SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Rule 14a-12
SUNTERRA CORPORATION
--------------------
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11:
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which the transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] (6) Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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<PAGE>
[LOGO]
SUNTERRA CORPORATION
1781 PARK CENTER DRIVE
ORLANDO, FLORIDA 32835
NOTICE OF THE 1999 ANNUAL MEETING OF STOCKHOLDERS
Dear Sunterra Corporation Stockholders,
The 1999 Annual Meeting of Stockholders of Sunterra Corporation (the
"Company") will be held at the Hyatt Regency Atlanta at Peachtree Center, 265
Peachtree Street, N.E., Atlanta, Georgia 30303 in the Singapore and Manila
rooms on Friday, May 14, 1999 at 11:00 a.m. local time to:
1. Elect four directors of the Company, consisting of three Class III
directors and one Class I director who has been newly nominated for
election;
2. Approve an amendment to the Company's Amended and Restated 1996 Equity
Participation Plan increasing the number of authorized shares by
1,000,000, to a total of 6,380,000 authorized shares;
3. Ratify the appointment of Arthur Andersen LLP as the Company's
independent public accountants for the fiscal year ending December 31,
1999; and
4. Transact such other business as may properly be brought before the 1999
Annual Meeting or any adjournments thereof.
Stockholders who are recordholders at the close of business on April 5,
1999 are entitled to notice of and to vote at the 1999 Annual Meeting.
All stockholders are cordially invited to attend the meeting. The Board of
Directors urges you to date, sign and return promptly the enclosed proxy to
give voting instructions with respect to your shares of Common Stock. The proxy
is solicited by the Company's Board of Directors. The return of a proxy will
not affect your right to vote in person if you attend the meeting.
If you wish to attend the 1999 Annual Meeting, but your shares are held in
the name of a broker, trust, bank or other nominee, please bring a proxy from
the broker, trustee, bank or other nominee with you to confirm your beneficial
ownership of the shares.
By Order of the Board of Directors
/s/ Thomas A. Bell
Thomas A. Bell
Senior Vice President,
General Counsel and Secretary
Orlando, Florida
April 14, 1999
<PAGE>
PLEASE COMPLETE THE ACCOMPANYING PROXY AND RETURN IT IN THE ENCLOSED ADDRESSED
ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING TO ASSURE YOUR
REPRESENTATION AT THE ANNUAL MEETING.
PROXY STATEMENT
The Board of Directors of Sunterra Corporation ("Sunterra" or the
"Company") furnishes this Proxy Statement in connection with the solicitation
of proxies for use at the 1999 Annual Meeting of Stockholders and any
adjournments thereof (the "1999 Annual Meeting"). The 1999 Annual Meeting of
the Stockholders is being held on Friday, May 14, 1999 at 11:00 a.m. local time
at the Hyatt Regency Atlanta at Peachtree Center, 265 Peachtree Street, N.E.,
Atlanta, Georgia.
The Company's principal executive offices are located at 1781 Park Center
Drive, Orlando, Florida 32835 and its telephone number is (407) 532-1000. A
copy of the Company's 1999 Annual Report to Stockholders, this Proxy Statement
and an accompanying proxy card will be first mailed to stockholders on or about
April 14, 1999.
VOTING PROCEDURES
A proxy card is enclosed for your use. You are solicited on behalf of the
Board of Directors to sign, date and return the proxy card in the accompanying
envelope, which is postage prepaid if mailed in the United States.
You have three choices on each of the matters to be voted upon at the 1999
Annual Meeting. Such matters are as follows:
1. Elect four directors of the Company, consisting of three Class III
directors and one Class I director who has been newly nominated for
election;
2. Approve an amendment to the Company's Amended and Restated 1996 Equity
Participation Plan, increasing the number of authorized shares by
1,000,000, to a total of 6,380,000 authorized shares; and
3. Ratify the appointment of Arthur Andersen LLP as the Company's
independent public accountants for the fiscal year ending December 31,
1999.
Concerning Proposal 1, the election of directors, by checking the
appropriate box on your proxy card you may: (a) vote for all of the director
nominees as a group; (b) withhold authority to vote for all director nominees
as a group; or (c) vote for all director nominees as a group except those
nominees you identify by striking a line through that nominee's name.
Concerning Proposal 2, the amendment to the Company's Amended and Restated
1996 Equity Participation Plan (the "Amended and Restated 1996 Equity
Participation Plan") increasing the number of authorized shares by 1,000,000 to
6,380,000 authorized shares and Proposal 3, the ratification of Arthur Andersen
LLP as the Company's independent public accountants, by checking the
appropriate box you may: (a) vote "For" the item; (b) vote "Against" the item;
or (c) "Abstain" from voting on the item.
<PAGE>
Stockholders may vote by either completing and returning the enclosed
proxy card prior to the 1999 Annual Meeting, voting in person at the 1999
Annual Meeting, or submitting a signed proxy card at the 1999 Annual Meeting.
YOUR VOTE IS IMPORTANT. ACCORDINGLY, YOU ARE URGED TO SIGN AND RETURN THE
ACCOMPANYING PROXY CARD WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
You may revoke your proxy at any time before it is actually voted at the
1999 Annual Meeting by: (a) delivering written notice of revocation to the
Secretary of the Company at 1781 Park Center Drive, Orlando, Florida 32835; (b)
by submitting a later dated proxy; or (c) by attending the 1999 Annual Meeting
and voting in person. Attendance at the 1999 Annual Meeting will not, by
itself, constitute revocation of the proxy. You may also be represented by
another person present at the 1999 Annual Meeting by executing a form of proxy
designating such person to act on your behalf.
Each unrevoked proxy card properly signed and received prior to the close
of the 1999 Annual Meeting will be voted as indicated. Unless otherwise
specified on the proxy, the shares represented by a signed proxy card will be
voted FOR Proposals 1, 2, and 3 on the proxy card. Further, the shares
represented by a signed proxy card will be voted in the discretion of the
persons named as proxies on the other business that may properly come before
the 1999 Annual Meeting.
The presence at the 1999 Annual Meeting, in person or by proxy, of at
least 17,956,299 shares, which is a majority of the shares of the Company's
common stock, par value $.01 per share ("Common Stock"), issued and outstanding
on April 5, 1999, will constitute a quorum.
Votes cast at the 1999 Annual Meeting will be tabulated by the persons
appointed by the Company to act as inspectors of election for the 1999 Annual
Meeting.
SHARES ENTITLED TO VOTE AND REQUIRED VOTE
If a proxy card indicates an abstention or a broker non-vote on a
particular matter, then the shares represented by such proxy will be counted
for quorum purposes. If a quorum is present, an abstention or a broker non-vote
will have no effect on Proposals 1, 2 and 3.
Stockholders of record at the close of business on April 5, 1999 are
entitled to vote at the 1999 Annual Meeting. At that date, 35,912,596 shares of
Common Stock were outstanding. A majority of the votes cast at a meeting of
stockholders, duly called and at which a quorum is present, shall be sufficient
to take or authorize action upon the Proposals. Each share of Common Stock is
entitled to one vote.
SHARE OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
Set forth in the following table is the beneficial ownership of the
Company's Common Stock as of March 31, 1999, for all current directors, the
seven current and former executive officers of the Company named under the
table titled "Executive Compensation" and all directors and executive officers
as a group. Pursuant to the rules of the Securities and
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Exchange Commission ("Commission"), in calculating percentage ownership, each
person is deemed to beneficially own his own shares subject to options
exercisable within 60 days of March 31, 1999, but options owned by others (even
if exercisable within 60 days) are deemed not to be outstanding shares.
Percentage ownership is based on 35,912,596 shares of Common Stock outstanding
on March 31, 1999 in addition to shares acquirable pursuant to options that
will become exercisable within 60 days of March 31, 1999.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER (a) POSITION OWNED CLASS
- ----------------------------------- ---------------------------- ------------------------ -----------
<S> <C> <C> <C>
Andrew J. Gessow(b) ............... Co-Chairman of the Board 3,450,511(c) 9.6%
Steven C. Kenninger ............... Co-Chairman of the Board 1,309,533(c)(d) 3.6%
L. Steven Miller .................. Director, President and 194,000(e) *
Chief Executive Officer
James E. Noyes .................... Director and Executive 480,625(f) 1.3%
Vice President -- Sales
Charles C. Frey ................... Senior Vice President -- 55,350(g) *
Owner Services
Genevieve Giannoni ................ Senior Vice President -- 60,970(h) *
Central Services
Osamu Kaneko(i) ................... Director 3,629,522(c) 10.0%
Adam M. Aron ...................... Director 7,500(j) *
Sanford R. Climan ................. Director 19,875(k) *
J. Taylor Crandall(l) ............. Director 7,500(j) *
Joshua S. Friedman(m) ............. Director 15,000(j) *
W. Leo Kiely, III ................. Director 15,000(j) *
Michael A. Depatie ................ Former Director and former 372,481(n) 1.0%
Executive Vice President
and Chief Financial Officer
All current directors and executive 9,255,386(o) 24.8%
officers as a group (13 persons) ...
</TABLE>
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* Less than 1%.
(a) Except as otherwise indicated, each beneficial owner has the sole power to
vote and to dispose of all shares of Common Stock owned by such beneficial
owner.
(b) On October 8, 1998, Mr. Gessow transferred 322,461 shares to his children's
irrevocable trusts as follows: The Jeremy Gessow Trust 107,487; The Danielle
Gessow Trust 107,487; and The Julia Gessow Trust 107,487. A third-party
serves as a trustee under these trusts and the children have no investment
control over the shares in such trusts. Accordingly, these shares are
excluded from the amount of shares beneficially owned by Mr. Gessow. The
address of Mr. Gessow is 2934 Woodside Road, Woodside, California 94062.
(c) Includes options to purchase 216,666 shares of Common Stock, which options
are either presently exercisable or will become exercisable within 60 days
of March 31, 1999.
(d) With the exception of options to purchase 216,666 shares of Common Stock,
which options are either presently exercisable or will become exercisable
within 60 days of March 31, 1999, all of the shares indicated are held by
Mr. Kenninger through a living trust under which Mr. Kenninger may be deemed
presently to share beneficial ownership with his co-trustee spouse.
(e) Includes presently exercisable options to purchase 144,000 shares of Common
Stock.
(f) Includes options to purchase 440,625 shares of Common Stock, which options
are either presently exercisable or will become exercisable within 60 days
of March 31, 1999.
(g) Includes options to purchase 46,350 shares of Common Stock, which options
are either presently exercisable or will become exercisable within 60 days
of March 31, 1999.
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<PAGE>
(h) Includes options to purchase 56,470 shares of Common Stock, which options
are either presently exercisable or will become exercisable within 60 days
of March 31, 1999.
(i) Includes 28,194 shares that are held in a trust for the benefit of Mr.
Kaneko's children. Mr. Kaneko's addressis 5933 West Century Boulevard, Suite
210, Los Angeles, California 90045.
(j) Represents presently exercisable options to purchase shares of Common Stock.
(k) Includes presently exercisable options to purchase 15,000 shares of Common
Stock.
(l) Since October 1996, Mr. Crandall has served as the Vice President and Chief
Financial Officer of Keystone, Inc., the principal investment vehicle of
Robert M. Bass of Fort Worth, Texas. He has served as Chief Operating
Officer since August 1998. According to the Schedule 13G filed February 12,
1999, Keystone, Inc. owns 2,150,700 shares of common stock. Mr. Crandall
disclaims beneficial ownership of all shares of common stock owned by
Keystone, Inc.
(m) Canpartners Incorporated ("Canyon") holds 65,507 shares and is the sole
general partner of CPI Securities L.P. ("CPI"), which holds 458,436 shares.
Mr. Friedman, Mitchell R. Julis and R. Christian B. Evensen are the sole
shareholders and directors of Canyon and may be deemed to share beneficial
ownership of the shares held by Canyon and CPI. Such persons disclaim
beneficial ownership of the shares. The 523,943 shares held by Canyon and
CPI do not include 44,035 shares held by Mr. Friedman's wife, 154,035 shares
held by Mr. Julis, 154,035 shares held by Mr. Evensen's wife, 10,771 shares
held by an irrevocable trust for the benefit of Mr. Evensen's children,
10,771 shares held by an irrevocable trust for the benefit of Mr. Friedman's
children and 10,771 shares held by Mr. Julis' son. The beneficial ownership
of such shares is disclaimed by Canyon. Taken as a group, the entities and
persons named in this note hold an aggregate of 908,361 shares, or 2.5% of
the Common Stock outstanding.
(n) Includes (i) presently exercisable options to purchase 347,237 shares of
Common Stock, (ii) 1,500 shares of Common Stock which Mr. Depatie presently
may be deemed to have, or to share, beneficial ownership with an affiliated
corporation he controls, (iii) 9,000 shares of Common Stock held by a trust
for which is held for the benefit of Mr. Depatie, and (iv) 600 shares of
Common Stock held by a Investment Retirement Account for the benefit of Mr.
Depatie. Mr. Depatie resigned his positions with the Company December 31,
1998.
(o) Includes options to purchase 1,397,443 shares of Common Stock, which options
are either presently exercisable or will become exercisable within 60 days
of March 31, 1999.
COMPLIANCE WITH SECTION 16(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and officers, and persons who
own more than 10% of a registered class of the Company's equity securities
("Insiders"), to file with the Commission initial reports of ownership and
reports of changes in ownership of Common Stock. Insiders are required by the
Commission's regulations to furnish the Company with copies of all Section 16(a)
reports filed by such persons.
To the Company's knowledge, based solely on its review of the copies of
such reports furnished to the Company and written representations from the
Insiders that no other reports were required, during the year ended December 31,
1998, all Section 16(a) filing requirements applicable to Insiders were
fulfilled, except for one late filing for Andrew Jody Gessow involving three
transactions and one late filing for Michael A. Depatie involving two
transactions.
4
<PAGE>
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
GENERAL INFORMATION -- ELECTION OF DIRECTORS
Pursuant to the Company's Articles of Incorporation, as amended (the
"Articles"), the Bylaws, as amended (the "Bylaws"), and resolutions adopted by
the Company's Board of Directors, the Company currently has ten directors. The
Company's Articles provide for its Board of Directors to be divided into three
classes, each serving a staggered term so that directors' terms currently will
expire either at the 1999, 2000 or 2001 annual meeting of stockholders. Messrs.
Kaneko, Aron and Climan have been classified as Class III directors whose
current terms will expire at the 1999 Annual Meeting. If re-elected, such
director's terms will expire at the 2002 annual meeting of stockholders.
Messrs. Crandall, Kenninger and Noyes have been classified as Class I directors
whose current terms will expire at the 2000 annual meeting of stockholders.
Messrs. Friedman, Gessow and Kiely have been classified as Class II directors
of the Company whose current terms will expire at the 2001 annual meeting of
stockholders. In addition, of the Company's ten directors, one Class I director
(Mr. Miller) was elected by a vote of the Company's Board of Directors on
September 4, 1998. Pursuant to the Company's Articles and Bylaws, such newly
elected director must be considered for election by the Company's stockholders
at the 1999 Annual Meeting. If elected, Mr. Miller's term will expire at the
2000 annual meeting of stockholders. Directors elected at each annual meeting
will serve until each respective successor shall have been elected or
appointed.
In the absence of instructions to the contrary, votes will be cast for the
election of the following as directors pursuant to the proxies solicited
hereby. In the event any nominee is unable or declines to serve as a director
at the time of the 1999 Annual Meeting, the proxy will be voted for any
substitute nominee selected by the current Board of Directors. However, the
proxy cannot be voted for a greater number of persons than the number of
nominees designated by the Board of Directors. Management has no reason to
believe, at this time, that the persons named will be unable or will decline to
serve if elected, and each nominee has informed the Company that he will serve
if elected.
Four directors have been nominated for re-election at the 1999 Annual
Meeting: three Class III directors, Messrs. Kaneko, Aron and Climan; and one
Class I director, Mr. Miller. The following table sets forth the name of, and
certain information with respect to, the four persons nominated by the Company
for election as directors at the 1999 Annual Meeting:
<TABLE>
<CAPTION>
DIRECTOR POSITIONS CURRENTLY HELD
NOMINEES FOR DIRECTOR AGE SINCE WITH THE COMPANY
- --------------------------------- ----- ---------- ------------------------------------------------
<S> <C> <C> <C>
CLASS I DIRECTORS:
L. Steven Miller(1)(2) ......... 50 1998 Director, President and Chief Executive Officer
CLASS III DIRECTORS:
Osamu Kaneko(1) ................ 51 1996 Director
Adam M. Aron(3) ................ 44 1997 Director
Sanford R. Climan(3) ........... 43 1996 Director
</TABLE>
- ----------------
(1) This Director is a Member of Executive Committee.
(2) Mr. Miller was elected as a director by a vote of the Company's Board of
Directors on September 4, 1998 and, pursuant to the Company's Articles and
Bylaws, must be considered for election by the Company's stockholders at
the 1999 Annual Meeting.
(3) This Director is a Member of Compensation Committee.
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<PAGE>
For biographical information about the other current Class I and Class II
directors, Messrs. Crandall, Kenninger and Noyes and Messrs. Friedman, Gessow
and Kiely, respectively, see "Directors and Executive Officers."
L. STEVEN MILLER has served as Director, President and Chief Executive
Officer of the Company since October 1998. Mr. Miller also serves as a Director,
Treasurer-elect and Executive Committee member of American Resort Development
Association (an industry trade group). Prior to joining the Company, Mr. Miller
served as Chief Executive Officer of Resort Condominiums International ("RCI"),
the world's largest vacation ownership exchange organization, from January 1997
to September 1998. From January 1991 to January 1997 he held various executive
positions with RCI, including President, Chief Financial Officer and Executive
Vice President. Before joining RCI, Mr. Miller was a partner at the accounting
firm of Ernst & Young LLP. Mr. Miller holds a B.S. degree in business
management, a J.D. degree and a M.B.A. from Indiana University. Mr. Miller is a
member of the Board of Visitors of the Indiana University School of Law and the
Dean's Advisory Council of the Indiana University Kelley School of Business.
OSAMU KANEKO has served as a Director of the Company since May 1996. He
served as Chairman of the Board from June 1996 to September 1998, as Chief
Executive Officer from June 1996 to July 1997 and as Co-Chief Executive Officer
from July 1997 to February 1998. Mr. Kaneko also serves as Chairman of KK
Sunterra Japan, a subsidiary of the Company that owns and operates the
Company's Japanese resort facilities. Mr. Kaneko, a Japanese national, received
a B.A. degree from Indiana State University in 1971. From 1974 to 1985, 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.
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. and Crestline Capital Corporation. Mr.
Aron holds a B.A. degree from Harvard College and a M.B.A. degree from Harvard
Business School.
SANFORD R. CLIMAN was employed by Creative Artists Agency ("CAA") from
June 1986 to September 1995. From October 1995 through May 1997, Mr. Climan was
Executive Vice President and President, Worldwide Business Development for
Universal Studios, Inc. From June 1997 to February 1999, Mr. Climan returned to
CAA as a member of its senior executive team. He is currently pursuing other
interests. Mr. Climan received his BA from Harvard College, a Master of Science
in Health Policy and Management from the Harvard School of Public Health and
his MBA from Harvard Business School.
6
<PAGE>
COMPENSATION OF DIRECTORS
The Company pays its directors who are not officers of the Company
("Independent Directors") an annual retention fee of $25,000 in addition to a
fee of $1,000 per meeting of the Board of Directors and any committee thereof
(including telephonic meetings) for their services as directors. In addition,
the Company grants options to purchase 15,000 shares of Common Stock at a price
equal to the fair market value on the date of grant to each such Independent
Director. Each grant is to vest in equal portions over a term of three years
from the date of election as an Independent Director. Each Independent
Director, who is still a member of the Board of Directors at the end of the
three year vesting period of the initial grant of options, will receive a grant
of additional options to purchase 15,000 shares of Common Stock at the fair
market value of the Common Stock on the date of the grant, such options to vest
over an additional three-year period. In addition to such option grants, the
Independent Directors will be reimbursed for expenses of attending each meeting
of the Board of Directors. Officers of the Company who are directors will not
be paid any director fees but will be reimbursed for expenses of attending
meetings of the Board of Directors.
BOARD OF DIRECTORS AND COMMITTEE MEETINGS
BOARD OF DIRECTORS
The Board of Directors met nine times during the year ended December 31,
1998. During 1998, attendance at Board of Directors meetings averaged 90%.
There were also three meetings of the Compensation Committee and one meeting of
the Audit Committee. No meetings of the Executive Committee were held. One
meeting of the Pricing Committee was held. The Pricing Committee is not a
standing committee. The function of each of the Board of Directors committees
is described below.
COMPENSATION COMMITTEE
The Board of Directors has established a compensation committee (the
"Compensation Committee"), which consists of Messrs. Aron, Climan and Kiely, to
determine compensation for the Company's senior executive officers, determine
awards under the Amended and Restated 1996 Equity Participation Plan and the
1998 New-Hire Stock Option Plan of Sunterra Corporation (the "Mini-Plan") as
well as administer the Company's Employee Stock Purchase Plan, as amended (the
"Employee Stock Purchase Plan").
AUDIT COMMITTEE
The Board of Directors has established an audit committee (the "Audit
Committee"), which consists of Messrs. Aron, Crandall and Friedman. The Audit
Committee makes recommendations concerning the engagement of independent public
accountants; reviews with the independent public accountants the plans and
results of the audit engagement; approves professional services provided by the
independent public accountants; reviews the independence of the independent
public accountants; considers the range of audit and non-audit fees and reviews
the adequacy of the Company's internal accounting controls.
EXECUTIVE COMMITTEE
The Board of Directors has established an executive committee (the
"Executive Committee"), which will be granted such authority as may be
determined from time to time
7
<PAGE>
by a majority of the Board of Directors. The Executive Committee consists of
Messrs. Friedman, Gessow, Kaneko, Kenninger and Miller. All actions by the
Executive Committee require the unanimous vote of all of its members.
PRICING COMMITTEE
The Board of Directors has established a pricing committee (the "Pricing
Committee"), which consists of Messrs. Gessow, Kenninger and Climan. The
Pricing Committee determines the material terms of all equity and/or debt
securities issued by the Company either in public or private offerings. The
Pricing Committee is not a standing committee of the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"EACH OF THE DIRECTORS NOMINATED
IN PROPOSAL 1.
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<PAGE>
PROPOSAL NO. 2:
AMENDMENT TO THE COMPANY'S AMENDED AND RESTATED 1996 EQUITY PARTICIPATION PLAN
INCREASING THE NUMBER OF AUTHORIZED SHARES BY 1,000,000, TO A TOTAL OF
6,380,000 AUTHORIZED SHARES
GENERAL
The Company's employees are key to its success. Recruiting and retaining
the top candidates to work for the Company requires a balance between making
competitive, attractive offers to prospective employees and building equity for
the Company's stockholders. The Company established the Amended and Restated
1996 Equity Participation Plan to assist the Company in recruiting and
retaining executive officers, key employees, Independent Directors and
consultants of the Company in order to build the leadership and operational
infrastructure of the Company. These employees are necessary to develop and
manage the Company's network of resorts, build the Company's membership
business and manage the assets of the Company which have been acquired in the
Company's recent years of acquisition and development. The Amended and Restated
1996 Equity Participation Plan is designed not only to attract and retain
executive officers, key employees, Independent Directors and consultants for
the Company, but also to provide incentives to such persons to maximize the
Company's performance. Approximately ninety officers, key employees and
consultants received stock options during the 1998 fiscal year under the
Amended and Restated 1996 Equity Participation Plan. Six of these grants were
made to new executives and key employees at the Company's new Orlando
headquarters. Only fourteen persons receiving stock option grants in 1998 had
been previously granted stock options under the Amended and Restated 1996
Equity Participation Plan. Others were granted stock options in lieu of a cash
bonus in connection with their performance during the 1997 fiscal year. All of
the foregoing grants were subject to vesting.
The Amended and Restated 1996 Equity Participation Plan has been recently
amended by the Board of Directors in part as follows:
1. The Option Price per share with respect to non-qualified stock options
shall be at least 85% or more of the fair market value of a share of
Common Stock on the date the Option is granted;
2. Option terms shall not be for more than ten years from the date the
option was granted. With respect to incentive stock options granted to
an individual who owns more than 10% of the Company's combined voting
power (a "Ten Percent Owner"), the term is limited to five years; and
3. Other miscellaneous amendments were made to facilitate the
administration of the Amended and Restated 1996 Equity Participation
Plan.
The Amended and Restated 1996 Equity Participation Plan provides for the
award to executive officers, key employees, Independent Directors and
consultants of the Company of a broad variety of stock-based compensation
alternatives such as nonqualified stock options, incentive stock options,
restricted stock and performance awards. Awards under the Amended and Restated
1996 Equity Participation Plan may provide participants with rights
9
<PAGE>
to acquire shares of Common Stock. Currently, not more than 5,380,000 shares of
Common Stock are authorized for issuance under the Amended and Restated 1996
Equity Participation Plan upon exercise of qualified stock options, incentive
stock options, stock appreciation rights, restricted stock awards, performance
awards, dividend equivalents, deferred stock awards and stock payments. Subject
to stockholder approval of this Proposal 2, the number of shares of Common
Stock authorized for issuance under the Amended and Restated 1996 Equity
Participation Plan will be increased to 6,380,000 shares. The maximum number of
shares which may be subject to options or stock appreciation rights granted
under the Amended and Restated 1996 Equity Participation Plan to any individual
in any fiscal year cannot exceed 675,000 (as adjusted for the October 17, 1997
three for two stock split).
The Compensation Committee, whose members are all Independent Directors,
administers the Amended and Restated 1996 Equity Participation Plan. The
Compensation Committee is authorized to select from among the eligible
participants those individuals to whom options (both non-qualified and
incentive), restricted stock purchase rights and performance awards are to be
granted and to determine the number of shares to be granted and the terms and
conditions of such grants. The Compensation Committee is authorized to make any
and all other determinations and take all other actions necessary or advisable
for the administration of the Amended and Restated 1996 Equity Participation
Plan. The Compensation Committee is also authorized to adopt, amend and rescind
rules relating to the administration of the Amended and Restated 1996 Equity
Participation Plan.
Options, stock appreciation rights, restricted stock and other awards
under the Amended and Restated 1996 Equity Participation Plan may be granted to
individuals who are then officers or employees of the Company or any of its
present or future subsidiaries as well as Independent Directors or consultants
of the Company selected by the Compensation Committee for participation in the
Amended and Restated 1996 Equity Participation Plan.
Non-qualified stock options provide for the right to purchase Common Stock
at a specified price, which price must be at least 85% or more of the fair
market value of the Common Stock on the date of grant or, if granted to
Independent Directors, the exercise price shall equal 100% of the fair market
value of the Common Stock on the date of grant. Non-qualified stock options are
usually exercisable in installments after the grant date. Non-qualified stock
options may be granted for any term, but such term shall not exceed ten years.
Independent Directors shall be automatically granted options to purchase 15,000
shares of Common Stock on the date of initial election and options to purchase
an additional 15,000 shares of Common Stock on the third anniversary of such
date, provided that such director continues to serve on the Board of Directors
at such time.
Incentive stock options are designed to comply with the provisions of the
Internal Revenue Code of 1986, as amended (the "Code") and will be subject to
restrictions contained in the Code, including exercise prices equal to at least
100% of fair market value of the Common Stock on the grant date and a ten year
restriction on their term, provided that in the case of incentive stock options
granted to Ten Percent Owners, the exercise price will not be less than 100% of
the fair market value of the Common Stock on the date of grant, and the term of
the option will not be more than five years. These options may be subsequently
modified to disqualify them from treatment as an incentive stock option.
10
<PAGE>
Restricted stock may be sold to participants at various prices, provided
that such stock cannot be sold at a price less than the par value of the stock,
unless otherwise permitted by law. Such stock may also be made subject to such
restrictions as may be determined by the Compensation Committee. The Company
may repurchase the restricted stock at the original purchase price if certain
conditions or restrictions are not met. In general, restricted stock may not be
sold, or otherwise transferred or hypothecated, until restrictions are removed
or expire. Purchasers of restricted stock, unlike recipients of options, will
have voting rights and will receive dividends prior to the time when the
restrictions lapse.
Generally, performance awards will be based upon specific agreements and
may be paid in cash, in Common Stock or in a combination of cash and Common
Stock. Performance awards may include "phantom" stock awards that provide for
payments based upon increases in the price of the Company's Common Stock over a
predetermined period. Performance awards may also include bonuses, which may be
payable in cash, in Common Stock or in a combination of cash and Common Stock.
Dividend Equivalents represent the value of the dividends per share paid
by the Company calculated with reference to the number of shares covered by the
stock options, stock appreciation rights or other awards held by the
participant.
Deferred Stock may be awarded to participants, typically without payment
of consideration, but subject to vesting conditions based on continued
employment or on performance criteria established by the Compensation
Committee. Like restricted stock, deferred stock may not be sold, or otherwise
transferred or hypothecated, until vesting conditions are removed or expire.
Unlike restricted stock, deferred stock will not be issued until the deferred
stock award has vested, and recipients of deferred stock generally will have no
voting or dividend rights prior to the time when vesting conditions are
satisfied.
Stock Payments may be authorized by the Compensation Committee in the form
of shares of Common Stock or an option or other right to purchase Common Stock
as part of a deferred compensation arrangement. Stock Appreciation Rights may
be granted in connection with the simultaneous grant of an Option, with respect
to a previous Option grant or other awards, or separately. Stock Appreciation
Rights ("SARs") granted by the Compensation Committee in connection with stock
options or other awards typically will provide for payments to the holder based
upon increases in the price of the Company's Common Stock over the exercise
price of the related option or other awards, but alternatively may be based
upon criteria such as book value. SARs will be subject to such terms and
conditions not inconsistent with the Amended and Restated 1996 Equity
Participation Plan as the Compensation Committee may impose. In addition, SARs
intended to qualify as performance-based compensation as described in Section
162(m) of the Code will contain such terms and conditions as may be necessary
to comply with Section 162(m) of the Code. The Compensation Committee may elect
to pay SARs in cash or in Common Stock or in a combination of both.
The Amended and Restated 1996 Equity Participation Plan provides for
accelerated vesting of awards upon certain corporate transactions or a change
in control of the Company.
11
<PAGE>
THE 1998 NEW-HIRE STOCK OPTION PLAN OF SUNTERRA CORPORATION
In 1998, the Company consolidated its administrative offices and relocated
its headquarters to Orlando, Florida. In connection with the relocation and in
order to enable the Company to induce new employees to work at its relocated
headquarters, the Company determined to offer such employees an opportunity to
own stock in the Company through the grant of options. However, the number of
options available for grant under the Amended and Restated 1996 Equity
Participation Plan had reached its share limit. Accordingly, the Company
adopted the 1998 New-Hire Stock Option Plan of Sunterra Corporation ("the Mini-
Plan"). The Mini-Plan authorizes the Company to grant a limited number of stock
options (250,000 in the aggregate) to newly hired employees as a material
inducement for the employees to enter into employment agreements with the
Company. No stock options granted under the Mini-Plan may be exercised to the
extent that the Company's federal income tax deduction with respect to such
exercise would be disallowed under Section 162(m) of the Code.
SECURITIES LAWS AND FEDERAL INCOME TAXES
SECURITIES LAWS. The Amended and Restated 1996 Equity Participation Plan
and the Mini-Plan are intended to conform to the extent necessary with all
provisions of the Securities Act of 1933, as amended (the "Securities Act"),
and the Exchange Act and any and all regulations and rules promulgated by the
Securities and Exchange Commission thereunder, including without limitation
Rule 16b-3. The Amended and Restated 1996 Equity Participation Plan and the
Mini-Plan will be administered, and options will be granted and may be
exercised, only in such a manner as to conform to such laws, rules and
regulations. To the extent permitted by applicable law, the Amended and
Restated 1996 Equity Participation Plan, the Mini-Plan and options granted
thereunder shall be deemed amended to the extent necessary to conform to such
laws, rules and regulations.
GENERAL FEDERAL TAX CONSEQUENCES. Under current federal laws, in general,
recipients of awards and grants of nonqualified stock options, stock
appreciation rights, restricted stock, deferred stock, dividend equivalents,
performance awards, and stock payments under the Amended and Restated 1996
Equity Participation Plan and the Mini-Plan are taxable under Section 83 of the
Code upon their receipt of unrestricted Common Stock or cash with respect to
such awards or grants and, subject to Section 162(m) of the Code, the Company
will be entitled to an income tax deduction with respect to the amounts taxable
to such recipients. Under Sections 421 and 422 of the Code, recipients of
incentive stock options are generally not taxable on their receipt of Common
Stock or upon their exercises of incentive stock options if the incentive stock
options and option stock are held for certain minimum holding periods and, in
such event, the Company is not entitled to income tax deductions with respect
to such exercises. Participants in the Amended and Restated 1996 Equity
Participation Plan and the Mini-Plan are provided with detailed information
regarding the tax consequences relating to the various types of awards and
grants under the plan.
SECTION 162(m) LIMITATION. In general, under Section 162(m) of the Code,
income tax deductions of publicly-held corporations may be limited to the
extent total compensation (including base salary, annual bonus, stock option
exercises and non-qualified benefits paid) for certain executive officers
exceeds $1,000,000 (less the amount of any "excess
12
<PAGE>
parachute payments" as defined in Section 280G of the Code) in any one year.
However, under Section 162(m), the deduction limit does not apply to certain
"performance-based compensation" established by an independent compensation
committee which is adequately disclosed to, and approved by, stockholders. In
particular, stock options and SARs will satisfy the "performance-based
compensation" exception if the awards are made by a qualifying compensation
committee, the plan sets the maximum number of shares that can be granted to
any person within a specified period and the compensation is based solely on an
increase in the stock price after the grant date (i.e. the option exercise
price is equal to or greater than the fair market value of the stock subject to
the award on the grant date). Rights or awards granted under the Amended and
Restated 1996 Equity Participation Plan and the Mini-Plan, other than options
and SARs, will not qualify as "performance-based compensation" for purposes of
Section 162(m) unless such rights or awards are granted or vest upon
pre-established objective performance goals, the material terms of which are
disclosed to and approved by the stockholders of the Company.
The Company has attempted to structure the Amended and Restated 1996
Equity Participation Plan and the Mini-Plan in such a manner that the
remuneration attributable to stock options and SARs which meet the other
requirements of Section 162(m) will not be subject to the $1,000,000
limitation.
AMENDMENT TO THE AMENDED AND RESTATED 1996 EQUITY PARTICIPATION PLAN
On March 2, 1999, the Board of Directors approved, subject to stockholder
approval, an amendment to the Company's Amended and Restated 1996 Equity
Participation Plan to increase the number of shares of Common Stock reserved
for issuance thereunder from 5,380,000 to 6,380,000 shares. The Company's
stockholders are asked to approve the adoption of the amendment to the Amended
and Restated 1996 Equity Participation Plan at the 1999 Annual Meeting.
Under the Company's current Amended and Restated1996 Equity Participation
Plan, the aggregate number of shares of Common Stock that may be awarded cannot
exceed 5,380,000 shares of Common Stock. Due to the Company's acquisition
efforts and its need to attract, retain and reward its key employees, the
number of shares issuable pursuant to options granted under the Amended and
Restated 1996 Equity Participation Plan had nearly reached the 5,380,000 share
limit as of December 31, 1998.
The Company's Board of Directors believes that, in order to continue its
acquisition efforts and to retain, motivate, and attract key personnel
essential to the continued success of the Company it is necessary to maintain
its current practice of providing meaningful incentive awards. The Board of
Directors believes that incentive awards have played a critical role in
enabling them to create a motivated management team and to build a growing and
competitive business. The Board of Directors also believes that the Company's
Amended and Restated 1996 Equity Participation Plan has helped to stimulate a
deeper commitment to the Company, minimize management turnover, and reward
continuous improvement in financial performance.
In summary, the Board of Directors believes that the expansion of the
Company's Amended and Restated 1996 Equity Participation Plan will promote the
interests of the
13
<PAGE>
Company and its stockholders by strengthening the Company's ability to attract
motivate and retain employees. It will also enable the Company to build its
business, and structure acquisitions by providing a means to encourage stock
ownership and proprietary interest in the Company to valued employees upon
whose judgment, initiative, and efforts the continued financial success and
growth of the business of the Company largely depend.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
AMENDMENT TO INCREASE FROM 5,380,000 TO 6,380,000
THE NUMBER OF SHARES AUTHORIZED FOR ISSUANCE
UNDER THE COMPANY'SAMENDED AND RESTATED
1996 EQUITY PARTICIPATION PLAN AS DESCRIBED IN PROPOSAL 2
PROPOSAL NO. 3:
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon recommendation of the Audit Committee, has
appointed Arthur Andersen LLP ("AA") as the Company's independent public
accountants for the year ending December 31, 1999. A representative of AA will
be present at the 1999 Annual Meeting and will be given an opportunity to make
a statement and answer appropriate questions. This appointment is being
submitted for ratification at the 1999 Annual Meeting. If the appointment is
not ratified, the Board of Directors will reconsider the appointment, although
the Board of Directors will not be required to appoint different independent
auditors for the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP
AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS FOR
THE YEAR ENDING DECEMBER 31, 1999
AS DESCRIBED IN PROPOSAL 3
14
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning each person who is a
director or executive officer of the Company as of March 31, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ ----- ------------------------------------------------
<S> <C> <C>
Andrew J. Gessow ............. 41 Co-Chairman of the Board
Steven C. Kenninger .......... 46 Co-Chairman of the Board
L. Steven Miller ............. 50 Director, President and Chief Executive Officer
Richard Goodman .............. 50 Executive Vice President -- Finance and
Administration and Chief Financial Officer
James E. Noyes ............... 52 Director and Executive Vice President -- Sales
Thomas A. Bell ............... 47 Senior Vice President -- Legal, General Counsel
and Secretary
Charles C. Frey .............. 44 Senior Vice President -- Owner Services
Osamu Kaneko ................. 51 Director
Adam M. Aron ................. 44 Director
Sanford R. Climan ............ 43 Director
J. Taylor Crandall ........... 44 Director
Joshua S. Friedman ........... 43 Director
W. Leo Kiely III ............. 52 Director
</TABLE>
For biographical information about Messrs. Aron, Climan, Kaneko and
Miller, see "Proposal No. 1: Election of Directors -- General Information --
Election of Directors" above.
ANDREW J. GESSOW has served as a Director of the Company since May 1996
and as Co-Chairman of the Board since September 1998, previously serving as
Chief Executive Officer from February 1998 to September 1998, as Co-Chief
Executive Officer from July 1997 to February 1998 and as President from June
1996 to February 1998. 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 May 1996
and as Co-Chairman of the Board since September 1998, previously serving as
President from February 1998 to September 1998 and 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
15
<PAGE>
practicing attorney in Los Angeles, California at the law firms of Paul,
Hastings, Janofsky & Walker from 1977 through 1981 and Riordan & McKinzie, from
1981 through 1985, where he was a partner. Mr. Kenninger received a B.S. degree
in Mechanical Engineering from Purdue University, with highest distinction, in
1974 and received a JD 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.
RICHARD GOODMAN has served as Executive Vice President -- Finance and
Administration and Chief Financial Officer of the Company since December 31,
1998. From 1992 to 1997, Mr. Goodman held various positions at PepsiCo, Inc.,
most recently as the Senior Vice President and Chief Financial Officer for the
Taco Bell Corporation. Prior thereto, Mr. Goodman was Senior Vice President and
Chief Financial Officer for KFC International, and Vice President, Corporate
Strategic Planning International for PepsiCo. From 1990 to 1992, Mr. Goodman
served as Corporate Vice President and Chief Financial Officer of Grace
Specialty Chemicals Group, a division of W.R. Grace & Co. Mr. Goodman holds
Ph.D., M.A., M.B.A. and B.A. degrees from Columbia University.
JAMES E. NOYES has served as a Director of the Company since July 1996 and
as Executive Vice President -- Sales since January 1999, previously serving as
Chief Operating Officer from February 1998 to January 1999 and as Executive
Vice President of the Company from July 1996 to February 1998. 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/General Manager and Vice President of Marketing and Sales since 1980.
Mr. Noyes served in various marketing management positions for Wilson Sporting
Goods from 1975 to 1980, where his last position was that of Vice President for
the Marketing/Golf Division. 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.
THOMAS A. BELL has served as Senior Vice President, General Counsel and
Secretary of the Company since September 1998. Prior to joining the Company,
Mr. Bell was a partner with the law firm of Gunster, Yoakley, Valdes-Fauli &
Stewart located in Tallahassee, Florida from 1996 to 1998. Prior thereto, Mr.
Bell served as Vice President and General Counsel for RCI, the world's largest
vacation ownership exchange organization, from 1993 to 1996. The State of
Florida employed Mr. Bell from September 1982 through September 1993. During
that time, he served as General Counsel for the Florida Lottery and General
Counsel for the Department of Business Regulation. During his tenure with the
Department of Business Regulation, Mr. Bell had primary legal responsibility
for implementation and enforcement of Florida's Timeshare Statute. In that
capacity, he was a primary drafter of the 1983 amendments to Florida's
Timeshare Statute that served as the model for legislation in numerous other
states. He was also involved in drafting the Florida Multi-Site Timeshare
Statute in 1993. He received a Bachelor of Science degree form Florida State
University and a J.D. degree from Stetson University College of Law.
CHARLES C. FREY has served as Senior Vice President -- Owner Services of
the Company since January 1999, previously serving as Senior Vice President,
Accounting and
16
<PAGE>
Administration from January 1997 to January 1999 and as Senior Vice President
and Treasurer from July 1996 to January 1997. 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.
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 Chief Operating Officer since August
1998. He has also served 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,
Physician Reliance Network Inc., Specialty Foods Corporation and Washington
Mutual Inc. 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 Capital Advisors LLC (and its
predecessors) ("Canyon"), a private merchant banking firm and an affiliate of
Canpartners Incorporated, and has been a Managing Partner of Canyon since its
inception in 1990. 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, an M.A. degree from Oxford University in 1978,
and a JD 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 on the advisory
boards of the National Association of Manufacturers and several educational and
charitable organizations. Mr. Kiely received a B.A. degree from Harvard College
in 1969 and a M.B.A. degree from the Wharton School of Business at the
University of Pennsylvania in 1971.
On August 5, 1996, an action was filed in California state court against
KEN/KOAR LAX Partners, L.P., which was affiliated with Messrs. Kaneko and
Kenninger (the "LAX Partnership"), the owner of the Embassy Suites hotel
located at Los Angeles International Airport, by the secured lender of the
hotel. The complaint sought judicial foreclosure of the loan, appointment of a
receiver and certain other relief. The LAX Partnership subsequently sold its
interest in the Embassy Suites hotel, and the Chapter 11 proceeding was
dismissed concurrently with the closing of such transaction. The Company has no
interest in the hotel or the LAX Partnership. Following the consummation of the
sale, neither Mr. Kaneko nor Mr. Kenninger holds any interest in or obligation
related to the hotel.
17
<PAGE>
On May 14, 1998 KOAR-Tahoe Partners, L.P. filed a petition for Chapter 11
bankruptcy. The general partner of KOAR-Tahoe Partners, L.P. is KOAR-Tahoe
Investment Partnership, L.P. (which owns 30% of KOAR-Tahoe Partners, L.P.) in
which Steven C. Kenninger is a 9.54% limited partner and Osamu Kaneko is a
39.54% limited partner, and the 2.86% general partner of KOAR-Tahoe Investment
Partnership, L.P. is Kaneko KOAR-Tahoe, Inc. of which entity Osamu Kaneko is
the sole shareholder. A plan of reorganization under Chapter 11 of the U.S.
Bankruptcy Code was filed December 8, 1998. In contemplation of a settlement of
this action, KOAR-Tahoe Partners, L.P. executed that certain Standstill
Agreement effective December 9, 1998. No further action has been taken with
regard to the petition for Chapter 11 bankruptcy as of March 31, 1999. The
Company has no interest in KOAR-Tahoe Partners, L.P.
18
<PAGE>
EXECUTIVE COMPENSATION
The Summary Compensation Table below sets forth the annual base salary and
other annual compensation which the Company paid in 1998, 1997 and would have
paid in 1996 on an annualized basis to: (i) the Company's Chief Executive
Officer; (ii) each of the other four most highly compensated executive officers
whose cash compensation exceeded $100,000 in salary and bonus in 1998; and
(iii) two former officers of the Company whose cash compensation exceeded
$100,000 in salary and bonus in 1998 (the "Named Executive Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
------------------------------------------------------------------ COMPENSATION
NAME AND CURRENT FISCAL OTHER ANNUAL SECURITIES UNDERLYING
PRINCIPAL POSITION (1) YEAR SALARY ($) BONUS ($) (2) COMPENSATION ($) (3) OPTIONS/SARS (#)
- ---------------------------------- ------- ----------------- ----------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C>
Andrew J. Gessow,
Co-Chairman of the Board ........ 1998 $ 280,000 $ 280,000 $ 0 194,824(4)(5)
1997 $ 280,000 $ 280,000 $ 2,500 --
1996 $ 280,000 $ 0 $ 2,500 225,000
Steven C. Kenninger,
Co-Chairman of the Board ........ 1998 $ 280,000 $ 280,000 $ 1,318 200,000(4)
1997 $ 280,000 $ 280,000 $ 2,500 --
1996 $ 280,000 $ 0 $ 2,500 225,000
L. Steven Miller,
Director, President and
Chief Executive Officer ......... 1998 $ 87,500(6) $ 87,500(6) $ 199,834(6) 675,000
1997 -- -- -- --
1996 -- -- -- --
James E. Noyes,
Director and Executive Vice
President -- Sales .............. 1998 $ 321,000 $ 240,000 $ 15,203(7) --
1997 $ 289,000 $ 271,000 $ 14,500(7) --
1996 $ 280,000 $ 120,000 $ 14,500(7) 562,500
Charles C. Frey,
Senior Vice President --
Owner Services .................. 1998 $ 290,769 $ 75,000 $ 1,318 50,000
1997 $ 207,631 $ 75,000 $ 13,259(8) --
1996 $ 160,000 $ -- $ 10,613(8) 225,000
Genevieve Giannoni,
Senior Vice President --
Central Services ................ 1998 $ 290,769 $ 75,000 $ 1,318 50,000
1997 $ 207,631 $ 75,000 $ 11,818(8) --
1996 $ 160,000 -- $ 12,128(8) 225,000
Michael A. Depatie,
Former Director and
Former Executive
Vice President and
Chief Financial Officer(9) ...... 1998 $ 290,769 $ 280,000 $ 3,039 --
1997 $ 280,000 $ 200,000 $ 2,500 --
1996 $ 280,000 $ 0 $ 2,500 562,500
</TABLE>
- ----------------
(1) Certain Named Executive Officers served the Company in different capacities
during 1996, 1997 and 1998. For a description of the various positions
held by Messrs. Gessow, Kenninger and Noyes, see "Directors and Executive
Officers."
(2) Amounts stated include bonus amounts earned in 1998 by the Named Executive
Officers and paid in 1999. See "Employment Agreements and Covenants Not to
Compete" and "Compensation Committee Report" sections below for a
discussion of annual performance bonuses payable to key employees and
executive officers.
19
<PAGE>
(3) Represents insurance premiums for customary health benefits with respect to
Messrs. Kenninger, Miller, Frey, Ms. Giannoni and Mr. Depatie.
(4) Messrs. Gessow and Kenninger were granted 300,000 non-qualified stock
options on May 15, 1998. Subsequently, each forfeited 100,000 of those
options to the Company since the Amended and Restated 1996 Equity
Participation Plan lacked the number of options necessary to fulfill the
Company's obligation to Mr. Miller pursuant to his Employment Agreement
with the Company.
(5) Mr. Gessow forfeited an additional 5,176 non-qualified stock options from
his May 15, 1998 grant for the benefit of the Company so that the Company
could fulfill its obligations to Mr. Goodman under his Employment
Agreement as the necessary number of options were not currently available
under the Amended and Restated 1996 Equity Participation Plan.
(6) Mr. Miller was hired as Chief Executive Officer and President of the
Company in September 1998. $700 of the other compensation represents
premiums paid for customary health benefits and the remaining amount
represents one time signing and relocation payments provided to Mr. Miller
in connection with his initial employment by the Company.
(7) In addition to insurance premiums for customary health benefits, represents
automobile lease payments of $13,885 for Mr. Noyes whose lease expired in
February 1999.
(8) In addition to insurance premiums for customary health benefits, total
includes automobile lease payments.
(9) Mr. Depatie resigned as Director, Executive Vice President and Chief
Financial Officer of the Company effective as of December 31, 1998.
The following table contains information concerning the value of stock
options issued under the Company's Amended and Restated 1996 Equity
Participation Plan and held by the Named Executive Officers as of December 31,
1998.
DECEMBER 31, 1998 OPTION YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-END
NAME AND PRINCIPAL OCCUPATION EXERCISABLE/UNEXERCISABLE (#) EXERCISABLE/UNEXERCISABLE ($) (1)
- ------------------------------------------------- ------------------------------- ----------------------------------
<S> <C> <C>
Andrew J. Gessow,
Co-Chairman of the Board ...................... 150,000/269,824 $ 850,500/$425,250
Steven C. Kenninger,
Co-Chairman of the Board ...................... 150,000/275,000 $ 850,500/$425,250
L. Steven Miller,
Director, President and
Chief Executive Officer ....................... 144,000/531,000 $ 882,000/$3,252,375
James E. Noyes,
Director and Executive
Vice President -- Sales ....................... 393,750/168,750 $2,756,250/$1,181,250
Charles C. Frey,
Senior Vice President --
Owner Services ................................ 46,350/107,500 $ 206,104/$382,725
Genevieve Giannoni,
Senior Vice President --
Central Services .............................. 56,470/107,500 $ 263,484/$382,725
Michael A. Depatie,
Former Director, Executive Vice
President and Chief Financial Officer ......... 337,500/225,000 $ 288,783/$192,522
</TABLE>
- ----------------
(1) Based on the difference between the per share closing price of the
underlying shares of Common Stock on December 31, 1998 and the per share
exercise price of such options.
20
<PAGE>
EMPLOYMENT AGREEMENTS AND COVENANTS NOT TO COMPETE
In 1996, each of Messrs. Gessow, Kaneko, Kenninger and Noyes entered into
an employment agreement with the Company for a term of two years, subject to
extension. The employment agreement for each of the named executives provides
for an annual salary of $280,000 per year for the first year and at such salary
as may be determined by the Compensation Committee thereafter, with annual
performance bonuses determined by the Compensation Committee in connection with
the achievement of performance criteria to be determined (except with respect
to Mr. Noyes, who will receive a guaranteed quarterly bonus of $30,000 for each
quarter he is employed by the Company). In 1996, pursuant to their employment
agreement each of Messrs. Gessow, Kaneko, Kenninger and Noyes received options
to purchase 225,000, 225,000, 225,000 and 562,500 shares of Common Stock,
respectively. In 1998, Messrs. Gessow, Kaneko and Kenninger were each granted
additional options to purchase 300,000, 225,000 and 300,000 shares,
respectively, of Common Stock of which they voluntarily returned 105,176,
25,000 and 100,000, respectively, to further the Company's best interest in
allowing the Company to meet its commitments to Messrs. Miller and Goodman in
their respective Employment Agreements with the Company. Pursuant to their
employment agreements, each of Messrs. Gessow, Kaneko, Kenninger and Noyes
shall receive severance payments equal to base compensation and one-twelfth of
any bonus payable at the most recent annual amount for the longer of the
balance of the employment term or two years upon the death, disability,
termination or resignation of such executive, unless such executive resigns
without "good cause" or unless the Company terminates such executive as a
result of gross negligence, willful misconduct, fraud or a material breach of
the employment agreement. Each such executive will have "good cause" to
terminate his employment with the Company in the event of any reduction in his
compensation or benefits, material breach or material default by the Company
under his employment agreement or following the merger or change in control of
the Company.
Each of Messrs. Gessow, Kenninger and Noyes has agreed to devote
substantially full time to the business of the Company and not engage in any
competitive businesses. In particular, the foregoing individuals are prohibited
from managing, consulting or participating in any way in any vacation ownership
business or from acquiring any property with the intent to convert the property
to a vacation ownership operation, unless the Independent Directors of the
Company determine that it is in the best interest of the Company to allow them
to do so. Such non-competition provisions shall survive for two years following
any termination of employment. Such individuals are not prohibited from
investing in residential or commercial real estate that has no prospect of
being converted for vacation ownership or resort related use, or from acquiring
hotels, including hotels which may compete directly with properties of the
Company.
In March 1998, the Company amended its employment agreement with Mr.
Kaneko to provide that he shall devote at least 50% of his time to the
Company's business. Correspondingly, Mr. Kaneko's annual salary was reduced to
$140,000 per year, plus bonus provisions. Mr. Kaneko is allowed to devote the
remainder of his time to acquire, develop or manage other investments in
non-resort residential or commercial real estate that do not present a prospect
for conversion to vacation ownership or resort-related use.
21
<PAGE>
In 1998, each of Mr. Miller, Richard Goodman, Chief Financial Officer and
Executive Vice President -- Finance and Administration, and Thomas A. Bell,
Senior Vice President, General Counsel and Secretary, entered into an
employment agreement with the Company for a term of two years, subject to
extension. The employment agreement for each of Messrs. Miller, Goodman and
Bell provides for an annual salary of $350,000, $300,000 and $225,000 per year,
respectively, for the first year and at such salary as may be determined by the
Compensation Committee thereafter, with annual performance bonuses determined
by the Compensation Committee in connection with the achievement of performance
criteria. The performance criteria will be determined by the Compensation
Committee with respect to Mr. Miller and by the Compensation Committee and the
Chief Executive Officer with respect to Messrs. Goodman and Bell. In 1998,
pursuant to their employment agreement, each of Messrs. Miller, Goodman and
Bell received options to purchase 675,000, 150,000 and 65,000 shares of Common
Stock, respectively.
In addition, pursuant to their employment agreement, each of Messrs.
Miller, Goodman and Bell shall receive severance payments equal to their base
compensation and one-twelfth of any bonus payable at the most recent annual
amount (the "Severance Payment") for a period of two years (one year with
respect to Mr. Bell) upon the death, disability (in which case the Severance
Payment will be for the lesser of two years (one year with respect to Mr. Bell)
or the duration of the disability), termination or resignation of such
executive, unless such executive resigns without "good cause" or unless the
Company terminates such executive as a result of the executive's gross
negligence, willful misconduct, conviction of a crime involving moral turpitude
or constituting a felony, fraud or material breach of the employment agreement.
Each of Messrs. Miller and Bell will have "good cause" to terminate his
employment with the Company in the event of any material alteration, reduction
or diminution in the duties, responsibilities and status of his position in the
Company, a material breach by the Company under his employment agreement or
following the merger or change in control of the Company. Mr. Goodman will have
"good cause" to terminate his employment with the Company in the event of a
material breach by the Company under his employment agreement or following the
merger or change in control of the Company.
Each of Messrs. Miller, Goodman and Bell has agreed to devote
substantially full time to the business of the Company and not engage in any
competitive businesses. In particular, the foregoing individuals are prohibited
from investing in, managing, consulting or participating in any way in any
vacation ownership business, participating in or advising any business where
vacation ownership is a material business segment or acting for or on behalf of
any business that intends to enter or participate in the vacation ownership
business, in each case unless the Independent Directors of the Company
determine that it is in the best interest of the Company to allow them to do
so. Such non-competition provisions shall survive for two years (one year with
respect to Mr. Bell) following any termination of employment.
Michael A. Depatie amended and restated his employment agreement with the
Company on July 27, 1998 (the "Amended Depatie Agreement"). Under his prior
agreement, Mr. Depatie was paid a total of $570,769 in salary and bonuses in
1998. Pursuant to the Amended Depatie Agreement, Mr. Depatie has agreed to act
as a consultant to the Company for a period of five years, receiving monthly
compensation of $25,000 for the first five months and a lump sum payment of
$108,000 for the remaining
22
<PAGE>
four and a half years of the consulting period. Each of these payments is
contingent upon a time commitment from Mr. Depatie of ten hours each month for
the first five months and five hours each month thereafter. Any additional time
expended by Mr. Depatie at the Company's request will be compensated at an
hourly rate of $250 for the first five months and $500 per hour thereafter.
There are no extension provisions that would allow
Mr. Depatie to continue as a consultant for the Company after the expiration of
the five-year consulting period. As of January 16, 1999, Mr. Depatie had
346,877 options vested (which can be exercised during the term of his
consulting period). All unvested options were returned to the Company.
COMPENSATION COMMITTEE REPORT
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors has established the Compensation Committee, which
consists of Messrs. Aron, Climan and Kiely, to determine compensation for the
Company's senior executive officers, determine awards under the Company's
Amended and Restated 1996 Equity Participation Plan, 1998 New-Hire Stock Option
Plan and administer the Company's Employee Stock Purchase Plan. Messrs. Aron,
Climan and Kiely were not officers or employees of the Company at any time and
none of them engage in any insider transactions with the Company that is
required to be disclosed pursuant to the Exchange Act.
REPORT ON ANNUAL COMPENSATION OF EXECUTIVE OFFICERS
The report of the Compensation Committee shall not be deemed incorporated
by reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act or under the Exchange Act,
except to the extent that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
The Compensation Committee's policy is to establish compensation levels
for the Company's executive officers, including its current Chief Executive
Officer, L. Steven Miller (the "CEO") and its former Chief Executive Officer,
Mr. Gessow (the "Former CEO"), which reflect the Company's overall performance
and the individual executive's performance, responsibilities and contributions
to the long-term growth and profitability of the Company. The Compensation
Committee's policy is to determine the appropriate executive compensation
levels that will enable the Company to attract and retain qualified executives.
The Compensation Committee determines the compensation of the Company's
executive officers based on its evaluation of the Company's overall
performance, primarily based on the Company's revenues and earnings performance
compared with the Company's operating and growth plan. Qualitative factors,
such as the extent to which the executive officer has contributed to forming a
strong management team, and other factors which the Compensation Committee
believes are indicative of the Company's ongoing ability to achieve its
long-term sales growth and profit objectives are also utilized in determining
the compensation level of the Company's executive officers. With respect to
each executive, the Compensation Committee focuses on that individual
executive's areas of responsibility and his contribution toward achieving
corporate objectives.
Total compensation of each executive officer of the Company consists of
four components: base salary, annual incentive in the form of a cash bonus,
long-term incentive
23
<PAGE>
in the form of equity based stock compensation alternatives and miscellaneous
benefits and perquisites. Each component is discussed below.
The principal component of the compensation of each executive officer is
the executive's base salary. As described above under "Employment Agreements
and Covenants Not To Compete," the base salaries for each of the CEO, the
Former CEO and Messrs. Goodman, Noyes and Bell are based on his rights under an
employment agreement with the Company. Each employment agreement established a
minimum annual salary that was established based on negotiations with the
Company and the relevant executive and approved by the Board of Directors. In
setting these initial base salaries, the Board of Directors reviewed the
corporate and individual performance factors described above and the practices
of a peer group of other vacation ownership public growth-oriented companies.
This comparison peer group is not identical to the peer group included in the
performance comparison graph under "Stock Performance Graph" included in this
Proxy Statement. The Board of Directors attempted to set the Company's base
executive compensation levels at levels that generally approximate or are less
than the executive base compensation levels at the companies in its peer group.
The base salary of the CEO and the Former CEO for the year ended December 31,
1998 was $87,500 and $280,000, respectively. Since each executive (other than
the CEO and Messrs. Goodman and Bell) has completed his first full year of
service under his employment agreement, the Compensation Committee can adjust
such executive's salary either upwards or downwards and any such adjustments
will be made based on the factors discussed above.
The Company has established an incentive compensation plan for executive
officers of the Company. This plan provides for payment of a cash bonus to
executive officers and key employees if certain performance objectives
established for each individual are achieved. Such objectives include the
formation of new strategic relationships and ventures and the consummation of
strategic acquisitions that add value to the earnings of the Company. Pursuant
to such plan and the employment agreements discussed above, each of the CEO,
the Former CEO and Messrs. Goodman, Noyes and Bell are entitled to receive a
cash bonus of up to 100% (60% with respect to Mr. Goodman and no target with
respect to Mr. Bell) of their respective base compensation, respectively, upon
the achievement by the Company of specified targets of growth in revenues,
earnings per share and other key operating factors as determined by the
Compensation Committee (and the CEO, with respect to Messrs. Goodman and Bell).
The Company has elected to pay a cash bonus to each of the CEO and the Former
CEO for the year ended December 31, 1998 in the amount of $87,500 and $280,000,
respectively. The Company also paid the CEO one time signing and relocation
payments totaling $176,250 in connection with his initial employment with the
Company.
The Company established the Amended and Restated 1996 Equity Participation
Plan to enable executive officers, key employees, Independent Directors and
consultants of the Company to participate in the ownership of the Company. The
Amended and Restated 1996 Equity Participation Plan is administered by the
Compensation Committee and is designed to attract and retain executive
officers, other key employees, Independent Directors and consultants of the
Company and to provide incentives to such persons to maximize the Company's
performance. The Amended and Restated 1996 Equity Participation Plan provides
for the award to executive officers, key employees, Independent Directors and
consultants of the Company of a broad variety of stock-based compensation
alternatives
24
<PAGE>
such as non-qualified stock options, incentive stock options, restricted stock
and performance awards ("Equity-Based Compensation"). The Compensation
Committee annually considers grants of Equity-Based Compensation for each of
the executive officers. The Compensation Committee determines the amount of
Equity-Based Compensation for executives based on the responsibility of the
executive, the historic levels of Equity-Based Compensation granted to other
executives and the Compensation Committee's judgment as to the appropriate
incentive level for purposes of achieving the objectives of the Amended and
Restated 1996 Equity Participation Plan. The Compensation Committee also
determines the amount of Equity-Based Compensation based upon its review of
overall corporate performance and individual performance. During fiscal 1998,
the Company granted the CEO and the Former CEO options to purchase a total of
675,000 and 300,000 shares of Common Stock, respectively. As mentioned
previously, the Former CEO voluntarily forfeited a portion of his option grants
to further the Company's best interest in allowing the Company to meet its
commitments to Messrs. Miller and Goodman under their respective Employment
Agreements.
In 1998, the Company consolidated its administrative offices and relocated
its headquarters to Orlando, Florida. In connection with the relocation and in
order to enable the Company to induce new employees to work at its relocated
headquarters, the Company determined to offer such employees an opportunity to
own stock in the Company through the grant of options. However, the number of
options avilable for grant under the Amended and Restated 1996 Equity
Participation Plan had reached its share limit. Accordingly, the Company
adopted the Mini-Plan. The Mini-Plan authorizes the Company to grant a limited
number of stock options (250,000 in the aggregate) to newly hired employees as
a material inducement for the employees to enter into employment agreements
with the Company. No stock options granted under the Mini-Plan may be exercised
to the extent that the Company's federal income tax deduction with respect to
such exercise would be disallowed under Section 162(m) of the Code.
The last component of total compensation is Company benefits and
perquisites generally consisting of car allowances for certain executives and
customary health benefits.
During 1993, the Internal Revenue Code of 1986 was amended to include
Section 162(m) which denies a deduction to any publicly held corporation for
compensation paid to any "covered employee" (which is defined as the CEO and
the Company's other four most highly compensated officers, as of the end of a
taxable year) to the extent that the compensation exceeds $1,000,000 in any
taxable year of the corporation beginning after 1993. Compensation that
constitutes "performance based compensation" is excludable in applying the
$1,000,000 limit. It is the Company's policy to qualify compensation paid to
its top executives for deductibility under Section 162(m) in order to maximize
the Company's income tax deductions wherever, in the judgment of the
Compensation Committee, to do so would be consistent with the objectives of the
Company's compensation policies.
By the Compensation Committee
Adam M. Aron
Sanford R. Climan
W. Leo Kiely III
25
<PAGE>
STOCK PERFORMANCE GRAPH
Set forth below is a line graph comparing the total cumulative return of
the Company's Common Stock commencing on the initiation of trading of the
Company's Common Stock on August 16, 1996 and ending on December 31, 1998 to
(a) a new group of peer issuers with similar vacation ownership, lodging or
leisure businesses, (b) a new broad equity market index (the Russell 2000
index); (c) last year's group of peer issuers; and (d) last year's broad equity
market index the (Nasdaq composite index). The Company changed the broad equity
market index for the 1999 Proxy Statement in order to select an index that is
comprised of similarly capitalized companies on the New York Stock Exchange on
which the Company's Common Stock is now listed. The Company changed peer groups
to include a greater number of public companies with operations concentrated in
the vacation ownership market segment. The information contained in the
performance graph shall not be deemed "soliciting material" or be "filed" with
the Commission, nor shall such information be incorporated by reference into
any future filing under the Securities or Exchange Act. The stock price
performance on the following graph is not necessarily indicative of future
stock price performance.
COMPARISON OF 28 MONTH CUMULATIVE TOTAL RETURN*
AMONG SUNTERRA CORP., THE NASDAQ COMPOSITE INDEX,
THE RUSSELL 2000 INDEX, A NEW PEER GROUP AND AN OLD PEER GROUP
CUMULATIVE TOTAL RETURN
-------------------------------
8/15/96 12/96 12/97 12/98
SUNTERRA CORP. 100 254 236 162
NEW PEER GROUP 100 126 316 179
OLD PEER GROUP 100 107 157 211
NASDAQ COMPOSITE INDEX 100 114 139 196
RUSSELL 2000 100 111 136 135
* $100 INVESTED ON 8/15/96 IN STOCK OR INDEX-INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31.
(1) Assumes $100 was invested on August 16, 1996 in stock or index and assumes
dividends are reinvested.
(2) The Old Peer Group companies consist of Ambassadors International, Inc.,
Bristol Hotel Company, Carnival Corporation, Fairfield Communities, Inc.,
Hilton Hotels Corporation, Marriott International, Inc., and Prime
Hospitality Corporation.
(3) The New Peer Group companies consist of Bluegreen Corporation, Fairfield
Communities, Inc., Resort Quest International, Inc., Silverleaf Resorts,
Inc., Trendwest Resorts, Inc., and Vistana, Inc.
(4) Prior to February 6, 1998, the Company's Common Stock was quoted on the
Nasdaq National Market.
26
<PAGE>
CERTAIN TRANSACTIONS
Affiliates of Messrs. Kaneko and Kenninger currently have managing general
partner or similar interests in entities, which own investment properties,
which the Company does not consider to be competitive with its timeshare
business (the "KOAR Interests"). These properties include a 225-unit
condominium project in Long Beach, California which is being marketed for whole
share unit sales or long-term residential use rather than vacation use (and
with respect to which the KOAR Interests currently own 25 of the total 225
units, the balance having been sold to third parties); several retail centers
and a proposed office development project. Messrs. Kaneko and Kenninger are
also currently the constituent general partners of a number of partnerships in
which they owe fiduciary duties to limited partners who invested over $80
million of equity therein these partnerships include certain Embassy Suites
hotels which are still owned by partnerships controlled by Affiliates of
Messrs. Kaneko and Kenninger (the "Prior Partnerships"). Messrs. Kaneko and
Kenninger are authorized by the Company to meet their duties and
responsibilities to the Prior Partnerships pursuant to the terms thereof,
including the sale, refinancing, restructuring and packaging of the Prior
Partnerships, including the formation of public or private entities for such
purpose, including a public real estate investment trust ("REIT") for one or
all of the Embassy Suites hotels in the Prior Partnerships provided, that
Messrs. Kaneko and Kenninger agree not to serve as an officer or employee of
such REIT. Messrs. Kaneko and Kenninger agree to continue to retain third party
management companies to manage these properties e.g., Promus Hotels manages all
relevant Embassy Suites hotels, and to employ personnel not employed by the
Company to carry out the day-to-day responsibilities of managing and overseeing
these properties. However, Messrs. Kaneko and Kenninger reserve the right to do
what is reasonably necessary within these constraints to carry out their duties
and responsibilities to the Prior Partnerships pursuant to the terms thereof.
The Company does not believe that such activities detract materially from
Messrs. Kaneko's and Kenninger's services to the Company. See "Employment
Agreements and Covenants Not To Compete" for additional information regarding
such persons' obligations to the Company.
In 1997, Messrs. Gessow, Kaneko and Kenninger transferred 100% of their
interest in the Embassy Vacation Resort at Kaanapali Beach (the "Kaanapali
Resort") in exchange for the Company's agreement to reimburse to them expenses
they had incurred to acquire the Kaanapali Resort. On June 9, 1998, the Board
of Directors of the Company approved the reimbursement by the Company of an
aggregate of $626,858 to Messrs. Gessow ($250,743.20), Kaneko ($250,743.20) and
Kenninger ($125,371.60) for expenses incurred by them individually in
connection with the acquisition of the Kaanapali Resort. The Company has been
previously reimbursed $275,639 by The Whitehall Fund of Goldman Sachs and
Apollo, the Company's partners in the Kaanapali Resort for their pro rata
portion of such expenses.
From time to time the Company leases for business purposes a plane owned
by DCA, LLC, an entity wholly owned and controlled by Mr. Gessow. The Company
has adopted a policy whereby the Company pays DCA, LLC $1.00 per trip and pays
all expenses related to the operation of the aircraft while it is under the
Company's control. In 1998 these expenses amounted to $195,663.37.
27
<PAGE>
OTHER INFORMATION
CERTAIN STOCKHOLDERS
The table below sets forth certain information regarding the beneficial
owners of more than 5% of the Company's Common Stock as of March 31, 1999,
other than directors and executive officers.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
-------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(S) SHARES PERCENTAGE
- -------------------------------------------------- ----------- -----------
<S> <C> <C>
AXA Assurances I.A.R.D. Mutuelle(1) .............. 2,399,300 6.68%
21, rue de Chateaudun
75009 Paris France
Pilgram Baxter & Associates, Ltd.(2) ............. 3,219,680 9.0%
825 Duportail Road
Wayne, Pennsylvania 19087
Warburg Pincus Asset Management, Inc.(3) ......... 3,148,400 8.77%
466 Lexington Avenue
New York, New York 10017
Keystone, Inc.4(4) ............................... 2,150,700 5.99%
201 Main Street
Suite 3100
Fort Worth, Texas 76012
Robert M. Bass(4) ................................ 3,023,100 8.4%
201 Main Street
Suite 3100
Fort Worth, Texas 76012
FMR Corp.(5) ..................................... 3,190,255 8.88%
82 Devonshire Street
Boston, Massachussetts 02109
</TABLE>
- ----------------
(1) Information based solely on a Schedule 13G filed with the Commission on
February 16, 1999 by AXA Assurances I.A.R.D. Mutuelle.
(2) Information based solely on a Schedule 13G filed with the Commission on
February 13, 1998 by Pilgram Baxter & Associates, Ltd.
(3) Information based solely on a Schedule 13G filed with the Commission on
January 13, 1999 by Warburg Pincus Asset Management, Inc.
(4) Information based solely on a Schedule 13D filed jointly with the
Commission on October 26, 1998, as amended on December 10, 1998, by
Keystone, Inc. ("Keystone") and Robert M. Bass. Keystone beneficially owns
2,150,700 (or 6.0%) of the outstanding shares of Common Stock. Mr. Bass,
the President and sole director of Keystone, beneficially owns 3,023,100
(or 8.4%) of the outstanding shares of Common Stock, of which 872,400
shares are individually owned and 2,150,700 are beneficially owned through
Keystone. Director J. Taylor Crandall is the Vice President and Chief
Operating Officer of Keystone. He disclaims beneficial ownership of all of
the shares owned by either Keystone or Mr. Bass.
(5) Information based solely on a Schedule 13G filed with the Commission on
February 12, 1999 by FMR Corp.
OTHER MATTERS AT THE MEETING
The Board of Directors does not know of any matters to be presented at the
1999 Annual Meeting of Stockholders other than those mentioned in this Proxy
Statement. If any other matters are properly brought before the 1999 Annual
Meeting of Stockholders, it is intended that the proxies will be voted in
accordance with the best judgment of the person or persons voting such proxies.
28
<PAGE>
COST OF SOLICITATION
The expense of soliciting proxies and the cost of preparing, assembling
and mailing material in connection with the solicitation of proxies will be
paid by the Company. In addition to the use of mails, certain directors,
officers or employees of the Company and its subsidiaries, who receive no
compensation for their services other than their regular salaries, may solicit
and tabulate proxies. The Company has retained D.F. King & Co., Inc. to assist
in the solicitation of proxies with respect to shares of Common Stock held of
record by brokers, nominees and institutions. The estimated cost of the
services of D.F. King & Co., Inc. is $4,500, plus expenses.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Under the rules of the Exchange Act relating to when a Company must
include a stockholders proposal in its proxy statement, stockholder proposals
intended to be included in the Company's 2000 Proxy Statement must be submitted
to the Board of Directors in writing and must be received at the Company's
principal executive offices at 1781 Park Center Drive, Orlando, Florida 32835,
attention Corporate Secretary, no later than December 16, 1999. Any such notice
shall set forth: (a) the name and address of the stockholder and the text of
the proposal to be introduced; (b) the number of shares of stock held of
record, owned beneficially and represented by proxy by such stockholder as of
the date of such notice; and (c) a representation that the stockholder intends
to appear in person or by proxy at the meeting to introduce the proposal
specified in the notice. The chairman of the meeting may refuse to acknowledge
the introduction of any stockholder proposal not made in compliance with the
foregoing procedures.
Additionally, under the provisions of the Company's Bylaws relating to
nominations of persons for election to the Board of Directors and the proposal
of business, stockholder nominations and proposals eligible to be considered at
the Company's 2000 annual meeting of stockholders, must be received at the
Company's principal executive offices no later than March 15, 2000 and no
earlier than February 14, 2000.
By Order of the Board of Directors
/s/ Thomas A. Bell
Thomas A. Bell
Senior Vice President,
General Counsel and Secretary
Orlando, Florida
April 14, 1999
29
<PAGE>
PROXY
SUNTERRA CORPORATION
PROXY FOR THE 1999 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Sunterra Corporation, a Maryland
corporation, hereby acknowledges receipt of the Notice of 1999 Annual Meeting of
Stockholders and Proxy Statement and hereby appoints L. Steven Miller, Richard
Goodman and Thomas A. Bell as proxies, each with the power to appoint his
substitute, and hereby authorizes them to represent and to vote, as designated
below, all the shares of the Common Stock of Sunterra Corporation held of record
by the undersigned on April 5, 1999 at the 1999 Annual Meeting of Stockholders
to be held May 14, 1999 or any adjournment or postponement thereof.
This proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder. If no direction is made, this proxy will be voted
FOR Proposals 1, 2, and 3 and in accordance with the recommendations of the
Board of Directors on any other matters that may properly come before the
meeting.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
-FOLD AND DETACH HERE-
<PAGE>
1. ELECTION OF DIRECTORS
FOR ALL NOMINEES WITHHOLD
LISTED BELOW AUTHORITY
(EXCEPT AS MARKED TO VOTE FOR ALL NOMINEES
TO THE CONTRARY BELOW) LISTED BELOW
/ / / /
Nominees: L. Steven Miller (Class I)
Osamu Kaneko (Class III)
Adam M. Aron (Class III)
Sanford Climan (Class III)
(Instruction: To withhold authority to vote for any nominee, strike a line
through that nominee's name in the list above)
FOR AGAINST ABSTAIN
2. Approve the Amendment to the Company's / / / / / /
Amended and Restated 1998 Equity
Participation Plan, to increase
the number of shares issuable
thereunder.
3. Ratification of the appointment of / / / / / /
Arthur Andersen LLP, as the independent
accountant of the corporation.
4. The Proxies are authorized to vote upon
such other business as may properly
come before the meeting. / / / / / /
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
Dated_______________________________, 1999
__________________________________________
Signature
__________________________________________
Signature
Please sign the Proxy Card exactly as the stockholder's name appears hereon.
If you are an authorized representative signing on behalf of an entity, trust
or another individual, please sign the entity, trust or individual's name as it
appears, then your full name and full title. When shares are held by joint
tenants both should sign.
