<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 10, 1997
REGISTRATION NO. 333-19045
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
VISTANA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
FLORIDA 6552 59-3415620
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
8801 VISTANA CENTRE DRIVE
ORLANDO, FLORIDA 32821
(407) 239-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S EXECUTIVE OFFICES)
----------------
RAYMOND L. GELLEIN, JR.
CHAIRMAN OF THE BOARD
VISTANA, INC.
8801 VISTANA CENTRE DRIVE
ORLANDO, FLORIDA 32821
(407) 239-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
WITH COPIES TO:
MARSHALL E. EISENBERG, ESQ. PETER T. HEALY, ESQ.
NEAL, GERBER & EISENBERG O'MELVENY & MYERS LLP
TWO NORTH LASALLE STREET 275 BATTERY STREET
SUITE 2200 EMBARCADERO CENTER WEST
CHICAGO, ILLINOIS 60602 SAN FRANCISCO, CALIFORNIA 94111
(312) 269-8000 (415) 984-8833
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE AMOUNT OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE(3)
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<S> <C> <C> <C> <C>
Common Stock, par value
$0.01 per share........ 6,382,500 shares $14 $89,355,000 $27,077
</TABLE>
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(1) Includes 832,500 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
(2)Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457.
(3) The registration fee was paid on December 31, 1996 in connection with the
initial filing of this Registration Statement.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 10, 1997
5,550,000 SHARES
LOGO
COMMON STOCK
Of the 5,550,000 shares of common stock, par value $0.01 per share ("Common
Stock"), of Vistana, Inc. (the "Company"), offered hereby (the "Offering"),
4,625,000 shares are being sold by the Company and 925,000 shares are being
sold by the Selling Shareholders named herein. The Company will not receive any
of the proceeds from the sale of shares of Common Stock by the Selling
Shareholders. Following the Offering, the Company's directors, executive
officers and certain of their affiliates will own beneficially approximately
70.5% (approximately 66.1% if the Underwriters' over-allotment option is
exercised in full and all shares of Common Stock subject thereto are sold
solely by the Selling Shareholders) of the outstanding shares of Common Stock.
See "Principal and Selling Shareholders." Prior to the Offering, there has been
no public market for the Common Stock of the Company. It is currently
anticipated that the initial public offering price will be between $12.00 and
$14.00 per share of Common Stock. See "Underwriting" for a discussion of
factors considered in determining the initial public offering price. The Common
Stock has been approved for quotation on the Nasdaq National Market, subject to
official notice of issuance, under the symbol "VSTN."
SEE "RISK FACTORS" COMMENCING ON PAGE 12 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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<CAPTION>
Underwriting Discounts Proceeds to Proceeds to Selling
Price to Public and Commissions(1) Company(2) Shareholders
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
Total(3)................ $ $ $ $
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</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $2,150,000.
The Company has agreed to pay the expenses of the Selling Shareholders,
other than Underwriting Discounts and Commissions.
(3) The Company and the Selling Shareholders have collectively granted the
Underwriters a 30-day option to purchase up to an additional 832,500 shares
of Common Stock (which option is currently contemplated to be satisfied
solely by the Selling Shareholders). If the Underwriters exercise this
option in full (and all shares of Common Stock subject thereto are sold
solely by the Selling Shareholders), the Price to Public, Underwriting
Discounts and Commissions, Proceeds to Company and Proceeds to Selling
Shareholders will total $ , $ , $ and $ , respectively. See
"Principal and Selling Shareholders" and "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, when, as and if delivered and accepted by the Underwriters and subject
to their right to reject any order in whole or in part. It is expected that the
delivery of the certificates representing such shares of Common Stock will be
made against payment therefor at the office of Montgomery Securities on or
about , 1997.
-----------
Montgomery Securities Smith Barney Inc.
, 1997
<PAGE>
Description of Inside Front Cover of Prospectus:
--------------------------------------------------
The inside front cover of the Prospectus consists of a three-page gatefold
containing various logos, photographs of the Company's existing resorts and
drawings of the Company's planned resorts. The photographs and drawings, which
are arrayed on the second and third pages of the gatefold, are arrayed against a
light blue wave-patterned background in which the words "Vistana, Inc.", or
portions thereof, are visible. The gatefold is more particularly described as
follows:
FIRST PAGE: The words "Vistana, Inc." are written across the top margin of
the first page. In the center of the page, eight logos are arrayed in three rows
- - the top two rows containing three logos each and the bottom row containing two
logos. The logos from left to right are as follows: (A) top row - (1) PROMUS
HOTEL CORPORATION (R.); (2) VISTANA RESORT; and (3) PROFESSIONAL GOLFERS'
ASSOCIATION OF AMERICA; (B) middle row - (1) EMBASSY VACATION RESORT (R.); (2)
VISTANA'S BEACH CLUB ON HUTCHINSON ISLAND; and (3) WORLD GOLF VILLAGE; and (C)
bottom row - (1) HAMPTON VACATION RESORT; and (2) OAK PLANTATION VILLAS BY
VISTANA. The following legend appears along the bottom margin of the page:
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, ON
THE OPEN MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
EMBASSY VACATION RESORT (R.), EMBASSY SUITES (R.), HAMPTON VACATION RESORT
(SM) HAMPTON INN (R.), HOMEWOOD VACATION RESORT (SM) AND HOMEWOOD SUITES
(SM) ARE TRADEMARKS AND SERVICE MARKS OF PROMUS HOTELS, INC. AND OTHER
WHOLLY-OWNED SUBSIDIARIES OF PROMUS HOTEL CORPORATION.
PGA(R.) IS A TRADEMARK OF THE PROFESSIONAL GOLFERS' ASSOCIATION OF AMERICA.
WORLD GOLF VILLAGE (SM) IS A SERVICE MARK OF WORLD GOLF VILLAGE, INC.
SECOND PAGE: The upper one-half of the second page contains three
photographs arrayed against a blue background and identified by a text box as
"VISTANA RESORT - Orlando, Florida." The photographs depict: (i) the entrance to
Vistana Resort with palm trees, flower beds and a fountain visible; (ii) an
exterior view of one of the buildings at the resort with a swimming pool in the
foreground; and (iii) an interior view of one of the units at the resort, which
shows the dining, living room and balcony areas. Under the photographs the words
"VISTANA RESORT" appear, separated by the Company's V-shaped dove logo. The
lower one-half of the second page contains a drawing arrayed against a pink
background and identified by a text box and logo as "EMBASSY VACATION RESORT
(R.) - Myrtle Beach, South Carolina." The drawing depicts an exterior view of a
four-story building with foliage in the foreground.
<PAGE>
THIRD PAGE: The upper one-half of the third page contains two drawings
arrayed against a green background and identified by a text box as "VISTANA
RESORT AT WORLD GOLF VILLAGE - St. Augustine, Florida" and the World Golf
Village logo. The drawings depict (i) a bird's-eye view of the planned World
Golf Hall of Fame and (ii) a building under which is written: "VISTANA WGV, LTD.
AT WORLD GOLF VILLAGE, St. Johns County, Florida." The lower half of the page
contains a photograph of a modern-style building set against a yellow background
and identified by a text box as "Vistana, Inc. Corporate Headquarters - Orlando,
Florida."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the Combined Financial
Statements of Vistana, Inc. included elsewhere in this Prospectus. Except where
otherwise indicated, the information contained in this Prospectus (i) assumes
no exercise of the Underwriters' over-allotment option; (ii) assumes that any
outstanding options to purchase common stock, par value $0.01 per share
("Common Stock"), of Vistana, Inc. have not been exercised; (iii) gives effect
to the consummation of the Formation Transactions (as defined herein), which
will occur concurrently with the completion of the Offering (as defined
herein); and (iv) assumes Vacation Ownership Interests (as defined herein) are
presented on an annual, as opposed to an alternate-year, basis. See "--The
Resorts." Unless the context otherwise requires, the "Company" means Vistana,
Inc. and its consolidated subsidiaries following the consummation of the
Formation Transactions and includes its corporate and partnership predecessors
and partnerships in which the Company owns a controlling interest. Unless
otherwise indicated, all vacation ownership industry data contained herein is
derived from information prepared by the American Resort Development
Association ("ARDA"), the industry's principal trade association. This
Prospectus contains certain statements of a forward-looking nature relating to
future events or the future financial performance of the Company. Prospective
investors are cautioned that such statements are predictions only and that
actual events or results may differ materially. In evaluating such statements,
prospective investors should specifically consider the various factors
identified in this Prospectus, including the matters set forth under the
caption "Risk Factors," which could cause actual results to differ materially
from those indicated in such forward-looking statements.
THE COMPANY
Founded in 1980, the Company is a leading developer and operator of timeshare
resorts in the United States. The Company's principal operations consist of (i)
acquiring, developing and operating timeshare resorts, also known as vacation
ownership resorts; (ii) marketing and selling vacation ownership interests in
its resorts, which typically entitle the buyer to ownership of a fully-
furnished unit for a one-week period on either an annual or an alternate-year
basis ("Vacation Ownership Interests"); and (iii) providing financing for the
purchase of Vacation Ownership Interests at its resorts. The Company currently
operates three vacation ownership resorts in Florida with a total of 1,406
units, or 71,706 Vacation Ownership Interests, and is currently constructing a
fourth resort at World Golf Village, a destination golf resort and future home
of the World Golf Hall of Fame currently under development near St. Augustine,
Florida. In addition, the Company has entered into an exclusive joint venture
agreement with Promus Hotels, Inc. ("Promus"), a leading hotel company in the
United States, for the joint development and operation of vacation ownership
resorts in selected North American markets. The Company has also entered into a
letter of intent with The Professional Golfers' Association of America ("PGA of
America") for the development of golf-oriented vacation ownership resorts.
The Company opened the first vacation ownership resort in Orlando, Florida,
which has become one of the largest vacation ownership markets in the world.
During its 16-year history, the Company has sold in excess of $550 million of
Vacation Ownership Interests and has an ownership base of over 49,000 owners
residing in more than 100 countries. Raymond L. Gellein, Jr., the Chairman and
Co-Chief Executive Officer, and Jeffrey A. Adler, the President and Co-Chief
Executive Officer, have been employed by the Company since 1980 and 1983,
respectively. Under their direction, the Company has focused on creating a
values-driven business culture that emphasizes excellence and quality
relationships with its employees, customers and business partners. Management
believes that these philosophies have been instrumental to the Company's
success. Messrs. Gellein and Adler serve as the chairman of the Florida chapter
of ARDA and as a director of ARDA, respectively.
The quality and customer appeal of the Company's resorts have been recognized
through industry awards and by several leading travel publications. The
Company's flagship resort, Vistana Resort in Orlando, contains
3
<PAGE>
1,088 units developed in seven phases on a 135-acre landscaped complex
featuring swimming pools, tennis courts, restaurants and other recreational
amenities. In 1995 and 1996, Conde Nast Traveler magazine selected Vistana
Resort as a "Gold List" resort, the only vacation ownership resort to be
included as one of the top 500 resorts in the world. Similarly, the most recent
Zagat Survey of U.S. Hotels, Resorts & Spas ranked Vistana Resort as one of the
top resorts in Orlando, commenting that it contains the "most luxurious villas
in Orlando." Each of the Company's operating resorts is rated as a Gold Crown
resort by Resort Condominiums International ("RCI"), the operator of the
world's largest Vacation Ownership Interest exchange network, which was
recently acquired by HFS Incorporated. The Gold Crown distinction is reserved
for approximately the top 14% of the more than 3,000 vacation ownership resorts
in the RCI network.
The vacation ownership industry has experienced substantial growth since
1980. Annual worldwide vacation ownership sales have increased from
approximately $490 million in 1980 to approximately $4.76 billion in 1994 (the
latest period for which ARDA information is available), with approximately 75%
of such sales growth occurring since 1990. Based on other industry information,
the Company believes that vacation ownership sales exceeded $5.0 billion in
1995. Approximately 52% of all owners of Vacation Ownership Interests reside in
the United States. Still, less than 2% of all United States households own a
Vacation Ownership Interest. Approximately 41% of all Vacation Ownership
Interest buyers own more than one Vacation Ownership Interest. See "Business--
The Vacation Ownership Industry."
The Company's goal is to maintain and expand its position as a leading
developer and operator of vacation ownership resorts in the United States by
(i) continuing sales of Vacation Ownership Interests at the Company's two
Orlando-area resorts; (ii) acquiring, developing and selling additional
vacation ownership resorts; and (iii) improving operating margins by reducing
borrowing costs and reducing general and administrative expenses as a
percentage of revenues. In achieving this goal, the Company intends to adhere
to its core operating strategies of obtaining extensive access to qualified
buyers, promoting sales excellence and delivering memorable vacation
experiences to its owners and guests.
Continuing Sales at the Company's Orlando-Area Resorts. With over 36 million
visitors annually, Orlando is one of the most popular vacation destinations in
the United States. The Company intends to maintain its position as a leader in
the Orlando vacation ownership market by developing and selling an additional
451 units at Vistana Resort, representing an additional 23,001 Vacation
Ownership Interests. In addition, the Company plans to continue sales at Oak
Plantation Villas by Vistana, a 242-unit former apartment complex located in
the Orlando market, which the Company is converting in phases into a vacation
ownership resort and which is owned by a partnership in which the Company holds
an approximately 67% controlling ownership interest. As of December 31, 1996,
Oak Plantation Villas by Vistana had an unsold inventory of approximately
12,222 Vacation Ownership Interests.
Acquiring and Developing Additional Resorts. The Company intends to rely on
its operating knowledge and new strategic relationships to acquire and develop
additional vacation ownership resorts, including the following opportunities:
. Promus. The Company and Promus have entered into an exclusive five-year
agreement (the "Promus Agreement") to jointly acquire, develop, market
and operate vacation ownership resorts in North America under Promus'
Embassy Vacation Resort, Hampton Vacation Resort and Homewood Vacation
Resort brands. Under the Promus Agreement, the Company will be Promus'
exclusive joint venture partner for the acquisition, development and
operation of vacation ownership resorts in North America and will also
have the option of operating vacation ownership resorts on a franchise
basis. Promus has agreed that the Company will be the sole franchisee in
North America of the Hampton Vacation Resort and Homewood Vacation
Resort brands, and one of only two franchisees in North America of the
Embassy Vacation Resort brand. Subject to certain exceptions, the Promus
Agreement precludes the Company from acquiring or developing vacation
ownership resorts with any other multi-hotel brand.
4
<PAGE>
Although the Company and Promus are evaluating new resort development
opportunities for the joint venture, no commitments have been made for a
specific development at this time. However, the parties have agreed to
franchise two of the Company's properties subject to the execution of
definitive franchise agreements: (i) Oak Plantation Villas by Vistana,
which is intended to become the first vacation ownership resort to operate
under the Hampton Vacation Resort brand; and (ii) a 550-unit resort in
Myrtle Beach, South Carolina, which the Company intends to develop on a
40-acre site (the first parcel of which was acquired by the Company in
December 1996) and to operate under the Embassy Vacation Resort brand (the
"Myrtle Beach Resort"). The Company believes it will benefit from Promus'
strong brand recognition, large customer base, marketing capabilities and
hospitality management expertise.
. World Golf Village. In the fall of 1996, the Company commenced
construction of the first 102-unit phase of a 408-unit vacation
ownership resort at World Golf Village. Constituting the centerpiece of
a planned community under development near St. Augustine, Florida, World
Golf Village is a destination resort which will contain the World Golf
Hall of Fame, a championship golf course, a golf academy, a hotel and
convention center, restaurants, retail facilities and other amenities.
The Company holds a 37.5% controlling ownership interest in a limited
partnership which has the exclusive rights to develop and market
Vacation Ownership Interests at World Golf Village. The Company believes
that World Golf Village and the golf industry in general represent
attractive opportunities for Company expansion and the development of
future vacation ownership resorts.
. PGA of America. Under a letter of intent with PGA of America, which
contemplates a long-term affiliation for the development of future
vacation ownership resorts, the Company intends to acquire 25 acres of
land adjacent to an existing 36-hole championship golf facility owned by
a subsidiary of PGA of America in Port St. Lucie, Florida, for the
development of the first PGA Vacation Resort by Vistana. The property,
located approximately 40 miles north of Palm Beach Gardens, Florida, is
planned to contain approximately 250 units, representing a total of
12,750 Vacation Ownership Interests. The Company believes that PGA of
America, through its approximately 20,000 golf professionals, will
provide strategic marketing opportunities for this resort and any future
PGA Vacation Resorts developed by the Company.
. Vistana Branded Resorts and Acquisition Opportunities. To capitalize on
the Vistana brand and reputation, the Company intends to seek other
vacation ownership resort development opportunities in selected vacation
markets where, among other things, it believes it can obtain effective
marketing access to potential customers. In addition, the Company from
time to time evaluates opportunities to acquire vacation ownership
assets and operating companies that may be integrated into the Company's
existing operations. However, the Company currently has no contracts or
capital commitments relating to any such acquisitions.
Each of the foregoing projects and agreements requires the Company to make
substantial capital commitments and is subject to various risks, including
risks related to availability of financing, construction and development
activities, and the Company's ability to execute its sales and marketing
strategies at new locations. See "Risk Factors." Over the next 12 months, the
Company anticipates spending approximately $51 million for acquisition,
expansion, conversion and construction activities with respect to the
identified projects. The Company anticipates funding these expenditures with a
portion of the net proceeds of the Offering, cash flow from operations and
through borrowings under its credit facilities.
Improving Operating Margins. The Company intends to improve operating margins
by reducing (i) its financing costs by entering into more favorable borrowing
agreements and (ii) its general and administrative costs as a percentage of
revenues. The Company anticipates that as a public company with a strengthened
balance sheet and increased access to the capital markets, it will be able to
lower its borrowing costs.
The Company has historically provided financing for approximately 93% of its
customers, who are required to make a down payment of at least 10% of the
Vacation Ownership Interest's sales price and generally pay the balance of the
sales price over a period of seven years. The Company typically borrows from
third-party lending institutions in order to finance its loans to Vacation
Ownership Interest buyers. As of December 31, 1996, the
5
<PAGE>
Company had a portfolio of approximately 20,400 loans to customers totaling
approximately $116.0 million, with an average contractual yield of 14.4% per
annum (compared to the Company's weighted average cost of funds of 10.4% per
annum). As of December 31, 1996 (i) approximately 3.1% of the Company's
customer mortgages receivable were 60 to 120 days past due; and (ii)
approximately 5.4% of the Company's customer mortgages receivable were more
than 120 days past due and the subject of legal proceedings. In addition, as of
such date, the Company's allowance for loss on customer mortgages receivable
was approximately $10.2 million. During the calendar year ended December 31,
1996, the Company charged approximately $3.7 million against such reserve (net
of recoveries of related Vacation Ownership Interests).
The Company also provides hospitality management, operations, maintenance and
telecommunications services at its resorts. Pursuant to management agreements
between the Company and the homeowners' associations at its existing resorts,
the Company has sole responsibility and exclusive authority for the day-to-day
operation of these resorts. In addition, the Company also provides
telecommunications design and installation services for third parties on a
limited basis.
THE RESORTS
The following table sets forth certain information as of December 31, 1996
regarding each of the Company's existing and planned resorts, including
location, the date sales of Vacation Ownership Interests commenced (or are
expected to commence), the number of existing and total planned units, the
number of Vacation Ownership Interests sold at each existing resort since its
development by the Company and the number of Vacation Ownership Interests sold
in 1996, the average sales price of Vacation Ownership Interests sold in 1996
and the number of Vacation Ownership Interests available for sale currently and
after giving effect to planned expansion. The exact number of units ultimately
constructed and Vacation Ownership Interests available for sale at each resort
may differ from the following planned estimates based on future land use,
project development, site layout considerations and customer demand. In
addition, the Company's construction and development of new resorts or
additional units at its existing resorts (and sales of the related Vacation
Ownership Interests) is dependent upon general economic conditions and other
factors and may also be subject to delay as a result of certain circumstances,
some of which are not within the Company's control. See "Risk Factors."
<TABLE>
<CAPTION>
VACATION UNSOLD
OWNERSHIP VACATION OWNERSHIP
INTERESTS AVERAGE INTERESTS AT
DATE SALES UNITS AT RESORT SOLD(A) SALES RESORTS(A)
COMMENCED/ --------------- ------------ PRICE -------------------
EXPECTED TO TOTAL IN CURRENT PLANNED
RESORT LOCATION COMMENCE(B) CURRENT PLANNED TOTAL 1996 1996(A) INVENTORY EXPANSION
- ----------------------- ------------------ ----------- ------- ------- ------ ----- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Vistana Resort (c) Orlando, Florida 1980 1,088 1,539 54,924 5,294(d) $10,576(d) 2,525 23,001
Vistana's Beach Hutchinson Island,
Club (e) Florida 1989 76 76 3,849 367 $ 8,422 27 0
Oak Plantation Kissimmee, Florida
Villas by Vistana (f) 1996 242 242 133 133 $ 7,380 12,222 0
Vistana Resort at St. Augustine,
World Golf Village (g) Florida 1998 -- 408 -- -- -- -- 20,808
PGA Vacation Port St. Lucie,
Resort by Vistana (h) Florida 1998 -- 250 -- -- -- -- 12,750
Myrtle Beach Resort (i) Myrtle Beach,
South Carolina 1998 -- 550 -- -- -- -- 28,050
----- ----- ------ ----- ------ ------
TOTAL 1,406 3,065 58,906 5,794 14,774 84,609
===== ===== ====== ===== ====== ======
</TABLE>
6
<PAGE>
(a) The Company sells both annual Vacation Ownership Interests (entitling the
owner to the use of a unit for a one-week period on an annual basis) and
alternate-year Vacation Ownership Interests (entitling the owner to the
use of a unit for a one-week period on an alternate-year basis) with
respect to 51 weeks per year for each of its units, with one week reserved
for maintenance of the unit. Accordingly, the Company is able to sell 51
annual Vacation Ownership Interests or 102 alternate-year Vacation
Ownership Interests per unit. For purposes of calculating Vacation
Ownership Interests Sold and Average Sales Price in 1996, data with
respect to Vacation Ownership Interests reflects Vacation Ownership
Interests sold regardless of classification as an annual or alternate-year
Vacation Ownership Interest. For purposes of calculating Unsold Vacation
Ownership Interests at Resorts, both the Current Inventory and Planned
Expansion amounts are based on sales of Vacation Ownership Interests on an
annual basis only. To the extent that alternate-year Vacation Ownership
Interests are sold, the actual number of Vacation Ownership Interests at
Resorts would be increased.
(b) Dates listed represent the dates the Company began recording (or expects
to begin recording) sales of Vacation Ownership Interests for financial
reporting purposes.
(c) Vistana Resort consists of seven development phases, six of which have
been completed and one of which is currently under construction. The
number of Units at Resort includes (i) 1,088 current existing units; and
(ii) 451 additional planned units (representing an additional 23,001
unsold annual Vacation Ownership Interests). As of December 31, 1996,
construction of 68 additional units was scheduled for completion by the
third quarter of 1997. The Company constructs additional units at various
times depending upon general market conditions and other factors.
Accordingly, construction of the remaining 383 additional units is
intended to be commenced from time to time as conditions merit. Figures
with respect to this property assume that all units to be constructed will
consist of one- and two-bedroom units; however, the actual number of
additional Vacation Ownership Interests resulting from planned
construction could vary depending upon the configuration of these units.
(d) Includes 1,810 alternate-year Vacation Ownership Interests with an average
sales price of $7,423 and 3,484 annual Vacation Ownership Interests with an
average sales price of $12,214.
(e) Vistana's Beach Club consists of two buildings containing a total of 76
current existing units, which represent 3,876 Vacation Ownership
Interests. The Company's Current Inventory of 27 annual Vacation Ownership
Interests at this resort consists primarily of previously-sold Vacation
Ownership Interests that the Company has since reacquired in connection
with defaults under customer mortgages. The Company has no plans to build
any additional units at this resort.
(f) Oak Plantation Villas by Vistana consists of 242 current existing units,
representing 12,342 annual Vacation Ownership Interests. Prior to its
acquisition by the Company in June 1996, this property was operated by a
third party as a rental apartment complex. The Company commenced
conversion of the property into a vacation ownership resort in July 1996.
As of December 31, 1996, the conversion of 61 units (representing 3,111
annual Vacation Ownership Interests) had been completed. The Company
intends to convert the remaining 181 units at various times depending upon
general market conditions and other factors. The Company currently has no
plans to build any additional units at this resort. Oak Plantation Villas
by Vistana will be operated on a franchise basis as the first Hampton
Vacation Resort pursuant to the Promus Agreement.
(g) Vistana Resort at World Golf Village will consist of an estimated 408
units, representing an estimated 20,808 annual Vacation Ownership
Interests, of which 102 units, representing 5,202 annual Vacation
Ownership Interests, are currently under construction and scheduled for
completion in the first quarter of 1998. The Company intends to commence
construction of the remaining 306 additional units from time to time as
demand and other conditions merit.
(h) PGA Vacation Resort by Vistana will consist of an estimated 250 units,
representing an estimated 12,750 annual Vacation Ownership Interests, and
will be constructed by the Company on 25 acres of land which it intends to
acquire in approximately three stages. In October 1996, the Company
entered into a letter of intent with PGA of America pursuant to which it
has agreed (subject to execution of definitive documentation and customary
due diligence) to purchase a minimum of 10 acres prior to March 21, 1997
and a total of 25 acres prior to December 31, 2000. The Company
anticipates that it will commence construction of the first 40-unit phase
of this resort (representing 2,040 annual Vacation Ownership Interests)
during the third quarter of 1997. Because the Company constructs
additional units at its resorts based on general market conditions and
other factors, construction of the remaining 210 units at this resort will
be commenced from time to time as conditions merit.
(i) In December 1996, the Company acquired the initial 14 acres of unimproved
land in Myrtle Beach, South Carolina for the development of the Myrtle
Beach Resort. The Company also has an option until December 31, 2003 to
acquire up to 26 additional acres of contiguous property for phased
expansion of the resort. The Company anticipates that it will commence
construction of the first 48-unit phase of this resort (representing 2,448
annual Vacation Ownership Interests) during the third quarter of 1997.
Because the Company constructs additional units at its resorts based on
general market conditions and other factors, construction of the remaining
502 units at this resort (assuming acquisition of the remaining 26 acres)
will be commenced from time to time as conditions merit. The Myrtle Beach
Resort will be operated as an Embassy Vacation Resort franchise pursuant
to the terms of the Promus Agreement.
7
<PAGE>
CORPORATE BACKGROUND AND THE FORMATION TRANSACTIONS
The Company, through its predecessor corporations and partnerships, has
operated in the vacation ownership industry since 1980. In December 1986, the
Company was sold to a corporate acquiror. In November 1991, Messrs. Gellein and
Adler, together with a third individual, acquired the Company from the
corporate acquiror. In May 1995, the Company repurchased the interest in the
Company held by the third individual. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
The Company was incorporated in the State of Florida in December 1996 to
effect the Formation Transactions and the Offering. The Company's principal
executive offices are located at 8801 Vistana Centre Drive, Orlando, Florida
32821, and its telephone number at that address is (407) 239-3000. Following
completion of the Offering, Jeffrey A. Adler, and Raymond L. Gellein, Jr.
(together with certain trusts primarily for their benefit and the benefit of
their family members and Mr. Gellein's former spouse, the "Existing
Shareholders") will beneficially own in the aggregate approximately 70.5% of
the outstanding Common Stock (approximately 66.1% if the Underwriters' over-
allotment option is exercised in full and all shares of Common Stock subject
thereto are sold solely by the Selling Shareholders). For further information
regarding the Existing Shareholders, see "Principal and Selling Shareholders."
The business of the Company is currently conducted through (i) several
corporations and limited partnerships (collectively, the "Affiliated
Companies") which are directly or indirectly wholly-owned and controlled by the
Existing Shareholders, and (ii) two partnerships between one or more of the
Affiliated Companies and unaffiliated third party partners (collectively, the
"Related Partnerships"). Each of Vistana Resort and Vistana's Beach Club is
operated by (and unsold Vacation Ownership interests at the resorts are owned
by) Affiliated Companies. In addition, the Myrtle Beach Resort is being
developed by (and unsold Vacation Ownership Interests at this resort will be
owned by) and PGA Vacation Resort by Vistana will be developed by (and unsold
Vacation Ownership Interests at this resort will be owned by) Affiliated
Companies. Oak Plantation Villas by Vistana is operated by (and unsold Vacation
Ownership Interests at this resort are owned by) a Related Partnership in which
Affiliated Companies hold an approximately 67% controlling interest and Vistana
Resort at World Golf Village is being developed by (and unsold Vacation
Ownership Interests at this resort will be owned by) a Related Partnership in
which Affiliated Companies hold a 37.5% controlling interest. The Affiliated
Companies consist of over 20 corporations and three limited partnerships, the
ownership of each of which is divided equally between (i) trusts for the
benefit of Mr. Adler and his family members and (ii) trusts for the benefit of
Mr. Gellein and his family members and former spouse. Each of the Related
Partnerships is controlled solely by one or more of the Affiliated Companies.
Concurrently with, and conditioned upon, the completion of the Offering, each
of the Existing Shareholders has agreed to transfer to the Company all of the
outstanding capital stock and partnership interests owned by each such Existing
Shareholder, whether directly or indirectly, in each of the Affiliated
Companies and Related Partnerships (collectively, the "Formation
Transactions"). Pursuant to the Formation Transactions and as consideration for
the transfer of interests in the Affiliated Companies and Related Partnerships,
the Company has agreed to issue an aggregate of 14,174,980 shares of Common
Stock to the Existing Shareholders, certain shares of which are being sold by
the Selling Shareholders in the Offering. Following the Formation Transactions,
the ownership of all of the interests in the Affiliated Companies and Related
Partnerships currently held by the Existing Shareholders will be owned by the
Company or one of its subsidiaries. All financial information presented in this
Prospectus assumes the consummation of the Formation Transactions and reflects
20 shares of Common Stock currently outstanding and the issuance of an
aggregate of 14,174,980 shares of Common Stock to the Existing Shareholders
pursuant to the Formation Transactions. See "Principal and Selling
Shareholders."
Following consummation of the Formation Transactions, none of the Affiliated
Companies which is a corporation will be eligible to be taxed pursuant to
Subchapter S of the Internal Revenue Code of 1986, as amended (the "Code").
Accordingly, immediately prior to the Formation Transactions, the Affiliated
Companies
8
<PAGE>
will make distributions to the Existing Shareholders of approximately $2.5
million in the aggregate representing (i) the balance of such persons' federal
and state income tax income liability for the year ended December 31, 1996 and
from January 1, 1997 through the consummation of the Formation Transactions and
(ii) retained earnings of the Affiliated Companies for which the owners thereof
have previously paid income tax. See "Prior Income Tax Status and Planned
Distributions.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the
Company..................... 4,625,000 shares(1)
Common Stock offered by the
Selling Shareholders........ 925,000 shares(1)
Common Stock to be
outstanding after the
Offering.................... 18,800,000 shares(1)(2)
Use of proceeds to the Of the estimated $53.8 million of net proceeds
Company..................... to the Company, the Company intends to use
approximately $39.3 million to repay outstanding
indebtedness, and approximately $14.5 million
for the acquisition, development and expansion
of existing and future resorts, and working
capital and general corporate purposes.
Proposed Nasdaq National
Market symbol............... VSTN
</TABLE>
- --------
(1) Assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting."
(2) Does not include 535,000 shares of Common Stock issuable upon exercise of
options outstanding as of December 31, 1996 under the Vistana, Inc. Stock
Plan (the "Stock Plan") or additional shares of Common Stock issuable upon
exercise of options which may be granted concurrently with the completion
of the Offering. See "Management--Stock Plan."
RISK FACTORS
For a discussion of risk factors that should be considered in evaluating an
investment in the Common Stock, including risks related to rapid growth,
pending developments, competition, the historical concentration of the
Company's business in the Orlando and Florida markets, dependence on key
personnel, the control of the Company by the Existing Shareholders, general
economic conditions, the Company's development and construction activities, the
Company's customer financing activities, governmental regulation, the absence
of a public market for the Common Stock prior to the completion of the
Offering, the dilution in pro forma net tangible book value per share to be
experienced by purchasers of Common Stock in the Offering and the effect which
certain future sales of Common Stock may have upon the market price of the
Common Stock, among others, see "Risk Factors."
9
<PAGE>
SUMMARY COMBINED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION(A)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(B)
------------------------------------------------ ------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------------------------------------------ ------------
1992 1993 1994 1995 1996 1996
-------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues:
Vacation Ownership
Interest sales........ $ 48,503 $ 55,658 $ 54,186 $ 50,156 $ 60,063 $ 60,063
Interest............... 4,662 5,096 7,654 12,886 15,546 15,546
Resort................. 9,977 10,877 11,834 12,613 13,587 13,587
Telecommunications..... 1,703 1,980 3,378 4,802 7,054 7,054
Other.................. 489 551 584 652 686 686
-------- -------- -------- -------- -------- ----------
Total revenues.......... 65,334 74,162 77,636 81,109 96,936 96,936
-------- -------- -------- -------- -------- ----------
COSTS AND OPERATING
EXPENSES:
Vacation Ownership
Interest cost of
sales................. 10,254 11,521 11,391 12,053 14,595 14,595
Sales and marketing.... 17,689 21,866 22,872 22,318 27,877 27,877
Loan portfolio
Interest expense--
treasury.............. 1,556 2,070 3,605 6,516 6,865 5,904
Provision for doubtful
accounts.............. 3,405 3,903 3,803 3,522 4,271 4,271
Resort................. 8,594 9,493 10,037 10,585 11,089 11,089
Telecommunications..... 1,358 1,537 2,520 3,654 5,613 5,613
General and
administrative........ 6,628 7,419 7,988 6,979 7,873 7,873
Depreciation and
amortization.......... 875 875 1,392 2,215 2,553 2,295
Interest expense--
other................. 2,523 2,269 2,106 3,168 4,154 965
Other.................. 1,688 1,318 1,241 1,020 443 443
Deferred executive
incentive
compensation.......... 402 380 332 3,448 1,114 1,114
-------- -------- -------- -------- -------- ----------
Total costs and
operating expenses..... 54,972 62,651 67,287 75,478 86,447 82,039
-------- -------- -------- -------- -------- ----------
Operating income........ 10,362 11,511 10,349 5,631 10,489 14,897
Excess value
recognized............ 1,151 701 365 219 105 105
-------- -------- -------- -------- -------- ----------
Pretax income........... 11,513 12,212 10,714 5,850 10,594 15,002
Provision for taxes.... -- -- -- -- -- 5,382
-------- -------- -------- -------- -------- ----------
Net income.............. $ 11,513 $ 12,212 $ 10,714 $ 5,850 10,594 $ 9,620
======== ======== ======== ======== ======== ==========
Pro forma net
income(c).............. $ 6,907 $ 7,780 $ 6,730 $ 3,724 $ 6,871
Pro forma net income per
share of Common Stock.. $ 0.51
Pro forma weighted
average shares of
Common Stock
outstanding............ 18,800,000
CASH FLOW DATA:
EBITDA(d)............... $ 15,316 $ 16,725 $ 17,452 $ 15,468 $ 21,304
Cash flow provided by
(used in):
Operating activities... $ 17,544 $ 10,602 $ 13,215 $ 12,524 $ 15,629
Investing activities... $(21,244) $(20,444) $(20,383) $(22,651) $(26,351)
Financing activities... $ 3,410 $ 11,085 $ 6,512 $ 15,131 $ 9,313
OPERATING DATA:
Number of resorts at
year end............... 2 2 2 2 3
Number of Vacation
Ownership Interests
sold(e)................ 4,980 5,679 5,582 5,190 5,794
Number of Vacation
Ownership Interests in
inventory at year
end(f)................. 1,967 3,781 3,822 3,054 14,774
Average price of
Vacation Ownership
Interests sold......... $ 9,740 $ 9,801 $ 9,707 $ 9,664 $ 10,366
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------
ACTUAL AS ADJUSTED(G)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA (AT YEAR END):
Cash (including restricted cash)........................ $ 9,981 $ 21,959
Total assets............................................ $173,922 $185,021
Notes and mortgages payable............................. $118,557 $ 79,586
Shareholders' equity.................................... $ 26,648 $ 65,948
</TABLE>
10
<PAGE>
(a) The Summary Financial Information was derived from the "Selected Combined
Historical Financial Information" and the Company's Combined Financial
Statements and related Notes thereto appearing elsewhere in this
Prospectus. The information set forth in this table should be read in
conjunction with "Selected Combined Historical Financial Information,"
"Pro Forma Combined Financial Information," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and the
Combined Financial Statements and related Notes thereto appearing
elsewhere in this Prospectus.
(b) Pro Forma Financial Information gives effect to the Formation
Transactions, the Offering, the retirement of $39.0 million of debt,
elimination of interest expense related to the retired debt, elimination
of amortization related to prepaid financing fees on the retired debt and
the treatment of the combined Company as a C corporation rather than the
treatment of Affiliated Companies as S corporations and limited
partnerships for federal income tax purposes.
(c) Reflects the effect on historical statements, assuming the Company had
been treated as a C corporation rather than the treatment of Affiliated
Companies as S corporations and limited partnerships for federal income
tax purposes.
(d) As shown below, EBITDA represents net income before interest expense,
income taxes, depreciation and amortization and excess value recognized
which reflects the amortization of the difference between the fair value
of the Company at the time of its purchase by Messrs. Gellein and Adler
and a third individual, less the purchase price paid to acquire the
Company. EBITDA does not represent cash flows from operations and should
not be considered to be an alternative to net income as an indicator of
operations performance or to cash flows from operations as a measure of
liquidity. In addition, the Company's presentation of EBITDA could differ
from similar presentations prepared by other companies. Management
believes that EBITDA represents a useful measure to evaluate the Company's
results of operations, without reference to its capitalization and tax
structure. Management also believes EBITDA is a useful indicator of the
Company's ability to service and/or incur indebtedness because it adjusts
net income for non-cash expenditures, taxes and existing interest
expenses. Management believes that the trends depicted by the changes in
EBITDA set forth below demonstrate the Company's use of borrowing and the
resultant increase in interest expense associated with its growth. The
following table reconciles EBITDA to net income:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Income...................... $11,513 $12,212 $10,714 $ 5,850 $10,594
Interest expense--treasury...... 1,556 2,070 3,605 6,516 6,865
Interest expense--other......... 2,523 2,269 2,106 3,168 4,154
Taxes........................... 0 0 0 0 0
Depreciation and amortization... 875 875 1,392 2,215 2,553
Amortization of discount on
customer mortgages receivable.. 0 0 0 (2,062) (2,757)
Excess value recognized......... (1,151) (701) (365) (219) (105)
------- ------- ------- ------- -------
EBITDA.......................... $15,316 $16,725 $17,452 $15,468 $21,304
======= ======= ======= ======= =======
</TABLE>
(e) Includes both annual and alternate-year Vacation Ownership Interests.
(f) Inventory classified as annual Vacation Ownership Interests.
(g) Adjusted to give effect to (i) the sale of 4,625,000 shares of Common
Stock offered hereby at an offering price of $13.00 per share less the
underwriting discounts and commissions and expenses of the Offering; (ii)
the retirement of $39.0 million of debt; (iii) the write-off of prepaid
financing fees associated with the retired debt; and (iv) the treatment of
the Company as a C corporation resulting in a deferred tax liability of
$10.8 million.
11
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following information in
conjunction with the other information contained in this Prospectus before
purchasing any of the shares of Common Stock offered hereby. The following
sets forth the material risks of an investment in the Common Stock; however,
the Company cautions the reader that this list of risk factors may not be
exhaustive.
RISKS OF RAPID GROWTH
Risks Associated with Execution of Growth Strategy. A principal component of
the Company's growth strategy is to acquire additional unimproved real estate
for the construction and development of new vacation ownership resorts. The
Company's ability to execute its growth strategy depends on a number of
factors, including (i) the availability of attractive resort development
opportunities; (ii) the Company's ability to acquire unimproved real estate
relating to such opportunities on economically feasible terms; (iii) the
Company's ability to obtain the capital necessary to finance the acquisition
of unimproved real estate and develop vacation ownership resorts thereon, as
well as to cover any necessary sales, marketing and resort operation
expenditures; (iv) the Company's ability to market and sell Vacation Ownership
Interests at newly-developed vacation ownership resorts; and (v) the Company's
ability to manage newly-developed vacation ownership resorts cost-effectively
and in a manner which results in significant customer satisfaction. There can
be no assurance that the Company will be successful with respect to any or all
of these factors.
Risks Associated with Expansion into New Markets. Because the Company's
pending resort developments near St. Augustine, Florida, Port St. Lucie,
Florida and Myrtle Beach, South Carolina are outside the Company's historical
geographical area of operation, the Company's resort development and operation
experience in the Orlando, Florida area does not ensure the success of the
development or operation of these properties or the marketing of Vacation
Ownership Interests at such locations. Accordingly, in connection with such
pending developments, the Company may be exposed to a number of risks,
including risks associated with (i) the lack of local market knowledge and
experience; (ii) the inability to hire, train and retain sales, marketing and
resort staff at such locations; (iii) the inability to obtain, or obtain in a
timely manner, necessary permits and approvals from state and local government
agencies; (iv) the inability to secure sufficient marketing relationships with
local hospitality, retail and tourist attraction operators; (v) the inability
to capitalize on the new marketing relationships and development agreements
associated with certain of the Company's growth strategies; and (vi) the
uncertainty involved in, and additional costs which may be associated with,
selling Vacation Ownership Interests prior to completion of the related unit.
Risks Associated with Resorts Involving the Golf Industry. The success of
the Company's golf-oriented vacation ownership resorts is substantially
dependent upon the continued popularity of golf in general, as well as the
desirability of the golf courses and golf-related facilities that will be
associated with the Company's resorts. Linking the success of the Company's
resorts to related golf course operations is a new strategy for the Company
and may require the Company to adopt new sales and marketing approaches and
enter into new business relationships. In addition, there are numerous other
factors that affect the golf industry, including seasonality, adverse weather
conditions, competition and the supply of alternative golf-related
destinations, and the popularity of the sport of golf, any of which may
adversely affect the Company's results of operations at these resorts.
Accordingly, there can be no assurance that this aspect of the Company's
growth strategy will be successful or that the Company will be able to
implement this strategy effectively.
Risks Associated with Promus Agreement. An important part of the Company's
growth strategy is to acquire, develop, market and operate vacation ownership
resorts with Promus pursuant to the Promus Agreement, which imposes capital
requirements and allocates profits and losses of all joint developments on an
equal basis. In the event that the Company and Promus are unable to agree on
an initial development plan and related agreements within the period provided
in the Promus Agreement, or to develop jointly a vacation ownership resort
within the first three years of the term of the Promus Agreement, either party
will be entitled to terminate the Promus Agreement. These timetables may cause
the Company to overcommit its resources to the Promus
12
<PAGE>
Agreement and the development of vacation ownership resorts thereunder at the
expense of other opportunities or the Company's existing business operations.
In addition, in order to maintain its franchise relationship with Promus, the
Company may be required to incur expenditures and meet other obligations at
the franchised resorts required by the applicable franchise agreements, which
may (i) increase its operating costs and (ii) limit the Company's flexibility
with respect to the operation of the applicable resort in order to comply with
the applicable franchise agreements. Moreover, although the Promus Agreement
contains mutual exclusivity provisions that the Company believes will be
beneficial to the growth of its business, the Promus Agreement prevents (or
significantly restricts) the Company's ability to develop vacation ownership
resorts with other partners in the hotel industry or under its own name in
certain markets. There can be no assurance that Promus will be a favorable
partner for the Company, or that the Promus Agreement will not prevent the
Company from developing resorts under its own name or entering into similar
agreements with another hotel company, even where such developments or
agreements would be in the Company's best interests. See "Business--
Affiliation with Promus."
RISKS ASSOCIATED WITH PENDING DEVELOPMENTS
The Company has entered into a letter of intent to acquire unimproved real
estate near Port St. Lucie, Florida and to develop a vacation ownership resort
at this location. Completion of this transaction remains subject to execution
of definitive documentation and satisfaction of certain conditions precedent.
If any of these events do not occur, the Company may be unable to complete
this transaction, in which case the Company may be unable to develop a
vacation ownership resort at this location. See "Business--Description of the
Company's Resorts."
COMPETITION
The Company is subject to significant competition from other entities
engaged in the leisure and vacation industry, including vacation ownership
resorts, hotels, motels and other accommodation alternatives. Many of the
world's most widely-recognized lodging, hospitality and entertainment
companies have begun to develop and sell Vacation Ownership Interests under
their brand names, including, Marriott International, Inc. ("Marriott"), The
Walt Disney Company ("Disney"), Hilton Hotels Corporation ("Hilton"), Hyatt
Corporation ("Hyatt"), Four Seasons Hotels & Resorts, Inc. ("Four Seasons"),
Inter-Continental Hotels and Resorts, Inc. ("Inter-Continental"), Westin
Hotels & Resorts ("Westin") and Promus. In addition, other publicly-traded
companies focused on the vacation ownership industry, such as Signature
Resorts, Inc. ("Signature"), Fairfield Communities, Inc. ("Fairfield") and
Vacation Break U.S.A., Inc. ("Vacation Break"), currently compete, or may in
the future compete, with the Company. Moreover, competition in the Orlando
market is particularly intense and includes many nationally recognized
lodging, hospitality and entertainment companies, as well as active privately-
owned local operators of vacation ownership resorts such as Central Florida
Investments, Inc. ("CFI") and Orange Lake Country Club ("Orange Lake").
Furthermore, significant competition exists in Myrtle Beach, South Carolina, a
destination in which the Company expects to commence sales of Vacation
Ownership Interests by 1998. Many of these entities possess significantly
greater financial, sales and marketing, personnel and other resources than
those of the Company and may be able to grow at a more rapid rate or more
profitably as a result. Management of the Company believes that industry
competition will be increased by recent and possibly future consolidation in
the vacation ownership industry.
CONCENTRATION OF ACTIVITIES IN ORLANDO AND FLORIDA MARKETS
As of December 31, 1996, substantially all of the Company's operations were
located in Florida and substantially all of the Company's historical revenues
have been generated from this market. Although the Company has conducted the
majority of its resort operations in the Orlando area since 1980, there can be
no assurance that the Company will be able to continue to compete effectively
in the Orlando market. The failure to compete effectively in the Orlando
market could have a material adverse effect on the Company's results of
operations. Moreover, all three of the Company's operating resorts are located
in Florida and, following the completion of certain pending developments, five
out of six of the Company's resorts will be located in Florida. See
"Business--Description of the Company's Resorts." The concentration of the
Company's resorts in these areas could make the Company more susceptible to
adverse events or conditions which affect these areas in particular, such as
hurricanes, windstorms, economic recessions and changes in tourism or vacation
patterns and could result in a material adverse effect on the Company's
operations.
13
<PAGE>
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon the experience
and abilities of Raymond L. Gellein, Jr., the Chairman of the Board, Co-Chief
Executive Officer and a director of the Company, and Jeffrey A. Adler, the
President, Co-Chief Executive Officer and a director of the Company. The loss
of the services of one or both of these individuals could have a material
adverse effect on the Company and its business prospects. The Company's
continued success is also dependent upon its ability to hire, train and retain
qualified marketing, sales, hospitality, development, acquisition, finance,
management and administrative personnel. Such personnel are in substantial
demand and the cost of attracting or retaining such key personnel could
escalate over time. There can be no assurance that the Company will be
successful in attracting or retaining such personnel. See "Management--
Employment Agreements."
CONTROL BY EXISTING SHAREHOLDERS FOLLOWING THE OFFERING; SHAREHOLDERS'
AGREEMENT
After the completion of the Offering, the Existing Shareholders will own
and/or have voting control of approximately 70.5% of the outstanding shares of
Common Stock (approximately 66.1% if the Underwriters' over-allotment option
is exercised in full and all shares of Common Stock subject thereto are sold
solely by the Selling Shareholders). As a result, by maintaining their
ownership of Common Stock, the Existing Shareholders will have the power to
elect the entire Board of Directors, determine the policies of the Company,
appoint the persons constituting the Company's management and determine the
outcome of corporate actions requiring shareholder approval. In addition,
pursuant to the Shareholders' Agreement (as defined herein), the Existing
Shareholders have agreed to vote their shares of Common Stock in favor of
proxies solicited by the Board of Directors, unless Messrs. Gellein and Adler
both disagree with the position taken by the Board of Directors. See "Certain
Relationships and Related Transactions," "Principal and Selling Shareholders"
and "Description of Capital Stock."
GENERAL ECONOMIC CONDITIONS; CONCENTRATION IN THE VACATION OWNERSHIP INDUSTRY
Any adverse change in economic conditions or significant price increases or
adverse events related to the travel and tourism industry, such as the cost
and availability of fuel, could have a material adverse effect on the
Company's business. Such conditions or increases may also adversely affect the
future availability and cost of financing for the Company or its customers and
result in a material adverse effect on the Company's business. In addition,
changes in general economic conditions may adversely affect the Company's
ability to collect on its customer mortgages receivable outstanding to its
Vacation Ownership Interest buyers. Moreover, because the Company's operations
are conducted principally within the vacation ownership industry, any adverse
changes affecting the vacation ownership industry such as (i) an oversupply of
Vacation Ownership Interests; (ii) a reduction in demand for Vacation
Ownership Interests; (iii) changes in travel and vacation patterns; (iv)
changes in governmental regulation of the vacation ownership industry; (v)
increases in construction costs or taxes; (vi) changes in the deductibility of
mortgage interest payments for federal or state income tax purposes; or (vii)
negative publicity with respect to the vacation ownership industry, could have
a material adverse effect on the Company.
RISKS ASSOCIATED WITH DEVELOPMENT AND CONSTRUCTION ACTIVITIES
The Company intends to actively continue acquisition, development,
construction, conversion and expansion of vacation ownership resorts. Risks
associated with such activities include risks that (i) acquisition or
development opportunities may be abandoned; (ii) construction costs may exceed
original estimates, possibly making the development, expansion or conversion
uneconomical or unprofitable; (iii) construction or conversion may not be
completed on schedule, possibly resulting in delayed recognition of revenues
and increased interest expense; (iv) zoning, land-use, construction, occupancy
and other required governmental permits and authorizations may not be obtained
or may be delayed; and (v) financing necessary to complete the necessary
acquisition, development, construction, conversion or expansion activities may
not be obtained or may not be available on favorable terms. Upon the
completion of the Offering, the Company will not have the financing available
to complete all of the planned expansion and development activities described
in "Business--
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Description of the Company's Resorts." In addition, certain state and local
laws may impose liability on property developers with respect to construction
defects discovered or repairs made by future owners of such property, and, as
a result, owners may be able to recover from the Company amounts in connection
with such defects or repairs related to the property. Accordingly, there can
be no assurance that the Company will (i) complete conversion of Oak
Plantation Villas by Vistana; (ii) complete development of Vistana Resort at
World Golf Village; (iii) complete expansion projects currently under
development at Vistana Resort; (iv) undertake or complete the development of
the Myrtle Beach Resort (or acquire the additional 26 acres at such location);
or (v) undertake to develop other resorts or complete any such development if
undertaken. As a result of these risks, the Company's revenues and net
operating income may be adversely impacted.
RISKS ASSOCIATED WITH WORLD GOLF VILLAGE PROJECT
The success of the Company's development of Vistana Resort at World Golf
Village is dependent upon the concurrent development by third parties of the
surrounding properties and related component facilities comprising the World
Golf Village project and the planned community of Saint Johns in which it is
located. Although the Company has entered into agreements with such third
parties respecting such matters, there can be no assurance that such third
parties will fulfill their obligations under such agreements. In addition, the
Company is contingently liable for 15% of annual debt service shortfalls on
certain taxable revenue bonds (the "County Bonds") issued to finance the
convention center at World Golf Village. If the surrounding properties and
related facilities comprising the World Golf Village project are not
developed, not developed on a timely basis, are of an inferior quality, or if
the annual pledged revenues from the World Golf Village component facilities
are not adequate to support the required debt service on the County Bonds, the
Company's results of operations at Vistana Resort at World Golf Village may be
materially adversely impacted.
RISKS ASSOCIATED WITH CUSTOMER MORTGAGES RECEIVABLE
Risks of Customer Default. The Company extends financing to purchasers of
Vacation Ownership Interests at its resorts. These purchasers generally make a
down payment equal to at least 10% of the sales price and borrow the remaining
sales price from the Company. These borrowings bear interest at fixed rates,
are secured by first mortgages on the underlying Vacation Ownership Interests
and amortize over periods ranging up to seven years. The Company bears the
risk of defaults under its customer mortgages on Vacation Ownership Interests.
If a purchaser of a Vacation Ownership Interest defaults on the mortgage
during the early part of the loan amortization period, the Company will not
have recovered its marketing, selling (other than certain sales commissions),
and general and administrative costs per Vacation Ownership Interest, and such
costs will again be incurred in connection with the subsequent resale of the
Vacation Ownership Interest. As is sometimes the practice in the vacation
ownership industry, the Company does not verify the credit history of its
customers. In addition, although in certain jurisdictions the Company may have
recourse against a defaulting customer for the sales price of the Vacation
Ownership Interest, the Company has not historically pursued such a remedy.
Accordingly, no assurance can be given that the sales price will be fully or
partially recovered from a defaulting customer, or in the event of such
defaults, that the Company's established loan loss reserves will be adequate.
The Company has recently begun to offer customer mortgages with a ten-year
term. Although the increased term has been introduced on a limited basis,
there can be no assurance that the inclusion of customer mortgages with a ten-
year maturity will not have an adverse effect on the performance of the
Company's portfolio of customer mortgages receivable. See "Business--Customer
Financing."
Risks Related to Funding Customer Mortgages Receivable. The Company funds
its resort acquisition and development and operations by borrowing up to 90%
of the aggregate principal amount of its customer mortgages receivable under
its existing credit facilities. The Company does not presently have existing
credit facilities or binding lender commitments to supply all of the financing
the Company anticipates that it will need to construct and develop all of the
resorts it plans to develop or market and sell all of the Vacation Ownership
Interests at such resorts, and there can be no assurance that alternative or
additional credit arrangements can be obtained on terms that are satisfactory
to the Company. Accordingly, future sales of Vacation Ownership Interests may
be limited by the availability of funds to finance the initial negative cash
flow attributable to
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<PAGE>
Vacation Ownership Interest sales financed by the Company (i.e., the amount by
which the Company's product cost and marketing, sales and general
administrative expenses per Vacation Ownership Interest exceeds the customer's
down payment). In addition, if the Company were required to sell its customer
mortgages receivable in order to satisfy its cash flow needs, the Company
would cease to be eligible to report income attributable to sales of Vacation
Ownership Interests on the installment sales method for federal income tax
purposes and, as a result, the Company would be required to accelerate the
payment of a substantial federal income tax liability with respect to the
customer mortgages receivable sold. Such an event could have a material
adverse effect on the Company's cash flow from operations. See "Business--
Customer Financing."
RISKS ASSOCIATED WITH LEVERAGE
It is likely that the Company's future business activities will be financed,
in whole or in part, with indebtedness obtained pursuant to additional
borrowings under the Company's existing credit facilities or under credit
facilities to be obtained by the Company in the future. The definitive
agreements with respect to these credit facilities could contain restrictive
covenants which limit the Company's ability to, among other things, make
capital expenditures, incur additional indebtedness and dispose of assets, or
which require the Company to maintain certain financial ratios. The
indebtedness incurred under these credit facilities may be secured by
mortgages on a portion of the Company's resort properties, customer mortgages
receivable and other assets of the Company. In the event of a default by the
Company under one or more or these credit facilities, the lenders could
foreclose on the resort properties secured by a mortgage or take possession of
other assets pledged as collateral. In addition, the extent of the Company's
leverage and the terms of the Company's indebtedness (such as requirements
that the Company maintain certain debt-to-equity ratios) could impair the
Company's ability to obtain additional financing in the future, to make
acquisitions or to take advantage of significant business opportunities that
may arise. Furthermore, the Company's indebtedness and related debt service
obligations may increase its vulnerability to adverse general economic and
vacation ownership industry conditions and to increased competitive pressures.
After giving effect to the Offering and the application of the net proceeds
therefrom, based on the Company's current resort development and operating
plans, prior to December 31, 1997 the Company expects to decrease its
outstanding indebtedness by approximately $18.9 million. There can be no
assurance, however, that the Company will not be required to incur additional
indebtedness during 1997 in the event that it makes additional development or
construction commitments or the Company's existing commitments require it to
spend more than is currently budgeted. See "Management's Discussion and
Analysis of Financial Conditions and Results of Operations--Liquidity and
Capital Resources."
RISKS ASSOCIATED WITH HEDGING ACTIVITIES
The Company has historically derived net interest income from its financing
activities as a result of the difference between the interest rates it charges
its customers who finance their purchase of a Vacation Ownership Interest and
the interest rates it pays its lenders. There can be no assurance of a
continued positive difference between fixed rates of interest applicable to
the Company's customer mortgages receivable and the rates on the Company's
existing indebtedness. Because the Company's indebtedness bears interest at
variable rates and the Company's customer mortgages receivable bear interest
at fixed rates, the Company bears the risk of increases in interest rates with
respect to its indebtedness. The Company engages in interest rate hedging
activities from time to time in order to reduce the risk and impact of
increases in interest rates with respect to such indebtedness. Derivative
instruments used by the Company consist only of interest rate swap agreements,
which effectively fix the interest rate on the Company's variable interest
rate indebtedness. The Company does not engage in any speculative or profit-
motivated hedging activities. At December 31, 1996, the Company had two
outstanding interest rate swap agreements with a commercial bank covering a
total notional principal amount of approximately $14.5 million. The Company is
exposed to risks related to the nonperformance of the interest rate swap
agreements by the other parties thereto. There can be no assurance that any
such interest rate hedging activity will be adequate at any time to protect
the Company fully from any adverse changes in interest rates. In addition, to
the extent that interest rates decrease, the Company faces an increased risk
that customers will pre-
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pay their mortgage loans, an event which would decrease the Company's income
from financing activities. See "Business--Customer Financing."
BENEFITS TO EXISTING SHAREHOLDERS AND EXECUTIVE OFFICERS
The Existing Shareholders and certain senior executive officers and other
employees of the Company will receive material benefits in connection with the
completion of the Offering that will not be received generally by purchasers
of Common Stock in the Offering. The Existing Shareholders will receive net
proceeds from the Offering, after deduction of underwriting discounts and
commissions, aggregating approximately $11.2 million in connection with the
sale of an aggregate of 925,000 shares of Common Stock ($21.2 million if the
Underwriter's over-allotment option is exercised in full and all shares of
Common Stock subject thereto are sold solely by the Selling Shareholders). The
Existing Shareholders will receive distributions aggregating approximately
$2.5 million immediately prior to the completion of the Offering in connection
with the termination of the S corporation election by the Affiliated Companies
which are corporations. This amount represents approximately $2.2 million of
undistributed S corporation earnings and a distribution of approximately $0.3
million to permit the Existing Shareholders to pay their respective federal
income taxes attributable to the Company's operations prior to the completion
of the Offering. Certain senior executive officers and other employees of the
Company (i) will execute new employment agreements with the Company; (ii) have
received options to purchase an aggregate of 535,000 shares of Common Stock
pursuant to the Stock Plan; and (iii) will receive options to purchase an
additional 1,350,000 shares of Common Stock granted by the Existing
Shareholders. See "Prior Income Tax Status and Planned Distributions,"
"Management--Executive Compensation" and "Principal and Selling Shareholders."
LIMITED RESALE MARKET FOR VACATION OWNERSHIP INTERESTS
The Company sells Vacation Ownership Interests to buyers for leisure and not
investment purposes. The Company believes that the market for resale of
Vacation Ownership Interests by such buyers is presently limited and that any
resales of Vacation Ownership Interests are typically at prices substantially
less than the original purchase price. These factors may make ownership of
Vacation Ownership Interests less attractive to prospective buyers. In
addition, attempts by buyers to resell their Vacation Ownership Interests may
compete with sales of Vacation Ownership Interests by the Company. Moreover,
the market price of Vacation Ownership Interests sold by the Company could be
depressed by a substantial number of Vacation Ownership Interests offered for
resale by the Company's customers.
RISKS ASSOCIATED WITH VACATION OWNERSHIP INTEREST EXCHANGE NETWORKS
The attractiveness of Vacation Ownership Interests is enhanced significantly
by the availability of exchange networks that allow owners of Vacation
Ownership Interests to exchange their occupancy right granted by their
Vacation Ownership Interest during a particular year for an occupancy right
granted at another participating network resort. Several companies, including
RCI, provide broad-based Vacation Ownership Interest exchange services, and
each of the Company's operating resorts is currently qualified for
participation in the RCI exchange network. No assurance can be given that the
Company will continue to be able to qualify its existing resorts, or will be
able to qualify its future resorts, for participation in the RCI network or
any other exchange network, or that the Company's customers will continue to
be satisfied with RCI's exchange network. If such exchange networks cease to
function effectively, if the Company's resorts are not accepted as exchanges
for other desirable resorts, or if RCI ceases to be a leading Vacation
Ownership Interest exchange network, the Company's sales of Vacation Ownership
Interests could be materially adversely affected. Moreover, the Company's
agreement with RCI provides that until May 2001, the RCI exchange program will
be the only exchange program permitted at resorts owned and controlled by the
Company. In addition, each of the Company, and Messrs. Gellein and Adler have
agreed that, until May 2001, each vacation ownership resort owned, developed
or managed by an entity in which Messrs. Gellein or Adler have a controlling
interest will execute an affiliation agreement with RCI with an initial six-
year term. HFS Incorporated recently acquired RCI and there can be no
assurance that the
17
<PAGE>
Company's relationship with RCI will continue in the manner historically
maintained. See "Business--Participation in Vacation Ownership Interest
Exchange Networks."
RISKS ASSOCIATED WITH GOVERNMENTAL REGULATION
The Company's marketing and sales of Vacation Ownership Interests and other
resort operations are subject to extensive regulation by the federal
government and the states in which the Company's resorts are located and in
which its Vacation Ownership Interests are marketed and sold. Federal
legislation to which the Company is or may be subject includes the Federal
Trade Commission Act, the Fair Housing Act, the Truth-in-Lending Act, the Real
Estate Settlement Procedures Act, the Equal Credit Opportunity Act, the
Interstate Land Sales Full Disclosure Act, the Telephone Consumer Protection
Act, the Telemarketing and Consumer Fraud and Abuse Prevention Act and the
Civil Rights Acts of 1964 and 1968. The Florida Condominium Act and the
Florida Vacation Plan and Timesharing Act extensively regulate the creation
and management of timeshare condominiums, the marketing and sale of Vacation
Ownership Interests, the escrow of purchaser funds and other property prior to
completion of construction and closing, the content and use of advertising
materials and promotional offers, the creation and operation of exchange
programs and multi-site timeshare plan reservation systems, and the resale of
Vacation Ownership Interests. In addition, many states have adopted similar
legislation as well as specific laws and regulations regarding the sale of
Vacation Ownership Interests. The laws of most states, including Florida and
South Carolina, require a designated state authority to approve a detailed
offering statement describing the Company and all material aspects of the
resort and sale of Vacation Ownership Interests at such resort. In addition,
the laws of most states in which the Company sells Vacation Ownership
Interests grant the purchaser of a Vacation Ownership Interest the right to
rescind a contract of purchase at any time within a specified rescission
period provided by law following the earlier of the date the contract was
signed or the date the purchaser received the last of the documents required
to be provided by the Company. Furthermore, most states have other laws which
regulate the Company's activities, such as real estate licensure laws, travel
sales licensure laws, anti-fraud laws, telemarketing laws, price, gift and
sweepstakes laws, and labor laws. The Company believes that it is in material
compliance with all applicable federal, state, local and foreign laws and
regulations to which it is currently subject. However, there can be no
assurance that the cost of compliance with such laws and regulations will not
be significant or that the Company is in fact in compliance with such laws and
regulations. In addition, there can be no assurance that laws and regulations
applicable to the Company in any specific jurisdiction will not be revised or
that other laws or regulations will not be adopted which could increase the
Company's cost of compliance or prevent the Company from selling Vacation
Ownership Interests or conducting other operations in such jurisdiction. Any
failure to comply with any applicable law or regulation, or any increases in
the costs of compliance could have a material adverse effect on the Company.
See "Business--Governmental Regulation."
POTENTIAL ENVIRONMENTAL LIABILITIES
Under various federal, state and local laws, the owner or operator of real
property may be liable for the costs required to remove or remediate certain
hazardous or toxic substances located on or in, or emanating from, such
property. Such laws often impose such liability without regard to whether the
owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. Noncompliance by the Company with these and
other environmental, health or safety requirements may result in the need to
cease or alter operations at one or more of its resorts. Phase I assessment
environmental reports (which typically involve inspection without soil
sampling or ground water analysis) have recently been prepared by independent
environmental consultants for each of the Company's existing resorts and
properties subject to acquisition. None of these reports indicate that any
environmental conditions exist at any of these resorts which would have a
material adverse effect on the Company.
VARIABILITY OF QUARTERLY RESULTS
The Company has historically experienced, and expects to continue to
experience, quarterly fluctuations in its gross revenues and net income from
the sale of its Vacation Ownership Interests and resort operations. The
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<PAGE>
Company's revenues are moderately seasonal with owner and guest activity the
greatest from February through April and June through August. In addition,
earnings may be adversely impacted by the timing of the completion of the
development of future resorts, changes in travel and vacation patterns, and
weather or other natural disasters at the Company's resort locations. As the
Company enters new markets, it may experience increased or different
seasonality when compared with its previous operating history. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RISKS ASSOCIATED WITH RESORT MANAGEMENT
The Company currently provides both hospitality and homeowners' association
management services at its existing vacation ownership resorts and intends to
provide the same services at its future vacation ownership resorts pursuant to
management agreements with the associations at such resorts. These agreements
are generally for three-year terms which automatically renew unless terminated
by the homeowners' association. If the Company is unable to manage a resort in
a manner which maintains satisfaction among the homeowners, applicable law may
give the homeowners' association rights to terminate the management agreement.
For the year ended December 31, 1996, approximately 2.6% of the Company's
revenues were derived from fees paid by homeowners' associations pursuant to
the homeowners' association management agreements. No single management
agreement with a homeowners' association accounted for more than 0.4% of the
Company's revenues. There can be no assurance that a homeowners' association
will not terminate its management agreement with the Company. Any such
termination could have a material adverse effect on the results of the
Company's resort management operations and revenues.
RISKS ASSOCIATED WITH TELECOMMUNICATIONS OPERATIONS
The Company provides telecommunications services at its resorts pursuant to
contractual arrangements with each of the homeowners' associations at its
resorts, as well as limited telecommunications design and installation
services for third parties. These telecommunications services consist
primarily of leasing telephone equipment, remarketing long distance telephone
services and designing and installing telecommunications infrastructures.
Risks associated with this aspect of the Company's business include cost
overruns on design or installation contracts, liabilities in connection with
products or services provided by the Company, increased competitive and
regulatory pressures particularly with respect to long-distance rate pricing,
and non-renewal or termination of the Company's telecommunications service
contracts by a homeowners' association. In addition, there can be no assurance
that the Company can continue to provide limited telecommunications design and
installation services on a competitive or profitable basis.
UNINSURED LOSS; NATURAL DISASTERS
There are certain types of losses that are not generally insured because
they are either uninsurable or not economically feasible to insure and for
which the Company does not have insurance coverage. Should an uninsured loss
or a loss in excess of insured limits occur, the Company could lose its
investment in a resort as well as the anticipated future revenues from such
resort, and would continue to be obligated on any mortgage indebtedness or
other obligations related to the resort. Moreover, if a homeowners'
association fails to adequately insure the property committed to the
condominium form of ownership (typically, all units, common areas, facilities
and amenities), any uninsured or under-insured casualty may affect the
Company's ability to collect customer mortgages receivable related to such
condominium property. In addition, the Company's vacation ownership resorts
are located in areas that are susceptible to tropical storms and hurricanes.
The Company's resorts could suffer significant damage as a result of wind
storms, hurricanes, floods and other natural disasters. Any such damage, as
well as adverse weather conditions generally, could impair the Company's
ability to sell Vacation Ownership Interests at its resorts and adversely
affect the Company's results of operation.
ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
There has been no prior public market for the Company's Common Stock.
Although the Common Stock has been approved for quotation on the Nasdaq
National Market, subject to official notice of issuance, there can
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<PAGE>
be no assurance that a viable public market for the Common Stock will develop
or be sustained after the completion of the Offering or that purchasers of the
Common Stock will be able to resell their Common Stock at prices equal to or
greater than the Price to Public. The Price to Public will be determined by
negotiations among the Company and representatives of the Underwriters and may
not be indicative of the prices that prevail in the public market after the
completion of the Offering. Numerous factors, including announcements of
fluctuations in the Company's or its competitors' operating results, and
market conditions for hospitality and vacation ownership industry stocks in
general, could have a significant impact on the future price of the Common
Stock. In addition, the stock market in recent periods has experienced
significant price and volume fluctuations that often have been unrelated or
disproportionate to the operating performance of listed companies. These broad
fluctuations may adversely affect the market price of the Common Stock. See
"Underwriting."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Articles of Incorporation and By-Laws,
as well as provisions of the Florida Business Corporation Act (the "FBCA"),
may be deemed to have anti-takeover effects and may delay, defer or prevent a
takeover attempt that a shareholder might consider to be in the shareholder's
best interest. For example, such provisions may deter tender offers for shares
of Common Stock, or deter purchases of large blocks of shares of Common Stock,
thereby limiting the opportunity for the Company's shareholders to receive a
premium for their shares of Common Stock over then-prevailing market prices.
These provisions include the following:
Staggered Board of Directors. The Board of Directors of the Company will
consist of three classes of directors. The initial terms of the first,
second and third classes of directors will expire in 1998, 1999 and 2000,
respectively, and directors for each class will be elected for a three-year
term upon expiration of the term of the directors in such class. In
addition, the affirmative vote of two-thirds of the outstanding shares of
Common Stock is required to remove a director. These provisions may have
the effect of increasing the difficulty of one or more shareholders of the
Company to elect directors of their choice to the Board of Directors of the
Company or to remove a director.
Preferred Stock. Upon completion of the Offering, the Board of Directors
will have the authority to issue up to 5,000,000 shares of preferred stock
and to determine the price, rights (including voting rights), preferences,
privileges and restrictions of those shares without any vote of or action
by the shareholders. The rights of the holders of the Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of
any preferred stock that may be issued in the future. The issuance of the
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could make it more
difficult for a party to acquire a majority of the outstanding voting stock
of the Company. The Company has no present plan to issue any shares of
preferred stock. See "Description of Capital Stock."
Florida Business Corporation Act. Florida law contains provisions that
may have the effect of delaying, deferring or preventing a non-negotiated
merger or other business combination involving the Company. These
provisions are intended to encourage any person interested in acquiring the
Company to negotiate with and obtain the approval of the Company's Board of
Directors in connection with the proposed transaction. Certain of these
provisions may, however, discourage a future acquisition of the Company not
approved by the Board of Directors in which shareholders might receive an
enhanced value for their shares, even though a substantial number or
majority of the Company's shareholders might believe the acquisition is in
their best interest. As a result, shareholders who desire to participate in
such a transaction may not have the opportunity to do so. Such provisions
could also discourage bids for the shares of Common Stock at a premium as
well as create a depressive effect on the market price of the shares of
Common Stock. See "Description of Capital Stock."
DILUTION; DIVIDENDS
Purchasers of Common Stock in the Offering will experience immediate
dilution in net tangible book value per share of Common Stock of $9.51 from
the Price to Public. See "Dilution." In addition, the Company does
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not anticipate that it will pay any dividends on its Common Stock in the
foreseeable future. See "Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Upon completion of the Offering, the Company will have outstanding an
aggregate of 18,800,000 shares of Common Stock, excluding shares of Common
Stock issuable upon exercise of options. The shares of Common Stock offered
hereby will be freely tradeable (other than by an "affiliate" of the Company
as such term is defined in the Securities Act) without restriction or
registration under the Securities Act. The sale of a substantial number of
shares of Common Stock, or the perception that such a sale might occur, could
adversely affect prevailing market prices of the Common Stock. The Company is
unable to make any prediction as to the effect, if any, that future sales of
Common Stock or the availability of shares of Common Stock for sale may have
on the market price of the Common Stock prevailing from time to time. In
addition, any such sale or such perception could make it more difficult for
the Company to sell equity securities or equity-related securities in the
future at such time and price as the Company deems appropriate. All remaining
outstanding shares of Common Stock may be sold under Rule 144 promulgated
under the Securities Act, subject to holding period, volume, manner of sale,
and other restrictions of Rule 144 and, in certain cases, subject to a one-
year lock-up agreement between the holder of such shares and the Underwriters.
See "Description of Capital Stock," "Shares Eligible for Future Sale" and
"Underwriting." In addition, at certain times commencing two years following
the completion of the Offering, certain shares of Common Stock (i) held by the
Existing Shareholders and (ii) purchased by certain employees of the Company
pursuant to the exercise of options granted to such employees by the Existing
Shareholders may be sold in the public market pursuant to certain registration
statements which the Company is obligated to file with respect to such shares,
or pursuant to an exemption from registration. See "Shares Available for
Future Sale."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the 4,625,000 shares of
Common Stock offered by the Company hereby, based on an estimated Price to
Public of $13.00 per share, after deducting underwriting discounts and
commissions and anticipated expenses of the Offering, are estimated to be
$53.8 million ($63.8 million, if the Underwriters' over-allotment option is
exercised in full and the shares of Common Stock sold pursuant thereto are not
sold by the Selling Shareholders). The Company will not receive any of the
proceeds from the sale of Common Stock by the Selling Shareholders. The
Company intends to use approximately (i) $39.3 million of the proceeds to
repay outstanding indebtedness and accrued interest (including $0.3 million of
prepayment penalties); and (ii) $14.5 million of the proceeds to pay for the
acquisition, development and expansion of existing and future vacation
ownership resorts and for working capital and general corporate purposes.
Pending such uses, the Company will invest the proceeds in commercial paper,
bankers' acceptances, other short-term investment-grade securities and money-
market accounts.
Indebtedness to be repaid out of the proceeds to the Company from the
Offering bears interest at rates currently ranging between approximately 10.3%
and 11.1% per annum and will mature at various times over the next five years
(except for indebtedness incurred to finance customer mortgages receivable,
which amortizes based upon the collection of the underlying customer mortgages
receivable and finally matures seven years from the date of the Company's last
borrowing under such facility). Indebtedness to be repaid that was incurred
within the last year was incurred for financing of customer mortgages
receivable, development of vacation ownership resorts and general corporate
purposes. None of the net proceeds from the Offering will be used to pay any
delinquent indebtedness.
DIVIDEND POLICY
Although certain of the Affiliated Companies have paid dividends in the past
and will make a tax-related distribution to the Existing Shareholders
immediately prior to the consummation of the Formation Transactions, the
Company has never declared or paid any dividends on its capital stock. See
"Prior Income Tax Status and Planned Distributions." The Company does not
anticipate declaring or paying cash dividends on its Common Stock in 1997 or
in the foreseeable future. The Company currently intends to retain future
earnings to finance its operations and fund the growth of its business. Any
payment of future dividends will be at the discretion of the Board of
Directors of the Company and will depend upon, among other things, the
Company's earnings, financial condition, capital requirements, level of
indebtedness, contractual restrictions in respect of the payment of dividends
and other factors that the Company's Board of Directors deems relevant.
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CAPITALIZATION
The following table sets forth, as of December 31, 1996, the consolidated
capitalization of the Company on an actual basis and as adjusted to give
effect to (i) the payment of the $2.5 million distribution described in "Prior
Income Tax Status and Planned Distributions;" (ii) the consummation of the
Formation Transactions; (iii) the sale of the Common Stock offered by the
Company hereby; and (iv) the application of the estimated net proceeds to the
Company therefrom. This table should be read in conjunction with the
historical financial statements of the Company and the related notes thereto
included elsewhere in this Prospectus. See "Use of Proceeds," "Selected
Combined Historical Financial Information" and "Pro Forma Combined Financial
Information."
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
--------------------------------
ACTUAL AS ADJUSTED
-------------- -----------------
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C>
Debt:
Notes and mortgages payable to financial
institutions(1).............................. $ 118,557 $ 79,586
-------------- --------------
Total....................................... 118,557 79,586
-------------- --------------
Shareholders' Equity:
Preferred Stock, $.01 par value, 5,000,000
shares authorized, none issued and outstand-
ing.......................................... -- --
Common Stock, $.01 par value, 100,000,000
shares authorized, 18,800,000 shares issued
and outstanding(2)........................... -- 188
Additional paid-in capital.................... -- 65,760
-------------- --------------
Total shareholders' equity.................... 26,648 65,948
-------------- --------------
Total capitalization........................ $ 145,205 $ 145,534
============== ==============
</TABLE>
- --------
(1) Includes notes collateralized by customer mortgages receivable.
(2) Does not include an aggregate of 535,000 shares of Common Stock issuable
pursuant to existing options granted pursuant to the Stock Plan,
additional shares of Common Stock issuable upon exercise of options which
may be granted under the Stock Plan concurrently with completion of the
Offering and up to 832,500 shares of Common Stock which the Underwriters
may purchase from the Company pursuant to an exercise of their over-
allotment option (in the event that the shares of Common Stock subject
thereto are not sold by the Selling Shareholders). See "Management--Stock
Plan" and "Underwriting."
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<PAGE>
PRIOR INCOME TAX STATUS AND PLANNED DISTRIBUTIONS
Prior to the consummation of the Formation Transactions, each of the
Affiliated Companies which is a corporation elected to be taxed pursuant to
Subchapter S of the Code, and each of the Affiliated Companies which is a
partnership was taxable pursuant to Subchapter J of the Code. Accordingly, as
of the date of this Prospectus, none of such Affiliated Companies was subject
to federal or state income taxes, and all taxable income of such Affiliated
Companies was taxed directly at the shareholder or partner level. Prior to the
consummation of the Formation Transactions, the practice of each of such
Affiliated Companies has been to pay cash distributions to its owners,
consisting of the Existing Shareholders, to enable such owners to pay federal
and state taxes on the taxable income of the Affiliated Company. Consistent
with this past practice, immediately prior to the consummation of the
Formation Transactions, the Affiliated Companies intend to pay aggregate
distributions to their owners of approximately $0.3 million, representing the
balance of such owners' federal and state income tax liability attributable to
taxable income of the Affiliated Companies for the year ended December 31,
1996 and the aggregate estimated federal and state income taxes payable by
such owners in respect of the Affiliated Companies' income from January 1,
1997 through the consummation of the Formation Transactions. In addition,
immediately prior to the consummation of the Formation Transactions, the
Affiliated Companies intend to pay aggregate distributions of approximately
$2.2 million, representing retained earnings of the Affiliated Companies for
which the owners thereof have previously paid income tax. Of the approximately
$2.5 million aggregate distribution to be paid prior to the consummation of
the Formation Transactions, (i) approximately $1.25 million will be
distributed to trusts for the benefit of Mr. Gellein, his family members and
former spouse, and (ii) approximately $1.25 million will be distributed to
trusts for the benefit of Mr. Adler and his family members.
Following the consummation of the Formation Transactions, none of the
Affiliated Companies which is a corporation will be eligible to be taxed
pursuant to Subchapter S of the Code and the Subchapter S status of each of
such Affiliated Companies will terminate. Accordingly, the Company will be
liable for income taxes relating primarily to the Company's historical use of
the installment method of reporting for income tax purposes with respect to
the sale of Vacation Ownership Interests and other timing differences, which
will be reflected as deferred taxes on the Company's consolidated balance
sheet. Assuming the Formation Transactions had occurred on January 1, 1997,
such deferred tax liability would have been approximately $10.8 million
resulting from the use of the installment method of reporting for income tax
purposes and other timing differences. Such liability would not have been
payable until the installment payments on customer mortgages receivable from
customers are received by the Company. See "Pro Forma Combined Financial
Information" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
24
<PAGE>
DILUTION
After giving effect to the payment of the approximately $2.5 million
distribution described in "Prior Income Tax Status and Planned Distributions"
and the consummation of the Formation Transactions, the pro forma net tangible
book value of the Company at December 31, 1996 was approximately $13.0
million, or $0.69 per share of Common Stock. Pro forma net tangible book value
per share of Common Stock represents the Company's total tangible assets less
its total liabilities, divided by the total number of outstanding shares of
Common Stock. Without taking into account any other changes in net tangible
book value after December 31, 1996, other than the sale by the Company of the
4,625,000 shares of Common Stock offered hereby (and the deduction of the
underwriting discounts and commissions) and other estimated offering expenses,
the application of the estimated net proceeds therefrom and the distribution
referred to above, the net tangible book value of the Company at December 31,
1996, would have been approximately $65.6 million, or $3.49 per share of
Common Stock. This represents an immediate increase in net tangible book value
of $2.80 per share to the Existing Shareholders and an immediate dilution in
net tangible book value of $9.51 per share to purchasers of Common Stock in
the Offering. The following table illustrates this dilution on a per share
basis:
<TABLE>
<S> <C> <C> <C>
Assumed initial public offering price per share of Common
Stock (at the mid-point of the estimated pricing range)... $13.00(1)
Pro forma net tangible book value per share of Common
Stock as of
December 31, 1996....................................... $0.69
Increase in net tangible book value per share of Common
Stock attributable to the Offering...................... $2.80
-----
Pro forma net tangible book value per share of Common Stock
after the Offering........................................ $3.49
------
Dilution per share of Common Stock to purchasers of Common
Stock in the Offering..................................... $9.51
======
</TABLE>
- --------
(1) Before deduction of estimated underwriting discounts and commissions, and
expenses of the Offering to be paid by the Company.
The following table sets forth, as of December 31, 1996, after giving effect
to the Formation Transactions and the Offering, the number of shares of Common
Stock purchased, the total consideration paid therefor and the average price
paid per share of Common Stock by the Existing Shareholders and the purchasers
of Common Stock in the Offering, respectively. The following table does not
give effect to an aggregate of 535,000 shares of Common Stock issuable
pursuant to existing options and does not include up to 832,500 shares of
Common Stock which the Underwriters may purchase from the Company and/or the
Selling Shareholders pursuant to an exercise of their over-allotment option.
To the extent that any of such options are exercised, there will be further
dilution to purchasers of Common Stock in the Offering. See "Management--Stock
Plan" and "Underwriting."
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- -------------------
AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing
Shareholders(1)........ 14,175,000(2) 75.4% $ 268,300 -- % $ 0.02
New investors(3)........ 4,625,000 24.6% $60,125,000 100.0% $13.00
---------- ----- ----------- -----
Total................. 18,800,000 100.0% $60,393,300 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) Existing Shareholders of the Company who received shares of Common Stock
pursuant to the Formation Transactions.
(2) Sales of Common Stock by the Existing Shareholders in the Offering will
cause the number of shares of Common Stock held by the Existing
Shareholders to be reduced to 13,250,000 shares, or 70.5% of the total
shares of Common Stock to be outstanding after the Offering, and will
increase the number of shares held by new investors to 5,550,000 shares,
or 29.5% of the total number of shares to be outstanding after the
Offering. See "Principal and Selling Shareholders."
(3) Purchasers of Common Stock sold by the Company in the Offering.
25
<PAGE>
SELECTED COMBINED HISTORICAL FINANCIAL INFORMATION
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AND OPERATING DATA)
The following table sets forth selected combined historical financial
information for the years ended December 31, 1992, 1993, 1994, 1995 and 1996.
The selected combined historical financial information (excluding "Operating
Data") for the three years ended December 31, 1996 was derived from the
Company's Combined Financial Statements, which were audited by KPMG Peat
Marwick LLP, independent auditors, whose report with respect to the three-year
period ended December 31, 1996, together with such combined financial
statements appears elsewhere herein. The selected combined historical
financial information for the year ended December 31, 1993 was derived from
audited financial statements of the Company not included herein. The selected
combined historical financial information for the year ended December 31, 1992
has been derived from unaudited financial statements prepared by the Company.
The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical combined financial statements of the Company
and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------------
YEAR ENDED
DECEMBER 31,
-------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
REVENUES:
Vacation Ownership Interest
sales........................... $ 48,503 $ 55,658 $ 54,186 $ 50,156 $60,063
Interest......................... 4,662 5,096 7,654 12,886 15,546
Resort........................... 9,977 10,877 11,834 12,613 13,587
Telecommunications............... 1,703 1,980 3,378 4,802 7,054
Other............................ 489 551 584 652 686
-------- -------- -------- -------- -------
Total revenues..................... 65,334 74,162 77,636 81,109 96,936
-------- -------- -------- -------- -------
COSTS AND OPERATING EXPENSES:
Vacation Ownership Interest cost
of sales........................ 10,254 11,521 11,391 12,053 14,595
Sales and marketing.............. 17,689 21,866 22,872 22,318 27,877
Loan portfolio
Interest expense--treasury..... 1,556 2,070 3,605 6,516 6,865
Provision for doubtful
accounts...................... 3,405 3,903 3,803 3,522 4,271
Resort........................... 8,594 9,493 10,037 10,585 11,089
Telecommunications............... 1,358 1,537 2,520 3,654 5,613
General and administrative....... 6,628 7,419 7,988 6,979 7,873
Depreciation and amortization.... 875 875 1,392 2,215 2,553
Interest expense--other.......... 2,523 2,269 2,106 3,168 4,154
Other............................ 1,688 1,318 1,241 1,020 443
Deferred executive incentive
compensation.................... 402 380 332 3,448 1,114
-------- -------- -------- -------- -------
Total costs and operating
expenses.......................... 54,972 62,651 67,287 75,478 86,447
-------- -------- -------- -------- -------
Operating income................... 10,362 11,511 10,349 5,631 10,489
Excess value recognized.......... 1,151 701 365 219 105
-------- -------- -------- -------- -------
Pretax income...................... 11,513 12,212 10,714 5,850 10,594
Provision for taxes.............. -- -- -- -- --
-------- -------- -------- -------- -------
Net income......................... $ 11,513 $ 12,212 $ 10,714 $ 5,850 $10,594
======== ======== ======== ======== =======
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CASH FLOW DATA:
EBITDA(a)................... $ 15,316 $ 16,725 $ 17,452 $ 15,468 $ 21,304
Cash flow provided by (used
in):
Operating activities...... $ 17,544 $ 10,602 $ 13,215 $ 12,524 $ 15,629
Investing activities...... $(21,244) $(20,444) $(20,383) $(22,651) $(26,351)
Financing activities...... $ 3,410 $ 11,085 $ 6,512 $ 15,131 $ 9,313
OPERATING DATA:
Number of resorts at year
end ....................... 2 2 2 2 3
Number of Vacation Ownership
Interests sold(b).......... 4,980 5,679 5,582 5,190 5,794
Number of Vacation Ownership
Interests in inventory at
year end(c)................ 1,967 3,781 3,822 3,054 14,774
Average price of Vacation
Ownership Interest sold.... $ 9,740 $ 9,801 $ 9,707 $ 9,664 $ 10,366
BALANCE SHEET DATA (AT YEAR
END):
Cash (including restricted
cash)...................... $ 3,779 $ 5,215 $ 4,864 $ 10,788 $ 9,981
Total assets................ $ 73,827 $ 99,431 $117,989 $140,651 $173,922
Long-term debt.............. $ 45,650 $ 57,474 $ 64,769 $101,504 $118,557
Shareholders' equity........ $ 12,254 $ 23,726 $ 33,658 $ 17,904 $ 26,648
</TABLE>
- --------
(a) As shown below, EBITDA represents net income before interest expense,
income taxes, depreciation and amortization and excess value recognized
which reflects the amortization of the difference between the fair value
of the Company at the time of its purchase by Messrs. Gellein and Adler,
and a third individual, less the purchase price paid to acquire the
Company. EBITDA does not represent cash flows from operations and should
not be considered to be an alternative to net income as an indicator of
operations performance or to cash flows from operations as a measure of
liquidity. In addition, the Company's presentation of EBITDA could differ
from similar presentations prepared by other companies. Management
believes that EBITDA represents a useful measure to evaluate the Company's
results of operations without reference to its capitalization and tax
structure. Management also believes EBITDA is a useful indicator of the
Company's ability to service and/or incur indebtedness because it adjusts
net income for non-cash expenditures, taxes and existing interest
expenses. Management believes that the trends depicted by the changes in
EBITDA set forth below demonstrate the Company's use of borrowing and the
resultant increase in interest expense associated with its growth. The
following table reconciles EBITDA to net income:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Income.................... $11,513 $12,212 $10,714 $ 5,850 $10,594
Interest expense--treasury.... 1,556 2,070 3,605 6,516 6,865
Interest expense--other....... 2,523 2,269 2,106 3,168 4,154
Taxes......................... 0 0 0 0 0
Depreciation and
amortization................. 875 875 1,392 2,215 2,553
Amortization of discount on
customer mortgages
receivable................... 0 0 0 (2,062) (2,757)
Excess value recognized....... (1,151) (701) (365) (219) (105)
------- ------- ------- ------- -------
EBITDA........................ $15,316 $16,725 $17,452 $15,468 $21,304
======= ======= ======= ======= =======
</TABLE>
(b) Includes both annual and alternate-year Vacation Ownership Interests.
(c) Inventory classified as annual Vacation Ownership Interests.
27
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information is based on
the historical financial statements of the Company and has been prepared to
illustrate the effect of the consummation of the Formation Transactions, the
application of the net proceeds of the Offering to the Company as set forth
under "Use of Proceeds" and planned distributions to Existing Shareholders
prior to the Formation Transactions as if they had occurred at the beginning
of the periods presented for the pro forma combined statements of operations
for the year ended December 31, 1996 and as of December 31, 1996 with respect
to the pro forma balance sheet. The pro forma combined financial information
does not purport to represent what the Company's financial position and
results of operations would actually have been if such transactions had in
fact occurred on such dates. The pro forma adjustments are based on currently
available information and upon certain assumptions that management believes
are reasonable under current circumstances. The pro forma combined financial
information and accompanying notes should be read in conjunction with the
Combined Financial Statements and related Notes thereto, and other financial
information pertaining to the Company included in "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues:
Vacation Ownership Interest sales...... $ 60,063 $ -- $ 60,063
Interest............................... 15,546 -- 15,546
Resort................................. 13,587 -- 13,587
Telecommunications..................... 7,054 -- 7,054
Other.................................. 686 -- 686
---------- --------- ----------
Total revenues........................... 96,936 -- 96,936
---------- --------- ----------
Costs and operating expenses:
Vacation Ownership Interests cost of
sales................................. 14,595 -- 14,595
Sales and marketing.................... 27,877 -- 27,877
Loan portfolio:
Interest expense--treasury........... 6,865 (961)(a) 5,904
Provision for doubtful accounts...... 4,271 -- 4,271
Resort................................. 11,089 -- 11,089
Telecommunications..................... 5,613 -- 5,613
General and administrative............. 7,873 -- 7,873
Depreciation and amortization.......... 2,553 (258)(a) 2,295
Interest expense--other................ 4,154 (3,189)(a) 965
Other.................................. 443 -- 443
Deferred executive incentive
compensation.......................... 1,114 -- 1,114
---------- --------- ----------
Total costs and operating expenses....... 86,447 (4,408) 82,039
---------- --------- ----------
Operating income......................... 10,489 4,408 14,897
Excess value recognized................ 105 -- 105
---------- --------- ----------
Pretax income............................ 10,594 4,408 15,002
Pro forma provision for income taxes... -- 5,382(b) 5,382
---------- --------- ----------
Net income(c)............................ $ 10,594 $ (974) $ 9,620
========== ========= ==========
Pro forma net income per share of Common
Stock................................... $ 0.75 -- $ 0.51
Pro forma weighted average shares of
Common Stock outstanding................ 14,175,000 4,625,000 (d) 18,800,000
</TABLE>
- --------
(a) Reflects the effect on 1996 historical statement of operations data of the
issuance of common stock on January 1, 1996, and the reduction of interest
expense and elimination of related amortization of prepaid financing fees,
with the expected early retirement of $39.0 million of term debt.
(b) Reflects the effect on 1996 historical statement of operations data
referred to in note (a) and assumes the combined Company had been treated
as a C corporation rather than the treatment of the Affiliated Companies
as S corporations and limited partnerships for federal income tax
purposes.
(c) For financial reporting purposes, the Company will incur an extraordinary
loss relating to the early termination of debt aggregating $0.8 million
net of pro forma income taxes of $0.5 million. Such amount is not included
in the above pro forma adjustments.
(d) Reflects the Offering of 4,625,000 shares of Common Stock by the Company.
28
<PAGE>
The selected combined pro forma balance sheet data set forth below as of
December 31, 1996 give effect to the Formation Transaction, the Offering and
the planned distribution to the Existing Shareholders prior to the Formation
Transactions, as if each had occurred on December 31, 1996. The pro forma
adjustments are based upon currently available information and certain
assumptions that management of the Company believes are reasonable under
current circumstances.
COMBINED PRO FORMA BALANCE SHEET
DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------
PRO FORMA AS
ACTUAL ADJUSTMENTS ADJUSTED
-------- ----------- --------
<S> <C> <C> <C>
ASSETS:
Cash.......................................... $ 6,134 $ 53,766 (a) $ 18,112
(38,971)(b)
(317)(c)
(2,500)(d)
Restricted cash............................... 3,847 -- 3,847
Customer mortgages receivable, net............ 100,166 -- 100,166
Other receivables, net........................ 4,111 -- 4,111
Inventory of Vacation Ownership Interests..... 16,541 -- 16,541
Construction in progress...................... 8,670 -- 8,670
-------- --------
Total Vacation Ownership Interests........ 25,211 -- 25,211
-------- --------
Prepaid expenses and other assets............. 13,978 (879)(e) 13,099
Land held for development..................... 8,080 -- 8,080
Property and equipment, net................... 12,395 -- 12,395
-------- -------- --------
Total assets.............................. $173,922 $ 11,099 $185,021
======== ======== ========
LIABILITIES:
Accounts payable and accrued liabilities...... $ 3,828 -- $ 3,828
Accrued compensation and benefits............. 9,291 -- 9,291
Customer deposits............................. 4,995 -- 4,995
Other liabilities............................. 6,160 -- 6,160
Deferred tax liability........................ -- 10,770 (f) 10,770
Notes and mortgages payable................... 118,557 (38,971)(b) 79,586
-------- -------- --------
Total liabilities......................... 142,831 (28,201) 114,630
-------- -------- --------
Minority interest............................. 4,443 -- 4,443
Equity........................................ 26,648 53,766 (a) 65,948
-------- --------
(317)(c)
(879)(e)
(10,770)(f)
(2,500)(d)
--------
Total liabilities and equity.............. $173,922 $ 11,099 $185,021
======== ======== ========
</TABLE>
- --------
(a) Reflects proceeds of $60,125 from the Offering net of related expenses of
$6,359.
(b) Represents repayment of notes and mortgages payable to financial
institutions.
(c) Represents penalties associated with the prepayment of certain notes
payable retired with a portion of the proceeds of the Offering.
(d) Reflects anticipated $2,500 in distributions to Existing Shareholders
prior to the Formation Transactions.
(e) Reflects the write-off of prepaid financing fees related to be the notes
and mortgages payable to financial institutions.
(f) Reflects the establishment of deferred tax liability due to the change in
the Company's tax status to a C corporation.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company was organized in December 1996 to combine the ownership of the
vacation ownership resort acquisition, development and management businesses
conducted by the Company's corporate and partnership predecessors. The Company
generates revenues from the sale and financing of annual and alternate-year
Vacation Ownership Interests at its resorts, which typically entitle the
purchaser to ownership of a fully-furnished unit for a one-week period, on
either an annual or alternate-year basis, respectively. For purposes of the
following discussion, sales of Vacation Ownership Interests reflect sales of
both annual Vacation Ownership Interests and alternate-year Vacation Ownership
Interests each as a sale of a single Vacation Ownership Interest. The Company
generates additional revenues from resort operations, which include room
rental operations and auxiliary resort operations such as food and beverage
sales, and from management fees and telecommunications services provided by
the Company at its resorts and limited telecommunications design and
installation services provided for third parties.
The Company recognizes revenues attributable to sales of Vacation Ownership
Interests on an accrual basis after the execution of a binding sales contract
between the Company and the purchaser, receipt by the Company of a down
payment of at least 10% of the sales price and the expiration of any
applicable statutory rescission period. The Company has not traditionally sold
Vacation Ownership Interests prior to completion of construction; however, if
the Company sells Vacation Ownership Interests prior to completion of
construction in the future, the Company intends to recognize such sales in
accordance with the percentage of completion method in addition to the factors
identified above. Costs associated with the acquisition and development of
vacation ownership resorts, including carrying costs such as interest and
taxes, are generally capitalized and subsequently recorded as a cost of sales
as the related revenues are recognized.
The Company, through its predecessor corporations and partnerships, has
operated in the vacation ownership industry since 1980. In December 1986, the
Company was sold to a corporate acquiror. In November 1991, Messrs. Gellein
and Adler, together with a third individual, acquired the Company from the
corporate acquiror. In May 1995, the Company purchased (the "Executive
Repurchase") the entire interest in the Company held by the third individual,
who was a shareholder/executive of the Company. Also in May and September
1995, the Company redeemed options (the "Option Redemption") to purchase
interests in the partnerships which operate Vistana Resort and Vistana's Beach
Club, which were held by two institutions who had purchased receivables from
the Company. Together, the Executive Repurchase and the Option Redemption
affected the financial results in that the Company incurred additional debt to
finance the Executive Repurchase and the Option Redemption. Additionally, in
connection with the Executive Repurchase, the Company paid its former
shareholder/executive for a five-year covenant-not-to-compete, which is being
amortized through April 2000.
30
<PAGE>
RESULTS OF OPERATIONS
The following discussion of results of operations relates to entities
comprising the Company on a combined historical basis. Results of operations
only reflect operations of entities in existence for each respective reporting
year. The following table sets forth certain combined operating information
for the entities comprising the Company for the three years ended December 31,
1994, 1995 and 1996.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
-----------------------
1994 1995 1996
------ ------ -------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS:
AS A PERCENTAGE OF TOTAL REVENUES
Vacation Ownership Interest sales.................... 69.8% 61.8% 62.0%
Interest revenue..................................... 9.9% 15.9% 16.0%
Resort revenue....................................... 15.2% 15.6% 14.0%
Telecommunications revenue........................... 4.4% 5.9% 7.3%
Other................................................ 0.7% 0.8% 0.7%
------ ------ -------
Total revenues..................................... 100.0% 100.0% 100.0%
====== ====== =======
AS A PERCENTAGE OF VACATION OWNERSHIP INTEREST SALES
Vacation Ownership Interest cost of sales............ 21.0% 24.0% 24.3%
Sales and marketing.................................. 42.2% 44.5% 46.4%
Provision for doubtful accounts...................... 7.0% 7.0% 7.1%
AS A PERCENTAGE OF INTEREST REVENUES
Interest expense--treasury........................... 47.1% 50.6% 44.2%
AS A PERCENTAGE OF TOTAL REVENUES
General and administrative........................... 10.3% 8.6% 8.1%
Depreciation and amortization........................ 1.8% 2.7% 2.6%
Interest expense--other.............................. 2.7% 3.9% 4.3%
Other................................................ 1.6% 1.3% 0.5%
Total costs and operating expenses................. 86.7% 93.1% 89.2%
AS A PERCENTAGE OF RESORT REVENUES
Resort expenses(1)................................... 84.8% 83.9% 81.6%
AS A PERCENTAGE OF TELECOMMUNICATIONS REVENUES
Telecommunications expenses(1)....................... 74.6% 76.1% 79.6%
SELECTED OPERATING DATA:
Number of resorts at year end........................ 2 2 3
Number of Vacation Ownership Interests sold(2)....... 5,582 5,190 5,794
Number of Vacation Ownership Interests in inventory
at year end(3)...................................... 3,822 3,054 14,774
Average price of Vacation Ownership Interests sold... $9,707 $9,664 $10,366
</TABLE>
- --------
(1) Does not include interest and depreciation expenses.
(2) Includes both sales of annual and alternate-year Vacation Ownership
Interests.
(3) Inventory classified as annual Vacation Ownership Interests.
Comparison of Year Ended December 31, 1996 to Year Ended December 31, 1995
For the year ended December 31, 1996, the Company recognized total revenues
of $96.9 million compared to $81.1 million for the year ended December 31,
1995, an increase of $15.8 million, or 19.5%. This increase is primarily the
result of a $9.9 million increase in sales of Vacation Ownership Interests
from $50.2 million during 1995 to $60.1 million during 1996, an increase of
19.8%. Sales of Vacation Ownership Interests increased primarily as a result
of (i) a 7.3% increase in the average sales price of Vacation Ownership
Interests, and (ii) an 11.6% increase in the number of Vacation Ownership
Interests sold from 5,190 to 5,794. The increase in Vacation Ownership
Interests sold was the result of the Company's marketing activities in central
Florida and a 94.1% increase in sales generated by the Company's
internationally-based marketing efforts which grew from $5.1 million in 1995
to $9.9 million in 1996.
Interest revenue increased 20.6% from $12.9 million to $15.5 million due to
an 18.7% increase in the principal amount of net customer mortgages receivable
from $80.5 million to $100.2 million, and an increased
31
<PAGE>
average contractual yield on the Company's customer mortgages receivable
portfolio from 13.9% to 14.4%. Also included in interest revenue, discount
amortization recognized on customer mortgages receivable increased 38.1% from
$2.1 million to $2.8 million as the Company recognized discount amortization
for the full period in 1996, as compared to a portion of the period in 1995.
This discount resulted from a 1995 transaction in which the Company re-
acquired customer mortgages receivable (pursuant to a related clean-up call
provision pertaining to the original transaction) which had been previously
sold in 1991 as well as recognition of a discount on certain customer
mortgages receivable repurchased in 1996 (pursuant to a related clean-up call
provision pertaining to the original transaction) from an investment
partnership. As of December 31, 1996, $4.6 million of the unamortized discount
remained and is expected to be amortized over the next four years.
Resort revenues increased 7.7%, from $12.6 million to $13.6 million, as a
result of increased room rentals and retail operations at Vistana Resort in
Orlando. Telecommunications revenues (guest telephone charges relating to the
existing resorts and revenues from contracting services provided to third
parties) increased 46.9%, from $4.8 million to $7.1 million, due to increased
telephone usage by resort guests and an increase in contracting revenues from
$3.5 million to $5.7 million.
Operating costs and expenses increased 14.5% from $75.5 million to $86.5
million, although, as a percentage of total revenues, operating costs and
expenses decreased from 93.1% in 1995 to 89.2% in 1996. Product costs,
telecommunications expenses and resort expenses increased at a rate
commensurate with or in excess of that of related revenues. Loan portfolio
costs, general and administrative expenses, and depreciation increased at
rates less than the rate by which revenues increased. Provision for doubtful
accounts remained relatively constant at 7.1% of revenues in 1996. The Company
annually monitors its provision for doubtful accounts to provide for future
losses associated with any defaults on customer mortgages receivable and
provides for additions to the reserve as a percentage of Vacation Ownership
Interests sold in the applicable period. Management believes that the
provision is adequate for such future losses. Interest expense-treasury
increased due to increased borrowings secured by customer mortgages
receivable. Depreciation and amortization increased at a rate lower than that
of total revenues reflecting the leveraging of these costs and assets over a
larger revenue base. In addition, operating costs and expenses decreased by
$2.3 million as a result of a decrease in the amount of deferred executive
incentive compensation.
Costs of sales as a percentage of Vacation Ownership Interest sales
increased from 24.0% in 1995 to 24.3% in 1996 reflecting a larger percentage
of Vacation Ownership Interests sold in 1996 compared to 1995 from a more
expensive phase at Vistana Resort in Orlando, resulting from a relatively
greater per unit cost for land and amenities than prior phases. The Company
expects to complete sales from this higher-cost phase in mid-1997 and in
future periods the Company expects later phases to have relatively lower costs
for land and amenities.
Sales and marketing expenses increased 24.9% from $22.3 million to $27.9
million. As a percentage of timeshare sales, these expenses increased from
44.5% to 46.4%. This increase is attributable to higher overall sales levels
as well as opening expenses associated with expanded international sales
facilities and the commencement of sales activities at Oak Plantation Villas
by Vistana during the fourth quarter of 1996.
General and administrative expenses increased 12.8% from $7.0 million to
$7.9 million. However, as a percentage of total revenues, these costs
decreased from 8.6% to 8.1%. Resort expenses as a percentage of resort
revenues decreased from 83.9% to 81.6% due to growth in management fee income
while telecommunications expenses as a percentage of telecommunications
revenues increased from 76.1% to 79.6% due to a higher mix of revenues from
contracting which carries a higher cost of sales.
Interest expense-treasury (consisting of interest paid on borrowings secured
by customer mortgages receivable) increased 5.4% from $6.5 million to $6.9
million. This increase reflects higher borrowings secured by customer
mortgages receivable to fund growth in the Company's operations and the
relatively higher interest income described above. However, as a percentage of
interest income, interest expense-treasury decreased from 50.6% to 44.2%.
Interest expense-other increased $1.0 million, or 31.1%, to $4.2 million in
1996 as a result of the impact for the full twelve months of the debt
associated with the Executive Repurchase and Option Redemption.
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During 1995, the Company amended certain senior executives' employment
agreements, which increased deferred executive incentive compensation, on a
cumulative basis, from 1991 through 1995. As a result, deferred executive
incentive compensation decreased by 67.7% to $1.1 million in 1996 from $3.4
million in 1995. The Company intends to enter into new employment agreements
with its senior executives effective upon completion of the Offering and, as a
result, anticipates that there will be no equivalent expense after 1996. See
"Management--Employment Agreements."
Pre-tax income increased 81.1% from $5.9 million to $10.6 million.
Comparison of Year Ended December 31, 1995 to Year Ended December 31, 1994.
For the year ended December 31, 1995, the Company recognized total revenues
of $81.1 million compared to $77.6 million for the year ended December 31,
1994, an increase of $3.5 million or 4.5%. Such increase is primarily due to
higher interest revenue, telecommunications revenue and resort revenue, which
offset a 7.4% decrease in revenues from sales of Vacation Ownership Interests
from $54.2 million to $50.2 million. The decrease in Vacation Ownership
Interests sold is primarily the result of a $4.8 million decrease in sales
from the Company's marketing activities in central Florida.
Interest revenue increased 68.4%, from $7.7 million to $12.9 million, due to
a 25.7% increase in the principal amount of net customer mortgages receivable
from $64.0 million to $80.5 million. The year-end weighted average interest
rate on the customer mortgages receivable portfolio increased from 13.7% to
13.9% per annum. The Company also recognized additional interest revenue of
$2.1 million in 1995 as a result of the recognition of a discount amortization
on certain customer mortgages receivable repurchased (pursuant to a related
clean-up call provision pertaining to the original transaction) from an
investment partnership.
Resort revenues increased 6.6%, from $11.8 million to $12.6 million, as a
result of the increased number of rooms rented. Telecommunications revenues
increased by 42.2% from $3.4 million to $4.8 million. This increase is
primarily due to a $1.2 million increase in revenues derived from contracting
services provided to third parties.
Operating costs and expenses increased by 12.2% from $67.3 million to $75.5
million. As a percentage of total revenues, operating costs and expenses
increased from 86.7% to 93.1%. This increase is primarily attributable to a
$3.1 million increase in deferred executive incentive compensation expense
resulting from an amendment to certain senior executives' employment
agreements. Additionally, there was an increase in cost of sales of Vacation
Ownership Interests as a percentage of Vacation Ownership Interest sales from
21.0% to 24.0% due to (i) the commencement of sales of Vacation Ownership
Interests at a new phase at Vistana Resort, which had a corresponding greater
per unit land and amenity cost than prior phases, and (ii) an increased
percentage of sales of Vacation Ownership Interests at Vistana's Beach Club
(which have a lower average sales price per unit than those at Vistana Resort
and a higher product cost as a result of the high-rise nature of the
construction), from 8.5% of all Vacation Ownership Interests sold in 1994 to
16.1% in 1995 which carried a higher product cost.
Sales and marketing costs as a percentage of Vacation Ownership Interest
sales increased from 42.2% in 1994 to 44.5% in 1995, reflecting decreased
efficiencies of the Company's marketing activities in central Florida and
increased sales costs.
General and administrative costs decreased 12.6%, from $8.0 million to $7.0
million, due principally to a decrease in aggregate executive compensation and
related costs payable by the Company as a result of the Executive Repurchase.
Interest expense-treasury increased 80.7%, from $3.6 million to $6.5
million, due to an increase in hypothecation activities pursuant to which the
total amount of notes payable secured by customer mortgages receivable
increased from a year-end balance of $44.5 million in 1994 to a year-end
balance of $65.9 million in 1995. This increased borrowing funded a 14.9%
increase in inventory and units under construction during 1995,
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<PAGE>
from $15.9 million at December 31, 1994 to $18.3 million at December 31, 1995.
The Company's interest expense-other increased 50.4% from $2.1 million to $3.2
million. The increase in interest expense-other is attributable to
indebtedness incurred in connection with the Executive Repurchase and the
Option Redemption. Both interest expense-treasury and interest expense-other
increased in 1995 in part due to the full-year effect in 1995 of higher
interest rates which rose during 1994 and were sustained at higher levels
throughout 1995.
Resort expenses increased 5.5% from $10.0 million in 1994 to $10.6 million
in 1995. Telecommunications expenses increased 45.0% from $2.5 million in 1994
to $3.7 million in 1995, primarily as a result of an increase in the
percentage of costs attributable to contracting services provided to third
parties. These increases were consistent with the increases in resort and
telecommunications revenues, respectively.
During 1995, the Company amended certain senior executives' employment
agreements, which increased deferred executive incentive compensation, on a
cumulative basis, from 1991 through 1995. This had the effect of increasing
deferred executive incentive compensation to $3.4 million in 1995 from $0.3
million in 1994. See "Management--Employment Agreements."
Pre-tax income decreased 45.4%, from $10.7 million to $5.9 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates cash for operations from the sale and financing of
Vacation Ownership Interests, resort operations, management activities and
telecommunications services. With respect to the sale of Vacation Ownership
Interests, the Company generates cash for operations from customer down
payments and third party financing of customer mortgages receivable in amounts
typically equal to 90% of the related customer mortgage receivable. The
Company generates additional cash from the financing of Vacation Ownership
Interests equal to the difference between the interest charged on the customer
mortgages receivable (which averaged 14.4% at December 31, 1996) and the
interest paid on the notes payable secured by the Company's pledge of such
customer mortgages receivable (which averaged 10.4% at December 31, 1996).
During the years ended December 31, 1996, 1995 and 1994, cash provided by
operating activities was $15.6 million, $12.5 million and $13.2 million,
respectively. Cash generated from operating activities was higher in 1996
resulting from an increase in net income. Cash generated from operating
activities was slightly lower in 1995 than 1994 due principally to a decrease
in net income which was offset, in large part, by increased accrued
liabilities.
Net cash used in investing activities for the years ended December 31, 1996,
1995 and 1994 was $26.4 million, $22.7 million and $20.4 million,
respectively. Pursuant to a 1992 agreement in which the Company agreed to sell
to third parties a stipulated volume of its customer mortgages receivable, the
Company completed such sales during 1993 and 1994. The Company has not entered
into any similar agreement since the 1992 agreement and does not anticipate
entering into any such agreement in the future. In 1996, the increase in
customer mortgages receivable was due to increased sales of Vacation Ownership
Interests.
For the years ended December 31, 1996, 1995 and 1994, net cash provided by
financing activities was $9.3 million, $15.1 million and $6.5 million,
respectively. The increase in proceeds from notes payable in 1995 funded the
increased level of equity distributions attributable to the Executive
Repurchase and the Option Redemption. The net cash figures for 1996 were lower
than 1995 primarily as a result of decreased borrowing activities and
recognition of the effect of minority interest. In addition, year-to-year net
cash provided from investing activities fluctuates as a result of the
Company's borrowing activities and its relative investment in land and related
Vacation Ownership Interest inventory.
The Company requires funds to finance the acquisition and development of
vacation ownership resorts and related inventory, and to finance customer
purchases of Vacation Ownership Interests. Historically, these funds have been
provided by indebtedness secured by a portion of the Company's inventory of
unsold Vacation Ownership Interests, customer mortgages receivable and other
assets. In addition, the Company incurred additional indebtedness in
connection with the Executive Repurchase and Option Redemptions. As of
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December 31, 1996, the Company had $22.5 million outstanding under its notes
payable secured by its land and Vacation Ownership Interest inventory, $73.2
million outstanding under its notes payable secured by customer mortgages
receivable and $22.9 million of other secured and unsecured notes payable.
Upon completion of the Offering and the application of proceeds therefrom, the
Company anticipates that $20.0 million of the notes payable secured by
customer mortgages receivable will be repaid, as well as $19.0 million in
other indebtedness. As of December 31, 1996, the Company's scheduled principal
payments on its pro-forma long-term indebtedness through 2001 (excluding
payments on credit facilities secured primarily by customer mortgages
receivable) were $2.0 million in 1997, $1.4 million in 1998, $1.4 million in
1999, $1.1 million in 2000 and $0.7 million in 2001.
Over the next 12 months, the Company anticipates spending approximately $51
million for acquisition, expansion, conversion and development activities at
Vistana Resort, Oak Plantation Villas by Vistana, Vistana Resort at World Golf
Village, the Myrtle Beach Resort and PGA Vacation Resort by Vistana; however,
the exact amount of these expenditures will be dependent upon the size and
timing of the construction of the initial phases of each such resort. The
Company expects to fund its operations and development activities at its
existing resorts and the acquisition of new resorts with (i) cash flow from
operations; (ii) borrowings under existing credit facilities; (iii) the net
proceeds to the Company of the Offering (after repayment of certain
outstanding indebtedness); and (iv) borrowings under new credit facilities
which the Company intends to secure. As of December 31, 1996, the Company's
existing credit facilities had an available capacity of approximately $70.4
million, including credit facilities to fund customer financing, working
capital, and construction and development activities. The Company believes
that its available capacity under its existing credit facilities is sufficient
to meet its capital needs for at least the next 12 months.
The Company's current credit facilities (the "Credit Facilities") provide
for term loans, of which $48.7 million was outstanding as of December 31,
1996, and revolving lines of credit, under which the Company had borrowings of
$69.9 million as of December 31, 1996 and an available capacity at that date
of $70.4 million. As of December 31, 1996, the Company's term loans accrued
interest at various rates between 8.0% and 11.9%, and the Company's revolving
lines of credit accrued interest at rates between 9.75% and 10.25%.
Approximately $89.1 million of the Company's indebtedness bears interest at
variable rates based on a fixed spread over a specified prime rate. The
Company's indebtedness under the Credit Facilities is secured primarily by
pledges of the Company's receivables (including its customer mortgages
receivable), mortgages on the Company's unsold inventory of Vacation Ownership
Interests and other owned real and personal property. The terms of certain of
the Credit Facilities impose certain operating and financial restrictions upon
the Company, including, without limitation, (i) maintenance of a minimum
tangible net worth by certain of the Company's operating subsidiaries; (ii)
maintenance of certain financial ratios, including the ratio of selling
expenses to net Vacation Ownership Interest sales; and (iii) limitations on
cash distributions by certain of the Company's operating subsidiaries to the
amount of the subsidiary's net income or net cash flow (subject to certain
exceptions for tax and other permitted distributions). In addition, certain of
the Credit Facilities contain default provisions that are triggered in the
event that Messrs. Gellein and Adler (together with their respective
affiliates), collectively, fail to own at least a majority of the voting
securities of the borrowing subsidiary or any other corporation or partnership
which controls such subsidiary.
The Company intends to pursue a growth-oriented strategy; accordingly, the
Company may, from time to time acquire, among other things, additional
vacation ownership resorts and additional land upon which vacation ownership
resorts may be developed, and companies operating quality resorts or having
vacation ownership assets, management, sales or marketing expertise
commensurate with the Company's operations in the vacation ownership industry.
In this regard, the Company is currently considering the acquisition of
several additional land parcels for the development of additional resorts,
either under a non-multi-hotel brand, under the Vistana brand, one of Promus'
brands or the PGA Vacation Resort brand. See "Business--Affiliation with
Promus." The Company may also evaluate asset and operating company
acquisitions, but presently has no contracts or capital commitments relating
to any such potential acquisition.
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In the future, the Company may negotiate additional credit facilities, or
issue debt or additional equity securities. Any debt incurred or issued by the
Company may be secured or unsecured, bear interest at fixed or variable rates,
and be subject to terms and conditions approved by management. The Company has
historically enjoyed good credit relationships and has been successful in
establishing new relationships and expanding existing credit facilities as its
growth and opportunities have necessitated. Management believes it will
continue to be able to borrow in this manner.
The Company believes that the net proceeds to the Company from the Offering,
together with cash generated from operations and future borrowings, will be
sufficient to meet the Company's working capital and capital expenditure needs
for the next 12 months. However, depending upon conditions in the capital and
other financial markets, and other factors, the Company may from time to time
consider the issuance of debt or other securities, the proceeds of which may
be used to finance acquisitions, to refinance debt or for general corporate
purposes. The Company believes that the Company's properties are adequately
covered by insurance. See "Business--Insurance."
INFLATION
Inflation and changing prices have not had a material impact on the
Company's revenues, operating income and net income during any of the
Company's three most recent fiscal years. Due to the current economic climate,
the Company does not expect that inflation and changing prices will have a
material impact on the Company revenues, operating income or net income. To
the extent inflationary trends affect short-term interest rates, a portion of
the Company's debt service costs may be affected as well as the rates the
Company charges on its customer mortgages.
SEASONALITY
The Company's revenues are moderately seasonal with owner and guest activity
the greatest from February through April and June through August. As the
Company expands into new markets and geographic locations it may experience
new seasonality dynamics creating fluctuations in operating results.
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BUSINESS
COMPANY HISTORY
Founded in 1980, the Company is a leading developer and operator of
timeshare resorts in the United States. The Company's principal operations
consist of (i) acquiring, developing and operating vacation ownership resorts;
(ii) marketing and selling Vacation Ownership Interests in its resorts, either
on an annual or alternate-year basis; and (iii) providing financing for the
purchase of Vacation Ownership Interests at its resorts. The Company currently
operates three vacation ownership resorts in Florida with a total of 1,406
units, or 71,706 Vacation Ownership Interests, and is currently constructing a
fourth resort at World Golf Village, a destination golf resort and future home
of the World Golf Hall of Fame currently under development near St. Augustine,
Florida. In addition, the Company has entered into an exclusive joint venture
agreement with Promus, a leading hotel company in the United States, for the
joint development and operation of vacation ownership resorts in selected
North American markets. The Company has also entered into a letter of intent
with PGA of America for the development of golf-oriented vacation ownership
resorts.
The Company opened the first vacation ownership resort in Orlando, Florida,
which has become one of the largest vacation ownership markets in the world.
During its 16-year history, the Company has sold in excess of $550 million of
Vacation Ownership Interests and has an ownership base of over 49,000 owners
residing in more than 100 countries. Raymond L. Gellein, Jr., the Chairman and
Co-Chief Executive Officer, and Jeffrey A. Adler, the President and Co-Chief
Executive Officer, have been employed by the Company since 1980 and 1983,
respectively. Under their direction, the Company has focused on creating a
values-driven business culture that emphasizes excellence and quality
relationships with its employees, customers and business partners. Management
believes that these philosophies have been instrumental to the Company's
success. Messrs. Gellein and Adler serve as the chairman of the Florida
chapter of ARDA and as a director of ARDA, respectively.
The quality and customer appeal of the Company's resorts have been
recognized through industry awards and by several leading travel publications.
The Company's flagship resort, Vistana Resort in Orlando, contains 1,088 units
developed in seven phases on a 135-acre landscaped complex featuring swimming
pools, tennis courts, restaurants and other recreational amenities. In 1995
and 1996, Conde Nast Traveler magazine selected Vistana Resort as a "Gold
List" resort, the only vacation ownership resort to be included as one of the
top 500 resorts in the world. Similarly, the most recent Zagat Survey of U.S.
Hotels, Resorts & Spas ranked Vistana Resort as one of the top resorts in
Orlando, commenting that it contains the "most luxurious villas in Orlando."
Each of the Company's operating resorts is rated as a Gold Crown resort by
Resort Condominiums International ("RCI"), the operator of the world's largest
Vacation Ownership Interest exchange network, which was recently acquired by
HFS Incorporated. The Gold Crown distinction is reserved for approximately the
top 14% of the more than 3,000 vacation ownership resorts in the RCI network.
THE VACATION OWNERSHIP INDUSTRY
The Market. The resort component of the leisure industry is primarily
serviced by two alternatives for overnight accommodations: commercial lodging
establishments and vacation ownership resorts. Commercial lodging consists
principally of hotels and motels in which a room is rented on a nightly,
weekly or monthly basis for the duration of the visit and is supplemented by
rentals of privately-owned condominium units or homes. For many vacationers,
particularly those with families, a lengthy stay at a quality commercial
lodging establishment can be expensive and the space provided relative to the
cost is not economical. In addition, room rates at such establishments are
subject to change periodically and availability is often uncertain. For these
and other reasons, vacation ownership presents an economical and reliable
alternative to commercial lodging for many vacationers.
First introduced in Europe in the mid-1960s, vacation ownership has been one
of the fastest-growing segments of the hospitality industry during the past
two decades. In 1994 (the latest period for which ARDA information is
available), the industry experienced a record year, with 384,000 new owners
and purchases of 560,000 Vacation Ownership Interests resulting in a sales
volume of $4.76 billion (up from approximately $490 million in 1980). Based on
other industry information, the Company believes that vacation ownership sales
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exceeded $5.0 billion in 1995. As shown in the following charts, the worldwide
vacation ownership industry has expanded significantly since 1980 both in
terms of the number of Vacation Ownership Interests sold and total sales
volume:
LOGO
[The following tables are represented as bar graphs]
Dollar Volume of Vacation Ownership Interest Sales
(in billions)
<TABLE>
<CAPTION>
<S> <C> <C>
1 1980 $0.490
2 1981 $0.965
3 1982 $1.165
4 1983 $1.340
5 1984 $1.735
6 1985 $1.580
7 1986 $1.610
8 1987 $1.940
9 1988 $2.390
10 1989 $2.970
11 1990 $3.240
12 1991 $3.740
13 1992 $4.250
14 1993 $4.505
15 1994 $4.760
LOGO
Number of Vacation Ownership Interest Owners
(in millions)
1 1980 0.155
2 1981 0.220
3 1982 0.335
4 1983 0.470
5 1984 0.620
6 1985 0.805
7 1986 0.970
8 1987 1.125
9 1988 1.310
10 1989 1.530
11 1990 1.800
12 1991 2.070
13 1992 2.363
14 1993 2.760
15 1994 3.144
</TABLE>
Source: American Resort Development Association, The 1995 Worldwide Timeshare
Industry.
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In addition, the vacation ownership industry has experienced consistent and
steady growth from 1990 through 1994, achieving average annual growth rates of
approximately 10.2% in sales volume, 14.6% in number of owners and 8.4% in
number of Vacation Ownership Interests sold per year.
The Economics. The Company believes that national lodging and hospitality
companies are attracted to the vacation ownership concept because of the
industry's relatively low product cost and high profit margins and the
recognition that vacation ownership resorts provide an attractive alternative
to the traditional hotel-based vacation and allow the hotel companies to
leverage their brands into additional resort markets where demand exists for
accommodations beyond traditional rental-based lodging operations.
The Consumer. According to information compiled by ARDA for the year ended
December 31, 1994, the prime market for Vacation Ownership Interests consists
of individuals in the 40-55 year age range who are reaching the peak of their
earning power and are rapidly gaining more leisure time. The median age of a
Vacation Ownership Interest buyer at the time of purchase is 46. The median
annual household income of current Vacation Ownership Interest owners in the
United States is approximately $63,000, with approximately 35.0% of all
Vacation Ownership Interest owners having annual household income greater than
$75,000 and approximately 17.0% of such owners having annual household income
greater than $100,000. Despite the growth in the vacation ownership industry,
less than 2% of all United States households own a Vacation Ownership
Interest. As of December 31, 1994, Vacation Ownership Interest ownership had
achieved only an approximate 3.0% market penetration among United States
households with income above $35,000 per year and 3.9% market penetration
among United States households with income above $50,000 per year.
Approximately 52% of all owners of Vacation Ownership Interests reside in the
United States.
According to the ARDA study, the three primary reasons cited by consumers
for purchasing a Vacation Ownership Interest are (i) the ability to exchange
the Vacation Ownership Interest for accommodations at other resorts through
exchange networks such as RCI (cited by 82% of Vacation Ownership Interest
purchasers), (ii) the economic savings compared to traditional hotel resort
vacations (cited by 61% of purchasers) and (iii) the quality and appeal of the
resort at which they purchased a Vacation Ownership Interest (cited by 54% of
purchasers). According to the ARDA study, Vacation Ownership Interest buyers
have a high rate of repeat purchases. Approximately 41% of all Vacation
Ownership Interest owners own more than one Vacation Ownership Interest which
represent approximately 65% of the industry inventory, and approximately 51%
of all owners who bought their first Vacation Ownership Interest before 1985
have since purchased a second Vacation Ownership Interest. In addition, the
ARDA study noted that customer satisfaction generally increases with length of
ownership, age, income, multiple location ownership and access to Vacation
Ownership Interest exchange networks.
The Company believes it is well-positioned to take advantage of these
demographic trends because of the location and quality of its resorts, the
average sales price of its Vacation Ownership Interests and the participation
of its resorts in RCI. The Company expects the vacation ownership industry to
continue to grow as the baby-boom generation continues to enter the 40-55 year
age bracket, the age group which contained the most Vacation Ownership
Interest purchasers in 1994.
GROWTH STRATEGIES
The Company's goal is to maintain and expand its position as a leading
developer and operator of vacation ownership resorts in the United States by
(i) continuing sales of Vacation Ownership Interests at the Company's two
Orlando-area resorts; (ii) acquiring, developing and selling additional
vacation ownership resorts; and (iii) improving operating margins by reducing
borrowing costs and reducing general and administrative expenses as a
percentage of revenues. In achieving this goal, the Company intends to adhere
to its core operating strategies of obtaining extensive access to qualified
buyers, promoting sales excellence and delivering memorable vacation
experiences to its owners and guests.
Continuing Sales at the Company's Orlando-Area Resorts. With over 36 million
visitors annually, Orlando is one of the most popular vacation destinations in
the United States. The Company intends to maintain
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its position as a leader in the Orlando vacation ownership resort market by
developing and selling an additional 451 units at Vistana Resort, representing
an additional 23,001 Vacation Ownership Interests. In addition, the Company
plans to continue sales at Oak Plantation Villas by Vistana, a 242-unit former
apartment complex located in the Orlando market, which the Company is
converting in phases into a vacation ownership resort and which is owned by a
Related Partnership in which the Company holds an approximately 67%
controlling interest. As of December 31, 1996, Oak Plantation Villas by
Vistana had an unsold inventory of approximately 12,222 Vacation Ownership
Interests.
The Company believes that the Orlando market continues to offer significant
growth opportunities in terms of the development of vacation ownership resorts
and sales of Vacation Ownership Interests. Although the Orlando market is
highly competitive, the Company believes that the combination of its 16 years
of experience in the market and industry, its reputation and its established
marketing arrangements with hotels and other tourist venues provide the
Company with a competitive advantage in the Orlando market.
Acquiring and Developing Additional Resorts. The Company intends to rely on
its operating knowledge and new strategic relationships to acquire and develop
additional vacation ownership resorts, including the following opportunities:
Promus. The Company and Promus have entered into the Promus Agreement, an
exclusive five-year agreement to jointly acquire, develop, market and
operate vacation ownership resorts in North America under Promus' Embassy
Vacation Resort, Hampton Vacation Resort and Homewood Vacation Resort
brands. Promus is a wholly-owned operating subsidiary of Promus Hotel
Corporation, a New York Stock Exchange company, which is one of the largest
companies in the hotel industry. As of December 31, 1995, Promus Hotel
Corporation had over 9,000 employees system-wide and owned, managed and/or
franchised more than 680 hotels, containing over 90,000 rooms and suites.
Under the Promus Agreement, the Company will be Promus' exclusive joint
venture partner for the development and operation of vacation ownership
resorts in North America and will also have the option of operating
vacation ownership resorts on a franchise basis. Promus has agreed that the
Company will be the sole franchisee in North America of the Hampton
Vacation Resort and Homewood Vacation Resort brands, and one of only two
franchisees in North America of the Embassy Vacation Resort brand. The
Promus Agreement precludes the Company from acquiring or developing
vacation ownership resorts with any other multi-hotel brand, but preserves
its ability to develop vacation ownership resorts in combination with non-
hotel brands (such as PGA of America), to acquire or develop vacation
ownership resorts under the Vistana name (other than in certain selected
markets agreed to by the parties), and to develop vacation ownership
resorts with unique, non-multi-hotel brand hotel properties. Although the
Company and Promus are evaluating new resort development opportunities for
the joint venture, no commitments have been made for a specific development
at this time. However, the parties have agreed to franchise two of the
Company's properties subject to execution of definitive franchise
agreements: (i) Oak Plantation Villas by Vistana, which is intended to
become the first vacation ownership resort to operate under the Hampton
Vacation Resort brand; and (ii) the Myrtle Beach Resort, which the Company
intends to operate under the Embassy Vacation Resort brand.
The Company believes that its strategic relationship with Promus will
offer growth opportunities with respect to the development and operation of
vacation ownership resorts by enhancing its sales and marketing of Vacation
Ownership Interests and providing further management expertise. The Company
anticipates that such growth opportunities will occur as a result of
Promus' strong brand recognition, large customer base and extensive product
development, marketing, management and information technology capabilities.
Moreover, the Company believes that its strategic relationship with Promus
will offer the Company access to a target market of prospective customers
who, because of their favorable demographics and, in the case of Promus'
Embassy Suites and Homewood Suites hotel brands, preference for suite
accommodations, will respond favorably to the Company's resorts. The
Company believes that the Embassy Vacation Resort, the Hampton Vacation
Resort and the Homewood Vacation Resort brands will generally (i) conform
to the relative price points, (ii) target similar customers, and (iii)
effect similar brand segmentation, as applicable
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to Promus' Embassy Suites, Hampton Inn and Homewood Suites hotel brands,
respectively. See "Business--Affiliation with Promus."
World Golf Village. In the fall of 1996, the Company commenced
construction of the first phase of a 408-unit vacation ownership resort at
World Golf Village. Constituting the centerpiece of a planned community
under development near St. Augustine, Florida, World Golf Village is a
destination resort which will contain the World Golf Hall of Fame, a
championship golf course, a golf academy, a hotel and convention center,
restaurants, retail facilities and other amenities. The Company holds a
37.5% controlling ownership interest in a limited partnership, which has
the exclusive rights to develop and market Vacation Ownership Interests at
World Golf Village, and has exclusive multi-year marketing agreements for
solicitation at key locations throughout World Golf Village, including the
hotel/conference center, golf course, Walk of Champions and retail
facilities. The Company also has entered into an agreement with PGA Tour
Golf Course Properties, Inc. that allows the Company access to PGA Tour
databases for marketing purposes. See "--Description of the Company's
Resorts."
The Company believes that World Golf Village and the golf industry in
general represent attractive opportunities for expansion and the
development of future vacation ownership resorts by the Company. The
Company views the World Golf Village project as a unique, high-profile
opportunity to expand its vacation ownership resort business through the
golf market in a manner that will facilitate access to qualified customers
and maintain and enhance the Company's reputation. In addition, by
developing a vacation ownership resort at World Golf Village under the
Vistana name and through a Related Partnership in which the Company has a
minority, but controlling, interest, the Company believes it has adopted a
strategy which allows for risk diversification without sacrificing
operational control or the opportunity to build its brand awareness.
PGA of America. Under a letter of intent with PGA of America, which
contemplates a long-term affiliation for the development of future vacation
ownership resorts, the Company intends to acquire 25 acres of land adjacent
to an existing 36-hole championship golf facility owned by a subsidiary of
PGA of America in Port St. Lucie, Florida, for the development of the first
PGA Vacation Resort by Vistana. The property, located approximately 40
miles north of Palm Beach Gardens, Florida, is planned to contain
approximately 250 units, representing a total of 12,750 Vacation Ownership
Interests. The Company believes that PGA of America, through its
approximately 20,000 golf professionals, will provide strategic marketing
opportunities for this resort and any future PGA Vacation Resorts developed
by the Company. With members at approximately 9,000 of the nation's leading
golf facilities, PGA of America, which recently celebrated its 80th
anniversary, administers several professional golf tournaments, including
the PGA Championship, the Ryder Cup matches, the PGA Seniors' Championship,
the MasterCard PGA Grand Slam and the PGA Club Professional Championship.
Together with Vistana Resort at World Golf Village, the Company's
affiliation with PGA of America provides it with high-profile relationships
in the golf industry. See "--Description of the Company's Resorts."
Vistana Branded Resorts and Acquisition Opportunities. To capitalize on
the Vistana brand and reputation, the Company intends to seek other
vacation ownership resort development opportunities in selected vacation
markets where, among other things, it believes it can obtain effective
marketing access to potential customers. In addition, the Company from time
to time evaluates opportunities to acquire vacation ownership assets and
operating companies that may be integrated into the Company's existing
operations. However, the Company currently has no contracts or capital
commitments relating to any such acquisitions.
Each of the foregoing projects and agreements require the Company to make
substantial capital commitments and are subject to various risks, including
risks related to availability of financing, construction and development
activities and the Company's ability to execute its sales and marketing
strategies at new locations. See "Risk Factors--Risks of Rapid Growth." Over
the next 12 months, the Company anticipates spending approximately $51 million
for acquisition, expansion, conversion and construction activities with
respect to the identified projects. The Company anticipates funding these
expenditures with a portion of the net proceeds of the Offering, cash flow
from operations and through borrowings under its credit facilities.
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Improving Operating Margins. The Company intends to improve operating
margins by reducing (i) its financing costs by entering into more favorable
borrowing agreements and (ii) its general and administrative costs as a
percentage of revenues. The Company anticipates that as a public company with
a strengthened balance sheet and increased access to the capital markets, it
will be able to lower its borrowing costs. Although the Company has not had
any discussions with prospective lenders, the Company believes that, as a
public company, which will be subject to various reporting requirements and
other financial disclosures, it will be able to better negotiate with
prospective lenders and further strengthen its existing borrowing
relationships. In addition, the Company has developed a comprehensive
administrative, operations and loan servicing infrastructure. The Company
believes it can further improve operating margins by spreading the cost of
these resources over an increasing revenue base.
DESCRIPTION OF THE COMPANY'S RESORTS
The following table sets forth certain information as of December 31, 1996
regarding each of the Company's existing and planned resorts, including
location, the date sales of Vacation Ownership Interests commenced (or are
expected to commence), the number of existing and total planned units, the
number of Vacation Ownership Interests sold at each existing resort since its
development by the Company and the number of Vacation Ownership Interests sold
in 1996, the average sales price of Vacation Ownership Interests sold in 1996
and the number of Vacation Ownership Interests available for sale currently
and after giving effect to planned expansion. The exact number of units
ultimately constructed and Vacation Ownership Interests available for sale at
each resort may differ from the following planned estimates based on future
land use, project development, site layout considerations and customer demand.
In addition, the Company's construction and development of new resorts or
additional units at its existing resorts (and sales of the related Vacation
Ownership Interests) is dependent upon general economic conditions and other
factors and may also be subject to delay as a result of certain circumstances,
some of which are not within the Company's control. See "Risk Factors."
<TABLE>
<CAPTION>
Vacation Unsold
Ownership Vacation Ownership
Interests Average Interests at
Date Sales Units at Resort Sold(a) Sales Resorts(a)
Commenced/ --------------- ------------ Price -------------------
Expected to Total in Current Planned
Resort Location Commence(b) Current Planned Total 1996 1996(a) Inventory Expansion
- ---------------------- ------------------ ----------- ------- ------- ------ ----- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Vistana Resort(c) Orlando, Florida 1980 1,088 1,539 54,924 5,294(d) $10,576(d) 2,525 23,001
Vistana's Beach Hutchinson Island,
Club(e) Florida 1989 76 76 3,849 367 $ 8,422 27 0
Oak Plantation Kissimmee, Florida
Villas by Vistana(f) 1996 242 242 133 133 $ 7,380 12,222 0
Vistana Resort at St. Augustine,
World Golf Village(g) Florida 1998 -- 408 -- -- -- -- 20,808
PGA Vacation Port St. Lucie,
Resort by Vistana(h) Florida 1998 -- 250 -- -- -- -- 12,750
Myrtle Beach Resort(i) Myrtle Beach,
South Carolina 1998 -- 550 -- -- -- -- 28,050
----- ----- ------ ----- ------ ------
TOTAL 1,406 3,065 58,906 5,794 14,774 84,609
===== ===== ====== ===== ====== ======
</TABLE>
- --------
(a) The Company sells both annual Vacation Ownership Interests (entitling the
owner to the use of a unit for a one-week period on an annual basis) and
alternate-year Vacation Ownership Interests (entitling the owner to the
use of a unit for a one-week period on an alternate-year basis) with
respect to 51 weeks per year for each of its units, with one week
reserved for maintenance of the unit. Accordingly, the Company is able to
sell 51 annual Vacation Ownership Interests or 102 alternate-year
Vacation Ownership Interests per unit. For purposes of calculating
Vacation Ownership Interests Sold and Average Sales Price in 1996, data
with respect to Vacation Ownership Interests reflects Vacation Ownership
Interests sold regardless of classification as an annual or alternate-
year Vacation Ownership Interest. For purposes of calculating Unsold
Vacation Ownership Interests at Resorts, both the Current Inventory and
Planned Expansion amounts are based on sales of Vacation Ownership
Interests on an annual basis only. To the extent that alternate-year
Vacation Ownership Interests are sold, the actual number of Vacation
Ownership Interests at Resorts would be increased.
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<PAGE>
(b) Dates listed represent the dates the Company began recording (or expects
to begin recording) sales of Vacation Ownership Interests for financial
reporting purposes.
(c) Vistana Resort consists of seven development phases, six of which have
been completed and one of which is currently under construction. The
number of Units at Resort includes (i) 1,088 current existing units; and
(ii) 451 additional planned units (representing an additional 23,001
unsold annual Vacation Ownership Interests). As of December 31, 1996,
construction of 68 additional units was scheduled for completion by the
third quarter of 1997. The Company constructs additional units at various
times depending upon general market conditions and other factors.
Accordingly, construction of the remaining 383 additional units is
intended to be commenced from time to time as conditions merit. Figures
with respect to this property assume that all units to be constructed
will consist of one- and two-bedroom units; however, the actual number of
additional Vacation Ownership Interests resulting from planned
construction could vary depending upon the configuration of these units.
(d) Includes 1,810 alternate-year Vacation Ownership Interests with an average
sales price of $7,423 and 3,484 annual Vacation Ownership Interests with
an average sales price of $12,214.
(e) Vistana's Beach Club consists of two buildings containing a total of 76
current existing units, which represent 3,876 Vacation Ownership
Interests. The Company's Current Inventory of 27 annual Vacation
Ownership Interests at this resort consists primarily of previously-sold
Vacation Ownership Interests that the Company has since reacquired in
connection with defaults under customer mortgages. The Company has no
plans to build any additional units at this resort.
(f) Oak Plantation Villas by Vistana consists of 242 current existing units,
representing 12,342 annual Vacation Ownership Interests. Prior to its
acquisition by the Company in June 1996, this property was operated by a
third party as a rental apartment complex. The Company commenced
conversion of the property into a vacation ownership resort in July 1996.
As of December 31, 1996, the conversion of 61 units (representing 3,111
annual Vacation Ownership Interests) had been completed. The Company
intends to convert the remaining 181 units at various times depending
upon general market conditions and other factors. The Company currently
has no plans to build any additional units at this resort. Oak Plantation
Villas by Vistana will be operated on a franchise basis as the first
Hampton Vacation Resort pursuant to the Promus Agreement.
(g) Vistana Resort at World Golf Village will consist of an estimated 408
units, representing an estimated 20,808 annual Vacation Ownership
Interests, of which 102 units, representing 5,202 annual Vacation
Ownership Interests, are currently under construction and scheduled for
completion in the first quarter of 1998. The Company intends to commence
construction of the remaining 306 additional units from time to time as
demand and other conditions merit.
(h) PGA Vacation Resort by Vistana will consist of an estimated 250 units,
representing an estimated 12,750 annual Vacation Ownership Interests, and
will be constructed by the Company on 25 acres of land which it intends
to acquire in approximately three stages. In October 1996, the Company
entered into a letter of intent with PGA of America pursuant to which it
has agreed (subject to execution of definitive documentation and
customary due diligence) to purchase a minimum of 10 acres prior to March
21, 1997 and a total of 25 acres prior to December 31, 2000. The Company
anticipates that it will commence construction of the first 40-unit phase
of this resort (representing 2,040 annual Vacation Ownership Interests)
during the third quarter of 1997. Because the Company constructs
additional units at its resorts based on general market conditions and
other factors, construction of the remaining 210 units at this resort
will be commenced from time to time as conditions merit.
(i) In December 1996, the Company acquired the initial 14 acres of unimproved
land in Myrtle Beach, South Carolina for the development of the Myrtle
Beach Resort. The Company also has an option until December 31, 2003 to
acquire up to 26 additional acres of contiguous property for phased
expansion of the resort. The Company anticipates that it will commence
construction of the first 48-unit phase of this resort (representing
2,448 annual Vacation Ownership Interests) during the third quarter of
1997. Because the Company constructs additional units at its resorts
based on general market conditions and other factors, construction of the
remaining 502 units at this resort (assuming acquisition of the remaining
26 acres) will be commenced from time to time as conditions merit. The
Myrtle Beach Resort will be operated as an Embassy Vacation Resort
franchise pursuant to the terms of the Promus Agreement.
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Pricing of Vacation Ownership Interests. The following table sets forth the
current range of selling prices of annual and alternate-year Vacation
Ownership Interests at each of the Company's resorts:
<TABLE>
<CAPTION>
SELLING PRICES(A)
-------------------------------------------
ANNUAL VACATION ALTERNATE-YEAR VACATION
RESORT OWNERSHIP INTERESTS OWNERSHIP INTERESTS
- ------ ------------------- -----------------------
<S> <C> <C>
Vistana Resort(b)................. $7,250 -$16,000 $6,200-$8,250
Vistana's Beach Club(c)........... $8,995 -$ 9,950 N/A
Oak Plantation Villas by
Vistana(d)....................... $6,050 -$ 8,750 $3,700-$5,300
Vistana Resort at World Golf
Village(e)....................... $7,500 -$16,000 (f)
PGA Vacation Resort by
Vistana(e)....................... $6,000 -$12,000 (f)
Myrtle Beach Resort(e)............ $7,500 -$12,000 (f)
</TABLE>
- --------
(a) Selling prices vary depending upon the specific calendar week to which a
Vacation Ownership Interest relates and unit-specific factors.
(b) Includes one-, two- and three-bedroom unit Vacation Ownership Interests.
(c) Includes two-bedroom unit Vacation Ownership Interests only.
(d) Includes one- and two-bedroom unit Vacation Ownership Interests.
(e) Resort not yet in operation. Selling prices listed reflect anticipated
ranges of selling prices of Vacation Ownership Interests at each resort.
Includes one- and two-bedroom unit Vacation Ownership Interests.
(f) The decision to offer alternate-year Vacation Ownership Interests is made
on a site-by-site basis. As the Company has not yet commenced sales at
these properties, there has been no final decision with regard to offering
alternate-year Vacation Ownership Interests or their related pricing.
Vistana Resort (Orlando, Florida). Vistana Resort, the Company's flagship
property, is an award-winning vacation ownership destination property located
less than one mile from the Walt Disney World(R) Resort Complex. Vistana
Resort was the first vacation ownership resort in Orlando and is the only
vacation ownership resort to have been named in Conde Nast Traveler magazine's
Gold List of the "top 500 best places to stay in the whole world" for 1995 and
1996. The resort was ranked as one of the top resorts (second in unit quality)
in the Orlando area by the most recent Zagat Survey of U.S. Hotels, Resorts &
Spas, which commented that it contains "the most luxurious villas in Orlando."
In addition, Vistana Resort has received the RCI Gold Crown designation since
the inception of the designation by RCI.
Vistana Resort opened as a vacation ownership resort in July 1980 with an
initial phase, known as the Courts Villas, containing 98 units on a 25-acre
parcel. In November 1980, the Company purchased an additional 100 acres of
surrounding unimproved land, in 1987 the Company purchased 15 acres of
contiguous land and, in January 1993, it acquired the last available
contiguous parcel to Vistana Resort, consisting of 10 acres. Since 1980, the
Company has constructed six additional phases at Vistana Resort: (i) the Falls
Villas (1982), consisting of 112 units; (ii) the Spas Villas (1984),
consisting of 104 units; (iii) the Palms Villas (1987), consisting of 144
units; (iv) the Springs Villas (1988), consisting of 102 units; (v) the
Fountains Villas (1990), consisting of 372 units; and (vi) the Lakes Villas
(1995), consisting of 156 units. In addition, 68 units are currently under
construction and the Company plans to build an additional 383 units.
Vistana Resort is one of the foremost Orlando resorts in terms of
facilities, amenities and guest services. The gated-access resort consists of
a 135-acre complex that features tropical landscaping, lakes, waterfalls,
fountains, walking paths, scenic bridges and gazebos. The resort's athletic
facilities include six recreation centers, 13 championship lighted tennis
courts, a full-service tennis pro shop, six outdoor temperature-controlled
swimming pools, seven outdoor whirlpools, five children's pools, an 18-hole
miniature golf course, lighted basketball courts, sand volleyball pits,
shuffleboard courts and other recreational amenities. Other guest-oriented
amenities at Vistana Resort include two restaurants and a general store
containing a Pizza Hut facility. As of December 31, 1996, accommodations at
Vistana Resort consisted of 1,080 two-bedroom units and eight one-bedroom
units, divided into seven villages--Courts, Falls, Spas, Palms, Springs,
Fountains and Lakes. The units at Vistana Resort sleep from four to eight
people (depending upon floorplan) and include amenities such as a fully-
equipped kitchen, washer/dryer, three color televisions with cable service, a
videocassette player, and an outdoor terrace or balcony. Most units have
master bathrooms that include a whirlpool tub or feature screened
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<PAGE>
terraces or balconies with water views. In addition, the Company recently
introduced units with an optional two-bedroom lockoff floor plan, a special
feature that allows the lockoff unit to be divided into two separate one-
bedroom units or a studio and a one-bedroom unit, depending upon floor plan.
Owners of the lockoff units have increased flexibility regarding the use of
their Vacation Ownership Interest, including splitting the unit and using each
portion for separate one-week vacations.
Vistana's Beach Club (Hutchinson Island, Florida). Vistana's Beach Club on
Hutchinson Island is located on Florida's Treasure Coast, approximately 40
miles north of West Palm Beach and approximately a two hour drive from
Orlando. Vistana's Beach Club is located on 3.5-acre parcel and was purchased
by the Company in January 1989. The resort consists of one nine-story building
containing 48 units and one eight-story building containing 28 units. The
resort contains numerous recreational amenities, including a freshwater
swimming pool, outdoor whirlpool, children's pool, elevated sun deck and two
tennis courts. Vistana's Beach Club contains 76 fully-equipped two-bedroom,
two-bathroom oceanfront units, each of which includes a terrace with a view of
the Atlantic Ocean. The units at Vistana's Beach Club sleep up to six people
(depending upon floorplan) and include amenities such as a fully-equipped
kitchen, washer/dryer, color televisions with cable service and a
videocassette player. The Company continues to manage and operate the
property, which is no longer in active sales. RCI has awarded the resort its
Gold Crown designation.
Oak Plantation Villas by Vistana (Kissimmee, Florida). In June 1996, the
Company acquired, through a Related Partnership, a 242-unit multifamily rental
apartment complex located in Kissimmee, Florida, approximately ten miles from
Walt Disney World(R) Resort, which it is converting in phases into a vacation
ownership resort. Sales of the first phase containing 32 units commenced in
October 1996. The gated-access 16-acre resort contains one- and two-bedroom
units, each of which offers a fully-equipped kitchen. The resort is fully
landscaped and includes a scenic lake with a lighted fountain, swimming pools
and other recreational amenities. Oak Plantation Villas by Vistana has
received the Gold Crown designation from RCI. Pursuant to the Promus
Agreement, the Company intends to operate the resort on a franchise basis as
the first Hampton Vacation Resort.
Vistana Resort at World Golf Village (St. Augustine, Florida). In September
1996, through a Related Partnership, the Company commenced construction of the
first 102-unit phase of a 408-unit vacation ownership resort at World Golf
Village. Constituting the centerpiece of an approximately 6,000-acre planned
community under development near St. Augustine, Florida, World Golf Village is
a destination resort which will contain the World Golf Hall of Fame,
championship golf courses and other amenities. The units at Vistana Resort at
World Golf Village, which will consist of one- and two-bedroom units, will
sleep from four to eight people (depending upon floorplan) and include
features such as a fully-equipped kitchen, washer/dryer, color televisions
with cable service, a videocassette player and an outdoor terrace or balcony.
The Company's resort is scheduled to open in the spring of 1998. The resort
will be located adjacent to the 17th and 18th fairways of the first golf
course at World Golf Village. Resort guests and owners will have preferred
access to up to 40% of the daily tee times on the course.
World Golf Village is being developed in conjunction with World Golf
Village, Inc., a collaboration of the world's leading golf organizations
formed to build and operate the World Golf Hall of Fame. The member
organizations of World Golf Village, Inc. include the PGA Tour, PGA of
America, Ladies Professional Golf Association, Augusta National Golf Club,
Royal Canadian Golf Association, Royal & Ancient Golf Club of St. Andrews, PGA
European Tour, PGA Tour of Japan and FNB Tour of Southern Africa. The 75,000-
square foot World Golf Hall of Fame and Museum has been designed by the
prominent museum architect E. Verner Johnson & Associates of Boston and will
feature interactive displays and exhibits developed in conjunction with Ralph
Appelbaum Associates of New York, a leading exhibit designer whose credits
include the National Holocaust Museum in Washington, D.C. World Golf Village,
Inc. estimates first year attendance at approximately 500,000 visitors.
In addition to the World Golf Hall of Fame and the Company's vacation
ownership resort, the World Golf Village resort complex will also include a
championship golf course named in honor of Sam Snead and Gene Sarazen, a PGA
Tour licensed golf academy, the International Golf Library and Resource
Center, the 300-room
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World Golf Village Resort Hotel and 80,000-square foot St. Johns County
Conference Center (which, upon completion, will be the largest conference
center between Atlanta and Orlando), 80,000-square feet of themed retail
space, the headquarters and television production studios for PGA Tour
Productions and a large format, high definition theater. The component
facilities within World Golf Village will be linked by the Walk of Champions
honoring each member of the World Golf Hall of Fame.
PGA Vacation Resort by Vistana (Port St. Lucie, Florida). In October 1996,
the Company entered into a letter of intent with the PGA of America to
develop, market and operate a vacation ownership resort at The Reserve
community in Port St. Lucie, Florida. Subject to the execution of definitive
agreements, it is expected that the resort will be developed as a PGA Vacation
Resort by Vistana and will be located on a 25-acre parcel which the Company
will purchase from PGA of America in multiple phases. The resort will be
contiguous to the South Course of the PGA Golf Club at The Reserve, a
nationally-acclaimed $15 million golf course complex that opened in early
1996. The South Course, designed by Tom Fazio, was named the best new course
in its price category by Golf Digest magazine in December 1996. PGA of America
has announced its intention to open a golf learning center and build a third
golf course at the facility. In addition to resort amenities and services
comparable to the Company's other resorts, the PGA Vacation Resort by Vistana
will also offer its owners and renters preferential access to the PGA Golf
Club and other PGA golf courses in St. Lucie County. Owners and renters at the
resort will be able to book tee times through a centralized reservation system
that is anticipated to be developed jointly by the Company and PGA of America.
The Company currently expects that the resort will contain approximately 250
units constructed in phases. The Company anticipates commencing sales in 1998.
Myrtle Beach Resort (Myrtle Beach, South Carolina). In December 1996, the
Company acquired an initial 14-acre parcel of unimproved land on a 40-acre
site in Myrtle Beach, South Carolina, on which the Company intends to
construct a 550-unit vacation ownership resort. The Company has options to
acquire the remaining 26 acres of land in multiple phases through December 31,
2003. Pursuant to the Promus Agreement, the Company expects to operate the
resort on a franchise basis as an Embassy Vacation Resort. To date, the
Company's primary efforts have focused on acquiring the unimproved land and
securing marketing opportunities with tourist venues in the Myrtle Beach area.
The Company expects to commence construction of the first phase of the resort
in the third quarter of 1997, with completion estimated in February 1998.
The Company believes Myrtle Beach represents an attractive, growing market
for the expansion of its portfolio of vacation resorts. Similar to Orlando,
Myrtle Beach has a large number of visitors annually (estimated at 12 million
in 1994) whose length of stay averages approximately five days. Following its
key operating strategies, the Company has procured substantial marketing
affiliations with significant tourist venues in the Myrtle Beach area.
Moreover, the Myrtle Beach Resort will be centrally located in Myrtle Beach,
adjacent to Broadway at the Beach, a large entertainment and specialty retail
complex, which includes a Hard Rock Cafe and a Planet Hollywood restaurant.
AFFILIATION WITH PROMUS
The Company and Promus have entered into the Promus Agreement, an exclusive
five-year agreement to jointly acquire, develop, market and operate vacation
ownership resorts in North America under Promus' Embassy Vacation Resort,
Hampton Vacation Resort and Homewood Vacation Resort brands. Promus is a
wholly-owned operating subsidiary of Promus Hotel Corporation, a New York
Stock Exchange company, which is one of the largest companies in the hotel
industry. As of December 31, 1995, Promus Hotel Corporation had over 9,000
employees system-wide and owned, managed and/or franchised more than 680
hotels, containing over 90,000 rooms and suites. Under the Promus Agreement,
the Company will be Promus' exclusive joint venture partner for the
development and operation of vacation ownership resorts in North America and
will also have the option of operating vacation ownership resorts on a
franchise basis. Promus has agreed that the Company will be the sole
franchisee in North America of the Hampton Vacation Resort and Homewood
Vacation Resort brands, and one of only two franchisees in North America of
the Embassy Vacation Resort brand. The Promus Agreement precludes the Company
from acquiring or developing vacation ownership resorts with any other multi-
hotel brand, but preserves its ability to develop vacation ownership
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<PAGE>
resorts in combination with non-hotel brands (such as PGA of America), to
acquire or develop vacation ownership resorts under the Vistana name (other
than in certain selected markets agreed to by the parties), and to develop
vacation ownership resorts with unique, non-multi-hotel brand hotel
properties.
Each vacation ownership resort jointly developed under the Promus Agreement
will be acquired, developed and operated by a newly-formed entity that will be
owned equally by Promus and the Company and will be managed by the Company.
The parties have agreed that each of these entities will enter in a Sales and
Marketing Agreement with the Company, pursuant to which the Company will be
responsible for marketing and sales of Vacation Ownership Interests at the
resort, and a Franchise Agreement and Management Agreement with Promus,
pursuant to which Promus will license the applicable brand name and provide
other hospitality-related services at the resort. The Promus Agreement
provides that both partners must first offer vacation ownership resort
development opportunities in the selected markets to the joint venture (with
certain exceptions for development of the Company's non-multi-hotel branded
resorts). In the event that one party elects not to pursue the opportunity,
the other party has certain rights to develop the resort independently or, in
the case of Promus, franchise an Embassy Vacation Resort to its existing
franchisee. Moreover, if Promus elects not to pursue an opportunity through
the joint venture, the Company may elect to develop the resort as a Promus
franchisee, subject to Promus' standard franchise approval, on pre-agreed
terms, conditions and fees. In order to maintain its franchise relationship
with Promus, the Company may be required to incur expenditures and meet other
obligations at the franchised resorts required by the applicable franchise
agreements, which may (i) increase its operating costs, and (ii) limit the
Company's flexibility with respect to the operation of the applicable resort
in order to comply with the applicable franchise agreements. The Promus
Agreement may be terminated by either party in the event that the parties have
not jointly developed a resort during the first three years of the Promus
Agreement.
Although the Company and Promus are currently evaluating new resort
development opportunities for the joint venture, no commitments have been made
for a specific development at this time. However, the Promus Agreement
contemplates that Oak Plantation Villas by Vistana will operate as the first
Hampton Vacation Resort and the Myrtle Beach Resort will operate as an Embassy
Vacation Resort, in each case on a franchise basis. See "Risk Factors--Risks
of Rapid Growth" and "--Description of the Company's Resorts."
SALES AND MARKETING
General. During its 16-year history as a leading innovator, developer and
operator of vacation ownership resorts, the Company has developed skills and
expertise necessary for the cost-effective marketing and selling of Vacation
Ownership Interests at its resorts. In addition to building regional expertise
in the competitive Orlando market, the Company believes that it is positioned
to enter other regional destination resort markets and to develop marketing
and sales programs specifically targeted towards popular markets segments such
as golf. In the Company's view, its unique marketing strategies and integrated
sales programs have allowed it to succeed in the highly-specialized field of
Vacation Ownership Interest sales and have proven to be critical components of
the Company's continued competitiveness and profitability.
Marketing Programs. The Company's current marketing efforts center on three
principal programs--the Vistana Preview Coordinator program (the "VPC
Program"), the VIP/In-House Program and international brokerage operations. In
addition to these programs, the Company also utilizes a variety of other
marketing approaches, including vacation sampler programs (designed to allow a
prospective purchaser to be a guest at the resort and to experience vacation
ownership prior to making a decision to buy), direct mail and telemarketing
campaigns, and, more recently, strategic alliances with travel, lodging and
recreational partners, such as Promus and PGA of America. Each of the
Company's marketing programs seeks to provide consistent access to qualified
prospective buyers and involves specific target marketing to leisure industry
customers. In the Company's view, these strategies, which often include one-
to-one contact, have proven to be more effective and cost-efficient than
conventional broad-based advertising.
The VPC Program consists of public contact marketing by an employee of the
Company who provides concierge-type services in the lobby of a hotel or
condominium vacation property, or at other attractions near one of the
Company's resorts. The goal of the VPC Program is to generate a regular flow
of qualified potential
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Vacation Ownership Interest purchasers to visit the on-site sales centers at
the Company's resorts. To encourage interest in the Company's resorts, the VPC
Program representative offers interested potential buyers visitor information
and assistance with their vacation plans and invites them to tour one of the
Company's resorts, often providing additional incentives such as tickets to
local attractions. The majority of the Company's VPC Program representatives
are located at facilities and properties with which the Company has an
exclusive solicitation arrangement. The Company seeks to ensure that its VPC
Program representatives are placed only at facilities frequented by potential
customers and that each representative is thoroughly trained and courteous.
Since 1980, the VPC Program has attracted approximately 400,000 families to
tour the Company's properties.
The Company's VIP/In-House Program focuses on guests staying at the
Company's vacation ownership resorts, whether they are owners, renters or
exchangers. Through a combination of guest services and telephone contact,
these guests are invited to a VIP tour of the vacation ownership resort. The
Company is continually identifying cross-marketing opportunities within its
existing customer base and new vacation ownership products that will be
attractive to this segment of the market. The Company's marketing approach
towards these individuals is specifically tailored to take into account the
fact that they are already familiar with the resort and the vacation ownership
concept, and are experiencing the amenities and guest services first-hand. The
Company believes that its marketing efforts in this area are greatly enhanced
by the perceived quality and value of its resorts, amenities and guest
services, and its ability to consistently deliver an enjoyable vacation
experience. With more than 1,060 units operating at Vistana Resort at an
approximately 88% occupancy rate, the VIP/In-House program has been a key
component of the Company's growth and, in the Company's view, will continue to
play an important role in the Company's marketing efforts as its portfolio of
vacation ownership resorts continues to grow.
In addition to the Company's domestic operations, the Company manages and
coordinates a network of independent brokers to sell Vacation Ownership
Interests abroad. In light of the increasing popularity of central Florida
among overseas visitors and the overall rise in vacation ownership worldwide,
the Company believes that the international market presents significant growth
opportunities. However, international interest in the Company's future resorts
is expected to vary depending upon the location of the project. In 1995 and
1996, approximately 30% of the Company's sales have been to foreign purchasers
(with over one-half of such sales made through brokers in other countries and
all sales made in United States dollars), many of whom buy the Vacation
Ownership Interest "sight unseen" based on the Company's reputation for
delivering a high-quality experience. This segment of the Company's sales
increased by approximately 94% in 1996 as compared to 1995. The Company is
currently enhancing its existing international brokerage operations, with a
particular focus on the South and Central American markets of Argentina,
Guatemala and Chile, where the Company maintains its only direct foreign sales
office in Santiago. The Company anticipates that the international market may
offer opportunities to market multiple property sites as the Company continues
to expand.
Sales Focus. The Company's marketing efforts are supported by an experienced
and highly-trained resort-based sales operation, which, in the Company's view,
has been the foundation of the Company's successful performance during its 16-
year history. Prospective purchasers are given a personalized on-site tour of
the Company's resort and provided information about vacation ownership and
available financing options. Presentations to potential buyers, which
typically last between two and one-half and four hours, are individually
tailored to take into account the guest's particular needs and background,
such as vacationing habits and familiarity with the vacation ownership
concept. Prior to closing, each sale is verified by a settlement manager who
reviews all documents and pertinent facts of the sale with the purchaser and
is available to answer any questions that the new owner may have.
Because the most critical component of the Company's sales effort is its
sales personnel, the Company continually strives to attract, train and retain
a superior sales force. The Company's policy is for each of its sales
representatives to be a licensed real estate professional and undergo
intensive instruction and training. In addition, each sales representative is
an employee of the Company and receives full employment benefits. The Company
is continually reviewing and improving its selling, recruiting and training
processes to achieve high levels of customer and employee satisfaction. The
Company currently employs more than 160 sales
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representatives at its two Orlando resorts presently selling Vacation
Ownership Interests. See "--Governmental Regulation."
CUSTOMER FINANCING
The Company extends financing to purchasers of its Vacation Ownership
Interests at its resorts. These purchasers generally make a down payment equal
to at least 10% of the sales price and borrow the remaining sales price from
the Company. These borrowings bear interest at fixed rates, are secured by
first mortgages on the underlying Vacation Ownership Interests and amortize
over periods ranging up to ten years. The Company funds its resort acquisition
and development and operations by borrowing up to 90% of the aggregate
principal amount of its customer mortgages receivable under its existing
credit facilities. As of December 31, 1996, the Company's existing credit
facilities provided for an aggregate of up to approximately $109.2 million of
available customer mortgages receivable financing to the Company bearing
interest at variable rates based on a specified prime rate. As of December 31,
1996, the Company had approximately $73.2 million of indebtedness outstanding
under its existing customer mortgages receivable credit facilities at a
weighted average interest rate of 10.4% per annum secured by the Company's
pledge of a portion of its customer mortgages receivable. As of December 31,
1996, the Company had a portfolio of approximately 20,400 loans to customers
totalling approximately $116.0 million, with an average contractual yield of
14.4% per annum. As of December 31, 1996 (i) approximately 3.1% of the
Company's customer mortgages receivable were 60 to 120 days past due; and
(ii) approximately 5.4% of the Company's customer mortgages receivable were
more than 120 days past due and the subject of legal proceedings. See "Risk
Factors--Risks Associated with Customer Mortgages Receivable."
The Company has historically derived net interest income from its financing
activities as a result of the positive difference between the interest rates
it charges its customers who finance their purchase of a Vacation Ownership
Interest and the interest rates it pays its lenders. Because the Company's
indebtedness bears interest at fixed and variable rates and the Company's
customer mortgages receivable bear interest at fixed rates, the Company bears
the risk of increases in interest rates with respect to its indebtedness. The
Company engages in interest rate hedging activities from time to time in order
to reduce the risk and impact of increases in interest rates with respect to
such indebtedness. See "Risk Factors--Risks Associated with Hedging
Activities."
The Company bears the risk of defaults under its customer mortgages on
Vacation Ownership Interests. If a purchaser of a Vacation Ownership Interest
defaults on the mortgage during the early part of the loan amortization
period, the Company will not have recovered its marketing, selling (other than
certain sales commissions), and general and administrative costs per Vacation
Ownership Interest, and such costs will again be incurred in connection with
the subsequent resale of the Vacation Ownership Interest. As is sometimes the
practice in the vacation ownership industry, the Company does not verify the
credit history of its customers. Based on the Company's historical customer
default rate, the fact that its customers are required to make a down payment
of at least 10% of the purchase price of a Vacation Ownership Interest (which
the Company views as indicative of a customer's financial wherewithal to meet
obligations under the mortgage related to the Vacation Ownership Interest) and
that the customer mortgage is secured by the underlying Vacation Ownership
Interest, the Company does not believe that credit history verification is
cost-effective or necessary. In addition, although in certain jurisdictions
(including Florida) the Company may seek recourse against a defaulting
customer for the sales price of the Vacation Ownership Interest, the Company
has not historically pursued such a remedy. See "Risk Factors--Risks
Associated with Customer Mortgages Receivable."
The Company had historically provided customer mortgages receivable
financing for up to seven years, as had been typical for the industry. Over
the past several years, industry trends have been to lengthen the term of such
financing to up to ten years. The Company has recently begun to offer ten-year
financing for certain of its customer mortgages receivable.
OTHER OPERATIONS
Room Rental Operations. In order to generate additional revenues at its
resorts that have an inventory of unused or unsold Vacation Ownership
Interests, the Company rents units with respect to such Vacation
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Ownership Interests on a nightly or weekly basis. The Company offers these
unoccupied units through direct consumer sales, travel agents and package
vacation wholesalers. In addition to providing the Company with supplemental
revenues, the Company believes its room rental operations provide it with a
good source of lead generation for the sale of Vacation Ownership Interests.
As part of the management services provided by the Company, at the request of
a Vacation Ownership Interest owner, the Company, for a fee equal to 50% of a
unit's rental rate, net of commissions, will rent an owner's Vacation
Ownership Interest in the event the owner is unable to use or exchange the
Vacation Ownership Interest. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Resort Management. The Company currently provides both hospitality and
homeowners' association management services at its existing vacation ownership
resorts, and intends to provide the same services at its future vacation
ownership resorts pursuant to management agreements with the homeowners'
associations present at such resorts (which are comprised of owners of
Vacation Ownership Interests at the resort or, in the case of Vistana Resort,
a particular phase of the resort). Pursuant to each such management agreement
the Company is paid by the applicable homeowners' association an annual
management fee ranging from $24.47 to $44.09 per Vacation Ownership Interest,
which fee is equal to approximately 10% of aggregate gross assessment fees
payable by the owners of the Vacation Ownership Interests. The Company is
solely responsible for, and has exclusive authority over, all activities
necessary for the day-to-day operation of the resorts, including
administrative services, procurement of inventories and supplies, and
promotion and publicity. Management agreements between the Company and the
homeowners' associations typically provide for an initial term of three years,
which automatically renews for additional three-year terms. The homeowners'
association may remove the Company as manager upon obtaining the requisite
owner vote. The Company also provides all managerial and other employees
necessary for the operation of its resorts, whose duties include, among other
things, review of the maintenance of the resorts, preparation of reports,
budgets and projections and employee training. See "Risk Factors--Risks
Associated with Resort Management."
Telecommunications Services. The Company's telecommunications business
generates revenues from the installation of telephone, data and cable
television equipment and infrastructure at its resorts, the rental of
telephone and related cable and equipment to the homeowners' associations, and
the provision of ongoing long-distance telephone and cable television service
at its resorts pursuant to contracts with the homeowners' associations. The
Company also derives revenues from providing telecommunications design and
installation services to third parties, including hotels, universities,
hospitals and airports as a contractor or subcontractor. See "Risk Factors--
Risks Associated with Telecommunications Operations."
PARTICIPATION IN VACATION OWNERSHIP INTEREST EXCHANGE NETWORKS
The Company believes that consumers are more likely to purchase its Vacation
Ownership Interests as a result of the Company's participation in the Vacation
Ownership Interest exchange network operated by RCI, a leading exchange
network operator which was recently acquired by HFS Incorporated. In a 1995
study sponsored by the Alliance for Timeshare Excellence and ARDA, exchange
opportunity was cited by purchasers of Vacation Ownership Interests as one of
the most significant factors in their decision to purchase a Vacation
Ownership Interest. Membership in RCI allows the Company's customers to
exchange in a particular year their occupancy right in the unit in which they
own a Vacation Ownership Interest for an occupancy right at the same time or a
different time in another participating resort, based upon availability and
the payment of a variable exchange fee. A member may exchange his or her
Vacation Ownership Interest for an occupancy right in another participating
resort by listing the Vacation Ownership Interest as available with the
exchange network operator and by requesting occupancy at another participating
resort, indicating the particular resort or geographic area to which the
member desires to travel, the size of the unit desired and the period during
which occupancy is desired. RCI assigns a rating to each listed Vacation
Ownership Interest, based upon a number of factors, including the location and
size of the unit, the quality of the resort and the period of the year during
which the Vacation Ownership Interest is available, and attempts to satisfy
the exchange request by providing an occupancy right in another Vacation
Ownership Interest with a similar rating. If RCI is unable to meet the
member's initial request, it suggests alternative resorts based on
availability.
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Founded in 1974, RCI has grown to be the world's largest Vacation Ownership
Interest exchange network operator, with a total of more than 3,000
participating resort facilities and over two million members worldwide. During
1995 RCI processed over 1.5 million exchanges. The cost of the annual
membership fee in RCI, which is typically at the option and expense of the
owner of the Vacation Ownership Interest, is approximately $65 per year. RCI
has assigned high ratings to the Vacation Ownership Interests in each of the
Company's three operating resorts, and such Vacation Ownership Interests have
in the past been exchanged for Vacation Ownership Interests at other highly-
rated RCI-listed resorts. During 1995, approximately 97% of all exchange
requests were fulfilled by RCI, and approximately 58% of all exchange requests
are confirmed on the day of the request.
Each of the Company's operating resorts is currently qualified for
participation in the RCI exchange network. The Company's agreement with RCI
provides that, until May 2001, the RCI exchange program will be the only
exchange program permitted at resorts owned and controlled by the Company. In
addition, each of the Company and Messrs. Gellein and Adler have agreed that
until May 2001, each vacation ownership resort owned, developed or managed by
an entity in which Messrs. Gellein or Adler have a controlling interest will
execute an affiliation agreement with RCI having a six-year initial term. See
"Risk Factors--Risks Associated with Vacation Ownership Exchange Networks."
COMPETITION
The Company is subject to significant competition from other entities
engaged in the leisure and vacation industry, including vacation ownership
resorts, hotels, motels and other accommodation alternatives.
The vacation ownership industry historically has been highly fragmented and
dominated by a very large number of local and regional resort developers and
operators, each with small resort portfolios generally of differing quality.
More recently, many of the world's most widely-recognized lodging, hospitality
and entertainment companies have begun to develop and sell Vacation Ownership
Interests under their brand names, including Marriott, Disney, Hilton, Hyatt,
Four Seasons, Inter-Continental, Westin and Promus. In addition, other
publicly-traded companies focussed on the vacation ownership industry, such as
Signature, Fairfield, and Vacation Break have, currently compete, or may in
the future compete, with the Company. Moreover, competition in the Orlando
market is particularly intense, and includes many nationally recognized
lodging, hospitality and entertainment companies, as well as active privately-
owned local operators of vacation ownership resorts such as CFI and Orange
Lake. Furthermore, significant competition exists in Myrtle Beach, South
Carolina, a destination in which the Company expects to commence sales of
Vacation Ownership Interests by 1998. Many of these entities possess
significantly greater financial, sales and marketing, personnel and other
resources than those of the Company and may be able to grow at a more rapid
rate or more profitably as a result. Management believes that industry
competition will be increased by recent and possibly future consolidation in
the vacation ownership industry.
Of the Company's major brand name lodging company competitors, the Company
believes that: (i) Marriott entered the vacation ownership market in 1985 and
currently sells Vacation Ownership Interests at nine resorts which it also
owns and operates and directly competes with the Company's Orlando area
resorts; (ii) Disney entered the market in 1991, currently sells Vacation
Ownership Interests at three locations which it also owns and operates and
directly competes with the Company's Orlando area resorts; (iii) Hilton
entered the market in 1993, currently sells Vacation Ownership Interests at
two resorts which it owns and operates and directly competes with the
Company's Orlando area resorts; (iv) Promus entered the market through a
franchise relationship in 1994 and directly competes with the Company's
Orlando area resorts; (v) Hyatt entered the market in 1995, owns and operates
one resort in Key West, Florida but does not directly compete in any of the
Company's existing markets (although Hyatt has announced an intention to
develop a vacation ownership resort in Orlando); (vi) Four Seasons is
developing its first vacation ownership resort in Carlsbad, California, but
does not currently directly compete in any of the Company's existing markets;
and (vii) Inter-Continental announced its entry into the market in 1996, but
has yet to announce any specific projects. See "Risk Factors--Competition."
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GOVERNMENTAL REGULATION
General. The Company's marketing and sales of Vacation Ownership Interests
and other resort operations are subject to extensive regulation by the federal
government and the states in which the Company's resorts are located and in
which its Vacation Ownership Interests are marketed and sold. Federal
legislation to which the Company is or may be subject includes the Federal
Trade Commission Act, the Fair Housing Act, the Truth-in-Lending Act, the Real
Estate Settlement Procedures Act, the Equal Credit Opportunity Act, the
Interstate Land Sales Full Disclosure Act, the Telephone Consumer Protection
Act, the Telemarketing and Consumer Fraud and Abuse Prevention Act and the
Civil Rights Acts of 1964 and 1968. The Florida Condominium Act and the
Florida Vacation Plan and Timesharing Act extensively regulate the creation
and management of timeshare condominiums, the marketing and sale of Vacation
Ownership Interests, the escrow of purchaser funds and other property prior to
completion of construction and closing, the content and use of advertising
materials and promotional offers, the creation and operation of exchange
programs and multi-site timeshare plan reservation systems, and the resale of
Vacation Ownership Interests. In addition, many states have adopted similar
legislation as well as specific laws and regulations regarding the sale of
Vacation Ownership Interests. The laws of most states, including Florida and
South Carolina, require a designated state authority to approve a detailed
offering statement describing the Company and all material aspects of the
resort and sale of Vacation Ownership Interests at such resort. In addition,
the laws of most states in which the Company sells Vacation Ownership
Interests grant the purchaser of a Vacation Ownership Interest the right to
rescind a contract of purchase at any time within a statutory rescission
period. Furthermore, most states have other laws which regulate the Company's
activities, such as real estate licensure laws, travel sales licensure laws,
anti-fraud laws, telemarketing laws, price, gift and sweepstakes laws, and
labor laws. The Company believes that it is in material compliance with all
applicable federal, state, local and foreign laws and regulations to which it
is currently subject. See "Risk Factors--Risks Associated with Governmental
Regulation."
Environmental Matters. Under various federal, state and local environmental
laws, ordinances and regulations, a current or previous owner or operator of
real estate may be required to investigate, remediate and remove hazardous or
toxic substances or petroleum product releases at such property, and may be
held liable to a governmental entity or to third parties for property damage
and for investigation remediation and removal costs incurred by such parties
in connection with the contamination. Such laws typically impose clean-up
responsibility and liability without regard to whether the owner or operator
knew of or caused the presence of the contaminants, and the liability under
such laws has been interpreted to be joint and several unless the harm is
divisible and there is a reasonable basis for allocation of responsibility.
The cost of investigation, remediation or removal of such substances may be
substantial, and the presence of such substances, or the failure to properly
remediate the contamination on such property, may adversely affect the owner's
or operator's ability to sell or rent such property or to borrow using such
property as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances at a disposal or treatment facility also may be
liable for the costs of removal or remediation of a release of hazardous or
toxic substances at such disposal or treatment facility, whether or not such
facility is owned or operated by such person. In addition, some environmental
laws create a lien on the contaminated site in favor of the government for
damages and costs it incurs in connection with the contamination. Finally, the
owner or operator of a site may be subject to common law claims by third
parties based on damages and costs resulting from environmental contamination
emanating from a site. In connection with its ownership and operation of its
properties, the Company may be potentially liable for such costs.
The Company has recently conducted Phase I environmental assessments at each
of its existing resorts and properties subject to acquisition in order to
identify potential environmental concerns. These Phase I assessments have been
carried out in accordance with accepted industry practices and consisted of
non-invasive investigations of environmental conditions at the properties
owned by the Company, including a preliminary investigation of the sites and
identification of publicly known conditions concerning properties in the
vicinity of the sites, physical site inspections, review of aerial photographs
and relevant governmental records where readily available, interviews with
knowledgeable parties, investigation for the presence of above-ground and
underground storage tanks presently or formerly at the sites, a visual
inspection of potential lead-based paint and suspect friable asbestos
containing materials where appropriate, a radon survey, and the preparation
and issuance of written reports. The Company's assessments of its properties
have not revealed any environmental liability
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that the Company believes would have a material adverse effect on the
Company's business, assets, financial condition or results of operations, nor
is the Company aware of any such material environmental liability. See "Risk
Factors--Potential Environmental Liabilities."
The Company believes that its properties are in compliance in all material
respects with all federal, state and local laws, ordinances and regulations
regarding hazardous or toxic substances. The Company has not been notified by
any governmental authority or any third party, and is not otherwise aware, of
any material noncompliance, liability or claim relating to hazardous or toxic
substances or petroleum products in connection with any of its present
properties.
Other Regulations. Under various state and federal laws governing housing
and places of public accommodation, the Company is required to meet certain
requirements related to access and use by disabled persons. Many of these
requirements did not take effect until after January 1, 1991. Although
management believes that the Company's resorts are substantially in compliance
with present requirements of such laws, the Company may incur additional costs
of compliance in connection with the development of new resorts, or conversion
or renovation of existing resorts. Additional legislation may impose further
burdens or restriction on owners with respect to access by disabled persons.
The ultimate amount of the cost of compliance with such legislation is not
currently ascertainable, and, while such costs are not expected to have a
material effect on the Company, such costs could be substantial. Limitations
or restrictions on the completion of certain renovations may limit application
of the Company's growth strategy in certain instances or reduce profit margins
on the Company's operations.
OTHER PROPERTIES
The Company's other properties include an office plaza consisting of two
three-story buildings (totalling approximately 67,000-square feet), which
headquarters the Company's administrative operations, a 27,000-square foot
two-story reception center and resort operations complex, maintenance and
laundry facilities, a freestanding general store (including a Pizza Hut
facility) and a gift shop leased to an unaffiliated entity. All of these other
properties are owned by the Company, subject to mortgages pursuant to the
Company's existing credit facilities, and are located within or adjacent to
Vistana Resort in Orlando.
EMPLOYEES
As of December 31, 1996, the Company had approximately 1,287 full-time
employees. The Company believes that its employee relations are good. None of
the Company's employees are represented by a labor union.
INSURANCE
The Company carries comprehensive liability, fire, windstorm, tropical storm
and business interruption insurance with respect to its properties and
interests in its resorts (i.e., its inventory of unsold Vacation Ownership
Interests) with policy specifications, insured limits and deductibles
customarily carried for similar properties which the Company believes are
adequate. There are, however, certain types of losses (such as losses arising
from acts of war) that are not generally insured because they are either
uninsurable or not economically insurable. Should an uninsured loss or a loss
in excess of insured limits occur, the Company could lose its capital invested
in a resort, as well as the anticipated future revenues from such resort and
would continue to be obligated on any mortgage indebtedness or other
obligations related to the property. Any such loss could have a material
adverse effect on the Company. See "Risk Factors--Uninsured Loss; Natural
Disasters."
LEGAL PROCEEDINGS
The Company is currently subject to litigation and claims respecting
employment, tort, contract, construction and commission disputes, among
others. In the judgment of the Company, none of these lawsuits or claims
against the Company, if adversely decided, is expected to have a material
adverse effect on the Company, its business operations, results of operations
or financial condition.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning each person
who is a director or an executive officer of the Company or upon the
completion of the Offering will become a director of the Company. Positions
with the Company include positions with the Company's predecessors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Raymond L. Gellein, 49 Chairman of the Board, Co-Chief Executive Officer
Jr..................... and Director
Jeffrey A. Adler........ 44 President, Co-Chief Executive Officer and Director
Matthew E. Avril........ 36 Executive Vice President and Chief Operating Officer
Susan Werth............. 48 Senior Vice President, General Counsel and Secretary
Carol Lytle............. 36 Vice President
John M. Sabin........... 42 Senior Vice President, Chief Financial Officer and
Treasurer
Laurence S. Geller...... 49 Proposed Director
Charles E. Harris....... 50 Proposed Director
Steven J. Heyer......... 44 Proposed Director
</TABLE>
Raymond L. Gellein, Jr., has served as Chairman of the Board, Co-Chief
Executive Officer and a Director since December 1996. Mr. Gellein served as
Chairman of the Board and a Director since November 1991 and served as Chief
Executive Officer from 1981 to November 1991. Prior to joining the Company,
Mr. Gellein served as Vice President and Division Manager in Real Estate for
the Continental Illinois National Bank and Trust Company of Chicago. Mr.
Gellein has been the Chairman of the Florida Chapter of ARDA since such
chapter's inception, and is a member of ARDA's Legislative Committee. Mr.
Gellein is also a member of the Board of Overseers of the Roy E. Crummer
Graduate School of Business Education at Rollins College. Mr. Gellein received
an M.M. degree from Northwestern University's Kellogg School of Management and
a B.A. degree from Denison University.
Jeffrey A. Adler has served as President, Co-Chief Executive Officer and a
Director since December 1996. Mr. Adler served as President and a Director
since November 1991 and served as Executive Vice President from 1983 to
November 1991. Prior thereto, Mr. Adler served as Second Vice President and
Real Estate Lending Officer for the Continental Illinois National Bank and
Trust Company of Chicago. Mr. Adler is a member of the board of directors of
ARDA, a member of ARDA's Strategic Planning Committee and Alliance for
Timeshare Excellence. Mr. Adler received an M.M. degree from Northwestern
University's Kellogg School of Management and a B.A. degree from Ohio State
University.
Matthew E. Avril has served as Executive Vice President and Chief Operating
Officer since November 1996. From February 1994 until November 1996 and
February 1997, respectively, Mr. Avril served as Senior Vice President and
Chief Financial Officer, respectively, and from January 1992 until November
1994, Mr. Avril served as Senior Vice President and Treasurer. From March 1989
to December 1991, Mr. Avril served as Vice President and Controller. Mr. Avril
is a certified public accountant and a member of the Florida Institute of
Certified Public Accountants. Mr. Avril received a B.B.A. degree from the
University of Miami located in Florida.
Susan Werth has served as Senior Vice President, General Counsel and
Secretary since December 1996. Ms. Werth served as Senior Vice President--Law
from May 1996 to December 1996. Prior thereto Ms. Werth represented the
Company as outside counsel for approximately 10 years. From January 1990 until
May 1996, Ms. Werth was a partner of the law firm of Weil, Gotshal & Manges,
LLP, in Miami, Florida. Ms. Werth received an A.B. degree from Barnard College
and a J.D. degree from Columbia Law School, and is a member of the Florida
Bar.
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<PAGE>
Carol Lytle has served as Vice President and President of Vistana-Orlando,
in charge of overseeing the entire sales and marketing responsibility for the
Company's central Florida operations, since December 1996. Ms. Lytle joined
the Company in its marketing area in 1980, was promoted to a Manager of
Marketing in 1981, a Director of Marketing in 1983, a Vice President of
Marketing in 1984, and a Senior Vice President of Marketing in 1989.
John M. Sabin has served as Senior Vice President, Chief Financial Officer
and Treasurer of the Company since February 1997. From June 1996 to February
1997, Mr. Sabin served as Vice President--Finance of Choice Hotels
International, Inc. From June 1995 to February 1997, Mr. Sabin also served as
Vice President--Mergers and Acquisitions of Choice Hotels International, Inc.
and, from December 1993 to October 1996, he served as Vice President--Finance
and Assistant Treasurer of Manor Care, Inc., the former parent of Choice
Hotels International, Inc. From 1990 to December 1993, Mr. Sabin served as
Vice President--Corporate Mergers and Acquisitions of Marriott Corporation. In
addition, Mr. Sabin is a director of Competitive Technologies, Inc., a
publicly-traded technology licensing and transfer company. Mr. Sabin received
B.S., M.Acc. (Masters of Accountancy) and M.B.A. degrees from Brigham Young
University and a J.D. degree from the J. Reuben Clark Law School at Brigham
Young University.
Laurence S. Geller has consented to become a Director of the Company upon
completion of the Offering. Mr. Geller has served as the Chairman of Geller &
Co., a real estate, gaming and tourism, and lodging consulting company, since
December 1989. From 1984 through December 1989, Mr. Geller served as the
Executive Vice President and Chief Operating Officer of Hyatt Development
Corporation, a developer of domestic and international hotels and resorts.
From 1976 to 1981, Mr. Geller served as a Senior Vice President of Holiday
Inns, Inc. Mr. Geller is a director of Sunstone Hotel Investors, Inc., a
publicly traded lodging real estate investment trust, and Sky Games
International Limited, a publicly traded gaming technology company. Mr. Geller
is the Immediate Past Co-Chairman of the Industry Real Estate Financing
Advisory Council of the American Hotel and Motel Association, and Past Vice
Chairman and current member of the Commercial & Retail Council of Urban Land
Institute. Mr. Geller received a National Diploma from Ealing Technical
College (U.K.).
Charles E. Harris has consented to become a Director of the Company upon
completion of the Offering. Mr. Harris has served as President and Chief
Executive Officer of Synagen Capital Partners, Inc., a private merchant
banking firm ("Synagen"), since 1989, and as President and Chief Executive
Officer of Allen C. Ewing & Co. ("Ewing"), an investment banking firm, since
1995 and 1994, respectively. Mr. Harris was Vice President--Corporate Finance
of Ewing from 1992 to 1994. Mr. Harris also served as Chairman and Chief
Executive Officer of First Commerce Banks of Florida, Inc. from September 1995
to July 1996. From 1987 to 1993, Mr. Harris was Chairman (and from 1988 to
1993, Chief Executive Officer) of Mid-State Federal Savings Bank. Prior
thereto, Mr. Harris was engaged in the private practice of law and served as
an Assistant Professor of Law at the University of Florida and as Senior Vice
President and General Counsel of Sun Banks, Inc. Mr. Harris received a B.A.
degree from the University of Florida and a J.D. degree from Harvard Law
School. See "Underwriting."
Steven J. Heyer has consented to become a Director of the Company upon
completion of the Offering. Mr. Heyer has served as President, Worldwide
Sales, Marketing, Distribution and International Networks for Turner
Broadcasting System, Inc., a subsidiary of Time Warner, Inc., since September
1996. Mr. Heyer joined Turner Broadcasting System, Inc. in May 1994 as
President of Turner Broadcasting Sales, Inc. From September 1992 to May 1994,
Mr. Heyer was President of Young & Rubicam Advertising Worldwide and Executive
Vice President, a Director and a member of the Executive Committee of Young &
Rubicam, Inc., an international advertising agency. From October 1977 to
September 1992, Mr. Heyer was employed by Booz, Allen & Hamilton, Inc., a
management consulting firm, and served as Senior Vice President and Managing
Partner from 1987 to September 1992. Mr. Heyer is a member of the board of
directors of the Cable Advertising Bureau, the Ad Council and the Partnership
for a Drug Free America, and a member of the Board of Overseers of the Tuck
School at Dartmouth College. Mr. Heyer received a B.A. degree from Cornell
University and a M.B.A. degree from the Stern School of Management at New York
University.
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<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
Executive Committee. Effective upon completion of the Offering, the Board of
Directors will establish an executive committee (the "Executive Committee"),
which will be granted such authority as may be determined from time to time by
a majority of the Board of Directors. The Company expects that the Executive
Committee will consist of Messrs. Gellein and Adler and at least one
independent director.
Audit Committee. Effective upon completion of the Offering, the Board of
Directors will establish an audit committee (the "Audit Committee"), which
will consist of two or more independent directors. The Audit Committee will be
established to make recommendations concerning the engagement of independent
public accountants, review with the independent public accountants the plans
and results of the audit engagement, approve professional services provided by
the independent public accountants, review the independence of the independent
public accountants, consider the range of audit and non-audit fees, and review
the adequacy of the Company's internal accounting controls.
Compensation Committee. Effective upon completion of the Offering, the Board
of Directors will establish a compensation committee (the "Compensation
Committee"), which will consist of two or more non-employee or independent
directors to the extent required by Rule 16b-3 under the Exchange Act and
Section 162(m) of the Code, to determine compensation for the Company's senior
executive officers.
Nominating Committee. Effective upon completion of the Offering, the Board
of Directors will establish a nominating committee (the "Nominating
Committee"), which will initially consist of Messrs. Gellein and Adler. The
function of the Nominating Committee will be to recommend to the full board of
Directors nominees for election as directors of the Company and the
composition of committees of the Board of Directors.
The Board of Directors of the Company initially will not have any other
committees.
CLASSIFIED BOARD OF DIRECTORS
The Company's Articles of Incorporation provide for the Company's Board of
Directors to be divided into three classes serving staggered terms so that
directors' initial terms will expire either on the date of the 1998, 1999 or
2000 annual meeting of shareholders. Messrs. Geller and Heyer will constitute
the class of directors having a term expiring at the 1998 annual meeting of
shareholders, Mr. Gellein will constitute the class of directors having a term
expiring on the date of the 1999 annual meeting of shareholders, and Messrs.
Adler and Harris will constitute the class of directors having a term expiring
on the date of the 2000 annual meeting of shareholders. Starting with the 1998
annual meeting of shareholders, one class of directors will be elected each
year for three-year terms. The classification of directors makes it more
difficult for a significant shareholder to change the composition of the Board
of Directors in a relatively short period of time and, accordingly, provides
the Board of Directors and shareholders time to review any proposal that a
significant shareholder may make and to pursue alternative courses of action
which the Board of Directors believes are fair to all of the shareholders of
the Company.
DIRECTOR COMPENSATION
Upon completion of the Offering, each initial director of the Company who is
not an employee of the Company or the beneficial owner of 5% or more of the
outstanding Common Stock ("Eligible Director") will be granted options to
purchase 45,000 shares of Common Stock at the Price to Public. Of such
options, options to purchase 15,000 shares of Common Stock will be exercisable
immediately upon grant, options to purchase 15,000 shares of Common Stock will
be exercisable immediately following the date of the 1998 annual meeting of
the Company's shareholders, and options to purchase the remaining 15,000
shares of Common Stock will be exercisable immediately following the date of
the 1999 annual meeting of the Company's shareholders. It is the intention of
the Company that (i) each initial director of the Company who is an Eligible
Director will also be granted options to purchase 5,000 shares of Common Stock
on the date of each scheduled annual meeting of the Company's shareholders
commencing immediately following the 2000 annual meeting of the Company's
shareholders and (ii) each new director of the Company who is an Eligible
Director, will be granted options to purchase 5,000 shares of Common Stock on
the date of each scheduled annual meeting of the Company's shareholders. See
"Management--Stock Plan."
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<PAGE>
In addition, each Eligible Director will be paid an annual fee of $18,000,
payable in equal quarterly installments.
DIRECTORS' AND OFFICERS' INSURANCE
The Company has applied for a directors' and officers' liability insurance
policy with coverage typical for a public company similar to the Company,
which policy will become effective upon the effectiveness of the registration
statement of which this Prospectus is a part. The directors' and officers'
liability insurance policy will insure (i) the officers and directors of the
Company from any claim arising out of an alleged wrongful act by such persons
while acting as officers and directors of the Company; (ii) the Company to the
extent it has indemnified the officers and directors for such loss; and (iii)
the Company for losses incurred in connection with claims made against the
Company for covered wrongful acts.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted provisions in its Articles of Incorporation that, to
the fullest extent provided under Florida law, limit the liability of its
directors and officers for monetary damages arising from a breach of their
fiduciary duties as directors or officers. Such limitation of liability does
not affect the availability of equitable remedies, such as injunctive relief
or rescission, nor does it limit liability for acts of fraud, knowing
violation of law, unlawful payment of distributions. Furthermore, equitable
remedies may not, as a practical matter, be effective for various reasons. The
Company's Articles of Incorporation and By-Laws also provide that the Company
shall indemnify its directors and officers to the fullest extent permitted by
Florida law, including circumstances in which indemnification is otherwise
discretionary to the Company under Florida law. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers and controlling persons of the Company pursuant to the foregoing
provisions or otherwise, the Company has been advised that in the opinion of
the Securities and Exchange Commission (the "Commission") such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
The Company has also agreed to indemnify each director and officer pursuant
to an Indemnity Agreement from and against any and all expenses, losses,
claims, damages and liabilities incurred by such director or officer for or as
a result of actions taken or not taken while such director or officer was
acting in his or her capacity as a director, officer, employee or agent of the
Company. In addition, the Company will maintain officers' and directors'
liability insurance which insures against liabilities that officers and
directors of the Company may incur in such capacities. See "--Directors' and
Officers' Insurance." The Company believes that these provisions are necessary
to attract and retain qualified persons to serve as directors and officers.
There is no pending litigation or proceeding involving a director, officer,
employee or agent of the Company where indemnification will be required or
permitted. The Company is not aware of any threatened litigation or proceeding
which may result in a claim for such indemnification.
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EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth information with
respect to all compensation paid by the Company to the Company's Chief
Executive Officer and each of the other four most highly compensated executive
officers for the year ended December 31, 1996 (the "Named Executive
Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------------------------
SECURITIES LTIP
UNDERLYING PAYOUTS OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR(1) SALARY BONUS(2) OPTIONS/SARS(3) (4) COMPENSATION(5)
- --------------------------- ------- ----------------------------------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Raymond L. Gellein, 1996 $ 530,204 -- -- -- $13,125
Jr.....................
Chairman of the Board
and
Co-Chief Executive
Officer
Jeffrey A. Adler........ 1996 $ 530,204 -- -- -- $13,125
President and Co-Chief
Executive Officer
Matthew E. Avril........ 1996 $ 225,000$ 52,360 180,000 $125,000 $ 8,840
Executive Vice
President, Chief
Operating Officer and
Chief Financial Officer
Susan Werth (6)......... 1996 $ 141,519 -- 75,000 -- $ 4,132
Senior Vice President,
General Counsel and
Secretary
Carol Lytle............. 1996 $ 225,000$ 99,921 180,000 $125,000 $ 2,400
Vice President
</TABLE>
- --------
(1) In accordance with the rules of the Commission, only information with
respect to the most recently completed fiscal year is reported in the
Summary Compensation Table because the Company was not a reporting company
during the three immediately preceding fiscal years.
(2) Reflects amounts paid in 1996 in respect of the year ended December 31,
1995.
(3) Does not include options to acquire 400,000, 125,000 and 400,000 shares of
Common Stock granted by the Existing Shareholders to Mr. Avril, Ms. Werth
and Ms. Lytle, respectively. See "Principal and Selling Shareholders."
(4) Consists of deferred executive incentive compensation under a previous
plan.
(5) In accordance with the rules of the Commission, other compensation in the
form of perquisites and other personal benefits has not been separately
itemized because such perquisites and other personal benefits constituted
less than the lesser of $50,000 or 20% of the annual salary and bonus for
the named executive officer for such year.
(6) Ms. Werth's employment by the Company commenced in May 1996. Accordingly,
salary and bonus amounts reflect a partial year of employment.
The Company intends to enter into employment agreements with each of Messrs.
Gellein, Adler and Avril, Ms. Werth and Ms. Lytle which provide, among other
things, that from and after the completion of the offering, the annual base
salaries of Messrs. Gellein, Adler and Avril, Ms. Werth and Ms. Lytle will be
$360,000, $360,000, $250,000, $230,000 and $250,000, respectively. See "--
Employment Agreements."
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<PAGE>
Stock Option Grants in Last Fiscal Year. The following table contains
information concerning the grant of stock options made for the fiscal year
ended December 31, 1996 to the Named Executive Officers. The table also lists
potential realizable values of such options on the basis of assumed annual
compounded stock appreciation rates of 5% and 10% over the life of the options
which are set for a maximum of ten years.
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF SHARE
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(2)
OPTIONS GRANTED EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME (1) FISCAL YEAR PER SHARE DATE 5% 10%
---- --------------- ------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Raymond L. Gellein,
Jr..................... -- -- -- -- -- --
Jeffrey A. Adler........ -- -- -- -- -- --
Matthew E. Avril........ 180,000 33.6% $11.00 12/26/06 $1,245,211 $3,155,610
Susan Werth............. 75,000 14.0% $11.00 12/26/06 $ 518,838 $1,314,838
Carol Lytle............. 180,000 33.6% $11.00 12/26/06 $1,245,211 $3,155,610
</TABLE>
- --------
(1) These options were granted with an exercise price equal to the fair market
value of the Common Stock on the date of grant as determined by the Board
of Directors. These options are nonqualified stock options, will vest in
equal amounts over four years and have a ten-year term. See "--Stock
Plan."
(2) The potential realizable value is reported net of the option price, but
before income taxes associated with exercise. These amounts represent
assumed annual compounded rates of appreciation of the shares of Common
Stock underlying each option at 5% and 10% from the date of grant to the
expiration date of the option.
STOCK PLAN
General. The Stock Plan was initially adopted by the Company in December
1996. The Stock Plan provides for the issuance of options to acquire up to
1,900,000 shares of Common Stock to employees, directors and officers of, and
consultants to, the Company and permits the Company to grant (i) shares of
Common Stock subject to transfer restrictions ("Restricted Stock"); (ii)
incentive stock options ("ISOs") within the meaning of Section 422 of the
Code; (iii) non-qualified stock options ("NSOs") ("ISOs" and "NSOs,"
individually, or collectively, "Options"); (iv) stock appreciation rights
("SARs"); and (v) phantom stock awards.
Purpose. The purpose of the Stock Plan is to foster the interests of the
Company and its shareholders by enabling employees, directors and officers of,
and consultants to, the Company to acquire a proprietary interest in the
Company and to provide an additional incentive for such persons to promote the
success of the Company's business.
Administration. The Stock Plan is administered by the Compensation Committee
of the Board, which selects the persons who will receive grants of awards
under the Stock Plan. The Committee is comprised of two or more outside
directors who are "non-employee directors" for purposes of Rule 16b-3 of the
Exchange Act and "independent directors" for purposes of Section 162(m) of the
Code. The Board appoints the members of the Compensation Committee, fills
vacancies on the Compensation Committee and has the power to replace members
of the Compensation Committee with other eligible persons at any time. The
Compensation Committee is authorized to make grants under the Stock Plan, to
determine the terms and conditions thereof and to otherwise administer and
interpret the Stock Plan.
Eligibility. Employees, directors and officers of, and consultants to, the
Company and its subsidiaries and affiliates are eligible to participate in the
Stock Plan and receive grants of awards thereunder. The selection of employees
who will receive grants under the Stock Plan (the "Participants") is in the
sole discretion of the Compensation Committee. The aggregate number of shares
of Common Stock that may be issued under Options, as restricted stock or upon
which SARs or phantom stock may be awarded to any Participant may not exceed
1,000,000.
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<PAGE>
Exercise Price of Options. The exercise price of any Option granted under
the Stock Plan is set in each case by the Compensation Committee; however, the
exercise price of any ISO may not be less than 100% of the fair market value
of the shares of Common Stock subject to the ISO on the date of grant (110% if
the ISO is granted to a greater than 10% shareholder of the Company).
Terms of Options. ISOs granted under the Stock Plan expire upon the earliest
to occur of (i) a period not to exceed ten years from the Option Date (as that
term is defined in the Stock Plan) (or five years if the ISO is granted to a
greater than 10% shareholder of the Company); (ii) the date on which the ISO
is forfeited under the terms of the Stock Plan due to termination of
employment (i.e., all nonvested Options are forfeited and expire upon
termination of a Participant's employment; (iii) with respect to vested and
nonvested options, the date on which the Participant's employment is
terminated for Cause (as defined in the Stock Plan); (iv) with respect to
vested Options, three months after the Participant's termination of employment
by the Company for any reason other than Cause, death or disability (within
the meaning of Section 22(a)(3) of the Code); or (v) twelve months after the
Participant's death or disability. The duration of NSOs granted under the
Stock Plan are identical to those of ISOs (except for the five year expiration
period for greater than 10% shareholders of the Company).
Exercise of Awards. Unless the Compensation Committee establishes a
different vesting schedule and except with respect to the automatic director
Options discussed below, Options, Restricted Stock, SARs and phantom stock
granted or awarded under the Stock Plan shall become 25% vested after 12
months from the grant or award date, and shall vest annually pro rata in
arrears over a period of three years thereafter. Notwithstanding the
foregoing, upon a Change in Control (as that term is defined in the Stock
Plan) all Options, Restricted Stock, SARs and phantom stock shall become 100%
vested and immediately exercisable. If a Participant's employment with the
Company, membership on the Board of Directors or retention as a consultant
terminates, all unvested grants and awards are forfeited. Under the Stock
Plan, upon the exercise of an Option, the optionee may make payment either in
cash, with shares of Common Stock having an aggregate fair market value on the
date of delivery equal to the exercise price, or by delivery of an irrevocable
commitment to use the proceeds of the sale of stock acquired from exercise of
the option. No Common Stock may be delivered upon the exercise of an Option
until full payment has been made for such shares. For individuals subject to
Rule 16b-3, any withholding obligation of the Company will be satisfied
automatically by the automatic withholding of shares of Common Stock otherwise
issuable to the Participant.
Director Options. Each initial director of the Company who is an Eligible
Director will automatically be granted NSOs to purchase 45,000 shares of
Common Stock for an exercise price per share equal to the Price to Public. Of
such NSOs, NSOs to purchase 15,000 shares of Common Stock will be exercisable
immediately upon grant, NSOs to purchase 15,000 shares of Common Stock will be
exercisable immediately following the date of the 1998 annual meeting of the
Company's shareholders (provided that such initial director continues to be a
director of the Company following such annual meeting) and NSOs to purchase
the remaining 15,000 shares of Common Stock will be exercisable immediately
following the date of the 1999 annual meeting of the Company's shareholders
(provided that such initial director continues to be a director of the Company
following such annual meeting).
In addition, it is the intention of the Company that (i) each initial
director of the Company who is an Eligible Director will also be granted
immediately-exercisable NSOs to purchase 5,000 shares of Common Stock
immediately following the date of each scheduled annual meeting of the
Company's shareholders commencing with the 2000 annual meeting of the
Company's shareholders (provided that such initial director continues to be a
director of the Company following such annual meeting) and (ii) each new
director of the Company who is an Eligible Director will be granted
immediately-exercisable NSOs to purchase 5,000 shares of Common Stock
immediately following the date of each scheduled annual meeting of the
Company's shareholders (provided that such director continues to be a director
of the Company following such annual meeting). The Company intends that the
exercise price of such NSOs will be the fair market value of the Common Stock
on the date of grant.
Unless the Compensation Committee establishes an earlier termination date,
NSOs granted to a director will expire ten years from the date of grant.
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<PAGE>
Grant of Options. In December 1996, the Company granted certain executive
officers and other employees of the Company options to purchase an aggregate
of 535,000 shares of Common Stock pursuant to the Stock Plan at an exercise
price of $11.00 per share. See "--Executive Compensation" and "--Employment
Agreements." Concurrently with the completion of the Offering, the Board of
Directors may grant to several employees of the Company (including the Named
Executive Officers) options to purchase additional shares of Common Stock
under the Stock Plan at an exercise price equal to the Price to Public,
including options to purchase 75,000 shares of Common Stock to Mr. Sabin.
Stock Appreciation Rights (SARs). Under the terms of the Stock Plan, the
Compensation Committee may, in its discretion, grant naked SARs and/or tandem
SARs to eligible Participants. A tandem SAR is an SAR that is granted in
connection with an Option and is exercisable only if the fair market value of
the Company's Common Stock on the date of surrender exceeds the Option Price
of the related ISO or the fair market value of the Common Stock on the Option
Date in the case of an NSO, and only to the extent that the related NSO or ISO
is exercisable. A Participant who elects to exercise a tandem SAR may
surrender the exercisable portion of related Options in exchange for a number
of shares of Common Stock determined by a formula in the Stock Plan. A naked
SAR is similar to a tandem SAR but it is not granted in connection with an
underlying Option and its terms are governed by the Participant's SAR
agreement.
Phantom Stock. Under the Stock Plan, the Compensation Committee may, in its
discretion, award phantom stock to eligible Participants and, in connection
therewith, grant the Participant the right to receive payments equal to
dividends paid on the Common Stock to which the phantom stock relates. Subject
to certain terms and limitations, an award of phantom stock entitles the
Participant to surrender all or part of the vested portion of such stock and
to receive from the Company the fair market value on the date of surrender of
the Common Stock to which the phantom stock relates.
Non-Assignability of Options, SARs and Phantom Stock. Options, SARs and
phantom stock granted under the Stock Plan are generally not transferable
other than by will or the then applicable laws of descent and distribution;
provided, however that Options, SARs and phantom stock may be transferred to
(i) any members of a Participant's immediate family and (ii) a trust which has
as its exclusive beneficiaries such Participant or members of such
Participant's immediate family.
Restricted Stock. In addition to Options, SARs and phantom stock, the
Compensation Committee may, in its discretion, make awards of restricted stock
to eligible Participants under the Stock Plan. A Participant may not sell or
transfer shares of restricted stock awarded under the Stock Plan and the
shares are subject to forfeiture in the event of the termination of the
Participant's employment with the Company or membership on the Board of
Directors prior to the vesting thereof. Notwithstanding the transfer
restrictions, the holder of restricted stock has the right to vote his or her
shares of restricted stock and to receive dividends in the same amount as
dividends paid on non-restricted shares of Common Stock.
Adjustment to Reflect Change in Capital Structure. If there is any change in
the corporate structure or shares of the capital stock of the Company, the
Board of Directors has the authority to make any adjustments necessary to
prevent accretion or to protect against dilution in the number and kind of
shares authorized by the Stock Plan or in the number and kind of shares
covered by awards thereunder.
Employee Stock Purchase Plan
The Company has established the Vistana, Inc. Employee Stock Purchase Plan
(the "Employee Stock Purchase Plan") to assist employees of the Company in
acquiring a stock ownership interest in the Company and to encourage them to
remain in the employment of the Company. The Employee Stock Purchase Plan is
neither a qualified pension, profit sharing or stock bonus plan under Section
401(a) of the Code, nor an "employee benefit plan" subject to the provisions
of the Employee Retirement Income Security Act of 1974, as amended. The
following discussion is a general summary of the material U.S. federal income
tax consequences to U.S. participants in the Employee Stock Purchase Plan. The
discussion is based on the Code, regulations thereunder, rulings and decisions
now in effect, all of which are subject to change. The summary does not
discuss
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<PAGE>
all aspects of federal income taxation that may be relevant to a particular
participant in light of such participant's personal investment circumstances.
The Employee Stock Purchase Plan is intended to meet the requirements of an
"employee stock purchase plan" under Section 423 of the Code. Neither the
grant of the right to purchase shares, nor the purchase of shares, under the
Employee Stock Purchase Plan has a federal income tax effect on employees or
the Company. Any United States tax liability to the employee and the tax
deductions to the Company are deferred until the employee sells the shares,
disposes of the shares by gift or dies. Under the Employee Stock Purchase
Plan, shares are generally purchased for 85% of the fair market value thereof,
as permitted by the Code.
In general, if shares are held for more than one year after they are
purchased and for more than two years from the beginning of the enrollment
period in which they are purchased or if the employee dies while owning the
shares, gain on the sale or other disposal of the shares constitutes ordinary
income to and employee (with no corresponding deduction to the Company) to the
extent of the lesser of (i) 15% of the fair market value of the shares at the
beginning of the enrollment period or (ii) the gain on sale of the amount by
which the market value of the shares on the date of sale, gift or death,
exceeds the purchase price. Any additional gain is capital gain. If the shares
are sold or disposed of within either or both of the holding periods, an
employee recognizes ordinary income (and the Company receives a corresponding
deduction subject to Section 162(m) of the Code) to the extent that the fair
market value of the shares at the date of exercise of the option exceeds the
option price. Any appreciation or depreciation after the date of purchase is
capital gain or loss.
A maximum of 1,000,000 shares of Common Stock will be reserved for issuance
under the Employee Stock Purchase Plan. The Employee Stock Purchase Plan will
be administered by the Compensation Committee.
OPTIONS GRANTED BY EXISTING SHAREHOLDERS
Effective upon completion of the Offering, the Existing Shareholders, pro
rata in accordance with the ownership of Common Stock, will grant to certain
executive officers and other employees of the Company options to acquire an
aggregate of 1,350,000 shares of Common Stock at an exercise price equal to
the Price to Public. These options will be exercisable in full at the date of
grant and will terminate ten years after the date of grant, subject to certain
exceptions. See "Principal and Selling Shareholders" and "Shares Eligible for
Future Sale."
401(K) PLAN
The Company has established a qualified retirement plan, with a salary
deferral feature designed to qualify under Section 401 of the Code (the
"401(k) Plan"). Employees of the Company are eligible to participate in the
401(k) Plan if they meet certain requirements concerning minimum age and
period of credited service. The 401(k) Plan allows participants to defer up to
15% of their compensation on a pre-tax basis subject to certain maximum
amounts. The 401(k) Plan allows the Company discretionary matching
contributions up to a maximum of 6% of the participant's compensation per
year. The Company has historically matched participant contributions in an
amount equal to 25 cents for each dollar of participant contributions and
expects to continue to do so. Certain other statutory limitations with respect
to the Company's contribution under the 401(k) Plan also apply. Amounts
contributed by the Company will vest over six years and will be held in trust
until distributed pursuant to the terms of the 401(k) Plan. All contributions
to the 401(k) Plan are invested in accordance with participant elections among
certain investment options. Distributions from participant accounts are not
permitted before an employee attains the age of 59 1/2, except in the event of
death, disability, certain financial hardships or termination of employment.
EMPLOYMENT AGREEMENTS
Prior to the completion of the Offering, the Company will enter into a new
employment agreement with each of Messrs. Gellein, Adler, Avril and Sabin, Ms.
Werth and Ms. Lytle for a term commencing on the completion of the Offering
and ending on the fourth anniversary of the Offering; however, each employee's
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<PAGE>
employment by the Company is terminable at any time by either party, with or
without cause. Pursuant to these agreements, Messrs. Gellein, Adler, Avril and
Sabin, Ms. Werth and Ms. Lytle will be entitled to receive an annual base
salary of $360,000, $360,000, $250,000, $210,000, $230,000 and $250,000,
respectively, as adjusted on March 1 of each year by the annual percentage
increase in the Consumer Price Index, All Urban Consumers for the Orlando,
Florida area. In addition, Messrs. Gellein, Adler, Avril and Sabin, and Ms.
Werth will be eligible to receive an annual performance bonus not to exceed
60%, 60%, 60%, 40% and 40%, respectively, of such employee's annual base
salary, based upon the Company's achievement of certain predetermined
performance goals. Ms. Lytle will be eligible to receive performance bonuses
based on the Company's achievement of certain operating goals. See
"Management--Executive Compensation." Upon termination of employment, the
employee will be entitled to unpaid compensation for services rendered through
the date of termination, together with employee benefits accrued through the
date of termination. In addition, if the employee's employment by the Company
is terminated, the employee will be entitled to receive certain severance
payments depending on the reason for termination (except with respect to
Messrs. Gellein and Adler who will not be entitled to any severance payments
unless the termination is without "cause").
The Company has also granted Mr. Avril, Ms. Werth and Ms. Lytle options to
purchase 180,000, 75,000 and 180,000 shares of Common Stock, respectively, at
an exercise price of $11.00 per share pursuant to the Stock Plan and has
agreed to grant Mr. Sabin options to purchase 75,000 shares of Common Stock
pursuant to the Stock Plan at an exercise price equal to the Price to Public.
See "--Executive Compensation."
Under the terms of the employment agreements, Messrs. Gellein, Adler, Avril
and Sabin, Ms. Werth and Ms. Lytle will be prohibited from disclosing any
confidential information or trade secrets of the Company. Messrs. Gellein,
Adler, Avril and Sabin, Ms. Werth and Ms. Lytle will also be prohibited,
during the term of their employment by the Company and for a period of one to
two years thereafter (depending on the reason for termination but, in all
events, two years for Messrs. Gellein and Adler) from (i) engaging in any
business or becoming employed or otherwise rendering services to any company
engaged in the timeshare or vacation ownership business and (ii) soliciting
the employment of any employees of the Company.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In addition to the transactions described under "Management--Employment
Agreements," the Company engaged in during its last fiscal year, or
contemplates engaging in during the current fiscal year, the transactions
described below.
Charles E. Harris, who has consented to become a director of the Company
upon completion of the Offering, is President and Chief Executive Officer and
a principal shareholder of Synagen. Synagen has served as financial advisor to
the Company and certain of the Existing Shareholders with respect to various
corporate transactions since 1991. During the years ended December 31, 1996
and 1995, the Company paid Synagen fees of $55,000 and $125,000, respectively.
No fees were paid to Synagen during 1994. The Company currently anticipates
that it will pay fees of approximately $280,000 to Synagen in connection with
the Offering prior to the date that Mr. Harris becomes a director of the
Company.
Mr. Harris is also President and Chief Executive Officer of Allen C. Ewing &
Co. ("Ewing"), and a principal shareholder of Ewing's parent holding company.
The Representatives (as defined herein) have agreed to include Ewing as one of
the Underwriters. See "Underwriting."
The Existing Shareholders, after giving effect to the Offering, will be the
owners of 70.5% of the Common Stock (approximately 66.1% if the Underwriters'
over-allotment option is exercised in full and all shares of Common Stock
subject thereto are sold solely by the Selling Shareholders). The Existing
Shareholders are currently parties to a Shareholders' Agreement which will
become effective upon completion of the Offering (the "Shareholders'
Agreement"). Pursuant to the Shareholders' Agreement, the Existing
Shareholders have agreed to vote their shares of Common Stock in favor of
proxies solicited by the Board of Directors, unless each of Messrs. Gellein
and Adler disagree with the position taken by the Board of Directors. The
Shareholders' Agreement contains restrictions on the disposition of Common
Stock and provides for certain rights of refusal. The Shareholders' Agreement
will terminate and be of no further force and effect upon the earliest to
occur of (i) the agreement of the Existing Shareholders to terminate the
Shareholders' Agreement; (ii) the tenth anniversary of the Offering; and (iii)
the date upon which one of the Existing Shareholders (treating all shares of
Common Stock beneficially owned by Mr. Gellein as held by one Existing
Shareholder and all shares of Common Stock beneficially owned by Mr. Adler as
held by one Existing Shareholder) fails to own 5% of the Common Stock. See
"Risk Factors--Control by Existing Shareholders Following the Offering;
Shareholder's Agreement."
Messrs. Gellein and Adler, their respective affiliates which own shares of
Common Stock and certain executive officers and other employees of the Company
are entitled, under certain circumstances, to require the Company to register
under the Securities Act shares of Common Stock owned by them or which they
may purchase upon exercise of options granted by the Existing Shareholders.
See "Principal and Selling Shareholders" and "Shares Eligible for Future
Sale."
The Company believes that all transactions disclosed above have been, and
the Company's Board of Directors intends that any future transactions with its
officers, directors, affiliates or principal shareholders will be, effected on
terms that are no less favorable to the Company than those which would
otherwise have been obtainable in arms' length transactions with unaffiliated
third parties.
64
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Common Stock of the Company giving effect to the consummation
of the Formation Transactions, and as adjusted to reflect the sale of Common
Stock offered hereby, with respect to (i) each person known by the Company to
beneficially own 5% or more of the outstanding Common Stock; (ii) each person
who is a director or Named Executive Officer of the Company; (iii) all
directors and executive officers of the Company as a group; and (iv) the
Selling Shareholders.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING AFTER THE OFFERING
--------------------- NUMBER OF ------------------------
NUMBER OF SHARES NUMBER OF
NAME(1) SHARES(2) PERCENTAGE BEING OFFERED(3) SHARES PERCENTAGE(4)
------- ---------- ---------- ---------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Raymond L. Gellein,
Jr.(5)................. 7,087,500 50.0% 462,500(6) 6,625,000 35.2%
Jeffrey A. Adler(7)..... 6,964,500 49.1% 462,500 6,502,000 34.6%
Laurence S. Geller(8)... -- -- -- 15,000 *
Charles E. Harris(8).... -- -- -- 15,000 *
Steven J. Heyer(8)...... -- -- -- 15,000 *
Matthew E. Avril(9)..... 400,000 2.8% -- 400,000 2.1%
Susan Werth(10)......... 125,000 * -- 125,000 *
Carol Lytle(11)......... 400,000 2.8% -- 400,000 2.1%
All directors and
executive officers as a
group (9 persons)(12).. 14,052,000 99.1% 925,000(13) 13,127,000 69.8%
</TABLE>
- --------
* Less than 1%.
(1) The address of each director, executive officer and beneficial owner of
more than 5% of the currently outstanding shares of Common Stock is in
care of the Company, 8801 Vistana Centre Drive, Orlando, Florida 32821.
(2) For purposes of this table, a person or group of persons is deemed to
have "beneficial ownership" of any shares of Common Stock which such
person has the right to acquire within 60 days after the date of this
Prospectus. For purposes of computing the percentage of outstanding
shares of Common Stock held by each person or group of persons named
above, any security which such person or persons has or have the right to
acquire from the Company within 60 days after the date of this Prospectus
is deemed to be outstanding, but is not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person.
(3) Assumes no exercise of the Underwriters' over-allotment option. If the
Underwriters' over-allotment option is exercised in full and all shares
subject thereto are sold by the Selling Shareholders, an additional
416,250 shares of Common Stock beneficially owned by each of Messrs.
Gellein and Adler will be sold, and Messrs. Gellein and Adler will
beneficially own 33.0% and 32.4% of the total outstanding Common Stock,
respectively. See "Underwriting."
(4) Such amounts have been adjusted to reflect the issuance of the Common
Stock in the Offering.
(5) Includes (i) 3,883,950 shares (3,652,700 shares after giving effect to
the Offering) of Common Stock held by various trusts primarily for the
benefit of Mr. Gellein and members of his family and Mr. Gellein's former
spouse and members of her family; and (ii) 3,203,550 (2,972,300 after
giving effect to the Offering) shares of Common Stock held by the Raymond
L. Gellein, Jr. Revocable Trust, a trust for the benefit of Mr. Gellein.
Mr. Gellein, who serves as trustee of each of the foregoing trusts, has
exclusive authority to vote all shares of stock, including the Common
Stock, held thereby. Excludes an aggregate of 675,000 shares of Common
Stock subject to options granted to certain executive officers and other
employees of the Company. See notes (9), (10), (11) and (12) below.
(6) Includes 231,250 shares of Common Stock held by a trust primarily for the
benefit of Mr. Gellein's former spouse (439,375 shares of Common Stock if
the Underwriters' over-allotment option is exercised in full and all
shares subject thereto are sold by the Selling Shareholders).
(7) Includes (i) 110,000 shares of Common Stock held by various trusts
primarily for the benefit of Mr. Adler and members of his family; and
(ii) 6,854,500 shares (6,392,000 shares after giving effect to the
Offering)
65
<PAGE>
of Common Stock held by the Jeffrey A. Adler Revocable Trust, a trust for
the benefit of Mr. Adler. Mr. Adler, who serves as trustee of each of the
foregoing trusts, has exclusive authority to vote all shares of stock,
including the Common Stock, held thereby. Excludes an aggregate of (i)
123,000 shares of Common Stock held by various trusts, of which Mr. Adler
is not trustee, for the benefit of Mr. Adler's spouse and children; and
(ii) 675,000 shares of Common Stock subject to options granted to certain
executive officers and other employees of the Company. See notes (9), (10),
(11) and (12) below.
(8) Represents 15,000 shares of Common Stock which may be acquired upon
exercise of options granted under the Stock Plan. Excludes 30,000 shares
of Common Stock issuable pursuant to options granted under the Stock
Plan which are not exercisable within 60 days of the date of this
Prospectus. Messrs. Geller and Heyer have indicated that they intend to
purchase shares of Common Stock in the Offering.
(9) Represents 400,000 shares of Common Stock which may be acquired upon
exercise of options granted by the Existing Shareholders, which options
were granted in December 1996 at an exercise price equal to the Price to
Public. Excludes options to acquire 180,000 shares of Common Stock
granted by the Company in December 1996 pursuant to the Stock Plan which
are not exercisable within 60 days of the date of this Prospectus.
(10) Represents 125,000 shares of Common Stock which may be acquired upon
exercise of options granted by the Existing Shareholders, which options
were granted in December 1996 at an exercise price equal to the Price to
Public. Excludes options to acquire 75,000 shares of Common Stock granted
by the Company in December 1996 pursuant to the Stock Plan, which are not
exercisable within 60 days of the date of this Prospectus.
(11) Represents 400,000 shares of Common Stock which may be acquired upon
exercise of options granted by the Existing Shareholders, which options
were granted in December 1996 at an exercise price equal to the Price to
Public. Excludes options to acquire 180,000 shares of Common Stock
granted by the Company in December 1996 pursuant to the Stock Plan which
are not exercisable within 60 days of the date of this Prospectus.
(12) Represents (i) 14,175,000 shares of Common Stock owned by the Existing
Shareholders, (13,250,000 after giving effect to the Offering); (ii) an
aggregate of 950,000 shares of Common Stock which may be acquired upon
exercise of options granted by the Existing Shareholders; and (iii)
45,000 shares of Common Stock which may be acquired upon exercise of
options granted under the Stock Plan. Excludes options to acquire an
aggregate of 535,000 shares of Common Stock granted by the Company in
December 1996 pursuant to the Stock Plan, which are not exercisable
within 60 days of the date of this Prospectus. See "Management--Stock
Plan."
(13) Assumes no exercise of the Underwriters' over-allotment option. If the
Underwriters' over-allotment option is exercised in full and all shares
subject thereto are sold by the Selling Shareholders, an additional
832,500 shares of Common Stock beneficially owned by all directors and
officers as a group will be sold and such persons will beneficially own
65.4% of the total outstanding Common Stock.
66
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of the Offering and the consummation of the Formation
Transactions, the authorized capital stock of the Company will consist of (i)
100,000,000 shares of Common Stock, par value $0.01 per share, 18,800,000
shares of which will be outstanding after completion of the Offering and the
Formation Transaction, and (ii) 5,000,000 shares of Preferred Stock, par value
$0.01 per share, none of which will be outstanding after the Offering and the
Formation Transactions. The following summary description of the capital stock
of the Company is qualified in its entirety by reference to the Articles of
Incorporation and By-Laws of the Company, copies of which are filed as
exhibits to the Registration Statement of which this Prospectus is a part. See
"Additional Information."
COMMON STOCK
The rights of the holders of the Common Stock discussed below are subject to
such rights as the Board of Directors may hereafter confer on the holders of
the preferred stock; accordingly, rights conferred on holders of preferred
stock issued under the Articles of Incorporation may adversely affect the
rights of holders of the Common Stock.
Subject to the rights of holders of preferred stock, the holders of
outstanding shares of Common Stock are entitled to receive dividends out of
assets legally available therefor, at such times and in such amounts as the
Board of Directors may from time to time determine. See "Dividend Policy." The
shares of Common Stock are neither redeemable nor convertible and the holders
thereof have no preemptive or subscription rights to purchase any securities
of the Company. Upon liquidation, dissolution or winding up of the Company,
the holders of Common Stock are entitled to receive, pro rata, the assets of
the Company that are legally available for distribution, after payment of all
debts and other liabilities and subject to the prior rights of any holders of
preferred stock then outstanding. Each outstanding share of Common Stock is
entitled to one vote on all matters submitted to a vote of shareholders. There
is no cumulative voting in the election of directors.
PREFERRED STOCK
The Articles of Incorporation authorize the Board of Directors to issue
preferred stock in classes or series and to establish the designations,
preferences, qualifications, limitations or restrictions of any class or
series with respect to, among other things, the rate and nature of dividends,
the price, terms and conditions on which shares may be redeemed, the terms and
conditions for conversion or exchange into any other class or series of the
stock and voting rights. The Company will have authority, without approval of
the holders of Common Stock, to issue preferred stock that has voting,
dividend or liquidation rights superior to the Common Stock and that may
adversely affect the rights of holders of Common Stock. The issuance of
preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could, among other things,
adversely affect the voting power of the holders of Common Stock and could
have the effect of delaying, deferring or preventing a change in control of
the Company. The Company currently has no plans to issue any shares of
preferred stock.
CLASSIFICATION OF THE BOARD OF DIRECTORS
The Company's Articles of Incorporation provides that the number of
directors of the Company shall be established by the By-Laws but shall not be
less than the minimum number required by the FBCA. The By-Laws currently
provide that the Board of Directors will consist of not fewer than five nor
more than nine members. The Company's Articles of Incorporation and By-Laws
provide for a staggered Board of Directors consisting of three classes as
nearly equal in size as practicable. One class will hold office initially for
a term expiring on the date of the annual meeting of the Company's
shareholders to be held in 1998, another class will hold office initially for
a term expiring on the date of the annual meeting of the Company's
shareholders to be held in 1999 and another class will hold office initially
for a term expiring on the date of the annual meeting of the Company's
shareholders to be held in 2000. As the term of each class expires, directors
for that class will be elected for a term of three years and until their
successors are duly elected and qualify.
67
<PAGE>
The provisions of the Articles of Incorporation and the By-Laws summarized
in the preceding paragraphs and the provisions of the Florida Business
Corporation Act (the "FBCA") contain provisions that may have the effect of
delaying, deferring or preventing a non-negotiated merger or other business
combination involving the Company. These provisions are intended to encourage
any person interested in acquiring the Company to negotiate with and obtain
the approval of the Board of Directors in connection with the transaction.
Certain of these provisions may, however, discourage a future acquisition of
the Company not approved by the Board of Directors in which shareholders might
receive an enhanced value for their shares or that a substantial number or a
majority of the Company's shareholders might believe to be in their best
interest. As a result, shareholders who desire to participate in such a
transaction may not have the opportunity to do so. Such provisions could also
discourage bids for the Common Stock at a premium, as well as create a
depressive effect on the market price of the Common Stock.
CERTAIN PROVISIONS OF FLORIDA LAW
The Company is subject to several anti-takeover provisions that apply to a
public corporation organized under the FBCA, unless the corporation has
elected to opt out of those provisions in its articles of incorporation or by-
laws. The Company has not elected to opt out of those provisions. Subject to
certain exceptions, the FBCA prohibits the voting of shares in a publicly-held
Florida corporation that are acquired in a "control share acquisition" unless
the holders of a majority of the corporation's voting shares (exclusive of
shares held by officers of the corporation, inside directors or the acquiring
party) approve the granting of voting rights as to the shares acquired in the
control share acquisition. A "control share acquisition" is defined as an
acquisition that immediately thereafter entitles the acquiring party to vote
in the election of directors within each of the following ranges of voting
power: (i) one-fifth or more but less than one-third of such voting power;
(ii) one-third or more but less than a majority of such voting power; and
(iii) more than a majority of such voting power.
Subject to certain exceptions, the FBCA also contains an "affiliated
transaction" provision that prohibits a corporation organized under the FBCA
from engaging in a broad range of business combinations or other extraordinary
corporate transactions with an "interested shareholder" unless: (i) the
transaction is approved by a majority of disinterested directors before the
person becomes an interested shareholder; (ii) the interested shareholder has
owned at least 80% of the corporation's outstanding voting shares for at least
five years; or (iii) the transaction is approved by the holders of two-thirds
of the corporation's voting shares other than those owned by the interested
shareholder. An interested shareholder is defined as a person who together
with affiliates and associates beneficially owns more than 10% of the
corporation's outstanding voting shares.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is .
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering and the Formation Transactions, the Company
will have outstanding 18,800,000 shares of Common Stock. Of these shares, the
5,550,000 shares sold in the Offering plus any additional shares sold upon
exercise of the Underwriters' over-allotment option will be freely tradable in
the public market without restriction or further registration under the
Securities Act.
The remaining 13,250,000 outstanding shares of Common Stock were issued
pursuant to the Formation Transactions and are "restricted securities" as that
term is defined under Rule 144 of the Securities Act and may be sold only
pursuant to registration under the Securities Act or pursuant to an exemption
therefrom, such as that provided by Rule 144. In general, under Rule 144 as
currently in effect, if two years have elapsed since the later of the date of
acquisition of shares of Common Stock from the Company or the date of
acquisition of shares of Common Stock from any "affiliate" of the Company, as
that term is defined under the Securities Act, the acquiror or subsequent
holder is entitled to sell within any three-month period a number of shares of
Common
68
<PAGE>
Stock that do not exceed the greater of (i) 1% of the then-outstanding shares
of Common Stock and (ii) the average weekly trading volume of shares of Common
Stock on all exchanges and reported through the automated quotation system of
a registered securities association during the four calendar weeks preceding
the date on which notice of the sale is filed with the Commission. Sales under
Rule 144 are also subject to certain restrictions on the manner of sales,
notice requirements and the availability of current public information about
the Company. If three years have elapsed since the date of acquisition of
shares of Common Stock from the Company or from any "affiliate" of the
Company, and the acquiror or subsequent holder thereof is deemed not to have
been an affiliate of the Company at any time during the 90 days preceding a
sale, such person would be entitled to sell such shares of Common Stock in the
public market under Rule 144(k) without regard to the volume limitations,
manner of sale provisions, public information requirements or notice
requirements.
The directors, Existing Shareholders, officers and certain other employees
of the Company have agreed, with certain exceptions, that, for a period of one
year from the date of this Prospectus, they will not offer, sell, contract to
sell, or otherwise sell, or dispose of any of their shares of Common Stock or
options or warrants to acquire shares of Common Stock, without the prior
written consent of Montgomery Securities.
Following the Offering, the Company intends to file under the Securities Act
a registration statement on Form S-8 to register all of the shares of Common
Stock subject to outstanding options under the Stock Plan and reserved for
future grants under the Stock Plan. This registration statement is expected to
become effective upon filing and shares covered by this registration statement
will be eligible for sale, subject, in the case of affiliates only, to the
restrictions of Rule 144, other than the holding period requirement, and
subject to the expiration of the lock-up agreements with the Underwriters. As
of December 31, 1996, although options to acquire an aggregate of 535,000
shares of Common Stock had been granted under the Stock Plan, none of such
options were currently exercisable.
The Company has entered into a Registration Rights Agreement (the
"Registration Rights Agreement") with the Existing Shareholders and certain
executive officers and other employees of the Company pursuant to which the
Company is obligated to register the shares owned by such persons under the
Securities Act at specified times and in specified amounts. Specifically, the
Company, subject to certain exceptions and limitations, will, upon request, be
required (i) at any time after the third anniversary of the Offering, to
register all or a portion of the Common Stock (not to exceed 15% of the then
outstanding Common Stock on any one occasion) owned by each of Messrs. Gellein
and Adler on up to two separate occasions each in connection with an
underwritten offering of any such Common Stock; (ii) at the beginning of each
of the first two 12-month periods following the second anniversary of the
Offering, to register up to 50% of the Common Stock held, or acquirable
pursuant to the exercise of options granted by the Existing Shareholders, by
each of the parties to the Registration Rights Agreement, other than the
Existing Shareholders, on a delayed or continuous basis, but not as part of an
underwriting (a "Shelf Registration") at the beginning of each of the 12 month
periods following the second anniversary of the completion of the Offering;
provided, however, that the number of shares included in any such Shelf
Registration may not exceed a maximum of 5% of the then outstanding Common
Stock; (iii) to register all of the shares of Common Stock held, or acquirable
pursuant to the exercise of options granted by the Existing Shareholders, by
each party to the Registration Rights Agreement, other than the Existing
Shareholders, pursuant to a Shelf Registration in the event of such party's
death or disability, such party's termination of employment by the Company
without cause or a change in control (as defined in the Registration Rights
Agreement). The Company is required to use its best efforts to keep all
registration statements relating to Shelf Registrations effective until the
Common Stock included therein has been sold.
Under the Registration Rights Agreement, subject to certain exception and
limitations, if the Company proposes to register any of its securities under
the Securities Act for its own account or the account of another person
pursuant to an underwriting, the parties to the Registration Rights Agreement
may require the Company to include in such registration all or part of the
shares of Common Stock held by such persons after completion of the Offering.
An aggregate of 925,000 shares of Common Stock are being registered by the
Existing Shareholders in the Offering (1,757,500 shares of Common Stock if the
Underwriter's over-allotment option is exercised in full and all shares
subject thereto are sold by the Selling Stockholders).
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<PAGE>
The Company is required to pay all expenses incident to the performance of
its obligations under the Registration Rights Agreement, other than any
underwriting discounts and commissions, or transfer taxes relating to shares
of Common Stock registered pursuant thereto.
Each party to the Registration Rights Agreement has agreed that if such
holder is requested by an underwriter in an underwritten offering of the
Company's securities (whether for the account of the Company or otherwise),
not to effect any public sale or distribution of any shares of Common Stock or
other Company equity securities, including a sale pursuant to Rule 144, during
the 10-day period prior to, and during the 90-day period beginning on, the
closing date of such underwritten offering. In addition, each of Messrs.
Gellein and Adler have agreed not exercise their rights to require the Company
to register all or a portion of the Common Stock owned by them more than once
during any 360-day period.
Prior to the Offering, there has been no public market for the Common Stock
and the effect, if any, that future market sales of Common Stock or the
availability of such Common Stock for sale will have on the market price of
the Common Stock prevailing from time to time cannot be predicted.
Nevertheless, sales of substantial amounts of Common Stock in the public
market (or the perception that such sales could occur) might adversely affect
market prices for the Common Stock.
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by Montgomery
Securities and Smith Barney Inc. (the "Representatives"), have severally
agreed, subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement") by and among the Company, the Selling Shareholders
and the Underwriters to purchase from the Company and the Selling Shareholders
the number of shares of Common Stock indicated below opposite their respective
names, at the initial public offering price less the underwriting discounts
and commissions set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters are
committed to purchase all of the shares of Common Stock if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
SHARES TO BE
UNDERWRITER PURCHASED
----------- ------------
<S> <C>
Montgomery Securities........................................
Smith Barney Inc. ...........................................
---
Total......................................................
===
</TABLE>
The Underwriters, through the Representatives, have advised the Company and
the Selling Shareholders that the Underwriters propose initially to offer the
shares of Common Stock to the public at a public offering price set forth on
the cover page of this Prospectus. The Underwriters may allow selected dealers
a concession of not more than $ per share; the Underwriters may allow, and
such dealers may reallow, a concession of not more than $ per share to
certain other dealers. After the initial public offering, the public offering
price and other selling terms may be changed by the Representatives.
The Company and the Selling Shareholders have granted an option to the
Underwriters, exercisable during the 30-day period after the date of this
Prospectus, to purchase up to an aggregate maximum of 832,500 additional
shares of Common Stock, to cover over-allotments, if any, at the same price
per share as the initial shares to be purchased by the Underwriters. Pursuant
to the terms of the option, the Selling Shareholders have the right to sell
all or any part of the shares to be sold the Underwriters, and the Company has
the obligation to sell to the Underwriters the difference between the amount
sold by the Selling Shareholders and the aggregate amount of shares required
to satisfy the Underwriters' option exercise. To the extent that the
Underwriters exercise this option, the Underwriters will be committed, subject
to certain conditions, to purchase such additional shares in approximately the
same proportion as set forth in the above table. The Underwriters may purchase
such shares only to cover over-allotments made in connection with the
Offering.
70
<PAGE>
The Underwriting Agreement provides that the Company and the Selling
Shareholders will indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.
The directors, Existing Shareholders, officers and certain other employees
of the Company have agreed, with certain exceptions, that, for a period of one
year from the date of this Prospectus, they will not sell, offer to sell,
contract to sell, or otherwise sell or dispose of any shares of their Common
Stock, or options or warrants to acquire shares of Common Stock, without the
prior written consent of Montgomery Securities. The Company has agreed not to
sell any shares of Common Stock for a period of 180 days from the date of this
Prospectus without the prior written consent of Montgomery Securities.
The Representatives have informed the Company that they do not intend to
confirm sales to accounts over which they exercise discretionary authority in
excess of 5% of the number of shares of Common Stock offered hereby.
Charles E. Harris, who has consented to become a director of the Company
upon completion of the Offering, is President and Chief Executive Officer and
a principal shareholder of Synagen. Synagen has served as financial advisor to
the Company and certain of the Existing Shareholders with respect to various
corporate transactions since 1991. During the years ended December 31, 1996
and 1995, the Company paid Synagen fees of $55,000 and $125,000, respectively.
No fees were paid to Synagen during 1994. The Company currently anticipates
that it will pay fees of approximately $280,000 to Synagen in connection with
the Offering prior to the date that Mr. Harris becomes a director of the
Company. Mr. Harris is also President and Chief Executive Officer of Ewing,
and a principal shareholder of Ewing's parent holding company. The
Representatives have agreed to include Ewing as one of the Underwriters.
Out of the 5,550,000 shares of Common Stock to be sold pursuant to the
Offering, the Underwriters have accepted the Company's request to sell up to
5% of such shares at the public offering price set forth on the cover page to
employees and other persons designated by the Company. Such shares of Common
Stock may be disposed of without contractual or other restriction by the
purchasers thereof, subject to any legal limitations imposed on such purchaser
as a result of his or her relationship to the Company (i.e., a director or
executive director).
Prior to the Offering, there has been no public trading market for the
Common Stock. Consequently, the initial public offering price will be
determined by negotiations among the Company and the Representatives of the
Underwriters. Among the factors to be considered in such negotiations will be
the history of, and the prospects for, the Company and the industry in which
it competes, an assessment of the Company's management, its past and present
earnings and the trend of such earnings, the prospects for future earnings of
the Company, the present state of the Company's development, the general
condition of securities markets at the time of the Offering and the market
price of publicly traded stocks of comparable companies in recent periods.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company and the Selling Shareholders by Neal, Gerber & Eisenberg, Chicago,
Illinois in reliance, as to matters of Florida corporate law, on the opinion
of Dean, Mead, Egerton, Bloodworth, Capouano & Bozarth, P.A., as to matters of
Florida law governing the vacation ownership industry, on the opinion of Baker
& Hostetler LLP, and, as to matters of South Carolina law governing the
vacation ownership industry, on the opinion of Kennedy Covington Lobdell &
Hickman, L.L.P. In connection with the Offering, certain attorneys of Neal,
Gerber & Eisenberg intend to purchase shares of Common Stock at the Price to
Public, which constitute a portion of the shares reserved by the Underwriters
for sale at the Price to Public to certain employees and other persons
designated by the Company. Certain legal matters in connection with the
Offering will be passed upon for the Underwriters by O'Melveny & Myers LLP,
San Francisco, California in reliance, as to matters of Florida corporate law,
on the opinion of Dean, Mead, Egerton, Bloodworth, Capouano & Bozarth, P.A.,
as to matters of Florida law governing the vacation ownership industry, on the
opinion of Baker & Hostetler LLP, and, as to matters of South Carolina law
governing the vacation ownership industry, on the opinion of Kennedy Covington
Lobdell & Hickman, L.L.P.
71
<PAGE>
EXPERTS
The Combined Financial Statements of Vistana, Inc. as of December 31, 1995
and 1996 and for each of the years in the three-year period ended December 31,
1996 included elsewhere in this Prospectus have been audited by KPMG Peat
Marwick LLP, independent auditors, as set forth in their reports appearing
elsewhere herein. The financial statements and certain of the information as
described in the selected combined financial information section of this
prospectus have been so included in reliance upon such reports given upon the
authority of such firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Commission under the Securities Act a
Registration Statement on Form S-1 with respect to the Common Stock offered
hereby. This Prospectus, which constitutes part of the Registration Statement,
omits certain of the information contained in the Registration Statement and
the exhibits and schedules thereto on file with the Commission pursuant to the
Securities Act and the rules and regulations of the Commission thereunder. For
further information with respect to the Common Stock and the Common Stock,
reference is made to the Registration Statement and the exhibits and schedules
thereto. The Registration Statement, including exhibits and schedules thereto,
may be inspected and copied at the public reference facilities maintained by
the Commission, including at the Commission's Public Reference Room, 450 Fifth
Street, NW, Judiciary Plaza, Washington, D.C. 20549, and at the Commission's
Regional Offices at 7 World Trade Center, Suite 1300, New York, New York 10048
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies may be obtained at prescribed rates from the Public Reference
Section of the Commission as its principal office in Washington, D.C. Such
materials also may be accessed electronically by means of the Commission's
home page on the Internet at http://www.sec.gov.
Statements contained in this Prospectus as to the contents of any contract
or other document referred to are not necessarily complete and in each
instance reference is made to the copy of such contract or other documents
filed as an exhibit to the Registration Statement, each such statement being
qualified in its entirety by such reference.
72
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Combined Financial Statements:
Independent Auditors' Report............................................. F-2
Combined Balance Sheets as of December 31, 1995 and 1996................. F-3
Combined Statements of Income for the Years Ended December 31, 1994, 1995
and 1996................................................................ F-4
Combined Statements of Equity for the Years Ended December 31, 1994, 1995
and 1996................................................................ F-5
Combined Statements of Cash Flows for the Years Ended December 31, 1994,
1995 and 1996........................................................... F-6
Notes to Combined Financial Statements................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Vistana, Inc. and Combined Affiliates:
We have audited the combined balance sheets of Vistana, Inc. and Combined
Affiliates (the "Company") as of December 31, 1995 and 1996 and the related
combined statements of income, equity and cash flows for each of the years in
the three-year period ended December 31, 1996. These combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Vistana, Inc. and
Combined Affiliates as of December 31, 1995 and 1996 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Orlando, Florida
January 24, 1997
F-2
<PAGE>
VISTANA, INC. AND COMBINED AFFILIATES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
PRO FORMA
NOTE 2(B)
DECEMBER 31, DECEMBER 31,
------------------------- ------------
1995 1996 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash and cash equivalents.............. $ 7,543,036 $ 6,133,872 $ 3,633,872
Restricted cash........................ 3,244,873 3,847,374 3,847,374
Customer mortgages receivable, net..... 80,493,952 100,165,656 100,165,656
Other receivables, net................. 2,805,502 4,111,384 4,111,384
Inventory of Vacation Ownership Inter-
ests.................................. 9,607,814 16,540,469 16,540,469
Construction in progress............... 8,694,684 8,670,104 8,670,104
------------ ------------ ------------
Total Vacation Ownership Interests... 18,302,498 25,210,573 25,210,573
------------ ------------ ------------
Prepaid expenses and other assets...... 7,548,877 13,978,455 13,978,455
Investment in limited partnerships..... 5,058,710 -- --
Land held for development.............. 4,297,121 8,080,062 8,080,062
Property and equipment, net............ 11,356,914 12,395,090 12,395,090
------------ ------------ ------------
Total assets......................... $140,651,483 $173,922,466 $171,422,466
============ ============ ============
Accounts payable and accrued liabili-
ties.................................. 4,905,831 3,828,794 3,828,794
Accrued compensation and benefits...... 8,552,982 9,291,354 9,291,354
Customer deposits...................... 2,349,357 4,994,766 4,994,766
Repurchase obligations................. 3,002,847 -- --
Other liabilities...................... 2,432,399 6,160,284 6,160,284
Notes and mortgages payable............ 101,503,639 118,556,609 118,556,609
------------ ------------ ------------
Total liabilities.................... 122,747,055 142,831,807 142,831,807
Minority interest...................... -- 4,442,618 4,442,618
Equity................................. 17,904,428 26,648,041 24,148,041
------------ ------------ ------------
Total liabilities and equity......... $140,651,483 $173,922,466 $171,422,466
============ ============ ============
</TABLE>
See accompanying notes to combined financial statements
F-3
<PAGE>
VISTANA, INC. AND COMBINED AFFILIATES
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Vacation Ownership Interest sales....... $54,186,316 $50,156,397 $60,063,413
Interest................................ 7,654,323 12,886,189 15,546,269
Resort.................................. 11,834,044 12,613,242 13,586,648
Telecommunications...................... 3,377,865 4,802,025 7,053,647
Other................................... 583,765 652,039 686,263
----------- ----------- -----------
Total revenues............................ 77,636,313 81,109,892 96,936,240
----------- ----------- -----------
Costs and operating expenses:
Vacation Ownership Interests cost of
sales.................................. 11,390,644 12,052,497 14,595,630
Sales and marketing..................... 22,871,809 22,318,165 27,876,872
Interest expense--treasury.............. 3,605,227 6,515,497 6,864,713
Provision for doubtful accounts......... 3,802,905 3,522,316 4,270,887
Resort.................................. 10,036,963 10,585,320 11,089,385
Telecommunications...................... 2,519,980 3,654,386 5,613,336
General and administrative.............. 7,988,613 6,979,337 7,872,795
Depreciation and amortization........... 1,391,638 2,215,274 2,553,443
Interest expense--other................. 2,105,869 3,167,975 4,153,749
Other................................... 1,240,971 1,019,986 442,724
Deferred executive incentive compensa-
tion................................... 332,078 3,447,945 1,113,829
----------- ----------- -----------
Total costs and operating expenses........ 67,286,697 75,478,698 86,447,363
----------- ----------- -----------
Operating income.......................... 10,349,616 5,631,194 10,488,877
Excess value recognized................. 364,952 219,095 105,101
----------- ----------- -----------
Net Income................................ $10,714,568 $ 5,850,289 $10,593,978
=========== =========== ===========
Pro-forma data (unaudited):
Net income before taxes................. 10,714,568 5,850,289 10,593,978
Pro-forma provision for income taxes.... 3,984,000 2,126,000 3,723,000
----------- ----------- -----------
Pro-forma net income.................. $ 6,730,568 $ 3,724,289 $ 6,870,978
=========== =========== ===========
Pro-forma net income per share of Common
Stock.................................... $ .48
===========
Pro-forma weighted average number of
shares of Common Stock outstanding....... 14,175,000
===========
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE>
VISTANA, INC. AND COMBINED AFFILIATES
COMBINED STATEMENTS OF EQUITY
<TABLE>
<CAPTION>
EQUITY
-----------
<S> <C>
Balance at January 1, 1994......................................... $23,725,801
Distributions...................................................... (782,558)
Net income......................................................... 10,714,568
-----------
Balance at December 31, 1994....................................... 33,657,811
Distributions/redemptions.......................................... (21,603,672)
Net income......................................................... 5,850,289
-----------
Balance at December 31, 1995....................................... 17,904,428
Distributions...................................................... (1,850,365)
Net income......................................................... 10,593,978
-----------
Balance at December 31, 1996....................................... $26,648,041
===========
</TABLE>
See accompanying notes to combined financial statements.
F-5
<PAGE>
VISTANA, INC. AND COMBINED AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities:
Net income................................ $10,714,568 $ 5,850,289 $10,593,978
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense.................... 1,035,874 1,306,025 1,474,809
Amortization expense.................... 355,764 909,249 1,078,634
Amortization of discount on customer
mortgages receivable................... -- 2,061,541 2,756,905
Provision for doubtful accounts......... 3,802,905 3,522,316 4,270,887
Changes in operating assets and liabili-
ties:
Other receivables..................... (127,354) (268,293) (1,305,882)
Construction in progress.............. (3,954,546) (1,082,427) (358,924)
Prepaid expenses and other assets..... 56,254 (3,759,668) (7,508,212)
Accounts payable and accrued liabili-
ties................................. 839,216 (68,720) (1,077,037)
Accrued compensation and benefits..... 90,708 4,750,413 738,372
Customer deposits..................... 54,339 682,103 2,645,409
Repurchase obligations................ (834,849) (1,603,975) (1,407,880)
Other liabilities..................... 1,182,091 224,754 3,727,885
----------- ----------- -----------
Net cash provided by operating activ-
ities............................... 13,214,970 12,523,607 15,628,944
----------- ----------- -----------
Investing activities:
Expenditures for property and equipment... (1,290,568) (2,043,490) (2,512,985)
Sale of customer mortgages receivable..... 6,557,769 -- --
Repurchase of customer mortgages receiv-
able..................................... -- (1,692,083) (1,170,691)
Origination of customer mortgages receiv-
able..................................... (25,345,638) (17,994,446) (22,065,062)
Additions to restricted cash.............. (304,839) (920,994) (602,501)
----------- ----------- -----------
Net cash used in investing activi-
ties................................. (20,383,276) (22,651,013) (26,351,239)
----------- ----------- -----------
Financing activities:
Proceeds from notes and mortgages pay-
able..................................... 51,511,207 79,345,191 53,628,415
Payments on notes and mortgages payable... (44,216,204) (42,610,975) (46,907,537)
Equity distributions/redemptions.......... (782,558) (21,603,672) (1,850,365)
Minority interest......................... -- -- 4,442,618
----------- ----------- -----------
Net cash provided by financing activi-
ties................................... 6,512,445 15,130,544 9,313,131
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ (655,861) 5,003,138 (1,409,164)
Cash and cash equivalents, beginning of
year....................................... 3,195,759 2,539,898 7,543,036
----------- ----------- -----------
Cash and cash equivalents, end of year...... $ 2,539,898 $ 7,543,036 $ 6,133,872
=========== =========== ===========
Supplemental disclosure of cash flow infor-
mation:
Cash paid during the year for interest.... $ 5,674,646 $ 9,728,802 $10,731,633
=========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-6
<PAGE>
VISTANA, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
(1) NATURE OF BUSINESS
The Company (see Note (2)(a)) generates revenues from the sale and financing
of Vacation Ownership Interests in its resort properties which typically
entitle the buyer to ownership of a fully-furnished unit for a one week period
on an annual or an alternate-year basis. The Company's principal operations
consist of (1) constructing, furnishing, marketing and selling vacation
ownership interests, (2) providing consumer financing for the purchase of
Vacation Ownership Interests at its resorts, and (3) managing the operations
of its resorts and related amenities, and the installation and maintenance of
telecommunications equipment for others on a limited basis. The Company sells
Vacation Ownership Interests to both domestic and foreign purchasers. All
contracts relating to the sale of Vacation Ownership Interests are denominated
in U.S. dollars.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Combination and Formation Transaction
The combined financial statements include the accounts of Vistana, Inc. and
certain wholly owned affiliates (both corporations and limited partnerships)
under common control (the "Company"). It is anticipated that in conjunction
with and conditioned upon the Offering that each of the Existing Shareholders
will transfer to the Company all of the existing common stock and partnership
interests owned by them and their affiliates in exchange for 14,174,980 shares
(20 shares of the Common Stock of Vistana, Inc. are currently outstanding) of
the Company ("Formation Transaction"). It is anticipated that a total of
5,550,000 shares of the Common Stock of the Company will be offered to the
public, comprising 4,625,000 shares to be offered by the Company and 925,000
shares by the Existing Shareholders. No assurances can be given that the
Offering will be consummated.
The majority of the combined affiliates were formed in 1991 by the current
owners to acquire and own, either directly or indirectly, the assets and
certain liabilities of the predecessor operating entities from the previous
owner hereinafter referred to as the "Seller".
The combined financial statements also include the accounts of two
partnerships between one or more affiliated companies and unaffiliated third
party partners wherein the Company exercises operational and financial control
over such partnerships. Interests of unaffiliated third parties are reflected
as minority interests.
(b) Pro Forma Balance Sheet
The pro forma balance sheet as of December 31, 1996 reflects the planned
distributions to existing shareholders prior to the anticipated completion of
the Company's intended initial public offering (the "Offering"). Such
distributions, which are estimated to aggregate $2,500,000, relate to the
undistributed S corporation earnings and anticipated tax liabilities
attributable to the Company's operations prior to the completion of the
Offering. No assurance can be given that the Offering will be consummated.
(c) Cash and Cash Equivalents
Cash and cash equivalents consist of all highly liquid investments purchased
with an original maturity of three months or less. Cash and cash equivalents
consist of cash and money market funds.
(d) Restricted Cash
Restricted cash consists of (1) deposits received on sales of Vacation
Ownership Interests that are held in escrow until the applicable statutory
rescission period has expired and the related customer mortgage has been
recorded, and (2) workman's compensation funds.
F-7
<PAGE>
VISTANA, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(e) Allowance for Losses on Customer Mortgages Receivable and Repurchase
Obligations
The Company provides for estimated future losses to be incurred related to
uncollectible customer mortgages receivable. The allowance is based on the
collection history of the receivables and is net of anticipated cost
recoveries of the underlying Vacation Ownership Interests. Additionally, the
Company had established liabilities reflecting repurchase obligations which
were assumed as part of: (i) the acquisition by the Company in 1991 related to
prior sales of customer mortgages receivable by the Seller, and (ii) related
to sales with recourse of customer mortgages receivable by the Company, to
limited partnerships in which the Company had a residual interest, pursuant to
agreements entered into during 1991 and 1992 (see Note (2)(i)). Management
believes that all such allowances and estimated liabilities are adequate.
(f) Inventory of Vacation Ownership Interests
Inventory of Vacation Ownership Interests and related construction in
progress are carried at cost, which is lower than net realizable value. The
recoverability of inventory is determined on an individual project basis which
is based on each resort location.
(g) Land Held for Development
Land held for development is carried at the lower of cost or net realizable
value.
(h) Prepaid Expenses and Other Assets
Costs associated with a five-year covenant not-to-compete agreement with a
former shareholder/executive of the Company are included in prepaid expenses
and other assets in the accompanying combined balance sheets. These costs are
being amortized over the terms of the agreement.
Prepaid financing fees related to notes and mortgages payable are
capitalized and amortized over the lives of the respective debt on a straight-
line basis, and are included in depreciation and amortization in the
accompanying combined statements of income.
(i) Investments in Limited Partnerships
Investment in limited partnerships represented the Company's initial
investment in certain limited partnerships, in which it had residual
interests, formed in 1991 and 1992, to which the Company sold customer
mortgages receivable pursuant to a commitment to sell a stipulated amount,
which was fulfilled by early 1994. The Company reflected such investments on
the cost method and recorded its initial investment in limited partnerships as
the difference between the outstanding contractual amount of customer
mortgages receivable sold and the proceeds from such sale. The Company
estimated that its cost was not in excess of net realizable value. During 1995
and 1996 upon repurchasing customer mortgages receivable previously sold
pursuant to "clean-up" call provisions related to such sales, the Company
recorded the difference between the remaining outstanding contractual
receivable amount and the net repurchase amount and the balance of the
investment in the respective limited partnership as a loan discount, to be
amortized over the estimated remaining life of the repurchased receivables.
Therefore, as of December 31, 1996, the Company has no investments in limited
partnerships which have purchased customer mortgages receivable.
(j) Property and Equipment
Property and equipment are recorded at cost. Depreciation of property and
equipment is computed over the applicable estimated useful lives (between 3
and 30 years) of the assets using the straight-line method.
F-8
<PAGE>
VISTANA, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(k) Customer Deposits
Until a Vacation Ownership Interest contract qualifies as a sale, all
payments received are accounted for as deposits. If a contract is canceled
after the applicable statutory period, deposits forfeited are credited to
income.
(l) Revenue Recognition
Substantially all Vacation Ownership Interests sold by the Company generate
installment receivables secured by a mortgage on the related Vacation
Ownership Interest. These customer mortgages receivable are payable in monthly
installments, including interest, with maturities up to ten years. Sales are
included in revenues when minimum down payment requirements have been met. A
provision is recorded for those contracts expected to rescind in the allowed
statutory rescission period.
Product costs and direct selling expenses related to a Vacation Ownership
Interest sale are recorded at the time the sale is recognized. Product costs
include the cost of land, professional fees, improvements to the property and
the costs of amenities constructed for the use and benefit of the Vacation
Ownership Interest owners. Product costs are allocated to each Vacation
Ownership Interest based on the total number of Vacation Ownership Interests
in the particular phase.
Resort revenues are recognized on an accrual basis. Telecommunications
revenues, primarily from contracting services to third parties, are recognized
when earned on a percentage of completion basis.
(m) Excess Value Over Consideration
In connection with the acquisition by the Company in 1991 from the Seller,
the estimated value of the assets acquired exceeded the consideration paid
(including the estimated liabilities assumed as part of the transaction) by
$3,380,621. Accordingly, the excess value over consideration has been
allocated on a pro-rata basis to reduce the recorded value of long-term assets
originally acquired from the Seller, principally customer mortgages
receivable. This excess value over consideration is being amortized into
income over the life of those assets. The amount of excess value over
consideration amortized into income was $364,952, $219,095 and $105,101 in
1994, 1995 and 1996, respectively, with $839,129 remaining unamortized as of
December 31, 1996.
(n) Interest Rate Swap Agreements
The Company only uses derivative financial instruments on a limited basis
and does not use them for trading purposes. Derivative financial instruments
are used to manage well-defined interest rate risks. The differential to be
paid or received under the terms of the interest rate swap agreements is
accrued as interest rates change and is recognized over the life of the
applicable interest rate swap agreements. The Company does not engage in
speculative or profit motivated hedging activities.
(o) Fair Market Value of Financial Instruments
The carrying amount reported in the combined balance sheets for cash and
cash equivalents, restricted cash, other receivables, accounts payable and
accrued liabilities approximates fair market value due to the immediate or
short-term maturity of these financial instruments.
The approximate fair value of customer mortgages receivable exceeds book
value by the amount of the unamortized discount on customer mortgages
receivable purchased.
The carrying amount of notes and mortgages payable approximates fair market
value as the interest rates on the underlying instruments reprice frequently.
F-9
<PAGE>
VISTANA, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The fair market value of the interest rate swaps (used for hedging purposes)
is the estimated amount the Company would pay to terminate the interest rate
swap agreements at December 31, 1996, taking into account the interest rates
and the current credit-worthiness of the interest rate swap counterparty. The
fair market value of the liability for interest rate swaps at December 31,
1996 is $60,295 based upon the estimated unwind cost which would be associated
with terminating the interest rate swap agreements. The interest rate swaps do
not have a carrying value as they did not have an initial cost when acquired.
(p) Income Taxes
The Company and its combined affiliates include entities taxed as S
corporations taxable at the shareholder level or as partnerships taxable at
the partner level. Accordingly, the accompanying combined financial statements
do not include assets or liabilities related to or provision for income taxes
(See Note (16)).
(q) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the combined financial
statements and the reported amounts of revenues and expenses during the
reporting period to prepare these combined financial statements in conformity
with generally accepted accounting principles. Actual results could differ
from those estimates and assumptions.
(r) Effect of New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("Statement") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of " which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. Statement 121 also addresses the accounting
for long-lived assets that are expected to be disposed of. The Company adopted
Statement 121 in the first quarter of 1996 and there was no material impact on
the Company's operations or financial position upon adoption.
In October 1995, the FASB issued Statement No. 123, "Accounting for Stock-
Based Compensation." The Statement provides that companies must either charge
the value of stock options granted to their income statement or provide pro
forma equivalent information in a footnote disclosure and continue to account
for the value of the stock options in accordance with APB Opinion No. 25. The
Company will adopt this standard in 1997 after completion of the Offering by
accounting for employee stock-based compensation under APB Opinion No. 25 and
providing pro forma equivalent information in a footnote disclosure required
by Statement No. 123.
In June 1996, the FASB issued Statement No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities"
Statement No. 125 provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of liabilities. Those
standards are based on consistent application of a financial-components
approach that focuses on control. Under that approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes financial assets
when control has been surrendered, and derecognizes liabilities when
extinguished. This Statement is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December
31, 1996, and is to be applied prospectively. The Company does not anticipate
a material impact on its operations or financial position from the
implementation of Statement No. 125 as it has no current plans to sell
customer mortgages receivable in the foreseeable future.
F-10
<PAGE>
VISTANA, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(s) Reclassifications
Certain prior year amounts have been reclassified to conform with the 1996
presentation.
(3) CUSTOMER MORTGAGES RECEIVABLE, NET
As of December 31, customer mortgages receivable, net consisted of:
<TABLE>
<CAPTION>
1995 1996
----------- ------------
<S> <C> <C>
Customer mortgages receivable, gross................ $93,342,562 $115,969,865
Less:
Unamortized discount on customer mortgages
receivable purchased............................. (3,714,702) (5,539,457)
Unamortized excess value over consideration....... (125,233) (74,160)
Allowance for loss on receivables................. (9,008,675) (10,190,592)
----------- ------------
Customer mortgages receivable, net................ $80,493,952 $100,165,656
=========== ============
</TABLE>
As of December 31, 1995 and 1996, customer mortgages receivable, gross, from
foreign buyers aggregated approximately $26,400,000 and $28,070,000,
respectively with buyers within no individual foreign country aggregating more
than 5% of gross outstanding customer mortgages receivable.
Stated interest rates on customer mortgages receivable outstanding at
December 31, 1996 range from 00.0% to 18.9% per annum (averaging approximately
14.4% per annum contractually). Interest is not imputed on customer mortgages
receivable with less than a market interest rate because such amounts are
immaterial.
The activity in the customer mortgages receivable allowance for doubtful
accounts is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year............. $10,618,538 $10,143,296 $ 9,008,675
Provision for doubtful accounts........ 3,802,905 3,522,316 4,270,887
Allowance relating to customer
mortgages receivable purchased........ -- 628,397 588,276
Customer mortgages receivable charged
off................................... (4,278,147) (5,285,334) (3,677,246)
----------- ----------- -----------
Balance, end of year................... $10,143,296 $ 9,008,675 $10,190,592
=========== =========== ===========
</TABLE>
During the first quarter of 1994, pursuant to an agreement entered into
during 1992, the Company completed the sale of $7,723,695 of customer
mortgages receivable for proceeds of $6,557,769, prior to related transaction
expenses. The sale resulted in no gain or loss in the accompanying combined
statements of income. The purchaser was a partnership in which the Company has
a residual minority limited partnership interest. The Company's interest in
the partnership, as well as other such partnerships, to which customer
mortgages receivable were sold during 1991 through 1994, have been reflected
with a carrying value of $5,058,710 as of December 31, 1995.
During 1995 and 1996, under the clean-up call provisions of the related
transactions, the Company repurchased the remaining amount of customer
mortgages receivable previously sold and effectively liquidated the
partnerships. The Company acquired gross customer mortgages receivable of
$10,473,284 and $9,804,274 and recorded a discount which amounted to
$5,776,243 and $4,581,563 for December 31, 1995 and 1996, respectively. This
discount is being amortized over the estimated remaining collection period of
the purchased customer mortgages receivable. Amortization of the discount
during 1995 and 1996 was $2,061,541 and $2,756,905, respectively, and is
included in interest income.
F-11
<PAGE>
VISTANA, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(4) JOINT VENTURES
Vistana WGV, Ltd. ("WGV")
In June of 1996, the Company entered into a partnership agreement wherein
the Company would serve as general partner with operating and financial
control over the partnership as well as own a 37.5% ownership interest
therein. WGV is to develop 408 units near St. Augustine, Florida. WGV has
entered into various licensing, servicing fee and royalty arrangements based
upon stipulated percentages of sales of Vacation Ownership Interests or gross
rental revenue from operations of unoccupied units at the resort. A $5,075,000
licensing fee was paid by WGV to an unaffiliated partner for the use of names
and logos wherein such fee has been capitalized and will be amortized over the
projected sales period currently estimated at nine years. WGV is contingently
liable, along with other developers at the project, for annual debt service
shortfalls, up to a specified amount related to bond funding for a related
convention center development.
Under certain defined circumstances, the Company has the right to acquire
the interest of the other unaffiliated partners as well as such unaffiliated
partners having the right to require the Company to purchase their ownership
interests.
Oak Plantation Joint Venture ("OPJV")
In June of 1996, the Company acquired a 67% ownership interest and became
managing joint venturer for OPJV. OPJV is in the process of converting a 242
unit multi-family property in Kissimmee, Florida into a Vacation Ownership
Interest resort. The Company acquired its ownership interest without payment
of cash in a purchase transaction. The fair value of both the assets acquired
and the liabilities assumed aggregated approximately $12,232,000, which
included a liability of $1,900,000 which was paid in January 1997 to an
unaffiliated partner for the early termination of a consulting service
arrangement. Operations have been included since June of 1996 and are
immaterial to the combined statement of income.
Under certain defined circumstances, the Company has the right to acquire
the interest of the other unaffiliated partners as well as such unaffiliated
partners having the right to require the Company to purchase their ownership
interests.
Other and Possible Future Joint Ventures
Prior to December 31, 1996, the Company had investments in limited
partnerships. See Note (2)(i).
Also, the Company and Promus Hotels, Inc. have entered into an exclusive
five-year agreement (the "Promus Agreement") to jointly acquire, develop,
market and operate vacation ownership resorts in North America under Promus'
Embassy Vacation Resort, Hampton Vacation Resort and Homewood Vacation Resort
brands. Under the Promus Agreement, the Company will be Promus' exclusive
joint venture partner for the acquisition, development and operation of
vacation ownership resorts in North America and will also have the option of
operating vacation ownership resorts on a franchise basis. The Promus
Agreement precludes the Company from acquiring or developing vacation
ownership resorts with any other multi-hotel brand, but preserves its ability
to develop vacation ownership resorts in combination with non-hotel brands to
acquire or develop vacation ownership resorts under the Vistana name (other
than in certain selected markets agreed to by the parties), and to develop
vacation ownership resorts with unique, non-multi-hotel brand hotel
properties. Although the Company and Promus are evaluating new resort
development opportunities for the joint venture, no commitments have been made
for a specific development as of December 31, 1996.
F-12
<PAGE>
VISTANA, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
In October 1996, the Company signed a letter of intent with PGA of America,
which contemplates a long-term affiliation for the development of future
vacation ownership resorts. The Company anticipates acquiring 25 acres of land
adjacent to an existing 36-hole championship golf facility owned by a
subsidiary of PGA of America in Port St. Lucie, Florida, for the development
of the first PGA Vacation Resort by Vistana. The Company anticipates that it
will commence construction of this resort during 1997 after acquisition of the
land.
No assurances can be given that a definitive agreement with PGA of America
will be consummated or that specific development will occur pursuant to the
Promus Agreement.
(5) PROPERTY AND EQUIPMENT, NET
As of December 31, property and equipment, net consisted of:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Land and land improvements............................ $ 2,483,353 $ 2,483,353
Buildings and building improvements................... 6,319,497 7,760,444
Furniture, fixtures and equipment..................... 5,265,779 7,234,221
----------- -----------
Subtotal............................................ 14,068,629 17,478,018
Less accumulated depreciation......................... (3,805,521) (5,181,641)
----------- -----------
Subtotal............................................ 10,263,108 12,296,377
Construction in progress.............................. 1,093,806 98,713
----------- -----------
Property and equipment, net........................... $11,356,914 $12,395,090
=========== ===========
</TABLE>
(6) PREPAID EXPENSES AND OTHER ASSETS
As of December 31, prepaid expenses and other assets consisted of:
<TABLE>
<CAPTION>
1995 1996
---------- -----------
<S> <C> <C>
Prepaid licensing fee................................... $ -- $ 5,075,000
Prepaid financing fees.................................. 2,459,171 2,946,781
Covenant not-to-compete (Note (9))...................... 1,589,257 1,195,857
Other................................................... 872,585 1,888,165
Prepaid expenses........................................ 726,920 975,668
Due from homeowners associations........................ 444,145 451,921
Mortgage interest earned................................ 438,223 438,223
Sales documents, premium and other inventory............ 741,086 1,006,840
Deferred servicing premiums............................. 277,490 --
---------- -----------
Total prepaid expenses and other assets............. $7,548,877 $13,978,455
========== ===========
</TABLE>
The covenant-not-to-compete with a former shareholder/executive of the
Company (see Note (9)) is being amortized over the term of the related five-
year agreement. Prepaid financing fees related to notes and mortgages payable
are capitalized and amortized over the lives of the respective debt on a
straight-line basis. Amortization expense related to prepaid financing fees
and the covenant not to compete was $305,764, $655,276 and $685,234 and
$50,000, $253,973 and $393,400, respectively in 1994, 1995 and 1996,
respectively, and are included in amortization and depreciation expense on the
combined statements of income.
F-13
<PAGE>
VISTANA, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(7) REPURCHASE OBLIGATIONS
Changes in repurchase obligations during the years ended December 31 were as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Balances, beginning of year................ $7,744,671 $6,909,822 $3,002,847
Additional obligations for customer
mortgages
receivable sold during the year with
recourse.................................. 771,502 -- --
Loss on customer mortgages receivable
repurchased
under recourse provisions................. (1,606,351) (1,603,419) (1,407,880)
Remaining balance of estimated losses on
repurchase obligations relating to
customer mortgages receivable
repurchased............................... -- (2,303,556) (1,594,967)
---------- ---------- ----------
Balances, end of year...................... $6,909,822 $3,002,847 $ --
========== ========== ==========
</TABLE>
As of December 31, 1996, there were no outstanding customer mortgages
receivable for which the Company had a recourse obligation.
(8) NOTES AND MORTGAGES PAYABLE
As of December 31, notes and mortgages payable consisted of:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Notes payable and mortgage obligations to lender, cross
collateralized, which bear interest at prime plus 2%
(10.25% per annum at December 31, 1996):
Note payable secured by customer mortgages receivable.
Remaining availability under this line of credit is
$19,182,426 at December 31, 1996. The remaining
commitment term for new borrowings expires in August
1998. The note matures 84 months after the expiration
of the last borrowing during the commitment term..... $42,046,126 $62,099,374
Note payable requiring quarterly payments of principal
which matures on May 26, 2000........................ 3,600,000 2,800,000
Mortgage obligation secured by land and building with
anticipated final payment in July 1997............... 2,087,300 918,200
Mortgage obligation secured by land and office
building due May 8, 2004............................. 4,705,163 4,317,615
Notes payable to bank:
Note payable bearing interest at a variable rate
(applicable Eurodollar rate plus 4%, which has been
swapped) payable quarterly. The note requires
quarterly payments of principal and matures on June
30, 2000............................................. 12,600,000 9,800,000
Note payable bearing interest at a variable rate
(applicable Eurodollar rate plus 6%, which has been
swapped) payable quarterly. The note requires
quarterly payments of principal and matures on
December 29, 2000.................................... 6,500,410 4,695,301
Note payable to lender bearing interest at 11.37% per
annum, secured by customer mortgages receivable.
Lender receives all principal and interest collected
from customer mortgages receivable securing the note.
Final payment is expected by December 1998........... 15,903,003 8,752,094
</TABLE>
F-14
<PAGE>
VISTANA, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Note payable to lender bearing interest at 10.68%
per annum, secured by customer mortgages
receivable. Lender receives all principal and
interest collected from customer mortgages
receivable securing the note. Final payment is
expected by December 1997......................... 5,462,111 1,120,152
Subordinated unsecured note payable to lender
bearing interest at prime plus 2% (10.25% per
annum at December 31, 1996) payable semi-annually.
The note requires one balloon payment of principal
on May 26, 21001.................................. 4,500,000 4,500,000
Note payable to bank bearing interest at prime plus
1.5% (9.75% per annum at December 31, 1996)
secured by customer mortgages receivable.
Remaining availability under this revolving line
of credit is $3,724,213 at December 31, 1996 and
the remaining commitment term for new borrowings
expires in June 1998.............................. 2,505,078 1,275,787
Mortgage obligation, secured by land and store
building, bearing interest at 8.35% per annum due
December 5, 1997.................................. 786,059 656,666
Mortgage loan with an available line of $1,100,000
secured by land and improvements (including the
constructed premises). The loan bears interest at
prime plus 1% (9.25% per annum at December 31,
1996) and principal amortizes over a ten year term
through December 2005............................. 610,547 984,863
Various notes payable with monthly payments of
principal and interest, ranging from 8.25% to
11.03% per annum. Final payments are due through
March 1999. The notes are collateralized by
transportation and telecommunications equipment... 197,842 107,492
Notes payable and mortgage obligations to lender
which bear interest at prime plus 2% (10.25% per
annum at December 31, 1996) plus incentive fees:
Term note payable under which a total $18,275,000
may be borrowed requiring monthly interest
payments, and maturing on June 25, 2001. Secured
by real property and construction in progress..... -- 12,700,607
Unsecured note payable under a $2,500,000 working
capital loan agreement requiring monthly interest
payments and maturing on June 25, 2001............ -- 943,120
Acquisition note payable under which a total of
$3,000,000 may be borrowed requiring monthly
interest payments and maturing on July 24, 2001.
Secured by real and personal property............. -- 385,338
Construction mortgage note payable under which a
total of $15,600,000 may be borrowed requiring
monthly interest payments, and maturing on July
24, 2001. Secured by real property and
construction in progress.......................... -- 2,500,000
------------ ------------
Total notes and mortgages payable................ $101,503,639 $118,556,609
============ ============
</TABLE>
In addition, the Company has available loan facilities under which it may
borrow up to $25,000,000 bearing interest at prime plus 2% which will be
secured by customer mortgages receivable. Also, the Company has available loan
facilities in the amount of $1,726,500 at rates from 9.5% to 10.25% per annum.
As part of financing the development of units for WGV and OPJV, the joint
venturers have agreed to pay its lenders, upon fulfillment of its obligations,
incentive fees. The incentive fees will be recognized over the term of the
F-15
<PAGE>
VISTANA, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
debt as an adjustment to interest expense using the effective interest method.
The debt associated with the incentive fees have outstanding balances of
$12,700,607, $943,120, $385,338 and $2,500,000 at December 31, 1996.
In addition, upon formation, WGV entered into an agreement with one of the
limited partners whereby WGV could borrow up to $1,620,000. No amounts were
outstanding under this agreement as of December 31, 1996.
Scheduled principal payments on the notes and mortgages payable where there
are agreed upon scheduled principal repayments subsequent to December 31,
1995, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31:
-----------------------
<S> <C>
1997........................................................... 6,954,927
1998........................................................... 6,095,021
1999........................................................... 5,405,712
2000........................................................... 2,446,940
2001........................................................... 5,109,666
Thereafter..................................................... 1,760,758
-----------
$27,773,024
===========
</TABLE>
Repayment terms on the notes payable secured by customer mortgages
receivable are such that all collections on the receivables serving as
collateral are paid to the lender on a monthly basis, and are excluded from
the above. Payments are first applied to outstanding interest and then to
principal. As principal repayments on notes payable are made by collections of
the related secured customer mortgages receivable, there are no fixed
amortization dates for these notes. Total amount of pledged customer mortgages
receivable was $75,817,507 and $86,874,266 at December 31, 1995 and 1996,
respectively.
(9) EQUITY REDEMPTIONS
During 1995, the Company made distributions to one of its shareholders
sufficient to redeem all of that individual's interests in the Company. As
part of this transaction, the former shareholder/executive and the Company
entered into a five-year covenant-not-to-compete and a consulting and
management agreement. Costs associated with the five-year covenant-not-to-
compete have been included in prepaid expenses and other assets in the
accompanying combined balance sheets (see Note (6)) and are being amortized
over the life of the five-year agreement.
In connection with the sale of customer mortgages receivable concurrent with
the acquisition by the Company in 1991 (see Note 3), unaffiliated third
parties received options to purchase limited partnership interests totaling
15% of certain of the combined affiliates of the Company. During 1995, the
Company repurchased these options from the unaffiliated third parties.
These two transactions have been reflected as equity redemptions in the
amount of $20,167,055 in the accompanying combined statements of equity for
the year ended December 31, 1995.
(10) EMPLOYMENT AGREEMENTS
In 1992, the Company entered into employment agreements (which were amended
and expanded in 1995) with certain senior management executives who were not
owners of the Company. In order to receive payment under the agreements the
executives were required to remain in the employ of the Company through
December 31, 1996. The agreements, provided that these executives would be
entitled to receive, on a deferred basis, an aggregate of 3% (amended in 1995
to 10%) of the cumulative pretax income of the Company during the period of
employment, before determination of the deferred executive incentive
compensation amounts.
F-16
<PAGE>
VISTANA, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The total expense associated with these deferred executive incentive
compensation agreements was $332,078, $3,447,945 and $1,113,829 for the years
ended December 31, 1994, 1995 and 1996, respectively. Amounts payable under
these agreements totaled $4,186,539 and $4,919,932 as of December 31, 1995 and
1996, respectively, and are included in accrued compensation and benefits in
the accompanying combined balance sheets. Payment of this obligation will be
made in equal installments over a three year period beginning at the earlier
of June 15, 1997 or completion of the Offering.
(11) 401(K) PLAN
The Company has established a qualified retirement plan, with a salary
deferral feature designed to qualify under Section 401 of the Code (the
"401(k) Plan"). Employees of the Company are eligible to participate in the
401(k) Plan if they meet certain requirements concerning minimum age and
period of credited service. The 401(k) Plan allows participants to defer up to
15% of their compensation on a pre-tax basis subject to certain maximum
amounts. The 401(k) Plan allows the Company discretionary matching
contributions up to a maximum of 6% of the participant's compensation per
year. The Company has historically matched participant contributions in an
amount equal to 25 cents for each dollar of participant contributions and
expects to continue to do so. The expense recognized in 1994, 1995 and 1996
was $166,280, $152,250 and $166,236, respectively.
(12) STOCK PLANS
The Vistana, Inc. stock plan was initially adopted by the Company's
shareholders in December 1996 and provides for the granting of stock options
to key employees, directors and officers of, and consultants to the Company at
a price equal to the fair market value of the shares (or 110% of fair market
value if the options are granted to a greater than 10% shareholder of the
Company) at the date of the grant and are for terms not exceeding ten years
(or five years if the options are granted to a greater than 10% shareholder of
the Company). There are 1,900,000 shares of common stock authorized for
issuance under the plan. Such options shall vest monthly in arrears over a
period of 48 months from the grant or award date. The plan also allows for
grants of restricted stock, stock appreciation rights (SARs") and phantom
stock awards.
Each initial director of the Company who is an eligible director will
automatically be granted options to purchase 45,000 shares of Common Stock for
an exercise price per share equal to the price to the public in the Offering.
These options will be exercisable in 15,000 share increments each of the
following times: (i) immediately upon grant, (ii) immediately following the
date of the 1998 annual shareholders' meeting, and (iii) immediately following
the date of the 1999 annual shareholders' meeting. In addition, the plan
grants each eligible director immediately exercisable options to purchase
5,000 shares of Common Stock at the date immediately following each annual
shareholders' meeting. These options will expire ten years from the date of
grant.
In December 1996, the Company granted certain executive officers and other
employees options to purchase an aggregate of 535,000 shares of Common Stock
at an exercise price of $11 per share. Concurrently with the completion of the
Offering, the Board of Directors may grant to several employees options to
purchase additional shares of Common Stock under the stock plan at an exercise
price equal to the price to the public in the Offering.
Effective upon completion of the Offering, certain of the Existing
Shareholders will grant to certain executive officers and other employees of
the Company options to acquire an aggregate of 1,350,000 shares of Common
Stock at an exercise price equal to the price to the public in the Offering.
These options will be exercisable in full at the date of grant and will
terminate ten years after the date of grant in the Offering.
F-17
<PAGE>
VISTANA, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(13) COMMITMENTS AND CONTINGENCIES
The Company is, from time to time, party to certain litigation which relates
to matters arising in the ordinary course of business. Management believes
that any of such litigation is not expected to have a material impact on the
financial position or results of operations of the Company.
(14) INTEREST RATE SWAP AGREEMENTS
The Company entered into interest rate swap agreements to reduce the impact
of changes in interest rates on certain of its floating rate term debt. At
December 31, 1996, the Company had two outstanding interest rate swap
agreements with a commercial bank, having a total notional principal amount of
$14,495,301. These interest rate swap agreements effectively fix the Company's
interest rates on its $9,800,000 floating rate note due June 30, 2000 and on
its $4,695,301 floating rate note due December 29, 2000, to 9.69% per annum
and 11.69% per annum, respectively.
The interest rate swap agreements mature at the time the related notes
mature. The Company is exposed to credit loss in the event of nonperformance
by the other parties to the interest rate swap agreements. However, the
Company believes the risk of incurring losses related to credit risk is remote
and any losses would be immaterial. As of December 31, 1996, the Company had
no risk of loss as it related to the counterparty as it would have cost the
Company approximately $60,295 to terminate the agreements at that date.
(15) SUPPLEMENTAL DISCLOSURES OF NON-CASH OPERATING AND INVESTING ACTIVITIES
<TABLE>
<CAPTION>
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
Supplemental schedule of non-cash operating
activities:
Transfers from construction in progress to
inventory of vacation ownership
interests................................ $4,836,553 $12,554,304 $ 9,397,063
========== =========== ===========
Transfers from land held for development
to inventory of vacation ownership
interests................................ $ 480,000 $ 1,330,808 $ 986,018
========== =========== ===========
Supplemental schedule on non-cash investing
activities:
Increases to investments in limited
partnerships attributed to customer
mortgages receivable sold in excess of
proceeds received........................ $1,157,253 $ -- $ --
========== =========== ===========
</TABLE>
F-18
<PAGE>
VISTANA, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
During 1995 and 1996 the Company purchased customer mortgages receivable
previously sold pursuant to clean-up call provisions relating to such sales. A
summary of the impact of these transactions on noncash investing activities is
as follows:
<TABLE>
<CAPTION>
1995 1996
----------- ----------
<S> <C> <C>
Contractual balance of customer mortgages receivable
acquired............................................. $10,473,284 $9,804,274
Allowance for doubtful accounts assigned to customer
mortgages receivable acquired........................ (628,397) (588,276)
Remaining balance of estimated losses on repurchase
obligations relating to customer mortgages receivable
repurchased.......................................... 2,303,556 1,594,967
Investment in limited partnership..................... (4,680,117) (5,058,711)
Cash paid upon repurchase............................. (1,692,083) (1,170,691)
----------- ----------
Discount on purchase of customer mortgages
receivable........................................... $ 5,776,243 $4,581,563
=========== ==========
</TABLE>
(16) PRO FORMA DISCLOSURES (UNAUDITED)
Upon completion of the Offering, the Company will be subject to federal and
state income taxes from the effective date of the sale of the Common Stock. In
addition, the Company will be required to provide a deferred tax liability for
cumulative temporary differences between financial reporting and tax reporting
by recording a provision for such deferred taxes in its combined statements of
income for the period following the effective date of the Offering. Such
deferred taxes will be based on the cumulative temporary differences at the
date of the Offering.
Upon effectiveness of the Offering, the Company will become subject to
federal and state income taxes. Pursuant to SFAS No. 109, "Accounting for
Income Taxes", the Company will record income tax expense and a net deferred
tax liability for the effect of cumulative temporary differences as of the
date of the Formation Transaction. Such amount would have aggregated
$10,770,000 as of December 31, 1996.
The unaudited pro forma provision for income taxes represents the estimated
income taxes that would have been reported had the Company filed federal and
state income tax returns as a regular corporation. The following summarizes
the unaudited pro forma provision for income taxes:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
---------- ----------- ----------
<S> <C> <C> <C>
Current:
Federal.................................. $1,500,000 $(1,200,000) $2,500,000
State.................................... 200,000 -- 220,000
---------- ----------- ----------
1,700,000 (1,200,000) 2,720,000
---------- ----------- ----------
Deferred:
Federal.................................. 1,971,000 2,957,000 768,000
State.................................... 313,000 369,000 235,000
---------- ----------- ----------
2,284,000 3,326,000 1,003,000
---------- ----------- ----------
Unaudited pro forma provision for income
taxes..................................... $3,984,000 $ 2,126,000 $3,723,000
========== =========== ==========
</TABLE>
F-19
<PAGE>
VISTANA, INC. AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation between the unaudited pro forma statutory provision for
income taxes (at 34%) and the unaudited pro forma provision for income taxes
is shown as follows for the year ended December 31:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Income tax at federal statutory rate...... $3,642,953 $1,989,098 $3,601,953
State tax, net of federal benefit......... 338,580 243,540 300,300
Amortization of excess value recognized... (124,000) (74,500) (35,730)
Other..................................... 126,467 (32,138) (143,523)
---------- ---------- ----------
Unaudited pro forma provision for income
taxes.................................... $3,984,000 $2,126,000 $3,723,000
========== ========== ==========
</TABLE>
Deferred income taxes reflect the net tax affects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the pro forma net deferred tax liabilities were as follows for
the year ended December 31:
<TABLE>
<CAPTION>
1995 1996
----------- ------------
<S> <C> <C>
Deferred tax assets:
Vacation Ownership Interests....................... $ 9,739,355 $ 10,699,000
Period costs and excess servicing premium.......... 1,759,622 1,499,000
Net operating loss carryforward.................... 126,750 --
Accrued compensation and benefits.................. 1,714,000 2,373,000
Other.............................................. 139,000 79,000
Basis adjustment for tax purposes relating to
redemption of equity interests.................... 2,778,000 2,644,000
----------- ------------
Total deferred tax assets........................ $16,256,727 $ 17,294,000
=========== ============
Deferred tax liabilities:
Deferred revenue (installment sales)............... $24,627,000 $ 26,885,000
Purchase accounting book/tax difference............ 922,000 922,000
Fixed assets....................................... 49,000 --
Vacation Ownership Interest and other inventory.... 327,000 257,000
Other.............................................. 98,727 --
----------- ------------
Total deferred tax liabilities................... 26,023,727 28,064,000
----------- ------------
Pro forma net deferred tax liabilities........... $(9,767,000) $(10,770,000)
=========== ============
</TABLE>
The deferred tax benefit associated with the equity redemption deferred tax
asset in 1995 is an offset to the distributions made for that purpose rather
than as an element of the pro forma deferred tax provision for 1995.
Pro forma weighted average number of shares of Common Stock outstanding as
shown on the accompanying combined statement of income for the year ended
December 31, 1996, is based upon the number of shares to be owned by current
shareholders based upon the completion of the Formation Transactions (see Note
(2)(a)) prior to the Offering.
F-20
<PAGE>
- --------------------------------------------------------------------------------
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No dealer, salesperson or any other person has been authorized to give any in-
formation or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or by any of the Under-
writers. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy any security other than the registered securities to which
this Prospectus relates or any offer to any person in any jurisdiction where
such an offer would be unlawful. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that the information herein is correct as of any time subsequent to the date
hereof.
----------------------
TABLE OF CONTENTS
----------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 12
Use of Proceeds.......................................................... 22
Dividend Policy.......................................................... 22
Capitalization........................................................... 23
Prior Income Tax Status and Planned Distributions........................ 24
Dilution................................................................. 25
Selected Combined Historical Financial Information....................... 26
Pro Forma Combined Financial Information................................. 28
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 30
Business................................................................. 37
Management............................................................... 54
Certain Relationships and Related Transactions........................... 64
Principal and Selling Shareholders....................................... 65
Description of Capital Stock............................................. 67
Shares Eligible for Future Sale.......................................... 68
Underwriting............................................................. 70
Legal Matters............................................................ 71
Experts.................................................................. 72
Additional Information................................................... 72
Index to Financial Statements............................................ F-1
</TABLE>
Until , 1997 (25 days after commencement of the Offering), all dealers ef-
fecting transactions in the registered securities, whether or not participating
in this distribution, may be required to deliver a Prospectus. This is in addi-
tion to the obligation of dealers to deliver a Prospectus when acting as under-
writers and with respect to their unsold allotment or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5,550,000 SHARES
LOGO
COMMON STOCK
------------------
PROSPECTUS
------------------
MONTGOMERY SECURITIES
SMITH BARNEY INC.
, 1997
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated costs and expenses, other than
underwriting discounts and commissions, in connection with the sale and
distribution of the shares of Common Stock being registered hereby, all of
which will be paid by Vistana, Inc. (the "Company").
<TABLE>
<S> <C>
SEC Registration Fee.......................................... $ 27,077
NASD filing fee............................................... 9,436
Nasdaq National Market listing fee............................ 33,456
Accounting fees and expenses.................................. 225,000
Legal fees and expenses....................................... 650,000
Printing and engraving expenses............................... 250,000
Transfer agent and registrar fees............................. 25,000
Advisory fee to Synagen Capital Partners, Inc. ............... 280,000
Miscellaneous expenses........................................ 650,031
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TOTAL..................................................... $2,150,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Florida law, a corporation may indemnify any person who was or is a
party or is threatened to be made a party to an action (other than an action
by or in the right of the corporation) by reason of such person's service as a
director of officer of the corporation, or such person's service, at the
corporation's request, as a director, officer, employee or agent of another
corporation or other enterprise, against expenses (including attorneys' fees)
that are actually and reasonably incurred by such person ("Expenses"), and
judgments, fines and amounts paid in settlement that are actually and
reasonably incurred by such person, in connection with the defense or
settlement of such action; provided that such person acted in good faith and
in a manner such person reasonably believed to be in or not opposed to the
corporation's best interests and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that such person's conduct was
unlawful. Although Florida law permits a corporation to indemnify any person
referred to above against Expenses in connection with the defense or
settlement of an action by or in the right of the corporation, provided that
such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the corporation's best interests, if such
person has been judged liable to the corporation, indemnification is only
permitted to the extent that the adjudicating court (or the court in which the
action was brought) determines that, despite the adjudication of liability,
such person is entitled to indemnity for such Expenses as the court deems
proper. The determination as to whether a person seeking indemnification has
met the required standard of conduct is to be made (i) by a majority vote of a
quorum of disinterested members of the board of directors, or (ii) by
independent legal counsel in a written opinion, if such a quorum does not
exist or if the disinterested directors so direct, or (iii) by the
shareholders. The Florida Business Corporation Act also provides for mandatory
indemnification of any director, officer, employee or agent against Expenses
to the extent such person has been successful in any proceeding covered by the
statute. In addition, the Florida Business Corporation Act provides for the
general authorization of advancement of a director's or officer's litigation
expenses in lieu of requiring the authorization of such advancement by the
board of directors in specific cases, and that indemnification and advancement
of expenses provided by the statute shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may
be entitled under any by-law, agreement or otherwise.
The Company's Articles of Incorporation and By-Laws provide that the Company
shall indemnify its directors, officers, employees and other agents to the
fullest extent permitted by Florida law.
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The Company has also entered into agreements to indemnify its directors and
certain of its officers, in addition to the indemnification provided for in
the Company's Articles of Incorporation and By-Laws. These agreements provide,
among other things, that the Company will indemnify its directors and officers
for all direct and indirect expenses and costs (including, without limitation,
all reasonable attorneys' fees and related disbursements, other out-of-pocket
costs and reasonable compensation for time spent by such persons for which
they are not otherwise compensated by the Company or any third person) and
liabilities of any type whatsoever (including, but not limited to, judgments,
fines and settlement fees) actually and reasonably incurred by such person in
connection with either the investigation, defense, settlement or appeal of any
threatened, pending, or completed action, suit or other proceeding, including
the corporation, arising out of such person's services as a director, employee
or other agent of the Company, any subsidiary of the Company or any other
company or enterprise to which the person provides services at the request of
the Company. The Company believes that these provisions and agreements are
necessary to attract and retain talented and experienced directors and
officers.
The Company will maintain liability insurance for the benefit of its
directors and officers.
Under the terms of the Underwriting Agreement, the Underwriters have agreed
to indemnify, under certain conditions, the Company, its directors, certain of
its officers and persons who control the Company within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), against certain
liabilities. The Company and the Selling Shareholders have also agreed to
indemnify the Underwriters against certain liabilities which may be incurred
in connection with the Offering made by this Prospectus forming a part of the
Registration Statement, including liability under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On December 27, 1996, the Company sold ten shares of Common Stock to each of
Raymond L. Gellein, Jr. and Jeffrey A. Adler for a price of $11 per share, or
an aggregate price of $220. These transactions were effected in reliance upon
the exemption contained in Section 4(2) of the Securities Act and/or
Regulation D promulgated thereunder.
In connection with the Formation Transactions, in December 1996, the
Existing Shareholders agreed to contribute to the Company all of their
respective interests in each of the Affiliated Companies and the Related
Partnerships in consideration for the Company's issuance of 14,174,980 shares
of the Company's Common Stock, $.01 par value. Such securities will be issued
by the Company concurrently with the completion of the Offering in reliance
upon an exemption from the registration requirements of the Securities Act
provided by Section 4(2) thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
A list of exhibits filed with this Registration Statement on Form S-1 is set
forth in the Index to Exhibits on page E-1, and is incorporated herein by
reference.
(B) FINANCIAL STATEMENT SCHEDULES
See Financial Statement Schedule filed as Exhibit 27.1 to this Registration
Statement.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrants pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrants of
expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
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<PAGE>
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrants will, unless
in the opinion of their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by them is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(b) The registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
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<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
VISTANA, INC. HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ORLANDO,
STATE OF FLORIDA, ON FEBRUARY 10, 1997.
Vistana, Inc.
/s/ Raymond L. Gellein, Jr.
By: _________________________________
Name: Raymond L. Gellein, Jr.
Title: Chairman of the Board and
Co-Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW ON FEBRUARY 10, 1997, BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
SIGNATURE TITLE
/s/ Raymond L. Gellein, Jr. Chairman of the Board, Co-Chief
- ------------------------------------- Executive Officer and Director
RAYMOND L. GELLEIN, JR. (Principal Executive Officer)
/s/ Matthew E. Avril Executive Vice President and Chief
- ------------------------------------- Operating Officer (Principal
MATTHEW E. AVRIL Financial Officer and Principal
Accounting Officer)
/s/ Jeffrey A. Adler President and Co-Chief Executive
- ------------------------------------- Officer and Director
JEFFREY A. ADLER
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EXHIBIT 3.1
STATE OF FLORIDA
ARTICLES OF INCORPORATION
OF
VISTANA, INC.
ARTICLE I
NAME
The corporate name that satisfies the requirements of Section 607.0401 is:
Vistana, Inc.
ARTICLE II
PRINCIPAL ADDRESS
The street address of the initial principal office and, if different, the
mailing address of the Corporation is: 8801 Vistana Centre Drive, Orlando,
Florida 32821.
ARTICLE III
PURPOSE
The corporation may engage in the transaction of any or all lawful business
for which corporations may be incorporated under the laws of the State of
Florida.
ARTICLE IV
REGISTERED OFFICE AND AGENT
The street address of the initial registered office of the Corporation is
c/o C T Corporation System, 1200 South Pine Island Road, City of Plantation,
Florida 33324, and the name of its initial registered agent at such address is C
T Corporation System.
ARTICLE V
CAPITAL STOCK
A. Authorized Shares. The total number of shares of all classes of
capital stock that the Corporation shall have the authority to issue shall be
105,000,000 shares, of which 100,000,000 shares shall be common stock having a
par value of $.01 per share and 5,000,000 shares shall be preferred stock having
a par value of $.01 per share.
B. Issuance, Designations, Powers, Etc. The Board of Directors of the
Corporation is authorized, to provide by resolution or resolutions and by filing
Articles of Amendment to these Articles of Incorporation, (which pursuant to
Section 607.0602(4) of the Florida Business Corporation Act shall be
<PAGE>
effective without shareholder approval) for the issuance of the shares of
Preferred Stock as a class or in series to establish from time to time the
number of shares to be included in each such series, and to fix the designation,
powers, preferences, and rights of the shares of the class or of each such
series and the qualifications, limitations, and restrictions thereof. The
authority of the Board of Directors with respect to the class or each series
shall include, but not be limited to, determination of the following:
1. the number of shares constituting any series and the distinctive
designation of that series;
2. the dividend rate on the shares of the class or of any series,
whether dividends shall be cumulative, and, if so, from which
date or dates, and the relative rights of priority, if any, of
payment of dividends on shares of the class or of that series;
3. whether the class or any series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the
terms of such voting rights;
4. whether the class or any series shall have conversion privileges
and, if so, the terms and conditions of conversion, including
provision for adjustment of the conversion rate in such events as
the Board of Directors shall determine;
5. whether or not the shares of the class or of any series shall be
redeemable, and, if so, the terms and conditions of such
redemption, including the date or date upon or after which they
shall be redeemable and the amount per share payable in case of
redemption, which amount may vary under different conditions and
at different redemption dates;
6. whether the class or any series shall have a sinking fund for the
redemption or purchase of shares of the class or of that series,
and, if so, the terms and amount of such sinking fund;
7. the rights of the shares of the class or of any series in the
event of voluntary or involuntary dissolution or winding up of
the Corporation, and the relative rights of
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priority, if any, of payment of shares of the class or of that
series; and
8. any other powers, preferences, rights, qualifications,
limitations, and restrictions of the class or of any series.
ARTICLE VI
BY-LAWS
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors shall have the power, both before and after receipt of
any payment for any of the Corporation's capital stock, to adopt, amend, repeal
or otherwise alter the By-laws of the Corporation without any action on the part
of the shareholders; provided, however, that the grant of such power to the
Board of Directors shall not divest the shareholders of, nor limit their power
to adopt, amend, repeal or otherwise alter, the by-laws of the Corporation.
ARTICLE VII
BOARD OF DIRECTORS
A. CLASSIFICATION. Except as otherwise fixed by or pursuant to the
provisions of Article IV hereof relating to the rights of the holders of any
class or series of stock having a preference over any other class or series of
stock as to dividends or upon liquidation to elect additional Directors under
specified circumstances, the number of the Directors of the Corporation shall be
fixed from time to time by or pursuant to the By-Laws of the Corporation. The
Directors, other than those who may be elected by the holders of any class or
series of stock having a preference over any other class or series of stock as
to dividends or upon liquidation, shall be classified, with respect to the time
for which they severally hold office, into three classes, as nearly equal in
number as possible, as shall be provided in the manner specified in the By-Laws
of the Corporation, one class to be originally elected for a term expiring at
the annual meeting of shareholders to be held in 1998, another class to be
originally elected for a term expiring at the annual meeting of shareholders to
be held in 1999, and another class to be originally elected for a term expiring
at the annual meeting of shareholders to be held in 2000, with each director to
hold office until his or her successor shall have been duly elected and
qualified. At each annual meeting of the shareholders of the Corporation, the
successors of the class of Directors whose term expires at that meeting shall be
elected to hold office for a term expiring at the annual meeting of shareholders
held in the third year following the year of their election.
B. LIABILITY. To the fullest extent permitted by Section 607.0831 of the
Florida Law, a director of the Corporation shall
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not be liable to the Corporation or its shareholders for monetary damages for
breach of fiduciary duty as a director. No amendment to or repeal of this
Article shall apply to or have any effect on the liability or alleged liability
of any director of the Corporation for or with respect to any act or omission of
such director occurring prior to such amendment.
C. AMENDMENT. Notwithstanding anything contained in these Articles of
Incorporation to the contrary, the affirmative vote of the holders of at least
two-thirds (2/3) of the voting power of all shares of the Corporation entitled
to vote generally in the election of directors, voting together as a single
class, shall be required to alter, amend or repeal this Article VII.
ARTICLE VIII
INDEMNIFICATION
The Corporation shall indemnify all directors, officers, employees and
agents of the Corporation, and shall advance expenses reasonably incurred by
such directors, officers, employees and agents in defending any civil, criminal,
administrative or investigative action, suit or proceeding, in accordance with
and to the fullest extent permitted by 607.0850 of the Florida Law. Any repeal
or modification of the provisions of this Article VI shall not adversely affect
any right or protection hereunder of any person in respect of any act or
omission occurring prior to the time of such repeal or modification.
ARTICLE IX
OTHER PROVISIONS
Special meetings of shareholders may be called for any purpose and may be
held at such time and place, within or without the State of Florida, as shall be
stated in a notice of meeting or in a duly executed waiver of notice thereof.
Such meetings may be called by the Chairman of the Board or the President. Such
meetings shall be called by any Vice President or by the Secretary, in each
case, upon the written request of a majority of the Board of Directors or by the
holders of not less than thirty percent (30%) of all of the shares entitled to
vote at the meeting. The business transacted at any special meeting of
shareholders shall be limited to the purpose stated in the notice.
ARTICLE X
INCORPORATOR
The name and address of the sole incorporator is:
Suzanne M. Knoll
c/o Neal, Gerber & Eisenberg
Two North LaSalle Street
Chicago, Illinois 60602
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ARTICLE XI
DATE OF EXISTENCE
This Corporation shall exist perpetually, commencing on the date of
execution of these Articles of Incorporation.
The undersigned has executed these Articles of Incorporation on December
23, 1996.
/s/ Suzanne M. Knoll
------------------------------------
Suzanne M. Knoll
Acceptance by the registered agent as required in Section 607.0501 (3)
F.S.: C T Corporation System is familiar with and accepts the obligations
provided for in Section 607.0505.
C T CORPORATION SYSTEM
Dated: December 23, 1996 By: /s/ Beth A. Pope
-------------------------------
Beth A. Pope
------------------------------------
(Type Name of Officer)
Assistant Secretary
------------------------------------
(Title of Officer)
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<PAGE>
EXHIBIT 3.2
Adopted: December 27, 1996
BY-LAWS
OF
VISTANA, INC.
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the Corporation in
the State of Florida shall be located at 1200 South Pine Island Road,
Plantation, Florida 33324. The name of the Corporation's registered agent at
such address shall be CT Corporation System. The registered office and/or agent
of the Corporation may be changed from time to time by action of the Board of
Directors.
Section 2. Other Offices. The Corporation also may have offices at such
other places, either within or without the State of Florida, as the Board of
Directors may determine from time to time or as the business of the Corporation
may require.
ARTICLE II
SHAREHOLDERS
Section 1. Date and Time of Meeting. An annual meeting of the shareholders
shall be held each year within one hundred twenty (120) days after the close of
the immediately preceding fiscal year of the Corporation for the purpose of
electing Directors and transacting such other business as may properly come
before the meeting. The date and time of the annual meeting shall be determined
by the Board of Directors. If the election of Directors shall not be held on the
day designated for any annual meeting, or at any adjournment thereof, the Board
of Directors shall cause the election to be held at a meeting of shareholders on
a day as soon thereafter as may be convenient.
Section 2. Special Meetings. Special meetings of shareholders may be
called for any purpose and may be held at such time and place, within or without
the State of Florida, as shall be stated in a notice of meeting or in a duly
executed waiver of notice thereof. Such meetings may be called by the Chairman
of the Board, the President, and shall be called by any Vice President or by the
Secretary upon the written request of a majority of the Board of Directors or by
the holders of not less than thirty percent (30%) of all of the shares entitled
to vote at the meeting. The business transacted at any special meeting of
shareholders shall be limited to the purpose stated in the notice.
<PAGE>
Section 3. Place of Meeting. The Board of Directors may designate any
place, either within or without the State of Florida, as the place of meeting
for any annual meeting or for any special meeting of shareholders called by the
Board of Directors. If no designation is made, or if a special meeting be
otherwise called, the place of meeting shall be the Corporation's principal
place of business.
Section 4. Notice of Meetings. Written or printed notice stating the
place, day and hour of the meeting, and in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered, unless
otherwise provided by statute, not less than ten (10) nor more than sixty (60)
days before the date of the meeting or as otherwise provided by statute, either
personally, or by an acceptable form of electronic communication or by mail, by
or at the direction of the Board of Directors or persons calling the meeting or
as otherwise provided by statute, to each shareholder of record entitled to vote
at such meeting. The business transacted at a special meeting must include the
description of the purpose or purposes for which the meeting is called. Such
notice is deemed delivered pursuant to the applicable section of the Florida
1989 Business Corporation Act (the "Act").
Section 5. Record Date. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders, or shareholders
entitled to receive payment of any dividend or other distribution, or in order
to make a determination of shareholders for any other proper purpose, the Board
of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than seventy
(70) days immediately preceding such meeting; provided, however, that in no
event shall any record date precede the date upon which the resolution fixing
such record date is adopted. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this Section,
such determination shall apply to any adjournment thereof; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting,
but must fix a new record date for the meeting if the meeting is adjourned to a
date more than one hundred twenty (120) days after the date fixed for the
original meeting.
Section 6. Voting Lists. The officer or agent having charge of the
transfer books for shares of stock of the Corporation shall make, at least ten
(10) days before each meeting of shareholders, a complete list of shareholders
entitled to vote at such meeting, arranged in alphabetical order, showing the
address of each shareholder, the number and class and series, if any, of shares
registered in the name of each shareholder and the number of votes each
shareholder is entitled to cast. Such list shall be open to the examination of
any shareholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at
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least ten (10) days prior to the meeting, or such shorter time as exists between
the record date and meeting date, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the place of the meeting during the
entire duration thereof, and may be inspected by any shareholder present at the
meeting.
Section 7. Quorum and Manner of Acting. Unless otherwise provided by the
Articles of Incorporation, holders of a majority of the voting power of the
shares issued and outstanding and entitled to vote at a meeting thereof, present
in person or represented by proxy, shall constitute a quorum at all meetings of
the shareholders. In the event a quorum is not present or represented by proxy
at any meeting of the shareholders, a majority of the shareholders entitled to
vote thereat, present in person or represented by proxy, shall have the power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting at which adjournment is taken, of the time and place of the
adjourned meeting. At the adjourned meeting, the Corporation may transact any
business which may have been transacted at the original meeting. If the
adjournment is for more than thirty (30) days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each shareholder of record entitled to vote at the
meeting.
Section 8. Vote Required. If a quorum is present, the affirmative vote of
the holders of a majority of the voting power of the shares represented at such
meeting, whether present or by proxy, shall be the act of the shareholders,
unless the matter to be voted upon is one upon which, by express provision of
the Act or of the Articles of Incorporation, a different vote is required, in
which case such express provision shall determine the vote required to effect
such action.
Section 9. Voting Rights. Each shareholder shall be entitled to one vote
for each share of voting capital stock held by such shareholder, except as
otherwise provided in the Articles of Incorporation. Each shareholder entitled
to vote shall be entitled to vote in person, or may authorize another person or
persons to act for him or her by proxy executed in writing by such shareholder
or by his or her duly authorized attorney-in-fact, but no such proxy shall be
voted or acted upon after eleven months from its date, unless the proxy provides
for a longer period.
Section 10. Informal Action by Shareholders. Any action required or
permitted to be taken at any annual or special meeting of shareholders may be
taken without a meeting thereof, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of
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outstanding shares having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Within ten (10) days of the
taking of any action without a meeting by less than unanimous written consent,
written notice stating the action taken shall be given to those shareholders who
have not consented in writing to the taking of the action. No written consent
shall be effective to take the corporate action referred to therein unless,
within sixty (60) days of the date of the earliest dated consent delivered in
the manner required by this Section 10, written consents signed by the number of
holders required to take action is delivered to the Corporation.
ARTICLE III
DIRECTORS
Section 1. Powers. The business and affairs of the Corporation shall
be managed by the Board of Directors, subject to such limitations as are imposed
by law, the Articles of Incorporation or these By-laws.
Section 2. Number, Election, Classification and Term. The number of
Directors of the Corporation shall not be less than three (3) nor more than nine
(9), the precise number of Directors to be fixed by resolution of the Board of
Directors from time to time. The Directors shall be divided into three classes
in accordance with the Articles of Incorporation and the initial classification
shall be determined by the initial Board of Directors. Except as provided in
Section 11 of this Article III, a Director shall be elected by the affirmative
vote of a plurality of the shares represented at the meeting of shareholders at
which the Directors shall be elected. The number of Directors may be increased
or decreased from time to time as provided by these By-laws or the Articles of
Incorporation; provided, however, that the total number of Directors shall not
be less than three (3). A decrease in the number of Directors shall not decrease
the term of an incumbent Director. Each Director shall serve until his or her
successor is elected and qualified or until his or her earlier death,
resignation or removal.
Section 3. Compensation. The compensation, if any, of the Directors of
the Corporation shall be fixed by the Board of Directors or, if created, the
Compensation Committee thereof.
Section 4. Annual Meeting; Regular Meetings. The annual meeting of
the Board of Directors shall be held, without notice other than this Section,
immediately after and at the same place as the annual meeting of shareholders.
The Board of Directors may provide, by resolution, the time and place, either
within or without the State of Florida, for the holding of additional regular
meetings without notice other than such resolution.
Section 5. Special Meetings. Special meetings of the Board of
Directors may be called at any time by the Chairman of the
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Board, the President or a majority of Directors. The person or persons who call
a special meeting of the Board of Directors may designate any place, either
within or without the State of Florida, as the place for holding such special
meeting. In the absence of a designated meeting place, the place of meeting
shall be the Corporation's principal place of business.
Section 6. Notice of Special meetings. A notice stating the place,
date and hour of a special meeting shall be mailed not less than five (5) days
before the date of the meeting, or shall be sent by telegram or facsimile or be
delivered personally or by telephone not less than two (2) days before the date
of the meeting, to each Director, by or at the direction of the person or
persons calling the meeting. Whenever notice is required to be given by law or
any provision of the Articles of Incorporation or these By-laws, a written
waiver thereof, signed by the person entitled to notice, whether before or after
the time stated therein, shall be deemed equivalent to notice. Attendance of a
Director at any meeting shall constitute a waiver of notice of such meeting
except where a Director attends a meeting for the express purpose of objecting
(which objection shall occur at the beginning of such meeting) to the
transaction of any business at such meeting because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any meeting of the Board of Directors or members of a committee of Directors
need be specified in the waiver of notice of such meeting unless otherwise
required by the Articles of Incorporation or these By-laws.
Section 7. Quorum and Manner of Action. A majority of the number of
Directors then in office shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors; provided, that if less than a
majority of such number of Directors are present at said meeting, a majority of
the Directors present may adjourn the meeting from time to time without further
notice. The act of the majority of the Directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors unless otherwise
provided in the Act, the Articles of Incorporation or these By-laws.
Section 8. Action Without a Meeting by Directors. Any action which is
required by law or by these By-laws to be taken at a meeting of the Board of
Directors, or any other action which may be taken at a meeting of the Board of
Directors or any committee thereof, may be taken without a meeting if a consent
in writing, setting forth the action to be taken, shall be signed by all of the
Directors entitled to vote with respect to the subject matter thereof, or by all
members of such committee, as the case may be. Such consent shall have the same
force and effect as a unanimous vote of all Directors or committee members, as
the case may be, at a duly called meeting thereof, and shall be filed with the
minutes
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of the proceedings of the Board of Directors or such committee, as appropriate.
Section 9. Telephonic Meetings. Unless otherwise restricted by the Articles
of Incorporation or these By-laws, members of the Board of Directors or of any
committee thereof may participate in a meeting of the Board or such committee,
as the case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
and speak to each other at all times. Participation in a meeting pursuant to
this Section shall constitute presence at such meeting.
Section 10. Resignations. Any Director may resign at any time by giving
written notice of such resignation to the Board of Directors, or the Chairman of
the Board or the Secretary. Any such resignation shall take effect at the time
specified therein or, if no time be specified, upon receipt thereof by the Board
of Directors or one of the above named officers; and, unless specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
Section 11. Newly-Created Directorships and Vacancies. Newly-created
directorships and vacancies resulting from any increase in the authorized number
of Directors may be filled by a majority of the Directors then in office,
although less than a quorum, or by a sole remaining Director, and the
Director(s) so chosen shall hold office until their successor(s) are elected and
qualified or until their earlier resignation or removal.
Section 12. Removal. Any Director or the entire Board of Directors
may be removed, with or without cause, by the holders of a majority of the
outstanding shares of the Corporation then entitled to vote for election of
Directors. Whenever the holders of any class or series are entitled to elect
one or more Directors by the provisions of the Articles of Incorporation, the
provisions of this Section shall apply in respect of the removal without cause
of a Director or Directors so elected, to the vote of the holders of the
outstanding shares of that class or series and not to the vote or the
outstanding shares of the Corporation as a whole.
Section 13. Interested Directors.
(a) No contract or transaction between the Corporation and one or more of
its Directors or officers, or between the Corporation and any other corporation,
firm, association or other entity in which one or more of the Corporation's
Directors or officers are Directors or officers, or have a financial interest,
shall be void or voidable solely because of the existence thereof, or solely
because a Director or officer is present at or participates in the meeting of
the Board of Directors or any committee thereof which authorizes such a contract
or transaction,
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or solely because his, her or their votes are counted for such purpose, if:
(i) the material facts as to such relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of
Directors or a committee thereof, as the case may be, and the Board of
Directors or such committee, as appropriate, in good faith authorizes the
contract or transaction by the affirmative vote of a majority of the
disinterested Directors, even though the disinterested Directors constitute
less than a quorum; or
(ii) the material facts as to the relationship or interest and as to
the contract or transaction are disclosed or are known to the shareholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the shareholders; or
(iii) the contract or transaction is fair and reasonable as to the
Corporation as of the time it is authorized, approved or ratified, by the
Board of Directors, a committee thereof or the shareholders.
(b) Interested Directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee thereof which
authorizes a contract or transaction described in this Section.
ARTICLE IV
COMMITTEES
Section 1. Appointment and Powers. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more Directors of the
Corporation which, to the extent provided in said resolution or in these By-
laws, shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation, if any, to be affixed to all papers
which may require it; provided, however, that no such committee shall have the
power or authority to:
(i) approve or recommend to the shareholders actions or proposals
required by the Act to be approved by the shareholders;
(ii) fill vacancies on the Board of Directors or any committee
thereof;
(iii) adopt, amend or repeal the by-laws;
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(iv) authorize or approve the reacquisition of shares unless pursuant
to a general formula or method specified by the Board of Directors; or
(v) authorize or approve the issuance or sale or contract for the sale
of shares, or determine the designation and relative rights, preferences,
and limitations of a voting group, except that the Board of Directors may
authorize a committee (or a senior executive officer of the Corporation) to
do so within limits specifically prescribed by the Board of Directors.
Section 2. Absence or Disqualification of Committee Member. In the
absence or disqualification of any member of such committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
Section 3. Record of Proceedings. Each committee shall keep regular
minutes of its proceedings and when required by the Board of Directors, report
the same to the Board of Directors.
ARTICLE V
OFFICERS
Section 1. Number and Titles. The officers of the Corporation shall be
a Chairman of the Board, a President, one or more Vice Presidents (the number
thereof to be determined by the Board of Directors), a Treasurer and a
Secretary. There shall be such other officers and assistant officers as the
Board of Directors may from time to time deem necessary. Any two or more
offices may be held by the same person.
Section 2. Election, Term of Office and Qualifications. The officers
shall be elected annually by the Board of Directors at the first meeting of the
Board of Directors held after the annual meeting of shareholders. If the
election of officers is not held at such meeting, such election shall be held as
soon thereafter as may be convenient. Vacancies may be filled or new offices
created and filled at any meeting of the Board of Directors. Each officer shall
be elected to hold office until his or her successor shall have been elected and
qualified, or until his or her earlier death, resignation or removal. Election
of an officer shall not of itself create contract rights.
Section 3. Removal. Any officer may be removed by the Board of
Directors whenever in its judgment the best interests of the Corporation will be
served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed.
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Section 4. Resignation. Any officer may resign at any time by giving
written notice to the Board of Directors, the Chairman of the Board, the
President or the Secretary. Such resignation shall take effect at the time
specified therein; and, unless tendered to take effect upon acceptance thereof,
the acceptance of such resignation shall not be necessary to make it effective.
Section 5. Duties. The duties and powers of the officers shall be as
follows:
(a) Chairman of the Board. The Chairman of the Board shall be a co-
chief executive officer of the Corporation. Subject to the control of the
Board of Directors, the Chairman and the President shall, in general,
jointly supervise and manage the business and affairs of the Corporation
and he or she, together with the President, shall see that the resolutions
and directions of the Board of Directors are carried into effect. Except
in those instances in which the authority to execute is expressly delegated
to another officer or agent of the Corporation, or a different mode of
execution is expressly prescribed by the Board of Directors or these By-
laws, or where otherwise required by law, the Chairman may execute for the
Corporation any contracts, deeds, mortgages, bonds or other instruments
which the Board of Directors has authorized to be executed or the execution
of which is in the ordinary course of the Corporation's business, and he or
she may accomplish such execution either under or without the seal of the
Corporation and either individually or with the Secretary, any Assistant
Secretary, or any other officer thereunto authorized by the Board of
Directors of these By-laws. The Chairman, together with the President,
shall preside at all meetings of the shareholders and of the Board of
Directors (and of any executive committee thereof), and shall perform such
other duties as from time to time shall be prescribed by the Board of
Directors.
(b) President. The President shall be a co-chief executive officer of
the Corporation. Subject to the control of the Board of Directors, the
President and the Chairman shall, in general, jointly supervise and manage
the business and affairs of the Corporation and, he or she, together with
the Chairman, shall see that the resolutions and directions of the Board of
Directors are carried into effect. In addition, the President shall
perform such other duties as may be from time to time assigned to him or
her by the Board of Directors of the Chairman of the Board. The President
may execute deeds, bonds, mortgages, contracts and other instruments
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requiring a seal under the seal of the Corporation, except where required
or permitted by law to be otherwise signed and executed and except where
the signing and execution thereof shall be expressly delegated by the Board
of Directors to some other officer or agent of the Corporation. The
President shall attend in person and act and vote on behalf of the
Corporation at all meetings of shareholders of any corporation in which the
Corporation holds stock, unless the Board of Directors shall specifically
designate another individual to do so. The President, together with the
Chairman, shall preside at all meetings of the shareholders and of the
Board of Directors (and of any executive committee thereof), and shall
perform such other duties as from time to time shall be prescribed by the
Board of Directors.
(c) Vice President. In the absence of the President or in the event
of his or her inability or refusal to act, the Vice President (or in the
event there is more than one Vice President, the Vice President designated
Executive Vice President by the Board of Directors and thereafter, or in
the absence of such designation, the Vice Presidents in the order otherwise
designated by the Board of Directors, or in the absence of such other
designation, in the order of their election) shall perform the duties of
the President, and when so acting, shall have all the authority of and be
subject to all the restrictions upon the President. Except in those
instances in which the authority to execute is expressly delegated to
another officer or agent of the Corporation or a different mode of
execution is expressly prescribed by the Board of Directors or these By-
laws or otherwise required by law, the Vice President (or each of them if
there are more than one) may execute for the Corporation any contracts,
deed, mortgages, bonds or other instruments which the Board of Directors
has authorized to be executed, and he or she may accomplish such execution
either under or without seal of the corporation and either individually or
with the Secretary, any Assistant Secretary, or any other officer thereunto
authorized by the Board of Directors or these By-laws. The Vice Presidents
shall perform such other duties as from time to time may be prescribed by
the President or the Board of Directors.
(d) Treasurer. The Treasurer shall be the chief financial officer of
the Corporation and shall (i) have charge and custody of, and be
responsible for, all funds and securities of the Corporation; (ii) deposit
all funds and securities of the Corporation in such banks, trust companies
or other depositories as shall be selected in accordance with these By-
laws; and (iii) in general,
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perform all duties incident to the office of Treasurer and such other
duties as from time to time may be prescribed by the President or the Board
of Directors. If required by the Board of Directors, the Treasurer shall
give a bond for the faithful discharge of his or her duties in such sum and
with such surety or sureties as the Board of Directors shall determine.
(e) Secretary. The Secretary shall (i) keep the minutes of the
proceedings of the shareholders and of the Board of Directors in one or
more books provided for that purpose; (ii) see that all notices are duly
given in accordance with the provisions of these By-laws or as required by
law; (iii) be custodian of the corporate records and of the seal of the
Corporation, if any, and see that the seal of the Corporation, if any, is
affixed to all stock certificates prior to the issue thereof and to all
documents the execution of which on behalf of the Corporation under its
seal is necessary or appropriate; (iv) keep or cause to be kept a register
of the name and address of each shareholder, which shall be furnished to
the Corporation by each such shareholder, and the number and class of
shares held by each shareholder; (v) keep general charge of the stock
transfer books; and (vi) in general, perform all duties incident to the
office of Secretary and such other duties as from time to time may be
prescribed by the President or the Board of Directors.
(f) Assistant Treasurers and Assistant Secretaries. In the absences
of the Treasurer or Secretary or in the event of the inability or refusal
of the Treasurer or Secretary to act, the Assistant Treasurer and the
Assistant Secretary (or in the event there is more than one of either, in
the order designated by the Board of Directors or in the absence of such
designation, in the order of their election) shall perform the duties of
the Treasurer and Secretary, respectively, and when so acting, shall have
all the authority of and be subject to all the restrictions upon such
office. The Assistant Treasurers and Assistant Secretaries shall also
perform such duties as from time to time may be prescribed by the Treasurer
or the Secretary, respectively, or by the President or the Board of
Directors. If required by the Board of Directors, an Assistant Treasurer
shall give a bond for the faithful discharge of his or her duties in such
sum with such surety or sureties as the Board of Directors shall determine.
Section 6. Salaries. The salaries and additional compensation, if any,
of the officers shall be determined from time to time by the Board of Directors;
provided, that if such officers
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are also Directors such determination shall be made by a majority of the
Directors then in office.
ARTICLE VI
CERTIFICATES OF STOCK
AND THEIR TRANSFER
Section 1. Stock Certificates. Stock certificates shall be in such
form as determined by the Board of Directors and shall be signed by, or in the
name of the Corporation by, the Chairman of the Board, the President or a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
and Assistant Secretary of the Corporation. Any or all of the signatures on the
certificates may be a facsimile.
Section 2. Transfer of Shares. The shares of the Corporation shall be
transferable only on the books of the Corporation by the holder, in person or by
duly authorized attorney, on the surrender of the certificate or certificates
for such shares properly endorsed. The Board of Directors shall have the power
to make all such rules and regulations, consistent with applicable law, as the
Board of Directors may deem appropriate concerning the issue, transfer and
registration of certificates for shares of the Corporation. No new certificate
shall be issued until the former certificate or certificates for a like number
of shares shall have been surrendered and canceled, except that in the case of a
lost, wrongfully taken or mutilated certificate, a new one may be issued
therefor upon such terms and indemnity to the Corporation as the Board of
Directors, the Chairman of the Board or the President may prescribe consistent
with applicable law.
ARTICLE VII
DIVIDENDS
Subject to the provisions of the Act and the Articles of Incorporation, the
Board of Directors may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
Corporation's capital stock.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the Corporation shall be December 31, unless otherwise
fixed by the Board of Directors.
ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 1. Contracts. The Board of Directors, the Chairman of the
Board, or the President may authorize any officer or agent to enter into any
contract or execute and deliver any instrument in the name of and on behalf of
the Corporation in the
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ordinary course of the Corporation's business and such authority may be general
or confined to a specific instance.
Section 2. Loans. No loan shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by the Board of Directors. Such authority may be general or confined
to a specific instance.
Section 3. Checks, Drafts, Etc., All checks, drafts or other orders
for the payment of money, or notes or other evidences of indebtedness issued in
the name of the Corporation shall be signed by such officer or agent as shall
from time to time be authorized by the Board of Directors.
Section 4. Deposits. The Board of Directors may select the banks, trust
companies or other depositaries of the funds of the Corporation.
ARTICLE XI
AMENDMENT
Subject to the provisions of the Articles of Incorporation, these By-laws
may be altered, amended or repealed and new By-laws adopted by the shareholders
by vote at a meeting or by written consent without a meeting and, subject to the
power of the shareholders as aforesaid, by the Board of Directors.
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EXHIBIT 5.1
Neal, Gerber & Eisenberg
Two N. LaSalle Street, Suite 2200
Chicago, Illinois 60602
February 10, 1997
VIA ELECTRONIC TRANSMISSION
- ---------------------------
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
Re: Vistana, Inc.
Registration Statement on Form S-1 (No. 333-19045)
--------------------------------------------------
Gentlemen:
We are counsel to Vistana, Inc., a Florida corporation (the "Company"), and
in such capacity we have assisted in the preparation and filing with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
of the Company's Registration Statement on Form S-1 (No. 333-19045), and
amendments thereto (the "Registration Statement"), relating to the proposed
offering by the Company and certain shareholders of the Company (the "Selling
Shareholders") of an aggregate of 5,550,000 shares of the common stock, $.01 par
value per share (the "Common Stock"), of the Company.
As such counsel, we have examined the Registration Statement, the
Underwriting Agreement (the "Underwriting Agreement") to be entered into among
the Company, the Selling Shareholders and Montgomery Securities and Smith
Barney, Inc., as representatives of the several underwriters, and such other
papers, documents and certificates of public officials and certificates of
officers of the Company as we have deemed necessary and appropriate as the basis
for the opinions hereinafter expressed. In such examinations, we have assumed
the genuineness of all signatures, the legal capacity of natural persons, and
the authenticity of all documents submitted to us as originals and the
conformity to original documents of all documents submitted to us as conformed
or photostatic copies. As to any facts material to this opinion, we have relied
upon statements and representations (a) of the Company and its officers and
other representatives, (b) of the Selling Shareholders and, if applicable, their
officers and other representatives, and (c) of public officials.
<PAGE>
Securities and Exchange Commission
February 10, 1997
Page 2
Based upon the foregoing, and subject to the limitations, qualifications,
exceptions, and assumptions set forth herein, we are of the following opinions:
1. The shares of Common Stock covered by the Registration Statement to be
issued by the Company, when issued and paid for as described in the
Registration Statement and the Underwriting Agreement, will be duly and
validly issued, fully paid and nonassessable.
2. The shares of Common Stock covered by the Registration Statement to be
sold by the Selling Shareholders are duly and validly issued, fully paid
and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the prospectus contained therein.
Very truly yours,
/s/ Neal, Gerber & Eisenberg
Neal, Gerber & Eisenberg
<PAGE>
EXHIBIT 10.12
AGREEMENT FOR AFFILIATION
-------------------------
THIS AGREEMENT FOR AFFILIATION ("Agreement") is entered into as of May 26,
1995, by RESORT CONDOMINIUMS INTERNATIONAL, INC., an Indiana corporation
("RCI"), VISTANA DEVELOPMENT, LTD., a Florida limited partnership ("Vistana"),
RAYMOND L. GELLEIN, JR., a resident of the State of Florida ("Gellein") and
JEFFREY A. ADLER, a resident of the State of Florida ("Adler").
WHEREAS, RCI has assisted in obtaining certain financing for Vistana
pursuant to a Loan Agreement of even date herewith between Vistana and Stark &
Greenwood Capital (the "Loan Agreement") in the principal amount of $4,500,000
(the "Loan");
WHEREAS, Gellein and Adler indirectly own and control Vistana;
WHEREAS, Vistana is the owner and developer of certain timeshare properties
known as the Vistana Resort in Lake Buena Vista, Florida, and Vistana's Beach
Club located in Jensen Beach, Florida;
WHEREAS, Vistana and RCI entered into an RCI Resort Affiliation Agreement,
dated October 23, 1991, in which RCI agreed to provide exchange services for
Vistana Resort and Vistana's Beach Club (the "1991 Affiliation Agreement");
WHEREAS, the parties desire to amend the 1991 Affiliation Agreement; and
WHEREAS, the parties desire to reach further agreements regarding the use
of RCI as the exclusive exchange company for Vistana, Gellein and Adle r.
NOW, THEREFORE, in consideration for RCI assisting Vistana in obtaining the
Loan and in consideration of the mutual covenants and conditions contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. Vistana agrees to execute the First Amendment to RCI Resort Affiliation
Agreement attached as Exhibit 1 to this Agreement.
2. From the date hereof through May 26, 2001, and with respect to any
other timeshare property or vacation club owned, developed or managed by Vistana
or any Affiliate (as that term is defined in the Loan Agreement) of Vistana,
Vistana shall execute,
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or, to the extent Vistana has a controlling interest (as defined below), Vistana
shall cause the Affiliate to execute, a Resort Affiliation Agreement with RCI
with an initial six (6) year term and with other terms and conditions
substantially identical to the 1991 Affiliation Agreement as amended by the
attached First Amendment to RCI Resort Affiliation Agreement.
3. From the date hereof through May 26, 2001, and with respect to any
timeshare property or vacation club owned, developed or managed by an entity in
which Gellein or Adler, either individually or jointly, have a controlling
interest, Gellein or Adler shall cause such entity to execute a Resort
Affiliation Agreement with RCI with an initial six (6) year term and with other
terms and conditions substantially identical to the 1991 Affiliation Agreement
as amended by the attached First Amendment to RCI Resort Affiliation Agreement.
As used in paragraph 2 and 3, "controlling interest" shall mean the right,
directly or indirectly, to determine or dictate the management or policies of
such entity. For entities in which either Gellein or Adler have a direct or
indirect ownership interest but not a controlling interest, Gellein or Adler
shall use commercially reasonable efforts to cause such entity to execute a
Resort Affiliation Agreement described in this paragraph.
4. The parties agree to keep confidential all information regarding the
Loan except as required by law or as permitted by the Loan Agreement.
5. This Agreement shall be construed and governed in accordance with the
laws of the State of Indiana. The parties agree that all actions or proceedings
arising out of this Agreement shall be litigated in the courts of Marion County,
Indiana, or the United States District Court of the Southern District of
Indiana.
6. If any one or more of the provisions contained in this Agreement shall
be held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining of provisions of this Agreement shall not in
any way be affected or impaired thereby.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their respective names, personally or by their duly authorized
representatives as of the date above written.
VISTANA DEVELOPMENT, LTD.
By: VISTANA CAPITAL HOLDINGS, RESORT CONDOMINIUMS
INC., a general partner INTERNATIONAL, INC.
By:/s/ Raymond L. Gellein, Jr. By:/s/ L. Steven Miller
---------------------------- -------------------------
L. Steven Miller,President
Print Named: Raymond L. Gellein, Jr.
Title: Chairman of the Board
/s/ Raymond L. Gellein, Jr.
- -------------------------------
Raymond L. Gellein, Jr.
/s/ Jeffrey A. Adler
- -------------------------------
Jeffrey A. Adler
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<PAGE>
EXHIBIT 10.13
LIMITED PARTNERSHIP AGREEMENT
-----------------------------
OF
--
VISTANA WGV, LTD.
-----------------
THIS LIMITED PARTNERSHIP AGREEMENT (the "Agreement") is entered into and is
effective as of June 28, 1996, by and between VISTANA WGV HOLDINGS, INC., a
Florida corporation, as "General Partner," and VISTANA WGV INVESTMENT, LTD., a
Florida limited partnership ("Vistana"), UNITED TIMESHARES, INC., a Florida
corporation ("United") and A. ZIMAND WGV INVESTMENT, INC., a Florida corporation
("Zimand"). Vistana, United and Zimand are sometimes referred to herein
collectively as the "Limited Partners" and individually as a "Limited Partner."
The General Partner and Limited Partners are referred to herein collectively as
the "Partners," and individually as "Partner." References herein to the Partners
or to a Partner may include the General Partner and/or Limited Partners without
reference to status.
ARTICLE I
---------
ORGANIZATION
------------
SECTION
1.1 Formation. The Partners hereby agree to form this limited Partnership,
---------
referred to in this Agreement as the "Partnership," pursuant to the Partnership
Law. The Partners shall execute and cause to be filed, recorded and/or
published all documents necessary to carry out the intent of this Agreement,
including, but not limited to:
A. A Certificate of Limited Partnership;
B. An Affidavit of Capital Contributions; and
C. An Affidavit or other appropriate documentation as to the use by the
Partnership of a fictitious name, as may be required by law.
The Partners, thereafter, shall execute such documents and take such action
as may be necessary to maintain the Partnership's status as a limited
partnership under the Partnership Law and as a partnership under the Code and to
carry out the business purposes of the Partnership as set forth in Article II
hereof. The Limited Partners shall, at the request of
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the General Partner, promptly execute such documents and furnish such
information as may be necessary to enable the General Partner to perform, on
behalf of the Partnership, those actions contemplated under this Section 1.1.
SECTION 1.2 Name of Partnership. The name of the Partnership shall be
-------------------
VISTANA WGV, LTD., or such other name as the General Partner may from time to
time designate upon ten (10) days' prior written notice to the Limited Partners.
SECTION 1.3 Term. The term of this Partnership shall be from the date
----
the Certificate of Limited Partnership is filed with the Florida Department of
State to December 31, 2046, unless sooner terminated in accordance with the
provisions of this Agreement (Article XIII) or as otherwise provided by the
Partnership Law.
SECTION 1.4 Principal Place of Business. The principal place of
---------------------------
business for the Partnership shall be 8801 Vistana Centre Drive, Lake Buena
Vista, Florida 32821, or such other place as the General Partner may from time
to time designate upon ten (10) days prior written notice to the Limited
Partners.
SECTION 1.5 Registered Office and Agent in Florida. The address of the
--------------------------------------
Partnership's registered office in the State of Florida is 8801 Vistana Centre
Drive, Lake Buena Vista, Florida 32821. The registered agent at that address is
Raymond L. Gellein, Jr. The General Partner may, from time to time, on behalf
of the Partnership, change the registered office and/or the registered agent of
the Partnership.
SECTION 1.6 Definitions. Capitalized words and phrases used in this
-----------
Agreement and which are not otherwise defined herein shall have the following
meanings:
A. "ACCOUNTS RECEIVABLE" means accounts receivable arising from the sale
of the Villas (or interests therein) or other property of the Partnership.
B. "AGREEMENT" or "PARTNERSHIP AGREEMENT" means this Limited Partnership
Agreement of Vistana WGV, Ltd., as amended from time to time.
C. "ADJUSTED CAPITAL ACCOUNT" means, with respect to any Partner, the
balance (whether positive or negative) in such Partner's Capital Account as of
the date of determination, after crediting to such Capital Account any amounts
which such Partner is deemed obligated to restore as described in the
penultimate sentences of Reg. (S)(S)1.704-2(g)(2) and 1.704-2(i)(5) or any
successor provisions.
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D. "ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to any Partner,
the deficit balance, if any, in such Partner's Capital Account as of the end of
the relevant Partnership taxable year, after giving effect to the following
adjustments:
1. debit to such Capital Account the items described in Reg.
(S)(S)1.704-1(b)(2)(ii)(d)(4), (5) and (6); and
2. after making the foregoing debits, credit to such Capital Account
any amounts which such Partner is obligated to restore (pursuant to this
Agreement or otherwise) or any amounts which such Partner is deemed
obligated to restore pursuant to Reg. (S)(S)1.704-2(g) and (i).
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Reg. (S)1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
E. "AFFILIATE" means the following: a party ("first party") will be
deemed to be an Affiliate of another party ("second party") if the first party
directly or indirectly owns or controls the second party, or if the first party
is, directly or indirectly, owned by or under common control with the second
party. For purposes of the preceding sentence, "control" shall mean ownership
(direct or indirect) of a majority of the voting interests in such entity or in
the managing general partner of such entity.
F. "ASSIGN" or "ASSIGNMENT" means any sale, assignment, option, gift,
pledge, hypothecation or other voluntary or involuntary encumbrance or transfer
of an interest in the Partnership (or, if applicable, of an interest in any
Partner, Affiliate of a Partner or other Person).
G. "AVAILABLE CASH" means all cash on hand (as determined from time to
time) other than cash which is (i) restricted from distribution to Partners
under the terms of any agreement to which the Partnership is a party, or (ii)
added to or retained in Partnership reserves for all Partnership expenses, debt
payments, capital improvements, capital investments and reinvestments,
replacements, contingencies, working capital and other cash requirements, all as
determined by the General Partner in the reasonable exercise of its discretion.
H. "BANKRUPTCY" or "BANKRUPT" with respect to a Partner or Person shall
mean:
1. Such Partner or Person has made an assignment for the benefit of
his creditors;
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2. Such Partner or Person has filed a voluntary petition in
Bankruptcy;
3. Such Partner or Person has been adjudged a Bankrupt or insolvent
or has entered against him an order for any relief in any bankruptcy or
insolvency proceeding;
4. Such Partner or Person has filed a petition or answer seeking for
such Partner or Person any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any statute,
law or regulation;
5. Such Partner or Person has filed an answer or other pleading
admitting or failing to contest the material allegations of a petition
against such Partner or Person in any proceeding of this nature;
6. Such Partner or Person seeks, consents to or acquiesces in the
appointment of a trustee, receiver or liquidator of such Partner or Person
or of all or any substantial part of such Partner's or Person's property;
or
7. Ninety (90) days after the commencement of any proceeding against
such Partner or Person seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any statute,
law or regulation, the proceeding has not been dismissed; or if within
sixty (60) days after the appointment, without such Partner's or Person's
consent or acquiescence, of a trustee, receiver or liquidator of such
Partner or Person or of any substantial part of such Partner's or Person's
property, the appointment has not been vacated or stayed; or if stayed,
sixty (60) days following the expiration of any such stay if the
appointment has not been vacated.
I. "CAPITAL ACCOUNT" means, with respect to each Partner, an individual
capital account which shall be determined and maintained for such Partner in
accordance with the rules of Reg. (S)1.704-1(b)(2)(iv). Consistent with such
Regulations, each Partner's Capital Account shall be: (i) credited with (a) such
Partner's cash contributions to the capital of the Partnership, (b) the fair
market value of property contributed to the Partnership by such Partner (as of
the date of contribution and net of liabilities secured by such contributed
property that the Partnership is considered to have assumed or to have taken
subject to pursuant to Code (S)752), and (c) such Partner's allocable share of
the Partnership's Profits (or items of income or gain comprising the Profits and
Losses of the Partnership); and (ii) debited for (a) all distributions made by
the
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Partnership to such Partner, and (b) such Partner's allocable share of the
Partnership's Losses (or items of expense or deduction comprising the Profits or
Losses of the Partnership). The Capital Accounts shall also be adjusted for all
adjustments required by Reg. (S)1.704-1(b)(2)(iv) to the extent not otherwise
provided for herein. In the event that Partnership property is subject to Code
(S)704(c) or is revalued in accordance with Reg. (S)1.704-1(b)(2)(iv)(f), the
Partners' Capital Accounts shall be adjusted in accordance with Reg. (S)1.704-
1(b)(2)(iv)(g) for allocations to them of depreciation, amortization and gain or
loss, as computed for book purposes (and not tax purposes), with respect to such
property.
J. "CODE" means the United States Internal Revenue Code of 1986, as
amended.
K. "EXCESS AMOUNT" means, with respect to a Partner at any time of
determination, the then positive balance in the Capital Account of such Partner
in excess of the amount of such Partner's Unreturned Capital.
L. "GAAP" means generally accepted accounting principles, consistently
applied.
M. "GENERAL PARTNER" means any Person who (i) is referred to as such in
the first paragraph of this Agreement or who later becomes a General Partner
pursuant to the terms of this Agreement, and (ii) has not ceased to be a General
Partner pursuant to the terms of this Agreement.
N. "LIMITED PARTNER" means any Person (i) whose name is set forth on the
signature page of this Agreement as a Limited Partner or who has been admitted
as an additional or substitute Limited Partner pursuant to the terms of this
Agreement, and (ii) who is the owner of an interest in the Partnership as a
Limited Partner. The term "Limited Partner" shall also be deemed to include the
holder of a converted Limited Partner interest (whether as an assignee or as a
substitute Limited Partner) received pursuant to Section 12.10 below.
O. "LIQUIDATION OF THE PARTNERSHIP" means the earlier of (i) the date
upon which the Partnership is terminated under Code (S)708(b)(1)(A), or (ii) the
date upon which the Partnership ceases to be a going concern (even though it may
continue in existence for the purpose of winding up its affairs, paying its
debts and distributing any remaining balance to its Partners).
P. "NON-QUALIFIED PERSON" means a Person (i) who, directly or indirectly,
owns an interest in, or is otherwise engaged in (whether as a principal,
consultant, agent, employee, officer,
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director or otherwise) a time-share or interval ownership business (including
time-share development, time-share marketing, time-share resort management or
the operation or sale for time-share purposes of any kind of interest,
including, without limitation, "time-share licenses," "time-share estates" or
"vacation clubs," as such terms are defined in Chapter 721 of the Florida
Statutes) other than through ownership of an interest in the Partnership or
through ownership of an interest in an Affiliate of the General Partner, (ii)
who is an Affiliate of any Person described in clause (i) above, or (iii) whose
character or reputation would, in the reasonable opinion of the General Partner,
jeopardize the authority of the Partnership to conduct any aspect of the
business of the Partnership in any state in which its business is conducted, or
would otherwise adversely affect the goodwill or business reputation of the
Partnership. For purposes of clause (i) above, ownership of less than five
percent (5%) of the publicly traded stock of a corporation shall not be deemed
to constitute ownership of an interest in such corporation. Notwithstanding the
foregoing, neither Zimand nor any of its Affiliates shall be deemed to be a Non-
Qualified Person regardless of any activities engaged in by them; and neither
United nor any of its Affiliates shall be deemed to be a Non-Qualified Person
unless either United or an Affiliate of United breaches the covenant not to
compete set forth in Section 7.8 below (in which case United shall automatically
be treated as a Non-Qualified Person).
Q. "PARTNERSHIP LAW" means (S)(S)620.101 through 620.192, Florida
Statutes (the Revised Uniform Limited Partnership Act, as adopted by the State
of Florida) as amended from time to time and, to the extent not inconsistent
therewith, shall also be deemed to include (S)(S)620.81001 through 620.91,
Florida Statutes (the Revised Uniform Partnership Act, as adopted in the State
of Florida), as amended from time to time.
R. "PERCENTAGE INTERESTS" of the General Partner and the Limited Partners
shall initially be as follows:
Partner Percent Interest
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General Partner 1.0 %
Vistana 36.5 %
United 50.0 %
Zimand 12.5 %
----
TOTAL: 100.0 %
The Percentage Interests of the Partners may thereafter be adjusted as provided
in Section 5.2.
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S. "PERSON" means an individual, partnership, limited liability company,
limited liability partnership, corporation, trust or any other association or
legal entity.
T. "PROFITS" and "LOSSES" of the Partnership for each taxable year of the
Partnership means an amount equal to the Partnership's taxable income or loss
for such taxable year, as determined for federal income tax purposes in
accordance with the accounting method followed by the Partnership and in
accordance with Code (S)703 (for this purpose, all items of income, gain, loss
or deduction required to be separately stated pursuant to Code (S)703(a)(1)
shall be included in taxable income or loss), subject to the following
modifications:
1. Any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing Profits and Losses
shall be added to such taxable income or loss;
2. Any expenditures of the Partnership described in Code
(S)705(a)(2)(B) or treated as Code (S)705(a)(2)(B) expenditures pursuant to
Reg. (S)1.704-1(b)(2)(iv)(i), and not otherwise taken into account, shall
be subtracted from such taxable income or loss;
3. With respect to Partnership property, if any, which has a book
value greater than or less than its adjusted income tax basis, "PROFITS"
and "LOSSES" of the Partnership shall be determined by reference to the
depreciation and amortization deductions, if any, allowable with respect to
such property as computed for book purposes (and not tax purposes), as
determined pursuant to Reg. (S)1.704-1(b)(2)(iv)(g), and by the gain or
loss attributable to such property as computed for book purposes (and not
for tax purposes); and
4. Any items specially allocated pursuant to Section 9.3 shall not be
considered in determining Profits or Losses.
U. "PURCHASE DOCUMENTS" means that certain Parcel One Property Sale
Agreement dated as of June 4, 1996, between SJH Partnership, Ltd. and the
Partnership and all other documents, agreements and instruments executed
contemporaneously therewith or in connection with the acquisition and
development of the Residential Parcel, including, without limitation,
development agreements, assessment agreements, declarations, easements,
covenants, license agreements, and solicitation and marketing agreements.
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V. "REGULATIONS" or "REG." means regulations adopted by the Treasury
Department and the Internal Revenue Service pursuant to the Code.
W. "REGULATORY ALLOCATIONS" means the Regulations promulgated under Code
(S)704(b).
X. "RESIDENTIAL PARCEL" means the real property located in St. Johns
County, Florida, to be conveyed to the Partnership pursuant to the Purchase
Documents.
Y. "TAX DISTRIBUTION" for any taxable year of the Partnership means an
amount computed as follows:
1. Determine the highest effective marginal federal income tax rate
applicable to any Partner who was a Partner for all or any portion of such
taxable year and to whom net taxable income was allocated under Article IX
below for such taxable year. For this purpose, if any such Partner is a
"pass-through entity" (i.e., an S corporation, a partnership, a limited
liability company, a limited liability partnership or a trust), the
"highest effective marginal federal income tax rate" deemed to be
applicable to such Partner hereunder shall be the highest such effective
marginal federal income tax rate (determined as above) applicable to any
shareholder, partner, member or beneficiary (whichever is applicable) of
such Partner.
2. Determine the amount of net taxable income or net taxable loss (as
the case may be) of the Partnership for federal income tax purposes for
such taxable year; provided, however, that for purposes of computing Tax
Distributions under the provisions of this Subsection 1.6.Y, no deduction
shall be taken for the amount of original issue Discount ("OID") otherwise
deductible by the Partnership under Code (S)163(e) (or any successor
provision thereto) in computing its net taxable income or net taxable loss
for such taxable year (the "OID ADJUSTMENT"). Any references to "net
taxable income" or "net taxable loss" in Subsections 1.6.Y.2, 3 and 4 shall
mean net taxable income or net taxable loss as modified by the OID
Adjustment.
3. If the Partnership has a net taxable loss for the taxable year,
the "Tax Distribution" for such taxable year shall be zero and the amount
of such net taxable loss shall be carried forward to future taxable years
of the Partnership to be applied in such years in the manner described in
subpart 4 below.
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4. If the Partnership has net taxable income for such taxable year,
and if the Partnership has any net taxable losses from any prior taxable
years that have not been previously applied to reduce net taxable income of
the Partnership for any prior taxable year (THE "NET CARRYOVER LOSSES"),
the net taxable income for such taxable year shall be reduced (but not
below zero) by the Net Carryover Losses. The net taxable income of the
Partnership for such taxable year, reduced by the Net Carryover Losses (if
any), shall be deemed to be the "TAX BASE" for such taxable year for
purposes of computing the Tax Distribution for such taxable year.
5. The aggregate amount of the Tax Distribution for such taxable year
shall be computed by multiplying the Tax Base for such taxable year by the
rate computed under subpart 1 above for such taxable year.
Z. "UNRETURNED CAPITAL" means, with respect to a Partner, the aggregate
amount of contributions to the capital of the Partnership made by such Partner
pursuant to Sections 5.1 and 5.2 below (and valued in accordance with such
sections) since the inception of the Partnership, less the aggregate amount of
distributions made by the Partnership to such Partner pursuant to Subsection
10.1.C below since the inception of the Partnership. In the case of an interest
in the Partnership transferred from a Defaulting Partner to a Non-Defaulting
Partner pursuant to Subsection 5.2.A below, the Unreturned Capital of the
transferee Partner with respect to such transferred interest as of the date of
-----------------
transfer shall be deemed to be equal to the portion (if any) of the positive
- --------
balance in the Defaulting Partner's Capital Account that is required to be
transferred to the Non-Defaulting Partner under Subsection 5.2.A.
AA. "VILLAS" means the condominium and/or vacation ownership units,
including ancillary facilities and amenities, to be developed by the Partnership
within the World Golf Village.
BB. "WORLD GOLF VILLAGE" shall have the meaning assigned thereto in the
Purchase Documents.
ARTICLE II
----------
BUSINESS OF THE PARTNERSHIP
---------------------------
SECTION 2.1 Business and Purpose. The purpose of the Partnership shall be
--------------------
to acquire the Residential Parcel and to construct, sell, rent, operate, and
manage the Villas on the Residential Parcel and to engage in all lawful
activities in
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relation to the foregoing including, but not limited to, the following:
A. Purchase the Residential Parcel from SJH Partnership, Ltd. pursuant to
the terms of the Purchase Documents;
B. Develop the Residential Parcel and other available property within the
World Golf Village, including the construction of the Villas;
C. Market, sell and/or rent (transient or otherwise) the Villas or any
interest therein, and in connection therewith, engage in other
activities incident to the development, marketing, rental and/or sale
of the Villas or any interest therein, including, but not limited to
such financing transactions as are usual and customary with respect to
the development, marketing, renting and/or sale of the Villas or any
interest therein or of any Accounts Receivable;
D. Provide hospitality management services with respect to any transient,
time-share or interval ownership development, condominium or resort
hotel located within the World Golf Village, and management services
to or in connection with condominium associations for properties
located within World Golf Village, all of which may include management
and operation of restaurants, general stores and other related
amenities located within World Golf Village which are ancillary to
management services for a resort facility; and/or
E. Collect and service all Accounts Receivable.
SECTION 2.2 Other Business. The Partnership shall not be authorized to
--------------
engage in any business activities not described in Section 2.1 above without the
consent of Partners owning not less than seventy-five percent (75%) of the
Percentage Interests.
ARTICLE III
-----------
NAMES AND ADDRESSES OF PARTNERS
-------------------------------
SECTION 3.1 General Partner. The name and business address of the
---------------
General Partner is:
Vistana WGV Holdings, Inc.
8801 Vistana Centre Drive
Lake Buena Vista, Florida 32821
Fax No. (407) 239-3222
SECTION 3.2 Limited Partners. The names and business addresses of the
----------------
Limited Partners are:
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Vistana WGV Investment, Ltd.
8801 Vistana Centre Drive
Lake Buena Vista, Florida 32821
Fax No. (407) 239-3222
United Timeshares, Inc.
P. O. Box 1280
Bristol, Virginia 24203
Fax No. (540) 645-1431
Zimand
5426 Osprey Isle Lane
Orlando, Florida 32819
Fax No. (407) 876-1962
SECTION 3.3 Admittance of Additional Limited Partners. Except as
-----------------------------------------
otherwise provided in Subsection 5.2.B and Article XII below, Persons not
otherwise described in Section 3.2 above may be admitted as additional Limited
Partners only upon the unanimous consent of the Partners.
ARTICLE IV
----------
PARTNERSHIP ACCOUNTING/REPORTS/INVESTMENTS
------------------------------------------
SECTION 4.1 Method of Accounting. The General Partner shall maintain
--------------------
full and accurate books of the Partnership at the Partnership's principal place
of business specified in Section 1.2 above, showing all receipts, expenditures,
assets, liabili ties, Profits and Losses of the Partnership and all other
records necessary for proper recordation of the Partnership's business and
affairs. The books of the Partnership shall be maintained in accordance with
GAAP for financial reporting purposes, and shall be kept on the method of
accounting selected by the General Partner for federal income tax purposes
(provided that such method is consistent with the requirements of the Code). The
fiscal year of the Partnership shall be the calendar year, and the taxable year
of the Partnership shall also be the calendar year unless a different taxable
year is required by the Code.
SECTION 4.2 Inspection of Books and Records. Any Limited Partner may at
-------------------------------
any time during regular business hours inspect and copy (at such Limited
Partner's personal expense) any of the Partnership books and records described
in Section 620.106(1), Florida Statutes. In addition, the General Partner shall
send to the Limited Partners copies of the Partnership's federal income tax
returns promptly after the same become available.
SECTION 4.3 Reports.
-------
A. Within sixty (60) days after the end of each taxable year, the General
Partner shall provide to each Limited Partner
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the General Partner's best estimate (based upon the information then available
to it) of the taxable income or taxable loss of the Partnership for such taxable
year that will be allocable to such Limited Partner for federal income tax
purposes. In addition, no later than ten (10) days prior to the due date of the
Partnership's federal income tax return (as determined with regard to available
extensions), the General Partner shall send to each person who was a Partner at
any time during the taxable year to which such return relates such tax
information as shall be necessary for the preparation by such person of such
person's federal, state and local income tax returns.
B. Within sixty (60) days after the end of each fiscal year, the General
Partner shall provide to each Limited Partner the General Partner's best
estimate (based upon the information then available to it) of the net income or
net loss of the Partnership for such fiscal year. In addition, within one
hundred twenty (120) days after the end of each fiscal year, the General Partner
shall send to each Partner audited financial statements of the Partnership,
consisting of a balance sheet, statement of income, statement of Partner's
equity (based on relative capital account balances), and statement of changes in
cash flows for such fiscal year, all of which shall be prepared in accordance
with GAAP and certified by KPMG Peat Marwick or such other "Big Six" firm of
independent certified public accountants as shall be selected in the sole
discretion of the General Partner.
C. Copies of any monthly profit or loss statements and/or balance sheets
prepared by the Partnership for its internal use shall be furnished to each
Limited Partner on a regular and timely basis.
SECTION 4.4 Income Tax Elections. The General Partner may make, but
--------------------
shall not be required to make, any applicable election under the Code; provided,
however, that the General Partner shall make an election under Code (S)754 if
requested by a Limited Partner.
SECTION 4.5 Bank Accounts; Temporary Investments of Partnership Funds.
---------------------------------------------------------
Promptly after commencing operations, the General Partner shall open, and will
thereafter maintain, one or more bank accounts in the name and for the sole
benefit of the Partnership (except to the extent required in any loan documents,
receivable sale agreements or other contractual commitments of the Partnership)
in which there shall be deposited all of the capital of the Partnership, all
gross receipts of the Partnership, and the proceeds of loans, if any, that the
General Partner may obtain for and/or in the name of the Partnership. The funds
in the Partnership's bank account or accounts shall be used solely for the
business of the Partnership. Withdrawals shall be made only in the regular
course of the Partnership's
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business on such signature or signatures as the General Partner may determine.
In the sole discretion of the General Partner, reserved cash, cash held pending
the expenditure of funds for the business of the Partnership and cash held
pending a distribution to the Partners may be held, placed or otherwise invested
in such liquid or illiquid investments as the General Partner may determine from
time to time, including, but not limited to, United States Government and/or
municipal securities (and repurchase agreements secured by any of the foregoing
as well as by commercial paper), mutual funds, money market funds, bonds,
banker's acceptances, interest-bearing bank accounts, certificates of deposit,
or liquid asset funds of brokerage houses, provided that any such investments
are reasonable, would not be classified as "speculative," and, in the case of
securities, would qualify as "investment grade securities."
SECTION 4.6 Audit Rights. Any Limited Partner, at the sole expense of
------------
the Limited Partner making such request and after reasonable prior notice to the
General Partner, may cause an audit to be performed on the books and records of
the Partnership by such auditors as such Limited Partner may select, with such
audit to be performed at such times and places and at such intervals as are
commercially reasonable. If such audit discloses a material discrepancy (i.e.,
a change of 5% or more in the reported net profits or net losses of the
Partnership as determined under GAAP for a particular fiscal year, and/or a
change of 5% or more in the total assets or total liabilities of the Partnership
for a fiscal year of the Partnership) in the financial statements of the
Partnership for a particular fiscal year, and if the Partnership's regular
auditors agree that such change is appropriate under GAAP, the reasonable cost
of such audit shall be borne by the Partnership rather than by the Limited
Partner which initiated the audit.
SECTION 4.7 Budgets. The General Partner will prepare an annual budget
-------
on or before the commencement of each fiscal year of the Partnership. It is
also the intention of the General Partner to review and update such annual
budget after approximately six (6) months of operations within such fiscal year.
Copies of each annual budget and each revised annual budget (if any) prepared by
the General Partner shall be furnished to each Limited Partner for comments or
questions; provided, however, that the General Partner shall have the sole
authority to finalize and adopt such budget on behalf of the Partnership in the
exercise of its reasonable business judgment and provided that such budget is
consistent with the purposes of the Partnership as set forth in Section 2.1
above.
ARTICLE V
---------
CAPITAL CONTRIBUTIONS
---------------------
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SECTION 5.1 Capital of the Partnership.
--------------------------
A. The initial capital contributions of the Partners shall be as follows:
1. General Partner. The General Partner will receive its interest in
---------------
the Partnership in exchange for its services rendered in anticipation of
the formation of the Partnership including, but not limited to, the
negotiation of the terms of the Purchase Documents, and in consideration
for its ongoing services of managing the Partnership as described elsewhere
in this Agreement. The Capital Account of the General Partner shall be
credited in the amount of Zero Dollars ($0.00) by reason of its initial
contribution hereunder.
2. Vistana. Vistana will receive its interest in the Partnership in
-------
exchange for its services rendered in anticipation of the formation of the
Partnership including, but not limited to, the negotiation of the terms of
the Purchase Documents. The capital account of Vistana shall be credited
in the amount of zero dollars ($0.00) by reason of its initial contribution
hereunder.
3. United. United shall contribute Five Million Dollars ($5,000,000)
------
in immediately available funds to the Partnership upon formation of the
Partnership in exchange for its interest as a Limited Partner. The Capital
Account of United shall be credited in the amount of Five Million Dollars
($5,000,000) by reason of its initial contribution to the capital of the
Partnership hereunder.
4. Zimand. Zimand will receive its interest in the Partnership as a
------
Limited Partner in exchange for its services rendered in anticipation of
the formation of the Partnership including, but not limited to, providing
advice regarding the structuring of the transactions referred to herein,
developing marketing strategies and obtaining certain marketing rights.
The Capital Account of Zimand shall be credited in the amount of Zero
Dollars ($0.00) by reason of its initial contribution hereunder.
B. Except as otherwise provided in this Agreement, no Limited Partner
shall be entitled to withdraw any portion of such Limited Partner's capital
contribution or such Limited Partner's Capital Account in money or property
prior to dissolution or Liquidation of the Partnership and then only in
accordance with the provisions of Partnership Law and this Agreement. The
General Partner shall not be personally liable for any portion of any other
Partner's capital contribution. No interest will be paid on account of any
capital contribution or on the credit balance in any Partner's Capital Account,
and no Limited Partner
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shall have the right to receive or demand property other than cash in return for
such Limited Partner's capital contribution. Except as otherwise provided in
this Agreement, no Limited Partner shall have priority over any other Limited
Partner either as to the return of such Limited Partner's capital contribution
or as to distributions.
SECTION 5.2 Additional Contributions. In addition to the capital
------------------------
contributions referred to in Section 5.1 above, if the General Partner
determines in the reasonable exercise of its discretion that additional capital
is necessary or desirable for the business of the Partnership, it may request
all the Partners to contribute such additional capital by written notice sent to
all such Partners; provided, however, that the maximum aggregate amount of
additional capital contributions that may be called for under this Section 5.2
shall be Six Million Six Hundred Thousand Dollars ($6,600,000.00). All such
additional capital contributions shall be contributed by the General Partner and
the Limited Partners based upon their relative Percentage Interests. Such
additional capital contributions shall be payable to the Partnership in full
within forty-five (45) days after each Partner receives written notice of said
capital call.
A. If a Partner (THE "DEFAULTING PARTNER") fails to make its additional
capital contribution ("UNPAID CONTRIBUTION") within forty-five (45) days after
receipt of the written notice of the capital call from the General Partner, any
or all of the remaining Partners other than Zimand that have met their
obligations to contribute their shares of such additional capital (THE "NON-
DEFAULTING PARTNERS") may pay to the Partnership the Unpaid Contribution within
thirty (30) days after expiration of the forty-five (45) day initial period for
payment of the additional capital contributions referred to above. For purposes
of the preceding sentence, the Non-Defaulting Partners which elect to pay a
portion or all of the Unpaid Contribution shall have the right to do so
proportionately (i.e., determined by dividing the Percentage Interest of an
electing Non-Defaulting Partner by the Percentage Interests of all Non-
Defaulting Partners who elect to make such payments) or in such other manner as
the electing Non-Defaulting Partners may mutually agree upon. Any such payments
shall be treated for all purposes under this Agreement as a loan ("CONTRIBUTION
LOAN") to the Defaulting Partner from those Non-Defaulting Partners who paid
such Unpaid Contribution, followed immediately thereafter by a contribution of
such amount by the Defaulting Partner to the Partnership as a contribution of
additional capital. Such Contribution Loans, together with all interest due
thereon, shall be repaid in full to the Non-Defaulting Partners (in the same
proportions that such Non-Defaulting Partners made such payments to the
Partnership on behalf of the Defaulting Partner) within ten (10) days after
demand is made provided that the Non-Defaulting Partners may not
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<PAGE>
make a demand prior to the expiration of one hundred eighty (180) days after the
due date of the Unpaid Contribution.
The Contribution Loans shall bear interest at the lesser of: (i) the Base
Rate announced publicly by Citibank, N.A., New York, New York (or another
comparable national banking institution selected by the General Partner) to its
most preferred customers determined as of the date such Contribution Loan was
made, plus five percent (5%), or (ii) the highest rate authorized under
applicable law on such date. The Contribution Loans, together with all interest
accrued thereon, may be repaid at any time by the Defaulting Partner to the Non-
Defaulting Partners (but all repayments shall be made to all the Non-Defaulting
Partners in the same proportions that such Non-Defaulting Partners made such
payments of the Unpaid Contribution to the Partnership on behalf of the
Defaulting Partner), but said Contribution Loans shall in any event be repaid in
full, together with all interest accrued thereon, upon termination of the
Partnership.
Each Non-Defaulting Partner who paid a portion of the Unpaid Contribution
of the Defaulting Partner shall have a security interest (equal in priority with
the security interests granted hereunder to all of the Non-Defaulting Partners
who paid a part of such Unpaid Contribution) in the Defaulting Partner's
Partnership interest to secure the payment of all principal and interest,
together with all costs incurred by such Non-Defaulting Partner and/or by the
Partnership, with respect to any such Contribution Loans and the Defaulting
Partner shall execute one or more UCC-1 forms as well as any other documentation
reasonably requested by the Non-Defaulting Partners to evidence the existence of
such security interest. Each Partner agrees that, if it becomes a Defaulting
Partner hereunder, it does hereby irrevocably make, constitute and appoint each
of the Non-Defaulting Partners its attorney-in-fact to execute, in its name and
on its behalf, one or more UCC-1 forms and such other documents as may be
necessary to perfect the security interest of the Non-Defaulting Partners in the
Partnership interest of the Defaulting Partner as provided in the preceding
sentence. Each Non-Defaulting Partner agrees to look solely to the interest of
the Defaulting Partner in the Partnership (together with all distributions made
with respect thereto and all proceeds thereof) for repayment of the Contribution
Loans.
All distributions that would otherwise be made to the Defaulting Partner
shall be paid to the Non-Defaulting Partners on account of the Contribution
Loans (and in proportion to the amounts then owing with respect to such
Contribution Loans) until the Contribution Loans, all interest accrued thereon
and all costs incurred by the Non-Defaulting Partners with respect to such
Contribution Loans have been paid in full; and then such distributions shall be
paid to the Partnership on account of and to pay any and all costs incurred by
the Partnership with regard
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to the Unpaid Contribution. Distributions otherwise due to the Defaulting
Partner but made by the Partnership to the Non-Defaulting Partners shall be
applied first to interest due on any outstanding Contribution Loan, then in
reduction of the principal of such Contribution Loan, and finally to any costs
incurred by the Non-Defaulting Partner with respect to such Contribution Loan
(and the oldest Contribution Loan shall be satisfied first). All amounts paid by
the Partnership to the Non-Defaulting Partners or to the Partnership, as
provided for above, from funds that would otherwise have been distributed to the
Defaulting Partner shall be deemed to have been distributed to the Defaulting
Partner for all purposes of this Agreement.
If demand for payment of any such Contribution Loan is made by a Non-
Defaulting Partner to whom such loan is owed at any time after the expiration of
the one hundred eighty (180) day period referred to above and the Defaulting
Partner does not make full payment of the entire unpaid principal balance of
such Contribution Loan plus all interest accrued and costs incurred thereon, a
portion of the Defaulting Partner's interest in the Partnership consisting of a
portion of its Percentage Interest and a portion of its Capital Account shall be
automatically transferred from the Defaulting Partner to the Non-Defaulting
Partner in full satisfaction of any and all amounts due under such Contribution
Loan. The portion of the Defaulting Partner's Capital Account to be transferred
shall be an amount (but not less than zero) equal to the lesser of: (i) the
credit balance (if any) in such Capital Account, or (ii) a portion of the credit
balance (if any) in such Capital Account equal to the unpaid principal balance
plus accrued and unpaid interest and costs on such Contribution Loan (the lesser
of such amounts being herein referred to as the "CAPITAL ACCOUNT TRANSFER
BASE"). The portion of the Defaulting Partner's Percentage Interest to be
transferred to such Non-Defaulting Partner (hereinafter referred to as the
"TRANSFERRED PERCENTAGE INTEREST") shall be a percentage (not to exceed 100%) of
the Defaulting Partner's entire Percentage Interest in the Partnership
determined by dividing the total unpaid principal balance of such Non-Defaulting
Partner's loan together with all interest accrued thereon and costs incurred by
such Non-Defaulting Partner with respect to such loan as of the demand date, by
the "Aggregate Capital Contributions" (as hereinafter defined) made by the
Defaulting Partner to the Partnership, and by multiplying the percentage thus
obtained by one hundred twenty percent (120%). "AGGREGATE CAPITAL CONTRIBUTIONS"
shall mean the total capital contributions made by the Defaulting Partner to the
Partnership since the inception of the Partnership (including all monies paid by
the Non-Defaulting Partners to the Partnership for the Unpaid Contribution on
behalf of the Defaulting Partner which amounts were then deemed to be loans
hereunder). Solely for purposes of determining the Transferred Percentage
-------------------------------------------------------------
Interest hereunder, if the General
- ------------------
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Partner, Vistana or Zimand is the Defaulting Partner, such Defaulting Partner
shall be deemed to have made Aggregate Capital Contributions to the Partnership
in an amount equal to its actual Aggregate Capital Contributions (if any) plus
its "Applicable Percentage" (as hereinafter defined) of the Aggregate Capital
Contributions made by United, and any successor owner of the interest in the
Partnership previously owned by United (except that such Aggregate Capital
Contributions of United shall be determined by taking into account only those
capital contributions of United that were made by it pursuant to Section 5.1
above). The "Applicable Percentages" shall mean the following:
General Partner 2.0%
Vistana 73.0%
Zimand 25.0%
The Transferred Percentage Interest to be transferred hereunder together with
the Capital Account Transfer Base shall be deemed to have been transferred by
the Defaulting Partner to the Non-Defaulting Partner as of the date demand for
payment on the Contribution Loan was made.
As an example of the operation of the foregoing formula, assume that a
capital call of $100,000 was made by the Partnership on Partner A (and that
Partner A is not the General Partner, Vistana or Zimand); that Partner A was
---
unable to pay any of its required additional capital contribution and, as a
result thereof, Partner B contributed the entire $100,000 amount on behalf of
Partner A; that one year later when the outstanding balance of the Contribution
Loan made by Partner B to Partner A was still $100,000, and when interest and
costs of $10,000 were accrued and unpaid thereon, Partner B made demand upon
Partner A for full payment of the Contribution Loan; and that Partner A was
unable to pay any portion of the unpaid principal balance or accrued interest
and costs on such Contribution Loan. Assume further that on the demand date
Partner A had Aggregate Capital Contributions to the Partnership (including the
$100,000 contribution made by Partner B on behalf of Partner A) of $440,000, and
a positive (credit) balance in its Capital Account of $440,000). As a result of
Partner A's inability to discharge the Contribution Loan plus interest and costs
thereon, a portion of Partner A's Percentage Interest in the Partnership equal
to the Transferred Percentage Interest, together with Partner A's Capital
Account Transfer Base in the amount of $110,000 [representing the lesser of the
unpaid principal balance plus accrued interest and costs on the Contribution
Loan ($110,000), or the balance in its Capital Account ($440,000)] shall be
deemed to have been transferred by Partner A to Partner B in full satisfaction
of the Contribution Loan and all interest accrued and unpaid thereon computed as
follows:
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$110,000 Unpaid princ. plus accrued int. and costs / $440,000 Aggregate
Capital Contributions of Partner A = 25%; 25% x 1.20 = 30%.
Thus, if Partner A owned a 50% interest prior to the transfer, a portion of its
Partnership interest representing a Transferred Percentage Interest of 15%
(i.e., 30% x 50%) together with a Capital Account Transfer Base of $110,000 will
be transferred from Partner A to Partner B.
B. If the Non-Defaulting Partners do not pay all of the Unpaid
Contribution to the Partnership on behalf of the Defaulting Partner within the
thirty (30) day period referred to in Part A above, the General Partner (or, if
the General Partner is a Defaulting Partner, United) is authorized, in its
discretion, to sell a portion of the Defaulting Partner's interest in the
Partnership to any other Person which is not a Non-Qualified Person (the "THIRD
PARTY PURCHASER") for a price, payable in immediately available funds to the
Partnership, equal to the Unpaid Contribution (to the extent not already
contributed to the Partnership by some or all of the Non-Defaulting Partners
under Part A above). For purposes of computing the portion of the Defaulting
Partner's interest in the Partnership to be sold and transferred hereunder, the
Third Party Purchaser shall be deemed to have contributed such amount to the
Partnership on behalf of the Defaulting Partner pursuant to Part A above; the
180-day waiting period before demand on such Contribution Loan may be made shall
not be applicable; it shall be assumed that no interest or costs on such
Contribution Loan are due; and that demand upon the Defaulting Partner has been
properly made by the Third Party Purchaser (i.e., the dilution formula set forth
in Part A above shall be applied to determine the portion of the Defaulting
Partner's interest in the Partnership that may be acquired by the Third Party
Purchaser in exchange for the payment of the (remaining) Unpaid Contribution).
If a Third Party Purchaser acquires a portion of the Defaulting Partner's
interest in the Partnership hereunder, the Third Party Purchaser shall be
admitted as an additional Limited Partner of the Partnership provided that such
Third Party Purchaser executes a joinder agreement in such form as may be
acceptable to the General Partner and its counsel evidencing the Third Party
Purchaser's agreement to be bound by all the terms and conditions of this
Agreement, as amended through the date of the closing.
C. Each Partner acknowledges and agrees that it would not be entering
into this Agreement were it not for (a) the Partners' agreements to make the
capital contributions required by Sections 5.1 and 5.2, and (b) the remedy
provisions set forth in this Agreement, and particularly in this Section 5.2.
Each Partner acknowledges and agrees that (i) in the event that any Partner
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fails to satisfy its obligations pursuant to this Agreement, the other Partners
will suffer substantial damages, and (ii) the remedies set forth in Subsections
5.2.A and B are fair, just, reasonable and equitable in all respects. Each
Partner hereby grants an irrevocable power of attorney, which shall be deemed to
be coupled with an interest, to the General Partner (or, if the General Partner
is a Defaulting Partner, then to United) to sell all or any portion of its
interest in the Partnership, either to the Non-Defaulting Partners under
Subsection 5.2.A above or to a Third Party Purchaser under Subsection 5.2.B
above (whichever is applicable), if it becomes a Defaulting Partner with respect
to any such call for additional contributions to the capital of the Partnership.
SECTION 5.3 Advances by General Partner/Affiliates. The General Partner
--------------------------------------
may, in its reasonable discretion, lend or cause any of its Affiliates to lend
the Partnership such amounts as the General Partner shall deem necessary or
desirable for the business of the Partnership; provided, however, that if the
General Partner elects to lend (or cause its Affiliate to lend) monies to the
Partnership hereunder, it shall first give written notice thereof (THE "LENDING
NOTICE") to United, which notice shall specify the amount to be loaned and the
date when the monies are to be advanced (which shall not be earlier than ten
(10) days after the date the Lending Notice is given by the General Partner to
United). United may, at any time within seven (7) days after receipt of the
Lending Notice, notify the General Partner of its desire to participate in any
such loan. If notice of intent to participate is not given by United to the
General Partner within such 7-day period, United shall be deemed to have elected
not to participate and the General Partner (and/or its Affiliate) shall be
entitled to make the loan to the Partnership. If United elects to participate
in the loan by providing written notice thereof to the General Partner within
such period, the General Partner (or its Affiliates) and United shall loan the
amount set forth in the Lending Notice to the Partnership proportionately (i.e.,
in proportion to the relative Percentage Interests of the General Partner, which
for this purpose shall be deemed to include the Percentage Interest of Vistana,
and United determined as of the date of such loan) or in such other proportions
as the General Partner and United may mutually agree upon. All amounts shall be
advanced to the Partnership either on the date specified in the Lending Notice
or within ten (10) days thereafter (or on such other date as the General Partner
and United may mutually agree upon).
If the General Partner or its Affiliate and (if applicable) United lend any
funds to the Partnership pursuant to this Section 5.3, then, subject to the
terms of any agreement to which the Partnership is a party, such loans shall be
unsecured and the Partnership shall repay such loans together with interest
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computed at the rate of twelve percent (12%) per annum solely from Available
Cash in the manner provided in Subsection 10.1.B below. Any such payments shall
be paid to the General Partner or its Affiliate and (if applicable) to United in
the same proportions as the monies were originally loaned by such parties to the
Partnership and on a "first in, first out" basis (i.e., repaying the oldest
loans first).
SECTION 5.4 United Loan/Advances from Limited Partners.
------------------------------------------
A. United shall loan and make available to the Partnership an aggregate
amount of One Million Six Hundred Twenty Thousand Dollars ($1,620,000) (THE
"UNITED LOAN") which may be borrowed in whole or in part for the reasonable
needs of the business of the Partnership as determined from time to time by the
General Partner, and in installments on one or more occasions from time to time
during the "United Loan Period" (as hereinafter defined). Draws by the
Partnership against the United Loan may be made upon thirty (30) days prior
notice from the General Partner to United and may not be made more frequently
than once in any calendar month during the United Loan Period. The maximum
amount that may be drawn by the Partnership against the United Loan in any
single draw is Five Hundred Thousand Dollars ($500,000). The outstanding
balance of the United Loan shall bear interest at the rate of twelve percent
(12%) per annum. The United Loan shall be unsecured; and shall be repaid solely
from Available Cash as provided in Subsection 10.1.B below. Any payments made
by the Partnership to United with respect to the United Loan shall be applied
first to accrued and unpaid interest, and thereafter to principal.
The "UNITED LOAN PERIOD" shall mean the period commencing with the
inception of the Partnership and continuing until the earlier of: (i) December
31, 2001, or (ii) the Liquidation of the Partnership. After the earlier: (i)
the advance of $1,620,000 or (ii) the expiration of the United Loan Period, the
Partnership shall no longer be entitled to draw against the United Loan, but the
outstanding balance of the United Loan together with all accrued and unpaid
interest thereon shall continue to be repaid by the Partnership to United in
accordance with the terms hereof.
B. Except with respect to the United Loan discussed in Subsection 5.4.A
above, and the loans described in Section 5.3 above, no Limited Partner (other
than a Limited Partner which is also a General Partner) shall be entitled to
lend funds or property to the Partnership unless such loan or advance shall be
consented to in advance by the General Partner, which consent may be withheld by
the General Partner at its sole and absolute discretion.
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ARTICLE VI
----------
CAPITAL ACCOUNTS
----------------
SECTION 6.1 Capital Accounts. An individual Capital Account shall be
----------------
determined and maintained for each Partner as provided in Subsection 1.6.I
above.
SECTION 6.2 Capital Account of Assignee Partners; Code (S)708(b)
------------------------------------------ ---------
Termination. Upon the transfer of all or part of an interest in the
- -----------
Partnership, the Capital Account of the transferor Partner that is attributable
to the transferred interest shall be carried over to the transferee. If the
transfer of an interest in the Partnership causes a termination of the
Partnership under Code (S)708(b)(1)(B), the Capital Account that carries over to
the transferee will be adjusted in accordance with Reg. (S)1.704-1(b)(2)(iv)(e),
and the constructive reformation of the Partnership, will, for purposes of
Section 6.1 above, be treated as the formation of a new Partnership and the
Capital Account of the transferee and of the remaining Partners will be
determined and maintained accordingly.
SECTION 6.3 Adjustment to Capital Accounts/Revaluation of Partnership
--------------------------------------------- -----------
Property. If (1) a new or existing Partner contributes money or other property
- --------
(other than a de minimis amount) to the Partnership as consideration for the
-- -------
receipt of an interest in the Partnership greater than the Partnership interest
owned prior to such contribution, or (2) there is a distribution of money or
other property (other than a de minimis amount) by the Partnership to a retiring
-- -------
or continuing Partner as consideration for the relinquishment of some or all of
such Partner's interest in the Partnership, or (3) upon the Liquidation of the
Partnership, the values of the Partnership's properties on its books ("book
values") shall be adjusted to reflect their fair market value [taking into
consideration Code (S)7701(g)] as of the date of the distribution, contribution
or Liquidation of the Partnership, as the case may be; and, in such event, the
Capital Accounts of the Partners shall be adjusted to reflect the manner in
which the unrealized Profits or Losses inherent in the Partnership's property
(to the extent not reflected in the Partners' Capital Accounts) would be
allocated among all the Partners under the terms of this Agreement, assuming
that there was a fully taxable disposition of such property immediately
preceding such contribution of money or other property to the Partnership, or
immediately preceding the distribution of money or other property by the
Partnership, or upon the date of the Liquidation of the Partnership, as the case
may be, for such properties' fair market values as of such time. For purposes
hereof, the fair market value of any Partnership property shall be determined by
unanimous agreement of the Partners whose Capital Accounts are to be affected.
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<PAGE>
SECTION 6.4 Distributions of Property In-Kind. To the extent that the
---------------------------------
unrealized income, gain, loss and deduction inherent in property distributed (or
deemed distributed) in kind (whether or not distributed in liquidation) has not
previously been reflected in the Partners' Capital Accounts, the Capital
Accounts of the Partners shall be adjusted to reflect the manner in which the
unrealized Profits or Losses inherent in such property (that has not been
reflected previously in the Capital Accounts) would have been allocated among
the Partners under this Agreement if there were a taxable disposition of such
property for its fair market value on the date of its actual (or deemed)
distribution [taking into account Code (S)7701(g)]. At the request of any
Partner, the fair market value of any property to be distributed to a Partner
under this Agreement, other than cash or any property which is regularly traded
on an established market and with respect to which market quotations are readily
available, shall be determined by appraisal prepared by a qualified appraiser.
ARTICLE VII
-----------
RIGHTS, POWERS AND DUTIES OF THE PARTNERS
-----------------------------------------
SECTION 7.1 Management of the Partnership Business. Subject to the
--------------------------------------
provisions of Sections 7.2, 7.3, and 7.5 below, the General Partner shall have
the sole right to manage the business of the Partnership consistent with the
purposes set forth in Section 2.1. The General Partner shall be required to
manage the Partnership as its sole and exclusive function and may not have other
business interests or engage in activities other than those relating to the
Partnership, except that nothing herein shall prevent the General Partner from
investing on its own behalf in the types of investments permitted in Section 4.5
with regard to investment of Partnership monies.
SECTION 7.2 Powers of the General Partner. Except as otherwise provided
-----------------------------
by the Partnership Law, this Section 7.2 and Sections 7.3 and 7.5 below, the
General Partner shall have and enjoy all of the rights and powers of a Partner
in a partnership without limited partners. Without limiting the foregoing, to
the extent consistent with the authorized business of the Partnership as
described in Section 2.1 above, but subject to Sections 7.3 and 7.5 below and
any agreement to which the Partnership is a party, in addition to other matters
(including other matters with respect to which the General Partner is granted
authority or control under this Agreement and such other powers as are now or
hereafter granted to a general partner of a limited partnership under applicable
law, including, without limitation, the Partnership Law), the General Partner
shall have the full power on behalf of the Partnership, and at the sole expense
of the Partnership, to:
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<PAGE>
A. Sell, transfer, assign, convey, manage, dedicate, declare or otherwise
dispose of or deal with all or any part of the Partnership's business
or property, on such terms as the General Partner may determine in the
exercise of reasonable business judgment;
B. Acquire interests in real property (and mortgages thereon) and/or
personal property, directly or indi rectly, whether by purchase or
lease, develop any such property (including the Residential Parcel),
and in connection with the business of the Partnership, enter into
financing transactions, the sale or leaseback of property, and the
lease and/or purchase of property, and acquire any other assets
consistent with the stated business of the Partnership;
C. Borrow money from banks, financial institutions or any other Person,
arrange financing or refinancing or arrange modifications of existing
debts, including indebtedness arising under the purchase of assets
pursuant to the Purchase Documents, loan funds to any Affiliate
(subject to the limitations set forth in Section 7.5) and in
connection therewith, issue notes or other evidences of indebtedness
of the Partnership and secure the same by mortgage, deed of trust,
pledge or other lien, in furtherance of the Partnership's purposes and
business;
D. Negotiate (or cause the Partnership's employees or agents to
negotiate) and execute, deliver and enforce, and if applicable, file
or record (directly or indirectly through a designated
representative), on behalf of the Partnership, such documents,
agreements and instruments, including, but not limited to, any and all
documents, agreements and instruments required to be executed by the
Partnership in connection with its purchase of assets under the
Purchase Documents and/or otherwise customarily employed or entered
into in the time-share business or any phase thereof as the General
Partner, in the exercise of reasonable business judgment, may deem
necessary or desirable for the Partnership's business, and/or the
proper management of Partnership affairs, including the execution,
filing or recording of any and all deeds, contracts and other
instruments relating to the time-share business (including financing
transactions with respect thereto), the Villas, the Residential Parcel
and/or the World Golf Village;
E. Perform, or cause to be performed, all of the Partnership's
obligations under any agreement to which the Partnership or any
nominee of the Partnership is a
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<PAGE>
party, except in the event that the General Partner determines, in
good faith, that such performance is not in the best interests of the
Partnership or its Partners;
F. Bring, defend, settle or compromise, or cause the Partnership's
employees or agents to do so, all actions at law or in equity, or
before any governmental entity involving the Partnership, its business
or its assets or properties, and to satisfy any judgment, decree,
decision or settlement in connection therewith, without limitation;
G. Employ and/or contract for, on such terms and conditions as the
General Partner in the exercise of reasonable business judgment shall
determine, sales, maintenance, managerial, administrative or
secretarial personnel (which persons may include the General Partner
or Affiliates thereof to the extent permitted under Section 7.5 below)
and such other persons, including attorneys, accountants, architects,
consultants, brokers necessary or appropriate to assist the General
Partner, or otherwise necessary or appropriate for the operation
(and/or sale) of the business of the Partnership, and/or the
maintenance, management and/or sale of any Partnership property, and
to grant such person or persons such authority as the General Partner,
in the exercise of reasonable business judgment, may determine;
H. Subject to the limitations of Section 4.5 above, open, maintain,
operate, control and close bank accounts in the name of the
Partnership, deposit Partnership funds into such account(s), invest
Partnership funds on behalf of the Partnership, authorize employees,
agents or representatives of the Partnership to sign checks and drafts
on such accounts, and to make such investments on behalf of the
Partnership, as the General Partner, in the exercise of reasonable
business judgment, shall determine;
I. Determine the timing and amount of distributions by the Partnership to
the Partners, subject to the terms of this Agreement (including
Article X hereof) and any other agreement to which the Partnership is
a party or is otherwise bound;
J. Cause the Partnership to be duly registered and licensed as a time-
share developer in each jurisdiction in which such registration and/or
licensure is required, and/or otherwise to be duly registered and
licensed so that the Partnership may lawfully carry on
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<PAGE>
any of its authorized business activities, and otherwise to obtain, on
behalf of the Partnership, all necessary approvals from all
governmental and quasi governmental authorities in connection with the
operation of the Partnership's time-share business activities;
K. Purchase such policy or policies of liability, casualty and other
insurance (including, but not limited to, directors' and officers'
liability insurance or its equivalent) which are necessary, advisable,
appropriate or convenient for the protection of any Partnership
property or business, or for any purpose convenient or beneficial to
the Partnership, as determined by the General Partner in the exercise
of reasonable business judgment;
L. Arrange for the preparation and timely filing (subject to available
extensions) of all federal, state or local income tax returns required
to be filed by or on behalf of the Partnership, and in connection
therewith, to make such elections under the tax laws as may be
available to the Partnership with respect to the treatment of any item
of Partnership income, gain, loss, deduction and credit;
M. Arrange for the certification by KPMG Peat Marwick or such other "Big
Six" firm of certified public accountants as selected by the General
Partner of annual financial statements for the Partnership;
N. Expend the capital, revenues, income and other cash of the Partnership
in furtherance of the Partnership's business in such amounts, at such
times and for such purposes as the General Partner in the exercise of
reasonable business judgment shall determine, such authority including
(i) the right to pay or arrange for the payment of all taxes imposed
on the Partnership or on the Partnership's assets or properties when
due (provided that the General Partner shall have the authority to
take all actions provided by law to contest the imposition or amount
of any such taxes), (ii) the right to pay or cause to be paid all
direct and indirect expenses of the Partnership, and (iii) the right
to pay or cause to be paid all charges, fees or compensation to any
person or firm for property (tangible or intangible) furnished or
services rendered to or on behalf of the Partnership;
O. Establish such reserves for working capital, insurance premiums, debt
repayments, improvements, repairs, replacements, renewals and such
other items required to
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<PAGE>
be paid in connection with the business of the Partnership, and/or to
otherwise provide for such contingencies as the General Partner, in
the exercise of reasonable business judgment, may determine;
P. Take such actions as the General Partner deems necessary or advisable
in order to comply with the laws of the United States and all other
jurisdictions to which the Partnership or its business or assets are
subject;
Q. Exercise, on behalf of the Partnership, any and all rights, options
and elections, if any, granted the Partnership pursuant to the terms
of this Agreement or any other agreement or arrangement to which the
Partnership is a party;
R. Solicit and accept additional contributions, and admit Persons who
make such contributions as additional limited partners (if not already
admitted as such) in accordance with Subsection 5.2.B above.
S. Perform such other normal and routine business functions, and
otherwise operate and manage the day-today affairs of the Partnership,
in furtherance of the business of the Partnership, as the General
Partner, in the exercise of reasonable business judgment, shall
determine; and
T. Do any act that is reasonably necessary to carry out the foregoing or
to perform any of the duties or exercise any discretion assigned or
delegated to the General Partner under this Agreement.
Any person dealing with the Partnership or its property shall be
entitled to rely fully upon any deed, mortgage, bill of sale, contract, lease,
sublease, note or other written instrument signed by the General Partner or its
duly authorized representatives in the name of and/or on behalf of the
Partnership.
SECTION 7.3 Limitations Upon Authority of General Partner.
---------------------------------------------
Notwithstanding anything in Sections 7.1 and 7.2 above to the contrary, the
General Partner shall not take any of the following actions (or enter into a
contract on behalf of the Partnership requiring the Partnership to take any of
such actions unless such contract is made subject to the provisions hereof)
without obtaining the written consent of Limited Partners holding, in the
aggregate, not less than seventy-five percent (75%) of the Percentage Interests:
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A. Sell or exchange all or substantially all of the assets of the
Partnership other than in the ordinary course of the Partnership's
business;
B. Cause the Partnership to file a voluntary petition in Bankruptcy, or
make a voluntary assignment of the Partnership's assets for the
benefit of its creditors, or otherwise take any voluntary action which
will directly result in an adjudication of Bankruptcy of the
Partnership;
C. Cause the Partnership to lease all or substantially all of the
Partnership's property;
D. Loan funds of the Partnership to any Person other than purchase money
----- ----
debt derived from the sale of Partnership properties, including the
Villas or any interest therein, loans to condominium associations
relating to the Villas, and temporary advances made in the ordinary
course of conduct of the Partnership's business;
E. Confess a judgment against the Partnership in excess of Fifty Thousand
Dollars ($50,000);
F. Admit additional General Partners;
G. Enter into any contracts, agreements or other arrangements, whether
written or oral, with any Affiliate of any Partner, except as
otherwise provided in Section 7.5 below; or
H. Cause the Partnership to borrow funds or otherwise enter into any
financing or refinancing arrangement if (and only if) such loan or
financing (or refinancing) arrangement is cross collateralized with,
or contains a cross default clause that relates to, one or more loans
to, or financing arrangements with, an Affiliate of the General
Partner.
SECTION 1.4 Limited Partners. Except in the case of a General Partner
----------------
which acquires a limited partnership interest (other than by reason of its
removal under Section 12.7 below and the resulting conversion of its interest
into a limited partner interest under Section 12.10 below), no Limited Partner
shall participate in or have any control over the management of the
Partnership's business (including the sale of any Partnership asset), nor
transact any business for the Partnership. No Limited Partner shall have the
power to sign for or bind the Partnership. Notwithstanding the foregoing
provisions of this Section 7.4, the Limited Partners may exercise their approval
rights granted to them in Section 7.3 and elsewhere in this
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Agreement, and the exercise of such approval rights shall not be deemed to be
participation in, or having any control over, the management of the
Partnership's business.
SECTION 7.5 Transactions with Affiliates. Except for the transactions
----------------------------
described in Schedule 7.5 attached hereto and made a part hereof, the General
Partner shall not, on behalf of the Partnership or otherwise, employ a Partner
or an Affiliate of a Partner to render or perform a service, contract to buy or
lease property from a Partner or an Affiliate of a Partner, enter into a general
partnership, limited partnership, joint venture, or other association with a
Partner or an Affiliate of a Partner, or otherwise deal with a Partner or
Affiliate without the prior written consent of Partners owning in the aggregate
not less than seventy-five percent (75%) of the Percentage Interests.
Notwithstanding the foregoing, the General Partner may contract with another
partnership or other entity, all of the equity interests of which are owned by
all of the Partners of this Partnership, to provide management services with
respect to the Villas, provided that the terms of such management agreement are
commercially reasonable. Further, even if an Affiliate transaction is approved
by Partners owning not less than seventy-five percent (75%) of the Percentage
Interests, any compensation paid by the Partnership for services rendered and/or
any payment made by the Partnership for materials or property leased or sold by
a Partner or an Affiliate of a Partner, or the price and terms of any such sale
by the Partnership to such Partner or Affiliate, as the case may be, shall be
"arm's length" and must not exceed those charged by others of similar stature in
the same line of business and not so related, or, with respect to a sale, must
not be more favorable than those which would be charged by or imposed on those
not so related.
SECTION 7.6 Liability of General Partner; Indemnifi cation. The General
----------------------------------------------
Partner shall not be liable to the Limited Partners because any taxing
authorities disallow or adjust any deductions or credits in the Partnership
income tax returns nor shall the General Partner have any personal liability for
the repayment of capital contributions of the Limited Partners except as
otherwise provided in this Agreement. In addition, the doing of any act or the
omission to do any act by the General Partner, the effect of which may cause or
result in loss or damage to the Partnership, if done in good faith and in
accordance with the terms of this Agreement, shall not subject the General
Partner or its successors and assigns to any liability, but the General Partner
shall nevertheless be liable for its acts or omissions which constitute fraud,
gross negligence or willful misconduct. The Partnership (but not any Partner),
in addition to the indemnification provided for in Section 14.5 below, will
indemnify and hold harmless the General Partner and its successors and assigns
and its (or their) shareholders, directors, officers, employees and agents from
any claim, loss,
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expense, liability, action or damage resulting from any such act or omission,
including, without limitation, reasonable costs and expenses of litigation and
appeal (including reasonable fees and expenses of attorneys engaged by the
General Partner or such parties in defense of such act or omission). However,
the General Partner and such parties shall not be entitled to be indemnified or
held harmless from any claim, loss, expense, liability, action or damage due to,
or arising from, its (or their) fraud, gross negligence or its (or their)
willful misconduct.
SECTION 7.7 Liability of Limited Partners. No Limited Partner, as such,
-----------------------------
shall be personally liable for the debts, liabilities or other obligations of
the Partnership, except that the capital contributions of the Limited Partners,
the Limited Partners' undistributed share of Partnership profits, and any
amounts referenced in Section 10.3 below shall be available for the debts,
liabilities or other obligations of the Partnership; provided, however, that
such liability shall be enforceable only by the Partnership and the Partners and
not by any creditor of the Partnership except as expressly provided in Section
620.136 of the Partnership Law.
SECTION 7.8 United's Covenant Not to Compete. As a material inducement
--------------------------------
to the Partners and the Partnership to admit it as a Partner hereunder, United
hereby agrees that neither United nor any of its Affiliates will engage, either
directly or indirectly, in any "Competitive Activities" (as hereinafter defined)
for so long as United or an Affiliate of United is a Partner in the Partnership.
"COMPETITIVE ACTIVITIES" shall mean engaging, directly or indirectly, in the
development, marketing, promotion or sale of time-share or interval ownership
properties, or the operation of a time-share or interval ownership club or
business (collectively, "TIME-SHARE ACTIVITIES") anywhere within the
geographical boundaries of the United States of America and its possessions (THE
"EXCLUDED AREAS"), except that United and/or its Affiliates may engage in any or
all Time-Share Activities (and such activities shall not be deemed to constitute
"Competitive Activities") if conducted or engaged in by United and/or its
Affiliates within the "Permitted Areas" (as hereinafter defined). The
"PERMITTED AREAS" shall include any location within the Excluded Areas that is
not located within a one hundred fifty-mile radius of a time-share or interval
ownership development that now or hereafter is owned or managed by the
Partnership or by the General Partner and/or any of the Affiliates of the
General Partner, subject to the following limitations and/or provisions:
(i) United and/or its Affiliates may engage in any or all Time-Share
Activities with respect to any of the existing golf course properties owned
by United and/or its
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Affiliates identified in Schedule 7.8 attached hereto and made a part
hereof notwithstanding the fact that such properties may be located within
a one hundred fifty-mile radius of a time-share development owned and/or
managed by the Partnership or by the General Partner or any of the
Affiliates of the General Partner.
(ii) If, subsequent to the date of execution of this Agreement, the
General Partner and/or an Affiliate of the General Partner acquires
additional real property or enters into a management agreement with respect
to additional real property located within the geographical boundaries of
the United States of America and its possessions (collectively, the
"VISTANA PROPERTY"), and which has been developed, or which the General
Partner and/or its Affiliate (or the owner of such property if the General
Partner or Affiliate is only the manager of such property or project) in
good faith intends to develop for the purpose of engaging in Time-Share
Activities, then United and its Affiliates shall also be precluded from
directly or indirectly engaging in any Time-Share Activities within a one
hundred fifty-mile radius of such Vistana Property; except that, if United
-----------
or any of its Affiliates own a golf course, or own real property which it
in good faith intends to develop into a golf course, and such property (the
"UNITED PROPERTY") was owned prior to the date that the General Partner or
its Affiliates acquired or agreed to manage (whichever is applicable) the
Vistana Property, then United and/or its Affiliates may nevertheless engage
in any or all of the Time-Share Activities with respect to the United
Property regardless of the fact that it is located within a one hundred
fifty-mile radius of the Vistana Property.
In addition to the foregoing, United agrees that neither it nor any of its
Affiliates will hire or solicit any employee or "former employee" (as
hereinafter defined) of the Partnership, the General Partner or any Affiliate of
the General Partner for so long as United (or any Affiliate of United) remains a
Partner in the Partnership. For purposes of the preceding sentence, a "former
employee" is any individual who, at the time of determination, was no longer
employed by the Partnership, the General Partner or an Affiliate of the General
Partner, but who had been an employee of one or more of such parties at any time
within one year of the date of determination.
United, on behalf of itself and its Affiliates, hereby agrees that this
covenant not to compete is reasonable in its limitation and necessary for the
protection of the business of the Partnership and the Genaral Partner and its
Affiliates and that the restraints are not unduly burdensome on United or its
Affiliates. United further agrees that if this covenant not to
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compete is found to be unenforceable by a court of competent jurisdiction by
reason of the length of time, scope or size of geographic area, it is the
intention of the parties hereto that this covenant not to compete be reformed by
such court so that such period of time, scope or geographic area be reduced to
the extent necessary to cure such invalidity. The parties also agree that this
covenant not to compete shall be construed as an agreement independent of any
other provision of this Agreement. The existence of any claim or cause of action
that United or any of its Affiliates may have against the Partnership or any of
the Partners, whether predicated on this Agreement or otherwise, shall not
constitute a defense to enforcement of this covenant not to compete by United.
It is understood and agreed by United that the remedy provided in Section
12.11 below for a breach by it of its obligations under this Section 7.8 may not
adequately compensate either the Partnership or the General Partner for damages
which such parties would suffer as a result of a violation by United of the
covenants contained in this Section 7.8. As a consequence thereof, the General
Partner or the Partnership (whichever is the injured party) shall be entitled,
upon application to a court of competent jurisdiction, to obtain injunctive
relief to enforce the provisions of this Section 7.8, which injunctive relief
shall be in addition to any other rights or remedies available to the General
Partner or the Partnership. If United violates its covenants set forth in this
Section 7.8, it shall be responsible for the payment of reasonable attorneys'
fees and other costs and expenses incurred by the General Partner or the
Partnership (as the case may be) in enforcing the covenants contained in this
Section 7.8 and in pursuing the remedies provided hereunder and under Section
12.1 below, whether incurred at the trial level or in any appellate proceeding.
ARTICLE VIII
------------
REIMBURSEMENT OF EXPENSES
-------------------------
SECTION 8.1 Reimbursement of Partners' Expenses. The Partnership
-----------------------------------
shall reimburse the Partners (or their respective Affiliates) for all reasonable
out-of-pocket costs, expenses and capital expenditures paid or incurred by them
(or their Affiliates) in connection with the creation of the Partnership, the
issuance of limited partnership interests, and the acquisition of the
Residential Parcel pursuant to the Purchase Documents. In addition, the
Partnership shall reimburse the General Partner (or its Affiliates) for
reasonable out-of-pocket costs, expenses and capital expenditures paid or
incurred by it (or its Affiliates) in connection with the ownership, operation,
development, marketing and sale of the assets and business of the Partnership,
the financing of the Partnership's business
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transactions, and/or the administration of the affairs of the Partnership.
ARTICLE IX
----------
ALLOCATIONS
-----------
SECTION 9.1 Profits and Losses. Except as otherwise provided in
------------------
Section 9.2 below (and any Profits or Losses, or items comprising such Profits
or Losses, that are specially allocated under Section 9.2 shall reduce the
amount of Profits, or increase the amount of Losses, allocated under this
Section 9.1), the Profits and Losses of the Partnership for each taxable year
shall be allocated among the Partners as follows:
A. Profits shall be allocated as follows:
1. First, to each Partner until each Partner has been allocated
an aggregate amount of Profits pursuant to this Section 9.1.A since the
inception of the Partnership equal to the aggregate Losses allocated or
reallocated to each such Partner since the inception of the Partnership pursuant
to Subsections 9.1.B.5 and 9.2.A below;
2. Second, to each of the Partners the least amount of Profits
necessary to cause the positive balances in the Adjusted Capital Accounts of the
Partners to stand in the ratio of their respective amounts of Unreturned Capital
(and, if the Unreturned Capital of any Partner is zero, then, solely for
purposes of computing such ratio, such Partner shall be deemed to have
Unreturned Capital of One Dollar ($1.00));
3. Third, to the Partners in proportion to their respective
amounts of Unreturned Capital until the balance in the Adjusted Capital Account
of each Partner equals such Partner's Unreturned Capital;
4. Fourth, to each of the Partners the least amount of Profits
necessary to make the Excess Amounts of the Partners stand in the ratio of their
respective Percentage Interests (and, if the Excess Amount of a Partner is zero,
then, solely for purposes of computing such ratio, such Partner shall be deemed
to have an Excess Amount of One Dollar ($1.00)); and
5. Thereafter, to the Partners in proportion to their
respective Percentage Interests.
B. Losses shall be allocated as follows:
1. First, to each of the Partners the least amount of Losses
necessary to make the Excess Amounts of the Partners stand in the ratio of their
respective Percentage Interests (and, if
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the Excess Amount of a Partner is zero, then, solely for purposes of computing
such ratio, such Partner shall be deemed to have an Excess Amount of One Dollar
($1.00));
2. Second, to the Partners pro rata in proportion to their
--------
respective Percentage Interests until the Excess Amount of each Partner is equal
to zero;
3. Third, to each of the Partners the least amount of Losses
necessary to make the positive balances in the Adjusted Capital Accounts of the
Partners stand in the ratio of their respective amounts of Unreturned Capital
(and, if the Excess Amount of a Partner is zero, then, solely for purposes of
computing such ratio, such Partner shall be deemed to have an Excess Amount of
One Dollar ($1.00));
4. Fourth, to the Partners with positive Adjusted Capital
Account balances, pro rata in proportion to such positive balances to the extent
--------
thereof; and
5. Thereafter, to the General Partner.
C. The allocation provisions of this Section 9.1 are intended to
produce Capital Account balances at the end of each taxable year of the
Partnership that are at levels ("TARGET FINAL BALANCES". which would permit
liquidating distributions that, if made in accordance with such Capital Account
balances, would be equal in priority and amount to the distributions that would
occur under Section 10.1 below if said liquidating proceeds were distributed
pursuant to Section 10.1. For purposes of this Subsection 9.1.C, the Target
Final Balances shall be determined as if no Partner had an obligation to restore
a negative balance in its Capital Account under Section 13.3 below or under the
Partnership Law (i.e., neither the General Partner nor any other Partner will be
required to contribute capital to the Partnership in order to enable the
Partnership to repay the Unreturned Capital of any other Partner by reason of
the allocations made under this Subsection 9.1.C). For purposes hereof, it will
be assumed, that at the end of the taxable year, all Partnership assets are sold
for cash equal to their book values (as determined pursuant to Reg. (S.1.704-
1(b) (2) (iv) (f) and (g)), and all liabilities allocable to such assets were
then satisfied according to their terms, limited with respect to each non-
recourse liability to the book value of such assets securing such non-recourse
liability. To the extent that the allocation provisions of this Section 9.1
would not produce the Target Final Balances, the Partners agree to take such
actions as are necessary to amend such provisions to produce such Target Final
Balances. Notwithstanding the other provisions of this Agreement, allocations of
Partnership gross income and deductions shall be made prospectively as necessary
to produce such Target
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Final Balances (and, to the extent such prospective allocations would not reach
such result, the prior tax returns of the Partnership shall be amended to
reallocate Partnership gross income and deductions to produce such Target Final
Balances).
D. For all purposes of this Agreement, except as otherwise required
by Code (S.706 (d) including the determination of the allocable share of the
Profits and Losses (or items thereof) of a Partner who acquires or disposes of
its interest in the Partnership during any Partnership taxable year, Profits or
Losses (or items thereof) of the Partnership for any taxable year shall be
allocated to the periods of such taxable year on such method or methods as
permitted by Code (S.706 as determined by the General Partner in its sole
discretion.
For purposes of computing the amount of Profits or Losses to allocate to a
Partner under Subsections 9.1.A and/or 9.1.B above, to the extent such
determination relates back to the inception of the Partnership, such
determination shall be based upon the assumptions and provisions set forth in
Section 15.11 below (relating to allocations made to a predecessor-in-interest).
SECTION 9.2 Special Allocations. Notwithstanding the provisions of
-------------------
Section 9.1 hereof to the contrary, the following special rules shall apply:
A. No allocation shall be made to any Limited Partner to the extent
that any such allocation would create or enlarge an Adjusted Capital Account
Deficit with respect to any such Limited Partner's Capital Account, as
determined as of the end of any taxable year of the Partnership. Any items which
would be allocated to a Limited Partner but for the preceding sentence shall be
allocated to the General Partner.
B. If any Limited Partner unexpectedly receives any adjustments,
allocations or distributions described in Reg. (S)(S)1.704-1(b) (2) (ii)(d)(4),
(5) or (6), then items of Partnership income and gain (comprising the Profits or
Losses of the Partnership. shall be specially allocated to each such Limited
Partner in an amount sufficient to eliminate, to the extent required by the
Regulations, such Limited Partner's Adjusted Capital Account Deficit, if any, as
quickly as possible; provided, that the allocations to be made pursuant to this
Subsection 9.2.B shall be made only if and to the extent that any such Limited
Partner, unexpectedly receiving any such adjustment, allocation or distribution,
would have an Adjusted Capital Account Deficit after all other allocations
provided for in this Agreement have been tentatively made, as if this Subsection
9.2.B were not in the Agreement.
C.
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1. Except as provided in Subsection 9.2.C.2 below, notwithstanding
any other provision contained herein to the contrary, if in any Partnership
taxable year, beginning on or after the effective date of this Agreement, there
is a net decrease in the Partnership "minimum gain" [as such term is defined in
Reg. (S.1.704-2(d)], prior to allocating Profits or Losses (or items thereof)
for such taxable year and, if necessary, for subsequent years, under any other
provision of this Agreement, each Partner shall be allocated items of income and
gain (comprising the Partnership's Profits or Losses. for such taxable year and,
if necessary, for subsequent taxable years in proportion to and to the extent of
each Partner's share of the net decrease in the Partnership's minimum gain
during such Partnership taxable year. The items of income and gain to be so
allocated shall be determined in accordance with Reg. (S.1.704-2(f) This
Subsection 9.2.C.1 is intended to comply with the minimum gain chargeback
requirements of Reg. (S.1.704-2(f), and shall be interpreted in a manner
consistent therewith.
2. Notwithstanding Subsection 9.2.C.1 above, the provisions of
Subsection 9.2.C.1 above shall not apply to a Partner or Partners otherwise
subject thereto if:
(i) such Partner's share of the net decrease in Partnership
minimum gain is caused by a guaranty, refinancing or other change in the
debt instrument causing it to become partially or wholly recourse debt or
partner nonrecourse debt, and such Partner bears the economic risk of loss
(within the meaning of Reg. (S.1.752-2. for the newly guaranteed,
refinanced or otherwise changed liability;
(ii) such Partner contributes capital to the Partnership that is
used to repay the nonrecourse liability (in whole or in part), and the
Partner's share of the net decrease in Partnership minimum gain results
from such repayment;
(iii) compliance with Subsection 9.2.C.1 above causes (or is
reasonably expected to cause. the Partners' final Capital Account balances
to not be at the Target Final Balances required under Subsection 9.1.C
above, or the General Partner's final Capital Account balance to be
negative and one or more of the Limited Partners' final Capital Account
balances to be positive, after considering the reasonably expected
availability and sufficiency of additional Partnership Profits or Losses
(or items thereof) to offset the distortion which may otherwise be created
by such minimum gain chargebacks; or
(iv) the application thereof otherwise arises from a situation or
circumstance exempted from the application
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thereof pursuant to any revenue ruling, regulation, amendment or otherwise.
The determination of whether and to what extent the
allocations otherwise required to be made pursuant to Subsection 9.2.C.1 should
be made, based upon the criteria set forth above, shall be made in the
reasonable discretion of the General Partner after consultation with the
Partnership's tax advisers and the approval of United, which approval shall not
be unreasonably withheld.
For purposes of determining whether compliance with the
minimum gain chargeback rules set forth in Subsection 9.2.C.1 above would
distort the economic arrangement of the Partners, the Partners acknowledge and
agree that the economic arrangement of the Partners is manifested in Section
10.1 below. Section 10.1 hereof describes the economic arrangement among the
Partners, both as to the priority of distributions to be made by the Partnership
to each of the Partners and the amounts and/or relative amounts to be
distributed to each of the Partners at the separate priority levels.
2. Rules similar to those set forth in Subsection 9.3.C.2 above
shall apply with respect to determining whether and to what extent allocations
otherwise required to be made to any Partner under applicable regulations with
respect to any net decrease in a "partner nonrecourse debt" (as such term is
defined for purposes of Reg. (S.1.704-2. should be made.
D.
1. "Partner nonrecourse deductions" [within the meaning of Reg.
(S.1.704-2(i.] shall be allocated as prescribed in Reg. (S.1.704-2(i..
2. Subject to Subsection 9.2.C.2 above, if in any Partnership
taxable year there is a net decrease in "partner nonrecourse debt minimum gain"
(as such term is defined in Reg. (S.1.704-2., prior to allocating Profits or
Losses (or items thereof. of the Partnership for such taxable year (and, if
necessary, for subsequent taxable years., other than the allocations made
pursuant to Subsection 9.2.C.1 above, each Partner with a share of the partner
nonrecourse debt minimum gain (as determined under Reg. (S.1.704-2(i.(5. as the
beginning of such taxable year. shall be allocated items of income and gain
(comprising the Profits or Losses for such taxable year and, if necessary, for
subsequent taxable years. in proportion to, and to the extent of, such Partner's
share of the net decrease in such partner nonrecourse minimum gain. The items of
income and gain to be so allocated shall be determined in accordance with Reg.
(S.1.704-2. This Subsection 9.2.D.2 is intended to comply with the
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partner minimum gain chargeback requirements of Reg. (S)1.704-2(i)(4), and shall
be interpreted consistently therewith.
3. Rules similar to those set forth in Subsection 9.2.C.2 above
shall apply with respect to determining whether and to what extent allocations
otherwise required to be made to any Partner under applicable Treasury
Regulations with respect to any net decrease in "partner nonrecourse debt
minimum gain" (as such term is defined for purposes of Reg. (S)1.704-2) shall be
made.
E. All "nonrecourse deductions" (as defined in Reg. (S)1.704-2(c))
shall be allocated among the Partners in accordance with their relative
Percentage Interests.
SECTION 9.3 Allocations of Certain Tax Items.
--------------------------------
If property which is contributed to the Partnership is subject
to the provisions of Code (S)704(c), the Partners' distributive shares of
income, gain, loss and deductions, as computed for tax purposes, with respect to
such property (and, to the extent permitted by the Regulations, with respect to
other Partnership property. shall be determined in accordance with Code
(S)704(c) by utilizing such reasonable methods selected by the General Partner
as shall be consistent with Code (S)704(c) and the Regulations promulgated
thereunder, taking into account the Partners' distributive shares of the
corresponding book items with respect to such property, as determined under this
Article IX, Code (S)704(b) and Reg. (S)1.704-1(b)(1)(vi) The Partnership shall
elect to use the "traditional method" pursuant to Reg. (S)1.704-3(b) unless
required to use another method.
If Code (S)704(c) is not applicable, depreciation, amortization
and gain or loss, as computed for tax purposes, with respect to Partnership
property which is revalued on the books of the Partnership in accordance with
Reg. (S)1.704-1(b(2)(iv)(f) and which has a book value greater or lesser than
its adjusted tax basis (and, to the extent permitted by the Regulations, with
respect to other Partnership property. shall be allocated among the Partners in
a manner that takes into account the variations between the adjusted income tax
basis and the book value of such property in the accordance with Code (S)704(c)
principles, utilizing such reasonable method as determined by the General
Partner, and shall be consistent with Code (S)704(c) and the Regulations. The
Partnership shall elect to use the "traditional method" pursuant to Reg.
(S)1.704-3(b) unless required to use another method.
SECTION 9.4 Apportionment of Allocations. In every Partnership taxable
----------------------------
year in which the Percentage Interest of any one Partner varies, whether due to
entry into the Partnership after the first day of the Partnership's taxable year
or
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otherwise, Profits or Losses (or items thereof) which are to be allocated to the
Partners in proportion to their Percentage Interests shall be apportioned among
the Partners in accordance with each Partner's varying Percentage Interest in
the manner required by Code (S)706(d) (even if Code (S)706(d) is not otherwise
applicable).
ARTICLE X
---------
DISTRIBUTIONS
-------------
SECTION 10.1 Distributions of Available Cash. Except as otherwise
-------------------------------
provided in this Article X, Available Cash for each taxable year of the
Partnership, if any, shall be distributed within thirty (30) days after the end
of each calendar quarter in the following order of priority:
A. First, all Available Cash up to, but not exceeding, an amount equal to
the Tax Distribution for such taxable year shall be apportioned among, and
distributed to, the Partners in the same proportions as the aggregate net
taxable income (to the extent "net taxable income" or "net taxable loss" are
used in this Subsection 10.1.A, such amounts shall be determined without regard
to the special limitations on deductions of OID described in Subsection 1.6.Y
above) of the Partnership for such taxable year was allocated to the Partners
pursuant to Article IX above, except that, solely for purposes of determining
the amount of any distributions to be made to a Partner under this Subsection
10.1.A for the current taxable year, the following modifications shall apply:
a. The amount of net taxable income which is deemed to have been
allocated to such Partner shall be increased by the amount of any original
---------
issue discount ("OID") such Partner is required to include in its income
under Code (S)1272 for such taxable year with respect to any loans made by
it to the Partnership under Sections 5.3 or 5.4; and
b. The net taxable income which is deemed to have been allocated to
such Partner shall be decreased by the excess of: (i) any net taxable
---------
losses allocated to such Partner in a prior taxable year to the extent that
such net taxable losses are taken into account in computing the "Tax Base"
(as defined in Subsection 1.6.Y above) for the current taxable year, over
(ii) the amount of OID such Partner was required to include in its taxable
income under Code (S)1272 in prior taxable years for loans made by it to
the Partnership under Sections 5.3 or 5.4 above [except to the extent that
such Partner was given credit for such OID under this Subpart b(ii) in
computing the distributions to be made to it under Subsection 10.1.A.1 in a
previous taxable year].
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[For this purpose, it should be noted that "Profits," as defined in Subsection
1.6.T above, may differ from taxable income, and the amount of taxable income
allocated to each Partner must also be determined after giving effect to
allocations required under Code (S)704(c).] See Schedule 10.1.A attached hereto
and made a part hereof for an example of the application of this Subsection
10.1.A to an assumed set of facts.
B. Second, all remaining Available Cash for such taxable year shall be
applied to discharge all amounts owed by the Partnership (including all accrued
and unpaid interest thereon) under (i) the United Loan in accordance with
Subsection 5.4.A above, and (ii) any obligations owed to the General Partner,
any Affiliate of the General Partner and (if applicable) to United with respect
to loans made pursuant to Section 5.3 above; and any such distributions of
Available Cash shall be made on a pari passu basis (but in proportion to the
---- -----
then outstanding principal balances, plus accrued and unpaid interest due
thereon, of the loans described in (i) and (ii) above) until all of such loans
have been paid in full. Notwithstanding the foregoing, any Available Cash
otherwise distributable to a Partner pursuant to this Subsection 10.1.B shall be
reduced by any Available Cash distributed to such Partner under Subsection
- ----------
10.1.A in the current taxable year or in any prior taxable year with respect to
the amount of OID such Partner is (or was) required to include in its taxable
income attributable to loans made by it to the Partnership under Sections 5.3 or
5.4 (to the extent any such distributions under Subsection 10.1.A have not
previously been applied as a reduction of Available Cash distributable to such
Partner under this Subsection 10.1.B in a prior taxable year).
C. Third, any remaining Available Cash shall be distributed to the
Partners up to the aggregate of the Unreturned Capital of the Partners at such
time, which amounts shall be distributed in the proportions that the Unreturned
Capital of each Partner whose Unreturned Capital exceeds zero at such time bears
to the aggregate of the Unreturned Capital of all Partners whose Unreturned
Capital exceeds zero at such time.
D. Thereafter, the balance (if any) of Available Cash shall be
distributed to the Partners in accordance with their then relative Percentage
Interests.
SECTION 10.2 Liquidation Distributions. Following the dissolution of the
-------------------------
Partnership, as provided in Section 13.1 below, distributions shall be made in
the manner set forth in Section 13.2 below.
SECTION 10.3 Return of Capital Contributions/Limitations on
----------------------------------------------
Distributions/Liability for Repayment. Notwithstanding anything herein to the
- -------------------------------------
contrary, no Partner shall receive a return of such Partner's capital
contributions or receive any
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other distribution from the Partnership until all liabilities of the Partnership
(including liabilities to the Partners for loans made to the Partnership, but
excluding liabilities to the Partners on account of their capital contributions)
have been paid or there remains sufficient property (based on the fair market
value of remaining assets) of the Partnership to pay them. If a Partner
(including former Partners) or an assignee of a Partner receives the return of
any part of such Partner's capital contributions or any other distribution in
violation of this Agreement or Partnership Law, such Partner shall be liable to
the Partnership for a period of six (6) years following such wrongful
distribution for the amount of such wrongful distribution. If a Partner
(including former Partners) receives the return in whole or in part of such
Partner's capital contribution in a distribution not violating the terms of this
Agreement or Partnership Law, such Partner shall be liable to the Partnership
for a sum equal to such returned contribution for a period of one (1) year
following such return, but only to the extent necessary to discharge the
Partnership's liabilities to creditors who extended credit to the Partnership
during the period the contribution was held by the Partnership. Any Partner so
liable shall repay such amount within thirty (30) days after the General Partner
shall have delivered to such Partner a written notice regarding such repayment.
Failure of any Limited Partner or former Limited Partner (or assignee) to make
repayment required
under this Section 10.3 shall subject such defaulting person to payment of
interest at the highest legal rate on the amount due from such person from the
date of the delivery of notice requiring such repayment until (but not
including) the date of such repayment, plus all costs and expenses of
collection, including reasonable attorneys' fees.
ARTICLE XI
----------
INVESTMENT; LIMITED PARTNER REPRESENTATIONS;
--------------------------------------------
UNREGISTERED SECURITIES
-----------------------
THE LIMITED PARTNERSHIP INTERESTS HAVE NOT BEEN REGISTERED, QUALIFIED,
APPROVED OR DISAPPROVED UNDER ANY FEDERAL OR STATE SECURITIES LAW, INCLUDING THE
---------
SECURITIES ACT OF 1933 AND THE FLORIDA SECURITIES AND INVESTOR PROTECTION ACT,
AND HAVE BEEN SOLD IN RELIANCE ON EXEMPTIONS FROM REGISTRATION AFFORDED BY
APPLICABLE FEDERAL AND STATE SECURITIES LAWS, INCLUDING, BUT NOT LIMITED TO, THE
SECURITIES ACT OF 1933 AND THE FLORIDA SECURITIES AND INVESTOR PROTECTION ACT.
SUBJECT TO THE OTHER LIMITATIONS CONTAINED IN THIS AGREEMENT, THE LIMITED
PARTNERSHIP INTERESTS MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE OFFER AND SALE OF SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, THE
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FLORIDA SECURITIES AND INVESTOR PROTECTION ACT, AND/OR THE APPLICABLE SECURITIES
ACT(S) OF ANY OTHER STATE, UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE
UNDER ALL APPLICABLE FEDERAL AND STATE SECURITIES LAWS, AND (UNLESS WAIVED BY
THE GENERAL PARTNER), THE TRANSFERRING LIMITED PARTNER FIRST PROVIDES THE
GENERAL PARTNER WITH AN OPINION OF COUNSEL, SATISFACTORY TO THE GENERAL PARTNER,
TO SUCH EFFECT.
Each Limited Partner hereby represents and warrants to the Partnership and
to the General Partner that such Limited Partner has acquired such Limited
Partner's limited partnership interests for investment purposes only. In
addition to any other condition imposed by this Agreement, each Limited Partner
acknowledges and understands the above legends and agrees to accept and abide by
the above referenced restriction(s) on the transferability of such Limited
Partner's limited partnership interests.
ARTICLE XII
-----------
CHANGES IN PARTNERS/
--------------------
TRANSFERABILITY OF PARTNERSHIP INTERESTS
----------------------------------------
SECTION 12.1 Restrictions on General Partner/Permitted Transfers to
----------------------------------------- ------------
Affiliates. Except in connection with an Assignment of its interest to the
- ----------
extent permitted in this Article XII, or in connection with a transfer under
Subsection 5.2.A, the General
Partner shall not, without the prior written consent of all Limited Partners,
retire or withdraw from the Partnership, or Assign all or any part of its
interest in the Partnership; provided that without such consent, the General
Partner may Assign its entire interest in the Partnership as a General Partner
to any of the persons listed on Schedule 12.1 attached hereto, or to any
Affiliate of the General Partner, and the transferee of the General Partner's
interest shall be automatically admitted as a successor General Partner, and
such transferee(s) shall succeed to all of the interests of such former General
Partner in the Partnership.
SECTION 12.2 Transfers by General Partner and Vistana to Non-
-----------------------------------------------
Affiliates/Right to Require Zimand Participation. Upon thirty (30) days prior
- ------------------------------------------------
written notice to the remaining Partners, the General Partner and Vistana may
sell their entire interests in the Partnership, or the Persons who hold not less
than a majority of the voting interests in the General Partner and in Vistana
(or not less than a majority of the voting interests in the general partner of
Vistana) may sell all or not less than a majority of their equity interests
(which, in the case of a sale of equity interests, shall include not less than a
majority of the voting control) in the General Partner and Vistana (or in the
general partner of Vistana), provided, in either event, that such sales are
effected in conjunction with the sale of all or not less than fifty-one percent
(51%) of the assets or equity
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interests (which shall include voting control) of one or more Affiliates of the
General Partner to any persons other than (i) the Persons listed in Schedule
----------
12.1 attached hereto or (ii) any Affiliate of the General Partner. Any such
sales shall not be subject to the restrictions upon Assignment set forth in this
Article XII except to the extent any such provisions are specifically made
applicable to sales made pursuant to this Section 12.2.
In the event of a sale by the General Partner and Vistana of their entire
interests in the Partnership under this Section 12.2 (or in the event of a sale
of a majority of the voting interests in the General Partner and Vistana
hereunder), and if United elects to sell its entire interest in the Partnership
pursuant to Section 12.3 below, the General Partner and Vistana may also require
Zimand to sell its entire interest in the Partnership simultaneously with (and
contingent upon) the closing of the sale of the interests of the General Partner
and Vistana hereunder. The option of the General Partner and Vistana to require
a simultaneous sale of Zimand's entire interest in the Partnership may be
exercised by the General Partner and Vistana by written notification to Zimand
given within ten (10) days after receipt by them of the notice of election from
United under Section 12.3 below. If the General Partner and Vistana exercise
their option to require Zimand to sell its entire interest pursuant to this
Section 12.2, Zimand shall be treated as if it had elected to
sell its entire interest in the Partnership in accordance with the terms and
conditions of Section 12.3 below and all the terms and conditions of Section
12.3 (including, but not limited to, the determination of purchase price, the
terms of payment and the determination of the party that will purchase such
interest) shall apply. Zimand agrees that this provision requiring the sale of
its interest may be specifically enforced.
The transferee of an interest from the General Partner, Vistana and (if
applicable) Zimand under this Section 12.2 shall be treated as an assignee of
such interest under the Partnership Law and shall not be admitted as an
additional Limited Partner unless consented to by both the General Partner and
United, which consent may be withheld in the sole discretion of either (or both)
the General Partner or United. Notwithstanding the foregoing, the restrictions
contained in this Section 12.2 upon a transferee being admitted as a successor
General Partner or Limited Partner (as the case may be) shall not apply (and
such transferee shall automatically be admitted as a successor General Partner
or Limited Partner, as the case may) for transfers occurring after the
Partnership has received the written opinion of tax counsel that both of the
following have occurred: (i) new Regulations under Code (S)7701 allowing certain
entities to either elect to be classified or automatically be classified as
partnerships for federal income tax purposes without regard, in all cases, to
whether they possess or lack the characteristic of "free transferability of
interests" have been promulgated into
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<PAGE>
final form, and (ii) partnership characterization under such Regulations is
applicable to the Partnership. If any such election can be made by the
Partnership, the General Partner shall make such election to have the
Partnership classified as a "partnership" for federal income tax purposes upon
the request of any Limited Partner.
SECTION 12.3 Limited Right of Sale of United and Zimand. If the General
------------------------------------------
Partner and Vistana sell their interests in the Partnership pursuant to Section
12.2 above, or if a majority of the voting interests in the General Partner and
Vistana (or in the general partner of Vistana) are sold pursuant to Section
12.2, then (in either case) each (or either) of United and Zimand may, within
thirty (30) days after receipt of the written notice of intent to sell given by
the General Partner and Vistana under Section 12.2 above, give notice to the
General Partner and Vistana of its intent to sell its entire interest in the
Partnership (the "PUT INTEREST") pursuant to this Section 12.3. If such notice
is timely given, the Put Interest shall be purchased either by Vistana or, at
the option of Vistana, by either an Affiliate of the General Partner or by the
purchaser of the Partnership interests or equity interests sold pursuant to
Section 12.2 above (with the purchasing party hereinafter referred to as the
"PURCHASER"); provided, however, that the obligation of the Purchaser to
purchase the Put Interest pursuant to this Section 12.3 shall be contingent upon
the closing of the sales and purchases under Section 12.2 above.
A. The purchase price for the Put Interest shall be equal to the fair
market value of such interest (i.e., the price a willing buyer and a willing
seller would agree upon as a fair sales price that could reasonably be expected
to be received upon the sale of the Put Interest, based upon the assumption that
both parties are well informed of all relevant factors affecting value,
including, but not limited to, all the terms of this Agreement; that neither
party is compelled to buy or sell; that no discount will be taken for lack of
control (the so-called "minority discount") or for lack of marketability or
liquidity or any limitation, contractual or otherwise, with respect to the Put
Interest including transfer, voting and other rights; and that the purchaser
will be admitted as a limited partner in the Partnership). Notwithstanding
anything in this Section 12.3 to the contrary, in no event shall the purchase
price for the Put Interest be less than the Unreturned Capital of the Partner
that owns the Put Interest (i.e., if the fair market value of such Put Interest
as determined by appraisal in accordance with the procedures described below is
less than the Unreturned Capital attributable to such Put Interest, then the
purchase price for such Put Interest shall be the Unreturned Capital associated
therewith) which shall be referred to herein as the "FLOOR PRICE."). Promptly
after the date (the "ELECTION DATE") United and/or Zimand (the "ELECTING PARTY")
gives notice of its intent
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to sell the Put Interest hereunder, the Electing Party and the Purchaser shall
attempt to agree upon the fair market value of the Put Interest. If the Electing
Party and the Purchaser cannot agree upon the fair market value of the Put
Interest within forty (40) days after the Election Date, such parties shall
attempt to agree upon a mutually acceptable Qualified Appraiser (as hereinafter
defined) to determine the fair market value of the Put Interest, and if a
mutually acceptable Qualified Appraiser is selected within ten (10) days after
the expiration of the forty (40) day period specified above such appraiser shall
submit, within sixty (60) days of such appraiser's selection, a written
appraisal setting forth such appraiser's determination of the fair market value
of the Put Interest and such determination shall be binding upon both the
Electing Party and the Purchaser unless it is less than the Floor Price, in
which case the fair market value of the Put Interest shall be deemed to be the
Floor Price.
B. If a mutually acceptable Qualified Appraiser is not selected within
the ten-day period described in Subsection A above, either the Electing Party or
the Purchaser may, by written notice to the other party, select a qualified
appraiser with experience in valuing interests in partnerships and also with
experience in appraising interests in time-share businesses (a "QUALIFIED
APPRAISER"), and, within ten days after receipt of such notice, the other party
may (but need not), by written notice, designate a second Qualified Appraiser to
determine the fair market value of the Put Interest.
1. If the second Qualified Appraiser is not so designated, then the
first Qualified Appraiser shall proceed to appraise the Put Interest and
his determination of the fair market value of the Put Interest shall be
binding upon both the Electing Party and the Purchaser (subject to "Floor
Price" described above).
2. If a second Qualified Appraiser is designated, the first and
second Qualified Appraisers shall each appraise the Put Interest. If
within forty-five (45) days after the second Qualified Appraiser is
designated, the first and second Qualified Appraisers do not agree upon the
fair market value of the Put Interest and are unable to reduce the range of
their difference so that the higher appraisal does not exceed the lower
appraisal by more than ten percent (10%) of the amount of the lower
appraisal, then the Qualified Appraisers shall jointly designate a third
Qualified Appraiser within ten (10) days after the expiration of such 45-
day period. If there are two Qualified Appraisers and the higher appraisal
does not exceed the lower appraisal by more than ten percent (10%) of the
lower appraisal, then the fair market value of the Put
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<PAGE>
Interest shall be deemed to be the average of the two appraisals (subject
to the "Floor Price" described above). If there are three appraisers and if
they are unable to agree upon the fair market value of the Put Interest,
then the fair market value of the Put Interest shall be deemed to be the
average of the two appraisals which are closest in value to each other
(subject to the "Floor Price" described above). The appraiser or appraisers
shall promptly notify the Electing Party and the Purchaser of their
determination of the fair market value of the Put Interest.
The Electing Party and the Purchaser shall each pay (i) one-half of the
fees and expenses of the Qualified Appraiser, if there is only one Qualified
Appraiser, and (ii) if there is more than one Qualified Appraiser, the fees and
expenses of the Qualified Appraiser designated by it and one-half of the fees
and expenses of the third Qualified Appraiser, if any.
C. Fifty percent (50%) of the purchase price for the Put Interest shall
be paid in cash or other immediately available funds at the closing. The
balance of the purchase price shall be payable in five (5) equal annual payments
of principal and interest computed at the lesser of: (i) the Base Rate
announced publicly by CitiBank, N.A., New York, New York (or another comparable
national banking institution selected by the General Partner) to its most
preferred customers determined as of the date of closing, plus two percent (2%),
or (ii) the highest rate authorized under applicable law on such date. The
first such installment shall be made on the first anniversary of the closing and
the remaining installments shall be paid on successive anniversaries thereof.
The obligation of the Purchaser to pay the deferred portion of the purchase
price shall be unsecured. Notwithstanding the foregoing, if the General Partner
and Vistana receive more than fifty percent (50%) of the purchase price for
their interests in the Partnership in the form of cash or other immediately
available funds at closing, then the Electing Party shall also be entitled to
receive the same percentage of the purchase price received by the General
Partner and Vistana for its interest in the form of cash and other immediately
available funds at closing. The remaining portion of the purchase price, if
any, shall be payable over a period of five years in accordance with the terms
set forth above.
D. The closing of the sale and purchase of the Put Interest shall occur
not later than thirty (30) days after the final determination of the purchase
price for the Put Interest under either Subparagraph A or B above and on a date
mutually acceptable to the Electing Party and the Purchaser. The Purchaser
shall also either (i) cause the Partnership and any Defaulting Partner to repay
all loans, together with accrued and unpaid interest and costs due thereon, owed
by the Partnership or such Defaulting Partner to the Electing Party with respect
to all
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<PAGE>
loans made (or deemed to have been made) by the Electing Party under Sections
5.2, 5.3 and 5.4 above, or (ii) acquire all such loans from the Electing Party
for a price equal to the full amounts (principal, interest and costs) due
thereunder.
E. The transferee of the Put Interest from United or Zimand under this
Section 12.3 shall, unless such transferee is already a Partner in the
Partnership, be treated as an assignee of such interest under the Partnership
Law and shall not be admitted as an additional Limited Partner unless consented
to by the General Partner, which consent may be withheld in the sole discretion
of the General Partner. Notwithstanding the foregoing, restrictions contained
in this Section 12.3.E upon a transferee being admitted as a successor Limited
Partner shall not apply (and such transferee shall automatically be admitted as
a successor Limited Partner) for transfers occurring after the Partnership has
received the written opinion of tax counsel and both of the following have
occurred: (i) new Regulations under Code (S)7701 allowing certain entities to
either elect to be classified or automatically be classified as partnerships for
federal income tax purposes without regard, in all cases, to whether they
possess or lack the characteristic of "free transferability of interests" have
been promulgated in final form, and (ii) partnership characterization under such
Regulations is made applicable to the Partnership. If any such election can be
made by the Partnership, the General Partner shall make such election to have
the Partnership classified as a "partnership" for federal income tax purposes
upon the request of any Limited Partner.
SECTION 12.4 Restrictions on Limited Partners. Except as otherwise
--------------------------------
provided in this Section 12.4, in Sections 12.1, 12.2 and 12.3 above, and in
Section 12.6 below, no Limited Partner shall have the right to withdraw from the
Partnership prior to the dissolution and winding up of the Partnership, and, in
the event of a dissolution, only in accordance with Sections 13.2 and 13.3
below. Except as expressly provided in this Section 12.4 and in Sections 5.2,
12.1, 12.2, 12.3 and 12.6, a Limited Partner may not Assign all or any portion
of such Limited Partner's interest in the Partnership (as a limited partner).
If a Limited Partner is a corporation, trust, or other entity and is dissolved
or terminated, the powers of such dissolved Limited Partner may be exercised by
its legal representative or its successor. Any Assignment of any of the voting
interests of a Limited Partner that is an entity (i.e., is not an individual),
or of the general partner in such entity if the Limited Partner is (itself) a
limited partnership, shall be treated (in either case) as an Assignment of the
entire interest in the Partnership owned by such Limited Partner if, as a result
thereof, the Persons who hold a majority of the voting interests in such Limited
Partner (or in the general partner of such Limited Partner if the Limited
Partner is a limited partnership) as of the date of this
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<PAGE>
Agreement (or if such Limited Partner was admitted as a Partner after the
inception of the Partnership, as of the date such Limited Partner was admitted
as a Partner in the Partnership) own less than a majority of the voting
interests in such Limited Partner (or, if applicable, in the general partner of
such Limited Partner) after such Assignment.
Each Limited Partner may Assign all or any portion of its interest in the
Partnership as a Limited Partner to an Affiliate of such Limited Partner;
provided, however, that the transferee of such Limited Partner's interest shall
be treated as an assignee of such interest under the Partnership Law and shall
not be admitted as an additional Limited Partner unless consented to by the
General Partner, which consent may be withheld in the sole discretion of the
General Partner. Notwithstanding the foregoing, the restrictions contained in
this Section 12.4 upon a transferee being admitted as a successor Limited
Partner shall not apply (and such transferee shall automatically be admitted as
a successor Limited Partner) for transfers occurring after the Partnership has
received the written opinion of tax counsel that both of the following have
occurred: (i) new Regulations under Code (S)7701 allowing certain entities to
either elect to be classified or automatically be classified as partnerships for
federal income tax purposes without regard, in all cases, to whether they
possess or lack the characteristic of "free transferability of interests" have
been promulgated to final form, and (ii) partnership characterization under such
Regulations is applicable to the Partnership. If any such election can be made
by the Partnership, the General Partner shall make such election to have the
Partnership classified as a "partnership" for federal income tax purposes upon
the request of any Limited Partner. For purposes of the authorization for a
Limited Partner to assign its interest in the Partnership to an Affiliate under
this Section 12.4, the term "Affiliate" in the case of Vistana shall also be
deemed to include all of those Persons identified in Schedule 12.1 attached
hereto and made a part hereof.
Any Assignment of the interest in the Partnership of a Limited Partner
other than in accordance with the provisions of this Section 12.4 (and to the
extent applicable, Article XI, and Sections 5.2, 12.1, 12.2, 12.3 and 12.6)
shall be null and void ab initio.
-- ------
In the event that there shall be a permitted Assignment of the interest of
a Limited Partner to any person in accordance with all of the terms of Section
12.6 below, but in connection therewith the transferee does not have the
automatic right to be admitted as an additional limited Partner, or if in
connection with any Assignment of an interest as a limited partner in the
Partnership permitted under this Article XII, the transferring Limited Partner
and/or the transferee do not execute all such
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<PAGE>
instruments as the General Partner may reasonably deem necessary or desirable,
or the transferee does not agree to assume the obligations of the transfering
Limited Partner to the Partnership, then the transferee in any such transaction
shall be treated as an assignee under the Partnership Law and shall not be
admitted as an additional limited partner unless consented to by the General
Partner, which consent may be withheld in the sole discretion of the General
Partner
SECTION 12.5 Liability for Transfer Expenses. All costs and expenses
-------------------------------
incurred by the Partnership in connection with any Assignment of a Partnership
interest pursuant to this Article XII (including any disposition caused by the
Bankruptcy of a Partner) in or in connection with another person becoming an
assignee or admitted as an additional limited partner or general partner in the
Partnership, including any filing, recording, and publishing costs and the
reasonable fees and disbursements of counsel, shall be paid by and be the sole
responsibility of the Partner Assigning such interest (or by the trustee,
receiver or other successor-in-interest in the case of a dissolved or bankrupt
Partner).
SECTION 12.6 Optional Purchases of Units.
---------------------------
A. Sale of Limited Partnership Interest/Rights of First Refusal. Except
------------------------------------------------------------
as otherwise provided in Section 5.2 and in Sections 12.1, 12.2, 12.3 and 12.4
above, in the event that any Limited Partner receives a "bona fide written offer
from a qualified purchaser" to purchase all, but not less than all, of such
Limited Partner's interest in the Partnership, and such Limited Partner desires
to sell all, but not less than all, of such Limited Partner's interest in the
Partnership pursuant thereto, such Limited Partner (the "SELLING LIMITED
PARTNER") may sell all of its interest in the Partnership and without the
consent of the General Partner, subject, however, to the provisions and
limitations of Section 12.4, this Section 12.6 and Article XI above. For
purposes hereof, a "bona fide offer from a qualified purchaser" means a written
and binding offer from a Person, other than a Non-Qualified Person and other
than Zimand, Arthur Zimand and any Person owned or controlled, directly or
indirectly, by Arthur Zimand, who has the financial ability to consummate the
purchase described in such offer, and which offer sets forth a description of
the Partnership interest subject thereto, the name and principal business
address of the Person who is the proposed purchaser (and, if such purchaser is
purchasing as a nominee for another Person, the name and address of such other
Person), and the price and all of the terms and conditions of the proposed
purchase.
The Selling Limited Partner shall give written notice (the "Offer") to
the General Partner and to each of the other
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Limited Partners (collectively, the "Remaining Limited Partners") that such
Selling Limited Partner desires to sell all of its interest as a Limited Partner
in the Partnership (the "Offered Interest"), for the price and pursuant to the
terms of the bona fide offer from the qualified purchaser, a full description of
which shall be attached to the Offer.
The General Partner shall have the first option to purchase all, but
not less than all, of the Offered Interest, at the price and upon the terms
contained in the Offer for a period of twenty (20) days from the receipt of the
Offer, such option to be exercised by delivery of written notice to the Selling
Limited Partner within such twenty (20) day period.
If, as of the expiration of the twenty (20) day period described
above, the General Partner does not exercise its option to purchase all of the
Offered Interest, then each of the Remaining Limited Partners other than Zimand
shall have the option to purchase each such Remaining Limited Partner's
proportionate share (as hereinafter defined), or other mutually agreed portion,
of all, but not less than all, of the Offered Interest, at the price and upon
the terms contained in the Offer for a period of twenty (20) days following the
expiration of the above-described twenty (20) day period during which the
General Partner had an option to purchase. Each such Remaining Limited
Partner's "proportionate share" of the Offered Interest shall mean the product
of the Offered Interest and a fraction, the numerator of which is the Percentage
Interest of such Remaining Limited Partner and the denominator of which is the
total Percentage Interests owned by all such Remaining Limited Partners which
have timely elected (and which were eligible to elect) to purchase their
proportionate shares of the Offered Interest. The option of such Remaining
Limited Partners shall be exercised by delivery of a written notice to the
Selling Limited Partner within such twenty (20) day period (i.e., within the
twenty (20) day period that the Remaining Limited Partners have an option to
purchase hereunder).
During the combined forty (40) day period described above during which
the General Partner and the Remaining Limited Partners have an option to
purchase the Offered Interest, the Selling Limited Partner may not transfer the
Offered Interest to the qualified purchaser or to any other Person. If, as of
the expiration of the combined forty (40) day period described above, the
General Partner and the Remaining Limited Partners have not elected to purchase
all of the Offered Interest in accordance with the foregoing, then the Selling
Limited Partner shall be free to sell the Offered Interest to the qualified
purchaser named in the Offer, provided that: (1) the Selling Limited Partner
first complies with the provisions of Article XI above, (2) such sale is on
terms and conditions no more favorable to the
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<PAGE>
qualified purchaser than those set forth in the Offer, and (3) such sale is
consummated within one hundred (100) days following the giving of the Offer. If
the Selling Limited Partner does not consummate the sale of the Offered Interest
to the qualified purchaser within such one hundred (100) day period, the Offered
Interest shall again be fully subject to all the terms and conditions of this
Section 12.6.
In the event that the General Partner or the eligible Remaining
Limited Partners timely elect to purchase the Offered Interest in accordance
with the foregoing, closing of the purchase of the Offered Interest shall take
place at the principal place of business of the Partnership (or such other
mutually agreed upon location) on such date selected by the purchasing party
within sixty (60) days after the exercise of the Option.
B. The Purchaser of an interest of a Limited Partner pursuant to this
Section 12.6 shall be treated as an assignee of such interest under the
Partnership Law and shall not be admitted as an additional Limited Partner
unless consented to by the General Partner, which consent may be withheld in the
sole discretion of the General Partner. Notwithstanding the foregoing, the
restrictions contained in this Section 12.6 upon a transferee being admitted as
a successor Limited Partner shall not apply (and such transferee shall
automatically be admitted as a successor Limited Partner) for transfers
occurring after the Partnership has received the written opinion of tax counsel
that both of the following have occurred: (i) new Regulations under Code (S)7701
allowing certain entities to either elect to be classified or automatically be
classified as partnerships for federal income tax purposes without regard, in
all cases, to whether they possess or lack the characteristic of "free
transferability of interests" have been promulgated into final form, and (ii)
partnership characterization under such Regulations is applicable to the
Partnership. If any such election can be made by the Partnership, the General
Partner shall make such election to have the Partnership classified as a
"partnership" for federal income tax purposes upon the request of any Limited
Partner.
SECTION 12.7 Removal of General Partner.
---------------------------
A. If the General Partner becomes Bankrupt, is convicted of a felony or
files a certificate of dissolution (or its equivalent) or otherwise has its
charter revoked (other than a ministerial revocation resulting from a failure to
file an annual report, which failure is promptly cured in a legally effective
manner after notice from any Partner or its representative), the General Partner
shall automatically be removed as a general partner and such General Partner's
general partner interest in the Partnership shall be treated in the manner
provided in
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Section 12.10 below. Notwithstanding the foregoing, if upon the dissolution of
the General Partner, its general partner interest in the Partnership is or will
be assigned in a manner permitted under Section 12.1 or 12.2 above, then such
dissolved General Partner's interest in the Partnership, as a general partner,
shall not be treated in the manner provided in Section 12.10 below, and such
person or persons or such corporation or other form of business entity
succeeding to such former General Partner's interest in the Partnership, as a
general partner, shall be admitted into the Partnership as a substitute or
successor General Partner(s), and shall succeed, collectively, to all of the
interests of such former General Partner (in its status as general partner) in
the Partnership, effective the moment before such former General Partner was
dissolved. The General Partner agrees that, if the provisions of this Section
12.7 apply and it is to be removed as a General Partner in accordance with the
terms hereof, it does hereby irrevocably make, constitute and appoint United as
its attorney-in-fact to carry out all the provisions of this Section 12.7 and
Section 12.10 below.
B. Except as may be otherwise provided by law, and except as may
otherwise be mutually agreed to by all Partners (including the General Partner),
the right to remove the General Partner shall be limited to the events described
in Subsection 12.7 above. Any successor general partner may be removed as a
general partner upon the terms and conditions provided in Subsection 12.7 above.
The removal of a general partner in accordance herewith shall in no way limit or
affect the liability of such general partner for debts and liabilities of the
Partnership arising or accruing prior to the effective date of such general
partner's removal.
SECTION 12.8 Effect of Change of Partners. Subject to the provisions of
----------------------------
this Agreement, the withdrawal, Bankruptcy, or substitution of any Limited
Partner shall not interrupt the continuity of, or cause the termination or
dissolution of, the Partnership. If the General Partner withdraws (except
pursuant to an Assignment of its interest in accordance with this Article XII),
dissolves, becomes Bankrupt, is removed or otherwise ceases to be a member of
the Partnership, the Partnership shall dissolve upon the date of any such event,
unless there is at least one remaining General Partner (including a successor
general partner to a dissolved general partner), if any, who agrees to continue
the business of the Partnership (such right to continue the business of the
Partnership being expressly granted hereby), or unless within ninety (90) days
after such event, all Partners agree in writing to continue the business of the
Partnership and to the appointment of one or more additional general partners if
necessary or desirable.
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SECTION 12.9 Appointment of Additional General Partners. In the event
------------------------------------------
that the Partnership does not dissolve upon the date the General Partner
withdraws, dissolves, ceases to be a member of the Partnership, or becomes
bankrupt solely because all Partners within ninety (90) days of such event agree
in writing to continue the business of the Partnership and to the appointment of
one or more additional General Partners as may be necessary or desirable, such
additional general Partner(s) shall be appointed by the unanimous agreement of
all such remaining Partners.
SECTION 12.10 Payments to (or Change in Status of) Removed General
-------------------------------------------- -------
Partner. In the event the General Partner is removed as a general partner
pursuant to this Article XII (or otherwise pursuant to the Partnership Law),
whether or not such removal triggers a dissolution of the Partnership, except as
otherwise provided in Subsection 12.7 above, such General Partner's entire
general partner interest in the Partnership shall, upon such removal, be
converted into a special class limited partner interest having the same rights
to distributions and interests in the Profits, Losses and capital of the
Partnership as prior to such conversion, and the Certificate of Limited
Partnership shall be duly amended. After such conversion, the holder of such
converted interest shall be automatically admitted as an additional limited
Partner. Each holder of a former General Partner's converted general partner
interest, who is to be admitted as an additional limited partner, if not already
bound by all of the terms and conditions of this Agreement, shall, as a
condition of such admission, be required to execute a joinder to this Agreement,
whereby such person becomes bound by all of the terms and conditions of the
Agreement (as it may be amended prior thereto or in connection with such
conversion). The conversion of the General Partner's interest hereunder shall
not, of itself, eliminate any liability to the Partnership or to the other
Partners that the General Partner may have under this Agreement at such time.
SECTION 12.11 Option to Purchase if a Partner Becomes a Non-Qualified
-------------------------------------------------------
Person. If any Partner other than Vistana WGV Holdings, Inc., Vistana and
- ------ ----------
Zimand, or any Affiliate of such Partner (other than an Affiliate of Vistana WGV
Holdings, Inc., Vistana or Zimand), is or becomes a Non-Qualified Person at any
time during the term of this Agreement, such Partner shall promptly notify the
General Partner and all the other Limited Partners of such fact. Such Partner
(THE "SELLING PARTNER") shall, whether or not such notice shall have been given,
be deemed for purposes of Section 12.6 above to have given an "Offer" to the
General Partner and to the "Remaining Limited Partners" to sell its entire
interest in the Partnership for a price equal to the greater of: (i) fifty
percent (50%) of the fair market value of such interest (which shall be
determined as
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<PAGE>
of the date of acceptance of such Offer or, at the sole option of
the purchasing Partner(s), determined as of the date such Partner first became a
Non-Qualified Person), or (ii) the amount of its Unreturned Capital (determined
as of the closing date of the sale and purchase). For purposes of the preceding
sentence, the fair market value of the Selling Partner's interest in the
Partnership shall be determined by utilizing the same procedures as set forth in
Section 12.3 above. The purchase price for the Selling Partner's interest shall
be paid in accordance with the following: twenty percent (20%) of the purchase
price shall be payable in cash or other immediately available funds at closing;
the balance of the purchase price shall be payable over a period of five (5)
years in five (5) equal annual installments of principal and interest, with
interest computed at the lesser of: (i) the Base Rate announced publicly by
CitiBank, N.A., New York, New York (or another comparable national banking
institution selected by the General Partner) to its most preferred customers
determined as of the date of closing, plus two percent (2%), or (ii) the highest
rate authorized under applicable law on such date. The first such installment
shall be made on the first anniversary of the closing and the remaining
installments shall be paid on successive anniversaries thereof. In addition,
upon closing of any sale and purchase under this Section 12.11, and as a
condition precedent to the obligation of the Selling Partner to sell its
interest hereunder, any amounts due by either the Partnership or any Defaulting
Partner to the Selling Partner with respect to loans made (or deemed to have
been made) by the Selling Partner under Sections 5.2, 5.3 and/or 5.4 above,
together with any and all accrued and unpaid interest and costs due thereon,
shall be paid in full (and in immediately available funds) at the closing.
Such Offer shall remain open, and may be accepted by the General Partner or
the Remaining Limited Partners in accordance with the terms of Section 12.6
above, except that the period for acceptance of such Offer shall not terminate
until the later of: (i) twenty (20) days or forty (40) days (whichever period is
applicable under Section 12.6) after the Selling Partner first gives written
notice to the General Partner and all of the Remaining Limited Partners that it
is, or has become, a Non-Qualified Person, or (ii) thirty (30) days after the
final determination of the fair market value of the Selling Partner's interest.
In addition, the period for exercising the Option will commence on the first
date on which the Selling Partner becomes a Non-Qualified Person, regardless of
whether notice of such fact has been given by the Selling Partner to the General
Partner and the Remaining Limited Partners. (Thus, if a Partner becomes a Non-
Qualified Person and fails to give such notice, such Partner shall be in breach
of this Agreement and, in addition, the period during which the General Partner
and the Remaining Limited Partners may exercise their Option hereunder shall
remain open indefinitely.)
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<PAGE>
If the General Partner and the Remaining Limited Partners do not exercise
their Option to purchase the Selling Partner's Interest in the Partnership prior
to the expiration of the option period provided hereunder, the interest of the
Selling Partner shall continue to be held by the Selling Partner and shall
remain subject to all terms and conditions of this Agreement (other than the
provisions of this Section 12.11). Except as set forth in this Section 12.11
(the terms of which shall control if in conflict with Section 12.6 above), the
terms and conditions of Section 12.6 above shall apply to any sale and purchase
of the Selling Partner's interest in the Partnership hereunder.
ARTICLE XIII
------------
DISSOLUTION OF THE PARTNERSHIP
------------------------------
SECTION 13.1 Events of Dissolution. The Partnership shall be dissolved,
---------------------
and its assets liquidated pursuant to Section 13.2 below, upon the first to
occur of:
A. December 31, 2046;
B. The sale, disposition or condemnation of all or substantially all of
the Partnership's property (other than cash) and the cessation of the
Partnership's business activities; provided, that, if on the
disposition of any such property, the Partnership shall own any
purchase money notes and mortgages, or promissory notes, the
Partnership shall not be deemed to have disposed of all or
substantially all of its property until such time as such purchase
money notes and mortgages, or promissory notes, are paid or otherwise
disposed of in full;
C. The withdrawal (except in conjunction with a transfer of its interest
in accordance with the terms of Article XII), retirement, removal,
dissolution, Bankruptcy or cessation of membership in the Partnership
of the General Partner, unless the Partnership is continued as
provided in Article XII;
D. The agreement, in writing, of Partners owning not less than seventy-
five percent (75%) of the Percentage Interests to dissolve the
Partnership; or
E. The occurrence of any event which, under the Partnership Law (but
subject to the provisions of this Agreement to the extent that the
Partnership Law may be modified by this Agreement), causes the
dissolution of this Partnership.
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<PAGE>
The Partnership shall continue to exist following the occurrence of any of
the foregoing events solely for the purpose of winding up its affairs.
SECTION 13.2 Distributions Upon Dissolution or Liquidation of the
----------------------------------------------------
Partnership. Upon the earlier of (i) the dissolution of the Partnership as
- -----------
provided by Section 13.1 above, or (ii) the Liquidation of the Partnership, the
General Partner (or, if none, a special liquidator appointed by Limited Partners
owning not less than fifty percent (50%) of the Percentage Interests) shall
immediately commence to wind up the Partnership's affairs and, except as
provided below, shall distribute all the assets of the Partnership in
liquidation as soon as practicable. In connection with winding up the
Partnership's affairs, the General Partner (or, if none, the special liquidator
appointed by the Limited Partners) shall have the authority to sell any assets
of the Partnership then on-hand for such price and on such commercially
reasonable terms and conditions as such General Partner (or special liquidator)
shall determine in its reasonable discretion, and distribute the proceeds
thereof in liquidation, and/or distribute all or any portion of such assets to
the Partners in-kind. In the event that any assets are to be distributed in-
kind, the General Partner (or special liquidator) shall have the right to select
the assets to be distributed to each of the Partners, and may distribute any
such assets proportionately or non-proportionately to or among the Partners
except that, if such assets are distributed "in-kind" then, upon the request of
any Partner, the fair market value of any such assets to be distributed in-kind
shall be established by an appraisal prepared by a qualified appraiser selected
by the General Partner and approved by Partners holding in the aggregate not
less than seventy-five percent (75%) of the Percentage Interests; and provided
that the aggregate distributions of cash and property to each of the Partners
(based on the net fair market value of property distributed in-kind) does not
exceed the aggregate amount to which each such Partner would otherwise be
entitled had all Partnership property otherwise to be distributed in-kind been
first converted into cash; and provided further that if property and cash are to
be distributed among the Partners, any such property and cash shall be
distributed among the Partners in accordance with Section 10.1 above.
In the event of the Liquidation of the Partnership, except as provided
below, all assets of the Partnership to be distributed to the Partners shall be
distributed in liquidation no later than the last day of the Partnership fiscal
year in which such Liquidation occurs [or, if later, within ninety (90) days of
the date of Liquidation of the Partnership]. Notwithstanding the above, if there
is a Liquidation of the Partnership solely because fifty percent (50%) or more
of the total interests in the Partnership capital and profits were sold or
exchanged within a twelve-month period, the assets of the
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<PAGE>
Partnership shall not be actually distributed in liquidation solely as a result
of such occurrence (and no Partner shall have the right to demand a distribution
solely by reason of such occurrence).
The assets to be distributed in liquidation shall be distributed in the
following order of priority:
A. Payment to creditors of the Partnership, including Partners, in the
order of priority provided by law; and
B. Payment to the Partners in accordance with the priorities set forth in
Section 10.1 above [although liquidating distributions are being made
in accordance with the distribution provisions of Section 10.1 rather
than in accordance with the positive Capital Account balances, it is
anticipated by the Partners that distributions made pursuant to
Section 10.1 above will produce the same result as a distribution in
accordance with positive Capital Account balances; provided, however,
that in the event a different result occurs by reason of a mistake or
an otherwise improper allocation, the provisions of Section 10.1 shall
control the distribution of assets upon Liquidation of the
Partnership].
If upon the Liquidation of the Partnership the Capital Accounts of the
Partners are adjusted pursuant to Section 6.3 above, the General Partner (or
special liquidator, as the case may be), in its sole discretion, may, out of
amounts otherwise distributable to the Partners, create reserves reasonably
required to provide for Partnership liabilities (contingent or otherwise) and
may withhold the distribution of installment obligations owed to the Partnership
so long as (i) the other assets of the Partnership, distributable to the
Partners, are distributed within the time set forth above and in accordance with
the priorities set forth in Section 10.1 above, and (ii) such withheld amounts
are distributed as soon as practicable and in accordance with the priorities set
forth in Section 10.1 above.
SECTION 13.3 Balance Owed by Partner. Except as provided below, should
-----------------------
the General Partner have a deficit balance in the General Partner's Capital
Account following the liquidation of its interest in the Partnership [as defined
in Reg. (S)1.704 1(b)(2)(ii)(g)], as determined after taking into account all
proper Capital Account adjustments for the Partnership taxable year during which
such liquidation occurs (or, if later, through the date of the final
distribution in liquidation of the General Partner's interest), other than the
adjustment made for contributions by the General Partner pursuant to this
Section 13.3, the deficit balance shall represent an obligation from the
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<PAGE>
General Partner to the Partnership to be paid in cash no later than the last day
of the Partnership taxable year during which such liquidation occurs [or, if
later, no later than ninety (90) days after the date of such liquidation].
Any Limited Partner with a deficit balance in such Limited Partner's
Capital Account following the liquidation of such Limited Partner's interest in
the Partnership, to the extent attributable to a general partner interest which
was converted to that of a limited partner interest in accordance with Section
12.10 above, shall be obligated to restore such deficit balance to the extent of
the aggregate liability, if any, of such Limited Partner to Partnership
creditors, as determined by law as of the date of the liquidation of such
Limited Partner's interest in the Partnership, and by taking into account any
and all assets of the Partnership (other than any asset which consists of the
obligation of such Limited Partner to make a contribution pursuant to this
Section 13.3) which are then available (or which will thereafter be available)
to satisfy, in whole or in part, the indebtedness of the Partnership to which
such creditors' claims relate.
No other Limited Partner shall be obligated to restore a deficit balance in
its Capital Account in its capacity as a Limited Partner following the
liquidation of such Limited Partner's interest in the Partnership.
SECTION 13.4 Instruments of Termination. Upon the ter mination of the
--------------------------
Partnership, the General Partner (or special liquidator, as the case may be)
shall make such filings and do such other acts as shall be required by the
Partnership Law and the Limited Partners hereby agree to execute and deliver to
the General Partner (or special liquidator, as the case may be) such
certificates or documents as shall be so required.
ARTICLE XIV
-----------
TAX MATTERS PARTNER
-------------------
SECTION 14.1 Appointment of Tax Matters Partner. The tax matters Partner
----------------------------------
("TMP") for the Partnership shall be the General Partner.
SECTION 14.2 Employment of Advisors. The TMP shall employ experienced
----------------------
tax advisors to represent the Partnership in connection with any audit,
examination or investigation of the Partnership by the Internal Revenue Service
(or by any state or local taxing authority), and in connection with all
subsequent administrative and judicial proceedings arising out of such audit,
examination or investigation. The fees and expenses of such tax advisors shall
be a Partnership expense and shall be paid by the Partnership. Such advisors
shall be responsible for
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<PAGE>
representing the Partnership. It shall be the responsibility of the General
Partner and the Limited Partners, at their own expense, to employ tax advisors
to represent their respective separate interests.
SECTION 14.3 Notice and Expenses. The TMP shall keep the Limited
-------------------
Partners informed of all administrative and judicial proceedings, as required by
the Code, and shall furnish to each Limited Partner a copy of each notice or
other communication received by the TMP from the Internal Revenue Service
(except such notices or communications which are sent directly to such
requesting Limited Partner by the Internal Revenue Service). All expenses
incurred by the TMP in serving as TMP shall be Partnership expenses and shall be
paid by the Partnership. The TMP shall take all steps necessary to insure that
United is treated as a "notice partner" for purposes of Code (S)6234.
SECTION 14.4 Authority of Tax Matters Partner. The TMP shall have the
--------------------------------
full authority to take any and all actions otherwise permitted to be taken by a
tax matters partner under the Code in connection with any audit, examination or
investigation of the Partnership, and in connection with any and all
administrative and judicial proceedings arising out of such audit, examination
or investigation, including, but not limited to, any of the following actions:
A. Enter into a settlement agreement with the Internal Revenue Service,
except that no such settlement agreement shall bind any Partner unless
such Partner has notified the TMP that it consents to be bound by such
settlement agreement;
B. File a petition as contemplated in Code (S)6226(a) or (S)6228;
C. Intervene in any action contemplated in Code (S)6226(b);
D. File any requests contemplated in Code (S)6227(b); or
E. Enter into an agreement extending the period of limitations, as
contemplated by Code (S)6229(b)(1)(B).
SECTION 14.5 Indemnification. The Partnership (but not any Partner)
---------------
shall indemnify and hold the TMP harmless against judgments, fines, amounts paid
in settlement and expenses (including reasonable attorneys' fees, whether before
or at trial or during any appellate proceeding), paid or incurred by the TMP in
any civil, criminal or investigative proceeding in which the TMP is involved or
threatened to be involved solely by reason of being the TMP for the Partnership;
provided that the TMP acted reasonably and in good faith within what the TMP
reasonably believed to be in the best interests of the Partnership or the
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<PAGE>
Partners, as a whole. Notwithstanding the foregoing, the TMP shall not be
indemnified under this Section 14.5 against any liability of the TMP to the
Partnership or the Limited Partners to the extent any such liability is
attributable to or otherwise arises out of the TMP's fraud, intentional
misconduct or gross negligence.
ARTICLE XV
----------
MISCELLANEOUS
-------------
SECTION 15.1 Notices. All notices or other communications given or made
-------
under this Agreement shall be in writing, signed by the party giving same, and
shall be delivered personally, transmitted by a facsimile capable of verifying
receipt (receipt confirmed), sent by national overnight courier service, or sent
by United States certified mail, return receipt requested, postage prepaid,
addressed as follows:
To the General Partner:
Vistana WGV Holdings, Inc.
8801 Vistana Centre Drive
Lake Buena Vista, FL 32821
With a copy to:
Charles H. Egerton, Esq.
Dean, Mead, Egerton, Bloodworth,
Capouano & Bozarth, P.A.
P. O. Box 2346
Orlando, FL 32802
To Vistana at:
Vistana WGV Investment, Ltd.
8801 Vistana Centre Drive
Lake Buena Vista, FL 32821
With a copy to:
Charles H. Egerton, Esq.
Dean, Mead, Egerton, Bloodworth,
Capouano & Bozarth, P.A.
P. O. Box 2346
Orlando, FL 32802
To United at:
United Timeshares, Inc.
P. O. Box 1280
Bristol, VA 24203-1280
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<PAGE>
With copies to:
Dan B. Miller, Esq.
Jones, Day, Reavis & Pogue
77 West Wacker Drive, Suite 3500
Chicago, IL 60601-1692
and to:
Wayne L. Bell, Esq.
Executive Vice President and General Counsel
The United Company
P. O. Box 1280
Bristol, VA 24203-1280
To Zimand at:
A. Zimand WGV Investment, Inc.
5426 Osprey Isle Lane
Orlando, FL 32819
With a copy to:
Robert Grosman, Esq.
Greenberg, Traurig, Hoffman,
Lipoff, Rosen & Quentel
1221 Brickell Avenue, 21st Floor
Miami, FL 33131-3260
Except as may be otherwise provided in this Agreement, all notices,
requests, demands, elections or other communications given in accordance with
this Section 15.1 shall be effective at the earlier of (i) five (5) business
days after deposit in the United States mail, certified postage prepaid; (ii)
twenty-four (24) hours after delivery to a national overnight courier service;
or (iii) confirmation of receipt if transmitted by facsimile or telexed or if
delivered personally. Any party may change the address to be used for
notification purposes hereunder by providing written notice thereof to the other
parties in accordance herewith.
SECTION 15.2 Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the laws of the State of Florida without giving
effect to such State's conflicts of laws principles. Venue for any action
brought to enforce this Agreement or to interpret the rights of the Partners
hereunder shall lie in Orange County, Florida.
SECTION 15.3 Entire Agreement. This Agreement constitutes the entire
----------------
Partnership agreement between the Limited Partners and the General Partner and
supersedes all prior agreements and undertakings with respect hereto among them.
No Partner is
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making any guarantee, promise, or undertaking any obligation with respect to the
Partnership that is not expressly contained in this Agreement.
SECTION 15.4 Amendment. Except as otherwise provided herein, this
---------
Agreement may only be amended upon the written consent of Partners owning in the
aggregate not less than seventy-five percent (75%) of the Percentage Interests,
except that the consent of all Partners shall be required for any amendment that
reduces the rights or interests, or enlarges the obligations of any Limited
Partner (with respect to a Limited Partner's interests in the Profits, Losses,
Available Cash or capital of the Partnership) or has an adverse economic effect,
or otherwise has a material adverse effect, upon such Limited Partner's interest
in the Partnership. Notwithstanding the foregoing, the General Partner may
amend the Agreement without the consent of the Limited Partners to the extent
necessary to reflect the transfer of all or such portion of a Partner's interest
as may have been transferred pursuant to Subsection 5.2.B above.
SECTION 15.5 Binding Upon Successors. Each and every provision hereof
-----------------------
shall be binding upon, and inure to the benefit of, the heirs, personal
representatives, successors and assigns of the respective parties hereto except
to the extent explicitly provided to the contrary herein.
SECTION 15.6 Severability. Every provision hereof is intended to be
------------
severable, and if any term or provision hereof is illegal or invalid for any
reason whatsoever or would constitute the Limited Partners or any Limited
Partner a general Partner or would affect the Partnership status of the
Partnership for federal income tax purposes, such provision shall be invalid,
but such illegality or invalidity shall not affect the validity of the remainder
of this Agreement.
SECTION 15.7 Captions/References. The titles and captions contained
-------------------
herein are for convenience only and shall not be deemed a part of the context of
this Agreement. All references to "regulations" or "Reg. (S)" or "Treasury
Regulations" refer to rules and regulations promulgated by the United States
Treasury Department under the Code. The words "this Agreement," "herein,"
"hereof," "hereby," "hereunder" and words of similar import refer to this
Agreement as a whole and not to any particular subdivision unless expressly
limited.
SECTION 15.8 Numbers and Gender. Where the context so indicates, the
------------------
masculine shall include the feminine and neuter, the singular shall include the
plural.
SECTION 15.9 Counterparts. This Agreement may be executed in
------------
counterparts, each of which shall be deemed to be an original
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<PAGE>
and shall be binding upon the party or parties who executed the same, but all of
such counterparts shall constitute one and the same agreement.
SECTION 15.10 Waiver of Partition. Each of the Partners hereby
-------------------
irrevocably waives any and all rights that such Partner may have to maintain an
action for partition of any of the Partnership's property.
SECTION 15.11 Assignees. In the event that any transferee or other
---------
successor-in-interest to a Partner is not otherwise admitted as an additional
limited partner (or general partner) in accordance with the provisions of this
Agreement, provided that the transfer at issue is not null and void, such
transferee or other successor-in-interest shall be treated as an assignee, and
shall only have the right to receive the profits and capital, and shall be
subject to all of the liabilities and obligations, to which the transferring
Partner (or transferring assignee, or other predecessor-in-interest) would
otherwise be entitled, or would otherwise be subject to, pursuant to this
Agreement (but for such transfer), to the extent attributable to the interest
transferred to such assignee. In applying the provisions of this Agreement,
including Articles IX and X, and Section 13.3 hereof, each successor to a
Partnership interest, whether admitted as an additional Partner or not, shall be
deemed to have received the aggregate allocations and distributions previously
made to each predecessor-in-interest to the interest in the Partnership held by
such person, and, except as modified in Subsection 5.2.A above, shall also be
deemed to have made the aggregate contributions to capital that were made with
respect to such interest in the Partnership by such predecessors-in-interest.
An assignee who is not otherwise admitted as an additional limited Partner (or
general Partner) shall have no right to vote on any matter subject to the
approval of the Partners (or the Partners of any class), nor have any rights to
interfere in the management or administration of the Partnership's business or
affairs, acquire any information or account of Partnership transactions, or
inspect the Partnership's books during the continuance of the Partnership.
SECTION 15.12 Third-Party Beneficiaries. Any agreement contained herein
-------------------------
to make any contribution or to otherwise pay any amount, and any assumption of
liability herein contained, express or implied, shall be only for the benefit of
the undersigned parties and their respective permitted successors and assigns,
and such agreements and assumptions shall not inure to the benefit of the
obligees under any indebtedness, or to any other party whomsoever, it being the
intention of the undersigned parties that no one shall be deemed to be a third-
party beneficiary of this Agreement or any portion hereof.
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<PAGE>
SECTION 15.13 Confidential Information. Each Partner hereby acknowledges
------------------------
and agrees that confidential information concerning employees and agents of the
Partnership (including, but not limited to, the amount and nature of the
compensation paid to such employees and agents), customers, and owners of units
and properties of the Partnership (the "Units"), and proprietary sources of the
Partnership's marketing programs (including present and prospective OPC
locations and the terms of leases or similar financial arrangements with regard
thereto) (collectively, the "TRADE SECRETS") used by or relating to the
Partnership, are and shall be considered proprietary information belonging
exclusively to the Partnership to the extent such information is not readily
available to the public or has not otherwise become public knowledge through
sources other than the Partners, their agents and/or employees.
No Partner shall in any manner, either directly or indirectly, disseminate,
disclose, or communicate with any Person any Trade Secrets regardless of whether
such information is considered to be confidential by third parties; provided
that none of the provisions of this Section 15.13 shall apply to disclosures
made to other employees or agents of the Partnership which are made for valid
business purposes of the Partnership. The provisions of this Section 15.13 shall
survive the termination of this Agreement and the termination of any Partner's
interest in the Partnership.
IN WITNESS WHEREOF, the parties hereto have set their respective hands on
the day and date set opposite their names.
GENERAL PARTNER
---------------
VISTANA WGV HOLDINGS, INC., a Florida
corporation
Dated: June 28, 1996 By: /s/ Raymond L. Gellein, Jr.
------------- ------------------------------------
Raymond L. Gellein, Jr.
President
LIMITED PARTNERS
----------------
VISTANA WGV INVESTMENT, LTD.
By: JAA WGV HOLDINGS, INC.,
Co-General Partner
Dated: June 28, 1996 By: /s/ Jeffrey A. Adler
------------- ------------------------------------
Jeffrey A. Adler, President
By: RLG WGV HOLDINGS, INC.,
<PAGE>
Co-General Partner
Dated: June 28, 1996 By: /s/ Raymond L. Gellein, Jr.
------------- ------------------------------------
Raymond L. Gellein, Jr.
President
UNITED TIMESHARES, INC.,
a Florida Corporation
Dated: June 28, 1996 By: /s/ J. Thomas Fowlkes
------------- ------------------------------------
J. Thomas Fowlkes
Chief Executive Officer
A. ZIMAND WGV INVESTMENT, INC.
Dated: June 28, 1996 By: /s/ Arthur Zimand
------------- ------------------------------------
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<PAGE>
EXHIBIT 10.14
PARCEL ONE PROPERTY SALE AGREEMENT
THIS AGREEMENT is made this 4th day of June, 1996 (the "Effective Date"),
by and between SJH PARTNERSHIP, LTD., a Florida limited partnership ("SJH
Partnership") and VISTANA WGV, LTD., a Florida limited partnership ("Buyer").
In consideration of the mutual undertakings of the parties set forth in
this Agreement and of other valuable considerations, the receipt and sufficiency
of which the parties acknowledge, the parties hereby agree as follows:
PREAMBLE
WHEREAS, Dunavant Enterprises, Inc. ("Dunavant") is the fee simple owner of
approximately 3900 acres of property located in northwest St. Johns County,
Florida, referenced as the Six Mile Creek Parcel in that certain Development of
Regional Impact Order approved by St. Johns County Resolution No. 91-130, as the
same may be modified from time to time (the "Saint Johns DRI") (herein referred
to as the "River Tract"); and
WHEREAS, SJH Partnership is the fee simple owner of three (3) parcels of
land of approximately 2000 acres in total, referenced as the "Interchange
Northeast Parcel," "Interchange Southeast Parcel" and "Interchange Northwest
Parcel" in the Saint Johns DRI (herein collectively referred to as the
"Interchange Tract"). The Interchange Tract and the River Tract are hereinafter
collectively referred to as the "Saint Johns Property." The legal description
of the Interchange Northwest Parcel is attached hereto as an Exhibit; and
WHEREAS, the Interchange Tract is contiguous to an Interchange located at
the intersection of Interstate 95 and International Golf Parkway, a publicly
dedicated right-of-way (the "Interchange") and contains approximately 3.2 miles
of frontage on Interstate 95; and
<PAGE>
WHEREAS, the River Tract is located approximately 1.5 miles west of the
Interchange; and
WHEREAS, Buyer desires to enter into a purchase agreement with SJH
Partnership for the acquisition of a portion of the Interchange Northwest Parcel
for the purpose of constructing up to 440 resort condominium and/or vacation
ownership units, including ancillary facilities and amenities (collectively, the
"Villas"), which Villas are to be constructed upon two parcels of land (the
"Land") as generally shown on the Site Plan attached hereto as an Exhibit,
together with an Access Easement, as hereinafter defined (which Land and Access
Easement to be herein conveyed are collectively referred to as "Parcel One").
The legal descriptions of the Land and Access Easement are attached hereto as
Exhibits; and
WHEREAS, SJH Partnership has entered into a conveyance agreement with
Scratch Golf Company ("Scratch") for the acquisition of a portion of the
Interchange Northwest Parcel (the "World Golf Village Golf Course Parcel") for
the purpose of construction of an 18 hole golf course (the "World Golf Village
Golf Course") and related improvements (the "World Golf Village Golf Course
Conveyance Agreement"); and
WHEREAS, SJH Partnership intends to enter into an agreement with UCC Realty
Corporation ("UCC") providing for the sale of lands in proximity to Parcel One
("Parcel Two") for the development of retail improvements which may include up
to 90 condominium units (the "Parcel Two Sale Agreement"); and
WHEREAS, John Q. Hammons Hotels - St. Johns L.P. ("JQH-LP") has entered
into a purchase agreement with SJH Partnership dated as of November 22, 1994, as
amended to the date hereof, for the acquisition of a portion of the Interchange
Northwest Parcel for the purpose of construction of a hotel containing up to 400
rooms (the "Hotel") and approximately 80,000 square feet of conference center
facilities (the "Conference Center") on approximately 10
2
<PAGE>
acres within the Interchange Northwest Parcel (the "Hotel Parcel"), which
Conference Center facilities may be developed in concert with St. Johns County,
Florida (the "County") (the "Hotel Agreement for Purchase and Sale"); and
WHEREAS, World Golf Village, Inc. ("WGV") is a not-for-profit corporation
dedicated to educating the public concerning amateur and professional golf and
is supported by PGA Tour, Inc. ("Tour"), the Professional Golfers Association of
America ("PGA"), the United States Golf Association, the Royal & Ancient Golf
Club of St. Andrews, the National Golf Foundation, the Ladies Professional Golf
Association ("LPGA") and various other organizations within amateur and
professional golf; and
WHEREAS, SJH Partnership intends to convey a portion of the Interchange
Northwest Tract (the "Hall of Fame Parcel") to the County and WGV to construct
an International Golf Museum housing the PGA Tour Hall of Fame, the LPGA Hall of
Fame, the PGA World Golf Hall of Fame; an IMAX or IWERKS Theater or other
similar entertainment facility; the PGA Tour Golf Academy and additional
facilities including a headquarters and production facility for PGA Tour
Productions; and related structures and other ancillary improvements; and such
other amenities as described in the conveyance agreement to be entered into
between SJH Partnership and WGV (the "Hall of Fame Conveyance Agreement"); and
WHEREAS, WGV, SJH Partnership, Buyer and JQH-LP intend that the facilities
constructed by them on portions of the Interchange Northwest Tract shall be
operated and promoted as the "World Golf Village" pursuant to certain license,
access and operating agreements to be entered into between each of the parties
thereto as to their respective properties and WGV as the owner of the trademarks
and logos of the "World Golf Village" to be more particularly described in that
certain Master Development Agreement
3
<PAGE>
to be executed by WGV, SJH Partnership, JQH-LP, Scratch, UCC and Buyer (the "WGV
Master Development Agreement"); and
WHEREAS, Dunavant has entered into an agreement to ultimately convey
portions of the River Tract to Scratch for construction of a second 18 hole golf
course (the "River Tract Golf Course") upon terms and conditions set forth in
the conveyance agreement to be entered into between Dunavant and Scratch (the
"River Tract Golf Course Conveyance Agreement") such that the second 18 hole
golf course shall also be operated and promoted as part of the "World Golf
Village" pursuant to certain license, access and operating agreements to be
entered into between Buyer, WGV, Dunavant, Scratch and JQH-LP which are to be
reflected in a master development agreement (the "River Tract Master Development
Agreement"); and
WHEREAS, SJH Partnership desires to enter into the following agreement with
Buyer, in consideration for the ongoing commitments and obligations of Buyer as
set forth in this Agreement; and
WHEREAS, Buyer, in order to provide for the acquisition of Parcel One for
construction of the Villas as part of the World Golf Village, desires to enter
into the following agreement with SJH Partnership.
NOW, THEREFORE, for and in consideration of the sum of Ten Dollars
($10.00), in hand paid by Buyer to SJH Partnership, the mutual undertakings of
the parties set forth in this Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
in further consideration of the mutual covenants, promises and undertakings
contained herein, SJH Partnership and Buyer hereby agree and covenant as
follows:
1. DEFINITIONS.
-----------
1.1 When used in this Agreement, the following terms shall have the
following meanings:
4
<PAGE>
1.1.1 Access Easement shall have the meaning set forth in
---------------
Section 2.10 hereof.
1.1.2 Access Road shall mean and refer to that certain main
-----------
arterial access entry road providing access to the Road Connection Point from
International Golf Parkway as more particularly described in the Site Plan.
1.1.3 Assignment of Development Rights shall mean and refer
--------------------------------
to that certain assignment from SJH Partnership in favor of Buyer described in
Section 12.2.
1.1.4 Association(s) shall have the meaning set forth in
--------------
Section 12.9 hereof.
1.1.5 Association Covenants shall have the meaning set forth
---------------------
in Section 12.9 hereof.
1.1.6 Bond Resolution shall mean Resolution 95-117 of St.
---------------
Johns County approved by the St. Johns County Commission authorizing issuance of
the Series 1996 Bonds to finance construction of the Conference Center, as
amended through the date of this Agreement.
1.1.7 Buyer Completion Assurances shall have the meaning set
---------------------------
forth in Section 10.9 hereof.
1.1.8 Closing or Closing Date shall have the meaning set
------- ------------
forth in Section 2.9 hereof.
1.1.9 Commencement Date shall have the meaning set forth in
-----------------
Section 11.2 hereof.
1.1.10 Commitment shall have the meaning set forth in Section
----------
2.6 hereof.
1.1.11 Completion Date shall have the meaning set forth in
---------------
Section 11.2 hereof.
1.1.12 Conference Center Bonds shall have the meaning set
-----------------------
forth in Section 1.1.37 hereof.
1.1.13 Construction Reimbursement Agreement shall mean that
------------------------------------
certain Construction Reimbursement Agreement to be
5
<PAGE>
entered into between Buyer, WGV and others allocating certain construction
reimbursements to be paid to WGV for certain WGV Easement improvements.
1.1.14 County shall have the meaning assigned to such term in
------
the "WHEREAS" clauses.
1.1.15 Deposit shall have the meaning set forth in Section 2.3
-------
hereof.
1.1.16 Development Criteria shall have the meaning set forth
--------------------
in Section 5.2 hereof.
1.1.17 Dunavant shall have the meaning assigned to such term
--------
in the "WHEREAS" clauses.
1.1.18 Effective Date shall have the meaning set forth in the
--------------
introductory paragraph.
1.1.19 Escrow Agent shall have the meaning set forth in
------------
Section 2.3 hereof.
1.1.20 Final Development Plan shall have the meaning set forth
----------------------
in Section 6.3 hereof.
1.1.21 Force Majeure as used herein shall mean acts of God,
-------------
earthquakes, blizzards, tornados, hurricanes, fire, flood, malicious mischief,
insurrection, riots, strikes, lockouts, boycotts, picketing, labor disturbances,
public enemy, war (declared or undeclared), landslides, explosions, epidemics,
compliance with any order, ruling, injunction or decree by any court, tribunal
or judicial authority of competent jurisdiction, inability to obtain materials
or supplies after the exercise of all reasonable efforts, substantial
interference in construction activities resulting directly from Hazardous Waste
remediation activities or directly from construction activities or delays as to
construction activities conducted simultaneously on adjacent lands by or under
the direction of unrelated parties, inability to obtain water and sewer service
from St. Johns County and any other similar circumstances beyond the reasonable
control of the party
6
<PAGE>
responsible for such performance. The party affected by such Force Majeure
event must give notice specifying the Force Majeure event, in writing, to the
other parties within forty-eight (48) hours after actual knowledge of its
occurrence. The obligation to perform of the party giving notice of the Force
Majeure event shall be suspended during the continuance of any inability to
perform caused by the occurrence of the Force Majeure event.
1.1.22 Guaranty Fee Note shall have the meaning set forth in
-----------------
Section 2.1.2 hereof.
1.1.23 Hall of Fame Conveyance Agreement shall have the
---------------------------------
meaning assigned to such term in the "WHEREAS" clauses.
1.1.24 Hall of Fame Parcel shall have the meaning assigned to
-------------------
such term in the "WHEREAS" clauses.
1.1.25 Hazardous Wastes shall be as variously defined under
----------------
the Resource Conservation and Recovery Act of 1976, as amended in 1984; (42
U.S.C. Sec. 6901 et seq.); the Comprehensive Environmental Response Compensation
and Liability Act of 1980, as amended in 1986; (42 U.S.C. Sec. 9601 et seq.);
the Federal Toxic Substances Control Act; (15 U.S.C. Sec. 2601 et seq.); the
Clean Air Act; (42 U.S.C. Sec. 7401 et seq.); the Pollutant Spill Prevention and
Control Act; (F.S. Chapter 376 et seq.); and the Florida Air and Water Pollution
Control Act; (F.S. Chapter 403 et seq.); together with all rules, regulations,
orders and the like, applicable to the same.
1.1.26 Hotel shall have the meaning assigned to such term in
-----
the "WHEREAS" clauses.
1.1.27 Hotel Agreement for Purchase and Sale shall have the
-------------------------------------
meaning assigned to such term in the "WHEREAS" clauses.
1.1.28 Hotel Parcel shall have the meaning assigned to such
------------
term in the "WHEREAS" clauses.
7
<PAGE>
1.1.29 Infrastructure Improvements shall have the meaning set
---------------------------
forth in Section 11.4 hereof.
1.1.30 Interchange Northwest Parcel shall have the meaning
----------------------------
assigned to such term in the "WHEREAS" clauses.
1.1.31 JQH-LP shall have the meaning assigned to such term in
------
the "WHEREAS" clauses.
1.1.32 Known Exceptions shall have the meaning set forth in
----------------
Section 2.5 hereof.
1.1.33 Land shall have the meaning assigned to such term in
----
the "WHEREAS" clauses.
1.1.34 License Agreement shall mean and refer to that certain
-----------------
agreement to be entered into between Buyer and SJH Partnership attached hereto
as an Exhibit.
1.1.35 Master Development Agreements shall mean collectively
-----------------------------
the River Tract and WGV Master Development Agreements.
1.1.36 Memorandum of Agreement shall mean and refer to that
-----------------------
certain agreement to be entered into between SJH Partnership and Buyer attached
hereto as an Exhibit.
1.1.37 Memorandum of Understanding shall mean and refer to
---------------------------
that certain Memorandum of Understanding dated as of February 14, 1995, entered
into between JQH-LP and the County, as approved by Resolution No. 95-28
providing for issuance by St. Johns County of Bonds to construct the Conference
Center (the "Conference Center Bonds").
1.1.38 Mortgagee shall have the meaning set forth in Section
---------
2.6 hereof.
1.1.39 Other Conveyance Agreements shall have the meaning set
---------------------------
forth in Section 9.3 hereof.
1.1.40 Parcel One shall have the meaning assigned to such term
----------
in the "WHEREAS" clauses.
1.1.41 Parcel Two Sale Agreement shall have the meaning
-------------------------
assigned to such term in the "WHEREAS" clauses.
8
<PAGE>
1.1.42 Permitted Exceptions shall have the meaning set forth
--------------------
in Section 2.8 hereof.
1.1.43 Phase I Audit shall have the meaning set forth in
-------------
Section 6.6 hereof.
1.1.44 Phase I Improvements shall have the meaning set forth
--------------------
in Section 11.2 hereof.
1.1.45 Phase I Units shall have the meaning set forth in
-------------
Section 11.2.1 hereof.
1.1.46 Plans and Specifications shall have the meaning set
------------------------
forth in Section 11.1 hereof.
1.1.47 Preliminary Plans shall have the meaning set forth in
-----------------
Section 6.1 hereof.
1.1.48 Purchase Price shall have the meaning set forth in
--------------
Section 2.1 hereof.
1.1.49 Right of First Refusal shall have the meaning set forth
----------------------
in Section 13 hereof.
1.1.50 River Tract shall have the meaning assigned to such
-----------
term in the "WHEREAS" clauses.
1.1.51 River Tract Golf Course Conveyance Agreement shall have
--------------------------------------------
the meaning assigned to such term in the "WHEREAS" clauses.
1.1.52 River Tract Golf Facility Use Agreement shall mean that
---------------------------------------
certain agreement to be entered into between Buyer, Dunavant, WGV, JQH-LP,
Scratch and UCC providing for access to the River Tract Golf Course.
1.1.53 River Tract Master Development Agreement shall have the
----------------------------------------
meaning assigned to such term in the "WHEREAS" clauses.
1.1.54 Road Connection Point shall have the meaning set forth
---------------------
in Section 11.4 hereof.
1.1.55 SJH Completion Assurances shall have the meaning set
-------------------------
forth in Section 9.7 hereof.
9
<PAGE>
1.1.56 SJH Partnership shall have the meaning assigned to such
---------------
term in the introductory paragraph.
1.1.57 Saint Johns DRI shall have the meaning assigned to such
---------------
term in the "WHEREAS" clauses.
1.1.58 Saint Johns PUD shall mean and refer to that certain
---------------
Planned Unit Development Ordinance 91-36 pertaining to the Interchange Tract as
adopted by the St. Johns County Commission, as the same may be modified from
time to time.
1.1.59 Site Plan shall mean the Site Plan attached hereto as
---------
an Exhibit.
1.1.60 Special Assessment Agreement shall mean and refer to
----------------------------
that certain Special Assessment Agreement providing for sources of repayment of
the Conference Center Bonds as contemplated under the Bond Resolution.
1.1.61 Special Warranty Deed shall have the meaning set forth
---------------------
in Section 2.10.1 hereof.
1.1.62 Surface Water Permits shall mean Army Corps of
---------------------
Engineers Permit No. 199100108 (IPGS) and St. Johns River Water Management
District Permits, No. 4-109-01206, No. 4-109-0122 and No. 12-109-0036, as the
same may be modified from time to time.
1.1.63 Survey shall have the meaning set forth in Section 2.7
------
hereof.
1.1.64 Title Company shall have the meaning set forth in
-------------
Section 2.6 hereof.
1.1.65 Title Policies shall have the meaning set forth in
--------------
Section 2.6 hereof.
1.1.66 UCC shall have the meaning assigned to such term in the
---
"WHEREAS" clauses.
1.1.67 Villa License Agreement shall mean and refer to the
-----------------------
certain agreement to be entered into between Buyer and WGV as described in
Section 10.6.
10
<PAGE>
1.1.68 Villas shall have the meaning assigned to such term in
------
the "WHEREAS" clauses.
1.1.69 Voluntary Payment Declaration shall mean and refer to
-----------------------------
that certain Declaration of Voluntary Payment Obligations providing for sources
of repayment of the Conference Center Bonds as contemplated in the Bond
Resolution.
1.1.70 WGV shall have the meaning assigned to such term in the
---
"WHEREAS" clauses.
1.1.71 WGV Easement shall have the meaning set forth in
------------
Section 9.5 hereof.
1.1.72 WGV Easement Agreement shall have the meaning set forth
----------------------
in Section 9.5 hereof.
1.1.73 WGV Golf Facility Use Agreement shall mean and refer to
-------------------------------
that certain agreement to be entered into between SJH Partnership, Scratch,
Buyer, WGV and UCC providing for access to the World Golf Village Golf Course.
1.1.74 WGV Master Development Agreement shall have the meaning
--------------------------------
assigned to such term in the "WHEREAS" clauses.
1.1.75 World Golf Village shall have the meaning assigned to
------------------
such term in the "WHEREAS" clauses.
1.1.76 World Golf Village Golf Course Conveyance Agreement
---------------------------------------------------
shall have the meaning assigned to such term in the "WHEREAS" clauses.
2. SALE AND CONVEYANCE.
-------------------
2.1 Purchase Price and other Financial Obligations of Buyer.
-------------------------------------------------------
2.1.1 Under the terms of this Agreement, SJH Partnership
hereby agrees to sell and convey to Buyer and Buyer agrees to purchase Parcel
One from SJH Partnership for a purchase price of One Million Six Hundred Twenty-
Five Thousand Dollars ($1,625,000.00) (the "Purchase Price") to be paid as set
forth in
11
<PAGE>
Section 2.2 below. In conjunction with and as part of the purchase and sale of
Parcel One, SJH Partnership shall also convey to Buyer certain development
rights, easements and a license as more specifically provided for in this
Agreement.
2.1.2 In consideration of the agreement of SJH Partnership
and WGV to assume an increased share of Assessment Allocation under the terms of
the Special Assessment Agreement, Buyer has agreed to pay to SJH Partnership and
WGV a guaranty fee equal to (i) Fifty Dollars ($50.00) for each Villa vacation
unit week, (ii) Twenty-five Dollars ($25.00) for each biennial Villa vacation
unit week and (iii) Two Thousand Five Hundred Dollars ($2,500.00) for each whole
ownership unit, due in each case upon the closing of the conveyance thereof by
Buyer to a third party purchaser, up to a total amount of Five Hundred Thousand
Dollars ($500,000.00). Each such payment shall be payable severally eighty
percent (80%) to SJH Partnership and twenty percent (20%) to WGV. This
obligation for payment shall be evidenced by the note in the form attached
hereto as an Exhibit (the "Guaranty Fee Note"). The Guaranty Fee Note shall
require that such payments shall be made monthly within fifteen (15) days of the
close of the prior month and shall be delivered to SJH Partnership and WGV with
a report reconciling all receipts from Villa vacation week sales with payments
made under the Guaranty Fee Note for that month. SJH Partnership and WGV shall
have the right to audit the sales records of Buyer pertaining to Villa vacation
week sales in order to verify the correctness of the payments made under the
Guaranty Fee Note. If Buyer shall convey any portion of Parcel One to a third
party, other than an affiliated entity of Buyer or a condominium association,
prior to declaration of a timeshare regime on such portion of Parcel One, then
an amount of the remaining balance of the Guaranty Fee Note shall then be due
and payable equal to such balance multiplied by the percentage of the remaining
undeveloped
12
<PAGE>
Villas assigned by development rights to the portion of Parcel One so conveyed,
and which shall be payable severally eighty percent (80%) to SJH Partnership and
twenty percent (20%) to WGV. Any sums not paid when due shall bear interest at
the lesser of (i) eighteen percent (18%) per annum or (ii) the highest rate
permitted under Florida law.
2.2 Cash at Closing. At Closing, Buyer shall deliver to SJH
---------------
Partnership the Purchase Price in cash, cashier's check, wire transfer of
immediately available federal funds, or other good funds. In the event payment
is made by wire transfer, sums shall be deemed paid by Buyer when receipt of the
wire transfer is acknowledged by a financial institution designated by SJH
Partnership as the recipient and SJH Partnership's account is credited.
2.3 Deposit. Upon Buyer's execution of this Agreement, Buyer shall
-------
deliver to Pappas Metcalf & Jenks, P.A. (the "Escrow Agent") the sum of Two
Hundred Fifty Thousand Dollars ($250,000.00) (the "Deposit"). Escrow Agent
shall hold the Deposit in an interest bearing account with interest accruing in
favor of the party entitled to the Deposit as specified in this Agreement. At
Closing, the Deposit and any and all interest accrued thereon shall be credited
against the Purchase Price and paid by Escrow Agent to SJH Partnership. The
Deposit shall be made by cash, cashier's check, wire transfer of immediately
available federal funds, or other good funds. In the event payment is made by
wire transfer, sums shall be deemed paid by Buyer when receipt of the wire
transfer is acknowledged by a financial institution designated by Escrow Agent
as the recipient and Escrow Agent's account is credited.
2.4 Escrow. The Deposit shall be delivered to Escrow Agent, and
------
Escrow Agent shall hold and deliver the Deposit in accordance with the terms of
this Agreement. Escrow Agent shall at
13
<PAGE>
all times be authorized to deliver the Deposit in accordance with the terms of
this Agreement or with written instructions executed by both SJH Partnership and
Buyer. In the event that Escrow Agent shall receive a written claim of default
by either SJH Partnership or Buyer against the other, then Escrow Agent shall
not release the Deposit from escrow unless and until Escrow Agent shall have
received joint written instructions from SJH Partnership and Buyer as to the
proper delivery of the Deposit or Escrow Agent has received direction from a
court of competent jurisdiction (after expiration of any applicable appeal
period) as to the proper party entitled to receipt of the Deposit. Escrow Agent
shall be authorized to file an action in interpleader to determine the proper
party entitled to the Deposit, and the defaulting party, as determined by such
proceeding, shall indemnify and hold harmless Escrow Agent from all costs and
expenses, including reasonable attorneys' fees associated with such proceeding.
Escrow Agent may act in reliance upon any writing or instrument or signature
which it in good faith believes to be genuine and may assume that any person
purporting to give any writing, notice, advice, or instruction in connection
with the provisions hereof has been duly authorized to do so. Escrow Agent
shall not be liable in any manner for the sufficiency or correctness as to form,
manner of execution or validity of any instrument deposited in this escrow nor
as to the identity, authority or right of any persons executing the same; and
its duties hereunder shall be limited to the safekeeping of the Deposit, and for
the disposition of same in accordance with this Agreement. Escrow Agent hereby
executes this Agreement for the sole and exclusive purpose of evidencing its
agreement to the provisions of Sections 2.3 and 2.4 hereof. Buyer acknowledges
that Escrow Agent is also the firm representing SJH Partnership in this
transaction and Buyer consents to Escrow
14
<PAGE>
Agent's continued representation of SJH Partnership in any litigation arising
under this Agreement.
2.5 Conveyance of Title. At Closing, SJH Partnership shall convey to
-------------------
Buyer the Land, together with the Access Easement appurtenant to such Land, free
and clear of any and all liens, encumbrances, covenants, restrictions,
reservations, rights of way and easements except the Permitted Exceptions, as
defined in Section 2.8 below, and those matters contemplated under this
Agreement. SJH Partnership hereby discloses to Buyer the existence of those
title matters as set forth on an Exhibit to this Agreement (the "Known
Exceptions").
2.6 Evidence of Title. Within the later of five (5) days following
-----------------
the Effective Date or five (5) days after the date of delivery of the Survey as
referenced in Section 2.7 below, SJH Partnership shall cause to be prepared and
delivered to Buyer copies of the Known Exceptions and any other exceptions
appearing on the commitment, together with a commitment (the "Commitment") for
an owner's and mortgagee's policy of title insurance (the "Title Policies") in
favor of Buyer and the mortgage lender identified by Buyer to provide the
Completion Assurances (the "Mortgagee") respectively, setting forth the state of
title to the Land stating that, as of the date of the Commitment, SJH
Partnership is the fee simple owner of the Land and including (i) affirmative
Form 9 endorsement coverage as available in the State of Florida, (ii) insuring
the rights of Buyer as to the Access Easement and WGV Easement, (iii) including
a contiguity endorsement as to the contiguity of the Land to the WGV Easement,
contiguity of the WGV Easement to the Access Easement and contiguity of the
Access Easement to International Golf Parkway, survey endorsement FAC (S)4-
186.05(8)(h) and environmental lien endorsement (FAC (S)4-186.05(6)(a)(ALTA
8.1), and (iv) insuring Buyer's rights under Section 12.10 of this Agreement, if
such coverage is available from the Title Company. The Commitment shall
15
<PAGE>
provide for the issuance of the Title Policies by Commonwealth Land Title
Insurance Company, or other nationally recognized title company selected by SJH
Partnership (the "Title Company"), in standard ALTA Owner's Title Insurance
Form, as used in the State of Florida, insuring fee simple title of Buyer to the
Land and its rights in the Access Easement and WGV Easement in the amount of the
Purchase Price and insuring the lien of the Mortgagee as a first mortgage on the
Land and appurtenant Access Easement and WGV Easement.
2.7 Survey. Within ten (10) days of the Effective Date, SJH
------
Partnership, at SJH Partnership's expense, shall provide to Buyer a boundary
survey (the "Survey") prepared by a licensed Florida land surveyor showing the
dimensions and correct legal metes and bounds description of the Land, the
Access Easement and the WGV Easement. The Land will consist of not less than
twenty-three (23) acres. The Survey shall contain a certificate certified to
Buyer, the Title Company and the Mortgagee certifying as to the contiguity of
the Land to the WGV Easement, contiguity of the WGV Easement to the Access
Easement and contiguity of the Access Easement to International Golf Parkway and
stating that it meets the minimum requirements for ALTA/ACSM survey and as
required by Florida law, includes designation of the flood plain area affecting
the Land, if any, and shall be sufficient to remove the survey exception from
the Commitment and Title Policies.
2.8 Defects. In the event that the Commitment or the Survey or Known
-------
Exceptions evidence title defects or exceptions unacceptable to Buyer (other
than the standard printed exceptions appearing in the Commitment to be removed
at Closing or those which do not materially affect the use of the Land as
contemplated under this Agreement), Buyer shall give SJH Partnership written
notice of such fact within fifteen (15) days of receipt by Buyer of the later of
the Commitment or Survey. In the event that the Title Company first raises a
title defect or exception unacceptable to Buyer
16
<PAGE>
subsequent to the date of the Commitment, Buyer shall give SJH Partnership
written notice of such fact within five (5) days after Buyer first becomes aware
of same. If Buyer does not provide timely notice of such exceptions to SJH
Partnership, all exceptions as identified in the Commitment, the Survey or the
Known Exceptions, shall be deemed approved by Buyer and the Closing shall
proceed without diminution in the Purchase Price. Any such exceptions approved
or deemed approved by Buyer are herein referred to as "Permitted Exceptions."
If Buyer provides timely notice of any defects, SJH Partnership shall be
obligated to cure such defects which are delinquent tax liens or consensual
liens of SJH Partnership or which can be cured by the payment of money
(specifically excluding the Known Exceptions), in which case SJH Partnership
shall have a period of sixty (60) days to eliminate any such defects, provided
SJH Partnership shall have no obligation to expend in excess of Fifty Thousand
Dollars ($50,000.00) or to institute litigation to remedy defects, other than
consensual liens or delinquent tax liens of SJH Partnership and the Closing Date
shall be extended for a like number of days. In the event SJH Partnership is
not required to eliminate such defects, as set forth herein, SJH Partnership
shall provide written notice to Buyer within five (5) days of notice of such
defects from Buyer that it does not intend to effect such cure and Buyer shall
have the right to (i) terminate this Agreement by written notice delivered to
SJH Partnership within five (5) days from notice from SJH Partnership and Buyer
shall receive a refund of the Deposit and all parties shall be relieved of any
obligations set forth herein, or (ii) waive any such defects and agree to accept
the condition of title as set forth in the Commitment and on the Survey and
proceed to Closing without diminution in the Purchase Price.
17
<PAGE>
2.9 Closing Date.
------------
2.9.1 The Closing of this transaction shall take place on or
before July 15, 1996, at 10:00 A. M. or such earlier date and time to be
mutually agreed upon between the parties or as extended as provided in Section
2.9.2 below ("Closing" or "Closing Date"). The Closing shall take place in the
offices of Pappas Metcalf & Jenks, Professional Association, 200 West Forsyth
Street, Suite 1400, Jacksonville, Florida 32202, or at such other place within
St. Johns County or Duval County as may be selected by SJH Partnership and
Buyer.
2.9.2 The parties recognize that there are numerous
conditions precedent to the Closing of this transaction as set forth in Sections
9 and 10 below. As a result, the parties have agreed that if one or more
conditions precedent to either party's obligations to close under this Agreement
have not been satisfied or waived as of the originally anticipated Closing Date
set forth in Section 2.9.1 hereof and the affected party is not prepared to
close hereunder, then such party shall so notify the other party and the Closing
Date hereunder shall be automatically extended for such reasonable period of
time as may be necessary to cause such condition to be satisfied; provided,
however, that in no event shall the Closing Date be extended beyond September
30, 1996.
2.10 Documents to be Delivered at Closing. At Closing, SJH
------------------------------------
Partnership shall deliver to Buyer the following documents, where necessary,
fully executed by SJH Partnership:
2.10.1 (i) Special Warranty Deed conveying to Buyer fee simple
title to the Land in the form and content of an Exhibit ("Special Warranty
Deed") attached hereto, subject only to the Permitted Exceptions; and (ii)
Access Easement in the form and content of an Exhibit ("Access Easement")
attached hereto; and
2.10.2 Affidavit of SJH Partnership in form satisfactory to
the Title Company for elimination of mechanics lien
18
<PAGE>
exceptions and parties in possession exceptions from any mortgagee title binder
obtained by Buyer; and
2.10.3 A certificate executed by an officer of the general
partner of SJH Partnership certifying that all representations and warranties
contained herein are true and correct as of the Closing Date in all material
respects accompanied by a certificate of incumbency as to the parties executing
on behalf of SJH Partnership; and
2.10.4 License Agreement and Memorandum of Agreement, in form
and content attached hereto as Exhibits; and
2.10.5 Assignment of Development Rights under the Saint Johns
DRI for the development of up to a maximum of 440 resort condominium and/or
vacation ownership dwelling units; and
2.10.6 An affidavit stating that SJH Partnership is not a
"foreign person," as defined in Section 1445 of the Internal Revenue Code and
the regulations thereunder; and
2.10.7 Evidence acceptable to Buyer's attorney that SJH
Partnership is validly formed, in good standing and is authorized to perform its
obligations under this Agreement; and
2.10.8 An opinion of SJH Partnership's attorney in form and
content reasonably satisfactory to Buyer's attorney opining as to the authority
of SJH Partnership to enter into and deliver this Agreement and all documents to
be delivered by SJH Partnership pursuant to the terms of this Agreement and as
to the validity and enforceability of this Agreement and all documents to be
delivered by SJH Partnership pursuant to the terms of this Agreement; and
2.10.9 The originally executed title Commitment insuring fee
simple title to the Land in Buyer consistent with Sections 2.6, 2.7 and 2.8
above and marked to eliminate all preprinted standard exceptions and all
exceptions other than Permitted Exceptions and taxes for the year of conveyance;
and
19
<PAGE>
2.10.10 Such other documents expressly required to be delivered
or furnished pursuant to any other provisions of this Agreement or reasonably
required to carry out the purpose and intent of this Agreement, including but
not limited to the Special Assessment Agreement.
At Closing, Buyer shall deliver to SJH Partnership the following
documents:
2.10.11 A certificate executed by an officer of Buyer certifying
that all representations and warranties contained herein are true and correct as
of the Closing Date in all material respects, accompanied by a certificate of
incumbency as to the parties executing on behalf of Buyer; and
2.10.12 Evidence acceptable to SJH Partnership's attorney that
Buyer is validly formed, in good standing and is authorized to perform its
obligations under this Agreement; and
2.10.13 Guaranty Fee Note, License Agreement and Memorandum of
Agreement in form and content attached hereto as Exhibits; and
2.10.14 An opinion of Buyer's attorney in form and content
reasonably satisfactory to SJH Partnership's attorney opining as to the
authority of Buyer to enter into and deliver this Agreement and all documents to
be delivered by Buyer pursuant to the terms of this Agreement and as to the
validity and enforceability of this Agreement and all documents to be delivered
by Buyer pursuant to the terms of this Agreement; and
2.10.15 Any other documents expressly required to be delivered
or furnished pursuant to any other provision of this Agreement or reasonably
required to carry out the purpose and intent of this Agreement, including but
not limited to the Special Assessment Agreement.
2.11 Adjustments, Prorations, Costs of Transactions. The following
----------------------------------------------
items shall be prorated, apportioned or paid by the parties as of the Closing
Date as follows:
20
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2.11.1 Real estate taxes taking into consideration any
discounts for early payment. Taxes shall be prorated based upon the estimated
amount of taxes for 1996 applicable to the Land with such amount to be estimated
as to vacant lands based upon a "cutout" of the acreage of the Land as a
proportion of the total tax bill for the Land and associated properties assessed
thereunder. Tax proration shall be adjusted promptly after final determination
of the same after Closing; and
2.11.2 Certified, confirmed and ratified special assessment
liens due and payable on a one-time basis as of the Closing Date (and not as of
the Effective Date) shall be paid by SJH Partnership at Closing or Buyer shall
receive a credit therefor. Pending liens as of the Closing Date, which are due
and payable after Closing, shall be assumed by Buyer; and
2.11.3 Association(s) assessments due and payable to the
Association(s), respectively, as described in Section 12.9 below, for the month
of Closing, if any; and
2.11.4 SJH Partnership shall pay for (i) the cost of
documentary stamp taxes on the deed of conveyance; (ii) SJH Partnership's
attorneys' fees; (iii) recording fees; (iv) the Commitment and Title Policies
prepared in accordance with Section 2.6 except any additional cost resulting
from simultaneous issuance of Mortgagee's Title Policy; (v) the Survey prepared
in accordance with Section 2.7; and (vi) the Environmental Audits as defined in
Section 6.6. Buyer shall pay for (i) Buyer's attorneys' fees; (ii) any
additional cost of the Title Policies resulting from the simultaneous issuance
of the Mortgagee Title Policy prepared in accordance with Section 2.6; (iii) all
costs of any related transactions between Buyer and third parties, including
costs of mortgage financing; and (iv) documentary stamp taxes on the Guaranty
Fee Note.
21
<PAGE>
2.12 Documents Delivered to SJH Partnership. In the event this
--------------------------------------
transaction shall not close for any reason (other than a default by SJH
Partnership of its obligations set forth in this Agreement), Buyer shall deliver
to SJH Partnership, at no cost to SJH Partnership, such information promulgated
or obtained by Buyer related to the condition of the Land and under the control
of Buyer. Such materials shall be delivered to SJH Partnership within thirty
(30) days of the date of termination of this Agreement. Buyer shall use its
best efforts to ensure that all such materials are transferrable to SJH
Partnership upon termination of this Agreement.
3. REPRESENTATIONS OF SJH PARTNERSHIP. SJH Partnership represents to
----------------------------------
Buyer that:
3.1 Partnership Standing. SJH Partnership is a limited partnership
--------------------
duly organized and in good standing under the laws of the State of Florida.
3.2 Partnership Authority. SJH Partnership's execution and delivery
---------------------
of this Agreement to Buyer and its sale and conveyance of Parcel One provided
for herein have been authorized by SJH Partnership, in accordance with
applicable law and that all other actions required to be taken to authorize
execution of this Agreement and SJH Partnership's performance of all obligations
undertaken by it under its terms have been duly and regularly taken.
3.3 Documents Delivered. To the best of SJH Partnership's knowledge,
-------------------
all documents delivered to Buyer as required under the terms of this Agreement
constitute true and correct copies of the original instruments and, except as
set forth in this Agreement, to the best of its knowledge SJH Partnership knows
of no amendment, modification or other change to said documents.
22
<PAGE>
3.4 No Condemnation or Litigation. To SJH Partnership's knowledge,
-----------------------------
there are no condemnation proceedings against or affecting Parcel One, nor any
other litigation either pending or threatened against Parcel One which would
have a material and adverse impact upon the construction of the Villas.
3.5 No Actions. There are no actions, suits or proceedings pending
----------
or affecting SJH Partnership which would impede or otherwise impair its ability
to perform its obligations under this Agreement. There are no such actions
threatened against SJH Partnership other than prior claims of TACO, Inc. and its
constituents related to bond validation proceedings which have been affirmed, on
appeal, by the Supreme Court of Florida, subsequent to such threatened claims.
3.6 No Hazardous Waste. To SJH Partnership's knowledge, no Hazardous
------------------
Wastes have been discharged, released, disposed of or allowed to escape on or
under the Land, and to the actual knowledge of SJH Partnership, no
investigation, administrative order, consent order or agreement litigation or
settlement with respect to Hazardous Wastes is proposed, threatened, anticipated
or in existence with respect to the Land.
3.7 Permits, DRI, PUD Representations. The Surface Water Permits,
---------------------------------
the Saint Johns PUD and Saint Johns DRI are in full force and effect and there
have been no modifications or violations of any of the terms and conditions
thereof which would materially and adversely affect or delay the development and
operation of any component part of the Villas subject to Buyer's obligation to
obtain the Final Development Plan as defined in Section 6.3 below. The Saint
Johns PUD and Saint Johns DRI expressly allow construction of the Villas subject
to compliance with the terms and conditions thereof and the Final Development
Plan and compliance with all other applicable laws and regulations including but
not
23
<PAGE>
limited to the requirement to obtain the Final Development Plan, construction
plan approval and a building permit.
3.8 Ownership of Interchange Tract. SJH Partnership is the fee simple
------------------------------
owner of the entire Interchange Tract, other than the Hall of Fame footprint
parcel and Utility Site (as such terms are defined in Section 12.10 hereof).
3.9 As of the Closing Date. All representations made by SJH
----------------------
Partnership pursuant to this Section 3 will be true and correct at the Closing
Date as if they were made at that time and shall survive the Closing; provided,
however, should SJH Partnership have actual knowledge of changed circumstances
which shall render any of the representations and warranties set forth above
untrue prior to the Closing Date, it shall provide written notice of such
changed circumstances to Buyer. To the extent that such changed circumstances
shall materially and adversely affect the ability of Buyer to construct and
operate the Villas, Buyer may, at its option, by written notice delivered to SJH
Partnership within ten (10) days of the date of notice of such changed
circumstances received from SJH Partnership, elect to terminate this Agreement
and receive a refund of the Deposit. If Buyer shall not provide timely written
notice of such intent to terminate, its right to terminate this Agreement as a
result of such changed circumstances shall be fully and forever waived and the
Closing shall proceed without diminution in the Purchase Price.
4. REPRESENTATIONS OF BUYER. Buyer represents to SJH Partnership that:
------------------------
4.1 Corporate Standing. Buyer is a limited partnership duly
------------------
organized and in good standing under the laws of the State of Florida.
4.2 Corporate Authority. Buyer's execution and delivery of this
-------------------
Agreement to SJH Partnership and its purchase of Parcel One
24
<PAGE>
provided for herein have been authorized by Buyer, in accordance with applicable
law and that all other actions required to be taken to authorize execution of
this Agreement and Buyer's performance of all obligations undertaken by it under
its terms have been duly and regularly taken.
4.3 No Actions. There are no actions, suits or proceedings pending
----------
or to the knowledge of Buyer threatened against or affecting Buyer, which would
impede or otherwise impair its ability to perform its obligations under this
Agreement.
4.4 Representations. All representations made by Buyer pursuant to
---------------
this Section 4 will be true and correct at the Closing Date as if they were made
at that time and shall survive the Closing.
5. ACKNOWLEDGMENTS OF BUYER. Buyer acknowledges that:
------------------------
5.1 Buyer's Examinations. Prior to Closing, Buyer intends to make
--------------------
such examinations of Parcel One, SJH Partnership's plans for future development
(residential, commercial, recreational and otherwise), the terms of the Hall of
Fame Conveyance Agreement, World Golf Village Golf Course Conveyance Agreement
and the River Tract Golf Course Conveyance Agreement, as they affect Parcel One,
the zoning, permitting and all governmental approvals, utility supply and all
other matters required for Buyer's development plans for Parcel One as Buyer
deems necessary. In entering into this Agreement, Buyer shall not rely upon any
oral or written representations, warranties or statements, whether express or
implied, made by SJH Partnership or any agent, employee or representative of SJH
Partnership or by any broker or any other person representing or purporting to
represent SJH Partnership with regard to Parcel One or any matters affecting
Parcel One which are not expressly set forth in this Agreement or any other
written agreement entered into between SJH Partnership and Buyer
25
<PAGE>
contemporaneously herewith or on the Closing Date. Buyer agrees that prior to
Closing, Buyer shall notify SJH Partnership of its intent to consult with any
governmental authority concerning permits or other governmental approvals
applicable to Parcel One or the Saint Johns DRI and provide SJH Partnership an
opportunity to participate in any such consultation.
5.2 Development Criteria. Buyer acknowledges that the Villas shall
--------------------
be constructed and developed in compliance with the development criteria
attached hereto as an Exhibit (the "Development Criteria") and in accordance
with the Site Plan. The Development Criteria shall constitute covenants running
with title to the Land and shall be binding upon the successors and assigns of
the parties to this Agreement.
5.3 County Approvals. Buyer acknowledges and agrees that Buyer
----------------
shall, subject to the obligations of SJH hereunder and under the Assignment of
Development Rights, at its own cost and expense, be responsible for submission
of all materials and applications pertaining to construction of the Villas to
the County and any other governmental authorities, including application for
Final Development Plan approval and building permits and payment of all fees and
charges imposed by any such authorities in connection with such permits and
approvals. SJH Partnership shall cooperate with Buyer in the submission or the
County approval process, at no expense to Buyer, including the submission of a
PUD modification increasing the permissible building height to 65 feet.
5.4 Exculpation. Buyer acknowledges that SJH Partnership's review
-----------
and approval of any plans and specifications does not constitute SJH
Partnership's representation that the same are in compliance with any applicable
building or zoning codes, nor do such approvals constitute SJH Partnership's
approval of Buyer's construction standards or technique. The purpose of SJH
Partnership's approval is to ensure that such improvements are of an appearance
and quality compatible with the development plan for the Saint Johns DRI and are
developed in compliance with the terms of this Agreement. In connection with
all reviews, acceptances,
26
<PAGE>
inspections, or approvals by SJH Partnership contemplated under this section,
SJH Partnership shall not be liable to Buyer or to any other person on account
of any claim, liability, damage or expense suffered or incurred by or threatened
against Buyer or such other person and arising out of, or in any way related to,
the subject matter of any such reviews, acceptances, inspections or approvals
when given, granted or withheld as provided in this Agreement.
5.5 PUD/DRI. Parcel One is subject to the Saint Johns DRI and Saint
-------
Johns PUD and other state and federal land use regulations generally applicable
to the development of real estate.
6. OBLIGATIONS OF BUYER AND SJH PARTNERSHIP PRIOR TO CLOSING.
---------------------------------------------------------
6.1 Preliminary Plans. Prior to Closing, Buyer shall cause to be
-----------------
prepared and delivered to SJH Partnership, at Buyer's expense, for SJH
Partnership's review and approval, the preliminary plans and specifications for
the Villas (the "Preliminary Plans"). The Preliminary Plans shall comply with
the Development Criteria and the Site Plan and shall include:
6.1.1 A detailed site plan depicting the location of all
improvements to be constructed upon the Land including, but not limited to, the
location of all buildings, roads, drives, lakes, canals, drainage structures,
parking areas, traffic circulation within the Villas and the point of connection
to the arterial road system; and
6.1.2 Preliminary landscaping plans; and
6.1.3 The location and number of Villas and ancillary
facilities and amenities to be incorporated as part of each phase of development
in accordance with the Development Criteria; and
27
<PAGE>
6.1.4 The location, description of materials and design of all
exterior signage including those to be located upon the Land; and
6.1.5 A description of all exterior materials, exterior
colors, building design and elevations and height.
If the Preliminary Plans shall evidence less than 440 resort condominium
and/or vacation ownership dwelling units to be constructed upon the Land, the
units to be assigned in the Assignment of Development Rights shall be
correspondingly reduced.
6.2 SJH Partnership's Approvals. SJH Partnership shall promptly
---------------------------
review all plans, documents and other items required to be delivered to SJH
Partnership pursuant to this Agreement for SJH Partnership's approval, whether
prior to or subsequent to Closing, and shall notify Buyer in writing of SJH
Partnership's approval or disapproval within fifteen (15) days from receipt of
such items by SJH Partnership unless another time period is specifically
provided for herein, and such approvals shall not be unreasonably denied or
delayed and shall be limited to exterior improvements. Such approvals shall be
provided by SJH Partnership in recordable form, if requested by Buyer.
6.3 Final Development Plan. Not later than June 15, 1996, Buyer
----------------------
shall submit an application for the Final Development Plan for the Phase I
Improvements to St. Johns County in accordance with the Zoning Code requirements
(the "Final Development Plan").
6.4 Conditions Precedent. Prior to Closing, as may be extended under
--------------------
Section 2.9.2 above, SJH Partnership and Buyer shall use all reasonable efforts
to satisfy the conditions precedent to Closing, as set forth in Sections 9 and
10 below and shall mutually cooperate with one another and third parties in good
faith in an effort to satisfy each and every condition precedent to Closing set
forth in Sections 9 and 10 below.
28
<PAGE>
6.5 Entry onto the Land; Indemnification. During the period from the
------------------------------------
Effective Date to the Closing Date, Buyer, its agents and designees shall have
the right, for so long as this Agreement is not in default, of access across the
Interchange Northwest Parcel to the Land and the right to enter upon the Land
for the purpose of making surveys, engineering tests, subsoil and similar
analyses. Buyer hereby agrees to assume all risk involved in (i) entering upon
the Interchange Northwest Parcel and the Land, and (ii) the performance of the
referenced activities and agrees to indemnify and hold SJH Partnership harmless
from and against all loss, cost, expense and liability as a result of death or
injury to persons or damage to property sustained by any party arising out of or
in connection with the exercise of any such rights. Following inspection of the
Land, Buyer shall restore the Land to its original condition.
6.6 Environmental Audit. Within thirty (30) days of the date of this
-------------------
Agreement, SJH Partnership shall provide a Phase I environmental audit (the
"Phase I Audit") of the Land and, if recommended by the Phase I Audit, a Phase
II environmental audit of the affected portions of the Land, both prepared by
Law Engineering and Environmental Services, Inc. (the "Environmental Audits").
If the Environmental Audits indicate that there are environmental conditions as
to the Land which require remediation under applicable state or federal laws,
and SJH Partnership agrees in writing within fifteen (15) days of notice of such
conditions to (i) bear the cost to cure any such environmental condition
requiring remediation provided the same can be cured without substantial delay
to or interference with construction of the Villas, (ii) provide financial
assurances reasonably satisfactory to Buyer in an amount necessary to effect
such cure and (iii) indemnify Buyer against any liability with respect to the
environmental matters to be cured, in which case, this Agreement
29
<PAGE>
shall remain in full force and effect and the Closing shall proceed. If SJH
Partnership does not elect to effect such remediation, Buyer may, at its option,
(i) terminate this Agreement with five (5) days written notice from SJH
Partnership of its election not to remediate or (ii) waive such matters and
proceed to Closing.
7. INTENTIONALLY OMITTED.
---------------------
8. INTENTIONALLY OMITTED.
---------------------
9. CONDITIONS OF SJH PARTNERSHIP'S OBLIGATIONS TO CLOSE THIS TRANSACTION.
---------------------------------------------------------------------
In addition to SJH Partnership's right to terminate this Agreement as a result
of a default of Buyer, in the event any of the following conditions shall not be
met at Closing or such earlier date as specified below, SJH Partnership may, at
its option, terminate this Agreement or SJH Partnership may, at its option,
waive such condition and proceed to Closing. If this Agreement shall terminate
as a result of failure of the conditions set forth in Sections 9.1 or 9.2, the
Deposit shall be retained by SJH Partnership. If this Agreement shall terminate
as a result of failure of the conditions set forth in Sections 9.3 through 9.10,
the Deposit shall be returned to Buyer, unless such failure is the result of a
default by Buyer under the referenced agreements, in which case the Deposit
shall be retained by SJH Partnership.
9.1 Buyer's Representations. Buyer shall certify to SJH Partnership
-----------------------
at Closing that all representations and warranties made under this Agreement are
true and correct as of the Closing Date in all material respects.
9.2 Complete Performance. At Closing, Buyer shall have performed all
--------------------
obligations of Buyer under this Agreement to be performed at or prior to
Closing.
30
<PAGE>
9.3 Other Conveyances. Those parties to the Hall of Fame Conveyance
-----------------
Agreement, Hotel Agreement for Sale and Purchase, World Golf Village Golf Course
Conveyance Agreement and Parcel Two Sale Agreement (collectively, the "Other
Conveyance Agreements") shall have performed all their respective obligations
prior to Closing and all conditions to performance by SJH Partnership thereunder
shall have been met.
9.4 Golf Facility Use Agreement, Special Assessment Agreement and
-------------------------------------------------------------
Voluntary Payment Declaration. SJH Partnership, WGV, Scratch, Buyer and JQH-LP
- -----------------------------
shall have executed and delivered the WGV Golf Facility Use Agreement, and such
parties and the County shall have executed and delivered the Voluntary Payment
Declaration and Special Assessment Agreement and related agreements with the
County.
9.5 WGV Easement. Buyer and WGV shall have executed and delivered an
------------
easement agreement (the "WGV Easement Agreement") providing pedestrian and
vehicular access over the portion of the entrance road (the "WGV Easement") to
be owned by WGV or the WGV Property Owners Association, Inc., as shown on the
Site Plan.
9.6 Master Development Agreements. All parties shall have executed
-----------------------------
and delivered the Master Development Agreements and all agreements attached to
the Master Development Agreements to be executed at Closing shall have been
executed and delivered.
9.7 SJH Completion Assurances. Not later than June 15, 1996, SJH
-------------------------
Partnership shall have obtained committed funding sources adequate to construct
the Infrastructure Improvements, which sources may include (i) contracts for
excavation of fill and (ii) equity, bonds, unconditional and irrevocable letters
of credit, or loan commitments to the extent issued by a bank, insurance
company, or pension fund, or other reputable lending institution; and in the
case of a loan commitment, all commitment fees required to be paid prior to
closing of such loan shall have been paid by SJH
31
<PAGE>
Partnership and such loan commitment shall be fully binding on the lender,
subject only to closing requirements of this transaction and such lender's other
customary closing conditions and requirements. These assurances, as approved by
Buyer, are hereinafter referred to as the "SJH Completion Assurances."
9.8 Buyer Completion Assurances. Buyer shall have delivered to SJH
---------------------------
Partnership evidence of the Buyer Completion Assurances not later than June 15,
1996, and at Closing shall have closed on any loan providing the Buyer
Completion Assurances and the Buyer Completion Assurances shall be available to
complete the Phase I Improvements, subject only to normal and customary lending
practices and requirements of this transaction.
9.9 Construction Agreement. Buyer and WGV shall have executed and
----------------------
delivered the Construction Reimbursement Agreement.
9.10 Subordination of Loan. The SJH Completion Assurances shall
---------------------
permit the first lien mortgage of Barnett Bank of Jacksonville, N.A., which is
to be recorded at Closing encumbering the Restricted Property, to be
subordinated to the exclusive rights of Buyer set forth in Section 12.10 below.
10. CONDITIONS OF BUYER'S OBLIGATIONS TO CLOSE THIS TRANSACTION. In
-----------------------------------------------------------
addition to Buyer's right to terminate this Agreement as set forth in Section
2.8 above, or as a result of a default by SJH Partnership, in the event any of
the following conditions shall not be met as of Closing, or such earlier date as
may be specified below, Buyer may, at its option, terminate this Agreement or
Buyer may waive such conditions and proceed to Closing, without diminution in
the Purchase Price. If this Agreement shall terminate as the result of failure
of the conditions set forth in Sections 10.1 through 10.19, the Deposit shall be
returned to Buyer, unless such failure is the result of a
32
<PAGE>
default by Buyer under any of the referenced agreements in which case the
Deposit shall be retained by SJH Partnership.
10.1 Representations. SJH Partnership shall certify to Buyer at
---------------
Closing that all representations and warranties made under this Agreement are
true and correct as of the Closing, in all material respects.
10.2 Complete Performance. SJH Partnership shall have performed all
--------------------
obligations of SJH Partnership provided for herein to be performed at or prior
to Closing.
10.3 Other Conveyances. SJH Partnership shall have closed on the
-----------------
Other Conveyance Agreements and shall have delivered to Buyer copies of the
respective deeds, each of which shall include a deed restriction or reservation
by SJH Partnership with respect to Buyer's exclusive rights set forth in Section
12.10 hereof and in the Special Warranty Deed.
10.4 Golf Facility Use Agreement, Special Assessment Agreement and
-------------------------------------------------------------
Voluntary Payment Declaration. Buyer, Scratch, WGV, JQH-LP and SJH Partnership
- -----------------------------
shall have executed and delivered the WGV Golf Facility Use Agreement, and such
parties and the County shall have executed and delivered the Special Assessment
Agreement and Voluntary Payment Declaration and related agreements with the
County.
10.5 WGV Easement. Buyer and WGV shall have executed and delivered
------------
the WGV Easement Agreement.
10.6 WGV/Villa License. Buyer and WGV shall have executed and
-----------------
delivered the agreement licensing the use of the World Golf Village tradenames
and logos for the benefit of the Villas (the "Villa License Agreement") and a
Villa Services Agreement regarding services to be provided to buyer by WGV.
10.7 River Tract. Dunavant and Scratch shall have executed and
-----------
delivered the River Tract Golf Course Conveyance Agreement.
33
<PAGE>
10.8 Master Development Agreements. All parties shall have executed
-----------------------------
and delivered the Master Development Agreements and all agreements attached to
the Master Development Agreements to be executed at Closing shall have been
executed and delivered.
10.9 Buyer Completion Assurances. Not later than June 15, 1996, Buyer
---------------------------
shall have obtained committed funding sources which shall be adequate to
construct all Phase I Improvements and to meet its financial obligations under
the Construction Reimbursement Agreement, which sources may include equity,
bonds, unconditional letters of credit or loan commitments, when issued by a
bank, insurance company or pension fund or other reputable lending institution;
and in the case of a loan commitment, all commitment fees required to be paid
prior to closing of such loan shall have been paid by Buyer and such loan
commitment shall be fully binding on the lender, subject only to the Closing
requirements of this transaction and such lender's other customary closing
conditions and requirements (the "Buyer Completion Assurances").
10.10 SJH and Other Completion Assurances. Not later than June 15,
-----------------------------------
1996, SJH Partnership shall have delivered to Buyer written evidence of (i) the
SJH Completion Assurances and Buyer shall have received written evidence of (ii)
committed funding sources in favor of Scratch, UCC, JQH-LP and WGV with respect
to their obligations under their respective Other Conveyance Agreements
(collectively, the "Other Completion Assurances"), and at Closing each of the
foregoing shall have closed on any loan providing the SJH Completion Assurances
or Other Completion Assurances and the SJH Completion Assurances and Other
Completion Assurances shall be available to complete the Infrastructure
Improvements or other contemplated improvements, as applicable, subject only to
normal and customary lending practices and requirements of this transaction.
34
<PAGE>
10.11 Hotel. Buyer and JQH-LP shall have executed and delivered a
-----
solicitation and lease agreement.
10.12 WGV. Buyer and WGV shall have executed and delivered an
---
agreement concerning information kiosks located on the Hall of Fame Parcel.
10.13 PGA Tour. Buyer and the PGA Tour, Inc. shall have executed and
--------
delivered a solicitation and marketing agreement.
10.14 Scratch. Buyer and Scratch shall have executed and delivered a
-------
solicitation and lease agreement pertaining to the WGV Golf Course Parcel.
10.15 UCC. Buyer and UCC shall have executed and delivered a
---
solicitation and lease agreement pertaining to Parcel Two.
10.16 Construction Agreement. Buyer and WGV shall have executed and
----------------------
delivered the Construction Reimbursement Agreement.
10.17 Zoning Evidence. Buyer shall have obtained a letter from the
---------------
County in substantially the form attached as an Exhibit confirming certain
matters pertaining to zoning and land use which affect Parcel One.
10.18 Utilities. Buyer shall have received evidence reasonably
---------
satisfactory to Buyer of the availability of water, sewer, electric and
telephone service to serve the Villas when constructed.
10.19 Estoppel Letters. Buyer shall have received estoppel letters
----------------
from the Associations and the utility provider identified on Exhibit C in form
reasonably satisfactory to Buyer setting forth the assessments then due, if any.
11. CONSTRUCTION.
------------
11.1 Final Plan and Specification Approval. Not later than fifteen
-------------------------------------
(15) days prior to the Commencement Date as to the Phase I Improvements and
prior to the start of construction of any
35
<PAGE>
subsequent phase of the Villas, Buyer shall cause to be prepared and delivered
to SJH Partnership a copy of all working drawings, plans and specifications and
material specifications for the construction of the applicable phase of the
Villas, and all parking, landscaping, lighting, signage, utility lines and
related amenity improvements and equipment to be located upon the Land as part
of the applicable phase. Such plans and specifications submitted by Buyer shall
be in substantial compliance with the Final Development Plan, as defined in
Section 11.11 hereof, the Preliminary Plans approved by SJH Partnership and the
Development Criteria, except for modifications approved by SJH Partnership.
Approval by SJH Partnership shall be limited to exterior improvements and shall
be consistent with its approval of the Preliminary Plans. Approval shall not be
unreasonably denied, withheld or delayed but may be based upon purely aesthetic
grounds determined in the reasonable discretion of SJH Partnership.
Notwithstanding anything to the contrary contained herein, SJH Partnership shall
approve improvements which are of an appearance and quality comparable to those
plans submitted by Buyer to SJH Partnership based upon Buyer's affiliated
development located in Orlando, Florida. The working drawings, plans and
specifications, materials and signs described herein and approved by SJH
Partnership are referred to as the "Plans and Specifications."
11.2 Commencement and Completion.
---------------------------
11.2.1 On or before thirty (30) days subsequent to the later
to occur of (i) Closing or (ii) Final Development Plan approval (the
"Commencement Date"), subject to Force Majeure, Buyer, at its sole cost and
expense, shall commence construction, as defined below, and diligently pursue to
completion on or before February 1, 1998 (the "Completion Date") the
construction of a minimum of ninety-six (96) resort condominium and/or vacation
ownership dwelling units with one hundred twenty-eight (128)
36
<PAGE>
separately keyed rooms which may be used for transient rental purposes (the
"Phase I Units") all in compliance with the requirements of the Development
Criteria and the Plans and Specifications. Commencement of construction, for
purposes of this Section 11, shall mean commencement of site grading and site
development. The Commencement Date shall be extended to allow for posting of
the security contemplated in Section 11.15 below, if required by the County as a
condition to issuance of building permits for the Phase I Units.
11.2.2 Buyer shall complete construction of the Phase I Units
on or before the Completion Date, subject to Force Majeure, or as extended
pursuant to Section 11.2.1 above. Completion shall be evidenced by issuance of
a certification of substantial completion by Buyer's engineer or contractor, a
copy of which shall be provided to SJH Partnership on or before such required
completion date. Buyer shall also complete certain landscaping improvements to
the undeveloped portions of the Land on or before the Completion Date, subject
to Force Majeure, so as to provide an aesthetically pleasing appearance on such
portions of the Land visible from the WGV Easement as more particularly
described in the Development Criteria (the "Landscaping Improvements"). The
Phase I Units and the Landscaping Improvements are referred to collectively
herein as the "Phase I Improvements."
11.2.3 In the event Buyer fails to commence or complete
construction as provided in this Section 11, subject to Force Majeure, SJH
Partnership shall be entitled to exercise all remedies available at law or in
equity for such default.
11.3 Buyer Offsite Improvements. Buyer shall bear its allocated
--------------------------
share of the costs to construct the WGV Easement to be constructed by WGV
adjacent or in proximity to the Land, as more particularly set forth under the
terms of the Construction Reimbursement Agreement. Buyer hereby acknowledges
that SJH
37
<PAGE>
Partnership has no obligation to construct any utility or other on or offsite
improvements except as specifically set forth in Section 11.4 below.
11.4 Offsite Infrastructure. SJH Partnership shall, at its sole
----------------------
expense, be responsible for (i) construction of the Access Road into the
Interchange Northwest Parcel providing vehicular ingress and egress from
International Golf Parkway to the point as shown on the Site Plan ("Road
Connection Point") and landscaping of the Access Road, and (ii) construction of
Lake Numbers 315, 316, 317, 1/2 of 318, 321, 322, 326, 327, 329, 330, 331 and
332 of the master drainage system generally as depicted on Real Estate Map
prepared by Bessent, Hammack & Ruckman dated October 27, 1994 ("Real Estate
Map") attached as an Exhibit to this Agreement to the extent necessary to
provide adequate drainage for the Property in accordance with the Surface Water
Permits (the "Drainage Improvements"), such improvements collectively the
"Infrastructure Improvements." The timing of commencement of construction of
the Infrastructure Improvements shall be coordinated with Buyer so that the
Access Road and landscaping of it shall be completed not later than fifteen (15)
months from the Closing Date and the Drainage System shall be completed not
later than September 30, 1997, subject only to Force Majeure. SJH Partnership
shall ensure that all work is done in a first-class manner and that all phases
of the work are commenced and carried out without delay, subject to Force
Majeure, in accordance with the Infrastructure Development Criteria attached
hereto as an Exhibit. Buyer acknowledges that the electric and telephone lines
and water and sewer improvements necessary to service the Villas are installed
by independent utility companies. SJH Partnership will not be responsible for
the installation of any utility improvements constructed by utility companies or
the County or for the availability of service from utility companies to the
Villas, but shall be obligated to grant
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such utility easements over and upon the Interchange Northwest Parcel, as may be
reasonably necessary for such companies to service the Villas. In the event SJH
Partnership fails to commence or complete construction or grant utility
easements as provided in this Section 11, subject to Force Majeure, Buyer shall
be entitled to exercise all remedies available at law or in equity for such
default.
11.5 Mechanics Liens. Buyer and SJH Partnership shall comply in all
---------------
respects with the Florida Mechanics Lien Law to ensure that no mechanics lien is
imposed upon property of any other party during the course of construction. Any
mechanics lien affecting property owned by another shall immediately be bonded
off by the responsible party.
11.6 Insurance. Buyer and SJH Partnership, from and after having
---------
commenced construction activities, shall be responsible to maintain, during the
progress of any work, insurance written by companies of recognized standing
qualified to do business in Florida, as follows:
11.6.1 General comprehensive public liability insurance for
bodily injury, death or property damage, with minimum limits of Five Million
Dollars ($5,000,000.00) for bodily injury or death for any one occurrence or
accident, and One Million Dollars ($1,000,000.00) for property damage for any
one occurrence or accident; and
11.6.2 Workers Compensation in complete compliance with all
federal and state laws; and
11.6.3 Comprehensive automobile liability (owned, non-owned,
hired), which coverage shall be not less that Five Hundred Thousand Dollars
($500,000.00); and
11.6.4 Builders' risk insurance insuring against all loss or
damage to the work by reason of any hazard; and
39
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11.6.5 Certificates of such insurance coverage shall be
furnished to each party before commencement of any construction activity. These
certificates shall provide that the insured shall give thirty (30) days written
notice to the other party prior to change or cancellation of any policy. All
policies of insurance shall contain a waiver of subrogation of any rights
against the other party, their employees, agents, servants and representatives,
as related to any or all losses, expenses, demands, claims or suits caused or
occasioned by, attributed to, arising out of or incidental to any negligence or
misfeasance on the part of the other parties, their employees, agents, servants
or representatives. Buyer or SJH Partnership shall be named as an additional
insured under each policy carried pursuant to this Section 11.6 with coverage
extended for all risks protected against by such policy. Each such policy
carried shall be primary, whether or not the other party has other collectable
insurance. Certificates of such insurance shall be delivered to any additional
insured prior to commencement of any construction.
11.7 Indemnity.
---------
11.7.1 In consideration of One Hundred Dollars ($100.00) paid
by SJH Partnership to Buyer, receipt and sufficiency of which is hereby
acknowledged, Buyer agrees to indemnify and hold SJH Partnership, its
affiliates, agents and employees harmless against all damages, claims,
liabilities, losses or related expenses, including reasonable attorneys' fees
(whether incurred in preparation for trial, at trial, on appeal or in any
insolvency proceeding), that may arise from (a) any personal injury or property
damage occurring on the Land not covered by the insurance described in Section
11.6 in connection with construction activities by or on behalf of Buyer upon
the Land regardless of whether negligence of the indemnified party may have
contributed to the claim, damage, loss or expense; (b) any mechanics or
40
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materialmen liens filed against the property of SJH Partnership in connection
with construction activities of Buyer, including liens for materials delivered
to the construction site; and (c) any uncured violation by Buyer of requirements
of Saint Johns DRI or Surface Water Permits.
11.7.2 In consideration of One Hundred Dollars ($100.00) paid
by Buyer to SJH Partnership, receipt and sufficiency of which is hereby
acknowledged, SJH Partnership agrees to indemnify and hold Buyer, its
affiliates, agents and employees harmless against all damages, claims,
liabilities, losses or related expenses, including reasonable attorneys' fees
(whether incurred in preparation for trial, at trial, on appeal or in any
insolvency proceeding), that may arise from (a) any personal injury or property
damage occurring on land owned by SJH Partnership not covered by the insurance
described in Section 11.6 in connection with construction activities by or on
behalf of SJH Partnership regardless of whether negligence of the indemnified
party may have contributed to the claim, damage, loss or expense; (b) any
mechanics or materialmen liens filed against the Land in connection with
construction activities of SJH Partnership, including liens for materials
delivered to the construction site; and (c) any uncured violation by SJH
Partnership of requirements of Saint Johns DRI or Surface Water Permits.
11.8 Temporary Easements. SJH Partnership and Buyer shall, subject
--------------------
to Force Majeure, provide to one another temporary easements for access by
construction vehicles and for construction of utilities during the course of
construction activity, provided that such other access does not unreasonably
interfere with their respective construction activities. SJH Partnership shall
provide its temporary construction access easement over and pursuant to terms of
the Access Easement. The precise location of any alternative construction access
easements shall be determined by the property owner and may be
41
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relocated from time to time provided that each party is at all times provided
reasonable access over a temporary road for construction vehicles to their
respective construction sites. These temporary easements shall provide for
reciprocal indemnification as provided in Section 11.7 above. Upon completion of
construction, such temporary access easements shall terminate.
11.9 Permit Compliance. The parties acknowledge that the
-----------------
improvements to be constructed upon the Land are subject to certain conditions
and requirements contained in the Saint Johns DRI, Saint Johns PUD and Surface
Water Permits, as the same may be modified from time to time. Buyer shall
comply in all material respects with all applicable provisions of the Saint
Johns DRI, Saint Johns PUD and Surface Water Permits. SJH Partnership shall
comply with the provisions of the Saint Johns DRI, Saint Johns PUD, and Surface
Water Permits as to the lands owned by SJH Partnership; provided, however, this
provision shall not be construed to limit the right of SJH Partnership to effect
modifications of the Saint Johns DRI, Saint Johns PUD and Surface Water Permits,
as it shall determine in its sole discretion, so long as such modifications do
not materially and adversely affect the rights of Buyer under the terms of this
Agreement or the WGV Master Development Agreement, or the rights of Buyer to
construct or its cost to construct the Villas in accordance with the Plans and
Specifications.
11.10 Coordination. The parties acknowledge that construction efforts
------------
will be undertaken simultaneously by several parties by Buyer upon the Land and
by SJH Partnership and other parties upon other portions of the Saint Johns DRI.
Buyer and SJH Partnership agree that they will use all reasonable efforts to
coordinate construction activity so as to minimize interference with the work of
other parties during the course of construction. SJH Partnership and Buyer
agree to consult on a regular basis as to the timing of their respective
construction activities and as
42
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related to the World Golf Village so as to allow for maximum coordination and
efficiency in the progress of each of their work. All contractors providing
construction services to the Land shall be required to comply with the
Construction Rules and Regulations attached hereto as an Exhibit.
11.11 Final Development Plan. Prior to submission of any Final
----------------------
Development Plan for the Villas (as defined in the St. Johns County Zoning Code)
to the County for approval, Buyer shall first obtain SJH Partnership's approval
of such Final Development Plan and any modifications thereto which shall be
granted so long as such Final Development Plan shall comply with all terms and
provisions of this Agreement.
11.12 Compliance with Drainage Plan. Upon completion of the
-----------------------------
improvements constructed upon the Land, Buyer shall cause all drainage areas
within the Land to be brought to the elevation shown for drainage improvements
as part of the Surface Water Permits. Buyer shall provide to SJH Partnership,
upon completion of construction of improvements on the Land, a certificate of
Bessent, Hammack & Ruckman, licensed civil engineers, certifying that all
improvements constructed upon the Land have been constructed in full compliance
with the Surface Water Permits, and in conformance with the Plans and
Specifications.
11.13 Approval of Contractor. SJH Partnership shall have the right to
----------------------
approve any general contractor (other than Buyer or an affiliate of Buyer acting
as its own general contractor) engaged by Buyer to construct the Villas, or
portions thereof. Provided such contractor shall have a high quality
reputation, shall have experience in the construction of residential
improvements of similar scope and quality as the Villas and shall be able to
secure the performance and payment bonds provided for in Section 11.14 below,
SJH Partnership shall approve the general contractor selected by Buyer.
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11.14 Payment and Performance Bonds.
-----------------------------
11.14.1 Prior to commencement of construction of the Phase I
Units and related site work, the general contractor engaged by Buyer to
construct the Villas shall furnish to Buyer and the lender providing financing
for such improvements, good and sufficient Labor and Material Payment Bond and
Performance Bonds (collectively "Bonds"), in amounts which are not less than the
full cost of construction under the applicable general contract, sufficient to
ensure completion of the contractor's obligations under the applicable general
contract, which Bonds shall be maintained by contractor for the life of the
general contract, and evidence of such Bonds shall be provided to SJH
Partnership. If Buyer shall act as its own general contractor, Bonds shall be
required only for such subcontracts for construction which exceed an amount of
One Million Dollars ($1,000,000.00).
11.14.2 Prior to commencement of construction of any portion of
the Infrastructure Improvements, which contract for construction exceeds One
Million Dollars ($1,000,000.00), the general contractor engaged by SJH
Partnership to construct such portion of the Infrastructure Improvements shall
furnish to SJH Partnership and the lender providing financing for such portion
of the Infrastructure Improvements, Bonds in amounts which are not less than the
full cost of construction under the applicable general contract, in form and
content reasonably satisfactory to Buyer to ensure completion of the general
contractor's obligation under the applicable general contract, which Bonds shall
be maintained by the general contractor for the life of such general contract.
11.15 Plat of Access Road. Not later than ninety (90) days after the
-------------------
Closing Date, subject to Force Majeure, SJH Partnership shall, at its expense,
obtain an approved preliminary plat of the Access Road, or shall post such
performance security
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with the County with respect to the Access Road as may be required by the County
as a condition to issuance of building permits for the Villas.
12. EASEMENTS AND RESTRICTIONS AFFECTING SJH PARTNERSHIP'S ADJACENT
---------------------------------------------------------------
PROPERTY AND THE PROPERTY AND POST-CLOSING MATTERS.
- --------------------------------------------------
12.1 Continuing Architectural Approvals. SJH Partnership and the
----------------------------------
Association formed pursuant to the Association Covenants for Saint Johns-
Northwest Commercial shall have a continuing right to approve the construction
of any improvements upon the Land which were not approved prior to Closing
pursuant to the terms hereof, as reserved by SJH Partnership under, and subject
to the terms of, the Special Warranty Deed and as provided for in the
Association Covenants described in Section 12.9 below.
12.2 Use Restrictions and DRI Allocation of Development Rights.
----------------------------------------------------------
Buyer shall use the Land solely for construction of the Villas, subject to the
height limitations set forth in the Development Criteria. At Closing, SJH
Partnership shall assign to Buyer, for the benefit of the Land, development
rights under the Saint Johns DRI for up to 440 resort condominium and/or
vacation ownership dwelling units in the multi-family category of development
under the Saint Johns DRI pursuant to an Assignment of Development Rights in
form and substance satisfactor to the parties.
12.3 Rental Program. Buyer agrees that upon completion of
--------------
construction of the Phase I Units, it shall institute and operate a first-class
nightly rental program with respect to the Phase I Units which shall be reserved
through a central reservations system administered by Buyer or its affiliates or
in conjunction with the central reservations system of the Hotel. This program
will be made available by Buyer at commercially reasonable rates and terms with
respect to (i) all Villas, when constructed, which have not been conveyed to
third party purchasers in the ordinary course of business and (ii) those third
party
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purchasers who voluntarily elect to participate in such a rental program after
purchase. This obligation of Buyer shall constitute a covenant running with
title to the Land and shall continue until such time as the Conference Center
Bonds are paid in full but shall terminate automatically and without the
necessity of a release as to any Villa (or any interest therein) upon sale to a
third party purchaser in the ordinary course of business. For purposes of this
Section 12.3, sales to purchasers in the ordinary course of business shall
exclude sales of Villas in bulk or vacation intervals in bulk to a single
purchaser who holds such Villas or vacation intervals for resale.
12.4 Disclosure and Release. Buyer shall cause all purchasers of
----------------------
units to execute a disclosure and release agreement acknowledging construction
of the Villas by Buyer and releasing SJH Partnership from all liability in
connection with the Villas, or Buyer shall include such a disclosure and release
which specifically survives closing in every purchase agreement entered into
between Buyer and a Villa purchaser.
12.5 Purchaser's Warranty. Buyer shall provide third party
--------------------
purchasers of timeshare interests in the Villas with all statutory construction
warranties required by Chapter 721, Florida Statutes, and all third party
purchasers of resort condominiums with all statutory construction warranties
required by Chapter 718, Florida Statutes.
12.6 Property Owner's Association. After Closing, Buyer shall be
----------------------------
responsible for maintaining the Land including, without limitation, all land
lying between individual lots and Villa boundaries and the waters edge of any
lake, the improvements constructed on the Land, and all common facilities
located therein. To the extent that Buyer may create separate homeowner,
condominium or timeshare association(s) for the Land or any portion thereof,
Buyer may assign all or a portion of its maintenance obligation
46
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hereunder to such association(s). The form of documents creating such
association(s) shall be subject to SJH Partnership's review and approval for
consistency with the Association Covenants, as defined in Section 12.9 below
prior to such documents being executed or recorded in the public records of St.
Johns County, Florida, which approval shall not be unreasonably withheld, denied
or delayed.
12.7 Easements Reserved by SJH Partnership. SJH Partnership shall
-------------------------------------
reserve certain easements over and upon the Land for the benefit of the
Interchange Northwest Parcel and other lands within the Saints Johns DRI as
follows, which will not materially impair the construction or use of the Villas:
12.7.1 Non-exclusive perpetual easements for drainage which
shall also provide for Buyer's right to drain the Land in and through the
drainage system constructed by SJH Partnership, as provided for in the Special
Warranty Deed.
12.7.2 Non-exclusive perpetual easements for the benefit of
SJH Partnership and/or utility companies designated by SJH Partnership to
service the Land and for the installation of sewer, water, telephone,
electricity and an exclusive perpetual easement for telecommunication
information services and CATV service, all as provided for in the Special
Warranty Deed.
12.8 Additional Covenants and Restrictions. The Land shall be
-------------------------------------
conveyed to Buyer subject to certain additional covenants and restrictions,
including, but not limited to (i) an exclusive perpetual easement for
construction and maintenance of a golf cart path for golf cart and pedestrian
access between portions of the World Golf Village Golf Course to be granted to
Scratch for the benefit of the World Golf Village Golf Course as shown on the
Site Plan, and (ii) a view corridor for the benefit of the Hall of Fame Parcel
restricting vertical development in the area as shown on the Site Plan and as
provided for in the Special Warranty Deed.
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12.9 Association Covenants. Prior to Closing, the Land shall be
---------------------
subjected to Declaration of Covenants for two property owners' associations
("Association(s)") within the Saint Johns DRI (the "Association Covenants"), the
Declaration of Covenants and Restrictions for Saint Johns-Northwest Master,
attached hereto as an Exhibit, and the Declaration of Covenants and Restrictions
for Saint Johns-Northwest Commercial, attached hereto as an Exhibit.
12.10 Exclusive Rights as to Vacation Club, Timeshare or Interval
-----------------------------------------------------------
Ownership Sales. For a period of time beginning on the Closing Date, to the
- ---------------
first to occur of (i) fifteen (15) years from the Closing Date, (ii) the date
upon which improvements constructed upon the Land are no longer available for
sale or purchase as timeshare estates, timeshare licenses or vacation clubs, as
such terms are defined in Chapter 721, Florida Statutes, or (iii) one hundred
eighty (180) days from the required Completion Date of the Phase I Improvements,
if not so completed, subject to Force Majeure, SJH Partnership agrees that use
of the Interchange Tract (other than the Land, the Hall of Fame footprint parcel
as conveyed to the County by Special Warranty Deed recorded in Official Records
Book 1108, page 1418 of the public records of St. Johns County, Florida, and the
Utility Site as conveyed to the County by Special Warranty Deed recorded in
Official Records Book _____, page ____ of the public records of St. Johns
County, Florida) shall be restricted from development, operation or sale as
timeshare estates, timeshare licenses, or vacation clubs, as such terms are
defined in Chapter 721, Florida Statutes. This restriction shall be personal to
Buyer and its permitted assignees and enforceable only by Buyer and its
permitted assignees so long as Buyer or its permitted assignees own any portion
of Parcel One (including Villa vacation weeks within Parcel One) or manage any
timeshare plan on behalf of others which is situated on the Land. This
restriction shall be evidenced in the recorded Special Warranty Deed and shall
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be a covenant running with title to the Interchange Tract (other than lands
conveyed to the County) and shall be subordinate to the existing mortgage liens
of Charles Wolfe and Barnett Bank of Jacksonville, N.A., in effect as of the
date hereof. For purposes of this Section 12.10, a "permitted assignee" shall
include Mortgagee and any entity which is under the direct management control of
Raymond L. Gellein, Jr. or Jeffrey A. Adler, individually or collectively.
13. SJH PARTNERSHIP'S RIGHT OF FIRST REFUSAL. SJH Partnership shall have
----------------------------------------
a continuing right of first refusal to purchase Parcel One (the "Right of First
Refusal") in the event offered for sale by Buyer in bulk in an undeveloped state
which shall be subordinate in form and Substance satisfactory to mortgagee to
the lien of the construction loan mortgage upon Parcel One or any refinancing
thereof. For purposes of this Section 13, a conveyance in bulk in an undeveloped
state shall mean any conveyance prior to the first to occur of (i) recordation
of a declaration of condominium or timeshare regime or (ii) commencement of
vertical construction of the Phase I Units. Within fifteen (15) days of Buyer's
receipt of an offer to purchase Parcel One acceptable to Buyer, Buyer shall
provide SJH Partnership with (i) written notice of the offer received by Buyer,
and (ii) a copy of the executed purchase and sale agreement setting forth the
terms upon which Parcel One will be sold by Buyer (collectively, the "Offer").
SJH Partnership shall have a period of fifteen (15) days from receipt of the
Offer within which to elect in writing to either purchase such parcel by
execution of a purchase and sale agreement on the terms stated in the Offer or
to reject the Offer. If SJH Partnership shall fail to either elect or reject the
Offer in writing within the said fifteen (15) day period, the Right of First
Refusal shall be deemed to have been rejected, and Buyer shall be entitled to
sell Parcel One on the terms set forth in the
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Offer, free and clear of any rights of SJH Partnership set forth herein. Any
such rejection of the Right of First Refusal shall not constitute a permanent
waiver of the Right of First Refusal to the extent that the purchase is not
closed within the time period specified in the Offer or there occurs a material
change in the terms of the Offer. Further, the rejection shall apply only to
the particular sale of which SJH Partnership is given notice as provided herein.
The Right of First Refusal shall be continuing and applicable to Buyer and its
successors and assigns and shall run with the title to Parcel One and shall
expire automatically upon the earlier of the recording of a declaration of
condominium or timeshare regime for any portion of Parcel One or the recording
of a notice of commencement for vertical construction of the Phase I Units on
any portion of Parcel One. This Right of First Refusal shall be personal to SJH
Partnership and shall not be assignable.
14. REMEDIES FOR DEFAULT.
--------------------
14.1 Remedies of SJH Partnership. In the event that SJH Partnership
---------------------------
performs all obligations provided for in this Agreement and all conditions to
the performance of Buyer shall have been met or waived by Buyer, and (i) Buyer
fails to close this transaction in accordance with the terms hereof, or (ii) in
the event Buyer shall default in any obligations of Buyer under the terms of
this Agreement, SJH Partnership, at SJH Partnership's option, shall be entitled,
if such default occurs prior to Closing, to terminate this Agreement and to
retain the Deposit as agreed upon and liquidated damages for Buyer's default,
recognizing that actual damages are incapable of ascertainment, which shall be
the sole and exclusive remedy of SJH Partnership. Buyer and SJH Partnership
acknowledge that this constitutes a reasonable payment to SJH Partnership as a
result of Buyer's default and does not constitute a penalty. SJH Partnership
shall provide written notice of default
50
<PAGE>
and a ten (10) day period to cure such default prior to termination, other than
a default for Buyer's failure to perform on the Closing Date.
14.2 Remedies of Buyer. In the event that Buyer performs all
-----------------
obligations provided for herein prior to Closing and SJH Partnership fails to
close this transaction as contemplated under the terms of this Agreement, then
in such event the Deposit shall be returned to Buyer and Buyer shall have the
remedy of specific performance.
14.3 Remedies Subsequent to Closing. The parties shall each have all
------------------------------
remedies provided at law and in equity as to defaults in each of their
obligations to be performed subsequent to Closing.
15. MISCELLANEOUS.
-------------
15.1 Notices. Any notice, demand, consent, authorization, request,
-------
approval or other communication (collectively, "Notice") that any party is
required, or may desire, to give to or make upon the other party pursuant to
this Agreement shall be effective and valid only if in writing, and delivered
personally to the other parties or sent by express 24-hour guaranteed courier or
delivery service, by facsimile transmission or by registered or certified mail
of the United States Postal Service, postage prepaid and return receipt
requested, addressed to the other parties as follows (or to such other place as
any party may by Notice to the others specify):
TO SJH PARTNERSHIP:
------------------
SJH Partnership, Ltd.
c/o SJ Memphis, Ltd.
3797 New Getwell Road
Memphis, TN 38118
Attention: Louis Baioni
cc: William H. Stubblefield, Esq.
51
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WITH COPY TO:
------------
Davidson Development, Inc.
2395 International Golf Parkway
St. Augustine, FL 32095
Attention: James E. Davidson, Jr.
AND COPY TO:
-----------
M. Lynn Pappas, Esquire
Pappas Metcalf & Jenks P.A.
200 West Forsyth Street, Suite 1400
Jacksonville, FL 32202
TO BUYER:
--------
Vistana WGV, Ltd.
8801 Vistana Centre Drive
Orlando, FL 32821
Attention: Raymond L. Gellein, Jr., Chairman
WITH COPY TO:
------------
Susan Werth, Esquire
Senior Vice President-Law
Vistana Development, Ltd.
701 Brickell Avenue, Suite 2100
Miami, FL 33131
TO ESCROW AGENT:
---------------
M. Lynn Pappas, Esquire
Pappas Metcalf & Jenks, P.A.
200 West Forsyth Street, Suite 1400
Jacksonville, FL 32202
Notices shall be deemed given when received, except that if delivery is not
accepted, Notice shall be deemed given on the date of such non-acceptance.
15.2 Brokerage. SJH Partnership and Buyer represent to each other
---------
that neither has dealt with any broker, middleman or agent in connection with
this transaction other than SJH Realty, Inc. and Davidson Realty, Inc. SJH
Partnership shall be exclusively liable for any compensation owed to SJH Realty,
Inc. or Davidson Realty, Inc. SJH Partnership and Buyer agree to indemnify and
hold one another harmless from and against all liabilities and expenses in
connection with any claims for commission, compensation
52
<PAGE>
or otherwise for the bringing about of this transaction or the consummation
thereof, which can be made against the other by any person, firm or corporation
as the result of any acts of the other party.
15.3 Condemnation.
------------
15.3.1 If at any time prior to Closing, any proceedings shall
be commenced or consummated for the taking of the Land or material part of the
Land for public or quasi-public use pursuant to the power of eminent domain,
either party may, by written Notice to the other within thirty (30) days of
notice of such taking, elect to terminate this Agreement and all parties shall
be relieved of all further obligations hereunder and any monies paid by Buyer
shall be returned to Buyer. Unless this Agreement is terminated as provided
above, it shall remain in full force and effect and SJH Partnership shall assign
and transfer to Buyer any interest in any awards made with respect to the Land.
If at any time prior to Closing, any proceedings shall be commenced or
consummated for the taking of an immaterial portion of the Land for public or
quasi-public use pursuant to the power of eminent domain, neither party shall
have the right to cancel this Agreement and it shall remain in full force and
effect. For purposes of this section, a material part of the Land shall be an
amount of land area which prohibits construction of the Villas.
15.3.2 If at any time subsequent to Closing, but prior to the
completion of construction of improvements upon the Land, any proceedings shall
be commenced or consummated for the taking of a material part of the Land for
public or quasi-public use pursuant to the power of eminent domain, Buyer shall
be entitled to effect such modifications to the approved Plans and
Specifications as may be necessary to conform the Villas to the limitations of
the Land as reconfigured subsequent to the effect of such taking.
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15.4 Attorneys' Fees. In the event of litigation arising pursuant to
---------------
the provisions of this Agreement, the prevailing party shall be entitled to
collect reasonable attorneys' fees from the non-prevailing party and costs and
expenses of such litigation, whether at the trial level or on appeal.
15.5 Effect of this Agreement. This Agreement constitutes the
------------------------
complete agreement between the parties with respect to its subject matter; and
all antecedent or contemporaneous negotiations, undertakings, representations,
warranties, inducements and obligations are merged into this Agreement and
superseded by its delivery, except as may be evidenced by separate written
agreement between the parties of even date and the Master Development Agreements
and other documents as referenced herein. Any express indemnities contained in
this Agreement survive the Closing as do the parties' covenants of further
assurances and obligations of the parties to be performed subsequent to the
Closing Date. No provision of this Agreement may be waived unless such waiver
is set forth in writing and signed by the party to be charged; and this
Agreement otherwise may be modified or amended only by a written instrument
signed by Buyer and SJH Partnership.
15.6 Indemnity re: Villa Sales. Buyer has agreed that, in connection
-------------------------
with the sale of any of the Villas, it will not incorporate representations or
give any inducements or assurances concerning tax consequences (unless required
by law) or investment potential of ownership or to what extent economic benefit
might be derived by the prospective purchaser due to ownership or resale of the
Villas which would make such sale or offer the sale of a security unless such
plan of sale including any registration or prospectus materials to be delivered
in connection therewith has been approved by SJH Partnership in writing. In
addition, Buyer has agreed that, in developing a plan of sale for the Villas, it
will at all times use its best efforts to conduct such plan of sale
54
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in material compliance with all laws, rules and regulations of all governmental
authorities having jurisdiction over such activities including, but not limited
to, compliance with the state and federal securities laws and laws of the State
of Florida governing sale of vacation ownership dwelling units and timeshare or
interval ownership programs. Upon Buyer's receipt of written notification from
SJH Partnership or any such governmental authority of any non-compliance, Buyer
shall have thirty (30) days in which to cure the non-compliance. At SJH
Partnership's request, prior to the commencement of any sales activity
pertaining to the Villas, Buyer shall provide to SJH Partnership an Indemnity
Agreement in form and content attached hereto as an Exhibit to this Agreement.
15.7 Assignment. Buyer acknowledges and agrees that Buyer's
----------
financial condition and business reputation constitute a significant inducement
for SJH Partnership's willingness to enter into this Agreement. As a result,
Buyer agrees that it will not convey, assign, encumber or otherwise transfer any
interest in its rights contained in this Agreement prior to Closing to any party
without SJH Partnership's prior written consent which may be granted or withheld
at SJH Partnership's sole discretion; provided, however, Buyer shall be
permitted to assign its rights under this Agreement to any entity which is under
the direct management control of Raymond L. Gellein, Jr. or Jeffrey A. Adler.
15.8 Interpretation. This Agreement shall be interpreted, construed,
--------------
applied and enforced according to the laws of the State of Florida. If all or
any portion of the provisions of this Agreement shall be declared invalid by
laws applicable thereto, such invalid portion shall be ineffective and
unenforceable without invalidating the remaining provisions of this Agreement.
All captions and headings appearing are for convenience
55
<PAGE>
only and shall not be considered in construing or giving effect to the
provisions hereof.
15.9 Time is of the Essence. Time is of the essence with respect to
----------------------
all provisions of this Agreement. If any date referenced herein falls on a
Saturday, Sunday or legal holiday, then such date automatically is extended to
the next business day.
15.10 Risk of Loss. All risk of loss to Parcel One prior to Closing
------------
shall be borne by SJH Partnership.
15.11 No Joint Venture or Partnership. This Agreement is not intended
-------------------------------
nor shall it be construed to create a joint venture or partnership between the
parties and neither party shall constitute the agent of the other for any
purpose.
15.12 No Third Party Beneficiaries. This contract constitutes an
----------------------------
agreement between SJH Partnership and Buyer as to all provisions contained
herein. Notwithstanding anything contained herein to the contrary, this
Agreement is not intended nor shall it be construed to create any rights or
remedies as to third parties, other than WGV as to the Guaranty Fee Note. No
party shall constitute a third party beneficiary to the terms of this Agreement,
except as contemplated in the Master Development Agreements.
15.13 Acceptance. In the event this Agreement is not executed by SJH
----------
Partnership or Buyer within five (5) days of the date first executed, this
Agreement shall thereafter be null and void and neither party shall have any
liability or obligation hereunder and the Deposit, if then held by Escrow Agent,
shall be returned to Buyer.
15.14 Press Releases. Prior to Closing, neither Buyer nor SJH
--------------
Partnership shall make any press releases or other media dissemination of
information relating to the transactions contemplated herein without the prior
approval of the other party, which shall not be unreasonably withheld.
56
<PAGE>
15.15 Drafting. This Agreement and all Exhibits hereto have been
--------
negotiated at arm's length by SJH Partnership and Buyer, and the parties
mutually agree that for the purpose of creating the terms of this Agreement, or
said Exhibits, neither party shall be deemed responsible for the drafting
thereof.
15.16 Recitals and Exhibits. All recitals set forth in the Preamble
---------------------
and all Exhibits referred to in this Agreement are incorporated herein by
reference and shall be deemed part of this Agreement for all purposes as if set
forth at length herein.
15.17 Counterparts. This Agreement may be executed by the parties
------------
hereto individually or in combination in one or more counterparts, each of which
shall be an original, and all of which shall constitute one and the same
instrument.
15.18 Estoppel Certificates. Upon the written request of any parties
---------------------
hereto, the other party shall execute and deliver a certificate certifying that
there are no known defaults on the part of any party to this Agreement or any
Exhibits hereto, or if there are such defaults specifying the particulars of
such default and certifying that there are no setoffs or defenses to the
enforcement of the terms of this Agreement, or if there are, specifying the
particulars of such setoffs or defenses which shall be binding upon the parties
executing such estoppel. Upon request of any institutional lender, SJH
Partnership agrees to provide to such lender a copy of any written notice of
default provided to Buyer under the terms of this Agreement at the address
provided for in such request.
15.19 Mortgagee Protections. If any rights of Buyer or SJH
---------------------
Partnership under the terms of this Agreement are at any time, or from time to
time, subject to one or more mortgages and the mortgagor advises the other party
hereto of the name and address of the mortgagee ("Mortgagee") of any such
mortgage (or any assignee thereof), together with instructions for notification,
then until
57
<PAGE>
such time as the other party receives notice that such mortgage has been
satisfied, the following provisions shall apply:
15.19.1 Any non-defaulting party, upon serving the mortgagor
with any notice of default pursuant to this Agreement or any other material
notice or demand under the provisions of or with respect to this Agreement or
any related documents, shall also serve a copy of such notice upon any Permitted
Mortgagee and no such notice or demand by such non-defaulting party under this
Agreement or related documents shall be deemed to have been duly given unless
and until a copy thereof has been so served upon each such Permitted Mortgagee.
Copies of notices shall be served upon the Permitted Mortgagee in accordance
with the notice instructions set forth herein.
15.19.2 The Permitted Mortgagee shall have the right to perform
any term, covenant, condition or agreement of this Agreement or the related
documents on the mortgagor's part to be performed.
15.19.3 The mortgagor may delegate irrevocably to any Permitted
Mortgagee the authority to exercise any or all of the mortgagor's rights
hereunder, but no such delegation shall be binding upon the other party hereto
unless and until the mortgagor or such Permitted Mortgagee shall deliver to the
other party a true copy of a written instrument affecting such delegation. Such
delegation of authority may be effected by the terms of the mortgage itself, in
which case service upon other parties of a copy of the mortgage, together with a
written notice specifying the provisions therein which delegate such authority
to such Permitted Mortgagee shall be sufficient to give the other party notice
of such delegation. The other party shall be entitled to rely on any written
instrument affecting such delegation. No such delegation hereunder shall
release the mortgagor from any of its rights or obligations hereunder.
58
<PAGE>
15.20 Jurisdiction. This Agreement and the rights of the parties
------------
hereunder shall be governed and construed in accordance with the laws of the
State of Florida. Any suit shall be brought within the Courts of the State of
Florida or within the Federal District Court for the State of Florida.
15.21 Limited Liability. No shareholder, director, officer, employee,
-----------------
trustee or agent of SJH Partnership or Buyer, except as may be expressly
provided in any other document executed in conjunction with this Agreement,
shall ever be personally liable for the performance of the obligations
hereunder.
15.22 Consents. Where consent or approval of SJH Partnership or Buyer
--------
is required under this Agreement, failure of the party entitled to give such
consent or approval to respond to a request for same within fifteen (15) days of
written request accompanied by all required information, shall constitute such
party's approval of such request.
IN WITNESS WHEREOF, the undersigned have set their hands and seals as of
the date first above written.
SJH PARTNERSHIP:
SJH PARTNERSHIP, LTD.,
a Florida limited partnership
By: SJ Memphis, Ltd., a Florida
limited partnership, its
general partner
By: St. Johns Harbour, Inc.,
a Florida corporation, its
general partner
By: /s/ Richard L. Fisher
------------------------------
Richard L. Fisher
Its: President
LSr. Vice
[CORPORATE SEAL]
59
<PAGE>
BUYER:
VISTANA WGV, LTD.,
a Florida limited partnership
By: Vistana WGV Holdings, Inc., its sole general
partner
By: /s/ Raymond Gellein, Jr
----------------------------
(Print Name) Raymond Gellein, Jr
--------------------
Its: Chairman
----------------------------
[CORPORATE SEAL]
ESCROW AGENT:
PAPPAS METCALF & JENKS, P.A.
By: /s/ M. Lynn Pappas
---------------------------
(Print Name) M. LYNN PAPPAS
------------------
Its: V. President
--------------------------
60
<PAGE>
EXHIBIT 10.15
AMENDED AND RESTATED JOINT VENTURE AGREEMENT
--------------------------------------------
This Amended and Restated Joint Venture Agreement ("Agree ment") is made
and entered into as of the 25th day of June, 1996 by and between R. EDWARD
NOBLE ("NOBLE"), ANDREW E. KIDD ("KIDD"), NOBLE-KIDD CORPORATION ("N-K") and V
CH OAKS, LTD. ("VCH" or "Managing Partner").
R E C I T A L S
- - - - - - - -
A. Pursuant to Joint Venture Agreement made and entered into as of April
12, 1990 (the "Joint Venture Agreement"), NOBLE, KIDD and FKD KISSIMMEE
PARTNERS, a Florida general partnership ("FKD"), formed Caribbean Isle Joint
Venture Phase II (the "Partnership").
B. As of June 10, 1996, FKD has withdrawn from the Partnership and has
released and relinquished any and all of its right, title and interest in and to
the Partnership and any and all assets and properties of the Partnership,
thereby leaving NOBLE and KIDD as the sole remaining general partners of the
Partnership.
C. Pursuant to Agreement for Contribution of Partnership Interest of even
date herewith, NOBLE and KIDD have contributed, transferred and conveyed to VCH
and VCH has received from NOBLE and KIDD, an aggregate ninety-nine percent (99%)
interest in the Partnership and has been admitted as a general partner.
D. Contemporaneously with the execution of this Amendment, NOBLE and KIDD
are, with the consent of VCH, conveying their remaining, collective one percent
(1%) interest in the Partnership to their Affiliate, N-K and thereupon will
cease to individually own an interest in the Partnership.
E. The parties desire to continue the existence of the Partnership, amend
and restate the Joint Venture Agreement in its entirety and formally admit VCH
and N-K as Partners in the Partnership (the "Partners").
F. The Partnership continues to hold good, marketable and insurable title
to the Property (hereinafter defined) upon which it has developed and operated
an apartment complex (the "Complex") and which includes the Adjacent Land
(hereinafter defined) which was acquired, immediately preceding the execution
and delivery of this Agreement.
G. The parties desire to continue the Partnership for the purpose of
owning, operating, mortgaging, developing, managing, using and investing in the
Property and converting the Complex to a vacation timeshare resort (the
"Project") in accordance with the terms of this Agreement.
<PAGE>
NOW, THEREFORE, in consideration of the Recitals and other good and
valuable consideration, the receipt and sufficiency for which is hereby
acknowledged, the parties agree as follows:
ARTICLE I
---------
CONTINUATION OF PARTNERSHIP
---------------------------
SECTION 1.1 Continuation of Existence. NOBLE and KIDD hereby consent to
-------------------------
the admission of VCH and N-K as partners in the Partnership. The Partners hereby
agree to continue the Partnership, referred to in this Agreement as the
"Partnership," pursuant to the Partnership Law. The Partners shall execute and
cause to be filed, recorded and/or published all documents necessary to carry
out the intent and purposes of this Agreement. The Partners, thereafter, shall
execute such documents and take such action as may be necessary to maintain the
Partnership's status as a general partnership under the Partnership Law and as a
partnership under the Code and to carry out the business purposes of the
Partnership as set forth in Article II hereof. The Partners shall, at the
request of the Managing Partner, promptly execute such documents and furnish
such information as may be necessary to enable the Managing Partner to perform,
on behalf of the Partnership, those acts contemplated under this Section 1.1.
SECTION 1.2 Name and Principal Place of Business. From and after the date
------------------------------------
hereof, the name of the Partnership shall be "Oak Plantation Joint Venture," or
such other name as the Managing Partner may from time to time designate upon ten
(10) days prior written notice to the Partners. The principal place of business
for the Partnership shall be 8801 Vistana Centre Drive, Lake Buena Vista,
Florida 32821, or such other place as the Managing Partner may from time to time
designate upon ten (10) days prior written notice to the Partners.
SECTION 1.3 Term. The term of this Partnership continue until December
----
31, 2046, unless sooner terminated in accordance with the provisions of this
Agreement (Article XIII) or as otherwise provided by the Partnership Law.
SECTION 1.4 Costs of Formation. The Partnership shall bear all actual and
------------------
direct costs and expenditures incident to the preparation of this Agreement and
to the issuance of Partnership interests in the Partnership, and shall reimburse
the Managing Partner and N-K for all expenses actually paid or incurred by the
Managing Partner in connection therewith, including any legal expenses actually
paid or incurred by or on behalf of the Managing
-2-
<PAGE>
Partner and N-K in connection with the preparation of this Agreement.
SECTION 1.5 Registered Office and Agent in Florida. The address of the
--------------------------------------
Partnership's registered office in the State of Florida is 8801 Vistana Centre
Drive, Lake Buena Vista, Florida 32821. The registered agent at that address is
Jeffrey A. Adler. The Managing Partner may, from time to time, on behalf of the
Partnership, change the registered office and/or the registered agent of the
Partnership.
SECTION 1.6 Definitions. Capitalized words and phrases used in the
-----------
Agreement and which are not otherwise defined herein shall have the following
meanings:
A. "Accounts Receivable" means accounts receivable arising from the
sale of the Units (or interests therein) or other property of the Partnership.
B. "Adjacent Land" means the property described on Lot 2 of Oak
Plantation according to the plat thereof as recorded in Plat Book 6, Pages 208
and 209 of the public records of Osceola County, Florida.
C. "Affiliate" means the following: a party ("first party") will be
deemed to be an Affiliate of another party ("second party") if the first party
directly or indirectly owns or controls the second party, or if the first party
is, directly or indirectly, owned by or under common control with the second
party. For purposes of the preceding sentence, "control" shall mean ownership
(direct or indirect) of a majority of the voting interests in such entity or in
the managing general partner of such entity.
D. "Agreement" or "Partnership Agreement" means this Amended and
Restated Joint Venture Agreement of Oak Plantation Joint Venture, as amended
from time to time.
E. "Assign" or "Assignment" means any sale, assignment, option, gift,
pledge, hypothecation or other voluntary or involuntary encumbrance or transfer
of an interest in the Partnership (or, if applicable, of an interest in any
Partner, Affiliate of a Partner or other Person).
F. "Adjusted Capital Account Deficit" means, with respect to any
Partner, the deficit balance, if any, in such Partner's Capital Account as of
the end of the relevant Partnership taxable year, after giving effect to the
following adjustments:
-3-
<PAGE>
1. Debit to such Capital Account the items described in Reg. (S)1.704
-1(b)(2)(ii)(d)(4), (5) and (6); and
2. After making the foregoing debits, credit to such Capital Account
any amounts which such Partner is obligated to restore (pursuant to this
Agreement or otherwise) or any amounts which such Partner is deemed
obligated to restore pursuant to Reg. (S)1.704-2(g)and (i).
The foregoing definition of Adjusted Capital Account Deficit is
intended to comply with the provisions of Reg. (S)1.704-1(b)(2)(ii)(d) and shall
be interpreted consistently therewith.
G. "Available Cash" means all cash on hand other than cash which is (i)
restricted from distribution to Partners under the terms of any agreement to
which the Partnership is a party, or (ii) added to or retained in Partnership
reserves for all Partnership expenses, debt payments, capital improvements,
capital investments and reinvestments, replacements, contingencies, working
capital and other cash requirements, all as determined by the Managing Partner
in the reasonable exercise of its discretion.
H. "Bankruptcy" or "Bankrupt" with respect to a Partner or
Person shall mean:
1. Such Partner or Person has made an assignment for the benefit of
his creditors;
2. Such Partner or Person has filed a voluntary petition in
Bankruptcy;
3. Such Partner or Person has been adjudged a Bankrupt or insolvent
or has entered against him an order for any relief in any bankruptcy or
insolvency proceeding;
4. Such Partner or Person has filed a petition or answer seeking for
such Partner or Person any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any statute,
law or regulation;
5. Such Partner or Person has filed an answer or other pleading
admitting or failing to contest the material allegations of a petition
against such Partner or Person in any proceeding of this nature;
-4-
<PAGE>
6. Such Partner or Person seeks, consents to or acquiesces in the
appointment of a trustee, receiver or liquidator of such Partner or Person
or of all or any substantial part of such Partner's or Person's property;
or
7. One Hundred Twenty (120) days after the commencement of any
proceeding against such Partner or Person seeking reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any statute, law or regulation, the proceeding has not been
dismissed; or if within ninety (90) days after the appointment, without
such Partner's or Person's consent or acquiescence, of a trustee, receiver
or liquidator of such Partner or Person or of any substantial part of such
Partner's or Person's property, the appointment has not been vacated or
stayed; or if stayed, ninety (90) days following the expiration of any such
stay if the appointment has not been vacated.
I. "Capital Account" means, with respect to each Partner an individual
capital account which shall be determined and maintained for such Partner in
accordance with the rules of Reg. (S)1.704-1(b)(2)(iv). Except as otherwise
provided in such Regulations, each Partner's capital account shall be: (i)
credited with (a) such Partner's cash contributions to the capital of the
Partnership, (b) the fair market value of property contributed to the
Partnership by such Partner (as of the date of contribution and net of liability
secured by such contributed property that the Partnership is considered to have
assumed or to have taken subject to pursuant to Code (S)752), and (c) such
Partner's allocable share of the Partnership's Profits (or items of income or
gain comprising the Profits and Losses of the Partnership); and (ii) debited for
(a) all distributions made by the Partnership to such Partner, and (b) such
Partner's allocable share of the Partnership's Losses (or items of expense or
deduction comprising the Profits or Losses of the Partnership). In the event
that Partnership property is subject to Code (S)704(c) or is revalued in
accordance with Reg. (S)1.704-1(b)(2)(iv)(f), the Partners' capital accounts
shall be adjusted in accordance with Reg. (S)1.704-1(b)(2)(iv)(g) for
allocations to them of depreciation, amortization and gain or loss, as computed
for book purposes (and not tax purposes), with respect to such property.
J. "Code" means the United States Internal Revenue Code of 1986, as
amended.
K. "GAAP" means generally accepted accounting principles, consistently
applied.
-5-
<PAGE>
L. "Liquidation of the Partnership" means the earlier of (i) the date
upon which the Partnership is terminated under Code (S)708(b)(1), or (ii) the
date upon which the Partnership ceases to be a going concern (even though it may
continue in existence for the purpose of winding up its affairs, paying its
debts and distributing any remaining balance to its Partners).
M. "Managing Partner" means any Person who (i) is referred to as such in
the first paragraph of this Agreement or who later becomes a Managing Partner
pursuant to the terms of this Agreement, and (ii) has not ceased to be a
Managing Partner pursuant to the terms of this Agreement.
N. "Non-Qualified Person' means a Person (i) who, directly or indirectly,
owns an interest in, or is otherwise engaged in (whether as a principal,
consultant, agent, employee, officer, director or otherwise) a timeshare or
interval ownership business (including timeshare development, timeshare
marketing, timeshare resort management or the operation or sale for timeshare
purposes of any kind of interest, including, without limitation, "timeshare
licenses," "timeshare estates" or "vacation clubs," as such terms are defined in
Chapter 721 of the Florida Statutes) other than through ownership of an interest
in the Partnership or through ownership of an interest in an Affiliate of VCH
Oaks, Inc., a Florida corporation, its successors or assigns (all of the
foregoing activities being hereinafter referred to as "Timeshare Activities"),
(ii) which is an Affiliate of any Person described in clause (i) above, or (iii)
whose character or reputation would, in the reasonable opinion of the Partner,
jeopardize the authority of the Partnership to conduct any aspect of the
business of the Partnership in any state in which its business is conducted, or
would otherwise adversely affect the goodwill or business reputation of the
Partnership.
O. "Partner" means any Person (i) whose name is set forth on the
signature page of this Agreement as a Partner or who has been admitted as an
additional or substitute Partner pursuant to the terms of this Agreement, and
(ii) who is the owner of an interest in the Partnership as a Partner. The term
"Partner" shall also be deemed to include the holder of a converted Partner
interest (whether as an assignee or as a substitute Partner) received pursuant
to Section 12.8 below.
P. "Partnership Law" means (S)(S)620.81001 through 620.91, Florida
Statutes (the Revised Uniform Partnership Act, as adopted in the State of
Florida), as amended from time to time.
-6-
<PAGE>
Q. "Percentage Interests" of the Partners shall be as follows:
Partner Percentage Interest
------- -------------------
VCH 99 %
N-K 1 %
-----
Total: 100.0 %
=====
R. "Person" means an individual, partnership, limited liability company,
limited liability partnership, corporation, trust and any other association or
legal entity.
S. "Profits" and "Losses" of the Partnership for each taxable year of the
Partnership means an amount equal to the Partnership's taxable income or loss
for such taxable year, as determined for federal income tax purposes in
accordance with the accounting method followed by the Partnership and in
accordance with Code (S)703 (for this purpose, all items of income, gain, loss
or deduction required to be separately stated pursuant to Code (S)703(a)(1)
shall be included in taxable income or loss), subject to the following
modifications:
1. Any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing Profits and Losses
shall be added to such taxable income or loss;
2. Any expenditures of the Partnership described in Code
(S)705(a)(2)(B) or treated as Code (S)705(a)(2)(B) expenditures pursuant to
Reg. (S)1.704-1(b)(2)(iv)(i), and not otherwise taken into account, shall
be subtracted from such taxable income or loss; and
3. With respect to Partnership property, if any, which has a book
value greater than or less than its adjusted income tax basis, "Profits"
and "Losses" of the Partnership shall be determined by reference to the
depreciation and amortization deductions, if any, allowable with respect to
such property as computed for book purposes (and not tax purposes), as
determined pursuant to Reg. (S)1.704-1(b)(2)(iv)(g), and by the gain or
loss attributable to such property as computed for book purposes (and not
for tax purposes).
T. "Project" means the conversion of the existing apartment complex on
the Property to a vacation timeshare resort.
-7-
<PAGE>
U. "Property" means the land, buildings, improvements and associated
property interests described as Lot 2 and Lot 3 of Oak Plantation according to
the plat thereof as recorded in Plat Book 6, Pages 208 and 209 of the public
records of Osceola County, Florida.
V. "Regulations" or "Reg." means regulations adopted by the Treasury
Department and the Internal Revenue Service pursuant to the Code.
W. "Regulatory Allocations" means the Regulations promulgated under Code
(S)704(b).
X. "Tax Distribution" for any fiscal year of the Partnership means an
amount computed as follows:
1. Determine the highest effective marginal income tax rate (based
upon applicable federal, state and city income taxes levied on such income,
but taking into account any deductions or credits available in computing
any such income tax for either or both of the other income taxes levied on
such income) applicable to any Partner who was a Partner for all or any
portion of such fiscal year. For this purpose, if any such Partner is a
"pass-through entity" (i.e., an S corporation, a partnership, a limited
liability company, a limited liability partnership or a trust), the
"highest effective marginal income tax rate" deemed to be applicable to
such Partner hereunder shall be the highest such effective marginal income
tax rate (determined as above) applicable to any shareholder, partner,
member or beneficiary (whichever is applicable) of such Partner and, if
applicable, such rate shall also reflect any federal, state or city income
taxes imposed at the entity level on such pass-through entity).
2. Determine the amount of net taxable income or net taxable loss (as
the case may be) of the Partnership for federal income tax purposes for
such fiscal year.
3. If the Partnership has a net taxable loss for the fiscal year, the
"Tax Distribution" for such fiscal year shall be zero and the amount of
such net taxable loss shall be carried forward to future fiscal years of
the Partnership to be applied in such years in the manner described in
subpart 4 below.
4. If the Partnership has net taxable income for such fiscal year,
and if the Partnership has any net taxable losses from any prior fiscal
years that have not been previously
-8-
<PAGE>
applied to reduce net taxable income of the Partnership for any prior
fiscal year (the "Net Carryover Losses"), the net taxable income for such
fiscal year shall be reduced (but not below zero) by the Net Carryover
Losses. The net taxable income of the Partnership for such fiscal year,
reduced by the Net Carryover Losses (if any), shall be deemed to be the
"Tax Base" for such fiscal year for purposes of computing the Tax
Distribution for such fiscal year.
5. The aggregate amount of the Tax Distribution for such fiscal year
shall be computed by multiplying the Tax Base for such fiscal year by the
rate computed under subpart 1 above for such fiscal year.
Y. "Transaction Documents" means that certain Agreement for Contribution
of Partnership Interest dated as of the date hereof, between NOBLE, KIDD and VCH
and all other documents, agreements and instruments executed contemporaneously
therewith or in connection with the acquisition of VCH's partnership interest in
the Partnership, including, without limitation, consulting agreements,
management agreements, administrative services agreements, declarations,
easements, covenants, license agreements, and sales and marketing agreements.
Z. "Units" means the condominium and/or vacation ownership units
including ancillary facilities and amenities, to be developed by the Partnership
on the Property.
ARTICLE II
----------
BUSINESS OF THE PARTNERSHIP
---------------------------
SECTION 2.1 Business and Purpose. The purpose of the Partnership is to
--------------------
engage in all facets of the business of resort development at the Property and
related leisure and travel businesses, including the acquisition, development,
marketing, sale and operation of a timeshare or interval ownership resort on the
Property, including, but not limited to, the following:
A. Own and/or acquire the Complex and the Adjacent Land;
B. Develop the Property as a vacation, timeshare resort, including the
construction and/or renovation of the Units and ancillary facilities
and amenities;
C. Market, sell and/or rent (transient or otherwise) the Units or any
interest therein, and in connection
-9-
<PAGE>
therewith, engage in other activities incident to the development,
marketing, rental and/or sale of the Units or any interest therein,
including, but not limited to such financing transactions as are usual
and customary with respect to the development, marketing, renting
and/or sale of the Units or any interest therein or of any Accounts
Receivable;
D. Provide or obtain hospitality management services with respect to any
transient, timeshare or interval ownership development, condominium or
resort hotel located within the Property, and management services to
or in connection with condominium associations, all of which may
include management and operation of restaurants, general stores and
other related amenities which are ancillary to management services for
a resort facility;
E. Collect and service all Accounts Receivable;
F. Engage in cash management transactions as contemplated in Section 4.5
below; and/or
G. At such time as the Managing Partner deems appropriate (but subject to
the limitations set forth in Sections 7.1 and 7.3 below), sell, in
whole or in part, the Property or any interest therein and other
assets of the Partnership.
SECTION 2.2 Other Business. The Partnership shall not be authorized to
--------------
engage in any business activities not described in Section 2.1 above.
ARTICLE III
-----------
NAMES AND ADDRESSES OF PARTNERS
-------------------------------
SECTION 3.1 Managing Partner. The name and business address of the
----------------
Managing Partner is:
VCH Oaks, Ltd.
8801 Vistana Centre Drive
Lake Buena Vista, Florida 32821
Fax No. (407) 239-3222
-10-
<PAGE>
SECTION 3.2 Partners. The names and business addresses of the Partners
--------
are:
VCH Oaks, Ltd.
8801 Vistana Centre Drive
Lake Buena Vista, Florida 32821
Fax No. (407) 239-3222
Noble-Kidd Corporation
c/o Noble-Kidd Development
10610 Metric Drive, Suite 190
Dallas, Texas 75243
Fax No. (214) 343-2645
SECTION 3.3 Admittance of Additional Partners. Except as otherwise
---------------------------------
provided in Subsection 5.2.B. and elsewhere in this Agreement, Persons not
otherwise described in Section 3.2 above may be admitted as additional partners
only upon the consent of the Managing Partner.
ARTICLE IV
----------
PARTNERSHIP ACCOUNTING/REPORTS/INVESTMENTS
------------------------------------------
SECTION 4.1 Method of Accounting. The Managing Partner shall maintain
--------------------
full and accurate books of the Partnership at the Partnership's principal place
of business specified in Section 1.2 above, showing all receipts, expenditures,
assets, liabilities, Profits and Losses of the Partnership and all other records
necessary for proper recordation of the Partnership's business and affairs. The
books of the Partnership, for tax and financial reporting purposes, shall be
kept on the method of accounting selected by the Managing Partner, unless the
Partnership is required to adopt a different method of accounting. The fiscal
year of the Partnership shall be the calendar year unless a different fiscal
year is required by the Code.
SECTION 4.2 Inspection of Books and Records. Any Partner may at any time
-------------------------------
during regular business hours inspect and copy (at such Partner's personal
expense) any of the Partnership records described in Section 620.106(1), Florida
Statutes. In addition, a Partner shall be entitled to obtain from the Managing
Partner copies of the Partnership's federal income tax returns promptly after
the same become available.
-11-
<PAGE>
SECTION 4.3 Reports.
-------
A. No later than ten (10) days prior to the due date of the Partnership's
federal income tax return (as determined with regard to available extensions),
the Managing Partner shall send to each person who was a Partner at any time
during the fiscal year to which such return relates such tax information as
shall be necessary for the preparation by such person of such person's federal,
state and local income tax returns.
B. Within one hundred twenty (120) days after the end of each fiscal
year, the Managing Partner shall send to each Partner audited financial
statements of the Partnership, consisting of a balance sheet, statement of
income, statement of Partner's equity (based on relative capital account
balances), and statement of changes in cash flows for such fiscal year, all of
which shall be prepared in accordance with GAAP and certified by such national
or regional independent certified public accountants as shall be selected in the
sole discretion of the Managing Partner.
SECTION 4.4 Income Tax Elections. The Managing Partner may make, but
--------------------
shall not be required to make, any applicable election under the Code.
SECTION 4.5 Bank Accounts; Temporary Investments of Partnership Funds.
--------------------------------------- -----------------
Managing Partner shall open, and will thereafter maintain, one or more bank
accounts in the name and for the sole benefit of the Partnership (except to the
extent required in any loan document, receivable sale agreements or other
contractual commitments of the Partnership) in which there shall be deposited
all of the capital of the Partnership, all gross receipts of the Partnership,
and the proceeds of loans, if any, that the Managing Partner may obtain for
and/or in the name of the Partnership. The funds in the Partnership's bank
account or accounts shall be used solely for the business of the Partnership.
Withdrawals shall be made only in the regular course of the Partnership's
business on such signature or signatures as the Managing Partner may determine.
In the sole discretion of the Managing Partner, reserved cash, cash held pending
the expenditure of funds for the business of the Partnership and cash held
pending a distribution to the Partners may be held, placed or otherwise invested
in such liquid or illiquid investments as the Managing Partner may determine
from time to time, including, but not limited to, United States Government
and/or municipal securities and commercial paper (and repurchase agreements
secured by the foregoing), mutual funds, money market funds, bonds, banker's
acceptances, receivables (whether or not secured by an interest in real
property), interest-bearing bank accounts, certificates of
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<PAGE>
deposit, or liquid asset funds of brokerage houses, provided that any such
investments are reasonable, would not be classified as "speculative," and, in
the case of securities, would qualify as "investment grade securities."
ARTICLE V
---------
CAPITAL CONTRIBUTIONS
---------------------
SECTION 5.1 Capital of the Partnership.
--------------------------
A. The Partners have heretofore made capital contributions as are
reflected in the Partnership's financial statements and in the Partner's capital
accounts.
B. No Partner shall be entitled to withdraw any portion of such Partner's
capital contribution or such Partner's Capital Account in money or property
prior to dissolution or Liquidation of the Partnership and then only in
accordance with the provisions of Partnership Law and this Agreement. No Partner
shall be personally liable for any portion of any other Partner's capital
contribution. No interest will be paid on account of any capital contribution or
in the credit balance in any Partner's Capital Account, and no Partner shall
have the right to receive or demand property other than cash in return for such
Partner's capital contribution. Except as otherwise provided in this Agreement,
no Partner shall have priority over any other Partner either as to the return of
such Partner's capital contribution or as to distributions.
SECTION 5.2 Additional Contributions. In addition to the capital
------------------------
contributions referred to in Section 5.1 above, if the Managing Partner
determines in the reasonable exercise of its discretion that additional capital
is necessary or desirable for the business of the Partnership, it may request
all the Partners to contribute such additional capital by written notice sent to
all such Partners. All such additional capital contributions shall be
contributed by the Partners based upon their relative Percentage Interests.
Such additional capital contributions shall be payable to the Partnership in
full within forty-five (45) days after each Partner receives written notice of
said capital call.
A. If a Partner fails to make its additional capital contribution within
forty-five (45) days after receipt of the written notice of the capital call
from the Managing Partner, the Managing Partner shall diligently pursue a
financing (the "Institutional Loan") from a reputable financial institution and
exhaust all sources that the Partners or their Affiliates have
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relationships with or have borrowed money from and any other source that the
Managing Partner may deem appropriate. If the Partnership is able to consummate
the Institutional Loan within ninety (90) days after the date of the capital
call, the Partnership shall return all additional capital contributions tendered
by Partners pursuant to the capital call made by the Managing Partner pursuant
to this Section 5.2 within ten (10) days after the date of closing of the
Institutional Loan.
B. If a Partner fails to make its additional capital contribution within
forty-five (45) days after receipt of the written notice of the capital call
from the Managing Partner, and the Partnership is unable to close upon an
Institutional Loan within ninety (90) days after the date of the capital call,
all contributions made by any or all of the other Partners (the "Lending
Partners") with respect to such capital call shall be deemed to be loans to the
Partnership (the "Contribution Loans"). Such Contribution Loans, together with
all interest due thereon, shall be repaid in full to the Lending Partners (pro
rata based upon the relative amounts of the Contribution Loans made by the
Lending Partners) within ten (10) days after demand is made provided that the
Lending Partners may not make a demand prior to the expiration of one hundred
eighty (180) days after the date such Contribution Loans were deemed to have
been made.
The Contribution Loans shall bear interest at the lower of: (i) the Base
Rate announced publicly by Citibank, N.A., New York, New York (or another
comparable national banking institution selected by the Managing Partner) to its
most preferred customers determined as of the date such Contribution Loan was
made, plus five percent (5%) per annum; or (ii) the highest rate permitted by
applicable law. Said Contribution Loans, together with all interest accrued
thereon, may be repaid at any time by the Partnership (but all repayments shall
be made to all the Lending Partners pro rata based upon the relative amounts of
the Contribution Loans made by the Lending Partners), but said Contribution
Loans shall in any event be repaid in full, together with all interest accrued
thereon, upon termination of the Partnership.
At the request of any Lending Partner, the Partnership shall execute and
deliver to any requesting Lending Partner a promissory note evidencing the
related Contribution Loan, which promissory note shall be in form and substance
reasonably acceptable to the Managing Partner.
No distributions (other than Tax Distributions) shall be made to any of the
Partners during any period that any Contribution Loan
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<PAGE>
(including all accrued interest and other charges related thereto, if any)
remains unpaid and outstanding, in whole or in part, without the express written
consent of all Lending Partners whose Contribution Loans (including all accrued
interest and other charges related thereto, if any) remain unpaid and
outstanding as of the date such distribution is to be made.
C. In the event that all of the Partners have not made their additional
capital contributions within forty-five (45) days after receipt of the written
notice of the capital call from the Managing Partner, and the Partnership is
unable to consummate the Institutional Loan within ninety (90) days after the
date of the capital call, then notwithstanding any other provision in this
Agreement to the contrary, the Managing Partner may, in its sole discretion
without the consent of any other Partner, thereafter offer and sell interests in
the Partnership to any other Person which is not an Affiliate of any Partner and
not a Non-Qualified Person (the "Third Party Contributor") for a price, payable
in immediately available funds to the Partnership, equal to the aggregate amount
of the contributions requested in the capital call. All other terms of the sale
of such Partnership interest, including without limitation, the size of the
Percentage Interest to be acquired by the Third Party Contributor, shall be
determined by the Managing Partner in its sole and absolute discretion. In such
event, the Percentage Interests of all then existing Partners shall be diluted
by the issuance of the new interest in the Partnership to the Third Party
Contributor, pro rata in accordance with the relative Percentage Interests of
all of the Partners immediately prior to the admission of the Third Party
Contributor. If a Third Party Contributor acquires an interest in the
Partnership hereunder, the Managing Partner is authorized to admit such Third
Party Contributor as an additional Partner of the Partnership provided that such
Third Party Contributor executes a joinder agreement in such form as may be
acceptable to the Managing Partner and its counsel evidencing the agreement of
the Third Party Contributor to be bound by all the terms and conditions of this
Agreement, as amended through the date of the contribution.
ARTICLE VI
----------
CAPITAL ACCOUNTS
----------------
SECTION 6.1 Capital Accounts. An individual Capital Account has been
----------------
determined and shall be maintained for each Partner as provided herein.
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<PAGE>
SECTION 6.2 Capital Account of Assignee Partners; Code (S)708(b)
----------------------------------------------------
Termination. Upon the transfer of all or part of an interest in the
- -----------
Partnership, the Capital Account of the transferor Partner that is attributable
to the transferred interest has been and shall be carried over to the
transferee. If the transfer of an interest in the Partnership causes a
termination of the Partnership under Code (S)708(b)(1)(B), the capital account
that carries over to the transferee will be adjusted in accordance with Reg.
(S)1.704-1(b)(2)(iv)(e), and the constructive reformation of the Partnership,
will, for purposes of Section 6.1 above, be treated as the formation of a new
Partnership and the Capital Account of the transferee and of the remaining
Partners will be determined and maintained accordingly.
SECTION 6.3 Adjustment to Capital Accounts/Revaluation of Partnership
--------------------------------------------- -----------
Property. If (1) a new or existing Partner contributes money or other property
- --------
(other than a de minimis amount) to the Partnership as consideration for the
----------
receipt of an interest in the Partnership greater than the Partnership interest
owned prior to such contribution, or (2) there is a distribution of money or
other property (other than a de minimis amount) by the Partnership to a retiring
-- -------
or continuing Partner as consideration for the relinquishment of some or all of
such Partner's interest in the Partnership, or (3) upon the Liquidation of the
Partnership at the election of the Managing Partner, the values of the
Partnership's properties on its books ("book values") shall be adjusted to
reflect their fair market value [taking into consideration Code (S)7701(g)] as
of the date of the distribution, contribution or Liquidation of the Partnership,
as the case may be; and, in such event, the Capital Accounts of the Partners
shall be adjusted to reflect the manner in which the unrealized income, gain,
loss or deduction inherent in the Partnership's property (to the extent not
reflected in the Partners' Capital Accounts) would be allocated among all the
Partners under the terms of this Agreement, assuming that there was a fully
taxable disposition of such property immediately preceding such contribution of
money or other property to the Partnership, or immediately preceding the
distribution of money or other property by the Partnership, or upon the date of
the Liquidation of the Partnership, as the case may be, for such properties'
fair market values as of such time. For purposes hereof, the fair market value
of any Partnership property shall be determined by unanimous agreement of the
Partners whose Capital Accounts are to be affected.
SECTION 6.4 Distributions of Property In-Kind. To the extent that the
---------------------------------
unrealized income, gain, loss and deduction inherent in property distributed (or
deemed distributed) in kind (whether or not distributed in liquidation) has not
previously been reflected
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<PAGE>
in the Partners' Capital Accounts, the Capital Accounts of the Partners shall be
adjusted to reflect the manner in which the unrealized income, gain, loss and
deduction inherent in such property (that has not been reflected previously in
the Capital Accounts) would have been allocated among the Partners under this
Agreement if there were a taxable disposition of such property for its fair
market value on the date of its actual (or deemed) distribution [taking into
account Code (S)7701(g)]. For purposes hereof, the fair market value of any
Partnership property shall be determined by the Managing Partner.
ARTICLE VII
-----------
RIGHTS, POWERS AND DUTIES OF THE PARTNERS
-----------------------------------------
SECTION 7.1 Management of the Partnership Business. The Managing Partner
--------------------------------------
shall have the sole and exclusive right to manage the business of the
Partnership. The Managing Partner shall not be required to manage the
Partnership as its sole and exclusive function and may have other business
interests or engage in activities other than those relating to the Partnership.
The Partnership shall file and maintain with the Department of State and in the
office for recording transfers of real property in each county in which the
Partnership owns real property, a Statement of Partnership Authority pursuant to
the Partnership Law, stating that the Managing Partner has the sole and
exclusive authority to bind the Partnership and that no other Partner may bind
or act on behalf of the Partnership in any respect.
SECTION 7.2 Powers of the Managing Partner. The Managing Partner shall
------------------------------
have and enjoy all of the rights and powers of a general partner in a
Partnership. Without limiting the foregoing, to the extent consistent with the
authorized business of the Partnership as described in Section 2.1 above, but
subject to Sections 7.3 and 7.4 below and any agreement to which the Partnership
is a party, in addition to other matters (including other matters with respect
to which the Managing Partner is granted authority or control under this
Agreement and such other powers as are now or hereafter granted to a general
partner of a limited partnership under applicable law, including, without
limitation, the Partnership Law), the Managing Partner shall have the full power
on behalf of the Partnership, and at the sole expense of the Partnership, to:
A. Sell, transfer, assign, convey, manage, dedicate, declare or otherwise
dispose of or deal with all or any part of the Partnership's business,
property or assets, whether
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<PAGE>
or not in the ordinary course of business, on such terms as the
Managing Partner may negotiate at arms length; provided, however that
upon consummation of any such sale, transfer or assignment of all or
any material part of the assets of the Partnership, if the Managing
Partner or its Affiliates receives Residual Income (as defined in
Section 12.10.B.), the other Partners shall, in addition to their
Percentage Interests of any Available Cash resulting from the sale of
the assets by the Partnership, be entitled to receive their Percentage
Interests of such Residual Income received by the Managing Partner or
its Affiliates as related solely to the assets of this Partnership;
B. Acquire interests in personal property, directly or indi rectly,
whether by purchase or lease, in connection with the business of the
Partnership;
C. Borrow money from banks, financial institutions or any other person,
arrange financing or refinancing or arrange modifications of existing
debts, including indebtedness described in the Transaction Documents,
issue notes or other evidences of indebtedness of the Partnership and
secure the same by mortgage, deed of trust, pledge or other lien, in
furtherance of the Partnership's purposes and business in a reasonably
prudent manner;
D. Negotiate (or cause the Partnership's employees or agents to
negotiate) and execute, deliver and enforce, and if applicable, file
or record (directly or indirectly through a designated
representative), on behalf of the Partnership, such documents,
agreements and instruments, including, but not limited to, any and all
documents, agreements and instruments customarily employed or entered
into in the timeshare business or any phase thereof as the Managing
Partner may deem necessary or desirable for the Partnership's
business, and/or the proper management of Partnership affairs,
including the execution, filing or recording of any and all deeds,
contracts and other instruments relating to the timeshare business
(including financing transactions with respect thereto);
E. Perform, or cause to be performed, all of the Partnership's
obligations under any agreement to which the Partnership or any
nominee of the Partnership is a party, except in the event that the
Managing Partner
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determines, in good faith, that such performance is not in the best
interests of the Partnership or its Partners;
F. Bring, defend, settle or compromise, or cause the Partnership's
employees or agents to do so, all actions at law or in equity, or
before any governmental entity involving the Partnership, its business
or its assets or properties, and to satisfy any judgment, decree,
decision or settlement in connection therewith, without limitation;
G. Employ and/or contract for, on such terms and conditions as the
Managing Partner shall determine in its sole discretion, sales,
maintenance, managerial, administrative or secretarial personnel
(which such persons may include the Managing Partner or Affiliates
thereof) and such other persons, including attorneys, accountants,
architects, consultants, brokers necessary or appropriate to assist
the Managing Partner, or otherwise necessary or appropriate for the
operation (and/or sale) of the business of the Partnership, and/or the
maintenance, management and/or sale of any Partnership property, and
to grant such person or persons such authority as may be necessary or
desirable;
H. Subject to the limitations of Section 4.5 above, open, maintain,
operate, control and close bank accounts in the name of the
Partnership, deposit Partnership funds into such account(s), invest
Partnership funds on behalf of the Partnership, authorize employees,
agents or representatives of the Partnership to sign checks and drafts
on such accounts, and to make such investments on behalf of the
Partnership, as the Managing Partner shall determine in its sole
discretion;
I. Determine the timing and amount of distributions by the Partnership to
the Partners, subject to the terms of this Agreement and any other
agreement to which the Partnership is a party or is otherwise bound;
J. Cause the Partnership to be duly registered and licensed as a
timeshare developer in each jurisdiction in which such registration
and/or licensure is required, and/or otherwise to be duly registered
and licensed so that the Partnership may lawfully carry on any of its
authorized business activities, and otherwise to obtain, on behalf of
the Partnership, all necessary approvals from all governmental and
quasi-governmental authorities in
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<PAGE>
connection with the operation of the Partnership's timeshare business
activities;
K. Purchase such policy or policies of liability, casualty, title and
other insurance (including, but not limited to, directors and officers
liability insurance or its equivalent) which are necessary, advisable,
appropriate or convenient for the protection of any Partnership
property or business, or for any purpose convenient or beneficial to
the Partnership, as determined in the sole discretion of the Managing
Partner;
L. Arrange for the preparation and timely filing (subject to available
extensions) of all federal, state or local income tax returns required
to be filed by or on behalf of the Partnership, and in connection
therewith, to make such elections under the tax laws as may be
available to the Partnership with respect to the treatment of any item
of Partnership income, gain, loss, deduction and credit;
M. Arrange for the preparation of annual financial statements for the
Partnership from such national or regional accounting firm as the
Managing Partner shall determine in its sole discretion;
N. Expend the capital, revenues, income and other cash of the Partnership
in furtherance of the Partnership's business in such amounts, at such
times and for such purposes as the Managing Partner shall determine in
its sole discretion, such authority including (i) the right to pay or
arrange for the payment of all taxes imposed on the Partnership or on
the Partnership's assets or properties when due (provided that the
Managing Partner shall have the authority to take all actions provided
by law to contest the imposition or amount of any such taxes), (ii)
the right to pay or cause to be paid all expenses of the Partnership
in the ordinary course of business, and (iii) the right to pay or
cause to be paid all charges, fees or compensation to any person or
firm for property (tangible or intangible) furnished or services
rendered to or on behalf of the Partnership;
O. Establish such reserves for working capital, insurance premiums, debt
repayments, improvements, repairs, replacements, renewals and such
other items required to be paid in connection with the business of the
Partnership, and/or to otherwise provide for such contingencies as the
Managing Partner may determine in
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<PAGE>
its sole discretion as may be deemed necessary for the proper conduct
of the Partnership;
P. Take such actions as the Managing Partner deems necessary or advisable
in order to comply with the laws of the United States and all other
jurisdictions to which the Partnership or its business or assets are
subject;
Q. Exercise, on behalf of the Partnership, any and all rights, options
and elections, if any, granted the Partnership pursuant to the terms
of this Agreement or any other agreement or arrangement to which the
Partnership is a party;
R. Solicit and accept additional contributions, and admit Persons who
make such contributions as additional limited partners (if not already
admitted as such) in accordance with Section 5.2 above.
S. Grant or acquire easements, rights of way or similar rights for the
benefit of the Property and the Partnership and lease or acquire land
adjacent to the Property for ancillary uses by the Partnership.
T. Perform such other normal and routine business functions, and
otherwise operate and manage the day-to-day affairs of the
Partnership, in furtherance of the business of the Partnership, as the
Managing Partner shall determine; and
U. Do any act that is necessary and incidental to carrying out the
foregoing or to perform any of the duties or exercise any discretion
assigned or delegated to it under this Agreement.
Any person dealing with the Partnership or its property shall be
entitled to rely fully upon any deed, mortgage, bill of sale, contract, lease,
sublease, note or other written instrument signed by the Managing Partner or its
duly authorized representa tives in the name of and/or on behalf of the
Partnership.
SECTION 7.3 Limitations Upon Authority of Managing Partner.
----------------------------------------------
Notwithstanding anything in Section 7.2 above to the contrary, the Managing
Partner shall not take any of the following actions (or enter into a contract on
behalf of the Partnership requiring the Partnership to take any of such actions
unless such contract is made subject to the provisions hereof) without obtaining
the consent of all of the Partners:
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<PAGE>
A. Cause the Partnership to file a voluntary petition in Bankruptcy, or
make a voluntary assignment of the Partnership's assets for the
benefit of its creditors, or otherwise take any voluntary action which
will directly result in an adjudication of Bankruptcy of the
Partnership;
B. Loan funds of the Partnership to any Person other than purchase money
----------
debt derived from the sale of Partnership properties, including the
Units or any interest therein, loans to condominium associations
relating to the Units, and temporary advances made in the ordinary
course of conduct of the Partnership's business.
C. Acquire any real property or interests therein, directly or
indirectly, whether by purchase or lease (other than in the ordinary
course of business or as expressly authorized in Section 7.2(S)),
develop or cause to be developed any such property, or enter into
joint ventures, general partnerships, or limited partnerships in
connection therewith.
D. Guarantee the indebtedness of, or loan funds to, any Affiliate of the
Managing Partner.
SECTION 7.4 Partners. No Partner (other than the Managing Partner) shall
--------
participate in or have any control over the management of the Partnership's
business (including the sale or mortgaging of any Partnership asset), nor
transact any business or enter into any contract for the Partnership. No
Partner (other than the Managing Partner) shall have the power to sign for or
bind the Partnership. N-K Corp., NOBLE and KIDD hereby pledge and grant to VCH
Oaks, Inc., the General Partner of VCH, a security interest in and to their
partnership interests in the Partnership and VCH, as collateral security for the
due observance of the provisions of Section 7.1 and this Section 7.4 and agree
to jointly and severally indemnify, defend and hold harmless, VCH Oaks, Inc.,
VCH and their respective partners, officers, directors and shareholders, from
and against any and all damages, liabilities, claims, judgments, losses, cost
and expenses of every nature, suffered or incurred as a direct or indirect
result of any action taken by N-K Corp., NOBLE or KIDD in violation of this
Agreement which binds or obligates the Partnership in any way. N-K, NOBLE and
KIDD each hereby irrevocably make, constitute and appoint VCH as their
respective attorney-in-fact to execute, in its name and on behalf of VCH, one or
more UCC-1 financing statements or such other documents as may be necessary to
perfect the security interest granted hereby.
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<PAGE>
SECTION 7.5 Transactions with Affiliates. The Managing Partner may, on
----------------------------
behalf of the Partnership or otherwise, employ a Partner or a Person related to
or Affiliated with a Partner to render or perform a service, may contract to buy
or lease property from a Partner or such Affiliated Person, may enter into a
general partnership, limited partnership, joint venture, or other association,
and may otherwise deal with such Partner or such Affiliated Person. If the
Managing Partner, on behalf of the Partnership, employs, leases or buys property
from a Partner or Persons, firms, or corporations Affiliated with the Managing
Partner or any Partner, or if the Partnership sells any property to any such
Person, then (i) the compensation paid for services rendered and/or payments
made for materials or property leased or sold by such Partner, Persons, firms,
or corporations, or the price and terms of any such sale by the Partnership to
such Person, as the case may be, must be on arms length terms and conditions and
must not be more materially favorable than those which would be charged or
imposed on those not so related, and (ii) any such transactions shall be
reported to the Partners at least annually (at the time of providing the
Partners with copies of the Partnership's annual financial statements).
Notwithstanding the foregoing, the Managing Partner may execute and deliver on
behalf of the Partnership, all of the Transaction Documents, with Affiliates of
the Partners, without any further act or consent of the Partners.
SECTION 7.6 Liability of Managing Partner; Indemnification. The Managing
----------------------------------------------
Partner shall not be liable to the Partners because any taxing authorities
disallow or adjust any deductions or credits in the Partnership income tax
returns nor shall the Managing Partner have any personal liability for the
repayment of capital contributions of the Partners except as otherwise provided
in this Agreement. In addition, the doing of any act or the omission to do any
act by the Managing Partner, the effect of which may cause or result in loss or
damage to the Partnership, if done in good faith and in accordance with the
terms of this Agreement, shall not subject the Managing Partner or its
successors and assigns to any liability. The Partnership, in addition to the
indemnification provided for in Section 14.5 below, will indemnify and hold
harmless the Managing Partner and its successors and assigns and its (or their)
partners, shareholders, directors, officers, employees and agents from any
claim, loss, expense, liability, action or damage resulting from any such act or
omission, including, without limitation, reasonable costs and expenses of
litigation and appeal (including reasonable fees and expenses of attorneys
engaged by the Managing Partner or such parties in defense of such act or
omission). However, the Managing Partner and such parties shall not be entitled
to be indemnified or held
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<PAGE>
harmless from any claim, loss, expense, liability, action or damage due to, or
arising from, its (or their) fraud, gross negligence or its (or their) willful
failure to comply with any representation, warranty, covenant, condition or
other agreement of the Managing Partner herein contained.
ARTICLE VIII
------------
REIMBURSEMENT OF EXPENSES
-------------------------
SECTION 8.1 Reimbursement of Partner's Expenses. The Partnership shall
-----------------------------------
reimburse each Partner (or its Affiliates) for all reasonable costs and expenses
paid or incurred by it (or its Affiliates) in connection with the acquisition of
any property or assets to be acquired by the Partnership, the refinancing of the
Partnership's debt, and the preparation of this Agreement, and shall reimburse
the Managing Partner for all reasonable costs and expenses paid or incurred by
it (or its Affiliates) in connection with the ownership, operation, development,
marketing and sale of the assets and business of the Partnership, the financing
of the Partnership's business transactions, and/or the administration of the
affairs of the Partnership.
SECTION 8.2 Payment. Any reimbursement required by Section 8.1 shall be
-------
paid from the first Available Cash of the Partnership (as determined in the sole
discretion of the Managing Partner, but subject to the terms of any agreement to
which the Partnership is a party), without interest, if paid within thirty (30)
days of written demand therefor from the Partner to the Partnership, or if not
so paid, with interest at the rate specified in Section 5.2 above, from the date
any such expense or capital expenditure was paid by the Partner (or its
affiliates).
ARTICLE IX
----------
ALLOCATIONS
-----------
SECTION 9.1 Profits and Losses. Except as otherwise provided in Section
------------------
9.2 below, the Profits and Losses of the Partnership for each taxable year shall
be allocated among the Partners as follows:
A. Profits shall be allocated as follows:
1. First, to each Partner until each Partner has been allocated an
aggregate amount of Profits pursuant to this Section 9.1.A since the
inception of the Partnership equal to
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the aggregate Losses allocated to each such Partner since the inception of
the Partnership pursuant to Section 9.1.B.3 below;
2. Then, to each Partner until each Partner has been allocated an
aggregate amount of Profits pursuant to this Section 9.1.A.2 since the
inception of the Partnership equal to the aggregate Losses allocated to
each such Partner since the inception of the Partnership pursuant to
Section 9.1.B.2 below; and
3. The balance, if any, shall be allocated among the Partners in
proportion to their relative Percentage Interests.
B. Losses shall be allocated as follows:
1. First, to each Partner, until each Partner has been allocated an
aggregate amount of Losses pursuant to this Section 9.1.B.1. since the
inception of the Partnership equal to the aggregate Profits allocated to
each such Partner since the inception of the Partnership pursuant to
Section 9.1.A.3 above;
2. Then, an amount of Losses equal to the aggregate positive balance
in the capital accounts of the Partners having a positive capital account
balance, to each such Partner having a positive capital account balance (as
determined at the end of the Partnership taxable year to which the Losses
to be allocated relate, after giving effect to the allocation of Losses for
such taxable year pursuant to Section 9.1.B.1. above), in proportion to
such positive capital account balances so as to reduce each such positive
capital account balance to zero; and
3. The balance, if any, shall be allocated among the Partners in
proportion to their relative Percentage Interests.
C. For all purposes of this Agreement, except as otherwise required by
Code (S)706(d) including the determination of the allocable share of the Profits
and Losses (or items thereof) of a Partner who acquires or disposes of its
interest in the Partnership during any Partnership taxable year, Profits or
Losses (or items thereof) of the Partnership for any taxable year shall be
allocated to the periods of such taxable year on such method or methods as
permitted by Code (S)706 as determined by the Managing Partner in its sole
discretion.
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<PAGE>
For purposes of computing the amount of Profits or Losses to allocate to a
Partner under Subsection 9.1.A. and/or 9.1.B. above, to the extent such
determination relates back to the inception of the Partnership, such
determination shall be based upon the assumptions and provisions set forth in
Section 15.11 below (relating to allocations made to a predecessor-in-interest).
SECTION 9.2 Special Allocations. Notwithstanding the provisions of
-------------------
Section 9.1 hereof to the contrary, the following special rules shall apply:
A. No allocation shall be made to any Partner to the extent that any such
allocation would create or enlarge an Adjusted Capital Account Deficit in any
such Partner's capital account, as determined as of the end of any taxable year
of the Partnership. Any items which would be allocated to a Partner but for the
preceding sentence shall be allocated to the Managing Partner.
B. If any Partner unexpectedly receives any adjustments, allocations or
distributions described in Reg. (S)1.704-1(b)(2)(ii)(d)(4), (5) or (6), then
items of Partnership income and gain (comprising the Profits or Losses of the
Partnership) shall be specially allocated to each such Partner in an amount
sufficient to eliminate, to the extent required by the Regulations, such
Partner's Adjusted Capital Account Deficit, if any, as quickly as possible;
provided, that the allocations to be made pursuant to this Subsection 9.2.B
shall be made only if and to the extent that any such Partner, unexpectedly
receiving any such adjustment, allocation or distribution, would have an
Adjusted Capital Account Deficit after all other allocations provided for in
this Agreement have been tentatively made, as if this Subsection 9.2.B were not
in the Agreement.
C. 1. Except as provided in Subsection 9.2.C.2 below, notwithstanding
any other provision contained herein to the contrary, if in any Partnership
taxable year, beginning on or after the effective date of this Agreement, there
is a net decrease in the Partnership "minimum gain" [as such term is defined in
Reg. (S)1.704-2(d)], prior to allocating Profits or Losses (or items thereof)
for such taxable year and, if necessary, for subsequent years, under any other
provision of this Agreement, each Partner shall be allocated items of income and
gain (comprising the Partnership's Profits or Losses) for such taxable year and,
if necessary, for subsequent taxable years in proportion to and to the extent of
each Partner's share of the net decrease in the Partnership's minimum gain
during such Partnership taxable year. The items of income and gain to be so
allocated shall be determined in accordance with Reg. (S)1.704-2(f). This
Subsection 9.2.C.1 is
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intended to comply with the minimum gain chargeback requirements of Reg.
(S)1.704-2(f), and shall be interpreted in a manner consistent therewith.
2. Notwithstanding Subsection 9.2.C.1 above, the provisions of
Subsection 9.2.C.1 above shall not apply to a Partner or Partners otherwise
subject thereto if:
(i) such Partner's share of the net decrease in Partnership
minimum gain is caused by a guaranty, refinancing or other change in the debt
instrument causing it to become partially or wholly recourse debt or partner
nonrecourse debt, and such Partner bears the economic risk of loss (within the
meaning of Reg. (S)1.752-2) for the newly guaranteed, refinanced or otherwise
changed liability;
(ii) such Partner contributes capital to the Partnership that
is used to repay the nonrecourse liability (in whole or in part), and the
Partner's share of the net decrease in Partnership minimum gain results from
such repayment;
(iii) compliance with Subsection 9.2.C.1 above (after
consideration and tentative application of Subsection 9.2.D below) causes (or is
reasonably expected to cause) there to be a distortion in the economic
arrangement among the Partners, considering the Partners, previous contributions
to the Partnership and any Partner's contribution obligations pursuant to
Section 13.3 below, the Profits (or items of income or gain) previously
allocated to the Partners under this Agreement and, in light of the distribution
provisions of Section 13.2 below, the availability and sufficiency of additional
Partnership Profits to offset the distortion which may otherwise be created by
such minimum gain chargebacks; or
(iv) The application thereof otherwise arises from a situation
or circumstance exempted from the application thereof pursuant to any revenue
ruling, regulation, amendment or otherwise.
The determination of whether and to what extent the allocations otherwise
required to be made pursuant to Subsection 9.2.C.1 should be made, based upon
the criteria set forth above, shall be made in the reasonable discretion of the
Managing Partner after consultation with the Partnership's tax advisers.
For purposes of determining whether compliance with the minimum gain
chargeback rules set forth in Subsection 9.2.C.1 above would distort the
economic arrangement of the Partners, the
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Partners acknowledge and agree that the economic arrangement of the Partners is
manifested in Section 10.1 below. Section 10.1 hereof describes the economic
arrangement among the Partners, both as to the priority of distributions to be
made by the Partnership to each of the Partners and the amounts and/or relative
amounts to be distributed to each of the Partners at the separate priority
levels.
3. Rules similar to those set forth in Subsection 9.3.C.2 above
shall apply with respect to determining whether and to what extent
allocations otherwise required to be made to any Partner under applicable
regulations with respect to any net decrease in a "partner nonrecourse
debt" (as such term is defined for purposes of Reg. (S)1.704-2) should be
made.
D. 1. "Partner nonrecourse deductions" [within the meaning of Reg.
(S)1.704-2(i)] shall be allocated as prescribed in Reg. (S)1.704-2(i).
2. Subject to Subsection 9.2.C.2. above, if in any Partnership
taxable year there is a net decrease in "partner nonrecourse debt minimum gain"
(as such term is defined in Reg. (S)1.704.2), prior to allocating Profits or
Losses (or items thereof) of the Partnership for such taxable year (and, if
necessary, for subsequent taxable years), other than the allocations made
pursuant to Subsection 9.2.C.1. above, each Partner with a share of the partner
nonrecourse debt minimum gain (as determined under Reg. (S)1.704-2(i)(5) as the
beginning of such taxable year) shall be allocated items of income and gain
(comprising the Profits or Losses for such taxable year and, if necessary, for
subsequent taxable years) in proportion to, and to the extent of, such Partner's
share of the net decrease in such partner nonrecourse minimum gain. The items
of income and gain to be allocated shall be determined in accordance with Reg.
(S)1.704-2. This Subsection 9.2.D.2. is intended to comply with the partner
minimum gain chargeback requirements of Reg. (S)1.704-2(i)(4), and shall be
interpreted consistently therewith.
3. Rules similar to those set forth in Subsection 9.2.C.2. above
shall apply with respect to determining whether and to what extent allocations
otherwise required to be made to any Partner under applicable Treasury
Regulations with respect to any net decrease in "partner nonrecourse debt
minimum gain" (as such term is defined for purposes of Reg. (S)1.704-2) shall be
made.
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E. All "nonrecourse deductions" (as defined in Reg. (S)1.704-2(c)) shall
be allocated among the Partners in accordance with their relative Percentage
Interests.
SECTION 9.3 Allocations of Certain Tax Items.
--------------------------------
A. If property which is contributed to the Partnership is subject to the
provisions of Code (S)704(c), the Partners' distributive shares of income, gain,
loss and deductions, as computed for tax purposes, with respect to such property
(and, to the extent permitted by the Regulations, with respect to other
Partnership property) shall be determined in accordance with Code (S)704(c) by
utilizing such reasonable methods selected by the Managing Partner as shall be
consistent with Code (S)704(c) and the Regulations promulgated thereunder,
taking into account the Partners' distributive shares of the corresponding book
items with respect to such property, as determined under this Article IX, Code
(S)704(b) and Reg. (S)1.704-1(b)(1)(vi).
B. If Code (S)704(c) is not applicable, depreciation, amortization and
gain or loss, as computed for tax purposes, with respect to Partnership property
which is revalued on the books of the Partnership in accordance with Reg.
(S)1.704-1(b)(2)(iv)(f) and which has a book value greater or lesser than its
adjusted tax basis (and, to the extent permitted by the Regulations, with
respect to other Partnership property) shall be allocated among the Partners in
a manner that takes into account the variations between the adjusted income tax
basis and the book value of such property in the accordance with Code (S)704(c)
principles, utilizing such reasonable method as determined by the Managing
Partner, and shall be consistent with Code (S)704(c) and the Regulations.
SECTION 9.4 Apportionment of Allocations. In every Partnership taxable
----------------------------
year in which the Percentage Interest of any one Partner varies, whether due to
entry into the Partnership after the first day of the Partnership's taxable year
or otherwise, Profits or Losses (or items thereof) which are to be allocated to
the Partners in proportion to their Percentage Interests shall be apportioned
among the Partners in accordance with each Partner's varying Percentage Interest
in the manner required by Code (S)706(d) (even if Code (S)706(d) is not
otherwise applicable).
In the event there are insufficient Profits or Losses to fully satisfy all
allocations required to be made to all Partners at any priority level set forth
in Sections 9.1 or 9.2 above, the available Profits and Losses (or items
thereof) to be allocated at such priority level shall be allocated among all
Partners entitled to allocations at such priority level based on the relative
amounts
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of Profits or Losses (or items thereof) to be allocated to each of the Partners
at such priority level (which, for this purpose, shall be determined by assuming
that there were sufficient Profits or Losses, or items thereof, to fully satisfy
the allocations at such priority level).
ARTICLE X
---------
DISTRIBUTIONS
-------------
SECTION 10.1 Distributions of Available Cash. Except as otherwise
-------------------------------
provided in this Article X, Available Cash for each fiscal year of the
Partnership, if any, shall be distributed as follows:
A. First, all Available Cash up to, but not exceeding, an amount equal to
the Tax Distribution for such taxable year shall be apportioned among, and
distributed to, the Partners in the same proportions as the aggregate net
taxable income of the Partnership for such fiscal year was allocated to the
Partners pursuant to Article IX above. Distributions of Available Cash at this
priority level shall be made either during the applicable fiscal year or at any
time thereafter, but the Managing Partner shall endeavor to make such
distributions to the Partners in sufficient time to allow the Partners to pay
their federal, state and city income taxes on their allocable share of the
Partnership's net taxable income for such fiscal year. Notwithstanding the
foregoing, the Partnership shall not make Tax Distributions to N-K (or its
successors or permitted assigns) to cover any tax liability of N-K or its
shareholders due to the inherent gain existing as of the date hereof resulting
from the debt on the Property exceeding N-K's or Noble's or Kidd's basis
therein, resulting in a negative capital account.
B. Next, to the repayment of any Contribution Loans in accordance with
Section 5.2.
C. Then, any remaining Available Cash shall be distributed among the
Partners in such a manner as to bring the positive (i.e., credit) balances in
the Partners' Capital Accounts into the same proportions as the Percentage
Interests (determined as of the last day of such fiscal year and after all
allocations of Profits and Losses under Article IX for such fiscal year have
been properly reflected in the Partners' Capital Accounts and after adjustments
have been made to such Capital Accounts for any distributions made under
Subsection 10.1.A. above).
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D. Thereafter, the balance (if any) of Available Cash shall be
distributed to the Partners in accordance with their relative Percentage
Interests.
SECTION 10.2 Liquidation Distributions. Following the earlier of the
-------------------------
dissolution of the Partnership, as provided in Section 13.1 below, or the
Liquidation of the Partnership, distributions shall be made in the manner set
forth in Section 13.2 below.
SECTION 10.3 Return of Capital Contributions/Limitations
-------------------------------------------
on Distribution/Liability for Repayment. Notwithstanding anything herein to
- ---------------------------------------
the contrary, no Partner shall receive a return of such Partner's capital
contributions or receive any other distribution from the Partnership (other than
Tax Distributions) until all liabilities of the Partnership, (including
liabilities to the Partners for loans made to the Partnership, but excluding
liabilities to the Partners on account of their capital contributions), have
been paid or there remains sufficient property (based on the fair market value
of remaining assets) of the Partnership to pay them. If a Partner (including
former Partners) or an assignee of a Partner receives the return of any part of
such Partner's capital contributions or any other distribution in violation of
this Agreement or Partnership Law, such Partner shall be liable to the
Partnership for a period of six (6) years following such wrongful distribution
for the amount of such wrongful distribution. If a Partner (including former
Partners) receives the return in whole or in part of such Partner's capital
contribution in a distribution not violating the terms of this Agreement or
Partnership Law, such Partner shall be liable to the Partnership for a sum equal
to such returned contribution for a period of one (1) year following such
return, but only to the extent necessary to discharge the Partnership's
liabilities to creditors who extended credit to the Partnership during the
period the contribution was held by the Partnership. Any Partner so liable
shall repay such amount within thirty (30) days after the Managing Partner shall
have delivered to such Partner a written notice regarding such repayment.
Failure of any Partner or former Partner (or assignee) to make repayment
required under this Section 10.3 shall subject such defaulting person to payment
of interest at the highest legal rate on the amount due from such person from
the date of the delivery of notice requiring such repayment until (but not
including) the date of such repayment, plus all costs and expenses of
collection, including reasonable attorneys' fees.
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ARTICLE XI
----------
INVESTMENT; PARTNER REPRESENTATIONS;
------------------------------------
UNREGISTERED SECURITIES
-----------------------
THE PARTNERSHIP INTERESTS HAVE NOT BEEN REGISTERED, QUALIFIED, APPROVED OR
DISAPPROVED UNDER ANY FEDERAL OR STATE SECURITIES LAW, INCLUDING THE SECURITIES
ACT OF 1933 AND THE FLORIDA SECURITIES AND INVESTOR PROTECTION ACT, AND HAVE
BEEN SOLD IN RELIANCE ON EXEMPTIONS FROM REGISTRATION AFFORDED BY APPLICABLE
FEDERAL AND STATE SECURITIES LAWS, INCLUDING, BUT NOT LIMITED TO, THE SECURITIES
ACT OF 1933 AND THE FLORIDA SECURITIES AND INVESTOR PROTECTION ACT.
SUBJECT TO THE OTHER LIMITATIONS CONTAINED IN THIS AGREEMENT, THE
PARTNERSHIP INTERESTS MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE OFFER AND SALE OF SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, THE
FLORIDA SECURITIES AND INVESTOR PROTECTION ACT, AND/OR THE APPLICABLE SECURITIES
ACT(S) OF ANY OTHER STATE, UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE
UNDER ALL APPLICABLE FEDERAL AND STATE SECURITIES LAWS, AND (UNLESS WAIVED BY
THE MANAGING PARTNER), THE TRANSFERRING PARTNER FIRST PROVIDES THE MANAGING
PARTNER WITH AN OPINION OF COUNSEL, SATISFACTORY TO THE MANAGING PARTNER, TO
SUCH EFFECT.
Each Partner hereby represents and warrants to the Partnership and to the
Managing Partner that such Partner has acquired such Partner's partnership
interests for investment purposes only. In addition to any other condition
imposed by this Agreement, each Partner acknowledges and understands the above
legends and agrees to accept and abide by the above referenced restriction(s) on
the transferability of such Partner's partnership interests.
ARTICLE XII
-----------
CHANGES IN PARTNER
------------------
TRANSFERABILITY OF PARTNERSHIP INTERESTS
----------------------------------------
SECTION 12.1 Restrictions on Managing Partner/Permitted Transfers to
-------------------------------------------------------
Affiliates. Except in connection with an Assignment of its interest to the
- ----------
extent permitted in this Article XII, or in connection with a transfer under
Section 5.2, the Managing Partner shall not, without the prior written consent
of all Partners, retire or withdraw from the Partnership, or Assign all or any
part of its interest in the Partnership.
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SECTION 12.2 Restrictions on Partners. Except as otherwise provided in
------------------------
Section 12.1 above and Section 12.4 below, no Partner shall have the right to
withdraw from the Partnership prior to the dissolution and winding up of the
Partnership, and, in the event of a dissolution, only in accordance with
Sections 13.2 and 13.3 below. Except as expressly provided in Sections 5.2, 12.1
and 12.4, a Partner may not Assign all or any portion of such Partner's interest
in the Partnership. If a Partner is a corporation, trust, or other entity and is
dissolved or terminated, the powers of such dissolved Partner may be exercised
by its legal representative or its successor. Any Assignment of the voting
interests of a Partner that is an entity (i.e., is not an individual) shall be
treated as an Assignment of the interest in the Partnership owned by such entity
if, as a result thereof, the Persons who hold a majority of the voting interests
in such entity as of the date of this Agreement (or if such entity was admitted
as a Partner after the inception of the Partnership, as of the date such entity
was admitted as a Partner in the Partnership) own less than a majority of the
voting interests in such entity after such Assignment. Any Assignment of a
partner interest other than in accordance with the provisions of this Section
12.2 (and to the extent applicable, Article XI and Sections 5.2, 12.1 and 12.4)
shall be null and void ab initio. In the event that there shall be a permitted
---------
sale of a partner interest to any person in accordance with all of the terms of
Section 12.4 but in connection therewith the transferee does not have the
automatic right to be admitted as an additional Partner, or if in connection
with any Assignment of an interest as a partner in the Partnership permitted
under this Article XII, the transferring Partner and/or the transferee do not
execute all such instruments as the Managing Partner may reasonably deem
necessary or desirable, or the transferee does not agree to assume the
obligations of the transferring Partner to the Partnership, then the transferee
in any such transaction shall be treated as an assignee under the Partnership
Law and shall not be admitted as an additional partner unless consented to by
the Managing Partner, which consent may be withheld in the sole discretion of
the Managing Partner.
SECTION 12.3 Liability for Transfer Expenses. All costs and expenses
-------------------------------
incurred by the Partnership in connection with any disposition of a Partnership
interest pursuant to this Article XII (including any disposition caused by the
Bankruptcy of a Partner) in or in connection with another person becoming an
assignee or admitted as an additional partner in the Partnership, including any
filing, recording, and publishing costs and the reasonable fees and
disbursements of counsel, shall be paid by and be the sole responsibility of the
Partner disposing of such interest (or by the
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trustee, receiver or other successor-in-interest in the case of a dissolved or
bankrupt Partner).
SECTION 12.4 Optional Purchases of Units. Except as otherwise provided in
---------------------------
Section 5.2, in Section 12.1 and in Section 12.10, in the event that any Partner
receives a "bona fide written offer from a qualified purchaser" to purchase all,
but not less than all, of such Partner's interest in the Partnership, and such
Partner desires to sell all, but not less than all, of such Partner's interest
in the Partnership pursuant thereto, such Partner (the "Selling Partner") may
sell all of its interest in the Partnership and without the consent of the
Managing Partner, subject, however, to the limitations of Section 12.2 and
Article XI above, but only in accordance with the provisions of this Section
12.4. Any such offer to purchase voting interests in a Partner which is a
corporation, partnership or other form of legal entity shall, to the extent any
such sale would constitute an "Assignment" under Section 12.2 above, be treated
as an offer to purchase the interest in the Partnership owned by such entity for
purposes of this Section 12.4. For purposes hereof, a "bona fide offer from a
qualified purchaser" means a written and binding offer from a Person, other than
a Non-Qualified Person, who has the financial ability to consummate the purchase
described in such offer, and which offer sets forth a description of the
Partnership interest subject thereto, the name and principal business address of
the Person who is the proposed purchaser (and, if such purchaser is purchasing
as a nominee for another Person, the name and address of such other Person), and
the price and all of the terms and conditions of the proposed purchase.
The Selling Partner shall give written notice (the "Offer") to the Managing
Partner and to each of the other Partners (collectively, the "Remaining
Partners") that such Selling Partner desires to sell all of its interest as a
Partner in the Partnership (the "Offered Interest"), for the price and pursuant
to the terms of the bona fide offer from the qualified purchaser, a full
description of which shall be attached to the Offer.
The Managing Partner shall have the first option to purchase all, but not
less than all, of the Offered Interest, at the price and upon the terms
contained in the Offer for a period of twenty (20) days from the receipt of the
offer, such option to be exercised by delivery of written notice to the Selling
Partner within such twenty (20) day period.
If, as of the expiration of the twenty (20) day period described above, the
Managing Partner does not exercise its option to purchase all of the Offered
Interest, then each of the Remaining
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Partners shall have the option to purchase each such Remaining Partner's
proportionate share (as hereinafter defined), or other mutually agreed portion,
of all, but not less than all, of the Offered Interest, at the price and upon
the terms contained in the Offer for a period of twenty (20) days following the
expiration of the above-described twenty (20) day period during which the
Managing Partner had an option to purchase. Each such Remaining Partner's
"proportionate share" of the Offered Interest shall mean the product of the
Offered Interest and a fraction, the numerator of which is the Percentage
Interest of such Remaining Partner and the denominator of which is the total
Percentage Interests owned by all such Remaining Partners who have timely
elected (and which were eligible to elect) to purchase their proportionate
shares of the Offered Interest. The option of such Remaining Partners shall be
exercised by delivery of a written notice to the Selling Partner within such
twenty (20) day period (i.e., within the twenty (20) day period that the
Remaining Partners have an option to purchase hereunder).
During the combined forty (40) day period described above during which the
Managing Partner and the Remaining Partners have an option to purchase the
Offered Interest, the Selling Partner may not transfer the Offered Interest to
the qualified purchaser or to any other Person. If, as of the expiration of the
combined forty (40) day period described above, the Managing Partner and the
Remaining Partners have not elected to purchase all of the Offered Interest in
accordance with the foregoing, then the Selling Partner shall be free to sell
the Offered Interest to the qualified purchaser named in the Offer, provided
that: (1) the Selling Partner first complies with the provisions of Article XI
above, (2) such sale is on terms and conditions no more favorable to the
Qualified Purchaser than those set forth in the offer, and (3) such sale is
consummated within one hundred (100) days following the giving of the Offer. If
the Selling Partner does not consummate the sale of the Offered Interest to the
Qualified Purchaser within such one hundred (100) day period, the Offered
Interest shall again be fully subject to all the terms and conditions of this
Section 12.4.
In the event that the Managing Partner or the eligible Remaining Partners
timely elect to purchase the Offered Interest in accordance with the foregoing,
closing of the purchase of the Offered Interest shall take place at the
principal place of business of the Partnership (or such other mutually agreed
upon location) on such date selected by the purchasing party within sixty (60)
days after the exercise of the Option.
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<PAGE>
SECTION 12.5 Removal of Managing Partner.
---------------------------
A. If the Managing Partner becomes Bankrupt, is convicted of a felony or
files a certificate of dissolution (or its equivalent) or otherwise has its
charter revoked (other than a ministerial revocation resulting from a failure to
file an annual report, which failure is promptly cured after notice from any
Partner or its representative), the Managing Partner shall automatically be
removed as managing partner and such Managing Partner's interest in the
Partnership shall be treated in the manner provided in Section 12.8 below.
Notwithstanding the foregoing, if upon the dissolution of the Managing Partner,
its interest in the Partnership is or will be assigned in a manner permitted
under Section 12.1 above, then such dissolved Managing Partner's interest in the
Partnership, as a general partner, shall not be treated in the manner provided
in Section 12.8 below, and such person or persons or such corporation or other
form of business entity succeeding to such former Managing Partner's interest in
the Partnership, as a general partner, shall be admitted into the Partnership as
a substitute or successor Managing Partner(s), and shall succeed, collectively,
to all of the interests of such former Managing Partner (in its status as
general partner) in the Partnership, effective the moment before such former
Managing Partner was dissolved.
B. Except as may be otherwise provided by law, and except as may
otherwise be mutually agreed to by all Partners (including the Managing
Partner), the right to remove the Managing Partner shall be limited to the
events described in Subsection 12.5.A above. Any successor general partner may
be removed as a general partner upon the terms and conditions provided in
Subsection 12.5.A above. The removal of a general partner in accordance
herewith shall in no way limit or affect the liability of such general partner
to the Partnership for debts and liabilities of the Partnership arising or
accruing prior to the effective date of such general partner's removal.
SECTION 12.6 Effect of Change of Partners. Subject to the provisions of
----------------------------
this Agreement, the withdrawal, Bankruptcy, or substitution of any Partner shall
not interrupt the continuity of, or cause the termination or dissolution of, the
Partnership. Except as otherwise provided by this Agreement, if the Managing
Partner withdraws, dissolves, becomes Bankrupt, is removed or otherwise ceases
to be a member of the Partnership, the Partnership shall dissolve upon the date
of any such event, unless there is at least one remaining Managing Partner
(including a successor general partner to a dissolved general partner), if any,
who agrees to continue the business of the Partnership (such right to continue
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<PAGE>
the business of the Partnership being expressly granted hereby), or unless
within ninety (90) days after such event, all Partners agree in writing to
continue the business of the Partnership and to the appointment of one or more
additional general partners if necessary or desirable.
SECTION 12.7 Appointment of Additional Managing Partners. In the event
-------------------------------------------
that the Partnership does not dissolve upon the date the Managing Partner
withdraws, dissolves, ceases to be a member of the Partnership, or becomes
bankrupt solely because all Partners within ninety (90) days of such event agree
in writing to continue the business of the Partnership and to the appointment of
one or more additional Managing Partners as may be necessary or desirable, such
additional Managing Partner(s) shall be appointed by the unanimous agreement of
all such remaining Partners.
SECTION 12.8 Payments to (or Change in Status of) Removed Managing
-------------------------------------------- --------
Partner. In the event the Managing Partner is removed as a general partner
pursuant to this Article XII (or otherwise pursuant to the Partnership Law),
whether or not such removal triggers a dissolution of the Partnership, except as
otherwise provided in Subsection 12.5.B above, such Managing Partner's entire
general partner interest in the Partnership shall, upon such removal, be
converted into a special partner interest having the same rights to
distributions and interests in the Profits, Losses and capital of the
Partnership as prior to such conversion, and this Agreement shall be duly
amended. After such conversion, the holder of such converted interest shall be
automatically admitted as an additional Partner. Each holder of a former
Managing Partner's converted interest, who is to be admitted as an additional
partner, if not already bound by all of the terms and conditions of this
Agreement, shall, as a condition of such admission, be required to execute a
joinder to this Agreement, whereby such person becomes bound by all of the terms
and conditions of the Agreement (as it may be amended prior thereto or in
connection with such conversion). The conversion of the Managing Partner's
interest hereunder shall not, of itself, eliminate any liability to the
Partnership or to the other Partners that the Managing Partner may have under
this Agreement at such time.
SECTION 12.9 Option to Purchase if a Partner Becomes a Non-Qualified
-------------------------------------------------------
Person. If any Partner (other than the Managing Partner) or any "Affiliate" of
- ------
such Partner is or becomes a Non-Qualified Person at any time during the term of
this Partnership Agreement, such Partner shall promptly notify the Managing
Partner and all the other Partners of such fact. Such Partner (the "Selling
Partner") shall (whether or not such notice is timely given) be deemed for
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purposes of Section 12.4 above to have given an "Offer" to the Managing Partner
and to the "Remaining Partners" to sell its entire interest in the Partnership
for a price equal to the positive (i.e., credit) balance in its Capital Account
(which shall be determined as of the date of acceptance of such Offer or, at the
sole option of the purchasing Partner(s), determined as of the date such Partner
first became a Non-Qualified Person) and which shall be payable in full at
closing. If the balance in the Selling Partner's Capital Account at such time
is zero or is a negative number, the selling price shall be One Dollar ($1.00).
Such offer shall remain open, and may be accepted by the Managing Partner or the
Remaining Partners in accordance with the terms of Section 12.4 above, except
that the period for acceptance of such Offer shall not terminate until twenty
(20) days or forty (40) days (whichever period is applicable under Section 12.4)
after the Selling Partner first gives written notice to the Managing Partner and
all of the Remaining Partners that it is, or has become, a Non-Qualified Person.
In addition, the period for exercising the Option will commence on the first
date on which the Selling Partner becomes a Non-Qualified Purchaser, regardless
of whether notice of such fact has been given by the Selling Partner to the
Managing Partner and the Remaining Partners. (Thus, if a Partner becomes a Non-
Qualified Person and fails to give such notice, such Partner shall be in breach
of this Agreement and, in addition, the period during which the Managing Partner
and the Remaining Partners may exercise their Option hereunder shall remain open
indefinitely.) If the Managing Partner and the Remaining Partners do not
exercise their Option to purchase the Selling Partner's Interest in the
Partnership prior to the expiration of the option period provided hereunder, the
interest of the Selling Partner shall continue to be held by the Selling Partner
and shall remain subject to all terms and conditions of this Agreement. Except
as set forth in this Section 12.9 (the terms of which shall control if in
conflict with Section 12.4 above), the terms and conditions of Section 12.4
above shall apply to any sale and purchase of the Selling Partner's interest in
the Partnership hereunder. Notwithstanding the foregoing, N-K shall not be
deemed to have become a Non-Qualified Person for purposes of this Section 12.9
if N-K shall have first offered, in writing, to the Managing Partner, the right
to participate solely with N-K (or its Affiliates), and with no other Non-
Qualified Person, in any Timeshare Activity in which N-K intends to engage, and
the Managing Partner shall have declined, in a writing to be given within thirty
(30) days of the Managing Partner's receipt of N-K's offer, to participate with
N-K in such proposed Timeshare Activity. If the Managing Partner so declines
and N-K thereafter desires to enter into any Timeshare Activity with any third
party on terms which are not substantially similar in all material respects to
those proposed to the Managing Partner,
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the Managing Partner shall once again be offered, in writing, the right to
participate solely with N-K in such Timeshare Activity on the new terms being
proposed to or by the third party. If the Managing Partner still declines (in
writing to be given within fifteen (15) days of the Managing Partner's receipt
of N-K's offer) to participate in the Timeshare Activity, N-K may do so without
becoming a Non-Qualified Person.
SECTION 12.10 Managing Partner's Call Options.
-------------------------------
A. Transfers by Managing Partner to Non-Affiliates. Notwithstanding any
-----------------------------------------------
other provision of this Agreement, upon thirty (30) days prior written notice to
the remaining Partners, the Managing Partner may sell its entire interest in the
Partnership, or the Persons who hold not less than a majority of the voting
interests in the Managing Partner may sell all or not less than a majority of
their equity interests (which, in the case of a sale of equity interests, shall
include not less than a majority of the voting control) in the Managing Partner,
provided, in either event, that such sales are effected in conjunction with (a)
the sale of not less than fifty-one percent (51%) of the assets or equity
interests (which shall include voting control) of VCH Oaks, Inc., to any Persons
other than (i) the Persons listed on Schedule 12.10 attached hereto, and (ii)
any affiliate of the Managing Partner; or (b) a change in control (hereinafter
defined) of Vistana Development, Ltd. Any such sales shall not be subject to
the restrictions set forth in this Article XII except to the extent any such
provisions are specifically made applicable to sales made pursuant to this
Section 12.10. In the event of a sale by the Managing Partner of its entire
interest in the Partnership under this Section 12.10, the Managing Partner may
also require the remaining Partner to sell its entire interest in the
Partnership simultaneously with the closing of the sale of the interest of the
Managing Partner hereunder or "call" the interest of the remaining Partner, as
set forth below. The option of the Managing Partner to require a simultaneous
sale of the remaining Partner's entire interest in the Partnership may be
exercised by the Managing Partner by including a notification of such required
sale in the notice given to the remaining Partner in the first sentence of this
Section 12.10.
B. Call Option in the Event of a Transfer of the Managing Partner's
----------------------------------------------------------------
interest to a Non-Affiliate. The Managing Partner shall have the option to
- ---------------------------
purchase (or cause its designee to purchase) each Partner's entire interest in
the Partnership, which option may be exercised by written notice to a Partner,
which may be given only in the event that the Managing Partner has entered into
a binding agreement to Assign its entire interest in the Partnership
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to any Person, including a Non-Qualified Person, which is not an Affiliate of
the Managing Partner or of the Persons listed on Schedule 12.10 attached hereto,
at the time of exercise of the option ("Non-Affiliate Purchaser") and which does
not occur in conjunction with a change in control of Vistana Development, Ltd.
The purchase price paid by the Managing Partner to the selling Partner shall be
a price equal to the price per percentage point of Partnership Interest that the
Non-Affiliate Purchaser is paying to the Managing Partner in connection with the
acquisition by such Non-Affiliate Purchaser of the Managing Partner's interest
in the Partnership multiplied by the number of percentage points of Percentage
Interest owned by the selling Partner. Such purchase price shall take into
consideration any Residual Income (hereinafter defined) received by the Managing
Partner from the Non-Affiliate Purchaser. Residual Income shall mean all forms
of consideration received and value derived by the Managing Partner or its
Affiliates on account of and in consideration for such sale, transfer,
conveyance or Assignment of its interest in the Partnership (and not of any
other entity), including without limitation, consulting fees and similar
payments and other fees and similar payments received by the Managing Partner or
its Affiliates, to the extent they are above those usually and customarily paid
for similar services in arms length transactions, and the value of partnership
interests, shares or other forms of equity interests in the Non-Affiliate
Purchaser received by the Managing Partner or its Affiliates and attributable
solely to the Assignment of the Managing Partner's or its Affiliate's interest
in the Partnership (and not of any other entity). Closing of the purchase of
the selling Partner's interest by the Managing Partner (or its designee (which
may include the Non-Affiliate Purchaser)) pursuant to this Section shall occur
concurrently with the acquisition of the Managing Partner's interest by the Non-
Affiliate Purchaser, at the Partnership's principal business office on such
business day and hour as the Managing Partner may request, but not later than
one hundred twenty (120) days after the notice of exercise of the option is
given by the Managing Partner. Payment for the selling Partner's interest shall
be made on the same terms as those governing the acquisition of the Managing
Partner's interest by the Non-Affiliate Purchaser. Any transferee of the
interests of the Managing Partner or any other Partner under this Section
12.10.B shall automatically be admitted as a successor Managing Partner or
Partner (as appropriate) in the Partnership.
C. Call Option in the Event of a Change in Control of Vistana
----------------------------------------------------------
Development, Ltd. The Managing Partner shall have the option to purchase each
- -----------------
Partner's entire interest in the Partnership, which option may be exercised by
written notice to a Partner, which may be given only in the event that the
Managing
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Partner reasonably believes (whether by the execution of a binding agreement,
letter of intent or other written proposal, term sheet or similar document) that
there will be a "change in control" of its Affiliate, Vistana Development, Ltd.
For purposes of this Section 12.10.C change in control shall be defined to mean
(i) the acquisition by any Person or Persons acting in concert as a result of a
tender or exchange offer, open market purchases, privately negotiated purchases
or otherwise, of the beneficial ownership of securities representing more than
fifty percent (50%) of the combined voting power of the then outstanding
securities of Vistana Development, Ltd. or Vistana Capital Holdings, Inc.; (ii)
the sale of substantially all of the assets of Vistana Development, Ltd. and its
Affiliates to a third party which is not an Affiliate, or (iii) an initial
public offering of any class of securities of Vistana Development, Ltd. or any
successor entity thereto, or (iv) in the event Vistana Development, Ltd. or any
successor or entity has become a public company, any change in control required
to be disclosed under the proxy rules of promulgated by the securities and
exchange commission. Closing of the purchase of the Partner's interest in the
Partnership shall occur concurrently with the change in control of Vistana
Development, Ltd. Payment for the purchase of the Limited Partner's interest
shall be made all in cash at closing.
The purchase price for each Partner's interest acquired pursuant to this
Section 12.10.C. shall be equal to the fair market value of such interest (i.e.,
the price a willing buyer and a willing seller would agree upon as a fair sales
price that could reasonably be expected to be received upon the sale of the
Partner's interest, based upon the assumption that (i) both parties are well
informed of all relevant factors affecting value including any special or
adverse tax, business, financial or operational burdens which the Partnership
may incur as a result of the transfer of any interest by any individual Partner,
(ii) neither party is compelled to buy or sell, (iii) the purchaser will be
admitted as a partner in the Partnership, and (iv) the selling Partner will be
receiving its Percentage Interest of any Residual Income relating solely to the
Property, to be received by the Managing Partner or its Affiliates). Promptly
after the date (the "Election Date") the Managing Partner exercises its option
hereunder, the selling Partner and the Managing Partner shall attempt to agree
upon the fair market value of the selling Partner's interest. If the selling
Partner and the Managing Partner cannot agree upon the fair market value of the
interest within thirty (30) days after the Election Date, such parties shall
attempt to agree upon a mutually acceptable Qualified Appraiser (as hereinafter
defined) to determine the fair market value of the selling Partner's interest,
and if a mutually acceptable Qualified Appraiser is selected within
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ten (10) days after the expiration of the thirty (30) day period specified
above, such appraiser shall submit, within sixty (60) days of such appraiser's
selection, a written appraisal setting forth such appraiser's determination of
the fair market value of the interest of each selling Partner and such
determination shall be binding upon the selling Partner and the Managing
Partner.
If a mutually acceptable Qualified Appraiser is not selected within the ten
(10) day period described above, either the selling Partner or the Managing
Partner may, by written notice to the other party, select a Qualified Appraiser
with experience in valuing interests in partnerships and also with experience in
appraising interests in timeshare businesses (a "Qualified Appraiser"), and,
within ten (10) days after receipt of such notice, the other party may (but need
not), by written notice, designate a second Qualified Appraiser to determine the
fair market value of the interest.
If the second Qualified Appraiser is not so designated, then the first
Qualified Appraiser shall proceed to appraise the selling Partner's interest and
his determination of the fair market value of the selling Partner's interest
shall be binding upon both the selling Partner and the Managing Partner.
If a second Qualified Appraiser is designated, the first and second
Qualified Appraisers shall each appraise the selling Partner's interest. If
within forty-five (45) days after the second Qualified Appraiser is designated,
the first and second Qualified Appraisers do not agree upon the fair market
value of the selling Partner interest and are unable to reduce the range of
their difference so that the higher appraisal does not exceed the lower
appraiser by more than ten percent (10%) of the amount of the lower appraisal,
then the Qualified Appraisers shall jointly designate a third Qualified
Appraiser within ten (10) days after the expiration of such 45-day period. If
there are two Qualified Appraisers and the higher appraisal does not exceed the
lower appraisal by more than ten percent (10%) of the lower appraisal, then the
fair market value of the selling Partner's interest shall be deemed to be the
average of the two appraisals. If there are three appraisers and if they are
unable to agree upon the fair market value of the selling Partner's interest,
then the fair market value of the selling Partner's interest shall be deemed to
be the average of the two appraisals which are closest in value to each other.
The appraiser or appraisers shall promptly notify the selling Partner and the
Managing Partner of their determination of the fair market value of the selling
Partner's interest.
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The Managing Partner shall each pay the fees and expenses of the Qualified
Appraiser, and if there is more than one Qualified Appraiser, the fees and
expenses of the Qualified Appraisers.
D. The Partners agree that the provisions of this Section 12.10 may be
specifically enforced.
ARTICLE XIII
------------
DISSOLUTION OF THE PARTNERSHIP
------------------------------
SECTION 13.1 Events of Dissolution. The Partnership shall be dissolved,
---------------------
and its assets liquidated pursuant to Section 13.2 below, upon the first to
occur of:
A. December 31, 2046;
B. The sale, disposition or condemnation of all or substantially all of
the Partnership's property (other than cash); provided, that, if on
the disposition of any such property, the Partnership shall own any
purchase money notes and mortgages, or promissory notes, the
Partnership shall not be deemed to have disposed of all or
substantially all of its property until such time as such purchase
money notes and mortgages, or promissory notes, are paid or otherwise
disposed of in full;
C. The withdrawal, retirement, removal, dissolution, Bankruptcy or
cessation of membership in the Partnership of the Managing Partner,
unless the Partnership is continued as provided in Article XII;
D. The agreement, in writing, of Partners owning not less than seventy-
five percent (75%) of the Percentage Interests to dissolve the
Partnership; or
E. The occurrence of any event which, under the Partnership Law (but
subject to the provisions of this Agreement), causes the dissolution
of this Partnership.
The Partnership shall continue to exist following the occurrence of any of
the foregoing events solely for the purpose of winding up its affairs.
SECTION 13.2 Distributions Upon Dissolution or Liquidation of the
----------------------------------------------------
Partnership. Upon the earlier of (i) the dissolution of the Partnership as
- -----------
provided by Section 13.1 above, or (ii) the
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Liquidation of the Partnership, the Managing Partner (or, if none, a special
liquidator appointed by Partners owning not less than a majority of the
Percentage Interests) shall immediately commence to wind up the Partnership's
affairs and, except as provided below, shall distribute all the assets of the
Partnership in liquidation as soon as practicable. In connection with winding
up the Partnership's affairs, the Managing Partner (or, if none, the special
liquidator appointed by the Partners) shall have the authority to sell any
assets of the Partnership then on-hand for such price and on such commercially
reasonable terms and conditions as such Managing Partner (or special liquidator)
shall determine in its reasonable discretion, and distribute the proceeds
thereof in liquidation, and/or distribute all or any portion of such assets to
the Partners in-kind. In the event that any assets are to be distributed in-
kind, the Managing Partner (or special liquidator) shall have the sole right to
select the assets to be distributed to each of the Partners, and may distribute
any such assets proportionately or non-proportionately to or among the Partners;
provided that the aggregate distributions of cash and property to each of the
Partners (based on the net fair market value of property distributed in-kind)
does not exceed the aggregate amount to which each such Partner would otherwise
be entitled had all Partnership property otherwise to be distributed in-kind
been first converted into cash; and provided further that if property and cash
are to be distributed among the Partners, any such cash shall be distributed
among the Partners in proportion to the Partners' positive capital account
balances, as determined without regard to the distributions made pursuant to
Subsection 13.2.B hereof.
In the event of the Liquidation of the Partnership, except as provided
below, all assets of the Partnership to be distributed to the Partners shall be
distributed in liquidation no later than the last day of the Partnership fiscal
year in which such Liquidation occurs (or, if later, within ninety (90) days of
the date of Liquidation). Notwithstanding the above, if there is a Liquidation
of the Partnership solely because fifty percent (50%) or more of the total
interests in the Partnership capital and profits were sold or exchanged within a
twelve-month period, the assets of the Partnership shall not be actually
distributed in liquidation solely as a result of such occurrence (and no Partner
shall have the right to demand a distribution solely by reason of such
occurrence).
The assets to be distributed in liquidation shall be distributed in the
following order of priority:
A. Payment to creditors of the Partnership, including Partners, in the
order of priority provided by law; and
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<PAGE>
B. Payment to the Partners in accordance with and in proportion to their
positive capital account balances, as determined after taking into
account all proper capital account adjustments for the Partnership
fiscal year during which the dissolution or Liquidation of the
Partnership occurs (or, if later, through the date of the final
distribution to the Partners as required by this Section 13.2), other
than those adjustments made for liquidating distributions pursuant to
this Subsection 13.2.B or for contributions by a Partner pursuant to
Section 13.3 below.
If upon the Liquidation of the Partnership the capital accounts of the
Partners are adjusted pursuant to Section 6.3 above, the Managing Partner (or
special liquidator, as the case may be), in its sole discretion, may, out of
amounts otherwise distributable to the Partners, create reserves reasonably
required to provide for Partnership liabilities (contingent or otherwise) and
may withhold the distribution of installment obligations owed to the Partnership
so long as (i) the other assets of the Partnership, distributable to the
Partners, are distributed within the time set forth above and in the ratios of
the Partners' positive capital account balances, and (ii) such withheld amounts
are distributed as soon as practicable and in the ratios of the Partners'
positive capital account balances.
SECTION 13.3 Balance Owed by Partner. Except as provided below, should
-----------------------
the Managing Partner have a deficit balance in the Managing Partner's capital
account following the liquidation of its interest in the Partnership (as defined
in Reg. (S)1.704-1(b)(2)(ii)(g)), as determined after taking into account all
proper capital account adjustments for the Partnership fiscal year during which
such liquidation occurs (or, if later, through the date of the final
distribution in liquidation of the Managing Partner's interest), other than the
adjustment made for contributions by the Managing Partner pursuant to this
Section 13.3, the deficit balance shall represent an obligation from the
Managing Partner to the Partnership to be paid in cash no later than the last
day of the Partnership fiscal year during which such liquidation occurs [or, if
later, no later than ninety (90) days after the date of such liquidation].
Any Partner with a deficit balance in such Partner's capital account
following the liquidation of such Partner's interest in the Partnership, to the
extent attributable to a general partner interest which was converted to that of
a limited partner interest in accordance with Section 12.8 above, shall be
obligated to restore such deficit balance to the extent of the aggregate
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<PAGE>
liability, if any, of such Partner to Partnership creditors, as determined by
law as of the date of the liquidation of such Partner's interest in the
Partnership, and by taking into account any and all assets of the Partnership
(other than any asset which consists of the obligation of such Partner to make a
contribution pursuant to this Section 13.3) which are then available (or which
will thereafter be available) to satisfy, in whole or in part, the indebtedness
of the Partnership to which such creditors' claims relate.
No other Partner shall be obligated to restore a deficit balance in its
capital account in its capacity as a Partner following the liquidation of such
Partner's interest in the Partnership.
SECTION 13.4 Instruments of Termination. Upon the ter mination of the
--------------------------
Partnership, the Managing Partner (or special liquidator, as the case may be)
shall make such filings and do such other acts as shall be required by the
Partnership Law and the Partners hereby agree to execute and deliver to the
Managing Partner (or special liquidator, as the case may be) such certificates
or documents as shall be so required.
ARTICLE XIV
-----------
TAX MATTERS PARTNER
-------------------
SECTION 14.1 Appointment of Tax Matters Partner. The tax matters Partner
----------------------------------
("TMP") for the Partnership shall be the Managing Partner.
SECTION 14.2 Employment of Advisors. The TMP shall employ experienced tax
----------------------
advisors to represent the Partnership in connection with any audit, examination
or investigation of the Partnership by the Internal Revenue Service (or by any
state or local taxing authority), and in connection with all subsequent
administrative and judicial proceedings arising out of such audit, examination
or investigation. The fees and expenses of such tax advisors shall be a
Partnership expense and shall be paid by the Partnership. Such advisors shall
be responsible for representing the Partnership. It shall be the responsibility
of the Managing Partner and the Partners, at their own expense, to employ tax
advisors to represent their respective separate interests.
SECTION 14.3 Notice and Expenses. The TMP shall keep the Partners
-------------------
informed of all administrative and judicial proceedings, as required by the
Code, and shall furnish to each Partner, who so
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<PAGE>
requests in writing, a copy of each notice or other communication received by
the TMP from the Internal Revenue Service (except such notices or communications
which are sent directly to such requesting Partner by the Internal Revenue
Service). All expenses incurred by the TMP in serving as TMP shall be
Partnership expenses and shall be paid by the Partnership.
SECTION 14.4 Authority of Tax Matters Partner. The TMP shall have the
--------------------------------
full authority to take any and all actions otherwise permitted to be taken by a
tax matters partner under the Code in connection with any audit, examination or
investigation of the Partnership, and in connection with any and all
administrative and judicial proceedings arising out of such audit, examination
or investigation, including, but not limited to, any of the following actions:
A. Enter into a settlement agreement with the Internal Revenue Service,
even if such settlement agreement binds the Partners other than the
TMP;
B. File a petition as contemplated in Code (S)6226(a) or (S)6228;
C. Intervene in any action contemplated in Code (S)6226(b);
D. File any requests contemplated in Code (S)6227(b); or
E. Enter into an agreement extending the period of limitations, as
contemplated by Code (S)6229(b)(1)(B).
SECTION 14.5 Indemnification. The Partnership shall indemnify and hold
---------------
the TMP harmless against judgments, fines, amounts paid in settlement and
expenses (including reasonable attorneys' fees, whether before or at trial or
during any appellate proceeding), paid or incurred by the TMP in any civil,
criminal or investigative proceeding in which the TMP is involved or threatened
to be involved solely by reason of being the TMP for the Partnership; provided
that the TMP acted reasonably and in good faith within what the TMP reasonably
believed to be in the best interests of the Partnership or the Partners, as a
whole. Notwithstanding the foregoing, the TMP shall not be indemnified under
this Section 14.5 against any liability of the TMP to the Partnership or the
Partners to the extent any such liability is attributable to or otherwise arises
out of the TMP's fraud, intentional misconduct or gross negligence.
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ARTICLE XV
----------
MISCELLANEOUS
-------------
SECTION 15.1 Notices. All notices or other communications given or
-------
made under this Agreement shall be in writing, signed by the party giving same,
and shall be delivered personally, transmitted by a facsimile capable of
verifying receipt (receipt confirmed), sent by national overnight courier
service, or sent by United States certified mail, return receipt requested,
postage prepaid, addressed as follows:
A. To the Managing Partner at the address set forth in Section 3.1 above;
and
B. To each Partner at the address set forth in Section 3.2 hereof; and
C. To the Partnership at the principal office of the Partnership
specified in Section 1.2 above.
Except as may be otherwise provided in this Agreement, all notices,
requests, demands, elections or other communications given in accordance with
this Section 15.1 shall be effective at the earlier of (i) five (5) business
days after deposit in the United States mail, certified postage prepaid; (ii)
twenty-four (24) hours after delivery to a national overnight courier service;
or (iii) confirmation of receipt if transmitted by facsimile or telexed or if
delivered personally. Any party may change the address to be used for
notification purposes hereunder by providing written notice thereof to the other
parties in accordance herewith.
SECTION 15.2 Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the laws of the State of Florida without giving
effect to such State's conflicts of laws principles. Venue for any action
brought to enforce this Agreement or to interpret the rights of the Partners
hereunder shall lie in Orange County, Florida.
SECTION 15.3 Entire Agreement. This Agreement constitutes the entire
----------------
Partnership agreement between the Partners and the Managing Partner and
supersedes all prior agreements and undertakings with respect hereto among them.
No Partner is making any guarantee, promise, or undertaking any obligation with
respect to the Partnership that is not expressly contained in this Agreement.
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SECTION 15.4 Amendment. Except as otherwise provided herein, this
---------
Agreement may only be amended upon the written consent of all Partners.
Notwithstanding the foregoing, the Managing Partner may amend this Agreement
without the consent of any other Partner provided that such amendment does not
(a) reduce the obligations of the Managing Partner, (b) affect, by making more
or less restrictive, the assignability of Partnership interests and/or the
ability of a Partner to cause a transferee of such Partner's interest in the
Partnership to be admitted as an additional limited Partner; (c) modify the term
or the authorized business purposes of the Partnership, or (d) reduce the rights
or interests, or enlarge the obligations of any Partner (with respect to a
Partner's interests in the Profits, Losses, Available Cash or capital of the
Partnership) or otherwise have a material adverse effect upon such Partner's
interest in the Partnership or under the Transaction Documents without the
Partner's prior written consent, except that, in the case of subpart (d), the
Managing Partner may amend the Agreement without such Partner's consent to the
extent necessary to reflect the transfer of all or such portion of such
Partner's interest as may have been transferred pursuant to Subsection 5.2.B
above.
SECTION 15.5 Binding Upon Successors. Each and every provision hereof
-----------------------
shall be binding upon, and inure to the benefit of, the heirs, personal
representatives, successors and assigns of the respective parties hereto except
to the extent explicitly provided to the contrary herein.
SECTION 15.6 Severability. Every provision hereof is intended to be
------------
severable, and if any term or provision hereof is illegal or invalid for any
reason whatsoever or would constitute the Partners or any Partner a general
Partner or would affect the Partnership status of the Partnership or would
affect the Partnership status of the Partnership for federal income tax
purposes, such provision shall be invalid, but such illegality or invalidity
shall not affect the validity of the remainder of this Agreement.
SECTION 15.7 Captions/References. The titles and captions contained
-------------------
herein are for convenience only and shall not be deemed a part of the context of
this Agreement. All references to "regulations" or "Reg. (S)" refer to rules
and regulations promulgated by the United States Treasury Department under the
Code. The words "this Agreement," "herein," "hereof," "hereby," "hereunder" and
words of similar import refer to this Agreement as a whole and not to any
particular subdivision unless expressly limited.
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<PAGE>
SECTION 15.8 Numbers and Gender. Where the context so indicates, the
------------------
masculine shall include the feminine and neuter, the singular shall include the
plural and the term person shall include a corporation, firm or other entity.
SECTION 15.9 Counterparts. This Agreement may be executed in
------------
counterparts, each of which shall be deemed to be an original and shall be
binding upon the party or parties who executed the same, but all of such
counterparts shall constitute one and the same agreement.
SECTION 15.10 Waiver of Partition. Each of the Partners hereby
-------------------
irrevocably waives any and all rights that such Partner may have to maintain
action for partition of any of the Partnership's property.
SECTION 15.11 Assignees. In the event that any transferee or other
---------
successor-in-interest to a Partner is not otherwise admitted as an additional
Partner in accordance with the provisions of this Agreement, provided that the
transfer at issue is not null and void, such transferee or other successor-in-
interest shall be treated as an assignee, and shall only have the right to
receive the profits and capital, and shall be subject to all of the liabilities
and obligations, to which the transferring Partner (or transferring assignee, or
other predecessor-in-interest) would otherwise be entitled, or would otherwise
be subject to, pursuant to this Agreement (but for such transfer), to the extent
attribut able to the interest transferred to such assignee. In applying the
provisions of this Agreement, including Articles IX and X, and Section 13.3
hereof, each successor to a Partnership interest, whether admitted as an
additional Partner or not, shall be deemed to have received the aggregate
allocations and distributions previously made to each predecessor-in-interest to
the interest in the Partnership held by such person. An assignee who is not
otherwise admitted as an additional Partner shall have no right to vote on any
matter subject to the approval of the Partners, nor have any rights to interfere
in the management or administration of the Partnership's business or affairs,
acquire any information or account of Partnership transactions, or inspect the
Partnership's books during the continuance of the Partnership.
SECTION 15.12 Third-Party Beneficiaries. Any agreement contained herein
-------------------------
to make any contribution or to otherwise pay any amount, and any assumption of
liability herein contained, express or implied, shall be only for the benefit of
the undersigned parties and their respective permitted successors and assigns,
and such agreements and assumptions shall not inure to the benefit of the
obligees under any indebtedness, or to any other party
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<PAGE>
whomsoever, it being the intention of the undersigned parties that no one shall
be deemed to be a third-party beneficiary of this Agreement or any portion
thereof.
SECTION 15.13 Confidential Information. Each Partner hereby acknowledges
------------------------
and agrees that confidential information concerning employees and agents of the
Partnership (including, but not limited to, the amount and nature of the
compensation paid to such employees and agents), customers, and owners of units
and properties of the Partnership (the "Units"), and proprietary sources of the
Partnership's marketing programs (including present and prospective OPC
locations and the terms of leases or similar financial arrangements with regard
thereto) (collectively, the "Trade Secrets") used by or relating to the
Partnership, are and shall be considered proprietary information belonging
exclusively to the Partnership to the extent such information is not readily
available to the public or has not otherwise become public knowledge through
sources other than the Partners, their agents and/or employees.
No Partner shall in any manner, either directly or indirectly, (i)
disseminate, disclose, use or communicate with any Person any Trade Secrets
regardless of whether such information is considered to be confidential by third
parties; provided that none of the provisions of this Section 15.13 shall apply
to disclosures made to other employees or agents of the Partnership which are
made for valid business purposes of the Partnership. The provisions of this
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<PAGE>
Section 15.13 shall survive the termination of this Agreement and the
termination of any Partner's interest in the Partnership. Notwithstanding the
foregoing, in the event that N-K becomes a Non-Qualified Person solely by reason
of the provisions of and after following the procedures in Section 12.9, N-K
shall be relieved of the covenants set forth in this Section 15.13 solely as to
any Timeshare Activity in which the Managing Partner or its Affiliates have
declined to participate.
No Partner shall, during the term of this Agreement and for a period of one
(1) year thereafter, interfere with, disrupt or attempt to disrupt the
relationship, contractual or otherwise, between the Partnership and any employee
of the Partnership or Vistana Development, Ltd. or any of its Affiliates. Any
contact or communication with or solicitation of, any employee of the
Partnership, Vistana Development, Ltd. or any of its Affiliates, with the
intent, purpose or effect of inducing or encouraging said employee to leave his
or her employment with the Partnership, Vistana Development, Ltd. or any of its
Affiliates or to breach his or her employment relationship with or other
employment obligations to the Company, Vistana Development, Ltd. or any of its
Affiliates, shall constitute a breach of this provision.
Signatures Begin on Following Page
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<PAGE>
MANAGING PARTNER
----------------
Witness VCH OAKS, LTD.
By: VCH OAKS, INC., a Florida corporation,
sole general partner
/s/ S. Werth By: /s/ Matthew E. Avril
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/s/ John Melichavek, Jr. Name: Matthew E. Avril
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Title: SVP
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PARTNERS
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Witness NOBLE-KIDD CORPORATION
/s/ Michael J. Sullivan By: /s/ Andrew E. Kidd
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/s/ Joseph J. JeBailey Name: Andrew E. Kidd
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Title: Vice President
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WITHDRAWING PARTNERS
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Witness
/s/ Patricia Vantes /s/ R. Edward Noble
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R. Edward Noble
/s/ J. C. Ellis
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Witness
/s/ Michael J. Sullivan /s/ Andrew E. Kidd
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Andrew E. Kidd
/s/ Joseph J. JeBailey
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<PAGE>
EXHIBIT 10.16
LIMITED PARTNERSHIP AGREEMENT
OF
VCH OAKS, LTD.
THIS LIMITED PARTNERSHIP AGREEMENT (this "Agreement") is entered into and
is effective as of June 25, 1996, by and between VCH OAKS, INC., a Florida
corporation, as the "General Partner," and R. EDWARD NOBLE ("Noble") ANDREW E.
KIDD ("Kidd"), and VISTANA OP INVESTMENT, LTD., a Florida limited partnership
("VOPI"), each as a "Limited Partner." The General Partner and Limited Partners
are referred to herein collectively as the "Partners," and individually as
"Partner." References herein to the Partners or to a Partner may include the
General Partner and/or the Limited Partners without reference to status.
ARTICLE I
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ORGANIZATION
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SECTION 1.1 Formation. The Partners hereby agree to form the limited
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partnership referred to in this Agreement as the "Partnership," pursuant to the
Partnership Law. The Partners shall execute and cause to be filed, recorded
and/or published all documents necessary to carry out the intent of this
Agreement, including, but not limited to:
A. A Certificate of Limited Partnership;
B. An Affidavit of Capital Contributions; and
C. An Affidavit or other appropriate documentation as to the use by the
Partnership of a fictitious name, as may be required by law.
The Partners, thereafter, shall execute such documents and take such action
as may be necessary to maintain the Partnership's status as a limited
partnership under the Partnership Law and as a partnership under the Code and to
carry out the business purposes of the Partnership as set forth in Article II
hereof. The Limited Partners shall, at the request of the General Partner,
promptly execute such documents and furnish such information as may be necessary
to enable the General Partner to perform, on behalf of the Partnership, those
acts contemplated under this Section 1.1.
SECTION 1.2 Name and Principal Place of Business. The name of the
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Partnership shall be VCH Oaks, Ltd., or such other name as the General Partner
may from time to time designate upon ten (10) days prior written notice to the
Limited Partners. The principal place
<PAGE>
of business for the Partnership shall be 8801 Vistana Centre Drive, Lake Buena
Vista, Florida 32821, or such other place as the General Partner may from time
to time designate upon ten (10) days prior written notice to the Limited
Partners.
SECTION 1.3 Term. The term of this Partnership shall be from the date the
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Certificate of Limited Partnership is filed with the Florida Department of State
to December 31, 2046, unless sooner terminated in accordance with the provisions
of this Agreement (Article XIII) or as otherwise provided by the Partnership
Law.
SECTION 1.4 Costs of Formation. The Partnership shall bear all actual and
------------------
direct costs and expenditures incident to its formation and to the issuance of
interests in the Partnership, and shall reimburse the General Partner and the
Limited Partners for all expenses actually paid or incurred by the General
Partner and the Limited Partners in connection therewith, including any legal
expenses actually paid or incurred by or on behalf of the General Partner and
the Limited Partners in connection with the preparation of this Agreement.
SECTION 1.5 Registered Office and Agent in Florida. The address of the
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Partnership's registered office in the State of Florida is 8801 Vistana Centre
Drive, Lake Buena Vista, Florida 32821. The registered agent at that address is
Jeffrey A. Adler. The General Partner may, from time to time, on behalf of the
Partnership, change the registered office and/or the registered agent of the
Partnership.
SECTION 1.6 Definitions. Capitalized words and phrases used in this
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Agreement and which are not otherwise defined herein shall have the following
meanings:
A. "Accounts Receivable" means accounts receivable arising from the sale
of the Units (or interests therein) by the Developer.
B. "Adjusted Capital Account Deficit" means, with respect to any Partner,
the deficit balance, if any, in such Partner's Capital Account as of the end of
the relevant Partnership taxable year, after giving effect to the following
adjustments:
1. Debit to such Capital Account the items described in Reg.
(S)1.704-1(b)(2)(ii)(d)(4), (5) and (6); and
2. After making the foregoing debits, credit to such Capital Account
any amounts which such Partner is obligated to
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restore (pursuant to this Agreement or otherwise) or any amounts which such
Partner is deemed obligated to restore pursuant to Reg. (S)1.704-2(g)and
(i).
The foregoing definition of Adjusted Capital Account Deficit is
intended to comply with the provisions of Reg. (S)1.704 1(b)(2)(ii)(d) and shall
be interpreted consistently therewith.
C. "Affiliate" means the following: a party ("first party") will be
deemed to be an Affiliate of another party ("second party") if the first party
directly or indirectly owns or controls the second party, or if the first party
is, directly or indirectly, owned by or under common control with the second
party. For purposes of the preceding sentence, "control" shall mean ownership
(direct or indirect) of a majority of the voting interests in such entity or in
the managing general partner of such entity.
D. "Agreement" or "Partnership Agreement" means this Limited Partnership
Agreement of VCH Oaks, Ltd., as amended from time to time.
E. "Assign" or "Assignment" means any sale, assignment, option, gift,
pledge, hypothecation or other voluntary or involuntary encumbrance or transfer
of an interest in the Partnership (or, if applicable, of an interest in any
Partner, Affiliate of a Partner or other Person).
F. "Adjusted Capital Account Deficit" means, with respect to any Partner,
the deficit balance, if any, in such Partner's Capital Account as of the end of
the relevant Partnership taxable year, after giving effect to the following
adjustments:
1. Debit to such Capital Account the items described in Reg.
(S)1.704-1(b)(2)(ii)(d)(4), (5) and (6); and
2. After making the foregoing debits, credit to such Capital Account
any amounts which such Partner is obligated to restore (pursuant to this
Agreement or otherwise) or any amounts which such Partner is deemed
obligated to restore pursuant to Reg. (S)1.704-2(g)and (i).
The foregoing definition of Adjusted Capital Account Deficit is
intended to comply with the provisions of Reg. (S)1.704-1(b)(2)(ii)(d) and shall
be interpreted consistently therewith.
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G. "Available Cash" means all cash on hand other than cash which is (i)
restricted from distribution to Partners under the terms of any agreement to
which the Partnership is a party, or (ii) added to or retained in Partnership
reserves for all Partnership expenses, debt payments, capital improvements,
capital investments and reinvestments, replacements, contingencies, working
capital and other cash requirements, all as determined by the General Partner in
the reasonable exercise of its discretion.
H. "Bankruptcy" or "Bankrupt" with respect to a Partner or
Person shall mean:
1. Such Partner or Person has made an assignment for the benefit of
his creditors;
2. Such Partner or Person has filed a voluntary petition in
bankruptcy;
3. Such Partner or Person has been adjudged a bankrupt or insolvent
or has entered against him an order for any relief in any bankruptcy or
insolvency proceeding;
4. Such Partner or Person has filed a petition or answer seeking for
such Partner or Person any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any statute,
law or regulation;
5. Such Partner or Person has filed an answer or other pleading
admitting or failing to contest the material allegations of a petition
against such Partner or Person in any proceeding of this nature;
6. Such Partner or Person seeks, consents to or acquiesces in the
appointment of a trustee, receiver or liquidator of such Partner or Person
or of all or any substantial part of such Partner's or Person's property;
or
7. One Hundred Twenty (120) days after the commencement of any
proceeding against such Partner or Person seeking reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any statute, law or regulation, the proceeding has not been
dismissed; or if within ninety (90) days after the appointment, without
such Partner's or Person's consent or acquiescence, of a trustee, receiver
or liquidator of such Partner or Person or of any
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substantial part of such Partner's or Person's property, the appointment
has not been vacated or stayed; or if stayed, ninety (90) days following
the expiration of any such stay if the appointment has not been vacated.
I. "Capital Account" means, with respect to each Partner an individual
capital account which shall be determined and maintained for such Partner in
accordance with the rules of Reg. (S)1.704-1(b)(2)(iv). Except as otherwise
provided in such Regulations, each Partner's capital account shall be: (i)
credited with (a) such Partner's cash contributions to the capital of the
Partnership, (b) the fair market value of property contributed to the Partner
ship by such Partner (as of the date of contribution and net of liability
secured by such contributed property that the Partnership is considered to have
assumed or to have taken subject to pursuant to Code (S)752), and (c) such
Partner's allocable share of the Partnership's Profits (or items of income or
gain comprising the Profits and Losses of the Partnership); and (ii) debited for
(a) all distributions made by the Partnership to such Partner, and (b) such
Partner's allocable share of the Partnership's Losses (or items of expense or
deduction comprising the Profits or Losses of the Partnership). In the event
that Partnership property is subject to Code (S)704(c) or is revalued in
accordance with Reg. (S)1.704-1(b)(2)(iv)(f), the Partners' capital accounts
shall be adjusted in accordance with Reg. (S)1.704-1(b)(2)(iv)(g) for
allocations to them of depreciation, amortization and gain or loss, as computed
for book purposes (and not tax purposes), with respect to such property.
J. "Code" means the United States Internal Revenue Code of 1986, as
amended.
K. "Developer" means Oak Plantation Joint Venture, a Florida general
partnership formerly known as Caribbean Isle Joint Venture Phase II, and the
owner of the Property.
L. "GAAP" means generally accepted accounting principles, consistently
applied.
M. "General Partner" means any Person who (i) is referred to as such in
the first paragraph of this Agreement or who later becomes a General Partner
pursuant to the terms of this Agreement, and (ii) has not ceased to be a General
Partner pursuant to the terms of this Agreement.
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<PAGE>
N. "Limited Partner" means any Person (i) whose name is set forth on the
signature page of this Agreement as a Limited Partner or who has been admitted
as an additional or substitute Limited Partner pursuant to the terms of this
Agreement, and (ii) who is the owner of an interest in the Partnership as a
Limited Partner. The term "Limited Partner" shall also be deemed to include the
holder of a converted Limited Partner interest (whether as an assignee or as a
substitute Limited Partner) received pursuant to Section 12.8 below.
O. "Liquidation of the Partnership" means the earlier of (i) the date
upon which the Partnership is terminated under Code (S)708(b)(1)(A), or (ii) the
date upon which the Partnership ceases to be a going concern (even though it may
continue in existence for the purpose of winding up its affairs, paying its
debts and distributing any remaining balance to its Partners).
P. "Non-Qualified Person" means a Person (i) who, directly or indirectly,
owns an interest in, or is otherwise engaged in (whether as a principal,
consultant, agent, employee, officer, director or otherwise) a timeshare or
interval ownership business (including timeshare development, timeshare
marketing, timeshare resort management or the operation or sale for timeshare
purposes of any kind of interest, including, without limitation, "timeshare
licenses," "timeshare estates" or "vacation clubs," as such terms are defined in
Chapter 721 of the Florida Statutes) other than through ownership of an interest
in the Partnership or through ownership of an interest in an Affiliate of the
General Partner, its successors or assigns (all of the foregoing activities
being hereinafter referred to as "Timeshare Activities"), (ii) which is an
Affiliate of any Person described in clause (i) above, or (iii) whose character
or reputation would, in the reasonable opinion of the General Partner,
jeopardize the authority of the Partnership to conduct any aspect of the
business of the Partnership in any state in which its business is conducted, or
would otherwise adversely affect the goodwill or business reputation of the
Partnership.
Q. "Partnership Law" means (S)(S)620.101 through 620.192, Florida
Statutes (the Revised Uniform Limited Partnership Act, as adopted by the State
of Florida) as amended from time to time and, to the extent not inconsistent
therewith, shall also be deemed to include (S)(S)620.81001 through 620.91,
Florida Statutes (the Revised Uniform Partnership Act, as adopted in the State
of Florida), as amended from time to time.
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R. "Percentage Interests" of the General Partner and the Limited
Partners shall be as follows:
Partner Percent Interest
General Partner 1.0 %
Noble 19.8 %
Kidd 13.2 %
VOPI 66.0 %
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Total: 100.0 %
S. "Person" means an individual, partnership, limited liability company,
limited liability partnership, corporation, trust and any other association or
legal entity.
T. "Profits" and "Losses" of the Partnership for each taxable year of the
Partnership means an amount equal to the Partnership's taxable income or loss
for such taxable year, as determined for federal income tax purposes in
accordance with the accounting method followed by the Partnership and in
accordance with Code (S)703 (for this purpose, all items of income, gain, loss
or deduction required to be separately stated pursuant to Code (S)703(a)(1)
shall be included in taxable income or loss), subject to the following
modifications:
1. Any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing Profits and Losses
shall be added to such taxable income or loss;
2. Any expenditures of the Partnership described in Code
(S)705(a)(2)(B) or treated as Code (S)705(a)(2)(B) expenditures pursuant to
Reg. (S)1.704-1(b)(2)(iv)(i), and not otherwise taken into account, shall
be subtracted from such taxable income or loss; and
3. With respect to Partnership property, if any, which has a book
value greater than or less than its adjusted income tax basis, "Profits"
and "Losses" of the Partnership shall be determined by reference to the
depreciation and amortization deductions, if any, allowable with respect to
such property as computed for book purposes (and not tax purposes), as
determined pursuant to Reg. (S)1.704-1(b)(2)(iv)(g), and by the
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<PAGE>
gain or loss attributable to such property as computed for book purposes
(and not for tax purposes).
U. "Project" means the conversion of the existing apartment complex on
the Property to a vacation timeshare resort.
V. "Property" means the land, buildings, improvements and associated
property interests described as Lot 2 and Lot 3 of Oak Plantation according to
the plat thereof as recorded in Plat Book 6, Pages 208 and 209 of the public
records of Osceola County, Florida.
W. "Regulations" or "Reg." means regulations adopted by the Treasury
Department and the Internal Revenue Service pursuant to the Code.
X. "Regulatory Allocations" means the Regulations promulgated under Code
(S)704(b).
Y. "Tax Distribution" for any fiscal year of the Partnership means an
amount computed as follows:
1. Determine the highest effective marginal income tax rate (based
upon applicable federal, state and city income taxes levied on such income,
but taking into account any deductions or credits available in computing
any such income tax for either or both of the other income taxes levied on
such income) applicable to any Partner who was a Partner for all or any
portion of such fiscal year. For this purpose, if any such Partner is a
"pass-through entity" (i.e., an S corporation, a partnership, a limited
liability company, a limited liability partnership or a trust), the
"highest effective marginal income tax rate" deemed to be applicable to
such Partner hereunder shall be the highest such effective marginal income
tax rate (determined as above) applicable to any shareholder, partner,
member or beneficiary (whichever is applicable) of such Partner and, if
applicable, such rate shall also reflect any federal, state or city income
taxes imposed at the entity level on such pass-through entity.
2. Determine the amount of net taxable income or net taxable loss
(as the case may be) of the Partnership for federal income tax purposes for
such fiscal year.
3. If the Partnership has a net taxable loss for the fiscal year,
the "Tax Distribution" for such fiscal year shall
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be zero and the amount of such net taxable loss shall be carried forward to
future fiscal years of the Partnership to be applied in such years in the
manner described in subpart 4 below.
4. If the Partnership has net taxable income for such fiscal year,
and if the Partnership has any net taxable losses from any prior fiscal
years that have not been previously applied to reduce net taxable income of
the Partnership for any prior fiscal year (the "Net Carryover Losses"), the
net taxable income for such fiscal year shall be reduced (but not below
zero) by the Net Carryover Losses. The net taxable income of the
Partnership for such fiscal year, reduced by the Net Carryover Losses (if
any), shall be deemed to be the "Tax Base" for such fiscal year for
purposes of computing the Tax Distribution for such fiscal year.
5. The aggregate amount of the Tax Distribution for such fiscal year
shall be computed by multiplying the Tax Base for such fiscal year by the
rate computed under subpart 1 above for such fiscal year.
Z. "Transaction Documents" means that certain Agreement for Contribution
of Partnership interest dated as of the date hereof, between Noble, Kidd and the
Partnership and all other documents, agreements and instruments executed
contemporaneously therewith or in connection with the acquisition by the
Partnership of a ninety-nine percent (99%) interest in the Developer, including,
without limitation, consulting agreements, management agreements, adminis
trative services agreements, declarations, easements, covenants, license
agreements, and sales and marketing agreements.
AA. "Units" means the condominium and/or vacation ownership units,
including ancillary facilities and amenities, to be developed by the Developer
on the Property.
ARTICLE II
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BUSINESS OF THE PARTNERSHIP
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SECTION 2.1 Business and Purpose. The purpose of the Partnership is to
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engage in or invest in entities engaged in all facets of the business of resort
development at the Property and related leisure and travel businesses, including
the acquisition, development, marketing, sale and operation of a timeshare or
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<PAGE>
interval ownership resort on the Property, including, but not limited to, the
following:
A. Acquire a ninety-nine percent (99%) ownership interest in the
Developer pursuant to the terms of the Transaction Documents;
B. Cause the Developer to develop the Project, including the construction
of the Units;
C. Cause the Developer to market, sell and/or rent (transient or
otherwise) the Units or any interest herein, and in connection
therewith, engage in other activities incident to the development,
marketing, rental and/or sale of the Units or any interest therein,
including, but not limited to such financing transactions as are usual
and customary with respect to the development, marketing, renting
and/or sale of the Units or any interest therein or of any Accounts
Receivable;
D. Cause the Developer to provide or obtain hospitality management
services with respect to any transient, timeshare or interval
ownership development, condominium or resort hotel located within the
Property, and management services to or in connection with condominium
associations, all of which may include management and operation of
restaurants, general stores and other related amenities which are
ancillary to management services for a resort facility;
E. Cause the Developer or another contracting party to collect and
service all Accounts Receivable;
F. Engage in cash management transactions as contemplated in Section 4.5
below; and/or
G. At such time as the General Partner deems appropriate (but subject to
the limitations set forth in Sections 7.1 and 7.3 below), sell, in
whole or in part, the Partnership's interest in the Developer and
other assets of the Partnership.
SECTION 2.2 Other Business. The Partnership shall not be authorized to
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engage in any business activities not described in Section 2.1 above.
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ARTICLE III
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NAMES AND ADDRESSES OF PARTNERS
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SECTION 3.1 General Partner. The name and business address of the General
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Partner is:
VCH Oaks, Inc.
8801 Vistana Centre Drive
Lake Buena Vista, Florida 32821
Fax No. (407) 239-3222
SECTION 3.2 Limited Partners. The names and business addresses of the
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Limited Partners are:
R. Edward Noble
c/o Noble-Kidd Development
10610 Metric Drive, Suite 190
Dallas, Texas 75243
Fax No. (214) 343-2645
Andrew E. Kidd
c/o Noble-Kidd Development
10610 Metric Drive, Suite 190
Dallas, Texas 75243
Fax No. (214) 343-2645
Vistana OP Investment, Ltd.
8801 Vistana Centre Drive
Lake Buena Vista, Florida 32821
Fax No. (407) 239-3222
SECTION 3.3 Admittance of Additional Limited Partners. Except as otherwise
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provided in Subsection 5.2.B. and elsewhere in this Agreement, Persons not
otherwise described in Section 3.2 above may be admitted as additional limited
partners only upon the unanimous consent of the Partners.
ARTICLE IV
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PARTNERSHIP ACCOUNTING/REPORTS/INVESTMENTS
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SECTION 4.1 Method of Accounting. The General Partner shall maintain full
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and accurate books of the Partnership at the
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Partnership's principal place of business specified in Section 1.2 above,
showing all receipts, expenditures, assets, liabilities, Profits and Losses of
the Partnership and all other records necessary for proper recordation of the
Partnership's business and affairs. The books of the Partnership, for tax and
financial reporting purposes, shall be kept on the method of accounting selected
by the General Partner, unless the Partnership is required to adopt a different
method of accounting. The fiscal year of the Partnership shall be the calendar
year unless a different fiscal year is required by the Code.
SECTION 4.2 Inspection of Books and Records. Any Limited Partner may at
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any time during regular business hours inspect and copy (at such Limited
Partner's personal expense) any of the Partnership records described in Section
620.106(1), Florida Statutes. In addition, a Limited Partner shall be entitled
to obtain from the General Partner copies of the Partnership's federal income
tax returns promptly after the same become available.
SECTION 4.3 Reports.
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A. No later than ten (10) days prior to the due date of the Partnership's
federal income tax return (as determined with regard to available extensions),
the General Partner shall send to each person who was a Partner at any time
during the fiscal year to which such return relates such tax information as
shall be necessary for the preparation by such person of such person's federal,
state and local income tax returns.
B. Within one hundred twenty (120) days after the end of each fiscal
year, the General Partner shall send to each Partner audited financial
statements of the Partnership, consisting of a balance sheet, statement of
income, statement of Partner's equity (based on relative capital account
balances), and statement of changes in cash flows for such fiscal year, all of
which shall be prepared in accordance with GAAP and certified by such national
or regional independent certified public accountants as shall be selected in the
sole discretion of the General Partner.
SECTION 4.4 Income Tax Elections. The General Partner may make, but shall
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not be required to make, any applicable election under the Code.
SECTION 4.5 Bank Accounts; Temporary Investments of Partnership Funds.
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Promptly after commencing operations, the General Partner shall open, and will
thereafter maintain, one or
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more bank accounts in the name and for the sole benefit of the Partnership
(except to the extent required in any loan document, receivable sale agreements
or other contractual commitments of the Partnership) in which there shall be
deposited all of the capital of the Partnership, all gross receipts of the
Partnership, and the proceeds of loans, if any, that the General Partner may
obtain for and/or in the name of the Partnership. The funds in the
Partnership's bank account or accounts shall be used solely for the business of
the Partnership. Withdrawals shall be made only in the regular course of the
Partnership's business on such signature or signatures as the General Partner
may determine. In the sole discretion of the General Partner, reserved cash,
cash held pending the expenditure of funds for the business of the Partnership
and cash held pending a distribution to the Partners may be held, placed or
otherwise invested in such liquid or illiquid investments as the General Partner
may determine from time to time, including, but not limited to, United States
Government and/or municipal securities and commercial paper (and repurchase
agreements secured by the foregoing), mutual funds, money market funds, bonds,
banker's acceptances, receivables (whether or not secured by an interest in real
property), interest-bearing bank accounts, certificates of deposit, or liquid
asset funds of brokerage houses, provided that any such investments are
reasonable, would not be classified as "speculative," and, in the case of
securities, would qualify as "investment grade securities."
ARTICLE V
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CAPITAL CONTRIBUTIONS
---------------------
SECTION 5.1 Capital of the Partnership.
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A. Initial Capital Contributions.
1. General Partner. The General Partner will receive its interest
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in the Partnership as the General Partner in exchange for its services
rendered in anticipation of the formation of the Partnership including, but
not limited to, the negotiation of the terms of the Purchase Documents, and
in consideration for its ongoing services of managing the Partnership as
described elsewhere in this Agreement. The Capital Account of the General
Partner shall be credited in the amount of One Dollars ($1.00) by reason of
its initial contribution hereunder.
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2. Limited Partners. VOPI shall contribute to the Partnership the
----------------
amount set forth on Schedule A attached hereto in immediately available
funds, upon formation of the Partner ship in exchange for its interest as
Limited Partner. Noble and Kidd shall each contribute Partnership
interests in Developer aggregating a ninety-nine percent (99%) interest in
Developer in exchange for their interests as Limited Partners. The Capital
Account of the Limited Partners shall be credited in the amount set forth
on Schedule A attached hereto by reason of said initial contributions to
the capital of the Partnership hereunder.
B. No Limited Partner shall be entitled to withdraw any portion of such
Limited Partner's capital contribution or such Limited Partner's Capital Account
in money or property prior to dissolution or Liquidation of the Partnership and
then only in accordance with the provisions of Partnership Law and this
Agreement. The General Partner shall not be personally liable for any portion
of any other Partner's capital contribution. No interest will be paid on
account of any capital contribution or in the credit balance in any Partner's
Capital Account, and no Limited Partner shall have the right to receive or
demand property other than cash in return for such Limited Partner's capital
contribu tion. Except as otherwise provided in this Agreement, no Limited
Partner shall have priority over any other Limited Partner either as to the
return of such Limited Partner's capital contribution or as to distributions.
SECTION 5.2 Additional Contributions. In addition to the capital
------------------------
contributions referred to in Section 5.1 above, if the General Partner
determines in the reasonable exercise of its discretion that additional capital
is necessary or desirable for the business of the Partnership, it may request
all the Partners to contribute such additional capital by written notice sent to
all such Partners. All such additional capital contributions shall be
contributed by the General Partner and the Limited Partners based upon their
relative Percentage Interests. Such additional capital contributions shall be
payable to the Partnership in full within forty-five (45) days after each
Partner receives written notice of said capital call.
A. If a Partner fails to make its additional capital contribution within
forty-five (45) days after receipt of the written notice of the capital call
from the General Partner, the General Partner shall diligently pursue a
financing (the "Institutional Loan") from a reputable financial institution and
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exhaust all sources that the Partners or their Affiliates have relationships
with or have borrowed money from and any other source that the General Partner
may deem appropriate. If the Partnership is able to consummate the
Institutional Loan within ninety (90) days after the date of the capital call,
the Partnership shall return all additional capital contributions tendered by
Partners pursuant to the capital call made by the General Partner pursuant to
this Section 5.2 within ten (10) days after the date of closing of the
Institutional Loan.
B. If a Partner fails to make its additional capital contribution within
forty-five (45) days after receipt of the written notice of the capital call
from the General Partner, and the Partnership is unable to close upon an
Institutional Loan within ninety (90) days after the date of the capital call,
all capital contributions made by any or all of the other Partners (the "Lending
Partners") with respect to such capital call, shall be deemed to be loans to the
Partnership (the "Contribution Loans"). Such Contribution Loans, together with
all interest due thereon, shall be repaid in full to the Lending Partners (pro
rata based upon the relative amounts of the Contribution Loans made by the
Lending Partners) within ten (10) days after demand is made provided that the
Lending Partners may not make a demand prior to the expiration of one hundred
eighty (180) days after the date such Contribution Loans were deemed to have
been made.
The Contribution Loans shall bear interest at the lower of: (i) the Base
Rate announced publicly by Citibank, N.A., New York, New York (or another
comparable national banking institution selected by the General Partner) to its
most preferred customers determined as of the date such Contribution Loan was
made, plus five percent (5%) per annum; or (ii) the highest rate permitted by
applicable law. Said Contribution Loans, together with all interest accrued
thereon, may be repaid at any time by the Partnership (but all repayments shall
be made to all the Lending Partners pro rata based upon the relative amounts of
the Contribution Loans made by the Lending Partners), but said Contribution
Loans shall in any event be repaid in full, together with all interest accrued
thereon, upon termination of the Partnership.
At the request of any Lending Partner, the Partnership shall execute and
deliver to any requesting Lending Partner a promissory note evidencing the
related Contribution Loan, which promissory note shall be in form and substance
reasonably acceptable to the General Partner.
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No distributions shall be made to any of the Partners during any period
that any Contribution Loan (including all accrued interest and other charges
related thereto, if any) remains unpaid and outstanding, in whole or in part,
without the express written consent of all Lending Partners whose Contribution
Loans (including all accrued interest and other charges related thereto, if any)
remain unpaid and outstanding as of the date such distribution is to be made.
C. In the event that all of the Partners have not made their additional
capital contributions within forty-five (45) days after receipt of the written
notice of the capital call from the General Partner, and the Partnership is
unable to consummate the Institutional Loan within ninety (90) days after the
date of the capital call, then notwithstanding any other provision in this
Agreement to the contrary, the General Partner may, in its sole discretion
without the consent of any other Partner, thereafter offer and sell interests in
the Partnership to any other Person which is not an Affiliate of any Partner and
not a Non-Qualified Person (the "Third Party Contributor") for a price, payable
in immediately available funds to the Partnership, equal to the aggregate amount
of the uncollected contributions requested in the capital call. All other terms
of the sale of such Partnership interest, including without limitation, the size
of the Percentage Interest to be acquired by the Third Party Contributor, shall
be determined by the General Partner in its sole and absolute discretion. In
such event, the Percentage Interests of all then existing Partners shall be
diluted by the issuance of the new interest in the Partnership to the Third
Party Contributor, pro rata in accordance with the relative Percentage Interests
of all of the Partners immediately prior to the admission of the Third Party
Contributor. If a Third Party Contributor acquires an interest in the
Partnership hereunder, the General Partner is authorized to admit such Third
Party Contributor as an additional Partner of the Partnership provided that such
Third Party Contributor executes a joinder agreement in such form as may be
acceptable to the General Partner and its counsel evidencing the agreement of
the Third Party Contributor to be bound by all the terms and conditions of this
Agreement, as amended through the date of the contribution.
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ARTICLE VI
----------
CAPITAL ACCOUNTS
----------------
SECTION 6.1 Capital Accounts. An individual Capital Account shall be
----------------
determined and maintained for each Partner as provided below.
SECTION 6.2 Capital Account of Assignee Partners; Code (S)708(b)
----------------------------------------------------
Termination. Upon the transfer of all or part of an interest in the
- -----------
Partnership, the Capital Account of the transferor Partner that is attributable
to the transferred interest shall be carried over to the transferee. If the
transfer of an interest in the Partnership causes a termination of the
Partnership under Code (S)708(b)(1)(B), the capital account that carries over to
the transferee will be adjusted in accordance with Reg. (S)1.704-1(b)(2)(iv)(e),
and the constructive reformation of the Partner ship, will, for purposes of
Section 6.1 above, be treated as the formation of a new Partnership and the
Capital Account of the transferee and of the remaining Partners will be
determined and maintained accordingly.
SECTION 6.3 Adjustment to Capital Accounts/Revaluation of Partnership
--------------------------------------------- -----------
Property. If (1) a new or existing Partner contributes money or other property
- --------
(other than a de minimis amount) to the Partnership as consideration for the
----------
receipt of an interest in the Partnership greater than the Partnership interest
owned prior to such contribution, or (2) there is a distribution of money or
other property (other than a de minimis amount) by the Partnership to a retiring
-- -------
or continuing Partner as consideration for the relinquishment of some or all of
such Partner's interest in the Partnership, or (3) upon the Liquidation of the
Partnership at the election of the General Partner, the values of the
Partnership's properties on its books ("book values") shall be adjusted to
reflect their fair market value [taking into consideration Code (S)7701(g)] as
of the date of the distribution, contribution or Liquidation of the Partnership,
as the case may be; and, in such event, the Capital Accounts of the Partners
shall be adjusted to reflect the manner in which the unrealized income, gain,
loss or deduction inherent in the Partnership's property (to the extent not
reflected in the Partners' Capital Accounts) would be allocated among all the
Partners under the terms of this Agreement, assuming that there was a fully
taxable disposition of such property immediately preceding such contribution of
money or other property to the Partnership, or immediately preceding the
distribution of money or other property by the Partnership, or upon the date of
the
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Liquidation of the Partnership, as the case may be, for such properties' fair
market values as of such time. For purposes hereof, the fair market value of any
Partnership property shall be determined by unanimous agreement of the Partners
whose Capital Accounts are to be affected.
SECTION 6.4 Distributions of Property In-Kind. To the extent that the
---------------------------------
unrealized income, gain, loss and deduction inherent in property distributed (or
deemed distributed) in kind (whether or not distributed in liquidation) has not
previously been reflected in the Partners' Capital Accounts, the Capital
Accounts of the Partners shall be adjusted to reflect the manner in which the
unrealized income, gain, loss and deduction inherent in such property (that has
not been reflected previously in the Capital Accounts) would have been allocated
among the Partners under this Agreement if there were a taxable disposition of
such property for its fair market value on the date of its actual (or deemed)
distribution [taking into account Code (S)7701(g)]. For purposes hereof, the
fair market value of any Partnership property shall be determined by unanimous
agreement of the General Partner.
ARTICLE VII
-----------
RIGHTS, POWERS AND DUTIES OF THE PARTNERS
-----------------------------------------
SECTION 7.1 Management of the Partnership Business. The General
--------------------------------------
Partner shall have the sole and exclusive right to manage the business of the
Partnership.
SECTION 7.2 Powers of the General Partner. Except as otherwise
-----------------------------
provided by the Partnership Law, the General Partner shall have and enjoy all of
the rights and powers of a partner in a partnership without limited partners.
Without limiting the foregoing, to the extent consistent with the authorized
business of the Partnership as described in Section 2.1 above, but subject to
Sections 7.3 and 7.4 below and any agreement to which the Partnership is a
party, in addition to other matters (including other matters with respect to
which the General Partner is granted authority or control under this Agreement
and such other powers as are now or hereafter granted to a general partner of a
limited partnership under applicable law, including, without limitation, the
Partnership Law), the General Partner shall have the full and exclusive power on
behalf of the Partnership, and at the sole expense of the Partnership, to:
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A. Sell, transfer, assign, convey, manage, dedicate, declare or otherwise
dispose of or deal with all or any part of the Partnership's business,
assets or property, whether or not in the ordinary course of business,
on such terms as the General Partner may negotiate at arms length;
provided, however, that any sale of the Partnership's interest in the
Developer shall be subject to the terms and conditions of the Amended
and Restated Joint Venture Agreement of the Developer and Article XII
of this Agreement to the extent applicable;
B. Acquire interests in personal property, directly or indi rectly,
whether by purchase or lease, in connection with the business of the
Partnership;
C. Borrow money from banks, financial institutions or any other person,
arrange financing or refinancing or arrange modifications of existing
debts, including indebtedness described in the Transaction Documents,
issue notes or other evidences of indebtedness of the Partnership and
secure the same by mortgage, deed of trust, pledge or other lien, in
furtherance of the Partnership's purposes and business in a reasonable
prudent manner;
D. Negotiate (or cause the Developer to negotiate) and execute, deliver
and enforce, and if applicable, file or record (directly or indirectly
through a designated representative), on behalf of the Partnership,
such documents, agreements and instruments, including, but not limited
to, any and all documents, agreements and instruments required to be
executed by the Partnership in connection with its purchase of assets
under the Purchase Documents and/or otherwise customarily employed or
entered into in the timeshare business or any phase thereof as the
General Partner may deem necessary or desirable for the Partnership's
business, and/or the proper management of Partnership affairs,
including the execution, filing or recording of any and all deeds,
contracts and other instruments relating to the timeshare business
(including financing transactions with respect thereto);
E. Perform, or cause to be performed, all of the Partner ship's
obligations under any agreement to which the Partnership or any
nominee of the Partnership is a party, except in the event that the
General Partner determines,
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in good faith, that such performance is not in the best interests of
the Partnership or its Partners;
F. Bring, defend, settle or compromise, or cause the Partnership's
employees or agents to do so, all actions at law or in equity, or
before any governmental entity involving the Partnership, its business
or its assets or properties, and to satisfy any judgment, decree,
decision or settlement in connection therewith, without limitation;
G. Employ and/or contract for, on such terms and conditions as the
General Partner shall determine in its sole discretion, sales,
maintenance, managerial, adminis trative or secretarial personnel
(which such persons may include the General Partner or affiliates
thereof) and such other persons, including attorneys, accountants,
architects, consultants, brokers necessary or appropriate to assist
the General Partner, or otherwise necessary or appropriate for the
operation (and/or sale) of the business of the Partnership, and/or the
maintenance, management and/or sale of any Partnership property, and
to grant such person or persons such authority as may be necessary or
desirable;
H. Subject to the limitations of Section 4.5 above, open, maintain,
operate, control and close bank accounts in the name of the
Partnership, deposit Partnership funds into such account(s), invest
Partnership funds on behalf of the Partnership, authorize employees,
agents or representatives of the Partnership to sign checks and drafts
on such accounts, and to make such investments on behalf of the
Partnership, as the General Partner shall determine in its sole
discretion;
I. Determine the timing and amount of distributions by the Partnership to
the Partners, subject to the terms of this Agreement and any other
agreement to which the Partnership is a party or is otherwise bound;
J. Cause the Developer to be duly registered and licensed as a timeshare
developer in each jurisdiction in which such registration and/or
licensure is required, and/or otherwise to be duly registered and
licensed so that the Partnership may lawfully carry on any of its
authorized business activities, and otherwise to obtain, on behalf
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of the Partnership, all necessary approvals from all governmental and
quasi-governmental authorities in connection with the operation of the
Partnership's time-share business activities;
K. Purchase such policy or policies of liability, casualty and other
insurance (including, but not limited to, directors and officers
liability insurance or its equivalent) which are necessary, advisable,
appropriate or convenient for the protection of any Partnership
property or business, or for any purpose convenient or beneficial to
the Partnership, as determined in the sole discretion of the General
Partner;
L. Arrange for the preparation and timely filing (subject to available
extensions) of all federal, state or local income tax returns required
to be filed by or on behalf of the Partnership, and in connection
therewith, to make such elections under the tax laws as may be
available to the Partnership with respect to the treatment of any item
of Partnership income, gain, loss, deduction and credit;
M. Arrange for the preparation of annual financial statements for the
Partnership from such national or regional accounting firm as the
General Partner shall determine in its sole discretion;
N. Expend the capital, revenues, income and other cash of the Partnership
in furtherance of the Partnership's business in such amounts, at such
times and for such purposes as the General Partner shall determine in
its sole discretion, such authority including (i) the right to pay or
arrange for the payment of all taxes imposed on the Partnership or on
the Partnership's assets or properties when due (provided that the
General Partner shall have the authority to take all actions provided
by law to contest the imposition or amount of any such taxes), (ii)
the right to pay or cause to be paid all expenses of the Partnership
in the ordinary course of business, and (iii) the right to pay or
cause to be paid all charges, fees or compensation to any person or
firm (including affiliates of the Partners) for property (tangible or
intangible) furnished or services rendered to or on behalf of the
Partnership;
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O. Establish such reserves for working capital, insurance premiums, debt
repayments, improvements, repairs, replacements, renewals and such
other items required to be paid in connection with the business of the
Partner ship, and/or to otherwise provide for such contingencies as
the General Partner may determine in its sole discretion as may be
deemed necessary for the proper conduct of the Partnership;
P. Take such actions as the General Partner deems necessary or advisable
in order to comply with the laws of the United States and all other
jurisdictions to which the Partnership or its business or assets are
subject;
Q. Exercise, on behalf of the Partnership, any and all rights, options
and elections, if any, granted the Partnership pursuant to the terms
of this Agreement or any other agreement or arrangement to which the
Partnership is a party;
R. Solicit and accept additional contributions, and admit Persons who
make such contributions as additional limited partners (if not already
admitted as such) in accordance with Section 5.2 above.
S. Grant or acquire easements, rights of way or similar rights for the
benefit of the Property and the Partnership and lease or acquire land
adjacent to the Property for ancillary uses by the Partnership.
T. Perform such other normal and routine business functions, and
otherwise operate and manage the day-today affairs of the Partnership,
in furtherance of the business of the Partnership, as the General
Partner shall determine; and
U. Do any act that is necessary and incidental to carrying out the
foregoing or to perform any of the duties or exercise any discretion
assigned or delegated to it under this Agreement.
Any person dealing with the Partnership or its property shall be entitled
to rely fully upon any deed, mortgage, bill of sale, contract, lease, sublease,
note or other written instrument signed by the General Partner or its duly
authorized representatives in the name of and/or on behalf of the Partnership.
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SECTION 7.3 Limitations Upon Authority of General Partner. Notwithstanding
---------------------------------------------
anything in Section 7.2 above to the contrary, the General Partner shall not
take any of the following actions (or enter into a contract on behalf of the
Partnership requiring the Partnership to take any of such actions unless such
contract is made subject to the provisions hereof) without obtaining the consent
of all of the Limited Partners:
A. Cause the Partnership to file a voluntary petition in Bankruptcy, or
make a voluntary assignment of the Partnership's assets for the
benefit of its creditors, or otherwise take any voluntary action which
will directly result in an adjudication of Bankruptcy of the
Partnership;
B. Loan funds of the Partnership to any Person other than purchase money
----------
debt derived from the sale of Partnership properties, loans to
condominium associations relating to the Units, and temporary advances
made in the ordinary course of conduct of the Partnership's business.
C. Acquire any real property or interests therein, directly or
indirectly, whether by purchase or lease (other than in the ordinary
course of business or as expressly authorized in Section 7.2(S)),
develop or cause to be developed any such property, or enter into
joint ventures, general partnerships or limited partnerships in
connection therewith.
D. Guarantee the indebtedness of, or loan funds to, any Affiliate of the
General Partner.
SECTION 7.4 Limited Partners. Except in the case of a General Partner who
----------------
acquires a limited partnership interest, no Limited Partner shall participate
in, or have any control over, the management of the Partnership's business
(including the sale of any Partnership asset), nor transact any business for the
Partnership. No Limited Partner shall have the power to sign for or bind the
Partnership.
SECTION 7.5 Transactions with Affiliates. The General Partner may, on
----------------------------
behalf of the Partnership or otherwise, employ a Partner or a Person related to
or affiliated with a Partner to render or perform a service, may contract to buy
or lease property from a Partner or such affiliated Person, may enter into a
general partnership, limited partnership, joint venture, or other
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<PAGE>
association, and may otherwise deal with such Partner or such affiliated Person.
If the General Partner, on behalf of the Partnership, employs, leases or buys
property from a Partner or Persons, firms, or corporations affiliated with the
General Partner or any Limited Partner, or if the Partnership sells any property
to any such Person, then (i) the compensation paid for services rendered and/or
payments made for materials or property leased or sold by such Partner, Persons,
firms, or corporations, or the price and terms of any such sale by the
Partnership to such Person, as the case may be, must be on arms length terms and
conditions and must not be materially more favorable than those which would be
charged or imposed on those not so related, and (ii) any such transactions shall
be reported to the Limited Partners at least annually (at the time of providing
the Limited Partners with copies of the Partnership's annual financial
statements). Notwithstanding the foregoing, the General Partner may cause the
Developer to enter into all of the Transaction Documents, with Affiliates of the
Partners, without any further act or consent of the Partners.
SECTION 7.6 Liability of General Partner; Indemnification. The General
---------------------------------------------
Partner shall not be liable to the Limited Partners because any taxing
authorities disallow or adjust any deductions or credits in the Partnership
income tax returns nor shall the General Partner have any personal liability for
the repayment of capital contributions of the Limited Partners except as
otherwise provided in this Agreement. In addition, the doing of any act or the
omission to do any act by the General Partner, the effect of which may cause or
result in loss or damage to the Partnership, if done in good faith and in
accordance with the terms of this Agreement, shall not subject the General
Partner or its successors and assigns to any liability. The Partnership, in
addition to the indemnifi cation provided for in Section 14.5 below, will
indemnify and hold harmless the General Partner and its successors and assigns
and its (or their) partners, shareholders, directors, officers, employees and
agents from any claim, loss, expense, liability, action or damage resulting from
any such act or omission, including, without limitation, reasonable costs and
expenses of litigation and appeal (including reasonable fees and expenses of
attorneys engaged by the General Partner or such parties in defense of such act
or omission). However, the General Partner and such parties shall not be
entitled to be indemnified or held harmless from any claim, loss, expense,
liability, action or damage due to, or arising from, its (or their) fraud, gross
negligence or its (or their) willful failure to comply with any representation,
warranty, covenant, condition or other agreement of the General Partner herein
contained.
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SECTION 7.7 Liability of Limited Partners. No Limited Partner, as such,
-----------------------------
shall be personally liable for the debts, liabilities or other obligations of
the Partnership, except that the capital contributions of the Limited Partners,
the Limited Partners' undistributed share of Partnership profits, and any
amounts referenced in Section 10.3 below shall be available for the debts,
liabilities or other obligations of the Partnership; provided, however, that
such liability shall be enforceable only by the Partnership and the Partners and
not by any creditor of the Partnership except as expressly provided in Section
620.136 of the Partnership Law.
ARTICLE VIII
------------
REIMBURSEMENT OF EXPENSES
-------------------------
SECTION 8.1 Reimbursement of General Partner's Expenses. The Partnership
--------------------------------------------
shall reimburse the General Partner (or its Affiliates) and the Limited Partners
(or their Affiliates) for all reasonable costs and expenses paid or incurred by
such parties in connection with the creation of the Partnership, the sale of
limited partnership interests, the acquisition of the partnership interest in
the Developer to be acquired by the Partnership pursuant to the Purchase
Documents, and shall reimburse the General Partner for all reasonable costs and
expenses paid or incurred by it (or its Affiliates) in connection with the
ownership, operation, development, marketing and sale of the assets and business
of the Partnership, the financing of the Partnership's business transactions,
and/or the administration of the affairs of the Partnership.
SECTION 8.2. Payment. Any reimbursement required by this Section 8.1
-------
shall be paid from the first Available Cash of the Partnership (as determined in
the sole discretion of the General Partner, but subject to the terms of any
agreement to which the Partnership is a party), without interest, if paid within
thirty (30) days of written demand therefor to the Partnership, or if not so
paid, with interest at the rate specified in Section 5.3 above, from the date
any such expense or capital expenditure was paid by the General Partner (or its
Affiliates) or the Limited Partners (or their Affiliates).
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ARTICLE IX
----------
ALLOCATIONS
-----------
SECTION 9.1 Profits and Losses. Except as otherwise provided in Section
------------------
9.2 below, the Profits and Losses of the Partnership for each taxable year
shall be allocated among the Partners as follows:
A. Profits shall be allocated as follows:
1. First, to each Partner until each Partner has been allocated an
aggregate amount of Profits pursuant to this Section 9.1.A since the inception
of the Partnership equal to the aggregate Losses allocated to each such Partner
since the inception of the Partnership pursuant to Section 9.1.B.3 below;
2. Then, to each Partner until each Partner has been allocated an
aggregate amount of Profits pursuant to this Section 9.1.A.2 since the inception
of the Partnership equal to the aggregate Losses allocated to each such Partner
since the inception of the Partnership pursuant to Section 9.1.B.2 below; and
3. The balance, if any, shall be allocated among the Partners in
proportion to their relative Percentage Interests.
B. Losses shall be allocated as follows:
1. First, to each Partner, until each Partner has been allocated an
aggregate amount of Losses pursuant to this Section 9.1.B.1. since the inception
of the Partnership equal to the aggregate Profits allocated to each such Partner
since the inception of the Partnership pursuant to Section 9.1.A.3 above;
2. Then, an amount of Losses equal to the aggregate positive balance
in the capital accounts of the Partners having a positive capital account
balance, to each such Partner having a positive capital account balance (as
determined at the end of the Partnership taxable year to which the Losses to be
allocated relate, after giving effect to the allocation of Losses for such
taxable year pursuant to Section 9.1.B.1. above), in proportion to such positive
capital account balances so as to reduce each such positive capital account
balance to zero; and
3. The balance, if any, shall be allocated to the Partners in
proportion to their relative Percentage Interests.
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C. For all purposes of this Agreement, except as otherwise required by
Code (S)706(d) including the determination of the allocable share of the Profits
and Losses (or items thereof) of a Partner who acquires or disposes of its
interest in the Partnership during any Partnership taxable year, Profits or
Losses (or items thereof) of the Partnership for any taxable year shall be
allocated to the periods of such taxable year on such method or methods as
permitted by Code (S)706 as determined by the General Partner in its sole
discretion.
For purposes of computing the amount of Profits or Losses to allocate to a
Partner under Subsection 9.1.A. and/or 9.1.B. above, to the extent such
determination relates back to the inception of the Partnership, such
determination shall be based upon the assumptions and provisions set forth in
Section 15.11 below (relating to allocations made to a predecessor-in-interest).
SECTION 9.2 Special Allocations. Notwithstanding the provisions of Section
-------------------
9.1 hereof to the contrary, the following special rules shall apply:
A. No allocation shall be made to any Limited Partner to the extent that
any such allocation would create or enlarge an Adjusted Capital Account Deficit
in any such Limited Partner's capital account, as determined as of the end of
any taxable year of the Partnership. Any items which would be allocated to a
Limited Partner but for the preceding sentence shall be allocated to the General
Partner.
B. If any Limited Partner unexpectedly receives any adjustments,
allocations or distributions described in Reg. (S)1.704-1(b)(2)(ii)(d)(4), (5)
or (6), then items of Partnership income and gain (comprising the Profits or
Losses of the Partnership) shall be specially allocated to each such Limited
Partner in an amount sufficient to eliminate, to the extent required by the
Regulations, such Limited Partner's Adjusted Capital Account Deficit, if any, as
quickly as possible; provided, that the allocations to be made pursuant to this
Subsection 9.2.B shall be made only if and to the extent that any such Limited
Partner, unexpectedly receiving any such adjustment, allocation or distribution,
would have an Adjusted Capital Account Deficit after all other allocations
provided for in this Agreement have been tentatively made, as if this Subsection
9.2.B were not in the Agreement.
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<PAGE>
C. 1. Except as provided in Subsection 9.2.C.2 below, notwithstanding
any other provision contained herein to the contrary, if in any Partnership
taxable year, beginning on or after the effective date of this Agreement, there
is a net decrease in the Partnership "minimum gain" [as such term is defined in
Reg. (S)1.704-2(d)], prior to allocating Profits or Losses (or items thereof)
for such taxable year and, if necessary, for subsequent years, under any other
provision of this Agreement, each Partner shall be allocated items of income and
gain (comprising the Partnership's Profits or Losses) for such taxable year and,
if necessary, for subsequent taxable years in proportion to and to the extent of
each Partner's share of the net decrease in the Partnership's minimum gain
during such Partnership taxable year. The items of income and gain to be so
allocated shall be determined in accordance with Reg. (S)1.704-2(f). This
Subsection 9.2.C.1 is intended to comply with the minimum gain chargeback
requirements of Reg. (S)1.704-2(f), and shall be interpreted in a manner
consistent therewith.
2. Notwithstanding Subsection 9.2.C.1 above, the provisions of
Subsection 9.2.C.1 above shall not apply to a Partner or Partners otherwise
subject thereto if:
(i) such Partner's share of the net decrease in Partner ship minimum
gain is caused by a guaranty, refinancing or other change in the debt
instrument causing it to become partially or wholly recourse debt or
partner nonrecourse debt, and such Partner bears the economic risk of loss
(within the meaning of Reg. (S)1.752-2) for the newly guaranteed,
refinanced or otherwise changed liability;
(ii) such Partner contributes capital to the Partnership that is used
to repay the nonrecourse liability (in whole or in part), and the Partner's
share of the net decrease in Partnership minimum gain results from such
repayment;
(iii) compliance with Subsection 9.2.C.1 above (after consideration
and tentative application of Subsection 9.2.D below) causes (or is
reasonably expected to cause) there to be a distortion in the economic
arrangement among the Partners, considering the Partners, previous
contributions to the Partnership and any Partner's contribution obligations
pursuant to Section 13.3 below, the Profits (or items of income or gain)
previously allocated to the Partners under this Agreement and, in light of
the distribution provisions of Section 13.2 below, the availability and
sufficiency of
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additional Partnership Profits to offset the distortion which may otherwise
be created by such minimum gain chargebacks; or
(iv) The application thereof otherwise arises from a situation or
circumstance exempted from the application thereof pursuant to any revenue
ruling, regulation, amendment or otherwise.
The determination of whether and to what extent the allocations otherwise
required to be made pursuant to Subsection 9.2.C.1 should be made, based upon
the criteria set forth above, shall be made in the reasonable discretion of the
General Partner after consultation with the Partnership's tax advisers.
For purposes of determining whether compliance with the minimum gain
chargeback rules set forth in Subsection 9.2.C.1 above would distort the
economic arrangement of the Partners, the Partners acknowledge and agree that
the economic arrangement of the Partners is manifested in Section 10.1 below.
Section 10.1 hereof describes the economic arrangement among the Partners, both
as to the priority of distributions to be made by the Partnership to each of the
Partners and the amounts and/or relative amounts to be distributed to each of
the Partners at the separate priority levels.
3. Rules similar to those set forth in Subsection 9.3.C.2 above
shall apply with respect to determining whether and to what extent allocations
otherwise required to be made to any Partner under applicable regulations with
respect to any net decrease in a "partner nonrecourse debt" (as such term is
defined for purposes of Reg. (S)1.704-2) should be made.
D. 1. "Partner nonrecourse deductions" [within the meaning of Reg. S
1.704-2(i)] shall be allocated as prescribed in Reg. (S)1.704-2(i).
2. Subject to Subsection 9.2.C.2. above, if in any Partnership
taxable year there is a net decrease in "partner nonrecourse debt minimum gain"
(as such term is defined in Reg. (S)1.704.2), prior to allocating Profits or
Losses (or items thereof) of the Partnership for such taxable year (and, if
necessary, for subsequent taxable years), other than the allocations made
pursuant to Subsection 9.2.C.1. above, each Partner with a share of the partner
nonrecourse debt minimum gain (as determined under Reg. (S)1.704-2(i)(5) as the
beginning of such taxable year) shall be allocated items of income and gain
(comprising the Profits or
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Losses for such taxable year and, if necessary, for subsequent taxable years) in
proportion to, and to the extent of, such Partner's share of the net decrease in
such partner nonrecourse minimum gain. The items of income and gain to be
allocated shall be determined in accordance with Reg. (S)1.704-2. This
Subsection 9.2.D.2. is intended to comply with the partner minimum gain
chargeback requirements of Reg. (S)1.704-2(i)(4), and shall be interpreted
consistently therewith.
3. Rules similar to those set forth in Subsection 9.2.C.2. above
shall apply with respect to determining whether and to what extent allocations
otherwise required to be made to any Partner under applicable Treasury
Regulations with respect to any net decrease in "partner nonrecourse debt
minimum gain" (as such term is defined for purposes of Reg. (S)1.704-2) shall be
made.
E. All "nonrecourse deductions" (as defined in Reg. (S)1.704-2(c)) shall
be allocated among the Partners in accordance with their relative Percentage
Interests.
SECTION 9.3 Allocations of Certain Tax Items.
--------------------------------
A. If property which is contributed to the Partnership is subject to the
provisions of Code (S)704(c), the Partners' distributive shares of income, gain,
loss and deductions, as computed for tax purposes, with respect to such property
(and, to the extent permitted by the Regulations, with respect to other
Partnership property) shall be determined in accordance with Code (S)704(c) by
utilizing such reasonable methods selected by the General Partner as shall be
consistent with Code (S)704(c) and the Regulations promulgated thereunder,
taking into account the Partners' distributive shares of the corresponding book
items with respect to such property, as determined under this Article IX, Code
(S)704(b) and Reg. (S)1.704-1(b)(1)(vi).
B. If Code (S)704(c) is not applicable, depreciation, amortization and
gain or loss, as computed for tax purposes, with respect to Partnership property
which is revalued on the books of the Partnership in accordance with Reg.
(S)1.704-1(b)(2)(iv)(f) and which has a book value greater or lesser than its
adjusted tax basis (and, to the extent permitted by the Regulations, with
respect to other Partnership property) shall be allocated among the Partners in
a manner that takes into account the variations between the adjusted income tax
basis and the book value of such property in the accordance with Code (S)704(c)
principles, utilizing such
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reasonable method as determined by the General Partner, and shall be consistent
with Code (S)704(c) and the Regulations.
SECTION 9.4 Apportionment of Allocations. In every Partnership taxable
----------------------------
year in which the Percentage Interest of any one Partner varies, whether due to
entry into the Partnership after the first day of the Partnership's taxable year
or otherwise, Profits or Losses (or items thereof) which are to be allocated to
the Partners in proportion to their Percentage Interests shall be apportioned
among the Partners in accordance with each Partner's varying Percentage Interest
in the manner required by Code (S)706(d) (even if Code (S)706(d) is not
otherwise applicable).
In the event there are insufficient Profits or Losses to fully satisfy all
allocations required to be made to all Partners at any priority level set forth
in Sections 9.1 or 9.2 above, the available Profits and Losses (or items
thereof) to be allocated at such priority level shall be allocated among all
Partners entitled to allocations at such priority level based on the relative
amounts of Profits or Losses (or items thereof) to be allocated to each of the
Partners at such priority level (which, for this purpose, shall be determined by
assuming that there were sufficient Profits or Losses, or items thereof, to
fully satisfy the allocations at such priority level).
ARTICLE X
---------
DISTRIBUTIONS
-------------
SECTION 10.1 Distributions of Available Cash. Except as otherwise provided
-------------------------------
in this Article X, Available Cash for each fiscal year of the Partnership, if
any, shall be distributed as follows:
A. First, all Available Cash up to, but not exceeding, an amount equal to
the Tax Distribution for such taxable year shall be apportioned among, and
distributed to, the Partners in the same proportions as the aggregate net
taxable income of the Partnership for such fiscal year was allocated to the
Partners pursuant to Article IX above. Distributions of Available Cash at this
priority level shall be made either during the applicable fiscal year or at any
time thereafter, but the General Partner shall endeavor to make such
distributions to the Partners in sufficient time to allow the Partners to pay
their federal, state and city income taxes on their allocable share of the
Partnership's net taxable income for such
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fiscal year. Notwithstanding the foregoing, the Partnership shall not make Tax
Distributions to Noble and Kidd (or their successors or permitted assigns) to
cover any tax liability of Noble or Kidd due to the inherent gain existing as of
the date hereof resulting from the debt on the Property exceeding Noble's or
Kidd's basis therein, resulting in a negative capital account.
B. Next, to the repayment of any Contribution Loans in accordance with
Section 5.2.
C. Then, any remaining Available Cash shall be distributed among the
Partners in such a manner as to bring the positive (i.e., credit) balances in
the Partners' Capital Accounts into the same proportions as the Percentage
Interests (determined as of the last day of such fiscal year and after all
allocations of Profits and Losses under Article IX for such fiscal year have
been properly reflected in the Partners' Capital Accounts and after adjustments
have been made to such Capital Accounts for any distributions made under
Subsection 10.1.A. above).
D. Thereafter, the balance (if any) of Available Cash shall be
distributed to the Partners in accordance with their relative Percentage
Interests.
SECTION 10.2 Liquidation Distributions. Following the earlier of the
-------------------------
dissolution of the Partnership, as provided in Section 13.1 below, or the
Liquidation of the Partnership, distributions shall be made in the manner set
forth in Section 13.2 below.
SECTION 10.3 Return of Capital Contributions/Limitations on
----------------------------------------------
Distribution/Liability for Repayment. Notwithstanding anything herein to the
- ------------------------------------
contrary, no Partner shall receive a return of such Partner's capital
contributions or receive any other distribution from the Partnership (other than
Tax Distributions) until all liabilities of the Partnership, (including
liabilities to the Partners for loans made to the Partnership, but excluding
liabilities to the Partners on account of their capital contributions), have
been paid or there remains sufficient property (based on the fair market value
of remaining assets) of the Partnership to pay them. If a Partner (including
former Partners) or an assignee of a Partner receives the return of any part of
such Partner's capital contributions or any other distribution in violation of
this Agreement or Partnership Law, such Partner shall be liable to the
Partnership for a period of six (6) years following such wrongful distribution
for the amount of such wrongful distribution. If a Partner (including former
Partners)
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receives the return in whole or in part of such Partner's capital contribution
in a distribution not violating the terms of this Agreement or Partnership Law,
such Partner shall be liable to the Partnership for a sum equal to such returned
contribution for a period of one (1) year following such return, but only to the
extent necessary to discharge the Partnership's liabilities to creditors who
extended credit to the Partnership during the period the contribution was held
by the Partnership. Any Partner so liable shall repay such amount within thirty
(30) days after the General Partner shall have delivered to such Partner a
written notice regarding such repayment. Failure of any Limited Partner or
former Limited Partner (or assignee) to make repayment required under this
Section 10.3 shall subject such defaulting person to payment of interest at the
highest legal rate on the amount due from such person from the date of the
delivery of notice requiring such repayment until (but not including) the date
of such repayment, plus all costs and expenses of collection, including
reasonable attorneys' fees.
ARTICLE XI
----------
INVESTMENT; LIMITED PARTNER REPRESENTATIONS;
--------------------------------------------
UNREGISTERED SECURITIES
-----------------------
THE LIMITED PARTNERSHIP INTERESTS HAVE NOT BEEN REGISTERED, QUALIFIED,
APPROVED OR DISAPPROVED UNDER ANY FEDERAL OR STATE SECURITIES LAW, INCLUDING THE
SECURITIES ACT OF 1933 AND THE FLORIDA SECURITIES AND INVESTOR PROTECTION ACT,
AND HAVE BEEN SOLD IN RELIANCE ON EXEMPTIONS FROM REGISTRATION AFFORDED BY
APPLICABLE FEDERAL AND STATE SECURITIES LAWS, INCLUDING, BUT NOT LIMITED TO, THE
SECURITIES ACT OF 1933 AND THE FLORIDA SECURITIES AND INVESTOR PROTECTION ACT.
SUBJECT TO THE OTHER LIMITATIONS CONTAINED IN THIS AGREEMENT, THE LIMITED
PARTNERSHIP INTERESTS MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE OFFER AND SALE OF SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, THE
FLORIDA SECURITIES AND INVESTOR PROTECTION ACT, AND/OR THE APPLICABLE SECURITIES
ACT(S) OF ANY OTHER STATE, UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE
UNDER ALL APPLICABLE FEDERAL AND STATE SECURITIES LAWS, AND (UNLESS WAIVED BY
THE GENERAL PARTNER), THE TRANSFERRING LIMITED PARTNER FIRST PROVIDES THE
GENERAL PARTNER WITH AN OPINION OF COUNSEL, SATISFACTORY TO THE GENERAL PARTNER,
TO SUCH EFFECT.
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<PAGE>
Each Limited Partner hereby represents and warrants to the Partnership and to
the General Partner that such Limited Partner has acquired such Limited
Partner's limited partnership interests for investment purposes only. In
addition to any other condition imposed by this Agreement, each Limited Partner
acknowledges and understands the above legends and agrees to accept and abide by
the above referenced restriction(s) on the transferability of such Limited
Partner's limited partnership interests.
ARTICLE XII
-----------
CHANGES IN PARTNER;
-------------------
TRANSFERABILITY OF PARTNERSHIP INTERESTS
----------------------------------------
SECTION 12.1 Permitted Transfers by General Partner. The General Partner
--------------------------------------
may not, without the prior written consent of Limited Partners holding a
majority in interest of the Percentage Interests of all Limited Partners,
retire, withdraw or remove itself from the Partnership, or sell, transfer,
assign, pledge or convey all or any portion of its interest in the Partnership
as a General Partner, to any Person, whether or not such person is a Non-
Qualified Person, and upon any such transfer, the transferee shall automatically
be admitted as a successor general partner and shall succeed to all of the
rights, duties and interests of the former General Partner in the Partnership.
SECTION 12.2 Restrictions on Limited Partners. Except as otherwise
--------------------------------
provided in Section 12.4 below, no Limited Partner shall have the right to
withdraw from the Partnership prior to the dissolution and winding up of the
Partnership, and, in the event of a dissolution, only in accordance with
Sections 13.2 and 13.3 below. Except as expressly provided in Sections 5.2 and
12.4, a Limited Partner may not Assign all or any portion of such Limited
Partner's interest in the Partnership (as a limited partner). If a Limited
Partner is a corporation, trust, or other entity and is dissolved or terminated,
the powers of such dissolved Limited Partner may be exercised by its legal
representative or its successor. Any Assignment of any of the voting interests
of a Limited Partner that is an entity (i.e., is not an individual) shall be
treated as an Assignment of the interest in the Partnership owned by such entity
if, as a result thereof, the Persons who hold a majority of the voting interests
in such entity as of the date of this Agreement (or if such entity was admitted
as a Partner after the inception of the Partnership, as of the date such entity
was admitted as a Partner in the Partnership) own less
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<PAGE>
than a majority of the voting interests in such entity after such Assignment.
Any Assignment of a limited partner interest other than in accordance with the
provisions of this Section 12.2 (and to the extent applicable, Article XI and
Sections 5.2 and 12.4) shall be null and void ab initio. In the event that
---------
there shall be a permitted sale of a limited partner interest to any person in
accordance with all of the terms of Section 12.4 but in connection therewith the
transferee does not have the automatic right to be admitted as an additional
limited partner, or if in connection with any Assignment of an interest as a
limited partner in the Partnership permitted under this Article XII, the
transferring Limited Partner and/or the transferee do not execute all such
instruments as the General Partner may reasonably deem necessary or desirable,
or the transferee does not agree to assume the obligations of the transferring
Limited Partner to the Partnership, then the transferee in any such transaction
shall be treated as an assignee under the Partnership Law and shall not be
admitted as an additional limited partner unless consented to by the General
Partner, which consent may be withheld in the sole discretion of the General
Partner.
SECTION 12.3 Liability for Transfer Expenses. All costs and expenses
-------------------------------
incurred by the Partnership in connection with any disposition of a Partnership
interest pursuant to this Article XII (including any disposition caused by the
Bankruptcy of a Partner) in or in connection with another person becoming an
assignee or admitted as an additional limited partner or general partner in the
Partnership, including any filing, recording, and publishing costs and the
reasonable fees and disbursements of counsel, shall be paid by and be the sole
responsibility of the Partner disposing of such interest (or by the trustee,
receiver or other successor-in-interest in the case of a dissolved or bankrupt
Partner).
SECTION 12.4 Optional Purchases of Units.
---------------------------
A. Except as otherwise provided in Section 5.2, Section 12.1 and Section
12.10, in the event that any Limited Partner receives a "bona fide written offer
from a qualified purchaser" to purchase all, but not less than all, of such
Limited Partner's interest in the Partnership, and such Limited Partner desires
to sell all, but not less than all, of such Limited Partner's interest in the
Partnership pursuant thereto, such Limited Partner (the "Selling Limited
Partner") may sell all of its interest in the Partnership and without the
consent of the General Partner, subject, however, to the limitations of Section
12.2 and Article XI above, but only
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<PAGE>
in accordance with the provisions of this Section 12.4. Any such offer to
purchase voting interests in a Limited Partner which is a corporation,
partnership or other form of legal entity shall, to the extent any such sale
would constitute an Assignment under Section 12.2 above, be treated as an offer
to purchase the interest in the Partnership owned by such entity for purposes of
this Section 12.4. For purposes hereof, a "bona fide offer from a qualified
purchaser" means a written and binding offer from a Person, other than a Non-
Qualified Person, who has the financial ability to consummate the purchase
described in such offer, and which offer sets forth a description of the
Partnership interest subject thereto, the name and principal business address of
the Person who is the proposed purchaser (and, if such purchaser is purchasing
as a nominee for another Person, the name and address of such other Person), and
the price and all of the terms and conditions of the proposed purchase.
B. The Selling Limited Partner shall give written notice (the "Offer") to
the General Partner that such Selling Limited Partner desires to sell all of its
interest as a Limited Partner in the Partnership (the "Offered Interest"), for
the price and pursuant to the terms of the bona fide offer from the qualified
purchaser, a full description of which shall be attached to the Offer.
C. The General Partner shall have the option to purchase all, but not
less than all, of the Offered Interest, at the price and upon the terms
contained in the Offer for a period of twenty (20) days from the receipt of the
Offer, such option to be exercised by delivery of written notice to the Selling
Limited Partner within such twenty (20) day period.
D. During the twenty (20) day period described above during which the
General Partner has an option to purchase the Offered Interest, the Selling
Limited Partner may not transfer the Offered Interest to the qualified purchaser
or to any other Person. If, as of the expiration of the twenty (20) day period
described above, the General Partner has not elected to purchase all of the
Offered Interest in accordance with the foregoing, then the Selling Limited
Partner shall be free to sell the Offered Interest to the qualified purchaser
named in the Offer, provided that: (1) the Selling Limited Partner first
complies with the provisions of Article XI above, (2) such sale is on terms and
conditions no more favorable to the Qualified Purchaser than those set forth in
the offer, and (3) such sale is consummated within one hundred (100) days
following the giving of the Offer. If the Selling Limited Partner
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<PAGE>
does not consummate the sale of the Offered Interest to the Qualified Purchaser
within such one hundred (100) day period, the Offered Interest shall again be
fully subject to all the terms and conditions of this Section 12.4.
E. In the event that the General Partner timely elects to purchase the
Offered Interest in accordance with the foregoing, closing of the purchase of
the Offered Interest shall take place at the principal place of business of the
Partnership (or such other mutually agreed upon location) on such date selected
by the purchasing party within sixty (60) days after the exercise of the Option.
SECTION 12.5 Removal of General Partner.
--------------------------
A. If the General Partner becomes Bankrupt, is convicted of a felony or
files a certificate of dissolution (or its equivalent) or otherwise has its
charter revoked (other than a ministerial revocation resulting from a failure to
file an annual report, which failure is promptly cured after notice from any
Partner or its representative), the General Partner shall automatically be
removed as a general partner and such General Partner's general partner interest
in the Partnership shall be treated in the manner provided in Section 12.8
below. Notwithstanding the foregoing, if upon the dissolution of the General
Partner, its general partner interest in the Partnership is or will be assigned
in a manner permitted under Section 12.1 above, then such dissolved General
Partner's interest in the Partnership, as a general partner, shall not be
treated in the manner provided in Section 12.8 below, and such person or persons
or such corporation or other form of business entity succeeding to such former
General Partner's interest in the Partnership, as a general partner, shall be
admitted into the Partnership as a substitute or successor General Partner(s),
and shall succeed, collectively, to all of the interests of such former General
Partner (in its status as general partner) in the Partnership, effective the
moment before such former General Partner was dissolved.
B. Except as may be otherwise provided by law, and except as may
otherwise be mutually agreed to by all Partners (including the General Partner),
the right to remove the General Partner shall be limited to the events described
in Subsection 12.5.A above. Any successor general partner may be removed as a
general partner upon the terms and conditions provided in Subsection 12.5.A
above. The removal of a general partner in accordance herewith shall in no way
limit or affect the liability of such general partner to the
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<PAGE>
Partnership for debts and liabilities of the Partnership arising or accruing
prior to the effective date of such general partner's removal.
SECTION 12.6 Effect of Change of Partners. Subject to the provisions of
----------------------------
this Agreement, the withdrawal, Bankruptcy, or substitution of any Limited
Partner shall not interrupt the continuity of, or cause the termination or
dissolution of, the Partnership. Except as otherwise provided by this
Agreement, if the General Partner withdraws, dissolves, becomes Bankrupt, is
removed or otherwise ceases to be a member of the Partnership, the Partnership
shall dissolve upon the date of any such event, unless there is at least one
remaining General Partner (including a successor general partner to a dissolved
general partner), if any, who agrees to continue the business of the Partnership
(such right to continue the business of the Partnership being expressly granted
hereby), or unless within ninety (90) days after such event, all Partners agree
in writing to continue the business of the Partnership and to the appointment of
one or more additional general partners if necessary or desirable.
SECTION 12.7 Appointment of Additional General Partners. In the event that
------------------------------------------
the Partnership does not dissolve upon the date the General Partner withdraws,
dissolves, ceases to be a member of the Partnership, or becomes bankrupt solely
because all Partners within ninety (90) days of such event agree in writing to
continue the business of the Partnership and to the appointment of one or more
additional General Partners as may be necessary or desirable, such additional
general partner(s) shall be appointed by the unanimous agreement of all such
remaining Partners.
SECTION 12.8 Payments to (or Change in Status of) Removed General Partner.
-------------------------------------------- ---------------
In the event the General Partner is removed as a general partner pursuant to
this Article XII (or otherwise pursuant to the Partnership Law), whether or not
such removal triggers a dissolution of the Partnership, except as otherwise
provided in Subsection 12.5.B above, such General Partner's entire general
partner interest in the Partnership shall, upon such removal, be converted into
a special class limited partner interest having the same rights to distributions
and interests in the Profits, Losses and capital of the Partnership as prior to
such conversion, and the Certificate of Limited Partnership shall be duly
amended. After such conversion, the holder of such converted interest shall be
automatically admitted as an additional Limited Partner. Each holder of a
former General Partner's converted general partner interest, who is to be
admitted as an additional Limited Partner,
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<PAGE>
if not already bound by all of the terms and conditions of this Agreement,
shall, as a condition of such admission, be required to execute a joinder to
this Agreement, whereby such person becomes bound by all of the terms and
conditions of the Agreement (as it may be amended prior thereto or in connection
with such conversion). The conversion of the General Partner's interest
hereunder shall not, of itself, eliminate any liability to the Partnership or to
the other Partners that the General Partner may have under this Agreement at
such time.
SECTION 12.9 Option to Purchase if a Limited Partner Becomes a Non-
-----------------------------------------------------
Qualified Person. If any Limited Partner or any "Affiliate" of such Limited
- ----------------
Partner, is or becomes a Non-Qualified Person at any time during the term of
this Partnership Agreement, such Limited Partner shall promptly notify the
General Partner of such fact. Such Limited Partner (the "Selling Partner") shall
(whether or not such notice is timely given) be deemed for purposes of Section
12.4 above to have given an "Offer" to the General Partner to sell its entire
interest in the Partnership for a price equal to the positive (i.e., credit)
balance in its Capital Account (which shall be determined as of the date of
acceptance of such Offer or, at the sole option of the purchasing Partner(s),
determined as of the date such Partner first became a Non-Qualified Person) and
which shall be payable in full at closing. If the balance in the Selling
Partner's Capital Account at such time is zero or is a negative number, the
selling price shall be One Dollar ($1.00). Such offer shall remain open, and may
be accepted by the General Partner in accordance with the terms of Section 12.4
above, except that the period for acceptance of such Offer shall not terminate
until twenty (20) days after the Selling Partner first gives written notice to
the General Partner that it is, or has become, a Non-Qualified Person. In
addition, the period for exercising the Option will commence on the first date
on which the Selling Partner becomes a Non-Qualified Purchaser, regardless of
whether notice of such fact has been given by the Selling Partner to the General
Partner. (Thus, if a Partner becomes a Non-Qualified Person and fails to give
such notice, such Partner shall be in breach of this Agreement and, in addition,
the period during which the General Partner may exercise its Option hereunder
shall remain open indefinitely.) If the General Partner does not exercise its
Option to purchase the Selling Partner's interest in the Partnership prior to
the expiration of the option period provided hereunder, the interest of the
Selling Partner shall continue to be held by the Selling Partner and shall
remain subject to all terms and conditions of this Agreement. Except as set
forth in this Section 12.9 (the terms of which shall control if in conflict with
Section
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<PAGE>
12.4 above), the terms and conditions of Section 12.4 above shall apply to any
sale and purchase of the Selling Partner's interest in the Partnership
hereunder. Notwithstanding the foregoing, Noble and Kidd shall not be deemed to
have become Non-Qualified Persons for purposes of this Section 12.9 if Noble and
Kidd shall have first offered, in writing, to the General Partner, the right to
participate solely with Noble and Kidd (or their Affiliates), and with no other
Non-Qualified Person, in any Timeshare Activity in which Noble and Kidd intend
to engage, and the General Partner shall have declined, in a writing to be given
within thirty (30) days of the General Partner's receipt of Noble and Kidd's
offer, to participate with Noble and Kidd in such proposed Timeshare Activity.
If the General Partners so declines and Noble or Kidd thereafter desire to enter
into any Timeshare Activity with any third party on terms which are not
substantially similar in all material respects to those proposed to the General
Partner, the General Partner shall once again be offered, in writing, the right
to participate solely with Noble and Kidd in such Timeshare Activity on the new
terms being proposed to or by the third party. If the General Partner still
declines (in writing to be given within fifteen (15) days of the General
Partner's receipt of Noble and Kidd's offer) to participate in the Timeshare
Activity, Noble and Kidd may do so without becoming a Non-Qualified Person.
SECTION 12.10 General Partner's Call Options.
------------------------------
A. Call Option in the Event of a Transfer of the General Partner's
---------------------------------------------------------------
interest to a Non-Affiliate. Notwithstanding any other provision of this
- ---------------------------
Agreement, the General Partner shall have the option to purchase each Limited
Partner's entire interest in the Partnership as a limited partner, which option
may be exercised by written notice to a Limited Partner, which may be given only
in the event that the General Partner has entered into a binding agreement to
Assign its entire interest in the Partnership, to any Person, including a Non-
Qualified Person, which is not an Affiliate of the General Partner or of the
Persons listed on Schedule 12.10 attached hereto, at the time of exercise of the
option ("Non-Affiliate Purchaser") and which does not occur in conjunction with
a change in control of Vistana Development, Ltd. (as hereinafter defined). The
purchase price paid by the General Partner to the selling Limited Partner shall
be a price equal to the price per percentage point of Partnership Interest that
the Non-Affiliate Purchaser is paying to the General Partner in connection with
the acquisition by such Non-Affiliate Purchaser of the General Partner's one
percent (1%) interest in the Partnership multiplied by the number of percentage
points of Percentage Interest owned by the selling
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Limited Partner. Such purchase price shall take into consideration any Residual
Income received by the General Partner from the Non-Affiliate Purchaser.
Residual Income shall mean all forms of consideration received and value derived
by the General Partner or its Affiliates on account of and in consideration for
such sale, transfer, conveyance or Assignment of its interest in the Partnership
(and not of any other entity), such as consulting fees and similar payments not
requiring the actual provision of valuable services by the General Partner or
any of its Affiliates, fees and similar payments received by the Managing
Partner or its Affiliates, to the extent they are above those usually and
customarily paid for similar services in arms length transactions, and the value
of partnership interests, shares or other forms of equity interests in the Non-
Affiliate Purchaser received by the General Partner or its Affiliates and
attributable solely to the Assignment of the General Partner's or its
Affiliate's interest in the Partnership (and not in any other entity). Closing
of the purchase of the Limited Partner's interest by the General Partner
pursuant to this Section shall occur concurrently with the acquisition of the
General Partner's interest by the Non-Affiliate Purchaser, at the Partnership's
principal business office on such business day and hour as the General Partner
may request, but not later than one hundred twenty (120) days after the notice
of exercise of the option is given by the General Partner. Payment for the
Limited Partner's interest shall be made on the same terms as those governing
the acquisition of the General Partner's interest by the Non-Affiliate
Purchaser. Any transferee of the interests of the General Partner or any Limited
Partner under this Section 12.10.A shall automatically be admitted as a
successor General Partner or Limited Partner (as appropriate) in the
Partnership.
B. Call Option in the Event of a Change in Control of Vistana
----------------------------------------------------------
Development, Ltd. The General Partner shall have the option to purchase each
- -----------------
Limited Partner's entire interest in the Partnership as a limited partner, which
option may be exercised by written notice to a Limited Partner, which may be
given only in the event that the General Partner reasonably believes (whether by
the execution of a binding agreement, letter of intent or other written
proposal, term sheet or similar document) that there will be a "change in
control" of its Affiliate, Vistana Development, Ltd. For purposes of this
Section 12.10(B) change in control shall be defined to mean (i) the acquisition
by any Person or Persons acting in concert as a result of a tender or exchange
offer, open market purchases, privately negotiated purchases or otherwise, of
the beneficial ownership of securities representing more than fifty
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<PAGE>
percent (50%) of the combined voting power of the then outstanding securities of
Vistana Development, Ltd. or Vistana Capital Holdings, Inc.; (ii) the sale of
substantially all of the assets of Vistana Development, Ltd. and its Affiliates
to a third party which is not an Affiliate, or (iii) an initial public offering
of any class of securities of Vistana Development, Ltd. or any successor entity
thereto, or (iv) in the event Vistana Development, Ltd. or any successor or
entity has become a public company, any change in control required to be
disclosed under the proxy rules of promulgated by the securities and exchange
commission. Closing of the purchase of the Limited Partner's interest in the
Partnership shall occur concurrently with the change in control of Vistana
Development, Ltd. Payment for the purchase of the Limited Partner's interest
shall be made all in cash at closing.
The purchase price for each Limited Partner's interest acquired
pursuant to Section 12.10.B. shall be equal to the fair market value of such
interest (i.e., the price a willing buyer and a willing seller would agree upon
as a fair sales price that could reasonably be expected to be received upon the
sale of the Limited Partner's interest, based upon the assumption that (i) both
parties are well informed of all relevant factors affecting value including any
special or adverse tax, business, financial or operational burdens which the
Partnership may incur as a result of the transfer of any interest by any
individual Partner, (ii) neither party is compelled to buy or sell, and (iii)
the purchaser will be admitted as a limited partner in the Partnership, and (iv)
the selling Partner will be receiving its Percentage Interest of any Residual
Income relating solely to the Property, to be received by the Managing Partner
or its Affiliates). Promptly after the date (the "Election Date") the General
Partner exercises its option hereunder, the Limited Partners and the General
Partner shall attempt to agree upon the fair market value of the Limited
Partners' interests. If the Limited Partners and the General Partner cannot
agree upon the fair market value of the interests within thirty (30) days after
the Election Date, such parties shall attempt to agree upon a mutually
acceptable Qualified Appraiser (as hereinafter defined) to determine the fair
market value of the Limited Partner's Interests, and if a mutually acceptable
Qualified Appraiser is selected within ten (10) days after the expiration of the
thirty (30) day period specified above, such appraiser shall submit, within
sixty (60) days of such appraiser's selection, a written appraisal setting forth
such appraiser's determination of the fair market value of the interest of each
Limited Partner and such determination shall be binding upon the Limited
Partners and the General Partner.
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<PAGE>
If a mutually acceptable Qualified Appraiser is not selected within
the ten (10) day period described above, either the Limited Partners or the
General Partner may, by written notice to the other party, select a Qualified
Appraiser with experience in valuing interests in partnerships and also with
experience in appraising interests in timeshare businesses (a "Qualified
Appraiser"), and, within ten (10) days after receipt of such notice, the other
party may (but need not), by written notice, designate a second Qualified
Appraiser to determine the fair market value of the interests.
If the second Qualified Appraiser is not so designated, then the first
Qualified Appraiser shall proceed to appraise the Limited Partners' interests
and his determination of the fair market value of the Limited Partners'
interests shall be binding upon both the Limited Partners and the General
Partner.
If a second Qualified Appraiser is designated, the first and second
Qualified Appraisers shall each appraise the Limited Partners' interests. If
within forty-five (45) days after the second Qualified Appraiser is designated,
the first and second Qualified Appraisers do not agree upon the fair market
value of the Limited Partners interests and are unable to reduce the range of
their difference so that the higher appraisal does not exceed the lower
appraiser by more than ten percent (10%) of the amount of the lower appraisal,
then the Qualified Appraisers shall jointly designate a third Qualified
Appraiser within ten (10) days after the expiration of such 45-day period. If
there are two Qualified Appraisers and the higher appraisal does not exceed the
lower appraisal by more than ten percent (10%) of the lower appraisal, then the
fair market value of the Limited Partners' interests shall be deemed to be the
average of the two appraisals. If there are three appraisers and if they are
unable to agree upon the fair market value of the Limited Partners' interests,
then the fair market value of the Limited Partners' interests shall be deemed to
be the average of the two appraisals which are closest in value to each other.
The appraiser or appraisers shall promptly notify the Limited Partners and the
General Partner of their determination of the fair market value of the Limited
Partners' interests.
The General Partner shall pay the fees and expenses of the Qualified
Appraiser and, if there is more than one Qualified Appraiser, the fees and
expenses of the Qualified Appraisers.
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<PAGE>
ARTICLE XIII
------------
DISSOLUTION OF THE PARTNERSHIP
------------------------------
SECTION 13.1 Events of Dissolution. The Partnership shall be
---------------------
dissolved, and its assets liquidated pursuant to Section 13.2 below, upon the
first to occur of:
A. December 31, 2046;
B. The sale, disposition or condemnation of all or substantially all of
the Partnership's property (other than cash); provided, that, if on
the disposition of any such property, the Partnership shall own any
purchase money notes and mortgages, or promissory notes, the
Partnership shall not be deemed to have disposed of all or
substantially all of its property until such time as such purchase
money notes and mortgages, or promissory notes, are paid or otherwise
disposed of in full;
C. The withdrawal, retirement, removal, dissolution, Bankruptcy or
cessation of membership in the Partnership of the General Partner,
unless the Partnership is continued as provided in Article XII;
D. The unanimous agreement of the Partners to dissolve the Partnership;
or
E. The occurrence of any event which, under the Partnership Law (but
subject to the provisions of this Agreement), causes the dissolution
of this Partnership.
The Partnership shall continue to exist following the occurrence of any of
the foregoing events solely for the purpose of winding up its affairs.
SECTION 13.2 Distributions Upon Dissolution or Liquidation of the
----------------------------------------------------
Partnership. Upon the earlier of (i) the dissolution of the Partnership as
- -----------
provided by Section 13.1 above, or (ii) the Liquidation of the Partnership, the
General Partner (or, if none, a special liquidator appointed by Limited Partners
owning a majority of the Percentage Interests) shall immediately commence to
wind up the Partnership's affairs and, except as provided below, shall
distribute all the assets of the Partnership in liquidation as soon as
practicable. In connection with winding up the Partnership's affairs, the
General Partner (or, if none, the
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<PAGE>
special liquidator appointed by the Limited Partners) shall have the authority
to sell any assets of the Partnership then on-hand for such price and on such
commercially reasonable terms and conditions as such General Partner (or special
liquidator) shall determine in its reasonable discretion, and distribute the
proceeds thereof in liquidation, and/or distribute all or any portion of such
assets to the Partners in-kind. In the event that any assets are to be
distributed in-kind, the General Partner (or special liquidator) shall have the
sole right to select the assets to be distributed to each of the Partners, and
may distribute any such assets proportionately or non-proportionately to or
among the Partners; provided that the aggregate distributions of cash and
property to each of the Partners (based on the net fair market value of property
distributed in-kind) does not exceed the aggregate amount to which each such
Partner would otherwise be entitled had all Partnership property otherwise to be
distributed in-kind been first converted into cash; and provided further that if
property and cash are to be distributed among the Partners, any such cash shall
be distributed among the Partners in proportion to the Partners' positive
capital account balances, as determined without regard to the distributions made
pursuant to Subsection 13.2.B hereof.
In the event of the Liquidation of the Partnership, except as provided
below, all assets of the Partnership to be distributed to the Partners shall be
distributed in liquidation no later than the last day of the Partnership fiscal
year in which such Liquidation occurs (or, if later, within ninety (90) days of
the date of Liquidation). Notwithstanding the above, if there is a Liquidation
of the Partnership solely because fifty percent (50%) or more of the total
interests in the Partnership capital and profits were sold or exchanged within a
twelve-month period, the assets of the Partnership shall not be actually
distributed in liquidation solely as a result of such occurrence (and no Partner
shall have the right to demand a distribution solely by reason of such
occurrence).
The assets to be distributed in liquidation shall be distributed in the
following order of priority:
A. Payment to creditors of the Partnership, including Partners, in the order
of priority provided by law; and
B. Payment to the Partners in accordance with and in proportion to their
positive capital account balances, as determined after taking into account
all proper capital account adjustments for the Partnership fiscal year
during which the
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<PAGE>
dissolution or Liquidation of the Partnership occurs (or, if later, through
the date of the final distribution to the Partners as required by this
Section 13.2), other than those adjustments made for liquidating
distributions pursuant to this Subsection 13.2.B or for contributions by a
Partner pursuant to Section 13.3 below.
If upon the Liquidation of the Partnership the capital accounts of the
Partners are adjusted pursuant to Section 6.3 above, the General Partner (or
special liquidator, as the case may be), in its sole discretion, may, out of
amounts otherwise distributable to the Partners, create reserves reasonably
required to provide for Partnership liabilities (contingent or otherwise) and
may withhold the distribution of installment obligations owed to the Partnership
so long as (i) the other assets of the Partnership, distributable to the
Partners, are distributed within the time set forth above and in the ratios of
the Partners' positive capital account balances, and (ii) such withheld amounts
are distributed as soon as practicable and in the ratios of the Partners'
positive capital account balances.
SECTION 13.3 Balance Owed by Partner. Except as provided below, should the
-----------------------
General Partner have a deficit balance in the General Partner's capital account
following the liquidation of its interest in the Partnership (as defined in Reg.
(S)1.704 l(b)(2)(ii)(g)), as determined after taking into account all proper
capital account adjustments for the Partnership fiscal year during which such
liquidation occurs (or, if later, through the date of the final distribution in
liquidation of the General Partner's interest), other than the adjustment made
for contributions by the General Partner pursuant to this Section 13.3, the
deficit balance shall represent an obligation from the General Partner to the
Partnership to be paid in cash no later than the last day of the Partnership
fiscal year during which such liquidation occurs [or, if later, no later than
ninety (90) days after the date of such liquidation].
Any Limited Partner with a deficit balance in such Limited Partner's
capital account following the liquidation of such Limited Partner's interest in
the Partnership, to the extent attributable to a general partner interest which
was converted to that of a limited partner interest in accordance with Section
12.8 above, shall be obligated to restore such deficit balance to the extent of
the aggregate liability, if any, of such Limited Partner to Partnership
creditors, as determined by law as of the date of the liquidation of such
Limited Partner's interest in the Partnership,
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<PAGE>
and by taking into account any and all assets of the Partnership (other than any
asset which consists of the obligation of such Limited Partner to make a
contribution pursuant to this Section 13.3) which are then available (or which
will thereafter be available) to satisfy, in whole or in part, the indebtedness
of the Partnership to which such creditors' claims relate.
No other Limited Partner shall be obligated to restore a deficit balance in
its capital account in its capacity as a Limited Partner following the
liquidation of such Limited Partner's interest in the Partnership.
SECTION 13.4 Instruments of Termination. Upon the termination of the
--------------------------
Partnership, the General Partner (or special liquidator, as the case may be)
shall make such filings and do such other acts as shall be required by the
Partnership Law and the Limited Partners hereby agree to execute and deliver to
the General Partner (or special liquidator, as the case may be) such
certificates or documents as shall be so required.
ARTICLE XIV
-----------
TAX MATTERS PARTNER
-------------------
SECTION 14.1 Appointment of Tax Matters Partner. The tax matters Partner
----------------------------------
("TMP") for the Partnership shall be the General Partner.
SECTION 14.2 Employment of Advisors. The TMP shall employ experienced tax
----------------------
advisors to represent the Partnership in connection with any audit, examination
or investigation of the Partnership by the Internal Revenue Service (or by any
state or local taxing authority), and in connection with all subsequent
administrative and judicial proceedings arising out of such audit, examination
or investigation. The fees and expenses of such tax advisors shall be a
Partnership expense and shall be paid by the Partnership. Such advisors shall
be responsible for representing the Partnership. It shall be the responsibility
of the General Partner and the Limited Partners, at their own expense, to employ
tax advisors to represent their respective separate interests.
SECTION 14.3 Notice and Expenses. The TMP shall keep the Limited Partners
-------------------
informed of all administrative and judicial proceedings, as required by the
Code, and shall furnish to each Limited Partner, who so requests in writing, a
copy of each notice
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<PAGE>
or other communication received by the TMP from the Internal Revenue Service
(except such notices or communications which are sent directly to such
requesting Limited Partner by the Internal Revenue Service). All expenses
incurred by the TMP in serving as TMP shall be Partnership expenses and shall be
paid by the Partnership.
SECTION 14.4 Authority of Tax Matters Partner. The TMP shall have the full
--------------------------------
authority to take any and all actions otherwise permitted to be taken by a tax
matters partner under the Code in connection with any audit, examination or
investigation of the Partnership, and in connection with any and all
administrative and judicial proceedings arising out of such audit, examination
or investigation, including, but not limited to, any of the following actions:
A. Enter into a settlement agreement with the Internal Revenue Service,
even if such settlement agreement binds the Partners other than the
TMP;
B. File a petition as contemplated in Code (S)6226(a) or (S)6228;
C. Intervene in any action contemplated in Code (S)6226(b);
D. File any requests contemplated in Code (S)6227(b); or
E. Enter into an agreement extending the period of limitations, as
contemplated by Code (S)6229(b)(1)(B).
SECTION 14.5 Indemnification. The Partnership shall indemnify and hold the
---------------
TMP harmless against judgments, fines, amounts paid in settlement and expenses
(including reasonable attorneys' fees, whether before or at trial or during any
appellate proceeding), paid or incurred by the TMP in any civil, criminal or
investigative proceeding in which the TMP is involved or threatened to be
involved solely by reason of being the TMP for the Partnership; provided that
the TMP acted reasonably and in good faith within what the TMP reasonably
believed to be in the best interests of the Partnership or the Partners, as a
whole. Notwithstanding the foregoing, the TMP shall not be indemnified under
this Section 14.5 against any liability of the TMP to the Partnership or the
Limited Partners to the extent any such liability is attributable to or
otherwise arises out of the TMP's fraud, intentional misconduct or gross
negligence.
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<PAGE>
ARTICLE XV
----------
MISCELLANEOUS
-------------
SECTION 15.1 Notices. All notices or other communications given or made
-------
under this Agreement shall be in writing, signed by the party giving same, and
shall be delivered personally, transmitted by a facsimile capable of verifying
receipt (receipt confirmed), sent by national overnight courier service, or sent
by United States certified mail, return receipt requested, postage prepaid,
addressed as follows:
A. To the General Partner at the address set forth in Section 3.1 above;
and
B. To each Limited Partner at the address set forth in Section 3.2
hereof; and
C. To the Partnership at the principal office of the Partnership
specified in Section 1.2 above.
Except as may be otherwise provided in this Agreement, all notices,
requests, demands, elections or other communications given in accordance with
this Section 15.1 shall be effective at the earlier of (i) five (5) business
days after deposit in the United States mail, certified postage prepaid; (ii)
twenty-four (24) hours after delivery to a national overnight courier service;
or (iii) confirmation of receipt if transmitted by facsimile or telexed or if
delivered personally. Any party may change the address to be used for
notification purposes hereunder by providing written notice thereof to the other
parties in accordance herewith.
SECTION 15.2 Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the laws of the State of Florida without giving
effect to such State's conflicts of laws principles. Venue for any action
brought to enforce this Agreement or to interpret the rights of the Partners
hereunder shall lie in Orange County, Florida.
SECTION 15.3 Entire Agreement. This Agreement constitutes the entire
----------------
Partnership agreement between the Limited Partners and the General Partner and
supersedes all prior agreements and undertakings with respect hereto among them.
No Partner is making any guarantee, promise, or undertaking any obligation with
respect to the Partnership that is not expressly contained in this Agreement.
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<PAGE>
SECTION 15.4 Amendment. Except as otherwise provided herein, this
---------
Agreement may only be amended upon the written consent of all Partners.
Notwithstanding the foregoing, the General Partner may amend this Agreement
without the consent of any other Partner provided that such amendment does not
(a) reduce the obligations of the General Partner, (b) affect, by making more or
less restrictive, the assignability of Partnership interests and/or the ability
of a Limited Partner to cause a transferee of such Limited Partner's interest in
the Partnership to be admitted as an additional limited Partner; (c) modify the
term or the authorized business purposes of the Partnership, or (d) reduce the
rights or interests, or enlarge the obligations of any Limited Partner (with
respect to a Limited Partner's interests in the Profits, Losses, Available Cash
or capital of the Partnership) or otherwise have a material adverse effect upon
such Limited Partner's interest in the Partnership or under the Transaction
Documents without the Limited Partner's prior written consent, except that, in
the case of subpart (d), the General Partner may amend the Agreement without
such Limited Partner's consent to the extent necessary to reflect the transfer
of all or such portion of such Limited Partner's interest as may have been
transferred pursuant to Subsection 5.2.B above.
SECTION 15.5 Binding Upon Successors. Each and every provision hereof
-----------------------
shall be binding upon, and inure to the benefit of, the heirs, personal
representatives, successors and assigns of the respective parties hereto except
to the extent explicitly provided to the contrary herein.
SECTION 15.6 Severability. Every provision hereof is intended to be
------------
severable, and if any term or provision hereof is illegal or invalid for any
reason whatsoever or would constitute the Limited Partners or any Limited
Partner a general Partner or would affect the Partnership status of the
Partnership or would affect the Partnership status of the Partnership for
federal income tax purposes, such provision shall be invalid, but such
illegality or invalidity shall not affect the validity of the remainder of this
Agreement.
SECTION 15.7 Captions/References. The titles and captions contained
-------------------
herein are for convenience only and shall not be deemed a part of the context of
this Agreement. All references to "regulations" or "Reg. (S)" refer to rules
and regulations promulgated by the United States Treasury Department under the
Code. The words "this Agreement," "herein," "hereof," "hereby," "hereunder" and
words of similar import refer to this Agreement as
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<PAGE>
a whole and not to any particular subdivision unless expressly limited.
SECTION 15.8 Numbers and Gender. Where the context so indicates, the
------------------
masculine shall include the feminine and neuter, the singular shall include the
plural and the term person shall include a corporation, firm or other entity.
SECTION 15.9 Counterparts. This Agreement may be executed in
------------
counterparts, each of which shall be deemed to be an original and shall be
binding upon the party or parties who executed the same, but all of such
counterparts shall constitute one and the same agreement.
SECTION 15.10 Waiver of Partition. Each of the Partners hereby
-------------------
irrevocably waives any and all rights that such Partner may have to maintain
action for partition of any of the Partnership's property.
SECTION 15.11 Assignees. In the event that any transferee or other
---------
successor-in-interest to a Partner is not otherwise admitted as an additional
Limited Partner (or General Partner) in accordance with the provisions of this
Agreement, provided that the transfer at issue is not null and void, such
transferee or other successor-in-interest shall be treated as an assignee, and
shall only have the right to receive the profits and capital, and shall be
subject to all of the liabilities and obligations, to which the transfer ring
Partner (or transferring assignee, or other predecessor-in-interest) would
otherwise be entitled, or would otherwise be subject to, pursuant to this
Agreement (but for such transfer), to the extent attributable to the interest
transferred to such assignee. In applying the provisions of this Agreement,
including Articles IX and X, and Section 13.3 hereof, each successor to a
Partnership interest, whether admitted as an additional Partner or not, shall be
deemed to have received the aggregate allocations and distributions previously
made to each predecessor-in-interest to the interest in the Partnership held by
such person. An assignee who is not otherwise admitted as an additional limited
Partner (or general Partner) shall have no right to vote on any matter subject
to the approval of the Partners (or the Partners of any class), nor have any
rights to interfere in the management or administration of the Partnership's
business or affairs, acquire any information or account of Partnership
transactions, or inspect the Partnership's books during the continuance of the
Partnership.
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<PAGE>
SECTION 15.12 Third-Party Beneficiaries. Any agreement contained
-------------------------
herein to make any contribution or to otherwise pay any amount, and any
assumption of liability herein contained, express or implied, shall be only for
the benefit of the undersigned parties and their respective permitted successors
and assigns, and such agreements and assumptions shall not inure to the benefit
of the obligees under any indebtedness, or to any other party whomsoever, it
being the intention of the undersigned parties that no one shall be deemed to be
a third-party beneficiary of this Agreement or any portion thereof.
SECTION 15.13 Confidential Information. Each Partner hereby
------------------------
acknowledges and agrees that confidential information concerning employees and
agents of the Partnership (including, but not limited to, the amount and nature
of the compensation paid to such employees and agents), customers, and owners of
units and properties of the Partnership or the Developer (the "Units"), and
proprietary sources of the Partnership's or the Developer's marketing programs
(including present and prospective OPC locations and the terms of leases or
similar financial arrangements with regard thereto) (collectively, the "Trade
Secrets") used by or relating to the Partnership, are and shall be considered
proprietary information belonging exclusively to the Partnership to the extent
such information is not readily available to the public or has not otherwise
become public knowledge through sources other than the Partners, their agents
and/or employees.
Each Partner shall not in any manner, either directly or indirectly,
(i) disseminate, disclose, use or communicate with any Person any Trade Secrets
regardless of whether such information is considered to be confidential by third
parties, or (ii) otherwise directly or indirectly misuse of this Section 15.13
shall apply to disclosures made to other employees or agents of the Partnership
which are made for valid business purposes of the Partnership. The provisions
of this Section 15.13 shall survive the termination of this Agreement and the
termination of any Partner's interest in the Partnership. Notwithstanding the
foregoing, in the event that Noble or Kidd becomes a Non-Qualified Person solely
by reason of the provisions of and after following the procedures in Section
12.9, Noble or Kidd (as appropriate) shall be relieved of the covenants set
forth in this Section 15.13 solely as to any Timeshare Activity in which the
Managing Partner or its Affiliates have declined to participate.
No Partner shall, during the term of this Agreement and for a period of one
(1) year thereafter, interfere with, disrupt or
-52-
<PAGE>
attempt to disrupt the relationship, contractual or otherwise, between the
Partnership and any employee of the Partnership or Vistana Development, Ltd. or
any of its Affiliates. Any contact or communication with or solicitation of,
any employee of the Partnership, Vistana Development, Ltd. or any of its
Affiliates, with the intent, purpose or effect of inducing or encouraging said
employee to leave his or her employment with the Partnership, Vistana
Development, Ltd. or any of its Affiliates or to breach his or her employment
relationship with or other employment obligations to the Company, Vistana
Development, Ltd. or any of its Affiliates, shall constitute a breach of this
provision.
Signatures Begin on Following Page
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<PAGE>
GENERAL PARTNER
---------------
VCH OAKS, INC., a Florida
corporation, sole general partner
Dated: 6/25/96 By: /s/ Susan Werth
------------------------- ---------------------------------
Name: Susan Werth
--------------------------------
Title: Senior Vice President-Law
-------------------------------
LIMITED PARTNERS
----------------
Dated: 6/25/96 /s/ R. Edward Noble
------------------------- --------------------------------------
R. EDWARD NOBLE
Dated: 6/25/96 /s/ Andrew E. Kidd
------------------------- --------------------------------------
ANDREW E. KIDD
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<PAGE>
VISTANA OP INVESTMENT, LTD.
By: JAA OP HOLDINGS, INC., as its General
Partner
Witness
/s/ Ann M. Megha By: /s/ Jeffrey A. Adler
- ----------------------------- ----------------------------
/s/ Susan Werth Name: Jeffrey A. Adler
- ----------------------------- --------------------------
Title: President
-------------------------
By: RLG OP HOLDINGS, INC., as its General
Partner
Witness
/s/ Ann M. Megha By: /s/ Raymond L. Gellein, Jr.
- ----------------------------- ----------------------------
Name: Raymond L. Gellein, Jr.
--------------------------
/s/ Susan Werth
- ----------------------------- Title: Chairman
-------------------------
-55-
<PAGE>
EXHIBIT 10.17
================================================================================
EXCLUSIVE JOINT VENTURE AGREEMENT
by and between
PROMUS HOTELS, INC.
and
VISTANA DEVELOPMENT, LTD.
Dated: as of December 24, 1996
================================================================================
<PAGE>
Executed
--------
EXCLUSIVE JOINT VENTURE AGREEMENT
THIS EXCLUSIVE JOINT VENTURE AGREEMENT (the "Agreement"), dated as of
December 24th, 1996, is entered into by and between Promus Hotels, Inc., a
Delaware corporation ("PHI"), and Vistana Development, Ltd., a Florida limited
partnership ("Vistana").
RECITALS
A. PHI and its Affiliates (as defined herein), among other things,
(i) engage in the acquisition, development, operation, management, sale and
franchising of vacation ownership resorts ("Vacation Resorts") under the brand
name "Embassy Vacation Resorts" and (ii) contemplate engaging in the
acquisition, development, operation, management, sale and franchising of
Vacation Resorts under the brand names "Hampton Vacation Resorts" and "Homewood
Vacation Resorts" (all brand names in (i) and (ii), including all derivations
thereof, the "PHI Brand Names"). For purposes of this Agreement, the term
"Vacation Resort" shall include any resort having vacation ownership interests,
interval ownership interests, timeshare estates, timeshare licenses, vacation
club, right-to-use or any other form of vacation ownership program ("Vacation
Ownership Interests").
B. Vistana and its Affiliates engage in the acquisition,
development, operation, management and sale of Vacation Resorts under the name
"Vistana" (the "Vistana Name") and under brand names owned by others (but not
any Multi-Hotel Brand Name), either alone or in combination with the Vistana
Name, including, without limitation, PGA Vacation Resort by Vistana and Vistana
Resort at World Golf Village (the "Other Brand Business") and contemplate
engaging in the acquisition, development, operation, management, and sale of
Vacation Resorts located at or in combination with hotel brand properties other
than properties operated under any Multi-Hotel Brand Names (together with the
Other Brand Business, the "Non-Multi-Hotel Brand Business"). For purposes of
this Agreement, a "Multi-Hotel Brand Name" shall mean substantially the same
brand name or derivations thereof used in the operation of more than three (3)
hotels.
C. The parties desire jointly to acquire, develop, manage, market,
and sell Vacation Resorts in North America (as defined herein). Such Vacation
Resorts are to be developed, marketed and operated under the PHI Brand Names.
D. The parties hereto desire to enter into an agreement setting
forth their respective rights and obligations jointly to develop Vacation
Resorts as set forth in Recital C hereof.
<PAGE>
AGREEMENT
---------
NOW THEREFORE, in consideration of the respective covenants and
promises contained herein and for other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties hereto agree
as follows:
1. Definitions. The following terms shall have the meanings ascribed
thereto in the Sections set forth below:
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Acceptance Notice Section 6(b)
Affiliate Section 4
Agreement Preamble
Approval Date Section 15(a)(ii)
Claim Section 12(a)
Confidential Information Section 9
Existing Franchisee Section 4(a)
Five Year Plan Section 3
Franchise Agreement Section 5(d)
GAAP Section 5(c)(i)
Homeowners Association
Management Agreement Section 5(f)
Identified Project Section 5
Initial Term Paragraph 2
Initiating Party Section 6(a)
Multi-Hotel Brand Name Recital B
Net Sales Revenue Section 5(c)(i)
Non-Multi-Hotel Brand Business Recital B
Non-Venture Franchise Agreement Section 6(c)(i)
Non-Venture Management Agreement Section 6(c)(i)
North America Section 3
Offer Section 6(a)
Other Brand Business Recital B
Other Party Section 6(a)
PHI Preamble
PHI Brand Names Recital A
PHI Indemnitees Section 12(b)
PHI Management Agreement Section 5(e)
PHI Third Party Agreements Section 5(b)
RCI Section 8(a)
Rental Revenues Section 5(b)(ii)
Renewal Period Section 2
Sales and Marketing Agreement Section 5(c)
Selected Markets Section 3
Term Section 2
Transaction Documents Section 11(b)(i)
Vacation Ownership Interest(s) Recital A
Vacation Resort Recital A
Venture Section 5(a)
Venture Agreement Section 5(a)
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Vistana Preamble
Vistana Indemnitees Section 12(a)
Vistana Name Recital B
Vistana Third Party Agreements Section 5(b)
</TABLE>
2. Term. This Agreement shall have an initial term (the "Initial
Term") beginning as of the date hereof and ending December 31, 2001, unless
earlier terminated pursuant to the provisions of Section 15 hereof.
Concurrently with each extension of the Five Year Plan as provided in Section 3,
this Agreement shall be renewed automatically for a period (each, a "Renewal
Period") expiring on the fifth (5th) annual anniversary of the date of such
extension of the Five Year Plan, unless earlier terminated pursuant to the
provisions of Section 15. The Initial Term, together with all Renewal Periods,
is sometimes referred to herein as the "Term".
3. Development of Five Year Plan. The parties agree to use their
respective reasonable best efforts jointly to develop a five (5) year plan (the
"Five Year Plan") which sets forth (a) the markets in North America in which the
parties will explore jointly acquiring, developing, managing, and marketing
Vacation Resorts during the Term of this Agreement (the "Selected Markets"), (b)
the number, types and sizes of Vacation Resorts to be developed jointly during
the Term of this Agreement, and (c) an anticipated capital plan for such joint
developments during the Term of this Agreement. The parties shall use their
respective reasonable best efforts to update and extend the Five Year Plan for
an additional year on a mutually agreeable annual basis. For purposes hereof,
"North America" shall mean all states, provinces, and territories of Canada, the
United States of America (including Hawaii), Mexico and all other continental
countries located north of the Panama Canal.
4. Exclusive Development Agreement.
(a) PHI. During the Term, PHI hereby agrees that neither it nor any
PHI Affiliate shall enter into any other development agreement of a similar
nature to this Agreement relating to Vacation Resorts in North America with any
other person or entity engaged, directly or through an Affiliate, in the
acquisition, development, sale or management of Vacation Resorts. During the
Term, PHI further agrees that neither it nor any PHI Affiliate shall: (i) enter
into a joint venture with any other person or entity to acquire, develop,
operate, manage or sell any Vacation Resort in North America, (ii) franchise any
Vacation Resort in North America under any of the PHI Brand Names (other than
franchising Embassy Vacation Resorts with Signature Resorts, Inc. (the "Existing
Franchisee") in areas outside the Selected Markets), (iii) franchise any Embassy
Vacation Resort with the Existing Franchisee in any of the Selected Markets or
(iv) acquire, develop, operate, manage or sell any Vacation Resort within the
-3-
<PAGE>
Selected Markets, without in each case first offering Vistana the opportunity
jointly to acquire or develop such Vacation Resort pursuant to Section 6 hereof.
Notwithstanding the foregoing, no provision of this Agreement shall limit,
restrict or prohibit, in any manner, PHI or its Affiliates from (x) conducting
its hotel business (exclusive of its Vacation Resorts business) in any manner it
determines in its sole discretion to be necessary or advantageous to it, (y)
acquiring, developing, operating, marketing, managing, selling, or franchising
any hotel, resort or, to the extent not expressly restricted hereby, any
Vacation Resort, or (z) operating any existing Vacation Resort as a franchise
with the Existing Franchisee in any manner it determines in its sole discretion
to be necessary or advantageous to it.
(b) Vistana. During the Term, Vistana hereby agrees that neither
it nor any Vistana Affiliate shall enter into any other development agreement
relating to Multi-Hotel Brand Name Vacation Resorts in North America of a
similar nature to this Agreement with any other person or entity engaged
(directly or through an Affiliate) in the acquisition, development, sale and
management of Multi-Hotel Brand Name hotels or resorts. During the Term, Vistana
further agrees that neither it nor any Vistana Affiliate shall: (i) acquire,
develop, operate, manage or sell any Vacation Resort in North America under any
Multi-Hotel Brand Name (other than the PHI Brand Names), or (ii) acquire,
develop, operate, manage or sell a Vacation Resort under the Vistana Name within
any of the Selected Markets without first offering PHI the opportunity jointly
to develop such Vacation Resort pursuant to Section 6 hereof. Notwithstanding
the foregoing, no provision of this Agreement shall limit, restrict or prohibit,
in any manner, Vistana or any Vistana Affiliates from (x) conducting its Non-
Multi-Hotel Brand Business in any manner it determines in its sole discretion to
be necessary or advantageous to it, (y) conducting its Vistana Name business in
areas outside the Selected Markets, or operating, managing or selling a Vistana
Name Vacation Resort existing as of the date hereof or acquired or developed
hereafter in accordance with the terms of this Agreement within a Selected
Market, or (z) developing, operating, marketing, managing or selling any
Vacation Resort to the extent not expressly restricted hereby.
(c) Affiliates. For purposes hereof, with respect to any person
or entity the term "Affiliate" shall mean an entity controlling, controlled by
or under common control with such person or entity.
5. Joint Development of Vacation Resorts. The parties agree that
they jointly shall attempt to identify Vacation Resort projects to be developed
in accordance with the Five Year Plan and in accordance with Section 6 hereof
(each, an "Identified Project").
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(a) Independent Ventures. Promptly following such time that the
parties agree to develop an Identified Project, the parties shall form a new
limited liability company or a limited partnership (each a "Venture") under the
laws of the State of Delaware or such other jurisdiction as the parties may
mutually agree and pursuant to a limited liability company agreement or
partnership agreement substantially in the form to be agreed to by the parties
on or before the Approval Date (a "Venture Agreement") for the sole purpose of
developing such Identified Project. Each of PHI and Vistana shall be fifty
percent (50%) members or partners of each Venture; provided, however, Vistana
shall be the managing member or partner of each Venture unless otherwise agreed
by the parties. The parties shall be required on an equal basis to contribute
development capital (in excess of available financing) to each Venture in
accordance with the terms of each Venture Agreement, and the parties shall share
equally in all distributions, profits and losses of each Venture.
(b) Marketing Support. Subject to Section 9 hereof and subject
to any restrictions on the dissemination of a third party's proprietary
information provided to Vistana (or an Affiliate of Vistana) by such third party
as are or may be set forth in any agreement with a marketing partner in its
Vistana Name business or its Non-Multi-Hotel Brand Business to which Vistana or
any Affiliate of Vistana is or may be a party ("Vistana Third Party
Agreements"), Vistana will agree in its Sales and Marketing Agreements (as
defined below) to make available to each Venture all of its customer and
database information generated from its Non-Multi-Hotel Brand Business and the
Vistana Name business. Subject to Section 9 hereof, and subject to any
restrictions on the dissemination of a third party's proprietary information
provided to PHI (or an Affiliate of PHI) as are or may be set forth in any
agreement with a third party in its Vacation Resort and other hotel business to
which PHI or any Affiliate of PHI is or may be a party ("PHI Third Party
Agreements"), PHI shall agree in its Franchise Agreements or PHI Management
Agreements (each as defined below) to make available to each Venture all of its
customer and database information generated from its Vacation Resort and other
hotel businesses. PHI and Vistana shall use their respective reasonable best
efforts to prevent any restrictions on the dissemination of proprietary
information from arising after the date hereof other than restrictions
protecting proprietary information as described above pursuant to Vistana Third
Party Agreements or PHI Third Party Agreements. PHI and Vistana acknowledge and
agree that once a Venture is formed and customer lists are generated therefor,
each of PHI and Vistana will have permanent and unrestricted access to the
customer and database information generated by each such Venture. In addition
PHI and Vistana shall agree in their respective Sales and Marketing Agreement,
Franchise Agreement and/or PHI Management Agreement with each Venture to provide
other marketing support to each Venture such as brand expertise,
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reservation services and solicitation opportunities (without charge except as
may be mutually agreed to by the parties).
(c) Sales and Marketing Agreement. Each Venture shall enter into
a Sales and Marketing Agreement substantially in the form to be agreed to by the
parties on or before the Approval Date (a "Sales and Marketing Agreement") with
Vistana (or an Affiliate of Vistana) pursuant to which Vistana will be
responsible for sales and marketing of Vacation Ownership Interests at the
Venture's Vacation Resort. Vistana will be paid the following fees pursuant to
each Sales and Marketing Agreement (which fees will be the same for each Sales
and Marketing Agreement and will be the fees set forth in the form of Sales and
Marketing Agreement to be approved as provided in Section 15(a)(ii) hereof):
(i) an amount equal to an agreed to percentage of all Net
Sales Revenue. The term "Net Sales Revenue" shall mean, for any
period of time, the aggregate dollar amount of Vacation Ownership
Interest Sales (net of cancellations and rescissions) during such
period of time as are attributable thereto under generally
accepted accounting principles as in effect for the period of
determination, including the statements and interpretations of
the United States Financial Accounting Standards Board and any
predecessor or successor entity, consistently applied ("GAAP").
The term "Vacation Ownership Interest Sale" shall refer to the
sales price for each Vacation Ownership Interest sold by the
Venture less all consumer discounts required to be deducted from
the sales price in reporting the sales revenues of the Venture in
accordance with GAAP.
(ii) a sales and marketing fee equal to an agreed to
percentage of all Rental Revenues. For purposes hereof, "Rental
Revenues" shall mean all revenues of the Venture without
deductions of any kind whatsoever generated from the rental of
any unit or other living quarters or accommodations in the
Vacation Resort; and
(iii) Vistana will also be reimbursed by the Venture for
its fully-loaded cost thereof without profit or mark-up ("fully
loaded cost") of providing such services as mutually agreed.
All such fees and reimbursements to Vistana shall be paid prior to the payment
of any other costs and expenses of each Venture other than fees paid to PHI in
accordance with Section 5(d) hereof which shall be paid on a pari passu basis
with such fees to Vistana. At Vistana's option, services to be provided and
fees to be earned
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under the Sales and Marketing Agreement may be provided and earned, in part,
under an advisory or other agreement with an Affiliate of Vistana.
(d) Franchise Agreement. Each Venture shall enter into a
Franchise Agreement substantially in the form to be agreed to by the parties on
or before the Approval Date (a "Franchise Agreement") with PHI pursuant to which
PHI shall license to the Venture the agreed-to PHI Brand Name to be used at the
Identified Project and PHI shall provide such other brand name support as is
customarily provided by PHI in its franchise agreements. PHI will be paid the
following fees pursuant to each Franchise Agreement (which fees will be the same
for each Franchise Agreement and will be the fees set forth in the form of
Franchise Agreement to be approved as provided in Section 15(a)(ii) hereof):
(i) a franchisee assessment equal to an agreed to percentage
of all Net Sales Revenues;
(ii) a franchisee assessment equal to an agreed to
percentage of all Rental Revenues; and
(iii) a reservation fee equal to an agreed to percentage of
any Rental Revenues booked through PHI's central reservation
system.
All such fees to PHI shall be paid prior to the payment of any other costs
and expenses of each Venture other than fees paid to Vistana in accordance with
Section 5(c) hereof which shall be paid on a pari passu basis with such fees to
PHI.
(e) Management Agreement. Each Venture shall enter into a
Management Agreement substantially in the form to be agreed to by the parties on
or before the Approval Date (a "PHI Management Agreement") with PHI pursuant to
which PHI shall be responsible for managing the Vacation Resort developed by the
Venture (other than any homeowner's association), provide all brand lead
generation and marketing support, manage all rental marketing and reservations,
and manage all other hospitality-related activities, including, without
limitation, food and beverage sales. PHI will be reimbursed by the Venture for
its "fully-loaded" cost of providing such services as mutually agreed. At PHI's
option, services to be provided and fees to be earned under the PHI Management
Agreement may be provided and earned, in part, under an advisory or other
agreement with an Affiliate of PHI.
(f) Homeowners Association Management Agreement. Each Venture
requiring management of any homeowners association operated at a Venture's
Vacation Resort shall enter into a Homeowners Association Management Agreement
(a "Homeowners Association Management Agreement") with such homeowners
association pursuant to which the Venture or an Affiliate of the Venture will
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be responsible for management of such homeowners association. It is anticipated
that each Homeowners Association Management Agreement will provide for the
Venture to be paid a management fee equal to an agreed to percentage of all
assessments required to be collected by such homeowners association. In the
event a Venture enters into a Homeowners Association Management Agreement, it is
anticipated that Vistana will provide on behalf of the Venture (through a sub-
management agreement or other arrangement) required homeowners association
services and PHI will provide on behalf of the Venture (through a sub-management
agreement or other arrangement) required hospitality services. In the event
Vistana and PHI provide their respective services as provided above, the parties
will receive from the Venture the following amounts:
(i) each of PHI and Vistana will be reimbursed by the
Venture for their "fully-loaded" costs of providing such
services; and
(ii) any fees received from the homeowners association
shall be allocable fifty percent (50%) to PHI and fifty percent
(50%) to Vistana.
Notwithstanding the foregoing, following such time as fifty percent (50%)
of the Vacation Ownership Interests at the Vacation Resort have been sold, PHI
shall receive a fee equal to an agreed to percentage of all homeowner
association assessments (or in lieu thereof an agreed amount per Vacation
Ownership Interest) to be used to offset the costs of conducting property
inspections and implementing a guest satisfaction rating system.
(g) Other Services. Any other services provided to a Venture by
either of the parties as may be agreed to by the parties shall be at the fully
loaded cost thereof or as otherwise agreed to between the parties.
6. Rights of First Opportunity. Either PHI or Vistana may initiate
a decision to form a Venture to develop a Vacation Resort in accordance with
this Agreement, but no such Venture shall be formed unless each party in its
sole discretion elects to proceed with such Identified Project in accordance
with the provisions of this Section 6.
(a) Right of First Offer. During the Term, (1) if PHI desires to
acquire, develop or franchise a Vacation Resort in a Selected Market, (2) if
Vistana desires to acquire or develop a Vacation Resort in a Selected Market
(other than pursuant to its Non-Multi-Hotel Brand Business), or (3) if either
party, at its option, desires to propose Vacation Resort property outside of the
Selected Markets as a Venture opportunity, such party (the "Initiating Party")
shall submit a written offer (each an "Offer") to the other party (the "Other
Party") to form a Venture to acquire or develop such Vacation Resort. Each
Offer shall (i) be specific
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to a single Vacation Resort, (ii) set forth a proposed development budget and
financial projections, (iii) provide a proposed business and marketing plan for
the Vacation Resort, (iv) contain a term sheet with all material terms and (v)
provide any other terms and conditions that the Initiating Party desires to
include. The Other Party shall have forty-five (45) days following receipt of
an Offer to elect in its sole discretion either to accept or reject such Offer.
(b) Acceptance of Offer. If the Other Party elects to accept
such Offer, the Other Party shall provide written notice of such acceptance (an
"Acceptance Notice") within forty-five (45) days following the Other Party's
receipt of the Offer. Following any such acceptance of an Offer, the Initiating
Party and the Other Party shall enter into a Venture Agreement, a Sales and
Marketing Agreement, a Franchise Agreement and a PHI Management Agreement
(substantially in the forms agreed by the parties pursuant to Section
15(a)(ii)), and, if applicable, a Homeowners Association Management Agreement
with respect to the Identified Project on terms mutually acceptable to the
parties.
(c) Rejection of Offer. If the Other Party rejects the Offer or
fails to accept such Offer in accordance with Section 6(b) hereof, then such
Offer shall be deemed rejected by the Other Party. Following the rejection of
any Offer, the Initiating Party shall have the right to acquire or develop such
Vacation Resort except as set forth in this Section 6 or Sections 4(a) or 4(b)
hereof. Following any such rejection, if the Initiating Party proceeds to
acquire or develop such Vacation Resort to the extent permitted under this
Section 6, the Electing party shall have no further obligations to the Other
Party with respect to such Vacation Resort (other than confidentiality
obligations), and the Other Party shall have no rights under this Agreement to
participate in the operation or management thereof or to receive any
distributions, profits or losses therefrom.
(i) If Vistana is the Initiating Party and an Offer is
rejected, or deemed to have been rejected, by PHI, Vistana in its
sole discretion may, at any time within one (1) year following
such rejection, initiate development of the Vacation Resort in
any manner not otherwise expressly prohibited by Section 4(b)
hereof or, subject to reasonable and customary approval by the
PHI franchise committee, operate the development as a PHI Brand
Name Vacation Resort pursuant to a franchise agreement (a "Non-
Venture Franchise Agreement") in the form to be agreed to by the
parties on or before the Approval Date with PHI and for the fees
set forth in Section 5(d) hereof. If Vistana requests that PHI
provide management services for such a Vacation Resort and PHI
agrees to provide such management
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services, PHI shall enter into a management agreement with
Vistana or an Affiliate of Vistana (a "Non-Venture Management
Agreement") substantially in the form to be agreed to by the
parties on or before the Approval Date. The parties acknowledge
that the compensation to be paid to PHI under a Non-Venture
Management Agreement shall be the same as the compensation
payable to PHI as set forth in Section 5(f) hereof except that
PHI shall be entitled to seventy percent (70%) of the fees
described in Section 5(f)(ii).
(ii) If PHI is the Initiating Party and an Offer is
rejected, or deemed to have been rejected, by Vistana, PHI in its
sole discretion may, at any time within one (1) year following
such rejection, initiate development of the Vacation Resort in
any manner not otherwise expressly prohibited by Section 4(a)
hereof. If the Offer relates to a Selected Market and if PHI
initiates development as provided herein, Vistana shall be
relieved of its obligations under Section 4(b)(ii) hereof with
respect to that Selected Market.
(iii) For purposes of this Section 6, a party shall be
deemed to "initiate development" of a Vacation Resort upon the
occurrence of any one of the following: the execution of a
binding contract to acquire the property (if applicable), the
commencement of construction (if applicable), or the commencement
of sales of Vacation Ownership Interests therein.
(d) Subsequent Vacation Resorts in Selected Markets. Following a
rejection of an Offer pursuant to Section 6(c) hereof, if the Initiating Party
fails to initiate development of the offered Vacation Resort within one (1) year
following such rejection, such Initiating Party may not initiate development of
any Vacation Resort that was subject to the rejected Offer without first
submitting a new Offer to the Other Party and following the procedures set forth
in this Section 6. Except as otherwise provided in the last sentence of Section
6(c)(ii) hereof, neither party may acquire or develop any other Vacation Project
in that Selected Market without first submitting an Offer to the Initiating
Party and following the procedures set forth in this Section 6.
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7. Initial Developments.
(a) Myrtle Beach. Vistana intends to develop a Vacation Resort to
be located in Myrtle Beach, South Carolina and desires to operate such resort
under the Embassy Vacation Resort brand name and to have PHI provide resort
management services. PHI agrees that, subject to the reasonable and customary
approval of the PHI franchise committee, PHI, as franchisor, shall permit
Vistana, as franchisee, to use the Embassy Vacation Resort brand name for such
Vacation Resort. The parties agree to use their reasonable best efforts to
enter into a mutually acceptable Non-Venture Franchise Agreement (which shall
provide for fees as set forth in Section 5(d) hereof) and a Non-Venture
Management Agreement (which shall provide for fees as provided in Section
6(c)(i) hereof), in each case on or before January 31, 1997.
(b) Kissimmee. Vistana is developing and managing a Vacation
Resort located in Kissimmee, Florida and desires to operate such resort under
the Hampton Vacation Resort brand name. PHI agrees that, subject to the
reasonable and customary approval of the PHI franchise committee and the
execution of a Non-Venture Franchise Agreement, PHI, as franchisor, shall permit
Vistana, as franchisee, to use the Hampton Vacation Resort brand name for such
Vacation Resort. The parties agree to use their reasonable best efforts to
enter into a mutually acceptable Non-Venture Franchise Agreement (which shall
provide for the fees set forth in Section 5(d) hereof) on or before January 31,
1997.
8. Exchange Programs
(a) RCI. Each Venture shall negotiate an exchange agreement with
Resort Condominiums International ("RCI") pursuant to which owners of Vacation
Ownership Interests at each such Venture's Vacation Resorts shall have exchange
rights to use Vacation Ownership Interests at the Vacation Resorts represented
by RCI.
(b) Acknowledgement. The parties shall use their reasonable best
faith efforts to develop and implement mutually acceptable priority exchange
programs between and among the respective Vacation Resorts and any Venture
Vacation Resorts as soon as practicable.
9. Confidential Information. Each party hereby agrees that any
information provided at any time to such party by the other party in connection
with the negotiation, performance or enforcement of this Agreement which has not
been generally disclosed to the public (the "Confidential Information"),
including, without limitation, any information contained in proprietary software
systems, any management techniques, and any customer and database information
provided to each Venture pursuant to Section 5(b) hereof, shall be kept in
confidence; provided,
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however, that any of such information may be disclosed to a party's employees,
agents, attorneys, auditors, accountants, financial advisors, banks or other
financial sources that need to know such Confidential Information (it being
agreed that such representatives or persons will be informed by such party of
the confidential nature of such Confidential Information and directed to treat
such Confidential Information confidentially, that such party will be
responsible for any disclosures of Confidential Information by its
representatives, that Confidential Information of Vistana shall not be disclosed
to the Existing Franchisee and that Confidential Information of PHI shall not be
disclosed to any hotel partner of Vistana engaged in the Non-Multi-Hotel Brand
Business). In the event that a party becomes legally compelled to disclose any
Confidential Information, such party shall provide the other party with prompt
prior written notice of such requirement so that the other party may seek a
protective order or other appropriate remedy unless such notice is prohibited by
law. In the event such protective order or other remedy is not obtained, the
party legally compelled to disclose such Confidential Information agrees to
disclose only that portion of the Confidential Information which, in the opinion
of such party's counsel, is legally required to be disclosed. The parties
acknowledge and agree that, notwithstanding the provisions of this Section 9,
the parties shall be entitled to disclose and use the Agreed Description (as
defined in Section 23 hereof) of the relationship of the parties.
10. Trademarks. Each party hereby agrees and acknowledges that each
party shall continue to own all rights with respect to its respective
trademarks, trade names, service marks and other intellectual property. No
provision of this Agreement shall in any manner, restrict, limit or impair each
such party's rights in connection with the use or protection of its respective
trademarks, trade names, service marks and other intellectual property.
11. Representations and Warranties. As an inducement to each party
to enter into this Agreement and to consummate the transactions contemplated
hereby, each party represents and warrants to the other party and agrees as
follows:
(a) Organization. The party is the form of legal entity
identified in the preamble to this Agreement and is duly formed, validly
existing and in good standing under the laws of the jurisdiction in which it was
organized (as identified in the preamble).
(b) Authority.
(i) The party has full power and authority to enter into
this Agreement and the other agreements and instruments
contemplated by this Agreement to be entered into by it
(collectively, the
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"Transaction Documents") and to consummate the transactions
contemplated hereby and thereby.
(ii) The execution, delivery and performance of the
Transaction Documents by such party and the consummation by such
party of the transactions contemplated hereby and thereby have
been duly authorized by all necessary action on the part of such
party. This Agreement is, and each other Transaction Documents
when executed and delivered will be, the legal, valid and binding
agreement of such party, enforceable against such party in
accordance with its respective terms.
(iii) Neither the execution and delivery of this Agreement
or the other Transaction Documents by such party nor consummation
of the transactions contemplated hereby or thereby or compliance
with or fulfillment of the terms and provisions hereof or thereof
by such party will (x) conflict with, result in a breach of the
terms, conditions or provisions of, or constitute a default, an
event of default or an event creating rights of acceleration,
termination or cancellation or a loss of rights, under the
organizational documents of such party, (y) conflict with, result
in a material breach of any of the material terms, conditions or
provisions of, or constitute a default, an event of default or an
event creating rights of acceleration, termination or
cancellation or a loss of rights, under any instrument,
agreement, contract, mortgage, indenture, deed of trust,
franchise, license, judgment, order, award, decree or other
restriction to which such party is a party or any of its
properties is subject or by which it is bound, or any statute,
other law or regulatory provision affecting such party, or (z)
require the approval, consent or authorization of, or the making
of any declaration, filing or registration with, any third party
or any federal, state or local court, governmental authority or
regulatory body, by or on behalf of such party.
(c) Litigation. There are no actions, suits, proceedings,
judgments or court orders or decrees pending or, to the knowledge of such party,
threatened to which such party is a party or any of its properties is subject or
by which it is bound before or by any court or governmental agency which would
reasonably be expected to prevent or hinder the consummation of the transactions
contemplated hereby or in the other Transaction Documents.
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12. Indemnities; Remedies.
(a) PHI. PHI hereby indemnifies and holds harmless Vistana and
its partners and their respective officers, directors, employees,
representatives and Affiliates ("Vistana Indemnitees") against and in respect of
any costs, claims, moneys, expenses, liabilities or damages including, without
limitation, any and all reasonable attorneys' fees and all other legal expenses
(each of the foregoing, a "Claim") incurred or expended by Vistana Indemnitees
that arise from or in connection with any breach or inaccuracy of any
representation or warranty made by PHI hereunder or in connection with any
litigation, conflicts, disputes or alleged violations of any contracts to which
PHI is a party as of the date hereof.
(b) Vistana. Vistana hereby indemnifies and holds harmless PHI
and its officers, directors, employees, representatives and Affiliates ("PHI
Indemnitees") against and in respect of any Claims incurred or expended by PHI
Indemnitees that arise from or in connection with any breach or inaccuracy of
any representation or warranty made by Vistana hereunder or in connection with
any litigation, conflicts, disputes or alleged violations of any contracts to
which Vistana is a party as of the date hereof.
(c) Remedies. In the event either party fails to perform its
obligations hereunder, the other party shall have all rights and remedies
available at law or in equity, including, where appropriate, injunctive relief
without bond or surety (including in the event of a violation of the provisions
of Section 9 hereof in which case the parties acknowledge that monetary damages
would be an inadequate remedy).
13. Assignment. Each party may assign its rights and obligations
hereunder to an Affiliate; provided, however, such assigning party shall not be
released from its obligations hereunder. Vistana shall have the further right
to assign its rights and obligations hereunder to an entity concurrently with
such entity's initial public offering of its stock provided such entity assumes
all of Vistana's obligations hereunder and such entity, directly or indirectly,
owns and controls Vistana, in which case Vistana shall be released from any and
all obligations hereunder arising after such assignment. Except as provided
above, neither this Agreement nor any of the rights or obligations hereunder may
be assigned by any party without the prior written consent of the other party,
which consent may be withheld in its sole discretion. Subject to the foregoing,
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, and no other
person or entity shall have any right, benefit or obligation under this
Agreement as a third party beneficiary or otherwise.
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14. Competing Business. Each party hereto understands that the other
party or its Affiliates may be interested, directly or indirectly, in various
other businesses and undertakings not included in the scope of this Agreement.
Each party hereby agrees that the creation of this Agreement and the creation of
one (1) or more Ventures pursuant to this Agreement, and the assumption by each
party of its duties hereunder and under any Venture Agreements, shall be without
prejudice to its respective rights (or the rights of its Affiliates) to have
such other interests and activities and to receive and enjoy the profits and
compensation therefrom. Each party hereby waives any rights it might otherwise
have, by reason of any duty otherwise arising under this Agreement, otherwise
owed to any Venture or under any Venture Agreement, to prevent or share or
participate in such other interests or activities of the other party or its
Affiliates. Each party and its Affiliates may engage in or possess any interest
in any other business venture of any nature or description independently or with
others, including, without limitation, the ownership, financing, leasing,
operation, management, syndication, brokerage, franchising or development of
real property and hotel and resorts, and neither the other party nor any Venture
shall have any right by virtue of this Agreement or any Venture Agreement or
otherwise to prevent or participate in any such venture or the income or profits
derived therefrom. Notwithstanding the foregoing, neither party nor any of
their respective Affiliates shall engage in any business venture or own or
operate any property to the extent such is prohibited by this Agreement, unless
consented to in writing by the other party.
15. Termination.
(a) Bilateral. Each party shall have the right to terminate this
Agreement by delivery of thirty (30) days written notice thereof to the other
party in the event of the occurrence of any one or more of the following events:
(i) A Venture Agreement has not been entered into between
the parties within thirty-six (36) months after the date hereof;
or
(ii) The Five Year Plan, the form of Venture Agreement, the
form of Sales and Marketing Agreement, the form of Franchise
Agreement, the form of PHI Management Agreement, the form of Non-
Venture Franchise Agreement and the form of Non-Venture
Management Agreement have not been approved by the parties on or
before January 31, 1997 (the "Approval Date"), and the actual
Non-Venture Franchise Agreement and Non-Venture Management
Agreement for the Vacation Resort in Myrtle Beach (if acquired by
Vistana) and the actual Non-Venture Franchise Agreement for the
Vacation Resort in
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Kissimmee have not been executed and delivered by the parties on
or before the Approval Date.
At the request of either party, the parties shall acknowledge in writing
satisfaction of the conditions set forth in subparagraphs (i) and/or (ii) above
provided such conditions have been satisfied.
(b) Violation. A party may terminate this Agreement in the event
the other party materially violates the terms of Section 4 hereof and fails to
cure such violation to the reasonable satisfaction of the non-breaching party
within thirty (30) days after written notice thereof from the other party.
(c) Effect. In the event this Agreement is terminated:
------
(i) any Venture then in existence shall remain in existence
and continue to be governed by its Venture Agreement and other
applicable Transaction Documents; and
(ii) the rights to any Identified Projects or other projects
then under consideration by the parties which are not then owned
by Ventures shall be assigned to the parties as mutually agreed
or in accordance with the procedures set forth in Section 6
hereof.
16. Notices. All notices and other communications under this
Agreement shall be in writing and shall be deemed given when delivered
personally or by overnight mail or by fax, or four (4) days after being mailed
(by registered mail, return receipt requested) to a party at the following
address (or to such other address as such party may have specified by notice
given to the other parties pursuant to this provision):
If to PHI: Promus Hotels, Inc.
785 Crossover Lane
Suite 141
Memphis, Tennessee 38117
Attention: General Counsel
Facsimile No.: (901) 374-5050
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With a copy to: Latham & Watkins
5800 Sears Tower
Chicago, Illinois 60606
Attention: David L. Shapiro, Esq.
Facsimile No.: (312) 993-9767
If to Vistana: Vistana Development, Ltd.
8800 Vistana Centre Drive
Orlando, Florida 32821-6353
Attention: Raymond L. Gellein, Jr.
Facsimile No.: (407) 239-3198
With copies to: Vistana Development, Ltd.
701 Brickell Avenue
Suite 2100
Miami, Florida 33131
Attention: Susan Werth, Esq.
Facsimile: (305) 374-7159
and
Neal, Gerber & Eisenberg
Two North LaSalle Street
22nd Floor
Chicago, Illinois 60602
Attention: Marshall E. Eisenberg
Facsimile No.: (312) 269-1747
17. Governing Law. This Agreement, and the application or
interpretation thereof, shall be exclusively governed by its terms and by the
internal laws of the State of Florida, without regard to principles of conflicts
of laws as applied in the State of Florida or any other jurisdiction which, if
applied, would result in the application of any laws other than the internal
laws of the State of Florida.
18. Entire Agreement; Amendments and Waivers. This Agreement
contains the entire understanding of the parties hereto with regard to the
subject matter contained herein. The parties hereto, by mutual agreement in
writing, may amend, modify and supplement this Agreement. The failure of any
party hereto to enforce at any time any provision of this Agreement shall not be
construed to be a waiver of such provision, nor in any way to affect the
validity of this Agreement or any part hereof or the right of such party
thereafter to enforce each and every such provision. No waiver of any breach of
this Agreement shall be held to constitute a waiver of any other or subsequent
breach.
19. Execution in Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be considered an original counterpart,
and shall become a binding
-17-
<PAGE>
agreement when PHI and Vistana each shall have executed one (1) counterpart.
20. Partial Invalidity. In case any one or more of the provisions
contained herein shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement but the parties hereto
shall use their reasonable good faith efforts to modify or reformulate other
provisions contained herein as necessary or appropriate to implement fully the
provisions contained in this Agreement.
21. No Third Party Beneficiaries. Nothing in this Agreement,
expressed or implied, is intended or shall be construed to confer upon any
Person other than the parties hereto and successors and assigns permitted by
Section 13 hereof any right, remedy or claim under or by reason of this
Agreement.
22. Titles and Headings. Titles and headings to Sections herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
23. Publicity. Neither party shall issue or make, or allow any
Affiliate to issue or make, any press release or public announcement relating to
the subject matter of this Agreement without the prior approval of the other
party; provided, however, that any party or an Affiliate of any party may make
any public disclosure it believes in good faith is required by applicable law,
any listing or trading agreement concerning its publicly-traded securities or in
connection with any governmental filings (in which case the party which intends
to issue such press release or make such public announcement will advise the
other party prior to making the disclosure and provide the other party
opportunity to comment upon the release or announcement). The parties shall, as
soon as practicable after the date hereof, use their reasonable best efforts to
agree on one or more descriptions of the relationship of the parties hereunder
(an "Agreed Description"). During the Term hereof, the parties shall be
entitled to use an Agreed Description in all communications, advertising,
announcements and other materials used in connection with the conduct of their
respective business.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
or have caused this Agreement to be duly executed on their respective behalf by
their respective officers thereunto duly authorized, as of the day and year
first above written.
PROMUS HOTELS, INC.
By: /s/ Mark C. Wells
---------------------------------
Name: Mark C. Wells
Title: Senior Vice President
VISTANA DEVELOPMENT, LTD.
By: VISTANA CAPITAL HOLDINGS, INC.,
its general partner
By: /s/ Raymond L. Gellein, Jr.
----------------------------
Name: Raymond L. Gellein, Jr.
Title: Chairman
<PAGE>
EXHIBIT 10.18
NOTICE IS HEREBY GIVEN PURSUANT TO SOUTH CAROLINA UNIFORM ARBITRATION ACT, S.C.
- -------------------------------------------------------------------------------
CODE ANN. SECTION 15-48-10(a) THAT CERTAIN PROVISIONS OF THIS AGREEMENT ARE
- ---------------------------------------------------------------------------
SUBJECT TO MANDATORY ARBITRATION TO BE CONDUCTED IN ACCORDANCE WITH THE
- -----------------------------------------------------------------------
COMMERCIAL RULES OF PRACTICE AND PROCEDURE OF THE AMERICAN ARBITRATION
- ----------------------------------------------------------------------
ASSOCIATION.
- -----------
STATE OF SOUTH CAROLINA
LAND PURCHASE AGREEMENT
-----------------------
COUNTY OF HORRY
THIS LAND PURCHASE AGREEMENT (this "Agreement") is made and entered into as
of the 30th day of December, 1996, by and between MYRTLE BEACH FARMS COMPANY,
INC., a South Carolina corporation, hereinafter referred to as the "Seller"; and
VISTANA MYRTLE BEACH, L.P., a South Carolina limited partnership, hereinafter
referred to as the "Buyer."
STATEMENT OF PURPOSE
--------------------
Seller is the owner of certain real property located in and/or near Myrtle
Beach, South Carolina, as more particularly described hereinafter. Buyer and
Seller each desire that Buyer purchase, develop and operate on such property a
time-share vacation resort containing approximately 600 time-share units (the
"Units").
NOW, THEREFORE, IN CONSIDERATION OF the mutual agreements and undertakings
herein set forth and other valuable considerations, the receipt and sufficiency
of which are hereby acknowledged, Seller and Buyer hereby agree as follows:
1. Description of Property.
-----------------------
(a) The property which is subject to this Agreement (the "Property")
consists of approximately 40 acres of land located in Horry County, South
Carolina as shown on the map marked EXHIBIT A and attached hereto and
---------
incorporated herein by reference, together with and including (i) all
improvements (if any) located thereon, (ii) all trees, shrubbery and growing
crops located thereon, (iii) all easements and rights-of-way appurtenant to the
Property and all of Seller's rights to use same, (iv) all rights of ingress and
egress to and from the Property, (v) any and all right, title and interest of
Seller in and to any and all roads, streets and rights-of-way affecting or
bounding the Property and (vi) any and all appurtenant development rights,
including the present or future use thereof, relating to the Property, including
sanitary sewer capacity, drainage, water capacity and other utility facilities
to the extent they pertain to or benefit the Property, including, without
limitation, all reservations of or commitments, letters or agreements relating
to any such use currently or in the future.
(b) Seller hereby agrees to sell and convey to Buyer, and Buyer hereby
agrees to purchase from Seller, the approximately fourteen (14) acres of the
Property identified on EXHIBIT A attached hereto as the Initial Purchase (the
---------
"Initial Purchase"). After Buyer purchases the Initial Purchase, Buyer shall
have, and Seller hereby grants to Buyer effective upon the Initial Purchase, the
option to purchase the
<PAGE>
remainder of the Property which is identified on EXHIBIT A as the Option
---------
Property (the "Option Property"), as more fully set forth in this Agreement.
2. Manner of Purchase.
------------------
(a) The closing with respect to the Initial Purchase (the "Initial
Closing") shall take place on or before December 31, 1996 or such other date
mutually agreed upon by Buyer and Seller. Thereafter, Buyer shall have the
right, at its sole option, to exercise its option with respect to the Option
Property in accordance with Paragraph 2(b) below during the period commencing on
--------------
the date of the consummation of the Initial Closing and continuing through
December 31, 2003 (the "Option Period"), on which date this Agreement shall
terminate and Buyer shall have no further rights to acquire any portion of the
Option Property; provided, however, that no Option Effective Date (as defined in
Paragraph 2(b) herein) shall be less than 120 days prior to the expiration of
- ---------------------
the Option Period. Each closing with respect to all or a portion of the Option
Property shall be referred to herein as a "Closing." Commencing with the
Initial Closing and continuing until such time as Buyer's option rights on the
Option Property are terminated pursuant to this Agreement, Buyer agrees that it
shall be responsible for payment of all real estate taxes, personal property
taxes, ad valorem taxes, rollback taxes, general and special assessments, or any
other taxes imposed or levied against the Option Property. Buyer and Seller
agree to prorate such charges as of the date of termination of Buyer's option
rights with respect to any portion of the Option Property not purchased by
Buyer, with Buyer being responsible for all such taxes for the calendar year in
which such termination occurs through the date of termination, and Seller being
responsible for all such taxes after the effective date of such termination.
Seller shall provide to Buyer a statement setting forth all such taxes with
respect to the Option Property, together with supporting documentation, at least
thirty (30) days prior to such taxes becoming first due. If the Option Property
is a separately assessed tax parcel, Buyer shall remit such amount directly to
the applicable taxing authority prior to such taxes becoming delinquent; if the
Option Property is part of a larger tax parcel, Buyer shall pay the taxes with
respect to the Option Property to Seller prior to the date on which same would
become delinquent. Buyer shall have the right to protest the amount of such
taxes with respect to the Option Property so long as Buyer escrows the contested
tax amount with a third party escrow agent or as otherwise required by
applicable law so that such contest does not result in the imposition of any
lien upon the Option Property or other real property owned by Seller. Seller
agrees to reasonably cooperate with any such contest by Buyer provided that all
of Seller's costs and expenses (including reasonable attorneys' fees) in
connection therewith shall be paid by Buyer.
(b) After Buyer has closed on the Initial Purchase so long as Buyer is not
in default under this Agreement, Buyer may elect, at its sole option, to
purchase additional portions of the Property after the Closing of the Initial
Purchase, by providing written notice of such election to Seller. Buyer shall
deliver together with its notice of election a Survey (as defined in Paragraph 4
-----------
herein) identifying the applicable portion of the Option Property to be acquired
and a legal description thereof. In the event of any such election by Buyer
during the Option Period, the date that such notice is considered given or
delivered pursuant to Paragraph 21 of this Agreement shall be deemed the
------------
Effective Date with respect to such portion of the Option Property (each an
"Option Effective Date"); provided, however, that no Option Effective Date shall
be less than one hundred twenty (120) days prior to the expiration of the Option
Period. Buyer hereby agrees that in selecting the applicable portions of the
Option Property to be acquired under this Paragraph 2(b), Buyer shall generally
--------------
select portions of the Option Property in the sequences shown on the preliminary
concept sketch plan attached hereto as EXHIBIT B and incorporated herein by
---------
reference; provided, however, that Seller acknowledges that the progression of
acquisition and development shown on EXHIBIT B is strictly preliminary and that
---------
the exact size, acreage, and location of Buyer's elections are
2
<PAGE>
subject to change by Buyer during the course of this Agreement in accordance
with market and development conditions. Buyer, however, agrees that in making
its selections, (i) Buyer shall select portions of the Option Property which are
contiguous to those portions previously acquired by Buyer, (ii) the size and
acreage of each selection shall be sufficient for the development a minimum of
two (2) standard time-share buildings by Buyer in accordance with the
requirements of all applicable governmental authorities, (iii) that Buyer's
selections shall not leave Seller with any portion of the Option Property
without direct access to Central Parkway and (iv) that Seller shall have the
right to approve the precise configuration of each election, which Seller shall
not exercise in a commercially unreasonable manner (the parties agree it shall
not be commercially unreasonable to disapprove any configuration which leaves
gaps or gerrymanders the Property).
(c) In the event that Buyer shall exercise its option to purchase all or
any portion of the Option Property during the Option Period and shall fail to
close on the purchase thereof for any reason other than Seller's default, a
failure of a condition to Buyer's obligations under this Agreement, or the
exercise of Buyer's right to terminate its election within the applicable
Investigation Period pursuant to Paragraph 8 herein, then in such event Buyer's
-----------
option on the Option Property shall be terminated and Buyer shall have no
further rights to purchase any portion of the Option Property. Buyer may also,
at its election, voluntarily terminate its option rights under this Agreement at
any time prior to the expiration of the Option Period by written notice to
Seller.
(d) Seller hereby agrees to grant to Buyer upon reasonable request, any
utility, access, construction or other easements, and to join in granting and
dedicating to governmental authorities, utility companies or others providing
access or utility services as reasonably required by Buyer on, over, under or
across any portion of the Option Property, in order to permit Buyer to have
reasonable construction access to a public right-of-way and reasonable access to
utility services to serve those portions of the Property previously acquired by
Buyer to the extent such construction access or utility service is not otherwise
reasonably available to such portions of the Property owned by Buyer. Likewise,
Buyer hereby agrees to grant to Seller, upon reasonable request, any utility,
access, construction or other easements, and to join in granting and dedicating
to governmental authorities, utility companies or others providing access or
utility services as reasonably required by Seller on, over, under or across any
portion of the Property owned by Buyer or the Option Property not yet acquired
by Buyer, for reasonable access to utility services to serve that portion of the
Option Property not yet acquired by Buyer and other property owned by Seller and
adjoining the Property, to the extent that such utility service is not otherwise
reasonably available to such property owned by Seller. The location of any
easements granted under this Paragraph 2(d) shall in no event interfere with the
--------------
actual or contemplated development of the respective properties of Buyer and
Seller. This obligation shall survive each Closing so long as Buyer's option
rights under this Agreement are outstanding. Any utility easements granted
hereunder shall include the right to install, construct, replace, maintain and
repair the applicable utility facilities. In addition, any easement located on,
over, under or across the Option Property at Buyer's request pursuant to this
subparagraph (d) shall be subject to relocation by Seller at Buyer's cost and
expense in the event that Buyer does not acquire the portion of the Option
Property over which such easement is located and Buyer's option rights under
this Agreement are terminated or expired; provided, however, that the relocation
of said easements shall occur in a commercially reasonable manner with minimum
disruption of service to the portions of the Property served by such easement.
3. Purchase Price. The purchase price for the portions of the Property
--------------
to be purchased at each Closing (the "Purchase Price") shall be based on the
gross acreage of each portion purchased as
3
<PAGE>
determined from each Survey. The Purchase Price shall be payable in United
States currency by way of federal wire transfer or other immediately available
funds at each Closing. The Purchase Price for the Initial Purchase shall be
calculated on the basis of $139,600.00 per acre. Thereafter, the per acre price
for any additional portion of the Option Property purchased by Buyer shall be
determined by the date of Closing with respect to such portion of the Option
Property as follows:
(a) $139,600 per acre closed during the first twelve (12) months following
the Closing of the Initial Purchase;
(b) $153,560.00 per acre closed during months thirteen (13) through
twenty-four (24) following the Closing of the Initial Purchase;
(c) $168,900.00 per acre closed during months twenty-five (25) through
thirty-six (36) following the Closing of the Initial Purchase;
(d) $185,800.00 per acre closed during months thirty-seven (37) through
forty-eight (48) following the Closing of the Initial Purchase;
(e) $204,400.00 per acre closed during months forty-nine (49) through
sixty (60) following the Closing of the Initial Purchase;
(f) $224,800.00 per acre closed during months sixty-one (61) through
seventy-two (72) following the Closing of the Initial Purchase; and
(g) $247,300.00 per acre closed thereafter through the end of the Option
Period.
Provided, however, if Buyer shall make an election pursuant to Paragraph 2(b) at
--------------
least one hundred twenty (120) days prior to a scheduled Purchase Price increase
as set forth above, then in the event Buyer is unable to Close on the applicable
portion of the Option Property, despite diligent good faith efforts of Buyer,
prior to such scheduled Purchase Price increase going into effect, the Purchase
Price in effect on the Option Effective Date with respect to that portion of the
Option Property shall remain in effect for up to an additional thirty (30) days
after the Purchase Price increase would have become effective.
4. Survey. Buyer shall, at Buyer's sole expense, cause a survey of each
------
portion of the Property purchased under this Agreement (each a "Survey") to be
prepared by a registered land surveyor of Buyer's choosing and to such standards
as Buyer may require. To the extent reasonably available to Seller, Seller
shall provide all information available to Seller necessary to enable the
surveyor preparing each Survey to designate thereon the precise location(s) of
all underground utility lines, including, without limitation, electrical
transmission lines, telephone lines, cable television lines and natural gas
lines, within the bounds of each applicable portion of the Property. Buyer
agrees to cause the surveyor to indicate the acreage of each portion of the
Property to the nearest 1/100th of an acre. The description of the Property
contained in each Deed (as defined in Paragraph 6 herein) shall be prepared from
-----------
the respective Survey.
5. Closing. The Closing of the Initial Purchase shall take place on or
-------
before December 31, 1996 or such other date mutually agreed upon by Buyer and
Seller. If Buyer exercises its option to purchase any portion of the Option
Property pursuant to Paragraph 2(b) above, the Closing with respect thereto
--------------
shall take place, provided all conditions precedent thereto are met or waived,
on the date which is
4
<PAGE>
sixty (60) days following the expiration of Buyer's Investigation Period with
respect to such portion of the Option Property or on a prior date selected by
Buyer on at least ten (10) days' written notice to Seller.
6. Delivery of Deed; Title. At each Closing of any portion of the
-----------------------
Property, Seller shall deliver to Buyer a special warranty deed (each a "Deed")
in form and content satisfactory to Buyer's attorneys, conveying to Buyer a
good, indefeasible fee simple and insurable title to the Property, said title to
be insurable both as to fee and marketability thereof at regular rates of First
American Title Insurance Company or a title insurance company of national
recognition acceptable to Buyer (the "Title Company") without exception except
as to those matters enumerated herein. The Property shall be conveyed by Seller
to Buyer free and clear of all liens, encumbrances, claims, rights-of-way,
easements, leases, restric tions and restrictive covenants, except that said
Property may be conveyed subject only to the matters and exceptions set forth in
the Deed delivered at the Initial Closing and such other matters as Buyer may
approve in writing (the "Permitted Exceptions").
Seller has delivered to Buyer copies of any existing title information
relating to the Property and in the possession of or reasonably available to
Seller. Buyer at its expense shall have through two (2) days prior to the
Initial Closing within which to cause title to the Property to be examined
("Buyer's Initial Title Examination Period") and to give Seller written notice
(the "Objection Notice") setting forth any objection(s) (other than the
Permitted Exceptions) to Seller's title to the Property. In the event Buyer
fails to deliver the Objections Notice prior to the expiration of Buyer's
Initial Title Examination Period, Buyer shall be deemed to have waived all
rights under this paragraph as to title matters of record as of effective date
of such title examination (the "Examination Date"). Seller shall have the
option, but shall not be obligated, to cure any such title objection and shall
notify Buyer prior to the Initial Closing whether or not it intends to satisfy
any such title objections. Failure by Seller to provide such notice prior to
the Initial Closing shall be deemed a refusal by Seller to cure any such title
objections. If Seller shall refuse to cure or satisfy any title objections
contained in the Objection Notice, then, at the option of Buyer, evidenced by
written notice to Seller given on or before the Initial Closing, Buyer may: (i)
terminate this Agreement and such termination shall not be a default by Buyer
under Paragraph 17(a), or (ii) elect to accept title to the Property
---------------
irrespective of such title objections without reduction of the Purchase Price.
Buyer's consummation of the Initial Closing shall be deemed an election of
choice (ii) above. If Seller shall agree to satisfy any title objection noted
in the Objection Notice, it shall be a condition precedent to Buyer's obligation
to purchase any portion of the Property affected by any such title matter that
Seller satisfy such title matter prior to the applicable Closing with respect to
such affected portion of the Property.
From and after the Effective Date, Seller covenants and agrees that is
shall not, without the prior written consent of Buyer, which shall not be
unreasonably withheld or delayed, permit any lien, encumbrance, or other matter
to attach to or affect title to any portion of the Property; provided, however,
that the parties acknowledge that certain sewer, water, stormwater and drainage
easements will be located across the Option Property as preliminarily located on
EXHIBIT A attached hereto and incorporated herein, except that the exact
- ---------
location of such easements will be subject to relocation (i) as Buyer and Seller
shall mutually agree in connection with the development of the Option Property
and (ii) by Seller as set forth in the last sentence of Paragraph 2(d) herein.
--------------
With respect to any matters of title to the Property which first arise, occur or
appear of record after the Examination Date and to which Buyer has not consented
in writing ("New Title Matters"), Seller shall take all action(s) necessary to
clear all New Title Matters prior to Buyer being obligated to close on the
portion of the Property affected thereby pursuant to the terms of this
Agreement. Seller shall clear any New Title Matter within thirty (30) days of
receiving notice thereof. If Seller shall fail to satisfy any New Title Matter
prior to the applicable Closing, Buyer shall be entitled
5
<PAGE>
to take any action necessary to clear such New Title Matters and receive a
credit against the applicable Purchase Price for the costs and expenses thereof.
7. Zoning; Contemplated Use. The obligations of Buyer under this
------------------------
Agreement are in all respects conditioned upon and subject to (i) each portion
of the Property being annexed and rezoned to a TA-55 classification or
equivalent classification which permits the Contemplated Use (as hereinafter
defined) by the City of Myrtle Beach as of its respective Closing, and (ii)
there then being no pending or proposed application for any rezoning or change
in zoning not consented to by Buyer that would apply to the Property or any
portion thereof which would inhibit or prohibit the development and utilization
of the Property for hotels, motels, and other transient occupancy
accommodations, including time-share, vacation clubs and resort condominiums,
multifamily developments, parking facilities and other accessory uses in
connection therewith and which are consistent with the uses specified above (the
"Contemplated Use") or which would increase the costs of developing and using
the Property for the Contemplated Use. In the event Seller obtains knowledge of
any application or proposal for rezoning or change in zoning of the Property or
any portion thereof which would inhibit or prohibit the development and
utilization of the Property for the Contemplated Use or which would increase the
costs of developing and using the Property for the Contemplated Use, Seller
shall immediately notify Buyer and then Buyer, in Buyer's sole discretion, shall
have the option of (i) terminating this Agreement by declaring said Agreement
null and void, whereupon the parties hereto shall have no further rights,
obligations or liabilities with respect to each other hereunder or (ii)
terminating its election as to the applicable portion of the Property upon
written notice to Seller, which termination shall not be a default under
Paragraph 17(a). Seller covenants, represents and warrants to Buyer that it
- ---------------
will not apply for, encourage or consent to any zoning or rezoning of any
portion of the Property without Buyer's prior written consent, except for the
annexation and rezoning (to a TA-55 classification or equivalent classification
which permits the Contemplated Use) by the City of Myrtle Beach. All terms and
conditions of such annexation and rezoning shall be subject to the reasonable
approval of Buyer. Buyer agrees to cooperate with Seller in such annexation and
rezoning process and agrees to pay for all necessary surveys required in
connection therewith. Seller agrees that Buyer, so long as Buyer is not in
default under this Agreement, shall have the right, at Buyer's option, to
request Seller to annex and rezone the entire remaining Option Property as
provided in this Paragraph 7, provided that any such request should not be given
-----------
later than one hundred twenty (120) days prior to a pending Closing on any
portion of the remaining Option Property.
Notwithstanding anything to the contrary contained herein, in the event of
a rezoning of any portion of the Option Property initiated by a party
unaffiliated with Seller to a classification which would prohibit the
Contemplated Use, then in such event Buyer may elect to exercise its option to
purchase any portion of the Option Property affected by such rezoning
(consistent with the requirements of Paragraph 2(b) herein); provided, however,
--------------
that Buyer's election must occur within one (1) year of the date upon which such
rezoning becomes final and, provided further that in the event Buyer fails to
exercise its election to purchase such affected portion of the Option Property
within said one-year period, its option with respect to such portion shall
terminate and Buyer's option with respect to the remainder of the Option
Property not affected by such rezoning shall remain in effect consistent with
the requirements of Paragraph 2(b) above.
--------------
Buyer agrees that its intent is to develop time-share units on the Property
and that Buyer shall use reasonable best efforts to do so; provided, however,
that such intent shall in no way limit Buyer's right to use the Property for any
use encompassed within the Contemplated Use.
6
<PAGE>
8. Pre-Closing Rights and Privileges. From the Effective Date until such
---------------------------------
time as all portions of the Property are purchased by Buyer or this Agreement is
otherwise terminated, Buyer, Buyer's authorized agents and employees, as well as
others authorized by Buyer, shall be entitled to enter upon the Property to
conduct and complete investigations with respect to environmental conditions,
soils conditions, flood and drainage conditions, access, land use regulations,
building standards regulations, infrastructure investigation (including
availability of all utilities), and surveying (the "Investigations"); provided,
however, none of the Investigations so conducted will result in any material
adverse change to the physical characteristics of any portion of the Property
and Buyer shall return the Property to the same condition as existed prior to
the Investigations to the extent reasonably practicable. Buyer agrees to comply
with all applicable laws and local regulations in conducting the Investigations
and to indemnify and hold Seller harmless from and against any and all claims,
costs, expenses, and liabilities for personal injury or damage to the property
or third parties, including reasonable attorneys' fees, arising out of or by
reason of the Investigations of Buyer or Buyer's agents prior to settlement or
other termination of this Agreement; provided, however, such indemnification
obligations shall exclude any claims, costs, expenses and liabilities arising
out of (i) the discovery of, or the accidental or inadvertent release of, any
Substances (as defined in Paragraph 13(g) herein) resulting from the
---------------
Investigations conducted in a commercially reasonable manner, which Substances
were in, on or under the Property prior to the Investigations or (ii) the
negligence of Seller or Seller's employees or agents.
If Buyer shall not be satisfied with any of the Investigations, in Buyer's
sole discretion, Buyer shall have the unqualified right at any time (i) prior to
the Initial Closing with respect to the Initial Purchase and (ii) the sixty (60)
day period following each applicable Option Effective Date (each an
"Investigation Period"), to terminate its election as to the portion of the
Property which is subject to such Investigations by giving written notice
thereof to Seller and any such termination shall not be a default by Buyer under
Paragraph 17(a) herein. If such termination relates to the Initial Purchase,
- ---------------
then this Agreement shall terminate and neither party shall have any further
obligations hereunder.
9. Mechanics' or Materialmen's Liens. Seller agrees to provide at each
---------------------------------
Closing an executed owner's affidavit or other document(s) required by the Title
Company as a condition to the issuance of a final title insurance policy in
favor of Buyer with affirmative coverage against the possible lien claims of
mechanics, laborers and materialmen. Additionally, Seller shall discharge in
full any and all such indebtedness on the portion of the Property being acquired
at or before each Closing, or at its election, provide Buyer with such other
commercially reasonable protections as may be appropriate under the
circumstances such as bonding or affirmative title insurance coverage.
10. Risk of Loss. Risk of loss or damage by fire or other casualty until
------------
the date of Closing for each applicable portion of the Property and delivery of
the Deed as to each portion of the Property shall remain with Seller.
11. Waste. Buyer's obligations under this Agreement are in all respects
-----
conditioned upon and subject to the Property being in substantially the same
condition at each Closing as exists on the Effective Date subject to
installation of utilities on the Option Property as described in Paragraph 6
-----------
herein and any alterations to the Option Property caused by Buyer's
Investigations. Seller represents, subject to the exceptions noted in the
immediately preceding sentence, that it will not cause or permit any grading of
any portion of the Property to which it retains title or any trees or shrubbery
to be cut on any portion of the Property to which they retained title without
the prior written consent of Buyer or its assigns.
7
<PAGE>
12. Closing Costs. Seller shall furnish and pay the expense of
-------------
preparation of each Deed, the recording fee required by South Carolina Code
(S)12-24-10 et. seq. and the fees and costs of Seller's own attorney. Seller
--------
shall also be responsible for and discharge prior to delinquency all assessments
(special or otherwise), rollback or deferred taxes and charges placed against or
applicable to the Property relating to periods prior to January 1, 1997. Buyer
shall pay for the expense of filing each Deed, the cost of each Survey, the cost
of all title searches, the title insurance premium for coverage provided by the
Title Company insuring Buyer's title to the applicable portion of the Property
in an amount equal to the full Purchase Price to be paid therefor and the fees
and costs of Buyer's own attorney.
13. Conditions Precedent to Buyer's Obligations. In addition to any other
-------------------------------------------
conditions precedent to the performance of Buyer's obligations under this
Agreement, the obligations and liabilities of Buyer hereunder shall in all
respects be conditioned upon satisfaction of each of the following conditions
precedent as of each respective Closing with respect to the portion of the
Property being acquired at such Closing (any of which may be waived by written
notice from Buyer to Seller):
(a) Seller shall own marketable fee simple and insurable title to the
Property on the date of each Closing, subject only to the Permitted
Exceptions.
(b) Seller shall have entered into no agreement, oral or written, not
referred to herein, with reference to the Property, and neither Seller
nor the Property shall be subject to any judgment or decree of a court
of competent jurisdiction, or to any litigation or administrative
proceeding which would in any way affect the Property or which would
in any way be binding upon Buyer, or Buyer's assigns or restrict in
any way Seller's right or ability to enter into this Agreement and
consummate the transactions contemplated hereby. In addition, no
further action shall be required as a prerequisite to the
enforceability of this Agreement against Seller, in accordance with
its terms.
(c) Neither Seller nor any agent of Seller shall have received any notices
from any city, county or any governmental authority of any taking of
the Property, or any portion thereof, by eminent domain or similar
proceeding, and no such taking or other condemnation of the Property,
or any portion thereof, shall be threatened or contemplated by any
such governmental authority.
(d) The Initial Purchase shall be contiguous to and have direct vehicular
access to the right-of-way of Central Parkway in accordance with the
Contemplated Use.
(e) Seller shall have presented evidence satisfactory to Buyer, Buyer's
attorneys and the Title Company with respect to the right, power and
authority of designated representative(s) of Seller to execute and
deliver the closing documents and consummate the sale of the Property.
(f) The Title Company is willing and is prepared to issue to Buyer upon
the Closing a fee owner's policy of title insurance meeting the
requirements of Paragraph 6 herein and using the standard ALTA Owner's
-----------
Title Policy form.
(g) No toxic or hazardous material or waste limited or regulated by any
governmental or quasi-governmental authority, or that, even if not so
limited or regulated, could or does
8
<PAGE>
pose a hazard to the health or safety of the occupants of the Property
or adjacent properties (collectively, "Substances"), including, but
not limited to, asbestos, polychlorinated biphenyls, petroleum
products and substances regulated under any feder al, state or local
environmental statute, law, order, ordinance, regulation, rule, re
quirement or right or remedy existing under common law or in equity
(collectively, the "Statutes and Laws") has been or, prior to the
Closing, shall be, located, released (within the meaning of 42 U.S.C.
(S) 9601(22)), stored, treated, generated, transported to or from,
disposed of (with the meaning of 42 U.S.C. (S) 6903(3)) or allowed to
escape on the Prop erty, including, without limitation, the surface
and subsurface waters of the Property. No endangered species of plants
or animals shall be located within the boundaries of the Property and
no portion of the Property has been or, prior to Closing, shall be a
critical habitat for an endangered species. No above ground storage
tanks ("ASTs") or under ground storage tanks ("USTs") shall have been
located on the Property or, if located on the Property, shall have
been subsequently removed and disposed of in full compliance with all
applicable Statutes and Laws (satisfactory evidence of which shall
have been provided to Buyer). No portion of the Property shall have
been used for waste treatment, storage or disposal, and no wetlands
shall be located within the boundaries of the Property. No
investigation, administrative or judicial order, governmental notice
of noncompliance or violation, remediation action plan, consent order
and/or agreement, administrative proceeding, civil or criminal
litigation or settlement under Statutes and Laws or with respect to
Substances, ASTs or USTs shall be proposed, threatened, antici pated
or in existence with respect to the Property. No notice shall have
been served on or delivered to Seller from any entity, governmental
body or individual claiming any violation of any Statutes and Laws or
demanding payment or contribution for environ mental cleanup costs,
environmental damage, harm to endangered species, or injury to natural
resources, or asserting liability with respect to same.
(h) In the event a subdivision is required pursuant to applicable law in
connection with the conveyance of any portion of the Property to
Buyer, all necessary approvals respecting such subdivision shall have
been obtained and shall be final and nonappealable prior to or as of
each Closing. The costs of completing any such subdivision shall be
Buyer's responsibility, and the terms of any such subdivision shall be
acceptable to Buyer.
(i) It shall be a condition to the Initial Closing that Buyer and Seller
execute a Memorandum in recordable form sufficient to provide record
notice of Buyer's option to acquire the Option Property after the
Initial Purchase herein. Recording, filing and like charges and any
stamp, charge for recording, transfer or other tax in connection with
said Memorandum shall be paid by Buyer. In the event of termination
of this Agreement, within thirty (30) days after written request from
Seller, Buyer agrees to execute, acknowledge and deliver to Seller an
agreement removing such Memorandum from record. If Buyer fails to
execute such agreement within said thirty (30) day period or fails to
notify Seller within said thirty (30) day period as to its reasons for
refusing to execute such agreement, Seller is hereby authorized to
execute and record such agreement removing said Memorandum from
record.
14. Conditions Precedent to Seller's Obligations. The obligations and
--------------------------------------------
liabilities of Seller hereunder shall in all respects be conditioned
upon satisfaction of each of the following
9
<PAGE>
conditions precedent as of each Closing (any of which may be waived by
written notice from Seller to Buyer):
(a) All of the representations and warranties of Buyer set forth herein
shall be true in all material respects.
(b) Buyer shall be in material compliance with all performance
requirements of Buyer under this Agreement as of each Closing,
including the provisions of Paragraph 2(b) herein.
--------------
(c) Buyer shall have presented evidence satisfactory to Seller and
Seller's attorneys with respect to the right, power and authority of
designated representative(s) of Buyer to execute and deliver the
closing documents and consummate the purchase of each portion of the
Property.
15. Seller's Representations and Warranties. Seller hereby makes the
---------------------------------------
following representations and warranties to Buyer, each of which shall be
deemed material:
(a) Seller has good, indefeasible and marketable fee simple title to the
Property, and, at the time of each Closing with respect to the portion
of the Property then being acquired, there are no mechanics' liens,
contractors' claims, unpaid bills for material or labor pertaining to
the Property, nor any other similar liens which might adversely affect
Seller's title to the Property, except for current ad valorem real
estate taxes and rollback taxes.
(b) There are no tenants or other persons or entities on the Property
which will have a right of possession beyond the date of each Closing.
(c) To the best of Seller's knowledge without investigation, there are no
pending, threatened or contemplated condemnation actions involving all
or any portion of the Property and Seller has received no notice of
any such action. If, between the Effective Date and any Closing, any
portion of the Property is subject to pending, threatened or
contemplated condemnation action by any governmental agency, Buyer
shall have the option, in Buyer's sole discretion, of declaring this
Agreement null and void. Seller shall notify Buyer within five (5)
business days of receipt of any information concerning any such
condemnation action, and in turn Buyer must elect within thirty (30)
business days from the date of receipt of the said information whether
to (i) terminate Buyer's election as to the applicable portion of the
Property or (ii) proceed to close the transaction and receive an
assignment of all of Seller's right, title and interest in and to any
condemnation award. If Buyer elects (ii), Seller shall fully
cooperate, at no expense however to Seller, with Buyer in any
condemnation action.
(d) As of each Closing, no maintenance, management, service, supply,
employment or other contracts shall exist with respect to the Property
acquired at such Closing.
(e) From the Effective Date through each Closing, Seller shall:
10
<PAGE>
(1) Maintain the Property in the same condition as presently exists,
except for (i) reasonable wear and tear (ii) construction and
installation of water and sewer lines through the Property
pursuant to easements as described in Paragraph 6 herein and
-----------
(iii) any alterations caused by Seller's Investigations.
(2) Perform all of its obligations under any contracts respecting the
Property and promptly notify Buyer of any default thereunder.
(3) Provide Buyer or its representatives reasonable access to the
Property and reasonable access to all engineering information,
reports, soil tests, surveys, plans and records available to
Seller relating to the Property.
(4) Refrain from entering into, or negotiating with regard to, any
contract or commitment or from incurring any expenditure or
obligation affecting the Property or the title thereto which
would extend beyond any Closing or would involve payments that
would not be paid in full prior to any Closing without the prior
written consent of Buyer.
(5) Pay promptly indebtedness secured by deed(s) to secure debt or
other liens, and generally all expenses incurred by Seller
(except taxes which Buyer shall pay pursuant to Paragraph 2(a)
--------------
herein) in the operation of the Property, which may arise out of
or accrue because of Seller's ownership or operation of the
Property.
(6) Make no lease or rental of the Property or any portion thereof
without the prior written consent of Buyer, or negotiate,
actively market or enter into any other contract or option for
the sale of the Property or any portion thereof, or further
encumber the Property with any restriction or easement (other
than as contemplated pursuant to the terms of this Agreement).
(f) The entry into this Agreement, the execution and delivery of all
instruments and documents required to be executed and delivered under
the terms hereof, and the performance of all acts necessary and
appropriate for the full consummation of the transaction contemplated
hereunder are consistent with, and not in violation of, and will not
create any adverse condition under any contract, agreement, or
instrument to which Seller is a party, or any judicial order or
judgment of any nature under which Seller is bound. In addition,
Seller has taken or caused to be taken all actions required to render
this Agreement enforceable against Seller in accordance with its
terms.
(g) Seller has not received, with respect to the Property, any notice from
any insurance company, governmental agency, adjacent landowners or any
other party of (i) any condition, defect, or inadequacy that, if not
corrected, would result in termination of insurance coverage or
increase its costs, (ii) any violation of building codes and/or zoning
ordinances, subdivision ordinances, watershed regulations, or other
governmental laws, regulations or orders, (iii) any proceedings that
could or would cause the change, redefinition, or other modification
of the zoning classification, or of other legal requirements
applicable to the Property or any part thereof, or any property
adjacent to the Property, (iv) any moratorium that could or would in
any way impair the development
11
<PAGE>
and use of the Property for the Contemplated Use or (v) any
significant adverse fact or condition relating to the Property or its
Contemplated Use that has not been disclosed in writing to Buyer by
Seller. The representations and warranties in (iv) and (v) above shall
be limited to the best of Seller's knowledge without investigation.
(h) Seller, to the best of its knowledge without investigation, is unaware
of any proposal to change, limit or deny access to the Property from
Central Parkway.
(i) Seller is not a "foreign person" which would subject Buyer to the
withholding tax provisions of Section 1445 of the Internal Revenue
Code of 1986, as amended, and, at each Closing, Seller agrees to
deliver to Buyer a certification, under penalty of perjury, in a form
approved under regulations promulgated pursuant to Section 1445 of the
Internal Revenue Code of 1986, as amended, to the effect that Seller
is not a foreign person.
(j) To the best of Seller's knowledge without investigation: (i) no
Substances have been or shall (to the extent controllable by Seller),
prior to the Closing, be located, released (within the meaning of 42
U.S.C. (S) 9601(22)), stored, treated, generated, transported to or
from, disposed of (within the meaning of 42 U.S.C. (S) 6903(3)) or
allowed to escape on the Property, including, without limitation, the
surface and subsurface waters of the Property; (ii) no ASTs or USTs
are located on the Property or were located on the Property and
subsequently removed or filled; (iii) no portion of the Property has
been used in the past for waste treatment, storage, or disposal, and
no wetlands are located within the boundaries of the Property; (iv) no
endangered species of plants or animals are located within the
boundaries of the Property and no portion of the Property has been or,
prior to Closing, will be a critical habitat for an endangered
species; (v) no investigation, administrative or judicial order,
governmental notice of noncompliance or violation, remediation action
plan, consent order and agreement, administrative proceeding, civil or
criminal litigation or settlement under Statutes and Laws or with
respect to Substances, ASTs or USTs is proposed, threatened,
anticipated or in existence with respect to the Property.
The Property and Seller's operations thereon are and, to the best
of Seller's knowledge without investigation, in the past have been in
compliance with all applicable Statutes and Laws. No notice has been
or will (to the best of Seller's knowledge, information and belief)
prior to each Closing, be served on or delivered to Seller from any
entity, governmental body or individual claiming any violation of any
Statutes and Laws or demanding payment or contribution for
environmental cleanup costs, environmental damage, harm to endangered
species, or injury to natural resources, or asserting liability with
respect to same. Copies of any such notices received on or after the
Effective Date (including after each Closing) shall be forwarded to
Buyer within three (3) days of their receipt. If Seller has conducted
or has access to an "environmental audit" or other environmental
study, report or information respecting the Property, Seller shall
provide Buyer with a true and complete copy of same within ten (10)
days following the Effective Date.
(k) SELLER MAKES NO WARRANTIES OR REPRESENTATIONS WHATSOEVER AS TO THE
INTENDED DEVELOPMENT BY BUYER ON THE PROPERTY OR THE SUCCESS THEREOF
OR ANY OTHER PROPERTIES WHICH ARE OWNED BY
12
<PAGE>
SELLER IN THE VICINITY OF THE PROPERTY, WHETHER OR NOT IN THE GENERAL
VICINITY OF THE PROPERTY.
Except as otherwise specifically provided in this Agreement, all
representations and warranties of Seller contained in this Agreement or any
document or exhibit required to be executed by Seller pursuant hereto shall be
true in all material respects with respect to the Property as of the Effective
Date and the Initial Closing, and at each Closing thereafter with respect to the
portion of the Option Property being acquired at such Closing and the remaining
portion of the Option Property not yet acquired by Buyer pursuant to this
Agreement, as though such representations and warranties were made at such time.
If Seller acquires knowledge of any fact(s) rendering any of the foregoing
representations and warranties false at any time prior to any Closing with
respect to that portion of the Option Property not yet acquired by Buyer, Seller
shall immediately notify Buyer in writing of such fact(s).
16. Buyer's Representations and Warranties. Buyer hereby makes the
--------------------------------------
following representa tions and warranties to Seller, each of which
shall be deemed material:
(a) Buyer is a duly organized limited partnership and is validly existing
and in good standing under the laws of the State of South Carolina.
Buyer has the right, power and authority to enter into this Agreement,
to purchase the Property in accordance with the terms and conditions
hereof, and to consummate the other transactions contemplated herein.
This Agreement, when executed and delivered by Buyer, will be a legal,
valid and binding obligation on Buyer enforceable in accordance with
its terms.
(b) There is no litigation or dispute, judgment or execution of any nature
whatsoever pending or, to the best of Buyer's knowledge threatened,
against Buyer which could adversely affect Buyer's ability to enter
into this Agreement and consummate the transactions contemplated
hereby.
(c) Neither the execution, the delivery of this Agreement, nor the
consummation of the transactions provided for in this Agreement will
(i) result in the breach of any of the terms or provisions of, or
constitute a default under any other contract or agreement to which
Buyer is a party or is bound; or (ii) conflict with or violate any
law, rule, regulations, ordinance, order, writ, injunction, judgment,
code or decree applicable to Buyer.
17. Remedies on Default.
-------------------
(a) Buyer's Default. In the event that the terms and conditions of this
---------------
Agreement have been satisfied and Buyer refuses or is unable to
purchase any portion of the Property within the time limits herein set
forth, Seller, as Seller's sole and exclusive remedy, shall be
entitled to declare this Agreement canceled and collect from Buyer as
full liquidated damages the amount of Fifty Thousand and No/100
Dollars ($50,00.00), and the parties hereto shall have no further
rights, obligations or liabilities with respect to each other
hereunder. Seller and Buyer have agreed that the foregoing amount
constitutes a good faith estimate of the damages which Seller would
sustain by virtue of Buyer's default, Seller's actual damages being
difficult, if not impossible, to ascertain. Additionally, with
respect to any performance obligations of Buyer pursuant to this
Agreement other than Buyer's obligation to purchase any portion of
Property, Seller shall be entitled to seek
specific performance
13
<PAGE>
by injunction or otherwise of such obligations of Buyer under this
Agreement and seek damages and any other remedies available at law or
in equity, provided that Seller shall in no event have a right to seek
any remedy with respect to Buyer's obligations to purchase any portion
of the Property other than the liquidated damages set forth above.
Notwithstanding the foregoing, Seller shall also have the rights
afforded pursuant to Paragraph 23(e) herein, if applicable.
---------------
(b) Seller's Default. In the event that Seller is unable, after exerting
----------------
reasonable and good faith effort, to convey title to the applicable
portion of Property at each Closing or to otherwise perform pursuant
to the terms of this Agreement, Buyer shall have the right and option,
as Buyer's sole and exclusive remedy, to either (i) immediately
terminate its election as to the applicable portion of the Property
upon written notice to Seller, or (ii) demand and compel by legal
proceedings (including specific performance) full compliance with the
terms of this Agreement, including, without limitation, the immediate
convey ance of the Property, or so much thereof as is applicable, by
Seller, or (iii) with respect to the performance obligations of Seller
pursuant to this Agreement other than those relating to the conveyance
of the Property hereunder, to seek such damages as to which it may be
entitled.
(c) Attorneys' Fees. In the event suit is brought to enforce or interpret
---------------
all or any portion of this Agreement or if suit is brought for
liquidated damages or for any other relief permitted hereunder, the
party, if any, awarded costs in such suit shall be entitled to
recover, as an element of such costs, and not as damages, reasonable
attorneys' fees incurred in connection with such suit. Without
limiting the generality of the foregoing, attorneys' fees shall be
determined at the normal hourly rates charged by the person doing the
work, regardless of whether said fees bear a reasonable relationship
to the relief obtained. A party which is not entitled to recover
costs in any such suit shall not be entitled to recover its attorneys'
fees.
(d) No Waiver. No waiver by any party of any default under this Agreement
---------
shall be effective or binding on such party unless made in writing by
such party, and no such waiver shall be implied from any omission by
such party to take action in respect to such default. No express
written waiver of any default shall affect any other default or cover
any other period of time other than any default and/or period of time
specified in such express waiver. One or more written waivers of any
default under any provision of this Agreement shall not be deemed to
be a waiver of any subsequent default in the performance of the same
or any other provision of this Agreement.
18. Brokerage. Seller and Buyer represent and warrant each to the other
---------
that they have not dealt with any broker in connection with this transaction
except Southern Property Management Inc. ("Broker"). Buyer shall be exclusively
responsible for paying Broker its brokerage commission as set forth in a
separate agreement between Buyer and Broker. Each party agrees to indemnify and
hold the other harmless from and against any and all other claims, demands or
the cost and expense thereof, including reasonable attorneys' fees, arising out
of any other brokerage commission, fee or other compensation due or alleged to
be due in connection with the transaction contemplated by this Agreement based
upon an agreement alleged to have been made or other action alleged to have been
taken by the indemnifying party.
14
<PAGE>
19. Survival of Provisions. All covenants, representations, warranties,
----------------------
obligations and agreements set forth in this Agreement shall survive the
Closing.
20. Assignment of Buyer's Interest.
------------------------------
(a) General. Seller and Buyer understand and agree that this Agreement is
-------
personal to Buyer and that, except as otherwise specifically provided
in Paragraph 19(b) herein, Buyer may not, without Seller's prior
---------------
written consent (which consent Seller may withhold or deny in Seller's
sole discretion), assign Buyer's right, title and interest in and to
this Agreement at any time to any party.
(b) Related Entities. Notwithstanding the general prohibition in
----------------
Paragraph 19(a) herein, Buyer shall be entitled, without seeking
---------------
Seller's consent, to assign all of Buyer's right, title and interest
in and to this Agreement to any other entity that is either controlled
by, or under the common control with, Buyer, which assumes all of
Buyer's obligations under this Agreement, and in which Raymond L.
Gellein, Jr. or Jeffrey Adler is a managing officer.
21. Notices. Any notices, requests, or other communications required or
-------
permitted to be given hereunder shall be in writing and shall be either (i)
delivered by hand, (ii) mailed by United States registered mail, return receipt
requested, postage prepaid, (iii) sent by a reputable, national overnight
delivery service (e.g., Federal Express, Airborne, etc.) or (iv) sent by
----
facsimile (with the original being sent by one of the other permitted means or
by regular United States mail) and addressed to each party at the applicable
address set forth herein. Any such notice, request, or other communication
shall be considered given or delivered, as the case may be, on the date of hand
delivery (if delivered by hand), on the third (3rd) day following deposit in the
United States mail (if sent by United States registered mail), on the next
business day following deposit with an overnight delivery service with
instructions to deliver on the next day or on the next business day (if sent by
overnight delivery service), or on the day sent by facsimile (if sent by
facsimile, provided the original is sent by one of the other permitted means as
provided herein in this Paragraph 21 or by regular United States mail).
------------
However, the time period within which a response to any notice or request must
be given, if any, shall commence to run from the date of actual receipt of such
notice, request, or other communication by the addressee thereof. Rejection or
other refusal to accept or inability to deliver because of a changed address of
which no notice was given shall be deemed to be receipt of the notice, request,
or other communication. By giving at least ten (10) days prior written notice
thereof, any party hereto may, from time to time and at any time, change its
mailing address hereunder.
Seller: Myrtle Beach Farms Company, Inc.
------
Founders Centre
2411 Oak Street
Suite 402
Myrtle Beach, South Carolina 29577
Attention: President
Telephone: (803) 448-5123
Facsimile: (803) 448-9838
15
<PAGE>
With a copy to: Fennebresque, Clark, Swindell & Hay
--------------
100 North Tryon Street, Suite 2900
Charlotte, North Carolina 28202
Attention: Lee Ann Rooney, Esq.
Telephone: (704) 347-3800
Facsimile: (704) 347-3838
Buyer: Vistana Myrtle Beach, L.P.
-----
8801 Vistana Centre Drive
Orlando, Florida 32821
Attention: Raymond L. Gellein, Jr.
Chairman; and
Susan Werth, Esq.
Senior Vice President - Law
Telephone: (407) 239-3009
Facsimile: (407) 239-3198
With a copy to: Kennedy Covington Lobdell & Hickman, L.L.P.
100 North Tryon Street, Suite 4200
Charlotte, North Carolina 28202
Attention: E. Allen Prichard, Esq.
Telephone: (704) 331-7497
Facsimile: (704) 331-7598
22. Miscellaneous.
-------------
(a) The term "Effective Date," as used in this Agreement, shall be deemed
to refer to the date a fully executed original of this Agreement is
delivered to each party hereto, and the Effective Date shall be
inserted as the date of this Agreement in the introductory para graph
of this Agreement.
(b) This Agreement constitutes the entire agreement between the parties
hereto with respect to the transaction contemplated herein; and it is
understood and agreed that there are no oral or written agreements
between the parties, nor any representations made by either party
relative to the subject matter hereof, which are not expressly set
forth herein. This Agreement may not be changed orally, but only by
an agreement in writing signed by both Buyer and Seller; and no waiver
of any of the provisions in this Agreement shall be valid unless in
writing and signed by the party against whom such waiver is sought to
be enforced.
16
<PAGE>
(c) The provisions of this Agreement shall inure to the benefit of, and
shall be binding upon, the parties hereto and their respective heirs
and permitted successors and assigns, as may be applicable.
(d) If the final day of any period of time set out in any provision of
this Agreement, falls on a Saturday, Sunday or holiday recognized by
national banks in South Carolina, then in such case, such period shall
be deemed extended to the next day which is not a Saturday, Sunday or
holiday recognized by national banks in South Carolina or in Orlando,
Florida ("Business Day").
(e) No presumption shall be created in favor of or against Seller or Buyer
with respect to the interpretation of any term or provision of this
Agreement due to the fact that this Agreement was prepared by or on
behalf of one of said parties.
(f) Words of any gender used in this Agreement shall be held and construed
to include any other gender, and words in the singular number shall be
held to include the plural and vice versa, unless the context requires
otherwise.
(g) The captions used in connection with the paragraphs of this Agreement
are for reference and convenience only and shall not be deemed to
construe or limit the meaning of the language contained in this
Agreement or be used in interpreting the terms and provisions of this
Agreement.
(h) This Agreement may be executed in two or more counterparts and shall
be deemed to have become effective when and only when one or more of
such counterparts shall have been signed by or on behalf of each of
the parties hereto (although it shall not be necessary that any single
counterpart be signed by or on behalf of each of the parties hereto,
and all such counterparts shall be deemed to constitute but one and
the same instrument), and shall have been delivered by each of the
parties to the other.
(i) When anything is described or referred to in this Agreement in general
terms and one or more examples or components of what has been
described or referred to generally is associated with that description
(whether or not following the word "including"), the examples or
components shall be deemed illustrative only and shall not be
construed as limiting the generality of the description or reference
in any way.
(j) If any provision of this Agreement is held to be illegal, invalid or
unenforceable under present or future laws, such provision shall be
fully severable; this Agreement shall be construed and enforced as if
such illegal, invalid or unenforceable provision had never comprised a
part of this Agreement; and the remaining provisions of this Agreement
shall remain in full force and effect and shall not be affected by the
illegal, invalid or unen forceable provision or by its severance from
this Agreement. Furthermore, in lieu of such illegal, invalid or
unenforceable provision, there shall be added automatically as a part
of this Agreement a provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible and be legal,
valid or enforceable.
(k) This Agreement is intended to be performed in the State of South
Carolina and shall be
17
<PAGE>
construed and enforced in accordance with the laws of said State. The
parties agree to waive any objections to venue and to submit to the
exclusive jurisdiction of the federal and state courts in Horry
County, South Carolina.
(l) This Agreement shall not be recorded or placed of public record under
any circumstances, except with the prior written consent of Seller and
Buyer, subject to the Memorandum described in Paragraph 13(i).
---------------
(m) This Agreement shall not be deemed, held or construed as creating a
partnership or joint venture or any other business relationship, other
than that of seller and buyer, among the parties hereto.
(n) With respect to any notice and cure periods provided for under this
Agreement, time shall be of the essence with respect to the
performance of any such cure within the applicable period.
23. Development Timetables.
----------------------
(a) Approval. Within one hundred twenty (120) days after a Closing on any
--------
portion of the Property, Buyer shall submit to Seller copies of the plans and
specifications (the "Plans") which Buyer intends to submit to the applicable
governmental authorities in connection with the issuance of required permits for
the initial development thereof. Seller shall have thirty (30) days from the
date of receipt to review and approve the Plans and such approval shall not be
unreasonably withheld or delayed, but may be based upon purely aesthetic grounds
determined in the reasonable discretion of Seller. Seller agrees to make good
faith efforts to review, comment and object or approve the Plans as expediently
as possible during the thirty (30) day period. The Seller shall specify any
objections to the Plans in written detail prior to the expiration of said thirty
(30) day period. If no such written objections are received by Buyer prior to
the expiration of said period, the Plans shall be deemed approved as submitted.
After approval, no material changes to such plans shall be made without the
prior written approval of Seller consistent with this Paragraph. In the event
of a dispute pursuant to this Paragraph 23, Buyer and Seller agree that such
------------
dispute shall be submitted to binding arbitration at the office of the American
Arbitration Association most proximate to Myrtle Beach, South Carolina,
conducted in accordance with the standard procedures established by the American
Arbitration Association, and the determination of the arbitrator shall be
binding. The cost of said arbitration shall be paid by Buyer and Seller
equally.
(b) Permits. Within nine (9) months after approval of the Plans by
-------
Seller, Buyer shall submit Plans to the applicable governmental authorities and
seek issuance of the permit(s) required by the applicable governmental
authorities for the development of the improvements shown in the Plans. Buyer's
obligations under this subparagraph (b) shall be subject to delays resulting
from Force Majeure (as hereinafter defined). "Force Majeure" shall mean
governmental orders, delays in obtaining governmental permits and approvals,
labor and materials shortages, war, acts of God, or labor strikes, inclement
weather or other causes beyond the control of the person obligated to perform,
whether Buyer or Seller as the case may be.
(c) Completion. Upon issuance of the permit(s) required to commence
----------
development of the improvements shown in the Plans, Buyer shall thereafter
substantially complete construction of said improvements shown in the Plans
within eighteen (18) months following the issuance of the first such
18
<PAGE>
permit. Buyer's obligations under this subparagraph (c) shall be subject to
delays resulting from Force Majeure.
(d) Remedies. If Buyer shall fail to satisfy the time periods set forth
--------
in subparagraphs (a), (b) or (c) above, then in any such event Seller may elect,
after providing Buyer notice of such default and a reasonable period of time
thereafter in which to cure same, to terminate Buyer's option rights under this
Agreement with respect to all remaining Option Property by written notice to
Buyer.
(e) Right to Repurchase. If Buyer shall be in default of its obligations
-------------------
under subparagraphs (a) and (b) above beyond applicable notice and cure periods,
Seller shall have the option, but not the obligation, to reacquire that portion
of the Property to which such default by Buyer relates. Seller shall exercise
its repurchase option hereunder within fifteen (15) days after the expiration of
the applicable notice and cure period with respect to such default by providing
written notice to Buyer of its election. If no such notice is received within
fifteen (15) days following the expiration of the applicable notice and cure
period, Seller's right to repurchase the applicable portion of the Property
shall automatically terminate. If Seller shall exercise its option to
repurchase the applicable portion of the Property as provided herein, the Seller
shall reacquire such portion of the Property within sixty (60) days following
its election, subject to Force Majeure, for an amount equal to the Purchase
Price paid by Buyer for such portion of the Property under this Agreement and
the Buyer shall be obligated to reconvey such portion of the Property.
Notwithstanding the foregoing, Seller's option to repurchase any portion of the
Property shall automatically terminate upon issuance by the applicable
governmental authorities of the first permit required for the commencement of
construction of improvements on such portion of the Property. The terms of
subparagraphs (a), (b) and (e) of this Paragraph 23 shall be included in each
------------
Deed.
24. Final Plan and Specification Approval. Not later than thirty (30)
-------------------------------------
days prior to the start of construction of any improvements in addition to those
improvements approved by Seller pursuant to Paragraph 23 herein, Buyer shall
------------
cause to be prepared and delivered to Seller for Seller's prior approval a copy
of the plans for any such additional construction which Buyer has submitted or
intends to submit to governmental authorities in order to have permits issued.
Such approval shall not be unreasonably denied, withheld or delayed but may be
based upon purely aesthetic grounds determined in the reasonable discretion of
Seller. If Seller has not responded to Buyer within thirty (30) days after
submission of any such plans under this Paragraph, such plans shall be deemed
approved by Seller. The provisions of this Paragraph shall survive the
termination of this Agreement. After approval of such plans, Buyer shall make
no material changes thereto without Seller's prior written approval thereof in
accordance with this Paragraph 24. In the event of a dispute between Buyer and
------------
Seller under this Paragraph 24, Buyer and Seller agree that such dispute shall
------------
be submitted to binding arbitration in accordance with the standard procedures
established by the American Arbitration Association of its office most proximate
to Myrtle Beach, South Carolina, and the determination of the arbitrator shall
be binding upon Buyer and Seller. The cost of said arbitration shall be paid by
Buyer and Seller equally. The terms of this Paragraph 24 shall be included in
------------
each Deed.
25. No Liability for Plan Review and Approval. Seller shall not be
-----------------------------------------
responsible or liable in any way for any defects in any plans approved by Seller
pursuant to this Agreement, nor for any structural defects in any work done
according to such plans approved by Seller. In submitting plans to Seller for
approval, Buyer agrees that it will not bring any action against Seller to
recover any such damage. Approval of any such plans by Seller shall not
constitute assumption of responsibility for the accuracy, sufficiency or
propriety thereof, nor shall any such approval constitute a representation or
warranty that
19
<PAGE>
the plans comply with applicable laws. No approval of plans shall ever be
construed as representing or implying that such plans will, if followed, result
in properly designed units. Seller shall not be responsible or liable for any
defects in any plans submitted, revised or approved under this Agreement, nor
for any defects in construction pursuant to such plans. Buyer shall have sole
responsibility for compliance with approved plans and does hereby agree, by
acceptance of title to any portion of the Property, to hold Seller harmless for
any failure thereof caused by Buyer or its builder. Buyer shall be responsible
for the costs of any and all improvements on the Property and shall hold Seller
harmless from and against all claims arising by reason of the construction
thereof, expressly including, but without limiting the generality thereof,
mechanics' liens or public liability. The terms of this Paragraph 25 shall be
------------
included in each Deed.
26. Right of First Offer. At such time as Buyer should desire to sell its
--------------------
real property interest in the portions of the Property previously acquired by
Buyer (expressly excluding the sale to the public of time-share or condominium
interests) (the "Buyer Real Property"), then prior to marketing its rights in
the Buyer Real Property to any third party, Buyer shall notify Seller in writing
of the Buyer's intention to market its interest in the Buyer Real Property.
Buyer agrees to negotiate exclusively with Seller the terms and conditions under
which Seller would acquire all of Buyer's rights in the Buyer Real Property
within the period set forth below. If Buyer and Seller are unable to agree upon
a purchase price, Buyer and Seller may appoint a mutually acceptable appraiser
to perform an appraisal of such property owned by Buyer, which appraised amount
shall be the purchase price for purposes of this Paragraph. If Buyer and
Seller are unable to agree upon a mutually acceptable appraiser, then Seller and
Buyer shall each select their own appraiser, which two appraisers shall select a
third appraiser, and the average appraised amount from the three appraisals
shall be the purchase price for purposes of this Paragraph. Such negotiation
and appraisal process shall be limited to ninety (90) days following Buyer's
notice to Seller of its intention to market its interest in the Buyer Real
Property, subject to Force Majeure. Notwithstanding the foregoing, if the Buyer
Real Property secures indebtedness of Buyer incurred in connection with the
acquisition and development thereof, Buyer and Seller agree that the minimum
purchase price for purposes of this Paragraph must be the amount necessary to
fully pay off the outstanding amount of such indebtedness together with the
customary costs and charges of the sale pursuant to this Paragraph. Seller
shall have the right, but not the obligation, to elect to purchase the Buyer
Real Property at the purchase price determined pursuant to this Paragraph by
written notice to Buyer within the above-stated 90-day period, subject to Force
Majeure. If Seller shall not elect to purchase Buyer's interest in the Buyer
Real Property within said period, then thereafter Buyer may market, negotiate
and sell its interest in the Buyer Real Property to any other party and on any
terms which Buyer may deem appropriate; provided, however, Buyer shall not sell
the Buyer Real Property at a price less than that established pursuant to this
Paragraph unless Buyer first offers the Buyer Real Property to Seller at such
lesser price. Buyer agrees that any sale of the Buyer Real Property shall not
include Buyer's option rights to any unacquired portion of the Option Property
pursuant to this Agreement, the assignment of which rights is governed by
Paragraph 20 herein. Seller agrees that the provisions of this Paragraph 26
- ------------ ------------
shall be subordinated to the lien of any loan secured by the Buyer Real
Property, and Seller shall execute any commercially reasonable document
requested by a lender of Buyer to evidence such subordination. The provisions
of this Paragraph 26 shall survive the termination of this Agreement.
------------
27. Provisions Relating to Proposed Extension of 33rd Avenue North.
--------------------------------------------------------------
(a) Construction of the Extension. Buyer and Seller acknowledge that an
-----------------------------
extension of 33rd Avenue North (the "Extension") is proposed across Seller's
adjoining property which would extend from
20
<PAGE>
the westerly margin of the drainage ditch which is contiguous to the western
boundary of the Property to the right-of-way of Highway 17 Bypass, which would
end near the westerly boundary of the Property as shown on EXHIBIT A attached
hereto and incorporated herein by reference. In the event that either Buyer or
Seller shall determine that the development of their respective properties makes
it necessary or advantageous to construct the Extension, such party (the
"Constructing Party") shall notify the other in writing and immediately
thereafter Buyer and Seller shall engage a mutually acceptable traffic engineer
to perform a traffic study for the purpose of determining the projected usage of
the Extension by Buyer and Seller and their respective affiliates. The projected
usage analysis shall be based upon estimated external and internal trip
generation, traffic counts and other recognized standards of traffic study for
the projected development of the benefitted properties of Buyer, Seller and
their respective affiliates. Buyer and Seller agree that the Constructing Party
shall receive reimbursement of the costs of construction thereof from the other
party in proportion to the projected usage and impact attributable to the
respective properties of the other party and its affiliates. The Constructing
Party shall, prior to commencement thereof, submit plans and specifications and
a construction budget to the other party for review and approval, not to be
unreasonably withheld, denied or delayed, and shall generally follow the
procedure set forth in Paragraph 24 herein. The Constructing Party shall be
entitled to the reimbursement described herein within a commercially reasonable
time after completion of construction of the Extension; provided, however, if
Seller is the Constructing Party, Buyer shall have no reimbursement obligation
unless and until Buyer acquires that portion of the Property adjacent to the
Connection Easement (as defined in subparagraph (c) below). If Buyer shall be
the Constructing Party, Seller shall grant to Buyer such easements as may be
reasonably necessary for Buyer, its agents, employees and contractors to
construct the Extension.
(b) Maintenance of the Extension. Buyer and Seller acknowledge that the
----------------------------
Extension may be a private road to be maintained by Seller, its successors or
assigns. Buyer hereby agrees to pay its proportionate share of the costs to
maintain and repair the Extension according to the formula described in
subparagraph (a) above; provided, however, either party may request an update of
the analysis described in subparagraph (a) above from time to time, but no more
frequently than once per year, and any change in the analysis shall cause an
adjustment in the respective proportionate shares of maintenance and repair
costs commencing with the next yearly budget. Seller, its successor or assigns,
shall submit to Buyer yearly a budget of the expected costs to maintain and
repair the Extension during the following year. Buyer shall pay monthly to
Seller one-twelfth (1/12) of its proportionate share of such estimated costs.
Before the end of January of each year, Seller shall deliver to Buyer a
statement of actual costs of maintaining and repairing the Extension during the
prior calendar year. If Buyer has overpaid, Seller shall remit such overpayment
together with the statement; if Buyer has underpaid, Buyer shall remit the
additional payment within thirty (30) days of receipt of such statement.
Notwithstanding anything in this subparagraph (b) to the contrary, Buyer shall
have no reimbursement obligation unless and until Buyer acquires that portion of
the Property adjacent to the Connection Easement (as defined in subparagraph (c)
below).
(c) Connection Easement. Subject to the limitations in subparagraph (e)
-------------------
below, Seller hereby agrees to grant to Buyer, for the exclusive benefit of any
portion of the Property acquired by Buyer hereunder, a perpetual easement from
the westerly boundary of the Property to the easterly terminus of the Extension
(the "Connection Easement") for access, ingress and egress over the drainage
ditch running along the western boundary of the Property for access to the
Extension. Seller shall be obligated to grant the Connection Easement to Buyer
upon the date Buyer acquires that portion of the Option Property abutting the
Connection Easement. Buyer shall have the right to specifically enforce
Seller's obligations
21
<PAGE>
under this Paragraph 27(c). Buyer may construct within the Connection Easement,
at its sole cost and expense, a bridge over the drainage ditch and all necessary
roadway improvements to provide direct access from the Property to the
Extension. Seller shall have the right to review and approve the plans and
specifications for the improvements to be constructed within the Connection
Easement pursuant to the procedures set forth in Paragraph 24 herein. Buyer
shall be responsible for all costs to maintain the Connection Easement and any
improvements thereto and such obligation shall be transferred to any property
owners association at such time as Buyer transfers control its development to
such association.
(d) Extension Easement. Contemporaneously with the granting of the
------------------
Connection Easement, but subject to the limitations in subparagraph (e) below,
Seller shall be obligated to grant to Buyer, for the non-exclusive benefit of
any portion of the Property acquired by Buyer hereunder, a perpetual easement
for access, ingress and egress by vehicular and pedestrian traffic over the
Extension (the "Extension Easement"). The Extension Easement shall extend from
the easterly terminus of the Connection Easement to the right-of-way of Highway
17 Bypass. Buyer shall have the right to specifically enforce Seller's
obligations under this Paragraph 27(d).
---------------
(e) Limitation on Easements. Buyer hereby agrees and covenants that the
-----------------------
primary beneficiaries of the Buyer's usage of the Connection Easement and the
Extension Easement (collectively, the "Easements") must be transient occupants
of the improvements constructed on the Property ("Qualified Users"), including
owners or renters of Units, hotel guests, invitees and all other persons
occupying the Property other than those persons who would own or rent a Unit as
their primary residence; provided, however, that Seller acknowledges that there
may be incidental use of the Easements by persons other than Qualified Users.
Buyer acknowledges that it shall be Buyer's obligation to construct its
development in such a fashion, or otherwise supervise the use of the Easements
by the occupants of the Property, so that the primary users of the Easements are
Qualified Users. To the extent that the use of the Easements by persons other
than Qualified Users shall be more than incidental, Seller shall notify Buyer of
same and Buyer shall have sixty (60) days to institute corrective measures to
comply with the requirements of this subparagraph. If such corrective measures
are not taken, Seller may notify Buyer of termination of its rights to use and
enjoyment of the Easements.
(f) Dedication of Extension. Seller, its successors and assigns, shall
-----------------------
have the sole right to dedicate, in its sole discretion, the Extension to the
public for maintenance by the applicable governmental authorities, and Seller
shall be solely responsible for the costs of construction, if any, necessary to
have the Extension accepted by said governmental authorities. Upon acceptance
of the Extension for maintenance by such governmental authorities, the Extension
Easement granted pursuant to subparagraph (d) above, Buyer's maintenance
reimbursement obligations pursuant to subparagraph (b) above, and the
restrictions on use in subparagraph (e) above shall automatically terminate.
28. Construction of Water and Sewer Facilities. In the event Buyer
------------------------------------------
constructs sewer facilities on portions of the Property acquired by Buyer from
time to time, Buyer shall be obligated to construct such facilities (including
pipe size and basin depth) to accommodate the development of the adjacent
properties owned by Seller, consisting of the 14.01-acre tract to the south of
the Property and the 37.06-acre tract to the north of the Property, as shown on
a map prepared by Associated Land Surveyors dated July 9, 1996. Accordingly,
prior to the design and construction of such facilities on portions of the
Property acquired by Buyer, Buyer shall submit plans for said facilities to
Seller for Seller's prior approval consistent with the procedure set forth in
Paragraph 24 herein. Provided, further, that Buyer shall be under no obligation
- ------------
to incur expense in order to afford a connection to facilities which Buyer
designs and constructs except for
22
<PAGE>
a connection to serve Seller's contiguous property located to the south of the
Initial Purchase.
29. Restriction on Buyer's Property. Buyer hereby agrees that each Deed
-------------------------------
to any portion of the Option Property acquired by Buyer pursuant to this
Agreement shall contain the same restrictions, covenants and conditions as
contained in the Deed delivered at the Initial Closing.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by persons duly empowered to bind the parties to perform their
respective obligations hereunder the day and year first above written.
"BUYER"
VISTANA MYRTLE BEACH, L.P.
By: Vistana MB, Inc., its sole general partner
By: /s/ Raymond L. Gellein, Jr.
--------------------------------------
Raymond L. Gellein, Jr.
Chairman and CEO
"SELLER"
MYRTLE BEACH FARMS COMPANY, INC.
ATTEST:
/s/ Franklin J. Long By:/s/ Douglas P. Wendel
- ----------------------------- ---------------------------------------
Franklin J. Long, Secretary Douglas P. Wendel
President and CEO
23
<PAGE>
Exhibit 10.19
[Letterhead of The Professional Golfers' Association of America]
October 29, 1996
Raymond L. Gellein, Jr.
Chairman
VISTANA DEVELOPMENT, LTD.
8800 Vistana Centre Drive
Orlando, Florida 32821-6353
Dear Rip:
The purpose of this letter is to set forth in general terms the working
relationship between Vistana and the PGA for the development, marketing and
operation of a golf-oriented vacation club adjacent to the PGA Golf Club in Port
St. Lucie, Florida, and for a long-term affiliation for the future development
of similar projects.
1. PGA is entering into an option agreement to acquire a 40-acre
commercial tract of land located at the southwest corner of the
intersection of I-95 and Reserve Blvd in the Reserve community at Port
St. Lucie, Florida (the "Option Parcel"). Vistana agrees to acquire a
minimum of 25 contiguous acres on the site for the purpose of
developing, marketing and operating a vacation club ("Vacation Club").
The location of the 25 acre site (the "Vistana Property") shall be
mutually determined after Vistana completes preliminary due diligence
with regard to the Option Parcel.
2. Vistana will initially purchase a minimum of 10 acres from the PGA at
a net price of $150,000 per acre. The closing on the initial purchase
will occur on or before March 21, 1997.
3. Vistana agrees to purchase the balance of the Vistana Property
according to the following schedule:
. A total of 15 acres must have been acquired by December 31, 1998.
. A total of 20 acres must have been acquired by December 31, 1999.
. All 25 acres must have been acquired by December 31, 2000.
The price of the additional 15 acres to be acquired after the initial
closing will also be $150,000 per acre; however, Vistana will fund direct
carrying costs on the balance of the Vistana Property (such as property
taxes and assessments) as identified in a land purchase agreement as such
expenses are incurred by PGA.
<PAGE>
Raymond L. Gellein, Jr.
Chairman
VISTANA DEVELOPMENT, LTD.
October 29, 1996
Page Two
4. Vistana will be responsible for developing, marketing and operating
the Vacation Club. The Vacation Club will consist of vacation
ownership units that will be sold on an interval ownership basis and
related amenities on the Vistana Property. The parties intend that
the Vacation Club will be expanded to include other properties
developed through the affiliation agreement described in paragraph 13
below as well as other Vistana operated properties approved by PGA.
5. Vistana and PGA will develop marketing strategies for the Vacation
Club that make use of the PGA's brand name and its network of 21,500
golf professionals who are employed at 8,000+ golf facilities
throughout the U.S. and who provide products and services to more than
15 million golfers annually. Such marketing strategies may include:
access to PGA member data for marketing purposes; announcements at PGA
merchandise shows; seminars at national and Section meetings for
continuing education credit; promotion in the PGA Magazine and other
PGA media properties; and coordination with PGA sponsors and
licensees. Such marketing programs will provide financial incentives
to PGA golf professionals who provide referrals to Vistana through
contributions to the professionals' PGA Retirement Plan.
6. Vistana's commitment to develop the Vacation Club and purchase the
Vistana Property is conditioned upon the following:
. Receipt of all governmental approvals and permits for the
development of the property and the sale and marketing of the
Vacation Club product. Vistana will pay all costs of obtaining
such permits and approvals. PGA will assist Vistana as may
reasonably be required.
. The parties will apportion, as appropriate, development costs
associated with bringing necessary infrastructure to the Option
Parcel.
. Customary due diligence conditions that will be set forth in the
land purchase agreement.
. PGA's commitment to develop a Learning Center adjacent to the
Option Parcel.
. Satisfactory access to existing and future PGA golf courses in
St. Lucie County for Vacation Club owners and renters.
. PGA's commitment to develop additional golf courses in St. Lucie
County as may be required to satisfy the demand for golf by
Vacation Club owners and renters.
2
<PAGE>
Raymond L. Gellein, Jr.
Chairman
VISTANA DEVELOPMENT, LTD.
October 29, 1996
Page Three
. Exclusive rights to develop vacation ownership on property owned or
controlled by PGA in St. Lucie County.
7. Vistana represents that it has access to financing for the Vacation
Club. PGA represents that it has access to financing for the
development of the Learning Center.
8. PGA will license the use of its name and logo to Vistana to use in the
promotion and advertising of the sale or rental of vacation ownership
units at the Vacation Club and in the promotion of the affiliation
between Vistana and PGA. Vistana will have the first right to develop
additional vacation clubs in conjunction with golf courses to be
developed by the PGA. PGA agrees to consider licensing the use of its
name and logo to other vacation ownership projects to be developed by
Vistana that are not affiliated with PGA golf courses. The name of
the club will be the "PGA Vacation Club by Vistana" or such other name
(which shall at Vistana's option include the name Vistana) approved by
PGA. Vistana will pay to the PGA a royalty for the use of its name on
the Vacation Club as provided in paragraph 9 below. PGA will not use
or license the PGA Vacation Club name to or for any other vacation
club, timeshare resort or similar property during the term of the
affiliation described in paragraph 13.
9. The combined referral incentives payable to PGA golf professionals and
royalties payable to the PGA will be 10% of the revenues derived from
the sale of units, excluding any interest on sales financing. Vistana
will also pay PGA a royalty of 2% of the revenues derived from the
transient rental of units.
10. PGA and Vistana will reach an agreement to provide a mutually
acceptable level of preferred access to the PGA Golf Club and other
PGA golf courses situated in St. Lucie County by Vacation Club owners
and renters. PGA acknowledges that such access is critical to the
experience of the Vacation Club owners and renters and to the ultimate
success of the venture.
11. Vistana and PGA will work together to develop a site plan for the
Option Parcel to provide for common architectural themes among the
facilities to be developed at the site. PGA intends to sell a portion
of the Option Parcel to developers of a limited service and a full-
service hotel. Vistana will work with the developers of these hotels
to develop cooperative marketing and operational capabilities.
Recognizing the importance of the operational capabilities to the
Vacation Club, the PGA will require that the hotel operators make
similar commitments to Vistana.
3
<PAGE>
Raymond L. Gellein, Jr.
Chairman
VISTANA DEVELOPMENT, LTD.
October 29, 1996
Page Four
12. PGA agrees to assist Vistana in developing a centralized reservation
system so that unit owners and renters can make tee times through the
Vistana system. PGA and Vistana agree to coordinate their marketing,
advertising, promotion and sales activities.
13. Vistana and PGA agree to enter into a long-term, multi-site
affiliation agreement for the development of additional vacation club
properties at or adjacent to other golf course facilities licensed,
operated or approved by the PGA. Vistana will have the first right to
develop these properties, on terms and conditions substantially
identical to those for the Vacation Club in St. Lucie County, for a
term of ten years, which term may be extended by satisfying various
performance criteria to be agreed by Vistana and PGA.
14. This is a non-binding letter of intent and nothing contained herein
shall be construed as a binding agreement by either Vistana or the PGA
or their respective representatives. Vistana and PGA agree that
neither shall disclose any of the terms, conditions or provisions of
this letter of intent or any topics of discussion in connection with
the proposed transaction except to those individuals necessary to
carry out the terms and conditions of any ultimate agreement (e.g.,
financing sources and advisors, accountants, attorneys, etc.) unless
such disclosure is agreed to by both parties.
15. Vistana and PGA agree that time is of the essence with this
transaction and agree to use their best efforts to finalize their
agreements within the next 60 days.
16. Vistana and PGA agree to announce this project within the next two
weeks.
If the foregoing is acceptable to you, please acknowledge by signing below and
returning one copy to us for our files.
Vistana Development, Ltd. Professional Golfers'
Association of America
By: /s/ Jeffrey A. Adler By: /s/ Jim L. Awtrey
-------------------- -----------------------
Jeffrey A. Adler Jim L. Awtrey
President Chief Executive Officer
4
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF VISTANA, INC.*
Wholly-owned corporate Subsidiaries:
- -----------------------------------
Vistana Capital Holdings, Inc.
Vistana Management, Inc.
VCH Communications, Inc.
VCH Trademark, Inc.
We4fun, Inc.
Vistana WGV Holdings, Inc.
Vistana International, Inc.
VCH Sales, Inc.
VCH Oaks, Inc.
VCM Oaks, Inc.
VCH Financial Services, Inc.
VCH Administration, Inc.
VCH Systems, Inc.
Vacation Management Services, Inc.
Trading Places, Inc.
VCH Consulting, Inc.
VCH Contracting, Inc.
Vistana MB, Inc.
Vistana WGV Investment, Inc.
Vistana OP Investment, Inc.
Partnership Subsidiaries
- ------------------------
Vistana Development Ltd.
- Vistana Capital Holdings, Inc. (84% general partner; 15% limited partner)
- We4fun, Inc. (1% limited partner)
Vistana Management Ltd.
- Vistana Capital Management, Inc. (84% general partner; 15% limited partner)
- We4fun, Inc. (1% limited partner)
Vistana WGV Investment, Ltd.
- Vistana WGV Investment, Inc. (2% general partner)
- Vistana, Inc. (98% limited partner)
Vistana WGV, Ltd.
- Vistana WGV Holdings, Inc. (1% general partner)
- Vistana WGV Investment (36.5% limited partner)
- ---------------
* After giving effect to the Formation Transactions described in the
prospectus included as part of this Registration Statement.
<PAGE>
Vistana OP Investment, Ltd.
- Vistana OP Investment, Inc. (2% general partner)
- Vistana, Inc. (98% limited partner)
VCH Oaks, Ltd.
- Vistana OP Investment OP, Ltd. (66% limited partner)
- VCH Oaks, Inc. (1% general partner)
Oak Plantation Joint Venture
- VCH Oaks, Ltd. (99% general partner)
Vistana Myrtle Beach, L.P.
- Vistana MB, Inc. (2% general partner)
- Vistana, Inc. (98% limited partner)
<PAGE>
EXHIBIT 23.1
ACCOUNTANTS' CONSENT
The Board of Directors
Vistana, Inc. and Combined Affiliates:
We consent to the use of our report dated January 24, 1997 on the combined
financial statements of Vistana, Inc. and Combined Affiliates as of December
31, 1995 and 1996 and for each of the three years in the period ended December
31, 1996 in the prospectus of Vistana, Inc. and to the reference to our firm
under the headings "Selected Combined Historical Financial Information" and
"Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Orlando, Florida
February 10, 1997
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints RAYMOND L. GELLEIN, JR. and JEFFREY A.
ADLER, and each of them (with full power to each of them to act alone), his true
and lawful attorneys-in-fact and agents for him and on his behalf and in his
name, place and stead, in any and all capacities (including his capacity as a
director and/or officer of Vistana, Inc., a Florida corporation (the
"Company")), to sign, execute and file with the Securities and Exchange
Commission (or any other governmental or regulatory authority) a Registration
Statement on Form S-1 (including all amendments, supplements and post-effective
amendments thereto) and to file a Registration Statement pursuant to Section
462(b) of the Securities Act of 1933, as amended (the "Act"), with all exhibits
and any and all documents required to be filed with respect thereto, relating to
the registration under the Act of shares of the Company's common stock, par
value $.01 per share, granting unto said attorneys-in-fact and agents and each
of them, full power and authority to do and to perform each and every act and
thing requisite and necessary to be done in and about the premises in order to
effectuate the same as fully to all intents and purposes as he himself might or
could do if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
Dated: February 4, 1997
/s/ Raymond L. Gellein, Jr.
- ---------------------------
Raymond L. Gellein, Jr.
/s/ Jeffrey A. Adler
- ---------------------------
Jeffrey A. Adler
/s/ Matthew E. Avril
- ---------------------------
Matthew E. Avril
/s/ John M. Sabin
- ---------------------------
John M. Sabin
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-01-1995 DEC-01-1996
<CASH> 10,788 9,981
<SECURITIES> 0 0
<RECEIVABLES> 93,343 115,970
<ALLOWANCES> (9,009) (10,191)
<INVENTORY> 18,302 25,211
<CURRENT-ASSETS> 0 0
<PP&E> 15,162 17,577
<DEPRECIATION> 3,806<F1> 5,182<F1>
<TOTAL-ASSETS> 140,651 173,922<F1>
<CURRENT-LIABILITIES> 21,243 24,275<F1>
<BONDS> 101,504 118,557<F1>
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 17,904<F1> 26,648<F1>
<TOTAL-LIABILITY-AND-EQUITY> 140,651 173,922<F1>
<SALES> 50,156 60,063<F1>
<TOTAL-REVENUES> 81,110 96,936<F1>
<CGS> 12,052 14,596<F1>
<TOTAL-COSTS> 50,826<F1> 61,729<F1>
<OTHER-EXPENSES> 11,228 9,324<F1>
<LOSS-PROVISION> 3,522 4,271<F1>
<INTEREST-EXPENSE> 9,683 11,018<F1>
<INCOME-PRETAX> 5,850 10,594<F1>
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,850 10,594<F1>
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<FN>
<F1>Certain reclassifications of 1995 information previously submitted have been
changed to conform to the 1996 presentation.
</FN>
</TABLE>
<PAGE>
EXHIBIT 99.1
CONSENT
-------
I, LAURENCE S. GELLER, do hereby consent to become a director of Vistana,
Inc., a Florida corporation (the "Company"), effective upon the completion of
the offering of the common stock of the Company pursuant to the Registration
Statement on Form S-1 (No. 333-19045) initially filed by the Company on December
31, 1996, as the same may amended or supplemented (the "Registration
Statement"), and to the inclusion of my name in said Registration Statement
under the sections captioned "Management" and "Principal and Selling
Shareholders."
Dated: February 4, 1997.
/s/ Laurence S. Geller
----------------------------------
Laurence S. Geller
<PAGE>
EXHIBIT 99.2
CONSENT
-------
I, CHARLES E. HARRIS, do hereby consent to become a director of Vistana,
Inc., a Florida corporation (the "Company"), effective upon the completion of
the offering of the common stock of the Company pursuant to the Registration
Statement on Form S-1 (No. 333-19045) initially filed by the Company on December
31, 1996, as the same may amended or supplemented (the "Registration
Statement"), and to the inclusion of my name in said Registration Statement
under the sections captioned "Management," "Certain Relationships and Related
Transactions" and "Underwriting."
Dated: February 4, 1997.
/s/ Charles E. Harris
---------------------------------
Charles E. Harris
<PAGE>
EXHIBIT 99.3
CONSENT
-------
I, STEVEN J. HEYER, do hereby consent to become a director of Vistana,
Inc., a Florida corporation (the "Company"), effective upon the completion of
the offering of the common stock of the Company pursuant to the Registration
Statement on Form S-1 (No. 333-19045) initially filed by the Company on December
31, 1996, as the same may amended or supplemented (the "Registration
Statement"), and to the inclusion of my name in said Registration Statement
under the sections captioned "Management" and "Principal and Selling
Shareholders."
Dated: February 4, 1997.
/s/ Steven J. Heyer
---------------------------------
Steven J. Heyer
