100% of their principal amount plus
accrued interest (if any) to the date of purchase (subject to the rights of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date) as provided in, and subject to the terms of the
Indenture.
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.
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 interest on
this Note at the times, place and rate, and in the coin or currency, herein
prescribed.
As provided in and subject to the provisions of the Indenture,
the Holder of this Note shall not have the right to institute any
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<PAGE> 129
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 (iii) 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, if any, or interest hereon on or after the
respective due date expressed herein.
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 in The City of New York, New York, 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
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the conflicts of law principles as applied in such state. No recourse shall be
had for the payment of the principal 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.
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<PAGE> 131
ASSIGNMENT FORM
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
B-8
<PAGE> 132
EXHIBIT C
FORM OF CERTIFICATE OF TRANSFER
$_______________
Re: 9.25% Senior Notes due 2006
Reference is hereby made to the Indenture, dated as of
April 15, 1998 (the "Indenture"), between Signature Resorts, Inc., as issuer
(the "Company"), and Norwest Bank Minnesota, National Association, as trustee.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Indenture.
__________________, (the "Transferor") owns and proposes to
transfer the Note(s) or interest in such Note(s) specified in Annex A hereto,
in the principal amount of $______ in such Note(s) or interests (the
"Transfer"), to ____________ (the "Transferee"), as further specified in Annex
A hereto. In connection with the Transfer, the Transferor hereby certifies
that:
[CHECK ALL THAT APPLY]
1. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL
INTEREST IN THE 144A GLOBAL NOTE OR A RESTRICTED CERTIFICATED NOTE
PURSUANT TO RULE 144A. The Transfer is being effected pursuant to and
in accordance with Rule 144A under the United States Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, the
Transferor hereby further certifies that the beneficial interest or
Restricted Certificated Note is being transferred to a Person that the
Transferor reasonably believed and believes is purchasing the
beneficial interest or
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<PAGE> 133
Restricted Certificated Note for its own account, or for one or more
accounts with respect to which such Person exercises sole investment
discretion, and such Person and each such account is a "qualified
institutional buyer" within the meaning of Rule 144A in a transaction
meeting the requirements of Rule 144A and such Transfer is in
compliance with any applicable blue sky securities laws of any state
of the United States. Upon consummation of the proposed Transfer in
accordance with the terms of the Indenture, the transferred beneficial
interest or Restricted Certificated Note will be subject to the
restrictions on transfer enumerated in the Private Placement Legend
printed on the 144A Global Note and/or the Restricted Certificated
Note and in the Indenture and the Securities Act.
2. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL
INTEREST IN THE TEMPORARY REGULATION S GLOBAL NOTE, THE REGULATION S
GLOBAL NOTE OR A RESTRICTED CERTIFICATED NOTE PURSUANT TO REGULATION
S. The Transfer is being effected pursuant to and in accordance with
Rule 903 or Rule 904 under the Securities Act and, accordingly, the
Transferor hereby further certifies that (i) the Transfer is not being
made to a person in the United States and (x) at the time the buy
order was originated, the Transferee was outside the United States or
such Transferor and any Person acting on its behalf reasonably
believed and believes that the Transferee was outside the United
States or (y) the transaction was executed in, on or through the
facilities of a designated offshore securities market and neither such
Transferor nor any Person acting on its behalf knows that the
transaction was prearranged with a buyer in the United States, (ii) no
directed selling efforts have been made in contravention of the
requirements of Rule 903(b) or Rule 904(b) of Regulation S under the
Securities Act, (iii) the transaction is not part of a plan or scheme
to evade the registration requirements of the Securities Act and (iv)
if the proposed transfer is being made prior to the expiration of the
Restricted Period, the transfer is not being made to a U.S. Person or
for the account or benefit of a U.S. Person (other than an Initial
Purchaser). Upon consummation of the proposed transfer in accordance
with the terms of the Indenture, the transferred beneficial interest
or Restricted Certificated Note will be subject to the restrictions on
Transfer enumerated in the Private Placement Legend printed on the
Regulation S Global Note, the Temporary Regulation S Global Note
and/or the Certificated Note and in the Indenture and the Securities
Act.
3. [ ] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A
RESTRICTED CERTIFICATED NOTE PURSUANT TO ANY PROVISION OF THE
SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is
being effected in compliance with the transfer restrictions applicable
to Restricted Certificated Notes and pursuant to and in accordance
with the Securities Act and any applicable blue sky securities laws of
any state of the United States, and accordingly the Transferor hereby
further certifies that (check one):
(a) [ ] such Transfer is being effected pursuant to
and in accordance with Rule 144 under the Securities Act;
or
(b) [ ] such Transfer is being effected to the
Company or a Subsidiary thereof;
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<PAGE> 134
or
(c) [ ] such Transfer is being effected pursuant to
an effective registration statement under the Securities Act and in
compliance with the prospectus delivery requirements of the Securities
Act;
or
(d) [ ] such Transfer is being effected to an
Accredited Investor and pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 144A, Rule 144 or
Rule 904, and the Transferor hereby further certifies that the
Transfer complies with the transfer restrictions applicable to
Restricted Certificated Notes and the requirements of the exemption
claimed, which certification is supported by (1) a certificate
executed by the Transferee in the form of Exhibit E to the Indenture
and (2) if such Transfer is in respect of a principal amount of Notes
at the time of transfer of less than $250,000, an Opinion of Counsel
provided by the Transferor or the Transferee (a copy of which the
Transferor has attached to this certification), to the effect that
such Transfer is in compliance with the Securities Act. Upon
consummation of the proposed transfer in accordance with the terms of
the Indenture, the transferred beneficial interest or Restricted
Certificated Note will be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted
Certificated Notes and in the Indenture and the Securities Act.
4. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL
INTEREST IN AN UNRESTRICTED GLOBAL NOTE OR OF AN UNRESTRICTED
CERTIFICATED NOTE.
(a) [ ] CHECK IF TRANSFER IS PURSUANT TO RULE 144.
(i) The Transfer is being effected pursuant to and in accordance with
Rule 144 under the Securities Act and in compliance with the transfer
restrictions contained in the Indenture and any applicable blue sky
securities laws of any state of the United States and (ii) the
restrictions on transfer contained in the Indenture and the Private
Placement Legend are not required in order to maintain compliance with
the Securities Act. Upon consummation of the proposed Transfer in
accordance with the terms of the Indenture, the transferred beneficial
interest or Unrestricted Certificated Note will no longer be subject
to the restrictions on transfer enumerated in the Private Placement
Legend printed on the Restricted Global Notes, on Restricted
Certificated Notes and in the Indenture.
(b) [ ] CHECK IF TRANSFER IS PURSUANT TO REGULATION
S. (i) The Transfer is being effected pursuant to and in accordance
with Rule 903 or Rule 904 under the Securities Act and in compliance
with
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<PAGE> 135
the transfer restrictions contained in the Indenture and any
applicable blue sky securities laws of any state of the United States
and (ii) the restrictions on transfer contained in the Indenture and
the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed
Transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Unrestricted Certificated Note will
no longer be subject to the restrictions on transfer enumerated in the
Private Placement Legend printed on the Restricted Global Notes, on
Restricted Certificated Notes and in the Indenture.
(c) [ ] CHECK IF TRANSFER IS PURSUANT TO OTHER
EXEMPTION. (i) The Transfer is being effected pursuant to and in
compliance with an exemption from the registration requirements of the
Securities Act other than Rule 144, Rule 903 or Rule 904 and in
compliance with the transfer restrictions contained in the Indenture
and any applicable blue sky securities laws of any State of the United
States and (ii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order
to maintain compliance with the Securities Act. Upon consummation of
the proposed Transfer in accordance with the terms of the Indenture,
the transferred beneficial interest or Unrestricted Certificated Note
will not be subject to the restrictions on transfer enumerated in the
Private Placement Legend printed on the Restricted Global Notes or
Restricted Certificated Notes and in the Indenture.
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company.
[INSERT NAME OF TRANSFEROR]
By:_____________________________________
Name:
Title:
Dated: _______________, ______
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<PAGE> 136
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) a beneficial interest in the:
(i) [ ] 144A Global Note (CUSIP _____), or
(ii) [ ] Regulation S Global Note
(CUSIP/CINS ______); or
(b) a Restricted Certificated Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) a beneficial interest in the:
(i) [ ] 144A Global Note (CUSIP _____), or
(ii) [ ] Regulation S Global Note
(CUSIP/CINS ______), or
(iii) [ ] Unrestricted Global Note
(CUSIP ______); or
(b) a Restricted Certificated Note; or
(c) an Unrestricted Certificated Note,
in accordance with the terms of the Indenture.
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<PAGE> 137
EXHIBIT D
FORM OF CERTIFICATE OF EXCHANGE
[ ], [ ]
Re: 9.25% Senior Notes due 2006 (CUSIP )
Reference is hereby made to the Indenture, dated as of April 15, 1998
(the "Indenture"), between Signature Resorts, Inc. as issuer (the "Company")
and Norwest Bank Minnesota, National Association, as trustee. Capitalized
terms used but not defined herein shall have the meanings given to them in the
Indenture.
___________, the ("Owner") owns and proposes to exchange the Note(s)
or interest in such Note(s) specified herein, in the principal amount of
$__________ in such Note(s) or interests (the "Exchange"). In connection with
the Exchange, the Owner hereby certifies that:
1. [ ] EXCHANGE OF RESTRICTED CERTIFICATED NOTES OR BENEFICIAL
INTERESTS IN A RESTRICTED GLOBAL NOTE FOR UNRESTRICTED CERTIFICATED NOTES OR
BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE
(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN
A RESTRICTED GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE.
In connection with the Exchange of the Owner's beneficial interest in a
Restricted Global Note for a beneficial interest in an Unrestricted Global Note
in an equal principal amount, the Owner hereby certifies (i) the beneficial
interest is being acquired for the Owner's own account without transfer, (ii)
such Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Global Notes and pursuant to and in accordance
with the United States Securities Act of 1933, as amended (the "Securities
Act"), (iii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act and (iv) the beneficial interest in an Unrestricted Global
Note is being acquired in
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<PAGE> 138
compliance with any applicable blue sky securities laws of any state of the
United States.
(b) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN
A RESTRICTED GLOBAL NOTE TO UNRESTRICTED CERTIFICATED NOTE. In connection with
the Exchange of the Owner's beneficial interest in a Restricted Global Note for
an Unrestricted Certificated Note, the Owner hereby certifies (i) the
Certificated Note is being acquired for the Owner's own account without
transfer, (ii) such Exchange has been effected in compliance with the transfer
restrictions applicable to the Restricted Global Notes and pursuant to and in
accordance with the Securities Act, (iii) the restrictions on transfer
contained in the Indenture and the Private Placement Legend are not required in
order to maintain compliance with the Securities Act and (iv) the Unrestricted
Certificated Note is being acquired in compliance with any applicable blue sky
securities laws of any state of the United States.
(c) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED
CERTIFICATED NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In
connection with the Owner's Exchange of a Restricted Certificated Note for a
beneficial interest in an Unrestricted Global Note, the Owner hereby certifies
(i) the beneficial interest is being acquired for the Owner's own account
without transfer, (ii) such Exchange has been effected in compliance with the
transfer restrictions applicable to Restricted Certificated Notes and pursuant
to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
beneficial interest is being acquired in compliance with any applicable blue
sky securities laws of any state of the United States.
(d) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED
CERTIFICATED NOTE TO UNRESTRICTED CERTIFICATED NOTE. In connection with the
Owner's Exchange of a Restricted Certificated Note for an Unrestricted
Certificated Note, the Owner hereby certifies (i) the Unrestricted Certificated
Note is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Certificated Notes and pursuant to and in accordance
with the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act and (iv) the Unrestricted
Certificated Note is being acquired in compliance with any applicable blue sky
securities laws of any state of the United States.
2. [ ] EXCHANGE OF RESTRICTED CERTIFICATED NOTES OR BENEFICIAL INTERESTS
IN RESTRICTED GLOBAL NOTES FOR RESTRICTED CERTIFICATED NOTES OR BENEFICIAL
INTERESTS IN RESTRICTED GLOBAL NOTES
D-2
<PAGE> 139
(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN
A RESTRICTED GLOBAL NOTE TO RESTRICTED CERTIFICATED NOTE. In connection with
the Exchange of the Owner's beneficial interest in a Restricted Global Note for
a Restricted Certificated Note with an equal principal amount, the Owner hereby
certifies that the Restricted Certificated Note is being acquired for the
Owner's own account without transfer. Upon consummation of the proposed
Exchange in accordance with the terms of the Indenture, the Restricted
Certificated Note issued will continue to be subject to the restrictions on
transfer enumerated in the Private Placement Legend printed on the Restricted
Certificated Note and in the Indenture and the Securities Act.
(b)[ ] CHECK IF EXCHANGE IS FROM RESTRICTED CERTIFICATED NOTE
TO BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the
Exchange of the Owner's Restricted Certificated Note for a beneficial interest
in the [CHECK ONE] [ ] 144A Global Note or [ ] Regulation S Global Note, with
an equal principal amount, the Owner hereby certifies (i) such Owner acquired
such Restricted Certificated Note in a transaction pursuant to Rule 144A or
Regulation S, (ii) the beneficial interest is being acquired for the Owner's
own account without transfer and (iii) such Exchange has been effected in
compliance with the transfer restrictions applicable to the Restricted Global
Notes and pursuant to and in accordance with the Securities Act, and in
compliance with any applicable blue sky securities laws of any state of the
United States. Upon consummation of the proposed Exchange in accordance with
the terms of the Indenture, the beneficial interest issued will be subject to
the restrictions on transfer enumerated in the Private Placement Legend printed
on the relevant Restricted Global Note and in the Indenture and the Securities
Act.
D-3
<PAGE> 140
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company.
________________________________________
[Insert Name of Owner]
By:_____________________________________
Name:
Title:
Dated: _________, ______
D-4
<PAGE> 1
EXHIBIT 5.1
[LATHAM & WATKINS LETTERHEAD]
May 4, 1998
Signature Resorts, Inc.
1875 South Grant Street
Suite 650
San Mateo, California 94402
Re: Signature Resorts, Inc. --
Registration of Senior Notes due 2006
Ladies and Gentlemen:
In connection with the registration of $140,000,000 in
aggregate principal amount of 9.25% Senior Notes due 2006 (the "Exchange Notes")
by Signature Resorts, Inc., a Maryland corporation (the "Company") on Form S-4
under the Securities Act of 1933, as amended, filed with the Securities and
Exchange Commission (the "Commission") on the date hereof (the "Registration
Statement"), you have requested our opinion with respect to the matters set
forth below. Capitalized terms used herein without definition have the meanings
given to them in the Registration Statement.
In our capacity as your counsel in connection with such
registration, we are familiar with the proceedings taken and proposed to be
taken by the Company in connection with the authorization and issuance of the
Exchange Notes, and for the purposes of this opinion, have assumed such
proceedings will be timely completed in the manner presently proposed. In
addition, we have made such legal and factual examinations and inquiries,
including an examination of originals or copies certified or otherwise
identified to our satisfaction of such documents, corporate records and
instruments, as we have deemed necessary or appropriate for purposes of this
opinion.
<PAGE> 2
Signature Resorts, Inc.
May 4, 1998
Page 2
In our examination, we have assumed the genuineness of all
signatures, the legal capacity of all natural persons executing documents, the
authenticity of all documents submitted to us as originals and the conformity to
authentic originals of all documents submitted to us as copies.
We are opining herein as to the effect on the subject
transaction only of the internal laws of the State of New York, and we express
no opinion with respect to the applicability thereto, or the effect thereon, of
the laws of any other jurisdiction or as to any matters of municipal law or the
laws of any local agencies within any state.
Subject to the foregoing and the other matters set forth
herein, it is our opinion that, as of the date hereof, the Exchange Notes, when
authenticated by the Trustee and executed and delivered by the Company in
accordance with the terms of the Registration Rights Agreement and the
Indenture, will be legally valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, subject to the
following additional limitations, qualifications and exceptions:
(i) the effect of bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to or
affecting the rights or remedies of creditors;
(ii) the effect of general principles of equity, whether
enforcement is considered in a proceeding in equity or at law, and the
discretion of the court before which any proceeding therefor may be brought;
(iii) the unenforceability under certain circumstances under
law or court decisions of provisions providing for the indemnification of or
contribution to a party with respect to a liability where such indemnification
or contribution is contrary to public policy;
(iv) to the extent that enforceability may be limited due to
the existence of an untrue statement of a material fact in the Registration
Statement or omission to state a material fact therein necessary to make the
statements in the Registration Statement not misleading; it being understood
that we express no view with respect thereto;
(v) the enforceability of Section 5.15 of the Indenture
relating to any stay or extension laws; and
(vi) the unenforceability of any provision requiring the
payment of attorney's fees, except to the extent that a court determines such
fees to be reasonable.
To the extent that the opinion set forth above may be
dependent upon such matters, we assume, with your permission, for purposes of
this opinion that all parties to the Indenture, the Exchange Notes and the
Registration Rights Agreement (collectively, the "Documents") have complied with
any applicable requirement to file returns and pay taxes under
<PAGE> 3
Signature Resorts, Inc.
May 4, 1998
Page 3
the Franchise Tax law of the State of California; that all parties to the
Documents are duly organized, validly existing and in good standing under the
laws of their respective jurisdiction of formation; that all such parties have
the requisite corporate or other organizational power and authority to execute,
deliver and perform their respective obligations under the Documents (and as to
natural persons, that each such party has the legal authority and capacity to
execute, deliver and perform its respective obligations thereunder); and that
each of the Documents has been duly authorized, executed and delivered by all
such parties and constitutes the legally valid and binding obligation of all
such parties (other than the Company), enforceable against them in accordance
with its terms.
We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm contained under the
heading "Legal Matters."
Very truly yours,
/s/ Latham & Watkins
<PAGE> 1
EXHIBIT 5.2
[LETTERHEAD OF BALLARD SPAHR ANDREWS & INGERSOLL, LLP]
May 4, 1998
Signature Resorts, Inc.
1875 South Grant Street
Suite 650
San Mateo, California 94402
Re: Signature Resorts, Inc., a Maryland corporation (the "Company") -
Registration Statement on Form S-4 (Registration No. 333-______)
(the "Registration Statement") pertaining to One Hundred Forty
Million Dollars ($140,000,000) aggregate principal amount of the
Company's 9 1/4% Senior Notes due 2006 (the "Exchange Notes")
Ladies and Gentlemen:
In connection with the registration of the Exchange Notes under the
Securities Act of 1933, as amended (the "Act"), by the Company on Form S-4 filed
with the Securities and Exchange Commission (the "Commission") on or about May
4, 1998, 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 and issuance of the Exchange Notes, 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 Company (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 adopted on
May 28, 1996 and amended through the date hereof (the "Bylaws"), resolutions of
the Board of Directors of the Company, or a committee thereof, adopted
<PAGE> 2
BALLARD SPAHR ANDREWS & INGERSOLL, LLP
Signature Resorts, Inc.
May 4, 1998
Page 2
on March 25, 1998 and April 9, 1998 and in full force and effect on the date
hereof, a copy of the form of Global Note (the "Global Note") representing the
Exchange Notes, a copy of the Indenture (as defined in the Registration
Statement) and such other laws, records, documents, certificates, opinions and
instruments as we deem necessary to render this opinion.
We have assumed the genuineness of all signatures, 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 Exchange Notes have been duly
authorized by all necessary corporate action on the part of the Company, and
that upon execution of the Global Note by an authorized officer of the Company,
and upon issuance and delivery thereof, in exchange for the Company's
outstanding 9 1/4% Senior Notes (the "Private Notes") issued on April 15, 1998,
in accordance with and subject to the terms of the Registration Statement and
the Indenture, the Exchange Notes will be validly issued.
We consent to your filing this opinion as an exhibit to the Registration
Statement, and further consent to the filing of this opinion as an exhibit to
the applications to securities commissioners for the various states of the
United States for registration of the Exchange Notes. 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.
Very truly yours,
/s/ BALLARD SPAHR ANDREWS & INGERSOLL, LLP
<PAGE> 1
EXHIBIT 8
[LATHAM & WATKINS LETTERHEAD]
May 4, 1998
Signature Resorts, Inc.
1875 South Grant Street
Suite 650
San Mateo, California 94402
Re: Signature Resorts, Inc. --
Registration of Senior Notes due 2006
Ladies and Gentlemen:
You have requested our opinion concerning the material federal
income tax consequences of the exchange of 9.25% Senior Notes due 2006 of
Signature Resorts, Inc., a Maryland corporation (the "Company"), which have been
registered under the Securities Act of 1933, as amended, for outstanding 9.25%
Senior Notes due 2006 of the Company, in connection with the Registration
Statement on Form S-4 filed herewith (the "Registration Statement").
The facts, as we understand them, and upon which with your
permission we rely in rendering the opinion expressed herein, are set forth in
the Registration Statement. Based on such facts, it is our opinion that the
material federal income tax consequences are accurately set forth under the
heading "Certain Federal Income Tax Consequences" in the Registration Statement.
No opinion is expressed as to any matter not discussed therein.
This opinion is based on various statutory provisions,
regulations promulgated thereunder and interpretations thereof by the Internal
Revenue Service and the courts having jurisdiction over such matters, all of
which are subject to change either prospectively or retroactively. Also, any
variation or difference in the facts from those set forth in the Registration
Statement may affect the conclusion stated herein.
<PAGE> 2
Signature Resorts, Inc.
May 4, 1998
Page 2
We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the headings
"Certain Federal Income Tax Consequences" and "Legal Matters."
Very truly yours,
/s/ Latham & Watkins
<PAGE> 1
EXHIBIT 10.1.6
A/B EXCHANGE
REGISTRATION RIGHTS AGREEMENT
Dated as of April 15, 1998
by and among
Signature Resorts, Inc.
and
Donaldson, Lufkin & Jenrette Securities Corporation,
NationsBanc Montgomery Securities LLC,
BT Alex. Brown Incorporated,
Salomon Brothers Inc and
Societe Generale Securities Corporation
<PAGE> 2
================================================================================
This Registration Rights Agreement (this "AGREEMENT") is made and
entered into as of April 15], 1998, by and among Signature Resorts, Inc., a
Maryland corporation (the "COMPANY"), and Donaldson, Lufkin & Jenrette
Securities Corporation, NationsBanc Montgomery Securities LLC, BT Alex. Brown
Incorporated, Salomon Brothers Inc and Societe Generale Securities Corporation
(each an "INITIAL PURCHASER" and, collectively, the "INITIAL PURCHASERS"), each
of whom has agreed to purchase the Company's 9.25% Senior Notes due 2006 (the
"SERIES A NOTES") pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated April
9 1998, (the "PURCHASE AGREEMENT"), by and among the Company and the Initial
Purchasers. In order to induce the Initial Purchasers to purchase the Series A
Notes, the Company has agreed to provide the registration rights set forth in
this Agreement. The execution and delivery of this Agreement is a condition to
the obligations of the Initial Purchasers set forth in Section 3 of the Purchase
Agreement. Capitalized terms used herein and not otherwise defined shall have
the meaning assigned to them the Indenture, dated April 15, 1998, between the
Company and Norwest Bank Minnesota, National Association, as Trustee, relating
to the Series A Notes and the Series B Notes (the "INDENTURE").
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
ACT: The Securities Act of 1933, as amended.
AFFILIATE: As defined in Rule 144 of the Act.
BROKER-DEALER: Any broker or dealer registered under the Exchange Act.
CERTIFICATED SECURITIES: Definitive Notes, as defined in the
Indenture.
CLOSING DATE: The date hereof.
COMMISSION: The Securities and Exchange Commission.
CONSUMMATE: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Series B Notes to be issued in the Exchange Offer, (b) the
maintenance of such Exchange Offer Registration Statement continuously effective
and the keeping of the Exchange Offer open for a period not less than the period
required pursuant to Section 3(b) hereof and (c) the delivery by the Company to
the Registrar under the Indenture of Series B
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<PAGE> 3
Notes in the same aggregate principal amount as the aggregate principal amount
of Series A Notes tendered by Holders thereof pursuant to the Exchange Offer.
EFFECTIVENESS DEADLINE: As defined in Section 3(a) and 4(a) hereof.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
EXCHANGE OFFER: The exchange and issuance by the Company of a principal
amount of Series B Notes (which shall be registered pursuant to the Exchange
Offer Registration Statement) equal to the outstanding principal amount of
Series A Notes that are tendered by such Holders in connection with such
exchange and issuance.
EXCHANGE OFFER REGISTRATION STATEMENT: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
EXEMPT RESALES: The transactions in which the Initial Purchasers
propose to sell the Series A Notes to certain "qualified institutional buyers,"
as such term is defined in Rule 144A under the Act and pursuant to Regulation S
under the Act.
FILING DEADLINE: As defined in Sections 3(a) and 4(a) hereof.
HOLDERS: As defined in Section 2 hereof.
PROSPECTUS: The prospectus included in a Registration Statement at the
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such prospectus.
RECOMMENCEMENT DATE: As defined in Section 6(d) hereof.
REGISTRATION DEFAULT: As defined in Section 5 hereof.
REGISTRATION STATEMENT: Any registration statement of the Company
relating to (a) an offering of Series B Notes pursuant to the Exchange Offer or
(b) the registration for resale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, in each case, (i) that is filed pursuant to
the provisions of this Agreement and (ii) including the Prospectus included
therein, all amendments and supplements thereto (including post-effective
amendments) and all exhibits and material incorporated by reference therein.
REGULATION S: Regulation S promulgated under the Act.
RESTRICTED BROKER-DEALER: Any Broker-Dealer that holds Series B Notes
that were acquired in the Exchange Offer in exchange for Series A Notes that
such Broker-Dealer acquired for
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<PAGE> 4
its own account as a result of market making activities or other trading
activities (other than Series A Notes acquired directly from the Company or any
of its Affiliates).
RULE 144: Rule 144 promulgated under the Act.
SERIES B NOTES: The Company's 9.25% Series B Senior Notes due 2006 to
be issued pursuant to the Indenture: (i) in the Exchange Offer or (ii) as
contemplated by Section 4 hereof.
SHELF REGISTRATION STATEMENT: As defined in Section 4 hereof.
SUSPENSION NOTICE: As defined in Section 6(d) hereof.
TIA: The Trust Indenture Act of 1939 as in effect on the date of the
Indenture.
TRANSFER RESTRICTED SECURITIES: Each Series A Note, until the earliest
to occur of (a) the date on which such Series A Note is exchanged in the
Exchange Offer and entitled to be resold to the public by the Holder thereof
without complying with the prospectus delivery requirements of the Act, (b) the
date on which such Series A Note has been disposed of in accordance with a Shelf
Registration Statement, (c) the date on which such Series A Note is disposed of
by a Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including delivery of the Prospectus
contained therein) or (d) the date on which such Series A Note is distributed to
the public pursuant to Rule 144 under the Act.
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "HOLDER") whenever such Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) below have been
complied with), the Company shall (i) cause the Exchange Offer Registration
Statement to be filed with the Commission as soon as practicable after the
Closing Date (the "EXCHANGE OFFER FILING DATE"), but in no event later than 75
days after the Closing Date (such 75th day being the "FILING DEADLINE"), (ii)
use its best efforts to cause such Exchange Offer Registration Statement to
become effective at the earliest possible time, but in no event later than 150
days after the Closing Date (such 150th day being the "EFFECTIVENESS DEADLINE"),
(iii) in connection with the foregoing, (A) file all pre-effective amendments to
such Exchange Offer Registration Statement as may be necessary in order to cause
it to become effective, (B) file, if applicable, a post-effective amendment to
such Exchange Offer Registration Statement pursuant to Rule 430A under the Act
and (C) cause all necessary filings, if any, in connection with the registration
and qualification of the Series B Notes to be made under the Blue Sky laws of
such jurisdictions as are necessary to permit Consummation of the Exchange
Offer, and (iv) upon the
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<PAGE> 5
effectiveness of such Exchange Offer Registration Statement, commence and
Consummate the Exchange Offer. The Exchange Offer shall be on the appropriate
form permitting registration of the Series B Notes to be offered in exchange for
the Series A Notes that are Transfer Restricted Securities and to permit resales
of Series B Notes by Broker-Dealers that tendered into the Exchange Offer Series
A Notes that such Broker-Dealer acquired for its own account as a result of
market making activities or other trading activities (other than Series A Notes
acquired directly from the Company or any of its Affiliates) as contemplated by
Section 3(c) below.
(b) The Company shall use its best efforts to cause the Exchange Offer
Registration Statement to be effective continuously, and shall keep the Exchange
Offer open for a period of not less than the minimum period required under
applicable federal and state securities laws to Consummate the Exchange Offer;
provided, however, that in no event shall such period be less than 20 Business
Days. The Company shall cause the Exchange Offer to comply with all applicable
federal and state securities laws. No securities other than the Series B Notes
shall be included in the Exchange Offer Registration Statement. The Company
shall use its best efforts to cause the Exchange Offer to be Consummated on the
earliest practicable date after the Exchange Offer Registration Statement has
become effective, but in no event later than 45 calendar days thereafter.
(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Broker-Dealer who holds Transfer Restricted Securities that
were acquired for the account of such Broker-Dealer as a result of market-making
activities or other trading activities (other than Transfer Restricted
Securities acquired directly from the Company or any Affiliate of the Company),
may exchange such Transfer Restricted Securities pursuant to the Exchange Offer;
however, such Broker-Dealer may be deemed to be an "underwriter" within the
meaning of the Act and must, therefore, deliver a prospectus meeting the
requirements of the Act in connection with its initial sale of any Series B
Notes received by such Broker-Dealer in the Exchange Offer and that the
Prospectus contained in the Exchange Offer Registration Statement may be used to
satisfy such prospectus delivery requirement. Such "Plan of Distribution"
section shall also contain all other information with respect to such sales by
such Broker-Dealers that the Commission may require in order to permit such
sales pursuant thereto, but such "Plan of Distribution" shall not name any such
Broker-Dealer or disclose the amount of Transfer Restricted Securities held by
any such Broker-Dealer, except to the extent required by the Commission as a
result of a change in policy, rules or regulations after the date of this
Agreement.
To the extent necessary to ensure that the Exchange Offer Registration
Statement is available for sales of Series B Notes by Broker-Dealers, and notice
is given by such Broker-Dealers to the Company of such fact within 30 days of
the effective date of the Exchange Offer Registration Statement, the Company
agrees to use its best efforts to keep the Exchange Offer Registration Statement
continuously effective, supplemented and amended as required by the provisions
of Section 6(c) hereof and in conformity with the requirements of this
Agreement, the Act and the policies, rules and regulations of the Commission as
announced from time to time, for a period of 180 days from the date on which the
Exchange Offer is Consummated, or such shorter period as will terminate when all
Transfer Restricted Securities covered by such Registration Statement have been
5
<PAGE> 6
sold pursuant thereto. The Company shall promptly provide sufficient copies of
the latest version of such Prospectus to such Broker-Dealers promptly upon
request, and in no event later than one day after such request, at any time
during such period.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. In the event that applicable interpretations of
the staff of the Commission do not permit the Company to effect such an Exchange
Offer, or if for any other reason the Exchange Offer is not consummated within
45 days after the date on which the Exchange Offer Registration Statement is
declared effective by the Commission, or if any Initial Purchaser so requests
with respect to Series A Notes not eligible to be exchanged for Series B Notes
in the Exchange Offer, or if any Holder of Series A Notes (other than an Initial
Purchaser) is not eligible to participate in the Exchange Offer, or in the case
of any Initial Purchaser that participates in but does not receive freely
tradeable (except for certain prospectus delivery requirements) Series B Notes
in exchange for Series A Notes constituting an unsold allotment from the
original sale of the Series A Notes in the Exchange Offer, the Company will, at
its cost:
(x) cause to be filed, as promptly as practicable but in no event more
than 75 days after the earlier of (i) the date on which the Company determines
that the Exchange Offer Registration Statement cannot be filed as a result of
clause (a) above and (ii) the date on which the Company receives the notice
specified in clause (a) above, (such earlier date, the "FILING DEADLINE"), a
shelf registration statement pursuant to Rule 415 under the Act (which may be an
amendment to the Exchange Offer Registration Statement (the "SHELF REGISTRATION
STATEMENT")), relating to all Transfer Restricted Securities, and
(y) shall use its best efforts to cause such Shelf Registration
Statement to become effective on or prior to 90 days after the Filing Deadline
(such 90th day the "EFFECTIVENESS DEADLINE").
If, after the Company has filed an Exchange Offer Registration Statement
that satisfies the requirements of Section 3(a) above, the Company is required
to file and make effective a Shelf Registration Statement solely because the
Exchange Offer is not permitted under applicable federal law, then the filing of
the Exchange Offer Registration Statement shall be deemed to satisfy the
requirements of clause (x) above; provided that, in such event, the Company
shall remain obligated to meet the Effectiveness Deadline set forth in clause
(y).
The Company shall use its best efforts to keep any Shelf Registration
Statement required by this Section 4(a) continuously effective, supplemented and
amended as required by and subject to the provisions of Sections 6(b) and (c)
hereof to the extent necessary to ensure that it is available for sales of
Transfer Restricted Securities by the Holders thereof entitled to the benefit of
this Section 4(a), and to ensure that it conforms with the requirements of this
Agreement, the Act and the policies, rules and regulations of the Commission as
announced from time to time, for a period of one year (as extended pursuant to
Section 6(c)(i) following the date on which such Shelf Registration Statement
first became effective under the Act, or such shorter period as will terminate
when all
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<PAGE> 7
Transfer Restricted Securities covered by such Shelf Registration Statement have
been sold pursuant thereto.)
(b) Provision by Holders of Certain Information in Connection with the
Shelf Registration Statement. No Holder of Transfer Restricted Securities may
include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, the
information specified in Item 507 or 508 of Regulation S-K, as applicable, of
the Act for use in connection with any Shelf Registration Statement or
Prospectus or preliminary Prospectus included therein. No Holder of Transfer
Restricted Securities shall be entitled to liquidated damages pursuant to
Section 5 hereof unless and until such Holder shall have provided all such
information. Each selling Holder agrees to promptly furnish additional
information required to be disclosed in order to make the information previously
furnished to the Company by such Holder not materially misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the applicable Filing Deadline, (ii)
any such Registration Statement has not been declared effective by the
Commission on or prior to the applicable Effectiveness Deadline, (iii) the
Exchange Offer has not been Consummated within 45 days after the Exchange Offer
Registration Statement is first declared effective by the Commission or (iv) any
Registration Statement required by this Agreement is filed and declared
effective but shall thereafter cease to be effective or fail to be usable for
its intended purpose without being succeeded promptly by a post-effective
amendment to such Registration Statement that cures such failure and that is
itself declared effective promptly (each such event referred to in clauses (i)
through (iv), a "REGISTRATION DEFAULT"), then the Company hereby agrees to pay
to each Holder of Transfer Restricted Securities affected thereby liquidated
damages in an amount equal to 0.25% per annum of the principal amount of
Transfer Restricted Securities held by such Holder for the first 90-day period
from and including the date the occurrence of such Registration Default. The
amount of the liquidated damages shall increase by an additional 0.25% per annum
of the principal amount of Transfer Restricted Securities with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of liquidated damages of 1% per annum principal amount of
Transfer Restricted Securities; provided that the Company shall in no event be
required to pay liquidated damages for more than one Registration Default at any
given time. Notwithstanding anything to the contrary set forth herein, (1) upon
filing of the Exchange Offer Registration Statement (and/or, if applicable, the
Shelf Registration Statement), in the case of (i) above, (2) upon the
effectiveness of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of (ii) above, (3)
upon Consummation of the Exchange Offer, in the case of (iii) above, or (4) upon
the filing of a post-effective amendment to the Registration Statement or an
additional Registration Statement that causes the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement) to again be
declared effective or made usable in the case of (iv) above, the liquidated
damages payable with respect to the Transfer Restricted Securities as a result
of such
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<PAGE> 8
clause (i), (ii), (iii) or (iv), as applicable, shall cease.
All accrued liquidated damages shall be paid to the Holders entitled
thereto, in the manner provided for the payment of interest in the Indenture, on
each Interest Payment Date, as more fully set forth in the Indenture and the
Series A Notes. All obligations of the Company set forth in the preceding
paragraph that are outstanding with respect to any Transfer Restricted Security
at the time such security ceases to be a Transfer Restricted Security shall
survive until such time as all such obligations with respect to such security
shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company shall comply with all applicable provisions of
Section 6(c) below, shall use its reasonable best efforts to effect such
exchange and to permit the resale of Series B Notes by Broker-Dealers that
tendered in the Exchange Offer Series A Notes that such Broker-Dealer acquired
for its own account as a result of its market making activities or other trading
activities (other than Series A Notes acquired directly from the Company or any
of its Affiliates) being sold in accordance with the intended method or methods
of distribution thereof, and shall comply with all of the following provisions:
(i) If, following the date hereof there has been announced a
change in Commission policy with respect to exchange offers such as the
Exchange Offer, that in the reasonable opinion of counsel to the Company
raises a substantial question as to whether the Exchange Offer is
permitted by applicable federal law, the Company hereby agrees to seek a
no-action letter or other favorable decision from the Commission
allowing the Company to Consummate the Exchange Offer for such Transfer
Restricted Securities. The Company hereby agrees to pursue the issuance
of such a decision to the Commission staff level. In connection with the
foregoing, the Company hereby agrees to take all such other actions as
may be requested by the Commission or otherwise required in connection
with the issuance of such decision, including without limitation (A)
participating in telephonic conferences with the Commission, (B)
delivering to the Commission staff an analysis prepared by counsel to
the Company setting forth the legal bases, if any, upon which such
counsel has concluded that such an Exchange Offer should be permitted
and (C) diligently pursuing a resolution (which need not be favorable)
by the Commission staff.
(ii) As a condition to its participation in the Exchange Offer,
each Holder of Transfer Restricted Securities (including, without
limitation, any Holder who is a Broker Dealer) shall furnish, upon the
request of the Company, prior to the Consummation of the Exchange Offer,
a written representation to the Company (which may be contained in the
letter of transmittal contemplated by the Exchange Offer Registration
Statement) to the effect that (A) it is not an Affiliate of the Company,
(B) it is not engaged in, and does not intend to engage in, and
has no arrangement or understanding with any person to participate in, a
distribution of the Series B Notes to be issued in the Exchange Offer
and (C) it is acquiring the Series B Notes
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<PAGE> 9
in its ordinary course of business. Each Holder using the Exchange Offer
to participate in a distribution of the Series B Notes hereby
acknowledges and agrees that, if the resales are of Series B Notes
obtained by such Holder in exchange for Series A Notes acquired directly
from the Company or an Affiliate thereof, it (1) could not, under
Commission policy as in effect on the date of this Agreement, rely on
the position of the Commission enunciated in Morgan Stanley and Co.,
Inc. (available June 5, 1991) and Exxon Capital Holdings Corporation
(available May 13, 1988), as interpreted in the Commission's letter to
Shearman & Sterling dated July 2, 1993, and similar no-action letters
(including, if applicable, any no- action letter obtained pursuant to
clause (i) above), and (2) must comply with the registration and
prospectus delivery requirements of the Act in connection with a
secondary resale transaction and that such a secondary resale
transaction must be covered by an effective registration statement
containing the selling security holder information required by Item 507
or 508, as applicable, of Regulation S-K.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company shall provide a supplemental letter to the
Commission (A) stating that the Company is registering the Exchange
Offer in reliance on the position of the Commission enunciated in Exxon
Capital Holdings Corporation (available May 13, 1988), Morgan Stanley
and Co., Inc. (available June 5, 1991) as interpreted in the
Commission's letter to Shearman & Sterling dated July 2, 1993, and, if
applicable, any no-action letter obtained pursuant to clause (i) above,
(B) including a representation that the Company has not entered into any
arrangement or understanding with any Person to distribute the Series B
Notes to be received in the Exchange Offer and that, to the best of the
Company's information and belief, each Holder participating in the
Exchange Offer is acquiring the Series B Notes in its ordinary course of
business and has no arrangement or understanding with any Person to
participate in the distribution of the Series B Notes received in the
Exchange Offer and (C) any other undertaking or representation required
by the Commission as set forth in any no- action letter obtained
pursuant to clause (i) above, if applicable.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company shall comply with all the provisions of
Section 6(c) below and shall use its reasonable best efforts to effect such
registration to permit the sale of the Transfer Restricted Securities being sold
in accordance with the intended method or methods of distribution thereof (as
indicated in the information furnished to the Company pursuant to Section 4(b)
hereof), and pursuant thereto the Company will prepare and file with the
Commission a Registration Statement relating to the registration on any
appropriate form under the Act, which form shall be available for the sale of
the Transfer Restricted Securities in accordance with the intended method or
methods of distribution thereof within the time periods and otherwise in
accordance with the provisions hereof.
(c) General Provisions. In connection with any Registration Statement
and any related Prospectus required by this Agreement, the Company shall:
(i) use its reasonable best efforts to keep such Registration
Statement continuously
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<PAGE> 10
effective for the period specified in Section 3 or 4 of this Agreement,
as applicable. Upon the occurrence of any event that would cause any
such Registration Statement or the Prospectus contained therein (A) to
contain a material misstatement or omission or (B) not to be effective
and usable for resale of Transfer Restricted Securities during the
period required by this Agreement, the Company shall file promptly an
appropriate amendment to such Registration Statement curing such defect,
and, if Commission review is required, use its reasonable best efforts
to cause such amendment to be declared effective as soon as practicable.
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the applicable Registration Statement as
may reasonably be necessary to keep such Registration Statement
effective for the applicable period set forth in Section 3 or 4 hereof,
as the case may be; cause the Prospectus to be supplemented by any
required Prospectus supplement, and as so supplemented to be filed
pursuant to Rule 424 under the Act, and to comply fully with Rules 424,
430A and 462, as applicable, under the Act in a timely manner; and
comply with the provisions of the Act with respect to the disposition of
all securities covered by such Registration Statement during the
applicable period in accordance with the intended method or methods of
distribution by the sellers thereof set forth in such Registration
Statement or supplement to the Prospectus;
(iii) advise the selling Holders or their representatives
promptly and, if requested by such Persons, confirm such advice in
writing, (A) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to any
applicable Registration Statement or any post-effective amendment
thereto, when the same has become effective, (B) of any request by the
Commission for amendments to the Registration Statement or amendments or
supplements to the Prospectus or for additional information relating
thereto, (C) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement under the Act
or of the suspension by any state securities commission of the
qualification of the Transfer Restricted Securities for offering or sale
in any jurisdiction, or the initiation of any proceeding for any of the
preceding purposes, (D) of the existence of any fact or the happening of
any event that makes any statement of a material fact made in the
Registration Statement, the Prospectus, any amendment or supplement
thereto or any document incorporated by reference therein untrue, or
that requires the making of any additions to or changes in the
Registration Statement in order to make the statements of material facts
therein not misleading, or that requires the making of any additions to
or changes in the Prospectus in order to make the statements of material
facts therein, in the light of the circumstances under which they were
made, not misleading. If at any time the Commission shall issue any stop
order suspending the effectiveness of the Registration Statement, or any
state securities commission or other regulatory authority shall issue an
order suspending the qualification or exemption from qualification of
the Transfer Restricted Securities under state securities or Blue Sky
laws, the Company shall use its best efforts to obtain the withdrawal or
lifting of such order at the earliest possible time;
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(iv) subject to Section 6(c)(i), if any fact or event
contemplated by Section 6(c)(iii)(D) above shall exist or have occurred,
prepare a supplement or post-effective amendment to the Registration
Statement or related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter
delivered to the purchasers of Transfer Restricted Securities, the
Prospectus will not contain an untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading;
(v) furnish to the Initial Purchasers and each selling Holder
named in any Registration Statement or Prospectus in connection with
such exchange or sale, or their representatives, if any, before filing
with the Commission, copies of any Registration Statement or any
Prospectus included therein or any amendments or supplements to any such
Registration Statement or Prospectus (excluding any documents
incorporated by reference after the initial filing of such Registration
Statement), which documents will be subject to the review and comment of
such selling Holders in connection with such sale, if any, for a period
of at least three Business Days, and the Company will not file any such
Registration Statement or Prospectus or any amendment or supplement to
any such Registration Statement or Prospectus (excluding any such
documents incorporated by reference) to which such selling Holders shall
reasonably object within three Business Days after the receipt thereof.
A selling Holder shall be deemed to have reasonably objected to such
filing if such Registration Statement, amendment, Prospectus or
supplement, as applicable, as proposed to be filed, contains a material
misstatement or omission or fails to comply with the applicable
requirements of the Act;
(vi) Upon request by any selling Holders, promptly prior to the
filing of any document that is to be incorporated by reference into a
Shelf Registration Statement or Shelf Prospectus, provide copies of such
document to the selling Holders in connection with such exchange or
sale, if any, make the Company's representatives available for
discussion of such document and other customary due diligence matters,
and include such information in such document prior to the filing
thereof as such selling Holders may reasonably request; provided,
however, that such Persons shall first agree in writing with the Company
that any information that is reasonably and in good faith designated by
the Company in writing as confidential at the time of delivery of such
information shall be kept confidential by such Persons, unless (i)
disclosure of such information is required by court or administrative
order or is necessary to respond to inquires of regulatory authorities,
(ii) disclosure of such information is required by law (including any
disclosure requirements pursuant to federal securities laws in
connection with the filing of such Shelf Registration Statement or the
use of any Prospectus), (iii) such information becomes generally
available to the public other than as a result of a disclosure or
failure to safeguard such information by such Person or (iv)
such information becomes available to such Person from a source other
than the Company and its subsidiaries and such source is not known,
after due inquiry, by such Person to be
11
<PAGE> 12
bound by a confidentiality agreement; provided further, that the
foregoing investigating shall be coordinated on behalf of such Persons
by one representative designated by and on behalf of such Persons and
any such confidential information shall be available from such
representative to such Persons so long as any Person agrees to be bound
by such confidentiality agreement;
(vii) if requested by any selling Holders named in the
Registration Statement or Prospectus in connection with such exchange or
sale, promptly include in any Registration Statement or Prospectus,
pursuant to a supplement or post-effective amendment if necessary, such
information as such selling Holders may reasonably request to have
included therein, including, without limitation, information relating to
the "Plan of Distribution" of the Transfer Restricted Securities; and
make all required filings of such Prospectus supplement or
post-effective amendment as soon as practicable after the Company is
notified of the matters to be included in such Prospectus supplement or
post-effective amendment;
(viii) deliver to each selling Holder without charge, as many
copies of the Prospectus (including each preliminary prospectus) and any
amendment or supplement thereto as such Persons reasonably may request;
subject to Section 6(d), the Company hereby consents to the use (in
accordance with law) of the Prospectus and any amendment or supplement
thereto by each of the selling Holders in connection with the offering
and the sale of the Transfer Restricted Securities covered by the
Prospectus or any amendment or supplement thereto;
(ix) Upon the request of any selling Holder, enter into such
agreements (including underwriting agreements) and make such
representations and warranties and take all such other actions in
connection therewith in order to expedite or facilitate the disposition
of the Transfer Restricted Securities pursuant to any applicable Shelf
Registration Statement contemplated by this Agreement as may be
reasonably requested by any Holder of Transfer Restricted Securities in
connection with any sale or resale pursuant to any applicable Shelf
Registration Statement. In such connection, the Company shall:
(A) upon reasonable request of any selling Holder, furnish (or in
the case of paragraphs (2) and (3), use its reasonable best efforts to
cause to be furnished) to each selling Holder, upon the effectiveness of
the Shelf Registration Statement:
(1) a certificate, dated such date, signed on behalf of
the Company by (x) the President or any Vice President and (y) a
principal financial or accounting officer of the Company, confirming, as
of the date thereof, the matters set forth in paragraphs (a) through (d)
of Section 9 of the Purchase Agreement and such other similar matters as
the selling Holders may reasonably request;
(2) opinions, dated the date of effectiveness of the Shelf
Registration Statement of counsel for the Company covering matters
similar to those set forth in paragraph (f) of Section 9 of the Purchase
Agreement and such other matters as the selling
12
<PAGE> 13
Holders may reasonably request, and in any event including a statement
to the effect set forth in (a) the first paragraph, page 5 of the
opinion of Latham & Watkins, attached as Exhibit A to the Purchase
Agreement; (b) the third paragraph, page 3 of the opinion of Andrew
Hutton, attached as Exhibit B to the Purchase Agreement; (c) paragraph
(ii), page 2 of the opinion of Schroeder, Wheeler & Flint, attached as
Exhibit D to the Purchase Agreement; (d) the opinion of S.J. Berwin &
Co., attached as Exhibit F to the Purchase Agreement; and (e) the
opinion of Rowe & Maw, attached as Exhibit G to the Purchase Agreement.
(3) a customary comfort letter, dated the date of
effectiveness of the Shelf Registration Statement from the Company's
independent accountants, in the customary form and covering matters of
the type customarily covered in comfort letters to underwriters in
connection with underwritten offerings, and affirming the matters set
forth in the comfort letters delivered pursuant to Section 9(a) of the
Purchase Agreement ; and
(B) deliver such other documents and certificates as may be
reasonably requested by the selling Holders to evidence compliance with
clause (A) above and with any customary conditions contained in the any
agreement entered into by the Company pursuant to this clause (ix);
(x) prior to any public offering of Transfer Restricted
Securities pursuant to a Shelf Registration Statement, cooperate with
the selling Holders and their counsel in connection with the
registration and qualification of the Transfer Restricted Securities
under the securities or Blue Sky laws of such jurisdictions as the
selling Holders may request and do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions
of the Transfer Restricted Securities covered by the applicable Shelf
Registration Statement; provided, however, that neither the Company nor
any of its subsidiaries or affiliates shall be required to register or
qualify as a foreign corporation where it is not now so qualified or to
take any action that would subject it to the service of process in suits
or to taxation, in any jurisdiction where it is not now so subject;
(xi) issue, upon the request of any Holder of Series A Notes
covered by any Shelf Registration Statement contemplated by this
Agreement, Series B Notes having an aggregate principal amount equal to
the aggregate principal amount of Series A Notes surrendered to the
Company by such Holder in exchange therefor or being sold by such
Holder; such Series B Notes to be registered in the name of such Holder
or in the name of the purchaser(s) of
13
<PAGE> 14
such Series B Notes, as the case may be; in return, the Series A Notes
held by such Holder shall be surrendered to the Company for
cancellation;
(xii) in connection with any sale of Transfer Restricted
Securities that will result in such securities no longer being Transfer
Restricted Securities, cooperate with the selling Holders to facilitate
the timely preparation and delivery of certificates representing
Transfer Restricted Securities to be sold and not bearing any
restrictive legends; and to register such Transfer Restricted Securities
in such denominations and such names as the selling Holders may
reasonably request at least five Business Days prior to such sale of
Transfer Restricted Securities;
(xiii) use its reasonable best efforts to cause the disposition
of the Transfer Restricted Securities covered by the Shelf Registration
Statement to be registered with or approved by such other governmental
agencies or authorities as may be necessary to enable the seller or
sellers thereof to consummate the disposition of such Transfer
Restricted Securities, subject to the proviso contained in clause (xii)
above;
(xiv) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of a Registration Statement
covering such Transfer Restricted Securities and provide the Trustee
under the Indenture with printed certificates for the Transfer
Restricted Securities which are in a form eligible for deposit with the
Depository Trust Company;
(xv) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission; and make generally available to
its security holders with regard to any applicable Registration
Statement, as soon as practicable, a consolidated earnings statement
meeting the requirements of Rule 158 (which need not be audited covering
a twelve-month period beginning after the effective date of the
Registration Statement (as such term is defined in paragraph (c) of Rule
158 under the Act); and
(xvi) cause the Indenture to be qualified under the TIA not later
than the effective date of the first Registration Statement required by
this Agreement and, in connection therewith, cooperate with the Trustee
and the Holders to effect such changes to the Indenture as may be
required for such Indenture to be so qualified in accordance with the
terms of the TIA; and execute and use its reasonable best efforts to
cause the Trustee to execute, all documents that may be required to
effect such changes and all other forms and documents required to be
filed with the Commission to enable such Indenture to be so qualified in
a timely manner.
(d) Restrictions on Holders. Each Holder agrees by acquisition of a
Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(c)(iii)(C) or any notice from the Company of the existence of any fact
of the kind described in Section 6(c)(iii)(D) hereof (in each case, a
"SUSPENSION NOTICE"), such Holder will forthwith discontinue disposition of
Transfer
14
<PAGE> 15
Restricted Securities pursuant to the applicable Registration Statement until
(i) such Holder has received copies of the supplemented or amended Prospectus
contemplated by Section 6(c)(iv) hereof, or (ii) such Holder 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 (in each case, the "RECOMMENCEMENT DATE"). Each
Holder receiving a Suspension Notice hereby agrees that it will either (i)
destroy any Prospectuses, other than permanent file copies, then in such
Holder's possession which have been replaced by the Company with more recently
dated Prospectuses or (ii) deliver to the Company (at the Company's expense) all
copies, other than permanent file copies, then in such Holder's possession of
the Prospectus covering such Transfer Restricted Securities that was current at
the time of receipt of the Suspension Notice. The time period regarding the
effectiveness of such Registration Statement set forth in Section 3 or 4 hereof,
as applicable, shall be extended by a number of days equal to the number of days
in the period from and including the date of delivery of the Suspension Notice
to the date of delivery of the Recommencement Date.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of or compliance
with this Agreement will be borne by the Company, regardless of whether a
Registration Statement becomes effective, including without limitation: (i) all
registration and filing fees and expenses; (ii) all fees and expenses of
compliance with federal securities and state Blue Sky or securities laws; (iii)
all expenses of printing (including printing certificates for the Series B Notes
to be issued in the Exchange Offer and printing of Prospectuses, messenger and
delivery services and telephone); (iv) all fees and disbursements of counsel for
the Company; (v) all application and filing fees in connection with listing the
Series B Notes on a national securities exchange or automated quotation system
pursuant to the requirements hereof; and (vi) all fees and disbursements of
independent certified public accountants of the Company (including the expenses
of any special audit and comfort letters required by or incident to such
performance).
The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Company.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company will reimburse, up
to a maximum of $35,000, the Initial Purchasers and the Holders of Transfer
Restricted Securities being tendered in the Exchange Offer and/or resold
pursuant to the "Plan of Distribution" contained in the Exchange Offer
Registration Statement or registered pursuant to the Shelf Registration
Statement, as applicable, for the reasonable fees and disbursements of not more
than one counsel, who shall be Skadden, Arps, Slate, Meagher & Flom LLP, unless
another firm shall be chosen by the Holders of a majority in principal amount of
the Transfer Restricted Securities for whose benefit such Registration Statement
is being prepared.
15
<PAGE> 16
SECTION 8. INDEMNIFICATION
(a) The Company agrees, to indemnify and hold harmless each Holder, its
directors, its officers and each Person, if any, who controls such Holder
(within the meaning of Section 15 of the Act or Section 20 of the Exchange Act)
(each an "INDEMNIFIED HOLDER"), from and against any and all losses, claims,
damages, liabilities, judgments, (including without limitation, any reasonable
legal or other expenses incurred in connection with investigating or defending
any matter, including any action that could give rise to any such losses,
claims, damages, liabilities or judgments) caused by any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement, preliminary prospectus or Prospectus (or any amendment or supplement
thereto) provided by the Company to any holder or any prospective purchaser of
Series B Notes, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or judgments are caused by an untrue statement or omission or
alleged untrue statement or omission that is based upon information relating to
any of the Holders furnished in writing to the Company by any of the Holders.
(b) Each Holder of Transfer Restricted Securities agrees, severally and
not jointly, to indemnify and hold harmless the Company and its directors and
officers, and each person, if any, who controls (within the meaning of Section
15 of the Act or Section 20 of the Exchange Act) the Company, to the same extent
as the foregoing indemnity from the Company to each of the Indemnified Holders,
but only with reference to information relating to such Indemnified Holder
furnished in writing to the Company by such Indemnified Holder expressly for use
in any Registration Statement. In no event shall any Indemnified Holder be
liable or responsible for any amount in excess of the amount by which the total
amount received by such Indemnified Holder with respect to its sale of Transfer
Restricted Securities pursuant to a Registration Statement exceeds the amount
paid by such Indemnified Holder for such Transfer Restricted Securities.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "INDEMNIFYING PERSON") in writing
and the indemnifying person shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 8(a) and 8(b), an Indemnified Holder shall not be required to
assume the defense of such action pursuant to this Section 8(c), but may employ
separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
the Indemnified Holder). Any indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of the indemnified
party unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying person, (ii) the indemnifying person
shall have failed to assume
16
<PAGE> 17
the defense of such action or employ counsel reasonably satisfactory to the
indemnified party or (iii) the named parties to any such action (including any
impleaded parties) include both the indemnified party and the indemnifying
person, and the indemnified party shall have been advised by such counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the indemnifying person (in which case the
indemnifying person shall not have the right to assume the defense of such
action on behalf of the indemnified party). In any such case, the indemnifying
person shall not, in connection with any one action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all indemnified parties and all such fees and expenses shall be
reimbursed as they are incurred. Such firm shall be designated in writing by a
majority of the Indemnified Holders, in the case of the parties indemnified
pursuant to Section 8(a), and by the Company, in the case of parties indemnified
pursuant to Section 8(b). The indemnifying person shall indemnify and hold
harmless the indemnified party from and against any and all losses, claims,
damages, liabilities and judgments by reason of any settlement of any action (i)
effected with its written consent or (ii) effected without its written consent
if the settlement is entered into more than forty business days after the
indemnifying person shall have received a request from the indemnified party for
reimbursement for the fees and expenses of counsel (in any case where such fees
and expenses are at the expense of the indemnifying person) and, prior to the
date of such settlement, the indemnifying person shall have failed to comply
with such reimbursement request. No indemnifying person shall, without the prior
written consent of the indemnified party, which consent shall be unreasonably
withheld, effect any settlement or compromise of, or consent to the entry of
judgment with respect to, any pending or threatened action in respect of which
the indemnified party is or could have been a person and indemnity or
contribution may be or could have been sought hereunder by the indemnified
party, unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability on claims that
are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent that the indemnification provided for in this Section
8 is unavailable to an indemnified party in respect of any losses, claims,
damages, liabilities or judgments referred to therein, then each person, in lieu
of indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities or judgments (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company, on the one hand, and the Holders, on
the other hand, from their sale of Transfer Restricted Securities or (ii) if the
allocation provided by clause 8(d)(i) is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause 8(d)(i) above but also the relative fault of the Company,
on the one hand, and of the Holder, on the other hand, in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative fault of the Company, on the one hand, and of the
Holder, on the other hand, shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the
17
<PAGE> 18
Company, on the one hand, or by the Holder, on the other hand, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid or payable by a person as a
result of the losses, claims, damages, liabilities and judgments referred to
above shall be deemed to include, subject to the limitations set forth in the
second paragraph of Section 8(a), any legal or other fees or expenses reasonably
incurred by such person in connection with investigating or defending any action
or claim.
The Company and each Holder agree that it would not be just and
equitable if contribution pursuant to this Section 8(d) were determined by pro
rata allocation (even if the Holders were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any matter, including any
action that could have given rise to such losses, claims, damages, liabilities
or judgments. Notwithstanding the provisions of this Section 8, no Holder or its
related Indemnified Holders shall be required to contribute, in the aggregate,
any amount in excess of the amount by which the total received by such Holder
with respect to the sale of its Transfer Restricted Securities pursuant to a
Registration Statement exceeds the amount paid by such Holder for such Transfer
Restricted Securities. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The Holders'
obligations to contribute pursuant to this Section 8(d) are several in
proportion to the respective principal amount of Transfer Restricted Securities
held by each of the Holders hereunder and not joint.
SECTION 9. RULE 144 AND RULE 144A
The Company agrees with each Holder, for so long as any Transfer
Restricted Securities remain outstanding and during any period in which the
Company (i) is not subject to Section 13 or 15(d) of the Exchange Act, to make
available, upon request of any Holder of Transfer Restricted Securities, to any
Holder or beneficial owner of Transfer Restricted Securities in connection with
any sale thereof and any prospective purchaser of such Transfer Restricted
Securities designated by such Holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A, and (ii) is subject to
Section 13 or 15 (d) of the Exchange Act, to make all filings required thereby
in a timely manner in order to permit resales of such Transfer Restricted
Securities pursuant to Rule 144.
SECTION 10. MISCELLANEOUS
(a) Remedies. The Company acknowledges and agrees that any failure by
the Company to comply with its obligations under Sections 3 and 4 hereof may
result in material irreparable injury to the Initial Purchasers or the Holders
for which there is no adequate remedy at law, that it will not
18
<PAGE> 19
be possible to measure damages for such injuries precisely and that, in the
event of any such failure, the Initial Purchasers or any Holder may obtain such
relief as may be required to specifically enforce the Company's obligations
under Sections 3 and 4 hereof. The Company further agrees to waive the defense
in any action for specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not, on or after the
date of this Agreement, enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. The rights granted to the
Holders hereunder do not in any way conflict with and are not inconsistent with
the rights granted to the holders of the Company's securities under any
agreement in effect on the date hereof.
(c) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless (i) in the case of Section 5
hereof and this Section 10(c)(i), the Company has obtained the written consent
of Holders of all outstanding Transfer Restricted Securities and (ii) in the
case of all other provisions hereof, the Company has obtained the written
consent of Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities (excluding Transfer Restricted Securities held by the
Company of its Affiliates). Notwithstanding the foregoing, a waiver or consent
to departure from the provisions hereof that relates exclusively to the rights
of Holders whose securities are being tendered pursuant to the Exchange Offer
and that does not affect directly or indirectly the rights of other Holders
whose securities are not being tendered pursuant to such Exchange Offer may be
given by the Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities subject to such Exchange Offer.
(d) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Initial Purchasers, on the other hand, and shall have the right to
enforce such agreements directly to the extent they may deem such enforcement
necessary or advisable to protect its rights or the rights of Holders hereunder.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of
the Registrar under the Indenture, with a copy to the Registrar under
the Indenture; and
(ii) if to the Company at the address of the Company set forth in
the Purchase Agreement with copies as indicated therein:
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next business day,
19
<PAGE> 20
if timely delivered to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
Upon the date of filing of the Exchange Offer or a Shelf Registration
Statement, as the case may be, notice shall be delivered to Donaldson, Lufkin &
Jenrette Securities Corporation, on behalf of the Initial Purchasers (in the
form attached hereto as Exhibit A) and shall be addressed to: Attention: Louise
Guarneri (Compliance Department), 277 Park Avenue, New York, New York 10172.
(f) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties, including
without limitation and without the need for an express assignment, subsequent
Holders of Transfer Restricted Securities; provided, that nothing herein shall
be deemed to permit any assignment, transfer or other disposition of Transfer
Restricted Securities in violation of the terms hereof or of the Purchase
Agreement or the Indenture. If any transferee of any Holder shall acquire
Transfer Restricted Securities in any manner, whether by operation of law or
otherwise, such Transfer Restricted Securities shall be held subject to all of
the terms of this Agreement, and by taking and holding such Transfer Restricted
Securities such Person shall be conclusively deemed to have agreed to be bound
by and to perform all of the terms and provisions of this Agreement, including
the restrictions on resale set forth in this Agreement and, if applicable, the
Purchase Agreement, and such Person shall be entitled to receive the benefits
hereof.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no
20
<PAGE> 21
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein with respect to the registration rights granted with
respect to the Transfer Restricted Securities. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
21
<PAGE> 22
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
SIGNATURE RESORTS, INC.
By: /s/ ANDREW D. HUTTON
-------------------------------------
Name: Andrew D. Hutton
Title: Vice President, General
Counsel and Secretary
Accepted: April 15, 1998
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ WILLIAM BAUMGART
---------------------------
Name: William Baumgart
Title: Vice President
NATIONSBANC MONTGOMERY SECURITIES LLC
By: /s/ RICHARD SMITH
-----------------------------
Name: Richard Smith
Title:
BT ALEX. BROWN INCORPORATED
By: /s/ BRUCE HABLEY
---------------------------------
Name: Bruce Habley
Title: Principal
SALOMON BROTHERS INC
By: /s/ JEFFREY HOROWITZ
---------------------------------
Name: Jeffrey Horowitz
Title: Managing Director
SOCIETE GENERALE SECURITIES CORPORATION
By: /s/ CARL A. MAYER III
---------------------------------
Name: Carl A. Mayer III
Title: Managing Director
<PAGE> 23
EXHIBIT A
NOTICE OF FILING OF
A/B EXCHANGE OFFER REGISTRATION STATEMENT
To: Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Attention: Louise Guarneri (Compliance Department)
Fax: (212) 892-7272
From: [Name of issuer]
[Name of 144A securities]
Date: _____________, 199__
For your information only (NO ACTION REQUIRED):
Today, ______, 199_, we filed [an A/B Exchange Registration Statement/a
Shelf Registration Statement] with the Securities and Exchange Commission. We
currently expect this registration statement to be declared effective within __
business days of the date hereof.
23
<PAGE> 1
EXHIBIT 12
STATEMENT RE COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES (UNAUDITED)
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Earnings
Pretax Income 13,523 19,340 25,319 6,929 43,444
------ ------ ------ ------ ------
Plus:
Interest Charges 8,879 12,517 15,120 23,968 29,200
Less: Amounts Capitalized 925 2,776 3,315 6,723 6,774
------ ------ ------ ------ ------
Net Interest 7,954 9,741 11,805 17,245 22,426
------ ------ ------ ------ ------
Amortization of Debt Expense 474 460 597 457 1,278
Amortization of Previously
Capitalized interest 529 1,276 1,915 1,718 3,082
------ ------ ------ ------ ------
TOTAL EARNINGS 22,480 30,817 39,636 26,349 70,230
====== ====== ====== ====== ======
Fixed Charges
Interest Charges 8,879 12,517 15,120 23,968 29,200
Amortization of Debt Expense 474 460 597 457 1,278
------ ------ ------ ------ ------
TOTAL FIXED CHARGES 9,353 12,977 15,717 24,425 30,478
====== ====== ====== ====== ======
RATIO 2.4 2.4 2.5 1.1 2.3
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF SIGNATURE RESORTS, INC.
<TABLE>
<CAPTION>
NAME JURISDICTION OF ORGANIZATION
- ---- ----------------------------
<S> <C>
AKGI-St. Maarten, N.V....................... Delaware and Netherlands Antilles
All Seasons Resorts, Inc.................... Arizona
All Seasons Resorts, Inc.................... Texas
Alpine Apartments Hotel LmbH................ Austria
Andalucian Realty Limited................... United Kingdom
AVCOM International, Inc.................... Delaware
Benal Holdings Limited...................... Gibraltar
Benal Management Limited.................... Gibraltar
Canaryroute Limited......................... United Kingdom
Carmen de Lanzarote SL...................... Spain
Flanesford Holdings Limited................. United Kingdom
Flanesford Management Limited............... United Kingdom
Flanesford Priory Limited................... United Kingdom
Floriana Holdings Limited................... Gibraltar
Floriana Management Limited................. Gibraltar
Grand Beach Resort, L.P..................... Georgia
Grand Vacation Club Management Limited...... Jersey
Great Cruz Villas Partnership, U.S.V.I...... U.S. Virgin Islands
Greensprings Associates..................... Virginia (joint venture)
Hewicoon SL................................. Spain
International Timeshares, Inc............... Florida
Lake Tahoe Resort Partners, LLC............. California (limited liability company)
Los Amigos Beach Club Limited............... Isle of Man
Los Amigos Beach Club Management Limited.... Isle of Man
LS Financial Services Limited............... United Kingdom
LS Interval Ownership Limited............... United Kingdom
LS International Resort Management Limited.. United Kingdom
LSI Travel Club Limited..................... United Kingdom
LSI Group Holdings plc...................... United Kingdom
LSI (Wychnor Park) Limited.................. United Kingdom
LS Promotions Limited....................... United Kingdom
Marc Hotels & Resorts, Inc.................. Hawaii
Mazatlan Development Inc.................... Washington
Menorca Leisure Limited..................... United Kingdom
Mercadotecnia de Hospedaje S.A. de C.V.
(corp.)................................. Mexico
Octopus GmbH................................ Austria
Pine Lake Management Services Limited....... United Kingdom
Pine Lake plc............................... United Kingdom
Poipu Resort Partners, L.P.................. Hawaii (limited partnership)
Port Royal Resort, L.P...................... South Carolina (limited partnership)
Powhatan Associates......................... Virginia (joint venture)
Rainham Limited............................. Isle of Man
Resort Marketing International, Inc......... California
RMI Flamingo C.V.o.a........................ Netherlands Antilles (limited partnership)
RMI Royal Palm C.V.o.a...................... Netherlands Antilles (limited partnership)
RPM Management, Inc......................... Arizona
Signature Finance Corporation............... Georgia
Signature Grand Villas, Inc................. U.S. Virgin Islands
Signature St. Croix, Inc.................... U.S. Virgin Islands
S.V.L.H., Inc............................... Virginia
Sunterra Travel, Inc. (formerly Vacation
Time Travel, Inc.)........................ Washington
The Marketing Advantage Europe Limited...... United Kingdom
The Ridge Spa and Racquet Club, Inc......... Arizona
Torres Mazatlan S.A. de C.V. (corp.)........ Mexico
Torres Vallarta S.A. de C.V. (corp.)........ Mexico
Vacation Club Partnerships Limited.......... United Kingdom
Vacaciones Compartidas Mazatlan y Vallarta
S.A. de Mexico............................ Mexico
Vacacionistas Internacionales Mazatlan
S.A. (corp.).............................. Mexico
Vacation Internationale, Ltd................ Washington
VI Realty, Inc.............................. Colorado
West Maui Resort Partners, L.P.............. Delaware (limited partnership)
Woodford Bridge Country Club Limited........ United Kingdom
Woodford Bridge Hotel Limited............... United Kingdom
</TABLE>
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of the
Form S-4 Registration Statement for the registration of $140,000,000 of 9.25%
Exchange Notes due 2006.
Arthur Andersen LLP
May 4, 1998,
Orlando, Florida
<PAGE> 1
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 the year then ended included
in the Registration Statement on Form S-4 (Registration No. 333- ) and related
Prospectus of Signature Resorts, Inc. for the offer to exchange $140,000,000 of
9 1/4% senior notes.
Ernst & Young LLP
Phoenix, Arizona
May 4, 1998
<PAGE> 1
EXHIBIT 23.4
Consent of Independent Auditors
-------------------------------
The Board of Directors and Shareholders
LSI Group Holdings Plc
We consent to the use of our report dated 27 March 1997, with respect to the
consolidated financial statements of LSI Group Holdings Plc at 31 December 1995
and 1996 and for each of the years in the three-year period ended 31 December
1996, in the Registration Statement on Form S-4 filed on or about 4 May 1998
for the registration of the 9 1/4% Senior Notes due 2006 of Signature Resorts,
Inc.
(signed) KPMG
Chartered Accountants
Preston, England
4 May 1998
<PAGE> 1
EXHIBIT 23.5
CONSENT OF EXPERT
We hereby consent to the reference to our firm under the caption
"Applicability of Federal Securities Laws to the Sale of Vacation Interests" in
the section entitled "RISK FACTORS" in the Prospectus included in the
Registration Statement on Form S-4, filed with the Securities and Exchange
Commission on or about May 4, 1998, for the registration of the 9 1/4% Senior
Notes due 2006 of Signature Resorts, Inc.
Dated: May 4, 1998 SCHREEDER, WHEELER & FLINT, LLP
/s/ Schreeder, Wheeler & Flint, LLP
<PAGE> 1
EXHIBIT 25
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
-----------------------------
__ CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b) (2)
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
A U.S. NATIONAL BANKING ASSOCIATION 41-1592157
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national Identification No.)
bank)
SIXTH STREET AND MARQUETTE AVENUE
Minneapolis, Minnesota 55479
(Address of principal executive offices) (Zip code)
Stanley S. Stroup, General Counsel
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
(612) 667-1234
(Agent for Service)
-----------------------------
SIGNATURE RESORTS, INC.
(Exact name of obligor as specified in its charter)
MARYLAND 95-4582157
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1875 SOUTH GRANT STREET
SAN MATEO, CALIFORNIA 94402
(Address of principal executive offices) (Zip code)
-----------------------------
$140,000,000 - 9.25% SENIOR NOTES DUE 2006
(Title of the indenture securities)
================================================================================
<PAGE> 2
Item 1. General Information. Furnish the following information as to the
trustee:
(a) Name and address of each examining or supervising
authority to which it is subject.
Comptroller of the Currency
Treasury Department
Washington, D.C.
Federal Deposit Insurance Corporation
Washington, D.C.
The Board of Governors of the Federal Reserve System
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust
powers.
The trustee is authorized to exercise corporate trust
powers.
Item 2. Affiliations with Obligor. If the obligor is an affiliate of the
trustee, describe each such affiliation.
None with respect to the trustee.
No responses are included for Items 3-14 of this Form T-1 because the obligor is
not in default as provided under Item 13.
Item 15. Foreign Trustee. Not applicable.
Item 16. List of Exhibits. List below all exhibits filed as a part of
this Statement of Eligibility. Norwest Bank
incorporates by reference into this Form T-1
the exhibits attached hereto.
Exhibit 1. a. A copy of the Articles of Association of the
trustee now in effect.*
Exhibit 2. a. A copy of the certificate of authority of
the trustee to commence business issued June
28, 1872, by the Comptroller of the Currency
to The Northwestern National Bank of
Minneapolis.*
b. A copy of the certificate of the Comptroller
of the Currency dated January 2, 1934,
approving the consolidation of The
Northwestern National Bank of Minneapolis
and The Minnesota Loan and Trust Company of
Minneapolis, with the surviving entity being
titled Northwestern National Bank and Trust
Company of Minneapolis.*
c. A copy of the certificate of the Acting
Comptroller of the Currency dated January
12, 1943, as to change of corporate title of
Northwestern National Bank and Trust Company
of Minneapolis to Northwestern National Bank
of Minneapolis.*
<PAGE> 3
d. A copy of the letter dated May 12, 1983 from
the Regional Counsel, Comptroller of the
Currency, acknowledging receipt of notice of
name change effective May 1, 1983 from
Northwestern National Bank of Minneapolis to
Norwest Bank Minneapolis, National
Association.*
e. A copy of the letter dated January 4, 1988
from the Administrator of National Banks for
the Comptroller of the Currency certifying
approval of consolidation and merger
effective January 1, 1988 of Norwest Bank
Minneapolis, National Association with
various other banks under the title of
"Norwest Bank Minnesota, National
Association."*
Exhibit 3. A copy of the authorization of the trustee to
exercise corporate trust powers issued January 2,
1934, by the Federal Reserve Board.*
Exhibit 4. Copy of By-laws of the trustee as now in effect.*
Exhibit 5. Not applicable.
Exhibit 6. The consent of the trustee required by Section 321(b)
of the Act.
Exhibit 7. A copy of the latest report of condition of the
trustee published pursuant to law or the requirements
of its supervising or examining authority.**
Exhibit 8. Not applicable.
Exhibit 9. Not applicable.
* Incorporated by reference to exhibit number 25 filed with
registration statement number 33-66026.
** Incorporated by reference to exhibit number 25 filed with
registration statement number 333-47427.
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the
trustee, Norwest Bank Minnesota, National Association, a national banking
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Minneapolis and State of Minnesota on the 28th day of April 1998.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ JANE Y. SCHWEIGER
-----------------------------
Jane Y. Schweiger
Corporate Trust Officer
<PAGE> 5
EXHIBIT 6
April 28, 1998
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In accordance with Section 321(b) of the Trust Indenture Act of 1939, as
amended, the undersigned hereby consents that reports of examination of the
undersigned made by Federal, State, Territorial, or District authorities
authorized to make such examination may be furnished by such authorities to the
Securities and Exchange Commission upon its request therefor.
Very truly yours,
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ JANE Y. SCHWEIGER
-----------------------------
Jane Y. Schweiger
Corporate Trust Officer
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
9 1/4% SENIOR NOTES DUE 2006
OF
SIGNATURE RESORTS, INC.
PURSUANT TO THE PROSPECTUS DATED , 1998
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON , 1998 (THE "EXPIRATION DATE"), UNLESS THE
EXCHANGE OFFER IS EXTENDED BY THE COMPANY IN ITS SOLE DISCRETION, IN WHICH
CASE THE TERM "EXPIRATION DATE" SHALL MEAN THE LATEST DATE AND TIME TO
WHICH THE EXCHANGE OFFER IS EXTENDED. TENDERS MAY BE WITHDRAWN AT ANY TIME
PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
THE EXCHANGE AGENT IS:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
<TABLE>
<S> <C> <C>
By Hand: By Registered or Certified Mail: By Overnight Courier:
Norwest Bank Minnesota, N.A. Norwest Bank Minnesota, N.A. Norwest Bank Minnesota, N.A.
Northstar East Building Corporate Trust Operations Corporate Trust Services
608 Second Avenue South P.O. Box 1517 Sixth and Marquette Avenue
12th Floor Minneapolis, MN 55480-1517 Minneapolis, MN 55479-0113
Corporate Trust Services
Minneapolis, MN
</TABLE>
By Facsimile:
(612) 667-4927
Confirm by Telephone:
(612) 667-9764
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS SET FORTH IN THIS
LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL
IS COMPLETED.
The undersigned acknowledges receipt of the Prospectus dated ,
1998 (the "Prospectus"), of Signature Resorts, Inc., a Maryland corporation (the
"Company"), and this Letter of Transmittal (the "Letter of Transmittal"), which
together with the Prospectus constitutes the Company's offer (the "Exchange
Offer") to exchange $1,000 principal amount of its 9 1/4% Senior Notes due 2006
(the "Exchange Notes") for each $1,000 principal amount of its outstanding
9 1/4% Senior Notes due 2006 (the "Private Notes"). Recipients of the Prospectus
should read the requirements described in such Prospectus with respect to
eligibility to participate in the Exchange Offer. Capitalized terms used but not
defined herein have the meaning given to them in the Prospectus.
The undersigned hereby tenders the Private Notes described in the box
entitled "Description of Private Notes" below pursuant to the terms and
conditions described in the Prospectus and this Letter of Transmittal. The
undersigned is the registered owner of all the Private Notes and the undersigned
represents that it has received from each beneficial owner of Private Notes
("Beneficial Owners") a duly completed and executed form of "Instruction to
Registered Holder from Beneficial Owner" accompanying this Letter of
Transmittal, instructing the undersigned to take the action described in this
Letter of Transmittal.
This Letter of Transmittal is to be used by a holder of Private Notes (i)
if certificates representing Private Notes are to be forwarded herewith, (ii) if
delivery of Private Notes is to be made by book-entry transfer to the Exchange
Agent's account at The Depository Trust Company ("DTC"), pursuant to the
procedures set forth in the section of the Prospectus entitled "The Exchange
Offer -- Procedures for Tendering," or (iii) if a tender is made pursuant to the
guaranteed delivery procedures in the section of the Prospectus entitled "The
Exchange Offer -- Guaranteed Delivery Procedures."
The undersigned hereby represents and warrants that the information
received from the beneficial owners is accurately reflected in the boxes
entitled "Beneficial Owner(s) -- Purchaser Status" and "Beneficial Owner(s) --
Residence."
<PAGE> 2
Any beneficial owner whose Private Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder of Private Notes promptly and
instruct such registered holder of Private Notes to tender on behalf of the
beneficial owner. If such beneficial owner wishes to tender on its own behalf,
such beneficial owner must, prior to completing and executing this Letter of
Transmittal and delivering its Private Notes, either make appropriate
arrangements to register ownership of the Private Notes in such beneficial
owner's name or obtain a properly completed bond power from the registered
holder of Private Notes. The transfer of record ownership may take considerable
time.
In order to properly complete this Letter of Transmittal, a holder of
Private Notes must (i) complete the box entitled "Description of Private Notes,"
(ii) complete the boxes entitled "Beneficial Owner(s) -- Purchaser Status" and
"Beneficial Owner(s) -- Residence," (iii) if appropriate, check and complete the
boxes relating to book-entry transfer, guaranteed delivery, Special Issuance
Instructions and Special Delivery Instructions, (iv) sign the Letter of
Transmittal by completing the box entitled "Sign Here" and (v) complete the
Substitute Form W-9. Each holder of Private Notes should carefully read the
detailed instructions below prior to completing the Letter of Transmittal.
Holders of Private Notes who desire to tender their Private Notes for
exchange and (i) whose Private Notes are not immediately available or (ii) who
cannot deliver their Private Notes, this Letter of Transmittal and all other
documents required hereby to the Exchange Agent on or prior to the Expiration
Date, must tender the Private Notes pursuant to the guaranteed delivery
procedures set forth in the section of the Prospectus entitled "The Exchange
Offer -- Guaranteed Delivery Procedures." See Instruction 2.
Holders of Private Notes who wish to tender their Private Notes for
exchange must complete columns (1) through (3) in the box below entitled
"Description of Private Notes," complete the boxes entitled and sign the box
below entitled "Sign Here." If only those columns are completed, such holder of
Private Notes will have tendered for exchange all Private Notes listed in column
(3) below. If the holder of Private Notes wishes to tender for exchange less
than all of such Private Notes, column (4) must be completed in full. In such
case, such holder of Private Notes should refer to Instruction 5.
2
<PAGE> 3
DESCRIPTION OF PRIVATE NOTES
<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
(1) (2) (3) (4)
NAME(S) AND ADDRESS(ES) OF REGISTERED PRIVATE NOTE AGGREGATE PRINCIPAL AMOUNT
HOLDER(S) OF PRIVATE NOTE(S), EXACTLY AS NAME(S) NUMBER(S) PRINCIPAL AMOUNT TENDERED FOR EXCHANGE
APPEAR(S) ON PRIVATE NOTE CERTIFICATE(S) (ATTACH SIGNED LIST REPRESENTED BY (MUST BE IN INTEGRAL
(PLEASE FILL IN, IF BLANK) IF NECESSARY) CERTIFICATE(S)(A) MULTIPLES OF $1,000)(B)
- ------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
TOTAL PRINCIPAL
AMOUNT OF NOTES
TENDERED
</TABLE>
- --------------------------------------------------------------------------------
A. Unless indicated in the column "Principal Amount Tendered For Exchange,"
any tendering Holder of 9 1/4% Senior Notes due 2006 will be deemed to
have tendered the entire aggregate principal amount represented by the
column labelled "Aggregate Principal Amount Represented by
Certificate(s)."
B. The minimum permitted tender is $1,000 in principal amount of 9 1/4%
Senior Notes due 2006. All other tenders must be integral multiples of
$1,000.
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED PRIVATE NOTES ARE ENCLOSED HEREWITH.
[ ] CHECK HERE IF TENDERED PRIVATE NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND
COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS (AS HEREINAFTER
DEFINED) ONLY):
Name of Tendering Institution:
Account Number:
Transaction Code Number:
[ ] CHECK HERE IF TENDERED PRIVATE NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING
(FOR USE BY ELIGIBLE INSTITUTIONS ONLY):
Name of Registered Holder of Private Note(s):
Date of Execution of Notice of Guaranteed Delivery:
Window Ticket Number (if available):
Name of Institution which Guaranteed Delivery:
Account Number (if delivered by book-entry transfer):
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
Address:
3
<PAGE> 4
============================================================
<TABLE>
<S> <C>
SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 6, 7 AND 8) (SEE INSTRUCTIONS 1, 6, 7 AND 8)
To be completed ONLY (i) if the Exchange To be completed ONLY if the Exchange Notes
Notes issued in exchange for Private Notes, issued in exchange for Private Notes,
certificates for Private Notes in a principal certificates for Private Notes in a principal
amount not exchanged for Exchange Notes, or amount not exchanged for Exchange Notes, or
Private Notes (if any) not tendered for Private Notes (if any) not tendered for
exchange, are to be issued in the name of exchange, are to be mailed or delivered (i) to
someone other than the undersigned or (ii) if someone other than the undersigned or (ii) to
Private Notes tendered by book-entry transfer the undersigned at an address other than the
which are not exchanged are to be returned by address shown below the undersigned's
credit to an account maintained at DTC. signature.
Issue to: Mail or deliver to:
Name Name
(PLEASE TYPE OR PRINT) (PLEASE TYPE OR PRINT)
Address Address
(INCLUDE ZIP CODE) (INCLUDE ZIP CODE)
(TAX IDENTIFICATION OR SOCIAL SECURITY NO.) (TAX IDENTIFICATION OR SOCIAL SECURITY NO.)
Credit Private Notes not exchanged and
delivered by book-entry transfer to DTC
account set forth below:
(ACCOUNT NUMBER)
</TABLE>
============================================================
4
<PAGE> 5
- --------------------------------------------------------------------------------
BENEFICIAL OWNER(S) -- RESIDENCE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
STATE OF DOMICILE/PRINCIPAL PLACE OF BUSINESS OF PRINCIPAL AMOUNT OF PRIVATE NOTES
EACH BENEFICIAL OWNER OF PRIVATE NOTES HELD FOR ACCOUNT OF BENEFICIAL OWNER(S)
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
BENEFICIAL OWNER(S) -- PURCHASER STATUS
- --------------------------------------------------------------------------------
The beneficial owner of each of the Private Notes described herein is (check
the box that applies):
[ ] A "Qualified Institutional Buyer" (as defined in Rule 144A under the
Securities Act)
[ ] An "Institutional Accredited Investor" (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act)
[ ] A non "U.S. person" (as defined in Regulation S of the Securities Act)
that purchased the Private Notes outside the United States in accordance
with Rule 904 of the Securities Act
[ ] Other (describe)
- --------------------------------------------------------------------------------
SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Pursuant to the offer by Signature Resorts, Inc., a Maryland corporation
(the "Company"), upon the terms and subject to the conditions set forth in the
Prospectus dated , 1998 (the "Prospectus") and this Letter of
Transmittal (the "Letter of Transmittal"), which together with the Prospectus
constitutes the Company's offer (the "Exchange Offer") to exchange $1,000
principal amount of its 9 1/4% Senior Notes due 2006 (the "Exchange Notes") for
each $1,000 principal amount of its outstanding 9 1/4% Senior Notes due 2006
(the "Private Notes"), the undersigned hereby tenders to the Company for
exchange the Private Notes indicated above.
By executing this Letter of Transmittal and subject to and effective upon
acceptance for exchange of the Private Notes tendered for exchange herewith, the
undersigned will have irrevocably sold, assigned, transferred and exchanged, to
the Company, all right, title and interest in, to and under all of the Private
Notes tendered for exchange hereby, and hereby will have appointed the Exchange
Agent as the true and lawful agent and attorney-in-fact (with full knowledge
that the Exchange Agent also acts as agent of the Company) of such holder of
Private Notes with respect to such Private Notes, with full power of
substitution to (i) deliver certificates representing such Private Notes, or
transfer ownership of such Private Notes on the account books maintained by DTC
(together, in any such case, with all accompanying evidences of transfer and
authenticity), to the Company, (ii) present and deliver such Private Notes for
transfer on the books of the Company and (iii) receive all benefits and
otherwise exercise all rights and incidents of beneficial ownership with respect
to such Private Notes, all in accordance with the terms of the Exchange Offer.
The power of attorney granted in this paragraph shall be deemed to be
irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that (i) the undersigned is
the owner; (ii) has a net long position within the meaning of Rule 14e-4 under
the Securities Exchange Act as amended ("Rule 14e-4") equal to or greater than
the principal amount of Private Notes tendered hereby; (iii) the tender of such
Private Notes complies with Rule 14e-4 (to the extent that Rule 14e-4 is
applicable to such exchange); (iv) the undersigned has full power and authority
to tender, exchange, assign and transfer the Private Notes and (v) that when
such Private Notes are accepted for exchange by the Company, the Company will
acquire good and marketable title thereto, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claims.
The undersigned will, upon receipt, execute and deliver any additional documents
deemed by the Exchange Agent or the Company to be necessary or desirable to
complete the exchange, assignment and transfer of the Private Notes tendered for
exchange hereby.
5
<PAGE> 6
By tendering, the undersigned hereby further represents to the Company that
(i) the Exchange Notes to be acquired by the undersigned in exchange for the
Private Notes tendered hereby and any beneficial owner(s) of such Private Notes
in connection with the Exchange Offer will be acquired by the undersigned and
such beneficial owner(s) in the ordinary course of business of the undersigned,
(ii) the undersigned is not engaged in, and does not intend to engage in, and
has no arrangement or understanding with any person to participate in, a
distribution of the Exchange Notes, (iii) the undersigned and each beneficial
owner acknowledge and agree that any person who is a broker-dealer registered
under the Exchange Act or is participating in the Exchange Offer for the purpose
of distributing the Exchange Notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction of the Exchange Notes acquired by such person and
cannot rely on the position of the staff of the Commission set forth in certain
no-action letters, (iv) the undersigned and each beneficial owner understand
that a secondary resale transaction described in clause (iii) above and any
resales of Exchange Notes obtained by the undersigned in exchange for the
Private Notes acquired by the undersigned directly from the Company should be
covered by an effective registration statement containing the selling
securityholder information required by Item 507 or Item 508, as applicable, of
Regulation S-K of the Commission and (v) neither the undersigned nor any
beneficial owner is an "affiliate," as defined under Rule 405 under the
Securities Act, of the Company. If the undersigned is not a broker-dealer, the
undersigned represents that it is not engaged in, and does not intent to engage
in, a distribution of Exchange Notes. If the undersigned is a broker-dealer that
will receive Exchange Notes for its own account in exchange for Private Notes,
it represents that the Private Notes to be exchanged for the Exchange Notes were
acquired by it as a result of market-making activities or other trading
activities and acknowledges that it will deliver a prospectus in connection with
any resale of such Exchange Notes; however, by so acknowledging and by
delivering a prospectus, the undersigned will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For purposes of the Exchange Offer, the Company will be deemed to have
accepted for exchange, and to have exchanged, validly tendered Private Notes,
if, as and when the Company gives oral or written notice thereof to the Exchange
Agent. Tenders of Private Notes for exchange may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the Expiration Date. See "The Exchange
Offer -- Withdrawal of Tenders" in the Prospectus. Any Private Notes tendered by
the undersigned and not accepted for exchange will be returned to the
undersigned at the address set forth above unless otherwise indicated in the box
above entitled "Special Delivery Instructions" as promptly as practicable after
the Expiration Date.
The undersigned acknowledges that the Company's acceptance of Private Notes
validly tendered for exchange pursuant to any one of the procedures described in
the section of the Prospectus entitled "The Exchange Offer" and in the
instructions hereto will constitute a binding agreement between the undersigned
and the Company upon the terms and subject to the conditions of the Exchange
Offer.
Unless otherwise indicated in the box entitled "Special Issuance
Instructions," please return any Private Notes not tendered for exchange in the
name(s) of the undersigned. Similarly, unless otherwise indicated in the box
entitled "Special Delivery Instructions," please mail any certificates for
Private Notes not tendered or exchanged (and accompanying documents, as
appropriate) to the undersigned at the address shown below the undersigned's
signature(s). In the event that both "Special Issuance Instructions" and
"Special Delivery Instructions" are completed, please issue the certificates
representing the Exchange Notes issued in exchange for the Private Notes
accepted for exchange in the name(s) of, and return any Private Notes not
tendered for exchange or not exchanged to, the person(s) so indicated. The
undersigned recognizes that the Company has no obligation pursuant to the
"Special Issuance Instructions" and "Special Delivery Instructions" to transfer
any Private Notes from the name of the holder of Private Note(s) thereof if the
Company does not accept for exchange any of the Private Notes so tendered for
exchange or if such transfer would not be in compliance with any transfer
restrictions applicable to such Private Note(s).
6
<PAGE> 7
IN ORDER TO VALIDLY TENDER PRIVATE NOTES FOR EXCHANGE, HOLDERS OF PRIVATE
NOTES MUST COMPLETE, EXECUTE, AND DELIVER THIS LETTER OF TRANSMITTAL.
Except as stated in the Prospectus, all authority herein conferred or
agreed to be conferred shall survive the death, incapacity, or dissolution of
the undersigned, and any obligation of the undersigned hereunder shall be
binding upon the heirs, personal representatives, successors and assigns of the
undersigned. Except as otherwise stated in the Prospectus, this tender for
exchange of Private Notes is irrevocable.
SIGN HERE
- --------------------------------------------------------------------------------
SIGNATURE(S) OF OWNER(S)
Dated: , 1998
(Must be signed by the registered holder(s) of Private Notes exactly as name(s)
appear(s) on certificate(s) representing the Private Notes or on a security
position listing or by person(s) authorized to become registered Private Note
holder(s) by certificates and documents transmitted herewith. If signature is by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, please
provide the following information. (See Instruction 6).
Name(s):
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title):
- --------------------------------------------------------------------------------
Address:
(INCLUDE ZIP CODE)
Principal place of business (if different from address listed above):
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone No. (____)
Tax Identification or Social Security Nos:
- --------------------------------------------------------------------------------
PLEASE COMPLETE SUBSTITUTE FORM W-9
GUARANTEE OF SIGNATURE(S)
(SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 1)
Authorized Signature:
Dated:
Name and Title:
(PLEASE PRINT)
Name and Title:
7
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by an institution
which is (1) a member firm of a registered national securities exchange or of
the National Association of Securities Dealers, Inc., (2) a commercial bank or
trust company having an office or correspondent in the United States, or (3) an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Securities Exchange Act of 1934 which is a member of one of the following
recognized Signature Guarantee Programs (an "Eligible Institution"):
a. The Securities Transfer Agents Medallion Program (STAMP)
b. The New York Stock Exchange Medallion Signature Program (MSP)
c. The Stock Exchange Medallion Program (SEMP)
Signatures on this Letter of Transmittal need not be guaranteed (i) if this
Letter of Transmittal is signed by the registered holder(s) of the Private Notes
entered herewith and such registered holder(s) have not completed the box
entitled "Special Issuance Instructions" or the box entitled "Special Delivery
Instructions" on this Letter of Transmittal or (ii) if such Private Notes are
tendered for the account of an Eligible Institution. IN ALL OTHER CASES, ALL
SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION.
2. DELIVERY OF THIS LETTER OF TRANSMITTAL AND PRIVATE NOTES; GUARANTEED
DELIVERY PROCEDURES. This Letter of Transmittal is to be completed by holders of
Private Notes (i) if certificates are to be forwarded herewith or (ii) if
tenders are to be made pursuant to the procedures for tender by book-entry
transfer or guaranteed delivery set forth in the section of the Prospectus
entitled "The Exchange Offer." Certificates for all physically tendered Private
Notes or any timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation"), a well as a properly completed and duly executed copy of this
Letter of Transmittal or facsimile hereof, and any other documents required by
this Letter of Transmittal, must be received by the Exchange Agent at its
address set forth on the cover of this Letter of Transmittal prior to 5:00 p.m.,
New York City time, on the Expiration Date. Holders of Private Notes who elect
to tender Private Notes and (i) whose Private Notes are not immediately
available or (ii) who cannot deliver the Private Notes, this Letter of
Transmittal or other required documents to the Exchange Agent prior to 5:00
p.m., New York City time, on the Expiration Date, must tender their Private
Notes according to the guaranteed delivery procedures set forth in the
Prospectus. Holders may have such tender effected if: (a) such tender is made
through an Eligible Institution; (b) prior to 5:00 p.m., New York City time, on
the Expiration Date, the Exchange Agent has received from such Eligible
Institution a properly completed and duly executed Notice of Guaranteed
Delivery, setting forth the name and address of the holder of such Private
Notes, the certificate number(s) of such Private Notes and the principal amount
of Private Notes tendered for exchange, stating that tender is being made
thereby and guaranteeing that, within five New York Stock Exchange trading days
after the Expiration Date, this Letter of Transmittal (or facsimile hereof),
together with the certificate(s) representing such Private Notes (or a
Book-Entry Confirmation), in proper form for transfer, and any other documents
required by this Letter of Transmittal, will be deposited by such Eligible
Institution with the Exchange Agent; and (c) a properly executed Letter of
Transmittal (or a facsimile hereof), as well as the certificate(s) for all
tendered Private Notes in proper form for transfer or a Book-Entry Confirmation,
together with any other documents required by this Letter of Transmittal, are
received by the Exchange Agent within five New York Stock Exchange trading days
after the Expiration Date.
THE METHOD OF DELIVERY OF PRIVATE NOTES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE
ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. INSTEAD OF
DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND
DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.
NEITHER THIS LETTER OF TRANSMITTAL NOR ANY PRIVATE NOTES SHOULD BE SENT TO THE
COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH
HOLDERS.
No alternative, conditional or contingent tenders will be accepted. All
tendering holders of Private Notes, by execution of this Letter of Transmittal
(or facsimile hereof, if applicable), waive any right to receive notice of the
acceptance of their Private Notes for exchange.
8
<PAGE> 9
3. INADEQUATE SPACE. If the space provided in the box entitled "Description
of Private Notes" above is inadequate, the certificate numbers and principal
amounts of the Private Notes tendered should be listed on a separate signed
schedule affixed hereto.
4. WITHDRAWALS. A tender of Private Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the Expiration Date by delivery of
written or facsimile notice of withdrawal to the Exchange Agent at the address
set forth on the cover of this Letter of Transmittal. To be effective, a notice
of withdrawal of Private Notes must (i) specify the name of the person who
tendered the Private Notes to be withdrawn (the "Depositor"), (ii) identify the
Private Notes to be withdrawn (including the certificate number or numbers and
aggregate principal amount of such Private Notes), and (iii) be signed by the
holder of Private Notes in the same manner as the original signature on the
Letter of Transmittal by which such Private Notes were tendered (including any
required signature guarantees). All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Company in its sole discretion, whose determination shall be final and
binding on all parties. Any Private Notes so withdrawn will therefore be deemed
not validly tendered for purposes of the Exchange Offer and no Exchange Notes
will be issued with respect thereto unless the Private Notes so withdrawn are
validly retendered. Properly withdrawn Private Notes may be retendered by
following one of the procedures described in the section of the Prospectus
entitled "The Exchange Offer -- Procedures for Tendering" at any time prior to
5:00 p.m., New York City time, on the Expiration Date.
5. PARTIAL TENDERS. Tenders of Private Notes will be accepted only in
integral multiples of $1,000 principal amount. If a tender for exchange is to be
made with respect to less than the entire principal amount of any Private Notes,
fill in the principal amount of Private Notes which are tendered for exchange in
column (4) of the box entitled "Description of Private Notes," as more fully
described in the footnotes thereto. In case of a partial tender for exchange, a
new certificate, in fully registered form, for the remainder of the principal
amount of the Private Notes, will be sent to the holders of Private Notes unless
otherwise indicated in the appropriate box on this Letter of Transmittal as
promptly as practicable after the expiration or termination of the Exchange
Offer.
6. SIGNATURES ON THIS LETTER OF TRANSMITTAL, ASSIGNMENT AND ENDORSEMENTS.
(a) The signature(s) of the holder of Private Notes on this Letter of
Transmittal must correspond with the name(s) as written on the face of the
Private Notes without alteration, enlargement or any change whatsoever.
(b) If tendered Private Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal.
(c) If any tendered Private Notes are registered in different names on
several certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter of Transmittal and any necessary or required
documents as there are different registrations or certificates.
(d) When this Letter of Transmittal is signed by the holder of the Private
Notes listed and transmitted hereby, no endorsements of Private Notes or bond
powers are required. If, however, Private Notes not tendered or not accepted,
are to be issued or returned in the name of a person other than the holder of
Private Notes, then the Private Notes transmitted hereby must be endorsed or
accompanied by a properly completed bond power, in a form satisfactory to the
Company, in either case signed exactly as the name(s) of the holder of Private
Notes appear(s) on the Private Notes. Signatures on such Private Notes or bond
powers must be guaranteed by an Eligible Institution (unless signed by an
Eligible Institution).
(e) If this Letter of Transmittal or Private Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with this Letter of Transmittal.
(f) If this Letter of Transmittal is signed by a person other than the
registered holder of Private Notes listed, the Private Notes must be endorsed or
accompanied by a properly completed bond power, in either case signed by such
registered holder exactly as the name(s) of the registered holder of Private
Notes appear(s) on the certificates. Signatures on such Private Notes or bond
powers must be guaranteed by an Eligible Institution (unless signed by an
Eligible Institution).
7. TRANSFER TAXES. Except as set forth in this Instruction 7, the Company
will pay all transfer taxes, if any, applicable to the exchange of Private Notes
pursuant to the Exchange Offer. If, however, a transfer tax is imposed for any
reason other than the exchange of the Private Notes pursuant to the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemptions therefrom is not
submitted with this Letter of Transmittal, the amount of such transfer taxes
will be billed directly to such tendering holder.
9
<PAGE> 10
8. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If the Exchange Notes are to
be issued, or if any Private Notes not tendered for exchange are to be issued or
sent to someone other than the holder of Private Notes or to an address other
than that shown above, the appropriate boxes on this Letter of Transmittal
should be completed. Holders of Private Notes tendering Private Notes by
book-entry transfer may request that Private Notes not accepted be credited to
such account maintained at DTC as such holder of Private Notes may designate.
9. IRREGULARITIES. All questions as to the validity, form, eligibility
(including time of receipt), compliance with conditions, acceptance and
withdrawal of tendered Private Notes will be determined by the Company in its
sole discretion, which determination will be final and binding. The Company
reserves the absolute right to reject any and all Private Notes not properly
tendered or any Private Notes the Company's acceptance of which would, in the
opinion of counsel for the Company, be unlawful. The Company also reserves the
right to waive any defects, irregularities or conditions of tender as to
particular Private Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in this Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Private Notes must be
cured within such time as the Company shall determine. Although the Company
intends to notify holders of defects or irregularities with respect to tenders
of Private Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Private Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Private Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in this Letter of
Transmittal, as soon as practicable following the Expiration Date.
10. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive,
amend or modify certain of the specified conditions as described under "The
Exchange Offer -- Conditions" in the Prospectus in the case of any Private Notes
tendered (except as otherwise provided in the Prospectus).
11. MUTILATED, LOST, STOLEN OR DESTROYED PRIVATE NOTES. Any tendering
Holder whose Private Notes have been mutilated, lost, stolen or destroyed should
contact the Exchange Agent at the address listed below for further instructions:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
CORPORATE TRUST OPERATIONS
P.O. BOX 1517
MINNEAPOLIS, MN 55480-1517
12. REQUESTS FOR INFORMATION OR ADDITIONAL COPIES. Requests for information
or for additional copies of the Prospectus and this Letter of Transmittal may be
directed to the Exchange Agent at the address or telephone number set forth on
the cover of this Letter of Transmittal.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE HEREOF, IF
APPLICABLE) TOGETHER WITH CERTIFICATES, OR CONFIRMATION OF BOOK-ENTRY OR THE
NOTICE OF GUARANTEED DELIVERY, AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED
BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION
DATE.
IMPORTANT TAX INFORMATION
Under current federal income tax law, a holder of Private Notes whose
tendered Private Notes are accepted for exchange may be subject to backup
withholding unless the holder provides the Company (as payor), through the
Exchange Agent, with either (i) such holder's correct taxpayer identification
number ("TIN") on Substitute Form W-9 attached hereto, certifying that the TIN
provided on Substitute Form W-9 is correct (or that such holder of Private Notes
is awaiting a TIN) and that (A) the holder of Private Notes has not been
notified by the Internal Revenue Service that he or she is subject to backup
withholding as a result of a failure to report all interest or dividends or (B)
the Internal Revenue Service has notified the holder of Private Notes that he or
she is no longer subject to backup withholding; or (ii) an adequate basis for
exemption from backup withholding. If such holder of Private Notes is an
individual, the TIN is such holder's social security number. If the Exchange
Agent is not provided with the correct taxpayer identification number, the
holder of Private Notes may be subject to certain penalties imposed by the
Internal Revenue Service.
Certain holders of Private Notes (including, among others, all corporations
and certain foreign individuals) are not subject to these backup withholding and
reporting requirements. Exempt holders of Private Notes should indicate their
exempt status on Substitute Form W-9. A foreign individual may qualify as an
exempt recipient by submitting to the Exchange Agent a properly completed
Internal Revenue Service Form W-8 (which the Exchange Agent will provide upon
request) signed under penalty of perjury, attesting to the holder's exempt
status. See the enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 (the "Guidelines") for additional instructions.
If backup withholding applies, the Company is required to withhold 31% of
any payment made to the holder of Private Notes or other payee. Backup
withholding is not an additional federal income tax. Rather, the federal income
tax
10
<PAGE> 11
liability of persons subject to backup withholding will be reduced by the amount
of tax withheld. If withholding results in an overpayment of taxes, a refund may
be obtained from the Internal Revenue Service.
The holder of Private Notes is required to give the Exchange Agent the TIN
(e.g., social security number or employer identification number) of the record
owner of the Private Notes. If the Private Notes are held in more than one name
or are not held in the name of the actual owner, consult the enclosed Guidelines
for additional guidance regarding which number to report.
INSTRUCTION TO REGISTERED HOLDER
FROM BENEFICIAL OWNER
OF 9 1/4% SENIOR NOTES DUE 2006 OF SIGNATURE RESORTS, INC.
The undersigned hereby acknowledges receipt of the Prospectus dated
, 1998 (the "Prospectus") of Signature Resorts, Inc., a Maryland
corporation (the "Company"), and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), that together constitute the Company's offer (the
"Exchange Offer"). Capitalized terms used but not defined herein have the
meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder, as to the action to be taken
by you relating to the Exchange Offer with respect to the 9 1/4% Senior Notes
due 2006 (the "Private Notes") held by you for the account of the undersigned.
The aggregate face amount of the Private Notes held by you for the account
of the undersigned is (fill in amount):
$
-------------------------------- of the Private Notes.
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
[ ] To TENDER the following Private Notes held by you for the account
of the undersigned (insert principal amount of Private Notes to be
tendered, if any):
$
-------------------------------- of the Private Notes.
[ ] NOT to TENDER any Private Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Private Notes held by you
for the account of the undersigned, it is understood that you are authorized (a)
to make, on behalf of the undersigned (and the undersigned, by its signature
below, hereby makes to you), the representations and warranties contained in the
Letter of Transmittal that are to be made with respect to the undersigned as a
beneficial owner of the Private Notes, including but not limited to the
representations that (i) the undersigned's principal residence is in the state
of (fill in state) , (ii) the undersigned is acquiring the Exchange
Notes in the ordinary course of business of the undersigned, (iii) the
undersigned has no arrangement or understanding with any person to participate
in the distribution of the Exchange Notes, (iv) the undersigned acknowledges
that any person who is a broker-dealer registered under the Exchange Act or is
participating in the Exchange Offer for the purpose of distributing the Exchange
Notes must comply with the registration and prospectus delivery requirements of
the Securities Act of 1933, as amended, in connection with a secondary resale
transaction of the Exchange Notes acquired by such person and cannot rely on the
position of the Staff of the Securities and Exchange Commission set forth in
certain no-action letters (See the section of the Prospectus entitled "The
Exchange Offer -- Resale of the Exchange Notes"), (v) the undersigned
understands that a secondary resale transaction described in clause (iv) above
and any resales of Exchange Notes obtained by the undersigned in exchange for
the Private Notes acquired by the undersigned directly from the Company should
be covered by an effective registration statement containing the selling
securityholder information required by Item 507 or Item 508, if applicable, of
Regulation S-K of the Commission, (vi) the undersigned is not an "affiliate," as
defined in Rule 405 under the Securities Act, of the Company, and (vii) if the
undersigned is a not broker-dealer, the undersigned represents that it is not
engaged in, and does not intend to engage in, a distribution of Exchange Notes
and, (viii) if the undersigned is a broker-dealer that will receive Exchange
Notes for its own account in the exchange for Private Notes, it represents that
the Private Notes to be exchanged for the Exchange Notes were acquired by it as
a result of market-making activities or other trading activities and
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Notes; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the
11
<PAGE> 12
Securities Act; (b) to agree, on behalf of the undersigned, as set forth in the
Letter of Transmittal; and (c) to take such other action as necessary under the
Prospectus or the Letter of Transmittal to effect the valid tender of Private
Notes.
The purchaser status of the undersigned is (check the box that applies):
[ ] A "Qualified Institutional Buyer" (as defined in Rule 144A under the
Securities Act)
[ ] An "Institutional Accredited Investor" (as defined in Rule 501(a)(1), (2),
(3) or (7) under the Securities Act)
[ ] A non "U.S. person" (as defined in Regulation S of the Securities Act) that
purchased the Private Notes outside the United States in accordance with
Rule 904 of the Securities Act
[ ] Other (describe)
SIGN HERE
Name of Beneficial Owner(s):
Signature(s):
Name(s)(please print):
Address:
Principal place of business (if different from address listed above):
Telephone Number(s):
Taxpayer Identification or Social Security Number(s):
Date:
12
<PAGE> 13
- --------------------------------------------------------------------------------
PAYER'S NAME:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SUBSTITUTE
FORM W-9
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
PAYER'S REQUEST FOR TAXPAYER
IDENTIFICATION NUMBER (TIN)
Social Security Number
----------------------------
OR
Employer Identification
Number
----------------------------
PART II -- CERTIFICATIONS -- Under penalties of perjury, I certify that:
(1) The number shown on this form is my current taxpayer identification number
(or I am waiting for a number to be issued to me) and
(2) I am not subject to backup withholding either because I have not been
notified by the Internal Revenue Service (the "IRS") that I am subject to
backup withholding as a result of a failure to report all interest or
dividends, or the IRS has notified me that I am no longer subject to
backup withholding.
CERTIFICATION INSTRUCTION -- You must cross out item (2) in Part II above if
you have been notified by the IRS that you are subject to backup withholding
because of underreporting interest or dividends on your tax return. However,
if after being notified by the IRS that you are subject to backup withholding
you received another notification from the IRS stating that you are no longer
subject to backup withholding, do not cross out item (2).
PART III -- Awaiting TIN [ ]
- --------------------------------------------------------------------------------
Name
(Please Print)
Address
(Including Zip Code)
Signature Date
----------------------------------------
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENT MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED "GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9" FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECK THE BOX IN PART III OF SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
PAYOR'S NAME: NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a Taxpayer Identification
Number has not been issued to me, and either (a) I have mailed or delivered an
application to receive a Taxpayer Identification Number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a Taxpayer Identification Number within
sixty (60) days, 31% of all reportable payments made to me thereafter will be
withheld until I provide such a number.
<TABLE>
<S> <C>
SIGNATURE DATE
</TABLE>
- --------------------------------------------------------------------------------
PART I -- PLEASE PROVIDE YOUR TIN IN THE BOX AT
RIGHT AND CERTIFY BY
SIGNING AND DATING
BELOW.
13
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO
9 1/4% SENIOR NOTES DUE 2006
THIS FORM, OR ONE SUBSTANTIALLY EQUIVALENT HERETO, MUST BE USED BY ANY HOLDER OF
9 1/4% SENIOR NOTES DUE 2006 (THE "PRIVATE NOTES") OF SIGNATURE RESORTS, INC., A
MARYLAND CORPORATION (THE "COMPANY"), WHO WISHES TO TENDER PRIVATE NOTES
PURSUANT TO THE COMPANY'S EXCHANGE OFFER, AS DEFINED IN THE PROSPECTUS DATED
, 1998 (THE "PROSPECTUS") AND (i) WHOSE PRIVATE NOTES ARE NOT
IMMEDIATELY AVAILABLE OR (ii) WHO CANNOT DELIVER SUCH PRIVATE NOTES OR ANY OTHER
DOCUMENTS REQUIRED BY THE LETTER OF TRANSMITTAL ON OR BEFORE THE EXPIRATION DATE
(AS DEFINED IN THE PROSPECTUS) OR (iii) WHO CANNOT COMPLY WITH THE BOOK-ENTRY
TRANSFER PROCEDURE ON A TIMELY BASIS. SUCH FORM MAY BE DELIVERED BY FACSIMILE
TRANSMISSION, MAIL OR HAND DELIVERY TO THE EXCHANGE AGENT. SEE "THE EXCHANGE
OFFER -- GUARANTEED DELIVERY PROCEDURES" IN THE PROSPECTUS.
SIGNATURE RESORTS, INC.
NOTICE OF GUARANTEED DELIVERY
TO: NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
<TABLE>
<S> <C> <C>
By Hand: By Registered or Certified Mail: By Overnight Courier:
Norwest Bank Minnesota, N.A. Norwest Bank Minnesota, N.A. Norwest Bank Minnesota, N.A.
Northstar East Building Corporate Trust Operations Corporate Trust Services
608 Second Avenue South P.O. Box 1517 Sixth and Marquette Avenue
12th Floor Minneapolis, MN 55480-1517 Minneapolis, MN 55479-0113
Corporate Trust Services
Minneapolis, MN
</TABLE>
By Facsimile:
(612) 667-4927
Confirm by Telephone:
(612) 667-9764
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
<PAGE> 2
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
THE UNDERSIGNED, A PARTICIPANT IN A RECOGNIZED SIGNATURE GUARANTEE MEDALLION
PROGRAM, GUARANTEES DEPOSIT WITH THE EXCHANGE AGENT OF THE LETTER OF TRANSMITTAL
(OR FACSIMILE THEREOF), TOGETHER WITH THE PRIVATE NOTES TENDERED HEREBY IN
PROPER FORM FOR TRANSFER, OR CONFIRMATION OF THE BOOK-ENTRY TRANSFER OF SUCH
PRIVATE NOTES INTO THE EXCHANGE AGENT'S ACCOUNT AT THE DEPOSITORY TRUST COMPANY,
PURSUANT TO THE PROCEDURE FOR BOOK-ENTRY TRANSFER SET FORTH IN THE PROSPECTUS,
AND ANY OTHER REQUIRED DOCUMENTS, ALL BY 5:00 P.M., NEW YORK CITY TIME, ON THE
FIFTH NEW YORK STOCK EXCHANGE TRADING DAY FOLLOWING THE EXPIRATION DATE (AS
DEFINED IN THE PROSPECTUS).
SIGN HERE
----------------------------------------------------------
NAME OF FIRM
----------------------------------------------------------
AUTHORIZED SIGNATURE
----------------------------------------------------------
NAME (PLEASE PRINT)
----------------------------------------------------------
ADDRESS
----------------------------------------------------------
ZIP CODE
----------------------------------------------------------
AREA CODE AND TELEPHONE NO.
DATE:
----------------------------------------------------------
DO NOT SEND CERTIFICATES FOR PRIVATE NOTES WITH THIS FORM, ACTUAL SURRENDER
OF CERTIFICATES FOR PRIVATE NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED
BY, A COPY OF THE PREVIOUSLY EXECUTED LETTER OF TRANSMITTAL.
INSTRUCTIONS
1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY;. A properly completed
and duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by the
Exchange Agent at one of its addresses set forth on the cover hereof prior to
the Expiration Date. The method of delivery of this Notice of Guaranteed
Delivery and all other required documents to the Exchange Agent is at the
election and risk of the Holder but, except as otherwise provided below, the
delivery will be deemed made only when actually received by the Exchange Agent.
Instead of delivery by mail, it is recommended that Holders use an overnight or
hand delivery service, properly insured. If such delivery is by mail, it is
recommended that the Holder use properly insured, registered mail with return
receipt requested. For a full description of the guaranteed delivery procedures,
see the Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery
Procedures." In all cases, sufficient time should be allowed to assure timely
delivery. No Notice of Guaranteed Delivery should be sent to the Company.
2. SIGNATURE ON THIS NOTICE OF GUARANTEED DELIVERY; GUARANTEE OF
SIGNATURES. If this Notice of Guaranteed Delivery is signed by the registered
Holder(s) of the Private Notes referred to herein, then the signature must
correspond with the name(s) as written on the face of the Private Notes without
alteration, enlargement or any change whatsoever.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered Holder(s) of any Private Notes listed, this Notice of Guaranteed
Delivery must be accompanied by a properly completed bond power signed as the
name of the registered Holder(s) appear(s) on the face of the Private Notes
without alteration, enlargement or any change whatsoever.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing, and, unless waived by the Company, evidence satisfactory
to the Company of their authority so to act must be submitted with this Notice
of Guaranteed Delivery.
3. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the
Exchange Offer or the procedure for consenting and tendering as well as requests
for assistance or for additional copies of the Prospectus, the Letter of
Transmittal and this Notice of Guaranteed Delivery, may be directed to the
Exchange Agent at the address set forth on the cover hereof or to your broker,
dealer, commercial bank or trust company.
<PAGE> 3
Ladies and Gentlemen:
The undersigned hereby tenders to the Company upon the terms and subject to
the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Private Notes specified below pursuant to the guaranteed delivery procedures set
forth under the caption "The Exchange Offer -- Guaranteed Delivery Procedures"
in the Prospectus. By so tendering, the undersigned does hereby make, at and as
of the date hereof, the representations and warranties of a tendering Holder of
Private Notes set forth in the Letter of Transmittal. The undersigned hereby
tenders the Private Notes listed below:
- --------------------------------------------------------------------------------
CERTIFICATE NUMBERS
(IF AVAILABLE) PRINCIPAL AMOUNT TENDERED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
All authority herein conferred or agreed to be conferred shall survive the
death, incapacity, or dissolution of the undersigned and every obligation of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned.
<TABLE>
<S> <C>
If Private Notes will be tendered by book-entry transfer: SIGN HERE
-----------------------------------------------------------
SIGNATURE(S)
Name of Tendering Institution: -----------------------------------------------------------
-----------------------------------------------------------
NAME(S) (PLEASE PRINT)
- ----------------------------------------------------------- -----------------------------------------------------------
-----------------------------------------------------------
ADDRESS
The Depository Trust Company Account No.: -----------------------------------------------------------
ZIP CODE
-----------------------------------------------------------
- ----------------------------------------------------------- AREA CODE AND TELEPHONE NO.
Date: -----------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 99.3
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
WHAT NAME AND NUMBER TO GIVE THE REQUESTER
<TABLE>
<C> <S> <C>
- ------------------------------------------------------------
GIVE THE NAME AND
FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY
NUMBER OF --
============================================================
GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: IDENTIFICATION
NUMBER OF --
- ------------------------------------------------------------
1. Individual The individual
2. Two or more individuals The actual owner of the
(joint account) account or, if combined
funds, the first
individual on the
account1
3. Custodian account of a minor The Minor2
(Uniform Gift to Minors Act)
4. a. The usual revocable The grantor-
savings trust account trustee1
(grantor is also trustee)
b. So-called trust account The actual owner1
that is not a legal or valid
trust under state law
5. Sole proprietorship The owner3
6. Sole proprietorship The owner3
7. A valid trust, estate, or Legal entity4
pension trust
8. Corporate The corporation
9. Association, club, The organization
religious, charitable,
educational or other
tax-exempt organization
10. Partnership The partnership
11. A broker or registered The broker or nominee
nominee
12. Account with the Department The public entity
of Agriculture in the name
of a public entity (such as
a state or local government,
school district, or prison)
that receives agricultural
program payments
</TABLE>
==================================================================
1 List first and circle the name of the person whose number you furnish.
2 Circle the minor's name and furnish the minor's social security number.
3 Show the individual's name. See Item 5 or 6. You may also enter your business
name.
4 List first and circle the name of the legal trust, estate, or pension trust.
(Do not furnish the identification number of the personal representative or
trustee unless the legal entity itself is not designated in the account title.)
NOTE: If no name is circled when there is more than one name listed, the number
will be considered to be that of the first name listed.
------------------------
INSTRUCTIONS
(Section references are to the Internal Revenue Code.)
PURPOSE OF FORM. -- A person who is required to file an information return with
the Internal Revenue Service (the IRS) must obtain your correct taxpayer
identification number (TIN) to report income paid to you, real estate
transactions, mortgage interest you paid, the acquisition or abandonment of
secured property, or contributions you made to an individual retirement
arrangement (IRA). Use Form W-9 to furnish your correct TIN to the requester
(the person asking you to furnish your TIN), and, when applicable, (1) to
certify that the TIN you are furnishing is correct (or that you are waiting for
a number to be issued), (2) to certify that you are not subject to backup
withholding, and (3) to claim exemption from backup withholding if you are an
exempt payee. Furnishing your correct TIN and making the appropriate
certifications will prevent certain payments from being subject to backup
withholding.
NOTE: If a requester gives you a form other than a W-9 to request your TIN, you
must use the requester's form.
HOW TO OBTAIN A TIN. -- If you do not have a TIN, apply for one immediately. To
apply, get Form SS-5, Application for a Social Security Card (SSN) (for
individuals), from your local office of the Social Security Administration, or
Form SS-4, application for Employer Identification Number (EIN) (for businesses
and all other entities), from your local IRS office.
Generally, you will then have 60 days to obtain a TIN and furnish it to the
requester. If the requester does not receive your TIN within 60 days, backup
withholding, If applicable, will begin and continue until you furnish your TIN
to the requester. For reportable interest or dividend payments, the payer must
exercise one of the following options concerning backup withholding during this
60-day period. Under option (1), a payer must backup withhold on any withdrawals
you make from your account after 7 business days after the requester receives
this form back from you. Under option (2), the payer must backup withhold on any
reportable interest or dividend payments made to your account, regardless of
whether you make any withdrawals. The backup withholding under option (2) must
begin no later than 7 business days after the requester receives this form back.
Under option (2), the payer is required to refund the amounts withheld if your
certified TIN is received within the 60-day period and you were not subject to
backup withholding during the period.
NOTE: Checking the box in Part II on the Substitute Form W-9 means that you have
already applied for a TIN or that you intend to apply for one in the near
future.
As soon as you receive your TIN, complete another Form W-9, include your
TIN, sign and date this form, and give it to the requester.
(continued on back)
<PAGE> 2
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
WHAT IS BACKUP WITHHOLDING? -- Persons making certain payments to you are
required to withhold and pay to the IRS 31% of such payments under certain
conditions. This is called "backup withholding." Payments that could be subject
to backup withholding include interest, dividends, broker and barter exchange
transactions, rents, royalties, nonemployee compensation, and certain payments
from fishing boat operators, but do not include real estate transactions.
If you give the requester your correct TIN, make the appropriate
certifications, and report all your taxable interest and dividends on your tax
return, your payments will not be subject to backup withholding. Payments you
receive will be subject to backup withholding if:
(1) You do not furnish your TIN to the requester, or
(2) The IRS notifies the requester that you furnished an incorrect TIN, or
(3) You are notified by the IRS that you are subject to backup withholding
because you failed to report all your interest and dividends on your tax return
(for reportable interest and dividends only), or
(4) You fail to certify to the requester that you are not subject to backup
withholding under (3) above (for reportable interest and dividend accounts
opened after 1983 only), or
(5) You fail to certify your TIN. This applies only to reportable interest,
dividend, broker, or barter exchange accounts opened after 1983, or broker
accounts considered inactive in 1983.
Except as explained in (5) above, other reportable payments are subject to
backup withholding only if (1) or (2) above applies. Certain payees and payments
are exempt from backup withholding and information reporting. See payees and
Payments Exempt From Backup Withholding, below, and Exempt Payees and Payments
under Specific Instructions below, if you are an exempt payee.
PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING. -- The following is a list
of payees exempt from backup withholding and for which no information reporting
is required. For interest and dividends, all listed payees are exempt except
item (9). For broker transactions, payees listed in (1) through (13), and a
person registered under the Investment Advisors Act of 1940 who regularly acts
as a broker are exempt. Payments subject to reporting under sections 6041 and
6041A are generally exempt from backup withholding only if made to payees
described in items (1) through (7), except that a corporation that provides
medical and health care services or bills and collects payments for such
services is not exempt from backup withholding or information reporting. Only
payees described in items (2) through (6) are exempt from backup withholding for
barter exchange transactions, patronage dividends, and payments by certain
fishing boat operators.
(1) A corporation.
(2) An organization exempt from tax under section 501(a), or an Individual
Retirement Plan (IRA), or a custodial account under 403(b)(7).
(3) The United States or any of its agencies or instrumentalities.
(4) A state, the District of Columbia, a possession of the United States, or
any of their political subdivisions or instrumentalities.
(5) A foreign government or any of its political subdivisions, agencies or
instrumentalities.
(6) An international organization or any of its agencies or
instrumentalities.
(7) A foreign central bank of issue.
(8) A dealer in securities or commodities required to register in the U.S.
or a possession of the U.S.
(9) A futures commission merchant registered with the Commodity Futures
Trading Commission.
(10) A real estate investment trust.
(11) An entity registered at all times during the tax year under the
Investment Company Act of 1940.
(12) A common trust fund operated by a bank under section 584(a).
(13) A financial institution.
(14) A middleman known in the investment community as a nominee or listed in
the most recent publication of the American Society of Corporate Securities,
Inc., Nominee List.
(15) A trust exempt from tax under section 664 or described in section 4947.
Payments of dividends and patronage dividends generally not subject to
backup withholding also include the following:
- - Payments to nonresident aliens subject to withholding under
section 1441.
- - Payments to partnerships not engaged in a trade or business in the U.S. and
that have at least one nonresident partner.
- - Payment of patronage dividends not paid in money.
- - Payments made by certain foreign organizations.
Payments of interest generally not subject to backup withholding include the
following:
NOTE: You may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the payer's trade or business and you have not
provided your correct TIN to the payer.
- - Payments of interest on obligations issued by individuals.
- - Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- - Payments described in section 6049(b)(5) to nonresident aliens.
- - Payments on tax-free covenant bonds under section 1451.
- - Payments made by certain foreign organizations.
- - Mortgage interest paid by you.
Payments that are not subject to information reporting are also not subject to
backup withholding. For details, see sections 6041, 6041A(a), 6042, 6044, 6045,
6049, 6050A, and 6050N, and their regulations.
PENALTIES
FAILURE TO FURNISH TIN. -- If you fail to furnish your correct TIN to a
requester, you are subject to a penalty of $50 for each such failure unless your
failure is due to reasonable cause and not to willful neglect.
CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you make
a false statement with no reasonable basis that results in no backup
withholding, you are subject to a $500 penalty.
CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
SPECIFIC INSTRUCTIONS
NAME. -- If you are an individual, you must generally provide the name shown on
your social security card. However, if you have changed your last name, for
instance, due to marriage, without informing the Social Security Administration
of the name change, please enter your first name, the last name shown on your
social security card and your new last name.
If you are a sole proprietor, you must furnish your individual name and
either your SSN or EIN. You may also enter you business name on the business
name line. Enter your name(s) as shown on your social security card and/or as it
was used to apply for your EIN on Form SS-4.
SIGNING THE CERTIFICATION. --
(1) INTEREST, DIVIDEND, AND BARTER EXCHANGE ACCOUNTS OPENED BEFORE 1984 AND
BROKER ACCOUNTS CONSIDERED ACTIVE DURING 1983. -- You are required to furnish
your correct TIN, but you are not required to sign the certification.
(2) INTEREST, DIVIDEND, BROKER AND BARTER EXCHANGE ACCOUNTS OPENED AFTER 1983
AND BROKER ACCOUNTS CONSIDERED INACTIVE DURING 1983. -- You must sign the
certification or backup withholding will apply. If you are subject to backup
withholding and you are merely providing your correct TIN to the requester, you
must cross out part (2) in the certification before signing the form.
(3) REAL ESTATE TRANSACTIONS. -- You must sign the certification. You may cross
out part (2) of the certification.
(4) OTHER PAYMENTS. -- You are required to furnish your correct TIN, but you are
not required to sign the certification unless you have been notified of an
incorrect TIN. Other payments include payments made in the course of the
requester's trade or business for rents, royalties, goods (other than bills for
merchandise), medical and health care services, payments to a nonemployee for
services (including attorney and accounting fees), and payments to certain
fishing boat crew members.
(5) MORTGAGE INTEREST PAID BY YOU, ACQUISITION OR ABANDONMENT OF SECURED
PROPERTY, OR IRA CONTRIBUTIONS. -- You are required to furnish your correct TIN,
but you are not required to sign the certification.
(6) EXEMPT PAYEES AND PAYMENTS. -- If you are exempt from backup withholding,
you should complete this form to avoid possible erroneous backup withholding.
Enter your correct TIN in Part 1, write "EXEMPT" in the block in Part 2, sign
and date the form. If you are a nonresident alien or foreign entity not subject
to backup withholding, give the requester a completed FORM W-8, Certificate of
Foreign Status.
(7) "AWAITING TIN." -- Follow the instructions under How To Obtain a TIN, on
page 1, check the box in Part 3 of the Substitute Form W-9 and sign and date
this form.
SIGNATURE. -- For a joint account, only the person whose TIN is shown in Part I
should sign this form.
PRIVACY ACT NOTICE. -- Section 6109 requires you to furnish your correct TIN to
persons who must file information returns with the IRS to report interest,
dividends, and certain other income paid to you, mortgage interest you paid, the
acquisition or abandonment of secured property, cancellation of debt or
contributions you made to an individual retirement arrangement (IRA). The IRS
uses the numbers for identification purposes and to help verify the accuracy of
your tax return. You must provide your TIN whether or not you are required to
file a tax return. Payers must generally withhold 31% of taxable interest,
dividend, and certain other payments to a payee who does not furnish a TIN to a
payer. Certain penalties may also apply.
