<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 27, 1997
REGISTRATION NO. 333-19045
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2 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 27, 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
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<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.
THIS PROSPECTUS RELATES ONLY TO THE SALE OF THE COMMON STOCK OFFERED
HEREBY. SHAREHOLDERS OF THE COMPANY ARE NOT ENTITLED TO ANY RIGHTS WITH RESPECT
TO THE COMPANY'S RESORTS SOLELY AS A RESULT OF THEIR OWNERSHIP OF COMMON STOCK.
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.
This Prospectus relates only to the sale of Common Stock offered hereby.
Shareholders of the Company are not entitled to any rights with respect to any
of the Company's resorts solely as a result of their ownership of Common Stock.
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, 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. This
timetable may cause the Company to overcommit its resources to the Promus
Agreement and the development of vacation ownership resorts thereunder at the
expense
12
<PAGE>
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. The amount of expenditures which the
Company may be required to incur and the amount of obligations which the
Company may be required to satisfy will depend upon, among other things, the
extent to which the applicable franchise agreement requires the Company to
incur construction and development costs, operating expenses, capital
expenditures and maintenance costs. 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 other hotel companies, even where such developments or
agreements would be in the Company's best interests. The Promus Agreement
contemplates that the Company and Promus will enter into or agree upon the
form of various definitive agreements, including a sales and marketing
agreement, a franchise and management agreement, a franchise agreement
relating to the operation of Oak Plantation Villas by Vistana as the first
Hampton Vacation Resort and franchise and management agreements relating to
the operation of the Myrtle Beach Resort as an Embassy Vacation Resort. All of
these agreements are currently subject to preparation, negotiation and, where
required, execution in accordance with the terms of the Promus Agreement.
There can be no assurance that the Company and Promus will successfully
negotiate and execute any of these agreements. In the event that such
definitive agreements are not agreed upon and, where required, executed in a
timely manner, the Promus Agreement may be terminated by either party. 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.
13
<PAGE>
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.
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.
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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-- 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
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<PAGE>
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 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
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<PAGE>
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-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
17
<PAGE>
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 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
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<PAGE>
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
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 1.9% 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
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<PAGE>
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 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
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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 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 11.9% 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."
23
<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 110.4% increase in sales generated by the Company's
internationally-based marketing efforts which grew from $4.7 million in 1995
to $9.9 million in 1996.
Interest revenue increased 20.6% from $12.9 million to $15.5 million due to
a 24.4% 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 33.7% 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, $5.5 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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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 following summarizes all material terms of the Company's current credit
facilities (the "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 "--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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<PAGE>
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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<PAGE>
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 for which the Company will receive a fee based on a percentage of sales
and rental revenues, 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 for which Promus will
receive a fee based on a percentage of sales and rental revenues. 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 amount of expenditures which the Company may be required to incur and the
amount of obligations which the Company may be required to satisfy will depend
upon, among other things, the extent to which the applicable franchise
agreement requires the Company to incur construction and development costs,
operating expenses and capital expenditures and maintenance costs. 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. The Promus Agreement
contemplates that the Company and Promus will enter into or agree upon the
form of various definitive agreements, including the Sales and Marketing
Agreement, the Franchise and Management Agreement, a Franchise Agreement
relating to the operation of Oak Plantation Villas by Vistana as the first
Hampton Vacation Resort and Franchise and Management Agreements relating to
the operation of the Myrtle Beach Resort as an Embassy Vacation Resort. All of
these agreements are currently subject to preparation, negotiation and, where
required, execution in accordance with terms of the Promus Agreement. There
can be no assurance that the Company and Promus will successfully negotiate
and execute any of these agreements. In the event that such definitive
agreements are not agreed upon, and where required, executed in a timely
manner, the Promus Agreement may be terminated by either party. See "Risk
Factors--Risks of Rapid Growth--Risks Associated with Promus Agreement" 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
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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 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 approximately 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 110% 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.
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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 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 $121.2 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
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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 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
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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.
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.
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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."
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
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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 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
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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.
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
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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.
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."
55
<PAGE>
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.
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.
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<PAGE>
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."
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 and Chief
Operating Officer
Susan Werth (6)......... 1996 $ 149,712 -- 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, have a ten-
year term and, shall become 25% vested after 12 months from the date of
grant and shall vest pro rata in arrears on a monthly basis over a period
of 36 months thereafter. 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 pro rata in arrears on a
monthly basis over a period of 36 months 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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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).
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.
63
<PAGE>
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. Of such shares of Common Stock, an aggregate of
675,000 shares of Common Stock are 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. Of such shares of Common Stock,
675,000 shares of Common Stock are subject to options granted to certain
executive officers and other employees of the Company. See notes (9), (10),
(11) and (12) below. Excludes an aggregate of 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.
(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 February 1997 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 February 1997 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 February 1997 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. The By-Laws
currently provide that the Board of Directors will consist of not fewer than
three 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 First Union
National Bank of North Carolina.
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, 2001................................... 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>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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
----------
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.
II-1
<PAGE>
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
II-2
<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.
II-3
<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 27, 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 27, 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
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S> <C>
1.1 Form of Underwriting Agreement
3.1* Articles of Incorporation of Vistana, Inc.
3.2 By-Laws of Vistana, Inc.
4.1 Form of Common Stock certificate of Vistana, Inc.
5.1* Opinion of Neal, Gerber & Eisenberg, counsel to Vistana,
Inc.
10.1 Employment Agreement, dated as of December 27, 1996,
between Vistana, Inc. and Raymond L. Gellein, Jr.
10.2 Employment Agreement, dated as of December 27, 1996,
between Vistana, Inc. and Jeffrey A. Adler
10.3 Employment Agreement, dated as of December 27, 1996,
between Vistana, Inc. and Matthew E. Avril
10.4 Employment Agreement, dated as of December 27, 1996,
between Vistana, Inc. and Susan Werth
10.5 Employment Agreement, dated as of December 27, 1996,
between Vistana, Inc. and Carol Lytle
10.6 Employment Agreement, dated as of February 10, 1997,
between Vistana, Inc. and John M. Sabin
10.7 Amended and Restated Subscription Agreement, dated as of
February 10, 1997, among Vistana, Inc. and each of the
persons whose signatures appear on the execution pages
thereof.
10.8 Vistana Stock Plan
10.9 Vistana, Inc. Employee Stock Purchase Plan
10.10 Form of Indemnification Agreement between Vistana, Inc.
and certain officers and directors of Vistana, Inc.
10.11 Registration Rights Agreement, dated as of December 27,
1996, among Vistana, Inc., the Raymond L. Gellein, Jr.
Retained Annuity Grantor Trust, the Matthew James Gellein
Irrevocable Trust, the Brett Tyler Gellein Irrevocable
Trust, the Raymond L. Gellein, Jr. Revocable Trust, the
JGG Holdings Trust, the Jeffrey A. Adler Revocable Trust,
Matthew E. Avril, Susan Werth, Carol A. Lytle, John M.
Sabin, Barbara L. Hollkamp, James A. McKnight, William
McLaughlin and Alain Grange
10.12* Agreement for Affiliation, dated as of May 26, 1995, among
Resort Condominiums International, Inc., Vistana
Development, Ltd., Raymond L. Gellein, Jr. and Jeffrey A.
Adler
10.13* Limited Partnership Agreement of Vistana WGV, Ltd., dated
as of June 28, 1996, among Vistana WGV Holdings, Inc.,
Vistana WGV Investment, Ltd., United Timeshares, Inc. and
A. Zimand WGV Investment, Inc.
10.14* Parcel One Property Sale Agreement, dated as of June 4,
1996, By and Between SJH Partnership, Ltd. and Vistana
WGV, Ltd.
10.15* Amended and Restated Joint Venture Agreement, dated as of
June 25, 1996, among R. Edward Noble, Andrew E. Kidd,
Noble-Kidd Corporation and VCH Oaks, Ltd.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S> <C>
10.16* Limited Partnership Agreement of VCH Oaks, Ltd., dated as
of June 25, 1996, among VCH Oaks, Inc., R. Edward Noble,
Andrew E. Kidd and Vistana OP Investment, Ltd.
10.17* Exclusive Joint Venture Agreement, dated as of December
24, 1996, between Vistana Development, Ltd. and Promus
Hotels, Inc.
10.17-A First Amendment to Exclusive Joint Venture Agreement,
dated February 7, 1997, between Vistana Development, Ltd.
and Promus Hotels, Inc.
10.18* Land Purchase Agreement, dated as of December 30, 1996,
between Myrtle Beach Farms Company, Inc. and Vistana
Myrtle Beach, L.P.
10.19* Letter of Intent, dated October 29, 1996, between
Professional Golfers' Association of America and Vistana
Development, Ltd.
21.1 List of subsidiaries of Vistana, Inc.
23.1 Consent of KPMG Peat Marwick LLP
23.2* Consent of Neal, Gerber & Eisenberg (included in Exhibit
5.1)
24.1* Power of Attorney
27.1* Financial Data Schedule
99.1* Consent of Laurence S. Geller
99.2* Consent of Charles E. Harris
99.3* Consent of Steven J. Heyer
99.4 Consent of American Resort Development Association
</TABLE>
- --------
*Previously filed.
<PAGE>
5,550,000 Shares
Vistana Inc.
Common Stock
Underwriting Agreement
dated February __, 1997
Montgomery Securities
Smith Barney Inc.
<PAGE>
Underwriting Agreement
February __, 1997
MONTGOMERY SECURITIES
SMITH BARNEY INC.
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
Introductory. Vistana, Inc., a Florida corporation (the "Company"),
proposes to issue and sell to the several underwriters named in Schedule A (the
"Underwriters") an aggregate of 4,625,000 shares of its Common Stock, par value
$0.01 per share (the "Common Stock"); and the shareholders of the Company named
in Schedule B (collectively, the "Selling Shareholders") severally propose to
sell to the Underwriters an aggregate of 925,000 shares of Common Stock. The
4,625,000 shares of Common Stock to be sold by the Company and the 925,000
shares of Common Stock to be sold by the Selling Shareholders are collectively
called the "Firm Common Shares." In addition, the Company and the Selling
Shareholders propose to grant to the Underwriters an option to purchase up to an
additional 832,500 shares of Common Stock as provided in Section 2. The
additional 832,500 shares to be sold by the Company and the Selling Shareholders
pursuant to such option are collectively called the "Optional Common Shares."
The Firm Common Shares and, if and to the extent such option is exercised, the
Optional Common Shares are collectively called the "Common Shares." Montgomery
Securities and Smith Barney Inc. have agreed to act as representatives of the
several Underwriters (in such capacity, the "Representatives") in connection
with the offering (the "Offering") and sale of the Common Shares.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
333-19045), which contains a form of prospectus to be used in connection with
the public offering and sale of the Common Shares. Such registration statement,
as amended, including the financial statements, exhibits and schedules thereto,
in the form in which it was declared effective by the Commission under the
Securities Act of 1933 and the rules and regulations promulgated thereunder
(collectively, the "Securities Act"), including any information deemed to be a
part thereof at the time of effectiveness pursuant to Rule 430A or Rule 434
under the Securities Act, is called the "Registration Statement." Any
registration statement filed by the Company pursuant to Rule 462(b) under the
Securities Act is called the "Rule 462(b) Registration Statement", and from and
after the date and time of filing of the Rule 462(b) Registration Statement the
term "Registration Statement" shall include the Rule 462(b) Registration
Statement. Such prospectus, in the form first used by the Underwriters to
confirm sales of the Common Shares, is called the "Prospectus"; provided,
however, if the Company has, with the consent of Montgomery Securities, elected
to rely upon Rule 434 under the Securities Act, the term "Prospectus" shall mean
the Company's prospectus subject to completion (each, a "preliminary
prospectus") dated February 10, 1997 (such preliminary prospectus is called the
"Rule 434 preliminary prospectus"), together with the applicable term sheet (the
"Term Sheet") prepared and filed by the Company with the Commission
1
<PAGE>
under Rules 434 and 424(b) under the Securities Act and all references in this
Agreement to the date of the Prospectus shall mean the date of the Term Sheet.
All references in this Agreement to the Registration Statement, the Rule 462(b)
Registration Statement, a preliminary prospectus, the Prospectus or the Term
Sheet, or any amendments or supplements to any of the foregoing, shall include
any copy thereof filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval System ("EDGAR").
You have advised the Company and the Selling Shareholders that the
Underwriters propose to make a public offering of their respective portions of
the Common Shares on the effective date of the Registration Statement or as soon
thereafter as in your judgment is advisable.
On or prior to the First Closing Date (as defined below), the Company will
complete a series of transactions described in the Prospectus under the caption
"Corporate Background and The Formation Transactions" and elsewhere. For the
purposes hereof, the term "Formation Transactions" includes:
1. the transactions designed to transfer from the trusts named in Schedule
C (collectively, the "Existing Shareholders") to the Company all of the
outstanding capital stock and partnership interests owned by the Existing
Shareholders in:
(i) the several corporations (collectively, the "Affiliated
Corporations") and several limited partnerships (collectively, the
"Affiliated Partnerships," and together with the Affiliated Corporations,
the "Affiliated Companies") which are directly or indirectly wholly-owned
and controlled by the Existing Shareholders, and
(ii) the two partnerships between one or more of the Affiliated
Companies and unaffiliated third party partners (collectively, the "Related
Partnerships")
that own all of or a partnership interest in the resorts (including properties
where resorts are under construction or where resorts are to be constructed)
named in Schedule C (collectively, the "Resorts");
3. the other transactions set forth in the Prospectus under the captions
"Corporate Background and the Formation Transactions" and "Prior Income Tax
Status and Planned Distributions" and any actions needed to effectuate such
transactions.
Following the consummation of the Formation Transactions and the Offering
and assuming no sale of any Optional Common Shares, the Selling Shareholders
will, in the aggregate, own approximately 70.5% of the outstanding common stock
of the Company, which will be subject to Shareholders' Agreement (the
"Shareholders' Agreement") by and among the Existing Shareholders.
The Company and each of the Selling Shareholders hereby confirm their
respective agreements with the Underwriters as follows:
Section 1. Representations and Warranties of the Company.
A. Representations and Warranties of the Company. The Company hereby
represents, warrants and covenants to each Underwriter as follows:
(a) Compliance with Registration Requirements. The Registration Statement
and any Rule 462(b) Registration Statement have been declared effective by the
Commission under the Securities
2
<PAGE>
Act. The Company has complied to the Commission's satisfaction with all
requests of the Commission for additional or supplemental information. No
stop order suspending the effectiveness of the Registration Statement or any
Rule 462(b) Registration Statement is in effect and no proceedings for such
purpose have been instituted or are pending or, to the best knowledge of the
Company, are contemplated or threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed complied in all
material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by Regulation S-T
under the Securities Act), was identical to the copy thereof delivered to the
Underwriters for use in connection with the offer and sale of the Common
Shares. Each of the Registration Statement, any Rule 462(b) Registration
Statement and any post-effective amendment thereto, at the time it became
effective and at all times prior to and including the First Closing Date and
the Second Closing Date, if any, complied and will comply in all material
respects with the Securities Act and did not and will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.
The Prospectus, as amended or supplemented, as of its date and at all times
prior to and including the First Closing Date and the Second Closing Date, if
any, did not and will not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The representations and warranties set forth in the two
immediately preceding sentences do not apply to statements in or omissions
from the Registration Statement, any Rule 462(b) Registration Statement, or
any post-effective amendment thereto, or the Prospectus, or any amendments or
supplements thereto, made in reliance upon and in conformity with information
relating to any Underwriter furnished to the Company in writing by the
Representatives expressly for use therein. There are no contracts or other
documents required to be described in the Prospectus or to be filed as
exhibits to the Registration Statement which have not been described or filed
as required.
(b) Offering Materials Furnished to Underwriters. The Company has
delivered to the Representatives one complete manually signed copy of the
Registration Statement and each consent and certificate of experts filed as a
part thereof, and conformed copies of the Registration Statement (without
exhibits) and preliminary prospectuses and the Prospectus, as amended or
supplemented, in such quantities and at such places as the Representatives
have reasonably requested for each of the Underwriters.
(c) Distribution of Offering Material By the Company. Neither the Company
nor any of the Affiliated Companies nor any of the Related Partnerships has
distributed or will distribute, prior to the later of the Second Closing Date
(as defined below) and the completion of the Underwriters' distribution of the
Common Shares, any offering material in connection with the offering and sale
of the Common Shares other than a preliminary prospectus, the Prospectus or
the Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the
Company, enforceable against the Company in accordance with its terms, except
as rights to indemnification hereunder may be limited by applicable law, and
except as the enforcement of this Agreement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting the rights and remedies of creditors or by general equitable
principles.
(e) Authorization of the Common Shares. The Common Shares to be purchased
by the Underwriters from the Company have been duly authorized for issuance
and sale pursuant to this
3
<PAGE>
Agreement and, when issued and delivered by the Company pursuant to this
Agreement, will be validly issued, fully paid and nonassessable.
(f) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by this Agreement, other than the Selling
Shareholders with respect to the Common Shares included in the Registration
Statement, except for such rights as have been duly waived.
(g) No Material Adverse Change. Except as otherwise disclosed in the
Prospectus, subsequent to the respective dates as of which information is
given in the Prospectus: (i) there has been no material adverse change, or any
development that could reasonably be expected to result in a material adverse
change, in the condition, financial or otherwise, or in the earnings,
business, operations or prospects, whether or not arising from transactions in
the ordinary course of business, of the Company, the Affiliated Companies and
the Related Partnerships, considered as one entity, (any such change is called
a "Material Adverse Change"); (ii) the Company, the Affiliated Companies and
the Related Partnerships, considered as one entity, have not incurred any
material liability or obligation, indirect, direct or contingent, not in the
ordinary course of business nor entered into any material transaction or
agreement not in the ordinary course of business; (iii) there has been no
dividend or distribution of any kind declared, paid or made by the Company or,
except for dividends paid to the Company or other subsidiaries, any of its
subsidiaries, any Affiliated Entity or any Related Partnership with respect to
any class of capital stock, shares, or interests, as applicable, or repurchase
or redemption by the Company, any subsidiary or any Affiliated Company of any
class of capital stock; (iv) there has not been any change in (1) the Common
Stock (other than upon the sale of the Common Shares hereunder) of the
Company, (2) the ownership interests in any of the Affiliated Companies or the
Related Partnerships or (3) indebtedness material to the Company or any of the
Affiliated Companies or the Related Partnerships (other than in the ordinary
course of business); and (v) neither the Company, nor any of the Affiliated
Companies nor any of the Related Partnerships has sustained any material loss
or interference with its respective businesses or properties from fire, flood,
windstorm, accident or other calamity, whether or not covered by insurance.
(h) Independent Accountants. KPMG Peat Marwick LLP, who have expressed
their opinion with respect to the financial statements (which term as used in
this Agreement includes the related notes thereto) and supporting schedules
filed with the Commission as a part of the Registration Statement and included
in the Prospectus, are independent public or certified public accountants as
required by the Securities Act.
(i) Preparation of the Financial Statements. The financial statements
filed with the Commission as a part of the Registration Statement and included
in the Prospectus present fairly in all material respects the consolidated
financial position of the Company and its Combined Affiliates as of and at the
dates indicated and the results of their operations and cash flows for the
periods specified. The pro forma financial statements included in the
Registration Statement and the Prospectus comply in all material respects with
the applicable requirements of Rule 11-02 of Regulation S-X of the Commission
as interpreted by the Commission in this transaction and the pro forma
adjustments have been properly applied to the historical amounts in the
compilation of such statements. The supporting schedules included in the
Registration Statement present fairly in all material respects the information
required to be stated therein. Such financial statements and supporting
schedules have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis throughout the periods involved,
except as may be expressly stated in the related notes thereto. No other
financial statements or supporting schedules are required to
4
<PAGE>
be included in the Registration Statement. The financial data set forth in
the Prospectus under the captions "Summary Combined Historical and Pro Forma
Financial Information," "Selected Combined Historical Financial Information"
and "Pro Forma Combined Financial Information" and "Capitalization" fairly
present the information set forth therein on a basis consistent with that of
the audited financial statements contained in the Registration Statement. The
pro forma combined financial information of the Company and its subsidiaries
and the related notes thereto included under the captions "Summary Combined
Historical and Pro Forma Financial Information" and "Pro Forma Combined
Financial Information" and elsewhere in the Prospectus and in the Registration
Statement present fairly in all material respects the information contained
therein, have been prepared in accordance with the Commission's rules and
guidelines with respect to pro forma financial statements and have been
properly presented on the bases described therein, and the assumptions used in
the preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions and circumstances referred to
therein.
(j) Formation and Active Status of the Company, the Affiliated Companies
and the Related Partnerships. Each of the Company and the Affiliated
Corporations has been duly incorporated and is validly existing as a
corporation and the status of such corporation is active under the laws of the
jurisdiction of its incorporation and it has the corporate power and authority
to own, lease and operate its properties and to conduct its business as
described in the Prospectus and, in the case of the Company, to enter into and
perform its obligations under this Agreement; and no proceeding has been
instituted or threatened in any such jurisdiction revoking, limiting or
curtailing or seeking to revoke, limit or curtail such power and authority.
Each of the Related Partnerships has been duly formed and is validly existing
as a partnership, in good standing under the laws of its jurisdiction of
formation, with full power and authority (partnership and other) to own and
lease its properties and conduct its respective businesses as described in the
Prospectus; and no proceeding has been instituted or threatened in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority. Each of the Company, each Affiliated Entity
and each Related Partnership is, and after the consummation of the Formation
Transactions will be, duly qualified as a foreign corporation or partnership,
as applicable, to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except for such
jurisdictions where the failure to so qualify or to be in good standing would
not, individually or in the aggregate, result in a Material Adverse Change;
and no proceeding has been instituted or threatened in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail such
qualification and good standing. All of the issued and outstanding capital
stock of each subsidiary has been duly authorized and validly issued, is fully
paid and nonassessable and is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage, pledge, lien,
encumbrance or claim. The Company does not own or control, and after the
consummation of Offering and the Formation Transactions will not own or
control, directly or indirectly, any corporation, association or other entity
other than the entities so set forth in the Registration Statement, including
the subsidiaries listed in Exhibit 21 to the Registration Statement.
(k) Capitalization and Other Capital Stock Matters. The authorized, issued
and outstanding capital stock of the Company is as set forth in the Prospectus
under the caption "Capitalization" (other than for subsequent issuances, if
any, pursuant to employee benefit plans described in the Prospectus or upon
exercise of outstanding options or warrants described in the Prospectus). The
Common Stock (including the Common Shares) conforms in all material respects
to the description thereof contained in the Prospectus. All of the issued and
outstanding shares of Common Stock (including the shares of Common Stock owned
by Selling Shareholders) have been duly authorized and validly issued, are
fully paid and nonassessable and have been issued in compliance with federal
and state securities laws. No further approval or authority of the
shareholders or the Board of
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Directors of the Company is required for the issuance and sale of the Common
Shares as contemplated herein. None of the outstanding shares of Common Stock
were issued in violation of any preemptive rights, rights of first refusal or
other similar rights to subscribe for or purchase securities of the Company.
There are no authorized or outstanding options, warrants, preemptive rights,
rights of first refusal or other rights to purchase, or equity or debt
securities convertible into or exchangeable or exercisable for, any capital
stock of the Company or any of its subsidiaries other than those described in
the Prospectus. The issued and outstanding partnership interests in each of
the Property Partnerships have been validly issued and are fully paid and
nonassessable and have been issued in compliance with all federal and state
securities laws. Except as disclosed in or contemplated by the Prospectus and
the financial statements of the Company and the related notes thereto, neither
the Company, the Affiliated Companies, nor any of the Related Partnerships has
outstanding any options to purchase, or any preemptive rights or other rights
to subscribe for or to purchase these securities or obligations convertible
into, or any contracts or commitments to issue or sell, shares of its capital
stock, partnership interests or limited liability company interests, as the
case may be, or any such options, rights, convertible securities or
obligations. The description of the Company's stock option, stock bonus and
other stock plans or arrangements, and the options or other rights granted
thereunder, set forth in the Prospectus accurately and fairly presents the
information required to be shown with respect to such plans, arrangements,
options and rights.
(l) Stock Exchange Listing. The Common Shares have been approved for
inclusion on the Nasdaq National Market, subject only to official notice of
issuance.
(m) Non-Contravention of Existing Instruments; Procurement of Consents; No
Further Authorizations or Approvals Required. Neither the Company, nor any
Affiliated Entity nor any Related Partnership is in violation of its articles
of incorporation, by-laws, partnership agreement, certificate of partnership
or other organization documents, as applicable, or is in default (or, with the
giving of notice or lapse of time, would be in default) ("Default") under any
indenture, mortgage, deed of trust, agreement, license, permit, loan or credit
agreement, note, contract, franchise, lease or other instrument to which the
Company, any Affiliated Entity or any Related Partnership is a party or by
which it or any of them may be bound including, without limitation, those
listed in Schedule D, or to which any of the property or assets of the
Company, any Affiliated Entity or any Related Partnership is subject (each, an
"Existing Instrument," and collectively the "Existing Instruments"), except
for such Defaults as would not, individually or in the aggregate, result in a
Material Adverse Change. The Company's execution, delivery and performance of
this Agreement and each Consolidation Agreement (as defined below) and the
Company's consummation of the transactions contemplated hereby and by the
Prospectus, including the Formation Transactions, (i) have been duly
authorized by all necessary corporate action, (ii) will not result in any
violation of the provisions of the articles of incorporation, by-laws,
partnership agreement, certificate of partnership or other organization
documents, as applicable, of the Company, any Affiliated Entity or any Related
Partnership, (iii) will not conflict with or constitute a breach of, or
Default or a Debt Repayment Triggering Event (as defined below) under, or
result in the creation or imposition of any lien, charge or encumbrance upon
any property or assets of the Company, any Affiliated Entity, any Related
Partnership or any Resort pursuant to any Existing Instrument and the Company
has procured written consents to that effect from every party to any Existing
Instrument who is authorized thereunder to declare or decide upon such
conflicts, breaches, Defaults, Debt Triggering Events, liens, charges or
encumbrances; (iv) will not otherwise require the consent of any party to any
Existing Instrument, except such consents as have been obtained; and (v) will
not result in any violation of any law, administrative regulation or
administrative or court decree applicable to the Company, any Affiliated
Entity, any Related Partnership or any of the Resorts, including, without
limitation, rules and regulations relating to "roll-up transactions" as such
term is defined in Item 901(c) of Regulation S-K of the Commission. No
consent, approval,
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authorization or other order of, or registration or filing with, any court or
other governmental or regulatory authority or agency, including the
satisfaction of any requirements pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, is required for the Company's execution,
delivery and performance of this Agreement and consummation of the
transactions contemplated hereby and by the Prospectus, including the
Formation Transactions, except such as have been obtained or made by the
Company and are in full force and effect under the Securities Act, applicable
state securities or blue sky laws and from the National Association of
Securities Dealers, Inc. (the "NASD"). As used herein, a "Debt Repayment
Triggering Event" means any event or condition which gives, or with the giving
of notice or lapse of time would give, the holder of any note, debenture or
other evidence of indebtedness (or any person acting on such holder's behalf)
the right to require the repurchase, redemption or repayment of all or a
portion of such indebtedness by the Company or any of its subsidiaries.
(n) Material Agreements. Each of the agreements set forth herein, in the
Prospectus or as exhibits to the Registration Statement in connection with the
Offering and the Formation Transactions including, without limitation, those
listed in Schedule E (each a "Consolidation Agreement" and collectively the
"Consolidation Agreements"), has been, or prior to the consummation of the
Offering and the Formation Transactions will be, duly authorized, executed and
delivered by the parties thereto and constitutes a valid and binding agreement
of the parties thereto; and neither the Company, nor any of the Affiliated
Companies, nor any of the Related Partnerships nor, to the best of the
Company's knowledge, any other party is, or upon the consummation of the
Offering and the Formation Transactions will be, in breach of or default under
any Consolidation Agreement. The Company, each Affiliated Entity and each
Related Partnership and, to the Company's knowledge, each other party to each
Consolidation Agreement, has full legal right, power and authority to enter
into each such agreement and to consummate the transactions contemplated
therein.
(o) No Material Actions or Proceedings. There is no legal or governmental
action, suit or proceeding pending or, to the best of the Company's knowledge,
threatened (i) against or affecting the Company, any of the Affiliated
Companies or any of the Related Partnerships, now, or upon consummation of
Offering and the Formation Transactions, (ii) which has as the subject thereof
any officer or director of, or property owned or leased by, the Company, any
of the Affiliated Companies or any of the Related Partnerships, including the
Resorts, or (iii) relating to environmental or discrimination matters, where
in any such case (A) there is a reasonable possibility that such action, suit
or proceeding might be determined adversely to the Company, any Affiliated
Entity or any of the Related Partnerships and (B) any such actions, suits or
proceedings, if so determined adversely, individually or in the aggregate,
would reasonably be expected to result in a Material Adverse Change or
adversely affect the consummation of the transactions contemplated by this
Agreement. No material labor dispute with the employees of the Company, any
of the Affiliated Companies or any of the Related Partnerships exists or, to
the best of the Company's knowledge, is threatened or imminent.
(p) General Compliance with All Laws. Neither the Company nor any of the
Affiliated Companies or the Related Partnerships has been advised, or has
reason to believe, that the Company or any of the Affiliated Companies or the
Related Partnerships are not conducting, and after the consummation of the
Offering and the Formation Transactions will not be conducting, their
businesses in compliance with all applicable laws, rules and regulations of
the jurisdictions in which any of them is, or upon the consummation of the
Offering and the Formation Transactions will be, conducting business,
including, without limitation, all applicable local, state and federal
environmental laws and regulations, except where failure to be in compliance
would not cause a Material Adverse Change.
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(q) Compliance with All Laws Regulating Timeshare Business. Each of the
Affiliated Companies and Related Partnerships is and, upon consummation of the
Offering and the Formation Transactions, will be, in compliance with all
federal, state, local and foreign laws and regulations regarding the
marketing, offers to sell and sales of timeshare resorts, including but not
limited to the Federal Trade Commission Act, Truth in Lending Act and
Regulation Z, Equity Opportunity Credit Act and Regulation B, Interstate Land
Sales Full Disclosure Act, Telephone Consumer Protection Act, Telemarketing
and Consumer Fraud and Abuse Prevention Act, Fair Housing Act and Civil Rights
Acts of 1964 and 1968, and all licensure, anti-fraud, telemarketing, price,
gift, sweepstakes and labor laws to which it is or may become subject
(collectively "Timeshare Laws"), except where failure to be in compliance
would not cause a Material Adverse Change. Each of the Affiliated Companies
and the Related Partnerships has filed and, upon consummation of the Offering
and the Formation Transactions, will file, all required documents and
supporting information in compliance with federal, state, local and foreign
laws and regulations, except where failure to be in compliance would not cause
a Material Adverse Change.
(r) Intellectual Property Rights. Upon consummation of the Offering and
the Formation Transactions, the Company, the Affiliated Companies and the
Related Partnerships will own or possess sufficient trademarks, trade names,
patent rights, copyrights, licenses, approvals, trade secrets and other
similar rights including, without limitation, rights to the names "Vistana
Resort," "Vistana's Beach Club," "Oak Plantation Villas by Vistana," "Vistana
Resort at World Golf Village," and "PGA Vacation Resort by Vistana" (subject
to entering into a binding agreement respecting such name) (collectively,
"Intellectual Property Rights") reasonably necessary to conduct their
businesses; and the expected expiration of any of such Intellectual Property
Rights would not result in a Material Adverse Change. None of the Company,
any Affiliated Entity or any Related Partnership has received any notice of
infringement or conflict with asserted Intellectual Property Rights of others,
which infringement or conflict, if the subject of an unfavorable decision,
would result in a Material Adverse Change.
(s) All Necessary Permits, etc. The Company and each Affiliated Entity and
Related Partnership possess such valid and current certificates,
authorizations or permits issued by the appropriate local, state, federal or
foreign regulatory agencies or bodies as are necessary to conduct their
respective businesses as presently conducted, except where failure to possess
such certificates, authorizations or permits, singly or in the aggregate,
could result in a Material Adverse Change.; and neither the Company, any
Affiliated Entity nor any Related Partnership has received any notice of
proceedings relating to the revocation or modification of, or non-compliance
with, any such certificate, authorization or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, could
result in a Material Adverse Change.
(t) Title to Properties. The Company, each of the Affiliated Companies and
each of the Related Partnerships has good and marketable title to all the
properties and assets reflected as owned in the financial statements referred
to in Section 1(A)(i) above (or elsewhere in the Prospectus), in each case
free and clear of any security interests, mortgages, liens, encumbrances,
equities, claims and other defects, except those reflected in the financial
statements or elsewhere in the Prospectus and except such as do not
materially and adversely affect the value of such property and do not
materially interfere with the use made or proposed to be made of such property
by the Company or such Affiliated Entity or Related Partnership. The real
property, improvements, equipment and personal property held under lease by
the Company, the Affiliated Companies and the Related Partnerships are held
under valid and enforceable leases, with such exceptions as are not material
and do not materially interfere with the use made or proposed to be made of
such real property, improvements, equipment or personal property by such
entities. Upon the consummation of the Formation Transactions and subject to
the prior sale of vacation ownership
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interests at the Resorts, the Related Partnerships or Affiliated Companies, as
applicable, will have good and marketable title to all of the Resorts, subject
to no lien, mortgage, pledge, charge or encumbrance of any kind except (i)
those reflected in the financial statements or elsewhere in the Prospectus, or
(ii) those which are not material in amount and do not adversely affect the
use made and proposed to be made of such Resort by the Company or the Property
Partnerships. Except as disclosed in the Prospectus, each of the Related
Partnerships or Affiliated Companies, as applicable, owns or leases and, upon
the consummation of the Formation Transactions, will own or lease, all such
properties as are necessary to operate the its Resorts and its other business
as now conducted.
(u) Resort Mortgages. The mortgages and deeds of trust encumbering the
Resorts are not convertible into equity securities of the Company or any
subsidiary of the Company nor, upon the consummation of either the Offering or
the Formation Transactions, will any lender hold a participating interest
therein; such mortgages and deeds of trust are not cross-defaulted or cross-
collateralized to any mortgage or deed of trust encumbering property that is
not to be owned directly or indirectly by the Company; and neither the
Offering nor the Formation Transactions shall cause an acceleration of the
underlying indebtedness.
(v) Tax Law Compliance. The Company and each of the Affiliated Companies
and Related Partnerships have filed all necessary federal, state and foreign
income and franchise tax returns and have paid all taxes required to be paid
by any of them and, if due and payable, any related or similar assessment,
fine or penalty levied against any of them except as may be being contested in
good faith and by appropriate proceedings. The Company has made adequate
charges, accruals and reserves in the applicable financial statements referred
to in Section 1(A)(i) above in respect of all federal, state and foreign
income and franchise taxes for all periods as to which the tax liability of
the Company or any of its consolidated subsidiaries has not been finally
determined. The Company does not have any knowledge of any tax deficiency
which has been or might be, whether in connection with the consummation of the
Offering, the Formation Transactions or otherwise, asserted or threatened
which could cause a Material Adverse Change.
(w) Company Not an "Investment Company". The Company has been advised of
the rules and requirements under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Company is not, and after receipt
of payment for the Common Shares and consummation of the Formation
Transactions will not be, an "investment company" within the meaning of
Investment Company Act and will conduct its business in a manner so that it
will not become subject to the Investment Company Act.
(x) Insurance. Upon consummation of the Offering and the Formation
Transactions, each of the Company, the Affiliated Companies and the Related
Partnerships will be insured by recognized, to the Company's knowledge
financially sound and reputable institutions with policies in such amounts and
with such deductibles and covering such risks as are generally deemed adequate
and customary for their businesses including, but not limited to, liability,
property and casualty insurance policies in favor of the Company covering each
of the Resorts and the real and personal property owned or leased by the
Company and its subsidiaries against theft, damage, destruction, acts of
vandalism and earthquakes. The Company has no reason to believe that it, any
Affiliated Entity or any Related Partnership will not be able (i) to renew its
existing insurance coverage as and when such policies expire or (ii) to obtain
comparable coverage from similar institutions as may be necessary or
appropriate to conduct its business as now conducted and at a cost that would
not result in a Material Adverse Change. None of the Company, any Affiliated
Entity or any Related Partnership has been denied any insurance coverage which
it has sought or for which it has applied. Upon consummation of the Offering
and the Formation Transactions, title insurance in favor of the applicable
Related Partnership or Affiliated Entity will be in force with
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respect to each of the Resorts (other than "PGA Vacation Resort by Vistana").
(y) No Price Stabilization or Manipulation. None of the Company, the
Affiliated Companies or any of the Related Partnerships has taken or will
take, directly or indirectly, any action designed to or that might be
reasonably expected to cause or result in stabilization or manipulation of the
price of the Common Stock to facilitate the sale or resale of the Common
Shares.
(z) Related Party Transactions. There are no business relationships or
related-party transactions involving the Company or any subsidiary or any
other person required to be described in the Prospectus which have not been
described as required.
(aa) No Unlawful Contributions or Other Payments. None of the Company, any
of the Affiliated Companies, any of the Related Partnerships nor, to the best
of the Company's knowledge, any employee or agent of the foregoing, has made
any contribution or other payment to any official of, or candidate for, any
federal, state or foreign office in violation of any law or of the character
required to be disclosed in the Prospectus.
(bb) Company's Accounting System. Each of the Company, the Affiliated
Companies and the Related Partnerships maintains a system of accounting
controls designed to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization;
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only
in accordance with management's general or specific authorization; and (iv)
the recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(cc) Compliance with Environmental Laws. Except as would not, individually
or in the aggregate, result in a Material Adverse Change (i) none of the
Company, any of the Affiliated Companies nor any Related Partnership is or
will be, as of the Closing Date and after giving effect to the Formation
Transactions, as the case may be, in violation of any federal, state, local or
foreign law or regulation relating to pollution or protection of human health
or the environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including without
limitation, laws and regulations relating to emissions, discharges, releases
or threatened releases of Hazardous Materials (as herein defined), chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum and petroleum products (collectively, "Materials of Environmental
Concern"), or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Materials of
Environment Concern (collectively, "Environmental Laws"), which violation
includes, but is not limited to, non-receipt of or noncompliance with any
permits or other governmental authorizations required for the operation of the
business of any of the foregoing entities under applicable Environmental Laws,
or noncompliance with the terms and conditions thereof, nor has any of the
foregoing entities received any written communication, whether from a
governmental authority, citizens group, employee or otherwise, that alleges
that any of them is in violation of any Environmental Law; (ii) there is no
claim, action or cause of action filed with a court or governmental authority,
no investigation with respect to which the Company has received written
notice, and no written notice by any person or entity alleging potential
liability for investigatory costs, cleanup costs, governmental responses
costs, natural resources damages, property damages, personal injuries,
attorneys' fees or penalties arising out of, based on or resulting from the
presence, or release into the environment, of any Material of Environmental
Concern at any location owned, leased or operated by the Company or any of its
subsidiaries, now or in the past (collectively, "Environmental Claims"),
pending or, to the best of the Company's knowledge,
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threatened against the Company or any of its subsidiaries or any person or
entity whose liability for any Environmental Claim the Company or any of its
subsidiaries has retained or assumed either contractually or by operation of
law; and (iii) to the best of the Company's knowledge, there are no past or
present actions, activities, circumstances, conditions, events or incidents,
including, without limitation, the release, emission, discharge, presence or
disposal of any Material of Environmental Concern, that reasonably could
result in a violation of any Environmental Law or form the basis of a
potential Environmental Claim against the Company or any of its subsidiaries
or against any person or entity whose liability for any Environmental Claim
the Company or any of its subsidiaries has retained or assumed either
contractually or by operation of law. As used herein, "Hazardous Material"
shall mean (a) any "hazardous substance" as defined by the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
("CERCLA"), (b) any "hazardous waste" as defined by the Resource Conservation
and Recovery Act, as amended, (c) any petroleum or petroleum product, (d) any
polychlorinated biphenyl and (e) any pollutant or contaminant or hazardous,
dangerous, or toxic chemical, material, waste or substance regulated under or
within the meaning of any other Environmental Law.
(dd) No Material or Undisclosed Environmental Liability. There is no
liability, alleged liability or potential liability (including, without
limitation, liability, alleged liability or potential liability for
investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries or penalties), of the
Company, any of the Affiliated Companies or any of the Related Partnerships
arising out of, based on or resulting from (a) the presence or release into
the environment of any Material of Environmental Concern at any location,
whether or not owned by the Company, any of the Affiliated Companies or any of
the Related Partnerships or (b) any violation or alleged violation of any
Environmental Law, which liability, alleged liability or potential liability
is required to be disclosed in the Registration Statement, other than as
disclosed therein, or which liability, alleged liability or potential
liability, singly or in the aggregate, would, after consummation of the
Formation Transactions, cause a Material Adverse Change.
(ee) Periodic Review of Costs of Environmental Compliance. In the ordinary
course of its business, the Company conducts a periodic review of the effect
of Environmental Laws on the business, operations and properties of the
Company, the Affiliated Companies and the Related Partnerships, in the course
of which it identifies and evaluates associated costs and liabilities
(including, without limitation, any capital or operating expenditures required
for clean-up, closure of properties or compliance with Environmental Laws or
any permit, license or approval, any related constraints on operating
activities and any potential liabilities to third parties). On the basis of
such review and the amount of its established reserves, the Company has
reasonably concluded that such associated costs and liabilities would not,
individually or in the aggregate, result in a Material Adverse Change.
(ff) No ERISA "Plan Assets." None of the assets of the Company, the
Affiliated Companies or the Related Partnerships constitutes, nor will such
assets, as of either the First or Second Closing Date, constitute "plan
assets" under the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
(gg) ERISA Compliance. The Company, the Affiliated Companies, the Related
Partnerships and any "employee benefit plan" (as defined under ERISA)
established or maintained by any of the foregoing entities or their "ERISA
Affiliates" (as defined below) are in compliance in all material respects with
ERISA. "ERISA Affiliate" means, with respect to the Company, any Affiliated
Entity or any Related Partnership, any member of any group of organizations
described in Sections 414(b),(c),(m) or (o) of the Internal Revenue Code of
1986, as amended, and the regulations and published interpretations thereunder
(the "Code") of which the Company, any
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Affiliated Entity, any Related Partnership is a member. No "reportable event"
(as defined under ERISA) has occurred or is reasonably expected to occur with
respect to any "employee benefit plan" established or maintained by the
Company, any Affiliated Entity or any Related Partnership or any of their
ERISA Affiliates. No "employee benefit plan" established or maintained by the
Company, any Affiliated Entity, any Related Partnership or any of their ERISA
Affiliates, if such "employee benefit plan" were terminated, would have any
"amount of unfunded benefit liabilities" (as defined under ERISA). Neither
the Company, any Affiliated Entity or any Related Partnership nor any of their
ERISA Affiliates has incurred or reasonably expects to incur any liability
under (i) Title IV of ERISA with respect to termination of, or withdrawal
from, any "employee benefit plan" or (ii) Sections 412, 4971, 4975 or 4980B of
the Code. Each "employee benefit plan" established or maintained by the
Company, any Affiliated Entity or any Related Partnership or any of their
ERISA Affiliates that is intended to be qualified under Section 401(a) of the
Code is so qualified and nothing has occurred, whether by action or failure to
act, which would cause the loss of such qualification.
(hh) Broker's or Finder's Fees. Except as described in the Prospectus,
none of the Company nor any of the Affiliated Companies or the Related
Partnerships has incurred any liability for a fee, commission or other
compensation on account of the employment of a broker or finder in connection
with the transactions contemplated by this Agreement other than as disclosed
in the Registration Statement.
(ii) Environmental Engineering Firm. No environmental engineering firm
which prepared Phase I environmental assessment reports (or other similar
reports) with respect to the Resorts as set forth in the Registration
Statement was employed for such purpose on a contingent basis or has any
substantial interest in the Company or any of the Affiliated Companies or the
Related Partnerships.
(jj) No Labor Problems. No general labor problem exists or is imminent
with respect to the employees of any of the Resorts, the Company, and each
Affiliated Entity or any of the Related Partnerships.
(kk) Adequate Personal Property. The personal property used and maintained
as part of the Resorts is adequate to enable the Company to continue to
conduct the operations of the Resorts in the manner in which such operations
have normally been conducted by the Property Partnerships.
Any certificate signed by an officer of the Company and delivered to the
Representatives or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
B. Representations and Warranties of the Selling Shareholders. Each Selling
Shareholder represents, warrants and covenants to each Underwriter as follows:
(a) The Underwriting Agreement. This Agreement has been duly authorized,
executed and delivered by or on behalf of such Selling Shareholder and is a
valid and binding agreement of such Selling Shareholder, enforceable against
such Selling Shareholder in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights and
remedies of creditors or by general equitable principles.
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(b) Execution and Enforceability of Custody Agreement, Power of Attorney
and Other Agreements. Each of the (i) Custody Agreement signed by such
Selling Shareholder and the Company, as custodian (the "Custodian"), relating
to the deposit of the Common Shares to be sold by such Selling Shareholder
(the "Custody Agreement"), (ii) Power of Attorney appointing certain
individuals named therein as such Selling Shareholder's attorneys-in-fact
(each, an "Attorney-in-Fact") to the extent set forth therein relating to the
transactions contemplated hereby and by the Prospectus (the "Power of
Attorney"), (iii) the Shareholder Agreement and (iv) the Indemnity Agreement
(as hereinafter defined) of such Selling Shareholder has been duly authorized,
executed and delivered by such Selling Shareholder and is a valid and binding
agreement of such Selling Shareholder, enforceable against such Selling
Shareholder in accordance with its terms, except as rights to indemnification
thereunder may be limited by applicable law and except as the enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting the rights and remedies of
creditors or by general equitable principles.
The execution, delivery and performance of this Agreement, the Custody
Agreement, the Power of Attorney, the Shareholders' Agreement, the Indemnity
Agreement, any Trust Agreement, as applicable, and the consummation of the
transactions contemplated hereby and by the foregoing agreements will not
result in a breach or violation by such Selling Shareholder of any of the
terms or provisions of, or constitute a default by such Selling Shareholder
under, any indenture, mortgage, deed of trust, trust (constructive or other),
loan agreement, lease, franchise, license or other agreement or instrument to
which such Selling Shareholder is a party or by which such Selling Shareholder
or any of its properties is bound, any statute, or any judgment, decree,
order, rule or regulation of any court or governmental agency or body
applicable to such Selling Shareholder or any of its properties.
(c) Trust Agreements. Each of the Selling Shareholders severally, and not
jointly, makes the following representations and warranties respecting such
Selling Shareholder and its affiliates (and no Selling Shareholder shall be
deemed to make any representation respecting any of the other Selling
Shareholders or its affiliates):
(I) JGG Holdings Trust. The Irrevocable Trust Agreement creating the
JGG Holdings Trust within which the shares of Common Stock to be beneficially
owned by Ms. Jan Gellein are held (the "JGG Holdings Trust Agreement") (i) has
been duly authorized, executed and delivered by all necessary parties, (ii)
creates a valid and binding fiduciary relationship under the laws of the State
of Florida, (iii) confers upon Raymond L. Gellein, Jr. (1) all requisite legal
right, power and authority to sell such shares of Common Stock as contemplated
by this Agreement, (2) all requisite legal right, power and authority to vote
such shares in his sole discretion, which right, power and authority is
subject to no time limits, and (3) all requisite legal right, power and
authority to enter into this Agreement and the applicable Consolidation
Agreements on behalf of the JGG Holdings Trust and the beneficiaries
thereunder and to carry out the transactions contemplated hereby and thereby
and (iv) is a valid and binding agreement enforceable in accordance with its
terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting the rights and remedies of creditors or by general equitable
principles. Other than this Agreement, the applicable Power of Attorney and
Custody Agreement, the Amended and Restated Subscription Agreement dated as of
February 10, 1997 (the "Subscription Agreement"), the Registration Rights
Agreement dated as of February 10, 1997 (the "Registration Rights Agreement"),
the Shareholder Option Agreement dated as of February 10, 1997 (the
"Shareholder Option Agreement") and the Shareholders' Agreement, there are no
agreements relating to the Common Stock held under the JGG Holdings Trust
Agreement or to any Common Stock owned (beneficially or otherwise) by Jan
Gellein or control thereof or otherwise related to such Common Stock.
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(II) Raymond L. Gellein, Jr. Revocable Trust. The Revocable Trust
Agreement creating the Raymond L. Gellein, Jr. Revocable Trust within which
shares of Common Stock to be beneficially owned by Mr. Raymond L. Gellein, Jr.
are held (the "Gellein Trust Agreement") (i) has been duly authorized,
executed and delivered by all necessary parties, (ii) creates a valid and
binding fiduciary relationship under the laws of the State of Florida, (iii)
confers upon Raymond L. Gellein, Jr. (1) all requisite legal right, power and
authority to sell such shares of Common Stock as contemplated by this
Agreement, (2) all requisite legal right, power and authority to vote such
shares in his sole discretion, which right, power and authority is subject to
no time limits, and (3) all requisite legal right, power and authority to
enter into this Agreement and the applicable Consolidation Agreements on
behalf of the Raymond L. Gellein, Jr. Revocable Trust and the beneficiaries
thereunder and to carry out the transactions contemplated hereby and thereby
and (iv) is a valid and binding agreement enforceable in accordance with its
terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting the rights and remedies of creditors or by general equitable
principles. Other than the Gellein Trust Agreement, the Gellein Grantor Trust
Agreement (as defined below), this Agreement, the applicable Lock-Up, Power of
Attorney and Custody Agreements, the Subscription Agreement, the Registration
Rights Agreement, the Shareholder Option Agreement and the Shareholders'
Agreement, there are no agreements relating to the Common Stock held under the
Gellein Trust Agreement or to any Common Stock owned (beneficially or
otherwise) by Raymond L. Gellein, Jr. or control thereof or otherwise related
to such Common Stock.
(III) Jeffrey A. Adler Revocable Trust. The Revocable Trust Agreement
creating the Jeffrey A. Adler Revocable Trust within which the shares of
Common Stock to be beneficially owned by Mr. Jeffrey A. Adler are held (the
"Adler Trust Agreement") (i) has been duly authorized, executed and delivered
by all necessary parties, (ii) creates a valid and binding fiduciary
relationship under the laws of the State of Florida, (iii) confers upon
Jeffrey A. Adler (1) all requisite legal right, power and authority to sell
such shares of Common Stock as contemplated by this Agreement, (2) all
requisite legal right, power and authority to vote such shares in his sole
discretion, which right, power and authority is subject to no time limits, and
(3) all requisite legal right, power and authority to enter into this
Agreement and the applicable Consolidation Agreements on behalf of the Jeffrey
A. Adler Revocable Trust and the beneficiaries thereunder and to carry out the
transactions contemplated hereby and thereby and (iv) is a valid and binding
agreement enforceable in accordance with its terms, except as the enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting the rights and remedies of
creditors or by general equitable principles. Other than the Adler Trust
Agreement, this Agreement, the applicable Lock-Up, Power of Attorney and
Custody Agreements, the Subscription Agreement, the Registration Rights
Agreement, the Shareholder Option Agreement and the Shareholders' Agreement,
there are no agreements relating to the Common Stock held under the Adler
Trust Agreement or to any Common Stock owned (beneficially or otherwise) by
Jeffrey A. Adler or control thereof or otherwise related to such Common Stock.
(The JGG Holdings Trust Agreement, the Gellein Trust Agreement and the Adler
Trust Agreement are herein collectively referred to as the "Trust
Agreements.")
(IV) Other Trusts. Each other trust which is a party to the
Subscription Agreement has been duly and validly formed and has all requisite
legal right, power and authority to own shares of Common Stock.
(d) Title to Common Shares to be Sold; All Authorizations Obtained. Such
Selling Shareholder has, and on the First Closing Date and the Second Closing
Date (as defined below) will have, good, valid and marketable title to all of
the Common Shares which may be sold by such Selling
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Shareholder pursuant to this Agreement on such date and the legal right and
power, and all authorizations and approvals required by law, its Trust
Agreement and its other organizational documents to enter into this Agreement
and its Custody Agreement, the Power of Attorney, and the Shareholder
Agreement, as applicable, to sell, transfer and deliver all of the Common
Shares which may be sold by such Selling Shareholder pursuant to this
Agreement and to comply with its other obligations hereunder and thereunder.
(e) Delivery of the Common Shares to be Sold. Delivery of the Common
Shares which are sold by such Selling Shareholder pursuant to this Agreement
will pass good, valid and marketable title to such Common Shares, free and
clear of any security interest, mortgage, pledge, lien, encumbrance, voting
trust, or other claim or defect of title.
(f) Non-Contravention; No Further Authorizations or Approvals Required.
The execution and delivery by such Selling Shareholder of, the performance by
such Selling Shareholder of its obligations under, and the consummation of the
transactions contemplated under this Agreement, the Custody Agreement, the
Power of Attorney, the Indemnity Agreement, and the Trust Agreements will not
contravene or conflict with, result in a breach of, constitute a Default
under, or require the consent of any other party to, the Trust Agreements or
the articles of incorporation, by-laws, or other organizational documents of
such Selling Shareholder or any other agreement or instrument to which such
Selling Shareholder is a party or by which it is bound or under which it is
entitled to any right or benefit, including, without limitation, any
indenture, mortgage, deed of trust, trust (constructive or other), loan
agreement, lease, franchise, license or other agreement or instrument to which
such Selling Shareholder is a party or by which such Selling Shareholder or
any of its properties is bound, or any provision of applicable law or any
judgment, order, decree or regulation applicable to such Selling Shareholder
of any court, regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over such Selling Shareholder. No consent,
approval, authorization or other order of, or registration or filing with, any
court or other governmental authority or agency, is required for the
consummation by such Selling Shareholder of the transactions contemplated in
this Agreement, except such as have been obtained or made and are in full
force and effect under the Securities Act, applicable state securities or blue
sky laws and from the NASD.
(g) No Registration or Other Similar Rights. Such Selling Shareholder does
not have any registration or other similar rights to have any equity or debt
securities registered for sale by the Company under the Registration Statement
or included in the offering contemplated by this Agreement, except for such
rights as are described in the Prospectus under "Shares Eligible for Future
Sale".
(h) No Further Consents, etc. No consent, approval or waiver is required
under any instrument or agreement to which such Selling Shareholder is a party
or by which it is bound or under which it is entitled to any right or benefit,
in connection with the offering, sale or purchase by the Underwriters of any
of the Common Shares which may be sold by such Selling Shareholder under this
Agreement or the consummation by such Selling Shareholder of any of the other
transactions contemplated hereby.
(i) Disclosure Made by Such Selling Shareholder in the Prospectus;
Compliance with Securities Act. All information furnished by or on behalf of
such Selling Shareholder in writing expressly for use in the Registration
Statement and Prospectus is, and on the First Closing Date and the Second
Closing Date will be, true, correct, and complete in all material respects,
and does not, and on the First Closing Date and the Second Closing Date will
not, contain any untrue statement of a material fact or omit to state any
material fact necessary to make such information not misleading. Such
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Selling Shareholder confirms as accurate the number of shares of Common Stock
set forth opposite such Selling Shareholder's name in the Prospectus under the
caption "Principal and Selling Shareholders" (both prior to and after giving
effect to the sale of the Common Shares). To the best knowledge of each
Selling Shareholder, each of the Preliminary Prospectus, the Prospectus and
the Registration Statement has conformed in all material respects to the
requirements of the Securities Act.
(j) No Price Stabilization or Manipulation. Such Selling Shareholder has
not taken and will not take, directly or indirectly, any action designed to or
that might be reasonably expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Common Shares.
(k) Confirmation of Company Representations and Warranties. Such Selling
Shareholder has no reason to believe that the representations and warranties
of the Company contained in Section 1(A) hereof are not true and correct,
hereby reaffirms each of the representations and warranties of the Company set
forth in Section 1(A), is familiar with the Registration Statement and the
Prospectus and has no knowledge of any material fact, condition or information
not disclosed in the Registration Statement or the Prospectus which has had or
may cause a Material Adverse Change and is not prompted to sell shares of
Common Stock by any information concerning the Company which is not set forth
in the Registration Statement and the Prospectus.
Any certificate signed by or on behalf of any Selling Shareholder and
delivered to the Representatives or to counsel for the Underwriters shall be
deemed to be a representation and warranty by such Selling Shareholder to each
Underwriter as to the matters covered thereby.
Section 2. Purchase, Sale and Delivery of the Common Shares.
The Firm Common Shares. Upon the terms herein set forth, (i) the Company
agrees to issue and sell to the several Underwriters an aggregate of 4,625,000
Firm Common Shares and (ii) the Selling Shareholders agree to sell to the
several Underwriters an aggregate of 925,000 Firm Common Shares, each Selling
Shareholder selling the number of Firm Common Shares set forth opposite such
Selling Shareholder's name on Schedule B. On the basis of the representations,
warranties and agreements herein contained, and upon the terms but subject to
the conditions herein set forth, the Underwriters agree, severally and not
jointly, to purchase from the Company and the Selling Shareholders the
respective number of Firm Common Shares set forth opposite their names on
Schedule A. The purchase price per Firm Common Share to be paid by the several
Underwriters to the Company and the Selling Shareholders shall be $[___] per
share.
The First Closing Date. Delivery of certificates for the Firm Common
Shares to be purchased by the Underwriters and payment therefor shall be made at
the offices of Montgomery Securities, 600 Montgomery Street, San Francisco,
California (or such other place as may be agreed to by the Company and the
Representatives) at 6:00 a.m. San Francisco time, on the fourth full business
day after the date of this Agreement, or such other time and date not later than
10:30 a.m. San Francisco time, upon 10 business days thereafter as the
Representatives shall designate by notice to the Company (the time and date of
such closing are called the "First Closing Date"). The Company and the Selling
Shareholders hereby acknowledge that circumstances under which the
Representatives may provide notice to postpone the First Closing Date as
originally scheduled include, but are in no way limited to, any determination by
the Company, the Selling Shareholders or the Representatives to recirculate to
the public copies of an amended or supplemented Prospectus or a delay as
contemplated by the
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provisions of Section 10.
The Optional Common Shares; the Second Closing Date. In addition, on the
basis of the representations, warranties and agreements herein contained, and
upon the terms but subject to the conditions herein set forth, the Company and
the Selling Shareholders hereby grant an option to the several Underwriters to
purchase, severally and not jointly, up to an aggregate of 925,000 Optional
Common Shares from the Company and the Selling Shareholders at the purchase
price per share to be paid by the Underwriters for the Firm Common Shares. The
option granted hereunder is for use by the Underwriters solely in covering any
over-allotments in connection with the sale and distribution of the Firm Common
Shares. The option granted hereunder may be exercised at any time (but not more
than once) upon notice by the Representatives to the Company and the Selling
Shareholders, which notice may be given at any time within 30 days from the date
of this Agreement. Such notice shall set forth (i) the aggregate number of
Optional Common Shares as to which the Underwriters are exercising the option,
(ii) the names and denominations in which the certificates for the Optional
Common Shares are to be registered and (iii) the time, date and place at which
such certificates will be delivered (which time and date may be simultaneous
with, but not earlier than, the First Closing Date; and in such case the term
"First Closing Date" shall refer to the time and date of delivery of
certificates for the Firm Common Shares and the Optional Common Shares). Such
time and date of delivery, if subsequent to the First Closing Date, is called
the "Second Closing Date" and shall be determined by the Representatives and
shall not be earlier than three nor later than five full business days after
delivery of such notice of exercise. If any Optional Common Shares are to be
purchased, (a) each Underwriter agrees, severally and not jointly, to purchase
the number of Optional Common Shares (subject to such adjustments to eliminate
fractional shares as the Representatives may determine) that bears the same
proportion to the total number of Optional Common Shares to be purchased as the
number of Firm Common Shares set forth on Schedule A opposite the name of such
Underwriter bears to the total number of Firm Common Shares, (b) each Selling
Shareholder shall have the right, severally and not jointly, to sell the number
of Optional Common Shares (subject to such adjustments to eliminate fractional
shares as the Representatives may determine) that bears the same proportion to
the total number of Optional Common Shares to be sold as the number of Optional
Common Shares set forth in Schedule B opposite the name of such Selling
Shareholder bears to the total number of Optional Common Shares, and (c) the
Company agrees that in the event that the Selling Shareholders fail to tender
the aggregate number of Optional Common Shares to be purchased pursuant to
exercise of the option, the Company shall issue and sell the number of Optional
Common Shares equal to the difference between the aggregate number of Optional
Common Shares actually tendered by the Selling Shareholders and the number of
Optional Common Shares to be purchased pursuant to exercise of the option. The
Representatives may cancel the option at any time prior to its expiration by
giving written notice of such cancellation to the Company and the Selling
Shareholders. The Company and the Selling Shareholders shall have the right to
allocate the Optional Common Shares to be sold by them in any manner.
Public Offering of the Common Shares. The Representatives hereby advise
the Company and the Selling Shareholders that the Underwriters intend to offer
for sale to the public, as described in the Prospectus, their respective
portions of the Common Shares as soon after this Agreement has been executed and
the Registration Statement has been declared effective as the Representatives,
in their sole judgment, have determined is advisable and practicable.
Payment for the Common Shares. Payment for the Common Shares to be sold by
the Company shall be made at the First Closing Date (and, if applicable, at the
Second Closing Date) by wire transfer of immediately available funds to the
order of the Company provided such payment may be made directly to a title
company acceptable to the Company to facilitate the repayment of any debt as
described in "Use of Proceeds." Payment for the Common Shares to be sold by the
Selling Shareholders
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shall be made at the First Closing Date (and, if applicable, at the Second
Closing Date) by wire transfer of immediately available funds to the order of
the Custodian.
It is understood that the Representatives have been authorized, for their
own accounts and the accounts of the several Underwriters, to accept delivery of
and receipt for, and make payment of the purchase price for, the Firm Common
Shares and any Optional Common Shares the Underwriters have agreed to purchase.
Montgomery Securities, individually and not as the Representative of the
Underwriters, may (but subject to Section 10 shall not otherwise be obligated
to) make payment for any Common Shares to be purchased by any Underwriter whose
funds shall not have been received by the Representatives by the First Closing
Date or the Second Closing Date, as the case may be, for the account of such
Underwriter, but any such payment shall not relieve such Underwriter from any of
its obligations under this Agreement.
Each Selling Shareholder hereby agrees that (i) it will pay all stock
transfer taxes, stamp duties and other similar taxes, if any, payable upon the
sale or delivery of the Common Shares to be sold by such Selling Shareholder to
the several Underwriters, or otherwise in connection with the performance of
such Selling Shareholder's obligations hereunder and (ii) the Custodian is
authorized to deduct for such payment any such amounts from the proceeds to such
Selling Shareholder hereunder and to hold such amounts for the account of such
Selling Shareholder with the Custodian under the Custody Agreement.
Delivery of the Common Shares. The Company and the Selling Shareholders
shall deliver, or cause to be delivered, to the Representatives for the accounts
of the several Underwriters certificates for the Firm Common Shares to be sold
by them at the First Closing Date, against the irrevocable release of a wire
transfer of immediately available funds for the amount of the purchase price
therefor. The Company and the Selling Shareholders shall also deliver, or cause
to be delivered, to the Representatives for the accounts of the several
Underwriters, certificates for the Optional Common Shares the Underwriters have
agreed to purchase from them at the First Closing Date or the Second Closing
Date, as the case may be, against the irrevocable release of a wire transfer of
immediately available funds for the amount of the purchase price therefor. The
certificates for the Common Shares shall be in definitive form and registered in
such names and denominations as the Representatives shall have requested at
least two full business days prior to the First Closing Date (or the Second
Closing Date, as the case may be) and shall be made available for inspection on
the business day preceding the First Closing Date (or the Second Closing Date,
as the case may be) at a location in New York City as the Representatives may
designate. Time shall be of the essence, and delivery at the time and place
specified in this Agreement is a further condition to the obligations of the
Underwriters.
Delivery of Prospectus to the Underwriters. Not later than 12:00 p.m. on
the second business day following the date the Common Shares are released by the
Underwriters for sale to the public, the Company shall deliver or cause to be
delivered copies of the Prospectus in such quantities and at such places as the
Representatives shall request.
Section 3. Additional Covenants.
A. Covenants of the Company. The Company further covenants and agrees with
each Underwriter as follows:
(a) Representatives' Review of Proposed Amendments and Supplements. During
such period beginning on the date hereof and ending on the later of the First
Closing Date or such date, as in the opinion of counsel for the Underwriters,
the Prospectus is no longer required by law to be
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delivered in connection with sales by an Underwriter or dealer (the
"Prospectus Delivery Period"), prior to amending or supplementing the
Registration Statement (including any registration statement filed under Rule
462(b) under the Securities Act) or the Prospectus, the Company shall furnish
to the Representatives for review a copy of each such proposed amendment or
supplement, and the Company shall not file any such proposed amendment or
supplement to which the Representatives reasonably object.
(b) Securities Act Compliance. After the date of this Agreement, the
Company shall promptly advise the Representatives in writing (i) of the
receipt of any comments of, or requests for additional or supplemental
information from, the Commission, (ii) of the time and date of any filing of
any post-effective amendment to the Registration Statement or any amendment or
supplement to any preliminary prospectus or the Prospectus, (iii) of the time
and date that any post-effective amendment to the Registration Statement
becomes effective and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or any post-
effective amendment thereto or of any order preventing or suspending the use
of any preliminary prospectus or the Prospectus, or of any proceedings to
remove, suspend or terminate from listing or quotation the Common Stock from
any securities exchange upon which the Common Stock is listed for trading or
included or designated for quotation, or of the threatening or initiation of
any proceedings for any of such purposes. If the Commission shall enter any
such stop order at any time, the Company will use its best efforts to obtain
the lifting of such order at the earliest possible moment. Additionally, the
Company agrees that it shall comply with the provisions of Rules 424(b), 430A
and 434, as applicable, under the Securities Act and will use its reasonable
efforts to confirm that any filings made by the Company under such Rule 424(b)
were received in a timely manner by the Commission.
(c) Amendments and Supplements to the Prospectus and Other Securities Act
Matters. If, during the Prospectus Delivery Period, any event shall occur or
condition exist as a result of which it is necessary to amend or supplement
the Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not misleading,
or if in the opinion of the Representatives or counsel for the Underwriters it
is otherwise necessary to amend or supplement the Prospectus to comply with
law, the Company agrees to promptly prepare (subject to Section 3(A)(a)
hereof), file with the Commission and furnish at its own expense to the
Underwriters and to dealers, amendments or supplements to the Prospectus so
that the statements in the Prospectus as so amended or supplemented will not,
in the light of the circumstances when the Prospectus is delivered to a
purchaser, be misleading or so that the Prospectus, as amended or
supplemented, will comply with law.
(d) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Representatives, without charge, during the
Prospectus Delivery Period, as many copies of the Prospectus and any
amendments and supplements thereto as the Representatives may request.
(e) Blue Sky Compliance. The Company shall cooperate with the
Representatives and counsel for the Underwriters to qualify or register the
Common Shares for sale under (or obtain exemptions from the application of)
the Blue Sky or state securities laws of those jurisdictions designated by the
Representatives, shall comply with such laws and shall continue such
qualifications, registrations and exemptions in effect so long as required for
the distribution of the Common Shares. The Company shall not be required to
qualify as a foreign corporation or to take any action that would subject it
to general service of process in any such jurisdiction where it is not
presently qualified or where it would be subject to taxation as a foreign
corporation. The Company will advise the Representatives promptly of the
suspension of the qualification or registration of (or any such
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exemption relating to) the Common Shares for offering, sale or trading in any
jurisdiction or any initiation or threat of any proceeding for any such
purpose, and in the event of the issuance of any order suspending such
qualification, registration or exemption, the Company shall use its best
efforts to obtain the withdrawal thereof at the earliest possible moment.
(f) Use of Proceeds. The Company shall apply the net proceeds from the
sale of the Common Shares sold by it in the manner described under the caption
"Use of Proceeds" in the Prospectus.
(g) Transfer Agent. The Company shall engage and maintain, at its expense,
a registrar and transfer agent for the Common Stock.
(h) Earnings Statement. As soon as practicable, the Company will make
generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) covering the twelve-month
period ending on the final day of the Company's first quarter that ends at
least one year after "the effective date of the Registration Statement" (as
defined in Rule 158(c) under the Securities Act) that satisfies the provisions
of Section 11(a) of the Securities Act.
(j) Periodic Reporting Obligations. During the Prospectus Delivery Period
the Company shall file, on a timely basis, with the Commission and the Nasdaq
National Market all reports and documents required to be filed under the
Securities Exchange Act of 1934 (the "Exchange Act"). Additionally, the
Company shall file with the Commission all reports on Form SR as may be
required under Rule 463 under the Securities Act.
(k) Agreement Not To Offer or Sell Additional Securities. During the
period of 180 days following the date of the Prospectus, the Company will not,
without the prior written consent of Montgomery Securities (which consent may
be withheld at the sole discretion of Montgomery Securities), directly or
indirectly, sell, offer, contract or grant any option to sell, pledge,
transfer or establish an open "put equivalent position" within the meaning of
Rule 16a-1(h) under the Exchange Act, or otherwise dispose of or transfer, or
announce the offering of, or file any registration statement under the
Securities Act in respect of, any shares of Common Stock, options or warrants
to acquire shares of the Common Stock or securities exchangeable or
exercisable for or convertible into shares of Common Stock (other than as
contemplated by this Agreement with respect to the Common Shares); provided,
however, that the Company may issue shares of its Common Stock or options to
purchase its Common Stock, or Common Stock upon exercise of options, pursuant
to any stock option, stock bonus or other stock plan or arrangement described
in the Prospectus, but only if the holders of such shares, options, or shares
issued upon exercise of such options, agree in writing not to sell, offer,
dispose of or otherwise transfer any such shares or options during such 180
day period without the prior written consent of Montgomery Securities (which
consent may be withheld at the sole discretion of the Montgomery Securities).
(l) Future Reports to the Representatives. During the period of five years
hereafter the Company will furnish to the Representatives at 600 Montgomery
Street, San Francisco, CA 94111 Attention: Mr. Jason Pedersen, and to
O'Melveny & Myers LLP at the address set forth in Section 13 (i) as soon as
practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the Company as of the close of
such fiscal year and statements of income, shareholders' equity and cash flows
for the year then ended and the opinion thereon of the Company's independent
public or certified public accountants; (ii) as soon as practicable after the
filing thereof, copies of each proxy statement, Annual Report on Form 10-K,
Quarterly Report on Form 10-Q, Current Report on Form 8-K or other report
filed by the Company with the Commission, the NASD or any securities exchange;
and (iii) as soon as available,
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copies of any report or communication of the Company mailed generally to
holders of its capital stock.
B. Covenants of the Selling Shareholders. Each Selling Shareholder
further covenants and agrees with each Underwriter:
(a) Agreement Not to Offer or Sell Additional Securities. Such Selling
Shareholder will not, without the prior written consent of Montgomery (which
consent may be withheld in its sole discretion), directly or indirectly, sell,
offer, contract or grant any option to sell (including without limitation any
short sale), pledge, transfer, establish an open "put equivalent position"
within the meaning of Rule 16a-1(h) under the Exchange Act, or otherwise
dispose of any shares of Common Stock, options or warrants to acquire shares
of Common Stock, or securities exchangeable or exercisable for or convertible
into shares of Common Stock currently or hereafter owned either of record or
beneficially (as defined in Rule 13d-3 under Securities Exchange Act of 1934,
as amended) by the undersigned, or publicly announce the undersigned's
intention to do any of the foregoing (collectively for purposes of this
paragraph, to "Sales"), for a period commencing on the date hereof and
continuing through the close of trading on the date 365 days after the date of
the Prospectus; provided, however that Sales pursuant to the Shareholder
Option Agreement, Sales to family members in connection with any bona fide
estate planning of a Selling Shareholder and transfers to or from any grantor
retained annuity trusts shall be allowed without the prior written consent of
Montgomery Securities provided such transferees shall be bound by this
paragraph and shall agree not to make any Sales for the remainder of such 365
day period without such prior written consent of Montgomery Securities.
(b) Delivery of Forms W-8 and W-9. To deliver to the Representatives prior
to the First Closing Date a properly completed and executed United States
Treasury Department Form W-8 (if the Selling Shareholder is a non-United
States person) or Form W-9 (if the Selling Shareholder is a United States
Person).
Montgomery Securities, on behalf of the several Underwriters, may, in its sole
discretion, waive in writing the performance by the Company or any Selling
Shareholder of any one or more of the foregoing covenants or extend the time for
their performance.
Section 4. Payment of Expenses. The Company and the Selling Shareholders,
jointly and severally, agree to pay in such proportions as they may agree upon
among themselves, all costs, fees and expenses incurred in connection with the
performance of their obligations hereunder and in connection with the
transactions contemplated hereby, including without limitation (i) all expenses
incurred by or on behalf of the Company incident to the Company's issuance and
delivery of the Common Shares (including all printing and engraving costs), (ii)
all fees and expenses of the registrar and transfer agent of the Common Stock,
(iii) all necessary issue, transfer and other stamp taxes in connection with the
issuance and sale of the Common Shares to the Underwriters, (iv) all fees and
expenses of the Company's counsel, independent public or certified pubic
accountants and other advisors, (v) all costs and expenses incurred in
connection with the preparation, printing, filing, shipping and distribution of
the Registration Statement (including financial statements, exhibits, schedules,
consents and certificates of experts), each preliminary prospectus and the
Prospectus, and all amendments and supplements thereto, and this Agreement, (vi)
all filing fees, attorneys' fees and expenses incurred by the Company or the
Underwriters in connection with qualifying or registering (or obtaining
exemptions from the qualification or registration of) all or any part of the
Common Shares for offer and sale under the Blue Sky laws, and, if requested by
the Representatives, preparing and printing a "Blue Sky Survey" or
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memorandum, and any supplements thereto, advising the Underwriters of such
qualifications, registrations and exemptions, (vii) the filing fees incident to,
and the reasonable fees and expenses of counsel for the Underwriters in
connection with, the NASD's review and approval of the Underwriters'
participation in the offering and distribution of the Common Shares, (viii) the
fees and expenses associated with listing the Common Shares on the Nasdaq
National Market and (ix) all other fees, costs and expenses referred to in Item
13 of Part II of the Registration Statement. Except as provided in this Section
4, Section 6, Section 8 and Section 9 hereof, the Underwriters shall pay their
own expenses, including the fees and disbursements of their counsel.
The Selling Shareholders further agree with each Underwriter to pay
directly all fees and expenses incident to the performance of their obligations
under this Agreement which are not otherwise specifically provided for herein,
including but not limited to (i) fees and expenses of counsel and other advisors
for such Selling Shareholders, (ii) fees and expenses of the Custodian and (iii)
expenses and taxes incident to the sale and delivery of the Common Shares to be
sold by such Selling Shareholders to the Underwriters hereunder (which taxes, if
any, may be deducted by the Custodian under the provisions of Section 2 of this
Agreement).
This Section 4 shall not affect or modify any separate, valid agreement
relating to the allocation of payment of expenses between the Company, on the
one hand, and the Selling Shareholders, on the other hand.
Section 5. Conditions of the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company and
the Selling Shareholders set forth in Sections 1(A) and 1(B) hereof as of the
date hereof and as of the First Closing Date as though then made and, with
respect to the Optional Common Shares, as of the Second Closing Date as though
then made, to the timely performance by the Company and the Selling Shareholders
of their respective covenants and other obligations hereunder, and to each of
the following additional conditions:
(a) Accountants' Comfort Letter. On the date hereof, the Representatives
shall have received from KPMG Peat Marwick LLP independent public or certified
public accountants for the Company, a letter dated the date hereof addressed
to the Underwriters, in form and substance satisfactory to the
Representatives, containing statements and information of the type ordinarily
included in accountant's "comfort letters" to underwriters, delivered
according to Statement of Auditing Standards No. 72 (or any successor
bulletin), with respect to the audited and unaudited financial statements and
certain financial information contained in the Registration Statement and the
Prospectus (and the Representatives shall have received an additional three
(3) conformed copies of such accountants' letter for each of the several
Underwriters).
(b) Compliance with Registration Requirements; No Stop Order; No Objection
from NASD. For the period from and after effectiveness of this Agreement and
prior to the First Closing Date and, with respect to the Optional Common
Shares, the Second Closing Date:
(i) the Company shall have filed the Prospectus with the Commission
(including the information required by Rule 430A under the Securities Act)
in the manner and within the time period required by Rule 424(b) under the
Securities Act; or the Company shall have filed a post-effective amendment
to the Registration Statement containing the information required by such
Rule 430A, and such post-effective amendment shall have become effective;
or, if the Company elected to rely upon Rule 434 under the Securities Act
and obtained the
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Representatives' consent thereto, the Company shall have filed a Term Sheet
with the Commission in the manner and within the time period required by
such Rule 424(b);
(ii) no stop order suspending the effectiveness of the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment to the Registration Statement, shall be in effect and no
proceedings for such purpose shall have been instituted or threatened by
the Commission; and
(iii) the NASD shall have raised no objection to the fairness and
reasonableness of the underwriting terms and arrangements.
(c) No Material Adverse Change. For the period from and after the date of
this Agreement and prior to the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date in the judgment of the
Representatives there shall not have occurred any Material Adverse Change.
(d) Opinion of Counsel for the Company. On each of the First Closing Date
and the Second Closing Date the Representatives shall have received the
favorable opinion of Neal, Gerber & Eisenberg, counsel for the Company, dated
as of such Closing Date, the form of which is attached as Exhibit A, which
opinion may rely, 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. (and the Representatives shall have received an additional
five (5) conformed copies of such counsel's legal opinion for each of the
several Underwriters). In addition, the Representatives shall have received
an opinion of Weil, Gotshal & Manges respecting the rights, title and interest
of the Company in and to the Intellectual Property Rights.
(e) Opinion of Counsel for the Underwriters. On each of the First Closing
Date and the Second Closing Date the Representatives shall have received the
favorable opinion of O'Melveny & Myers LLP, counsel for the Underwriters,
dated as of such Closing Date, with respect to certain matters and the
Representatives shall have received an additional five (5) conformed copies of
such counsel's legal opinion for each of the several Underwriters.
(f) Officers' Certificate. On each of the First Closing Date and the
Second Closing Date the Representatives shall have received a written
certificate executed by the Chairman of the Board of the Company, the
President of the Company and the Chief Operating Officer of the Company, dated
as of such Closing Date, certifying as to such matters as the Representatives
shall have reasonably requested, including, without limitation, certification
to the effect set forth in subsections (b)(ii) and (c)(ii) of this Section 5,
and further to the effect that:
(i) for the period from and after the date of this Agreement and prior
to such Closing Date, there has not occurred any Material Adverse Change;
(ii) the representations, warranties and covenants of the Company set
forth in Section 1(A) of this Agreement are true and correct with the same
force and effect as though expressly made on and as of such Closing Date;
and
(iii) the Company has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied at or prior to
such Closing Date.
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(g) Bring-down Comfort Letter. On each of the First Closing Date and the
Second Closing Date the Representatives shall have received from KPMG Peat
Marwick LLP, independent public or certified public accountants for the
Company, a letter dated such date, in form and substance satisfactory to the
Representatives, to the effect that they reaffirm the statements made in the
letter furnished by them pursuant to subsection (a) of this Section 5, except
that the specified date referred to therein for the carrying out of procedures
shall be no more than three business days prior to the First Closing Date or
Second Closing Date, as the case may be (and the Representatives shall have
received one (1) additional conformed copy of such accountants' letter for
each of the several Underwriters).
(h) Opinion of Counsel for the Selling Shareholders. On each of the First
Closing Date and the Second Closing Date the Representatives shall have
received the favorable opinion of Neal, Gerber & Eisenberg, counsel for the
Selling Shareholders, dated as of such Closing Date, the form of which is
attached as Exhibit B (and the Representatives shall have received an
additional five (5) conformed copies of such counsel's legal opinion for each
of the several Underwriters).
(i) Selling Shareholders' Certificate. On each of the First Closing Date
and the Second Closing Date the Representatives shall received a written
certificate executed by each Selling Shareholder, dated as of such Closing
Date, to the effect that:
(ii) the representations, warranties and covenants of such Selling
Shareholder set forth in Section 1(B) of this Agreement are true and
correct with the same force and effect as though expressly made by such
Selling Shareholder on and as of such Closing Date; and
(iii) such Selling Shareholder has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to such Closing Date.
(j) Selling Shareholders' Documents. On the date hereof, the Company and
the Selling Shareholders shall have furnished for review by the
Representatives copies of the Powers of Attorney and Custody Agreements
executed by each of the Selling Shareholders and such further information,
certificates and documents as the Representatives may reasonably request.
(k) Lock-Up Agreements from Certain Directors, Officers and Shareholders of
the Company Other Than Selling Shareholders. On the date hereof, the Company
shall have furnished to the Representatives an agreement in the form of
Exhibit C hereto from each director, officer, certain other employees of the
Company and each beneficial owner of Common Stock (as defined and determined
according to Rule 13d-3 under the Exchange Act, except that a 365 day period
shall be used rather than the sixty day period set forth therein) and such
agreement shall be in full force and effect on each of the First Closing Date
and the Second Closing Date.
(l) Consummation of Formation Transactions. The Formation Transactions
shall have been consummated or shall occur simultaneously with the closing of
the purchase and sale of the Firm Common Shares.
(m) Indemnity Agreement. The Company shall have received and delivered to
the Representatives the indemnity agreement ("Indemnity Agreement") by and
between the Company, and certain of the Selling Shareholders and executive
officers pursuant to which the Selling Shareholders jointly and severally
agree to indemnify and hold harmless the Company and the Underwriters against
certain losses, claims, damages, liabilities or expenses, in a form acceptable
to the Underwriters.
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(n) Resort-Related Documents. On or before the First Closing Date, the
Company or the Property Partnerships, as applicable, shall have made available
to you or your counsel with respect to each Resort, each of which has been
received and approved prior to the date hereof:
(i) Evidence satisfactory to the Underwriters that such Resort is owned
by the applicable Property Partnership, subject to the prior sale of any
vacation ownership interests at such Resort;
(ii) Policies or certificates of insurance relating to the Resort
evidencing coverages and in amounts customarily obtained by owners of
similar Resorts;
(iii) UCC, judgment and tax lien searches confirming that the personal
property comprising a part of the Resort is subject to no liens other than
as disclosed in the Prospectus;
(iv) An engineering (structural) report from an engineer or engineers,
together with Phase I environmental reports, each in a form satisfactory to
you, respecting each Resort; and
(v) If such Resort is subject to an existing mortgage that will be
prepaid in whole or in part from the proceeds of the Offering (an "Existing
Mortgage"), a letter dated not earlier than 10 days prior to the First
Closing Date from the holder of such Existing Mortgage indicating that the
mortgagor or grantor under such Existing Mortgage is not then in default
and indicating the principal amount required to satisfy all amounts then
secured by such Existing Mortgage and the additional amount required for
each day after the date of such letter necessary to satisfy all obligations
secured thereby, together with all documentation and consents necessary to
permit the repayment of all amounts owed and, if applicable, the release of
the Existing Mortgage.
(o) Written Assurances under the Existing Instruments. On or before the
First Closing Date, the Company shall have made available to you or your
counsel the written consents referred to in Section 1(A)(m), clause (iii)
(regarding, among other matters, the absence of any default under the Existing
Instruments to be caused by the Formation Transactions).
(p) Additional Documents. On or before each of the First Closing Date and
the Second Closing Date, the Representatives and counsel for the Underwriters
shall have received such information, documents and opinions as they may
reasonably require for the purposes of enabling them to pass upon the issuance
and sale of the Common Shares as contemplated herein, or in order to evidence
the accuracy of any of the representations and warranties, or the satisfaction
of any of the conditions or agreements, herein contained.
If any condition specified in this Section 5 is not satisfied when and as
required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company and the Selling Shareholders at any
time on or prior to the First Closing Date and, with respect to the Optional
Common Shares, at any time prior to the Second Closing Date, which termination
shall be without liability on the part of any party to any other party, except
that Section 4, Section 6, Section 8 and Section 9 shall at all times be
effective and shall survive such termination.
Section 6. Reimbursement of Underwriters' Expenses. If this Agreement is
terminated by the Representatives pursuant to Section 5, Section 7, Section 11,
or Section 17, or if the sale to the Underwriters of the Common Shares on the
First Closing Date is not consummated because of any refusal, inability or
failure on the part of the Company or the Selling Shareholders to perform any
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agreement herein or to comply with any provision hereof, the Company agrees to
reimburse the Representatives and the other Underwriters (or such Underwriters
as have terminated this Agreement with respect to themselves), severally, upon
demand for all out-of-pocket expenses that shall have been reasonably incurred
by the Representatives and the Underwriters in connection with the proposed
purchase and the offering and sale of the Common Shares, including, but not
limited to, fees and disbursements of counsel, printing expenses, travel
expenses, postage, facsimile and telephone charges.
Section 7. Effectiveness of this Agreement. This Agreement shall not
become effective until the later of (i) the execution of this Agreement by the
parties hereto and (ii) notification by the Commission to the Company and the
Representatives of the effectiveness of the Registration Statement under the
Securities Act.
Prior to such effectiveness, this Agreement may be terminated by any party
by notice to each of the other parties hereto, and any such termination shall be
without liability on the part of (a) the Company or the Selling Shareholders to
any Underwriter, except that the Company and the Selling Shareholders shall be
obligated to reimburse the expenses of the Representatives and the Underwriters
pursuant to Sections 4 and 6 hereof, (b) any Underwriter to the Company or the
Selling Shareholders, or (c) any party hereto to any other party except that the
provisions of Section 8 and Section 9 shall at all times be effective and shall
survive such termination.
Section 8. Indemnification.
(a) Indemnification of the Underwriters. Each of the Company and each of
the Selling Shareholders, jointly and severally, agree to indemnify and hold
harmless each Underwriter, its officers and employees, and each person, if
any, who controls any Underwriter within the meaning of the Securities Act and
the Exchange Act against any loss, claim, damage, liability or expense, as
incurred, to which such Underwriter or such controlling person may become
subject, under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of the Company), insofar as such loss, claim, damage, liability or
expense (or actions in respect thereof as contemplated below) arises out of or
is based (i) upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, or any amendment
thereto, including any information deemed to be a part thereof pursuant to
Rule 430A or Rule 434 under the Securities Act, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading; or (ii) upon any
untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; or (iii) in whole or
in part upon any inaccuracy in the representations and warranties of the
Company or the Selling Shareholders contained herein; or (iv) in whole or in
part upon any failure of the Company or the Selling Shareholders to perform
its respective obligations hereunder or under law; or (v) any act or failure
to act or any alleged act or failure to act by any Underwriter in connection
with, or relating in any manner to, the Common Stock or the offering
contemplated hereby, and which is included as part of or referred to in any
loss, claim, damage, liability or action arising out of or based upon any
matter covered by clause (i) or (ii) above, provided that the Company shall
not be liable under this clause (v) to the extent that a court of competent
jurisdiction shall have determined by a final judgment that such loss, claim,
damage, liability or action resulted directly from any such acts or failures
to act undertaken or omitted to be taken by such Underwriter through its gross
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negligence or willful misconduct; and to reimburse each Underwriter and each
such controlling person for any and all expenses (including the fees and
disbursements of counsel chosen by Montgomery Securities) as such expenses are
reasonably incurred by such Underwriter or such controlling person in
connection with investigating, defending, settling, compromising or paying any
such loss, claim, damage, liability, expense or action; provided, however,
that the foregoing indemnity agreement shall not apply to any loss, claim,
damage, liability or expense to the extent, but only to the extent, arising
out of or based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Company and the Selling Shareholders by
the Representatives expressly for use in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto); and provided, further, that with respect to any preliminary
prospectus, the foregoing indemnity agreement shall not inure to the benefit
of any Underwriter from whom the person asserting any loss, claim, damage,
liability or expense purchased Common Shares, or any person controlling such
Underwriter, if copies of the Prospectus were timely delivered to the
Underwriter pursuant to Section 2 and a copy of the Prospectus (as then
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such Underwriter
to such person, if required by law so to have been delivered, at or prior to
the written confirmation of the sale of the Common Shares to such person, and
if the Prospectus (as so amended or supplemented) would have cured the defect
giving rise to such loss, claim, damage, liability or expense; and provided,
further, that the liability of each Selling Shareholder under this Section
8(a) or otherwise for any claim covered by this Section 8(a) shall not exceed
the net proceeds otherwise received by such Selling Shareholder pursuant to
this Agreement. The indemnity agreement set forth in this Section 8(a) shall
be in addition to any liabilities that the Company and the Selling
Shareholders may otherwise have.
(b) Indemnification of the Company, its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement, the Selling Shareholders and each person, if any, who
controls the Company or any Selling Shareholder within the meaning of the
Securities Act or the Exchange Act, against any loss, claim, damage, liability
or expense, as incurred, to which the Company, or any such director, officer,
Selling Shareholder or controlling person may become subject, under the
Securities Act, the Exchange Act, or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of such
Underwriter), insofar as such loss, claim, damage, liability or expense (or
actions in respect thereof as contemplated below) arises out of or is based
upon any untrue or alleged untrue statement of a material fact contained in
the Registration Statement, any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto), or arises out of or is based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in the
Registration Statement, any preliminary prospectus, the Prospectus (or any
amendment or supplement thereto), in reliance upon and in conformity with
written information furnished to the Company and the Selling Shareholders by
the Representatives expressly for use therein; and to reimburse the Company,
or any such director, officer, Selling Shareholder or controlling person for
any legal and other expense reasonably incurred by the Company, or any such
director, officer, Selling Shareholder or controlling person in connection
with investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action. Each of the Company and each of
the Selling Shareholders, hereby acknowledges that the only information that
the Underwriters have furnished to the Company and the Selling Shareholders
expressly for use in the Registration Statement, any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto) are the
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statements set forth (A) as the first paragraph on the inside front cover page
of the Prospectus concerning stabilization by the Underwriters and (B) in the
table in the first paragraph, the second paragraph and the sixth paragraph
under the caption "Underwriting" in the Prospectus; and the Underwriters
confirm that such statements are correct. The indemnity agreement set forth
in this Section 8(b) shall be in addition to any liabilities that each
Underwriter may otherwise have.
(c) Notifications and Other Indemnification Procedures. Promptly after
receipt by an indemnified party under this Section 8 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 8,
notify the indemnifying party in writing of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party for contribution or
otherwise than under the indemnity agreement contained in this Section 8 or to
the extent it is not prejudiced as a proximate result of such failure. In
case any such action is brought against any indemnified party and such
indemnified party seeks or intends to seek indemnity from an indemnifying
party, the indemnifying party will be entitled to participate in, and, to the
extent that it shall elect, jointly with all other indemnifying parties
similarly notified, by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party; provided, however, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that a conflict may arise
between the positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal defenses
available to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnified party
or parties shall have the right to select separate counsel to assume such
legal defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice from the
indemnifying party to such indemnified party of such indemnifying party's
election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to
such indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel
in accordance with the proviso to the next preceding sentence (it being
understood, however, that the indemnifying party shall not be liable for the
expenses of more than one separate counsel (together with local counsel),
approved by the indemnifying party (Montgomery Securities in the case of
Section 8(b) and Section 9), representing the indemnified parties who are
parties to such action) or (ii) the indemnifying party shall not have employed
counsel satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of commencement of the action, in
each of which cases the fees and expenses of counsel shall be at the expense
of the indemnifying party.
(d) Settlements. The indemnifying party under this Section 8 shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified
party against any loss, claim, damage, liability or expense by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as
contemplated by Section 8(c) hereof, the indemnifying party agrees that it
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 30 days after
receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement, compromise or consent to the entry of
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judgment in any pending or threatened action, suit or proceeding in respect of
which any indemnified party is or could have been a party and indemnity was or
could have been sought hereunder by such indemnified party, unless such
settlement, compromise or consent includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter of
such action, suit or proceeding.
Section 9. Contribution. If the indemnification provided for in Section 8
is for any reason held to be unavailable to or otherwise insufficient to hold
harmless an indemnified party in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount paid or payable by such indemnified party, as
incurred, as a result of any losses, claims, damages, liabilities or expenses
referred to therein (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Shareholders, on the
one hand, and the Underwriters, on the other hand, from the offering of the
Common Shares pursuant to this Agreement or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Selling Shareholders,
on the one hand, and the Underwriters, on the other hand, in connection with the
statements or omissions or inaccuracies in the representations and warranties
herein which resulted in such losses, claims, damages, liabilities or expenses,
as well as any other relevant equitable considerations. The relative benefits
received by the Company and the Selling Shareholders, on the one hand, and the
Underwriters, on the other hand, in connection with the offering of the Common
Shares pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Common Shares
pursuant to this Agreement (before deducting expenses) received by the Company
and the Selling Shareholders, and the total underwriting discount received by
the Underwriters, in each case as set forth on the front cover page of the
Prospectus (or, if Rule 434 under the Securities Act is used, the corresponding
location on the Term Sheet) bear to the aggregate initial public offering price
of the Common Shares as set forth on such cover. The relative fault of the
Company and the Selling Shareholders, on the one hand, and the Underwriters, on
the other hand, shall be determined by reference to, among other things, whether
any such untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact or any such inaccurate or alleged
inaccurate representation or warranty relates to information supplied by the
Company or the Selling Shareholders, on the one hand, or the Underwriters, on
the other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in Section 8(c), any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim. The provisions set forth in Section 8(c) with
respect to notice of commencement of any action shall apply if a claim for
contribution is to be made under this Section 9; provided, however, that no
additional notice shall be required with respect to any action for which notice
has been given under Section 8(c) for purposes of indemnification.
The Company, the Selling Shareholders and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 9 were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in this Section 9.
Notwithstanding the provisions of this Section 9, no Underwriter shall be
required to contribute any amount in excess of the underwriting commissions
received by such Underwriter in connection with the Common Shares underwritten
by it and distributed to the public. No person guilty of fraudulent
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misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 9 are several, and not joint, in proportion to their
respective underwriting commitments as set forth opposite their names in
Schedule A. For purposes of this Section 9, each officer and employee of an
Underwriter and each person, if any, who controls an Underwriter within the
meaning of the Securities Act and the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement, and each person, if any,
who controls the Company with the meaning of the Securities Act and the Exchange
Act shall have the same rights to contribution as the Company.
Section 10. Default of One or More of the Several Underwriters. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the several Underwriters shall fail or refuse to purchase Common Shares
that it or they have agreed to purchase hereunder on such date, and the
aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase does not exceed 10% of the
aggregate number of the Common Shares to be purchased on such date, the other
Underwriters shall be obligated, severally, in the proportions that the number
of Firm Common Shares set forth opposite their respective names on Schedule A
bears to the aggregate number of Firm Common Shares set forth opposite the names
of all such non-defaulting Underwriters, or in such other proportions as may be
specified by the Representatives with the consent of the non-defaulting
Underwriters, to purchase the Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the Underwriters shall fail or refuse to purchase Common Shares and the
aggregate number of Common Shares with respect to which such default occurs
exceeds 10% of the aggregate number of Common Shares to be purchased on such
date, and arrangements satisfactory to the Representatives and the Company for
the purchase of such Common Shares are not made within 48 hours after such
default, this Agreement shall terminate without liability of any party to any
other party except that the provisions of Section 4, Section 6, Section 8 and
Section 9 shall at all times be effective and shall survive such termination.
In any such case either the Representatives or the Company shall have the right
to postpone the First Closing Date or the Second Closing Date, as the case may
be, but in no event for longer than seven days in order that the required
changes, if any, to the Registration Statement and the Prospectus or any other
documents or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
10. Any action taken under this Section 10 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
Section 11. Termination of this Agreement. Prior to the First Closing
Date, this Agreement maybe terminated by the Representatives by notice given to
the Company and the Selling Shareholders if at any time (i) trading or quotation
in any of the Company's securities shall have been suspended or limited by the
Commission or by the Nasdaq Stock Market or trading in securities generally on
either the Nasdaq Stock Market or the New York Stock Exchange shall have been
suspended or limited, or minimum or maximum prices shall have been generally
established on any of such stock exchanges by the Commission or the NASD; (ii) a
general banking moratorium shall have been declared by any of federal, New York,
Florida or California authorities; (iii) there shall have occurred any outbreak
or escalation of national or international hostilities or any crisis or
calamity, or any change in the United States or international financial markets,
or any substantial change or development involving a prospective substantial
change in United States' or international political, financial or economic
30
<PAGE>
conditions, as in the judgment of the Representatives is material and adverse
and makes it impracticable to market the Common Shares in the manner and on the
terms described in the Prospectus or to enforce contracts for the sale of
securities; (iv) in the judgment of the Representatives there shall have
occurred any Material Adverse Change; or (v) the Company shall have sustained a
loss by strike, fire, flood, earthquake, accident or other calamity of such
character as in the judgment of the Representatives may interfere materially
with the conduct of the business and operations of the Company regardless of
whether or not such loss shall have been insured. Any termination pursuant to
this Section 11 shall be without liability on the part of (a) the Company or the
Selling Shareholders to any Underwriter, except that the Company and the Selling
Shareholders shall be obligated to reimburse the expenses of the Representatives
and the Underwriters pursuant to Section 4 parts (vi) and (vii) and Section 6
hereof, (b) any Underwriter to the Company or the Selling Shareholders, or (c)
of any party hereto to any other party except that the provisions of Section 8
and Section 9 shall at all times be effective and shall survive such
termination.
Section 12. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, of the Selling Shareholders and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, or the Selling Shareholders, as
the case may be, and will survive delivery of and payment for the Common Shares
sold hereunder and any termination of this Agreement.
Section 13. Notices. All communications hereunder shall be in writing and
shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representatives:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5558
Attention: Richard A. Smith
Smith Barney Inc.
388 Greenwich Street, 33rd Floor
New York, New York 10013
Facsimile: (212) 816-8558
Attention: Joseph J. Doyle
31
<PAGE>
with a copy to:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
O'Melveny & Myers LLP
Embarcadero Center West
275 Battery Street
San Francisco, California 94111
Facsimile: (415) 984-8701
Attention: Peter T. Healy, Esq.
If to the Company and/or the Selling Shareholders:
Vistana, Inc.
8801 Vistana Centre Drive
Orlando, Florida 32821
Facsimile: (407) 239-3198
Attn: Raymond L. Gellein, Jr.
with a copy to:
Neal, Gerber & Eisenberg
Two North LaSalle Street
Suite 2200
Chicago, Illinois 60602
Facsimile: 312-269-1747
Attention: Marshall E. Eisenberg, Esq.
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
Section 14. Successors. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 10 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 8 and Section 9, and in
each case their respective successors, and personal representatives, and no
other person will have any right or obligation hereunder. The term "successors"
shall not include any purchaser of the Common Shares as such from any of the
Underwriters merely by reason of such purchase.
Section 15. Partial Unenforceability. The invalidity or unenforceability
of any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
32
<PAGE>
Section 16.
(a) Governing Law Provisions. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
(b) Consent to Jurisdiction. Any legal suit, action or proceeding arising
out of or based upon this Agreement or the transactions contemplated hereby
("Related Proceedings") may be instituted in the federal courts of the United
States of America located in the City and County of San Francisco or the courts
of the State of California in each case located in the City and County of San
Francisco (collectively, the "Specified Courts"), and each party irrevocably
submits to the exclusive jurisdiction (except for proceedings instituted in
regard to the enforcement of a judgment of any such court (a "Related
Judgment"), as to which such jurisdiction is non-exclusive) of such courts in
any such suit, action or proceeding. Service of any process, summons, notice or
document by mail to such party's address set forth above shall be effective
service of process for any suit, action or other proceeding brought in any such
court. The parties irrevocably and unconditionally waive any objection to the
laying of venue of any suit, action or other proceeding in the Specified Courts
and irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such suit, action or other proceeding brought in any such
court has been brought in an inconvenient forum.
(c) Waiver of Immunity. With respect to any Related Proceeding, each party
irrevocably waives, to the fullest extent permitted by applicable law, all
immunity (whether on the basis of sovereignty or otherwise) from jurisdiction,
service of process, attachment (both before and after judgment) and execution to
which it might otherwise be entitled in the Specified Courts, and with respect
to any Related Judgment, each party waives any such immunity in the Specified
Courts or any other court of competent jurisdiction, and will not raise or claim
or cause to be pleaded any such immunity at or in respect of any such Related
Proceeding or Related Judgment, including, without limitation, any immunity
pursuant to the United States Foreign Sovereign Immunities Act of 1976, as
amended.
Section 17. Failure of One or More of the Selling Shareholders to Sell and
Deliver Common Shares. If one or more of the Selling Shareholders shall fail to
sell and deliver to the Underwriters the Common Shares to be sold and delivered
by such Selling Shareholders at the First Closing Date pursuant to this
Agreement, then the Underwriters may at their option, by written notice from the
Representatives to the Company and the Selling Shareholders, either (i)
terminate this Agreement without any liability on the part of any Underwriter
or, except as provided in Sections 4, 6, 8 and 9 hereof, the Company or the
Selling Shareholders, or (ii) purchase the shares which the Company and other
Selling Shareholders have agreed to sell and deliver in accordance with the
terms hereof. If one or more of the Selling Shareholders shall fail to sell and
deliver to the Underwriters the Common Shares to be sold and delivered by such
Selling Shareholders pursuant to this Agreement at the First Closing Date or the
Second Closing Date, then the Underwriters shall have the right, by written
notice from the Representatives to the Company and the Selling Shareholders, to
postpone the First Closing Date or the Second Closing Date, as the case may be,
but in no event for longer than seven days in order that the required changes,
if any, to the Registration Statement and the Prospectus or any other documents
or arrangements may be effected.
Section 18. General Provisions. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement
33
<PAGE>
may be executed in two or more counterparts, each one of which shall be an
original, with the same effect as if the signatures thereto and hereto were upon
the same instrument. This Agreement may not be amended or modified unless in
writing by all of the parties hereto, and no condition herein (express or
implied) may be waived unless waived in writing by each party whom the condition
is meant to benefit. The Table of Contents and the Section headings herein are
for the convenience of the parties only and shall not affect the construction or
interpretation of this Agreement.
Each of the parties hereto acknowledges that it is a sophisticated business
person who was adequately represented by counsel during negotiations regarding
the provisions hereof, including, without limitation, the indemnification
provisions of Section 8 and the contribution provisions of Section 9, and is
fully informed regarding said provisions. Each of the parties hereto further
acknowledges that the provisions of Sections 8 and 9 hereto fairly allocate the
risks in light of the ability of the parties to investigate the Company, its
affairs and its business in order to assure that adequate disclosure has been
34
<PAGE>
made in the Registration Statement, any preliminary prospectus and the
Prospectus (and any amendments and supplements thereto), as required by the
Securities Act and the Exchange Act.
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to the Company the enclosed copies hereof, whereupon this
instrument, along with all counterparts hereof, shall become a binding agreement
in accordance with its terms.
Very truly yours,
VISTANA, INC.,
a Florida corporation
By:
---------------------------------
Name:
Title:
SELLING SHAREHOLDERS
JGG Holdings Trust
By:
---------------------------------
Raymond L. Gellein, Jr.
Trustee
Raymond L. Gellein, Jr. Revocable Trust
By:
---------------------------------
Raymond L. Gellein, Jr.
Trustee
Jeffrey A. Adler Revocable Trust
By:
---------------------------------
Jeffrey A. Adler
Trustee
35
<PAGE>
The foregoing Underwriting Agreement is hereby confirmed and accepted by
the Representatives in San Francisco, California as of the date first above
written.
MONTGOMERY SECURITIES
SMITH BARNEY INC.
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
BY: MONTGOMERY SECURITIES
By:
--------------------------
Name:
Title:
36
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm Common
Shares
Underwriter to be Purchased
- ----------- ---------------
<S> <C>
Montgomery Securities ................ [________]
Smith Barney Inc. .................... [________]
[___] ................................ [________]
[___] ................................ [________]
[___] ................................ [________]
---------
Total 5,550,000
=========
</TABLE>
Schedule A-1
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Number of Maximum
Firm Number of
Common Optional
Shares Common Shares
Selling Shareholder to be Sold to be Sold
- ------------------- ---------- ----------
<S> <C> <C>
Raymond L. Gellein, Jr. 231,250 208,125
Revocable Trust
Jeffrey A. Adler 462,500 416,250
Revocable Trust
JGG Holdings Trust 231,250 208,125
------- -------
Total: 925,000 832,000
======= =======
</TABLE>
Schedule B-1
<PAGE>
SCHEDULE C
Existing Shareholders
---------------------
Name
- ----
1. Raymond L. Gellein, Jr. Revocable Trust
2. Raymond L. Gellein, Jr. Retained Annuity Grantor Trust dated the 18th day
of October 1996
3. Matthew James Gellein Irrevocable Trust
4. Brett Tyler Gellein Irrevocable Trust
5. JGG Holdings Trust
6. Jeffrey A. Adler Revocable Trust
7. Janice G. Gellein Grantor Annuity Trust
8. Catherine Male Gift Trust
9. Cherie Doherty Gift Trust
10. Susan Faetz Gift Trust
11. Jeffrey A. Adler Grantor Annuity Trust #1
12. Jeffrey A. Adler Grantor Annuity Trust #2
13. ARA Trust
14. DLA Trust
Schedule C-1
<PAGE>
The Resorts
-----------
Name Location
- ---- --------
1. Vistana Resort Orlando, Florida
2. Vistana's Beach Club Hutchinson Island, Florida
3. Oak Plantation Villas Kissimmee, Florida
by Vistana
4. Vistana Resort at St. Augustine, Florida
World Golf Village
5. PGA Vacation Resort by Vistana St. Augustine, Florida
6. Myrtle Beach Resort Myrtle Beach, South Carolina
Schedule C-2
<PAGE>
SCHEDULE D
Certain Existing Instruments
----------------------------
<TABLE>
<CAPTION>
===============================================================================================
TITLE DATE LENDER BORROWER AMOUNT
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Loan and 10/13/93 NationsCredit Vistana Line of Credit with
Security Commercial Development, maximum principal
Agreement Corporation Ltd. amount not to
f/k/a Greyrock exceed $21,043,723.
Capital Group, Five Notes executed
Inc. as successor totalling
to US West $31,340,361.72.
Financial
Services, Inc.
- -----------------------------------------------------------------------------------------------
2. Second Loan 4/28/95 NationsCredit Vistana Line of Credit with
and Security Commercial Development, maximum principal
Agreement Corporation Ltd. amount not to
f/k/a Greyrock exceed $9,800,000.
Capital Group, One promissory
Inc. note executed for
$9,425,954.34.
- -----------------------------------------------------------------------------------------------
3. Loan Agreement 5/26/95 Stark & Vistana Line of credit with
Greenwood Development, maximum principal
Capital, an Ltd. amount not to
Indiana Trust exceed $4,500,000.
- -----------------------------------------------------------------------------------------------
4. Credit 3/30/95 First National Vistana $8,000,000. One
Agreement Bank of Boston Development, promissory note
(agent) Ltd. executed for
$7,221,000.
- -----------------------------------------------------------------------------------------------
5. Credit 3/30/95 First National Vistana $14,000,000.
Agreement Bank of Boston, Development,
Agent Ltd.
- -----------------------------------------------------------------------------------------------
6. Office Building 5/18/94 Finova Capital Vistana $ 5,250,000.
Loan Corporation, a Development,
Delaware Ltd.
corporation
- -----------------------------------------------------------------------------------------------
</TABLE>
Schedule D-1
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================
TITLE DATE LENDER BORROWER AMOUNT
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
7. Receivables 10/30/91 Finova Capital Vistana Sum of the
Loan Corporation Development Receivables Loan,
f/k/a Greyhound Ltd. the Product Loan
Real Estate and the Term Loan
Finance Company not to exceed
$85,000,000.
- -----------------------------------------------------------------------------------------------
8. Product Loan 6/21/94 Finova Capital Vistana Non-revolving line
Agreement Corporation Development, of credit not to
f/k/a Greyhound Ltd. exceed $7,000,000.
Financial
Corporation, a
Delaware
corporation
- -----------------------------------------------------------------------------------------------
9. Term Loan 5/26/95 Finova Capital Vistana Three notes in the
Agreement Corporation, a Development, aggregate amount
Delaware Ltd. of $4,000,000.
corporation
- -----------------------------------------------------------------------------------------------
10. Credit Facilities 6/25/96 Finova Capital Oak Three lines of
and Security Corporation, a Plantation credit
Agreement Delaware Joint Venture with the aggregate
corporation amount not to
exceed $40,000,000:
(1) Term Loan --a
non-revolving line
of credit with
maximum principal
amount not to
exceed $18,275,000.
(2) Working Capital
Loan--a non-
revolving line of
credit with
maximum principal
amount not to
exceed $2,500,000.
(3) Receivables
Loan--a revolving
line of credit with
maximum principal
amount not to
exceed $25,000,000.
- -----------------------------------------------------------------------------------------------
</TABLE>
Schedule D-2
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================
TITLE DATE LENDER BORROWER AMOUNT
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11. Acquisition and 7/24/96 Finvoa Capital Vistana WGV, Non-revolving line
Construction Corporation, a Ltd. of Credit with
Loan and Delaware maximum principal
Security corporation amount not to
Agreement exceed $18,600,000.
Loan is divided into
(1) an Acquisition
Component
Amount (not to
exceed $3,000,000)
and (2) a
Construction
Component
Amount (not to
exceed $15,600,000).
- -----------------------------------------------------------------------------------------------
12. Gift Shop Loan 12/9/93 First Union Vistana $1,080,000.
National Bank of Development
Florida Ltd.
- -----------------------------------------------------------------------------------------------
13. VDL Vehicle 9/24/96 First Union Vistana $81,500.
Loan National Bank of Development,
Florida Ltd.
- -----------------------------------------------------------------------------------------------
14. Warehouse 8/5/94 First Union Vistana Revolving line of
Loan and National Bank of Development, credit with
Security Florida Ltd. maximum principal
Agreement amount not to
exceed $5,000,000
- -----------------------------------------------------------------------------------------------
15. General Store 9/8/95 First Union Vistana Combination
Loan National Bank of Management, Construction and
Florida Ltd. Term Loan not to
exceed the lesser of
(1) 80% of Lender
approved appraised
market value or (2)
$1,100,000.
- -----------------------------------------------------------------------------------------------
16. Equipment Loan 8/30/96 First Union Vistana Non-revolving line
National Bank of Management, of credit with
Florida Ltd. maximum principal
amount not to
exceed $750,000.
After September 15,
1997, any
outstanding
advances are
converted into a
term loan.
- -----------------------------------------------------------------------------------------------
</TABLE>
Schedule D-3
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================
TITLE DATE LENDER BORROWER AMOUNT
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
17. VML Vehicle 9/24/96 First Union Vistana Non-revolving line
Loan National Bank of Management, of credit with
Florida Ltd. maximum principal
amount not to
exceed $895,000.
On April 5, 1997,
any outstanding
advances are
converted into a
term loan
- -----------------------------------------------------------------------------------------------
18. VDL Vehicle 2/94 First Union Vistana Non-revolving line
Loan National Bank Development, of credit with
Ltd. maximum principal
amount not to
exceed $170,000.
===============================================================================================
</TABLE>
Schedule D-4
<PAGE>
SCHEDULE E
Certain Consolidation Agreements
--------------------------------
1. Registration Rights Agreement dated February 10, 1997;
2. Employment Agreements between the Company and each of Raymond L. Gellein,
Jr., Jeffrey A. Adler, Matthew E. Avril, John M. Sabin, Carol A. Lytle and
Susan Werth, each dated as of February 10, 1997;
3. Vistana, Inc. Stock Plan (the "Stock Plan") dated December 7, 1996;
4. The Non-Qualified Stock Option Agreements under the Stock Plan;
5. Vistana, Inc. Employee Stock Purchase Plan dated as of December 26, 1996;
6. The Vistana, Inc. Indemnification Agreements dated December 16, 1996; and
7. Amended and Restated Subscription Agreement relating to the Formation
Transactions.
Schedule E-1
<PAGE>
EXHIBIT A
Opinion of counsel for the Company, or, for matters regarding Timeshare
Laws, of special counsel specified in the Prospectus and acceptable to the
Representatives, to be delivered pursuant to Section 5(d) of the Underwriting
Agreement.
References to the Prospectus in this Exhibit A include any supplements
thereto at the Closing Date.
(i) The Company has been duly incorporated and is validly existing as a
corporation and its status is active under the laws of Florida.
(ii) The Company has corporate power and authority to own, lease and
operate its Resorts and other properties and to conduct its business as
described in the Prospectus and to enter into and perform its obligations
under the Underwriting Agreement.
(iii) The Company is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
Resorts or other property or the conduct of business, except for such
jurisdictions where the failure to so qualify or to be in good standing would
not, individually or in the aggregate, result in a Material Adverse Change.
(iv) Each Affiliated Company has been duly incorporated and is validly
existing as a corporation in good standing (or its status is active, as
applicable) under the laws of the jurisdiction of its incorporation, has
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus and, to the best knowledge
of such counsel, is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except for such jurisdictions where the
failure to so qualify or to be in good standing would not, individually or in
the aggregate, result in a Material Adverse Change. Each Affiliated
Partnership and each Related Partnership has been duly formed and is validly
existing as a partnership in good standing under the laws of the jurisdiction
of its formation, with full power and authority (partnership and other) to
own, lease and operate its properties and to conduct its business as described
in the Prospectus and, to the best knowledge of such counsel, is duly
qualified as a foreign partnership to transact business and is in good
standing in each jurisdiction in which such qualification is required, whether
by reason of the ownership or leasing of property or the conduct of business,
except for such jurisdictions where the failure to so qualify or to be in good
standing would not, individually or in the aggregate, result in a Material
Adverse Change.
(v) All of the issued and outstanding capital stock of each such Affiliated
Company has been duly authorized and validly issued, is fully paid and non-
assessable and is owned by the Company, directly or through subsidiaries, free
and clear of any security interest, mortgage, pledge, lien, encumbrance or, to
the best knowledge of such counsel, any pending or threatened claim.
A-1
<PAGE>
(vi) The authorized, issued and outstanding capital stock of the Company
(including the Common Stock) conform to the descriptions thereof set forth in
the Prospectus. All of the outstanding shares of Common Stock (including the
shares of Common Stock owned by Selling Shareholders) have been duly
authorized and validly issued, are fully paid and nonassessable and, to the
best of such counsel's knowledge, have been issued in compliance with the
registration and qualification requirements of federal and state securities
laws. The form of certificate used to evidence the Common Stock is in due and
proper form and complies with all applicable requirements of the articles of
incorporation and by-laws of the Company and the Business Corporation Act of
the State of Florida. The description of the Company's Stock Plan and
Employee Stock Purchase Plan, and the options or other rights granted and
exercised thereunder, set forth in the Prospectus accurately and fairly
presents in all material respects the information required to be shown with
respect to such plans, arrangements, options and rights.
(vii) No shareholder of the Company or any other person has any preemptive
right, right of first refusal or other similar right to subscribe for or
purchase securities of the Company.
(viii) The Underwriting Agreement has been duly authorized, executed and
delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms except as rights to indemnification
thereunder may be limited by applicable law and, except as the enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting creditors' rights generally or
by general equitable principles.
(ix) The Common Shares to be purchased by the Underwriters from the Company
have been duly authorized for issuance and sale pursuant to the Underwriting
Agreement and, when issued and delivered by the Company pursuant to the
Underwriting Agreement against payment of the consideration set forth therein
and payment and cancellation of all applicable Florida documentary stamp
taxes, will be validly issued, fully paid and nonassessable.
(x) Each of The Registration Statement and the Rule 462(b) Registration
Statement, if any, has been declared effective by the Commission under the
Securities Act. To the best knowledge of such counsel, no stop order
suspending the effectiveness of either of the Registration Statement or the
Rule 462(b) Registration Statement, if any, has been issued under the
Securities Act and no proceedings for such purpose have been instituted or are
pending or are contemplated or threatened by the Commission. Any required
filing of the Prospectus and any supplement thereto pursuant to Rule 424(b)
under the Securities Act has been made in the manner and within the time
period required by such Rule 424(b).
(xi) The Registration Statement, including any Rule 462(b) Registration
Statement, the Prospectus including any document incorporated by reference
therein, and each amendment or supplement to the Registration Statement and
the Prospectus including any document incorporated by reference therein, as of
their respective effective or issue dates (other than the financial
statements, statistical data included therein or derived therefrom and
supporting schedules included or incorporated by reference therein or in
exhibits to or excluded from the Registration Statement, as to which no
opinion need be rendered) comply
A-2
<PAGE>
as to form in all material respects with the applicable requirements of the
Securities Act.
(xii) The Common Shares have been approved for listing on the Nasdaq
National Market.
(xiii) The statements in the Prospectus under the heading "Description of
Capital Stock" and "Shares Eligible for Future Sale" insofar as such
statements constitute matters of law, summaries of legal matters, the
Company's articles of incorporation or by-law provisions, documents or legal
proceedings, or legal conclusions, has been reviewed by such counsel and
fairly present and summarize, in all material respects, the matters referred
to therein.
(xiv) To the best knowledge of such counsel, there are no legal or
governmental actions, suits or proceedings pending or threatened which are
required to be disclosed in the Registration Statement, other than those
disclosed therein.
(xv) The Company and each entity which owns a Resort has obtained all
necessary approvals and permits from the timeshare authority of the state in
which the subject Resort is located necessary to offer for sale and sell
timeshare interests and offer purchase money financing in connection with such
sales in accordance with the applicable laws and regulations of the state in
which the Resort is located governing the marketing and sale of timeshare
interests in real property and all other states where timeshare interests are
offered.
(xvi) To such counsel's knowledge, here are no Existing Instruments
required to be described or referred to in the Registration Statement or to be
filed as exhibits thereto other than those described or referred to therein or
filed as exhibits thereto; and the descriptions thereof and references thereto
are correct in all material respects.
(xvii) No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental authority or
agency, is required for the Company's execution, delivery and performance of
the Underwriting Agreement and consummation of the transactions contemplated
thereby and by the Prospectus, except as required under the Securities Act,
applicable state securities or blue sky laws and from the NASD.
(xviii) The execution and delivery of the Underwriting Agreement and each
Consolidation Agreement by the Company and the performance by the Company of
its obligations thereunder (other than performance by the Company of its
obligations under the indemnification section of the Underwriting Agreement,
as to which no opinion need be rendered) and the transactions contemplated
thereunder and by the Prospectus, including the Formation Transactions, (i)
have been duly authorized by all necessary corporate action on the part of the
Company; (ii) will not result in any violation of the provisions of the
articles of incorporation, by-laws, partnership agreement, certificate of
partnership or other organization documents, as applicable, of the Company,
any Affiliated Entity or any Related Partnership; (iii) will not conflict with
or constitute a breach of, or Default or a Debt Repayment Triggering Event
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company, any subsidiary, any
Affiliated Entity, any Related Partnership or any Resort pursuant to any
Existing Instrument including,
A-3
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without limitation, those listed in Schedule C, except for such conflicts,
breaches, Defaults, Debt Triggering Events, liens, charges or encumbrances as
would not, individually or in the aggregate, result in a Material Adverse
Change; and the Company has procured written consents to that effect from
every party to any Existing Instrument who is authorized thereunder to declare
or decide upon such conflicts, breaches, Defaults, Debt Triggering Events,
liens, charges or encumbrances; (iv) will not otherwise require the consent of
any party to any Existing Instrument, except such consents as have been
obtained; and (v) will not result in any violation of any law, administrative
regulation or administrative or court decree applicable to the Company, any
subsidiary, any Affiliated Entity, any Related Partnership or any of the
Resorts, except where failure to be in compliance with such law, regulation or
decree would not cause a Material Adverse Change.
(xix) The consummation of the Formation Transactions does not constitute a
roll-up transaction as such term is defined in Item 901(c) of Regulation S-K
of the Rules and Regulations. All of the shares of Common Stock to be issued
by the Company in connection with the Formation Transactions other that the
Common Shares to be sold to the Underwriters are exempt from registration
under the Securities Act.
(xx) Each of the Consolidation Agreements, including, without limitation,
those listed in Schedule D, has been, or prior to the consummation of the
Offering and the Formation Transactions will be, duly authorized, executed and
delivered by the parties thereto and constitutes a valid and binding agreement
of the parties thereto; and neither the Company, nor any of the Affiliated
Companies, nor any of the Related Partnerships nor, to the best of such
counsel's knowledge, any other party is, or upon the consummation of the
Offering and the Formation Transactions will be, in breach of or default under
any Consolidation Agreement. Each of the Consolidation Agreements constitutes
the legally valid and binding obligation of the Company and the other parties
thereto, enforceable against the Company and such parties in accordance with
its terms, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or affecting creditors' rights
generally (including, without limitation, fraudulent conveyance laws) and by
general principles of equity, including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing and the possible
unavailability of specific performance or injunctive relief, regardless of
whether considered in a proceeding in equity or at law.
(xxi) Upon consummation of the Formation Transactions, every partnership
that owns a Resort will be directly or indirectly a wholly-owned subsidiary of
the Company. Upon consummation of the formation transactions, every
partnership that owns a Resort will have only one general partner and that
general partner will be directly or indirectly a wholly-owned subsidiary of
the Company.
(xxii) Each of the Trust Agreements (i) has been duly authorized, executed
and delivered by all necessary parties, (ii) creates a valid and binding
fiduciary relationship under the applicable state law, and (iii) confers upon
Raymond L. Gellein, Jr. or Jeffrey A. Adler, as the case may be, (1) all
requisite legal right, power and authority to sell such shares as contemplated
by the Underwriting Agreement, (2) all requisite legal right, power and
authority to vote such shares in his sole discretion, which right, power and
authority is
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subject to no time limits, and (3) all requisite legal right, power and
authority to enter into the Underwriting Agreement and the Consolidation
Agreements, as applicable, on behalf of such trust and the beneficiaries
thereunder and to carry out the transactions contemplated thereby. To the
best knowledge of such counsel, other than the Trust Agreements, the
Underwriting Agreement, the Powers of Attorney, the Custody Agreements, the
Subscription Agreement, the Registration Rights Agreement and the Shareholder
Agreement, there are no agreements relating to any shares of Common Stock held
under the Trust Agreements or control thereof.
(xxiii) The Company is not, and after receipt of payment for the Common
Shares will not be, an "investment company" within the meaning of Investment
Company Act.
(xxiv) Except as disclosed in the Prospectus under the caption "Shares
Eligible for Future Sale", to the best knowledge of such counsel, there are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by the Underwriting Agreement, other than the
Selling Shareholders, except for such rights as have been duly waived.
(xxv) Neither the Company nor any Affiliated Entity nor any Related
Partnership is in violation of its articles of incorporation or by-laws or
other organizational document, any applicable law, including, without
limitation, any Environmental Law or any Timeshare Law, administrative
regulation or administrative or court decree or is in Default in the
performance or observance of any obligation, agreement, covenant or condition
contained in any material Existing Instrument, except in each such case for
such violations or Defaults as would not, individually or in the aggregate,
result in a Material Adverse Change.
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company,
representatives of the independent public or certified public accountants for
the Company and with representatives of the Underwriters at which the contents
of the Registration Statement and the Prospectus, and any supplements or
amendments thereto, and related matters were discussed and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus (other than as specified above), and
any supplements or amendments thereto, on the basis of the foregoing, nothing
has come to their attention which would lead them to believe that either the
Registration Statement or any amendments thereto, at the time the Registration
Statement or such amendments became effective, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus, as of its date or at the First Closing Date or the Second Closing
Date, as the case may be, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no belief as to
the financial statements or schedules or other financial or statistical data
contained therein or derived therefrom, included or incorporated by reference
in the Registration Statement or the Prospectus or any amendments or
supplements thereto).
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In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws, to the extent they deem proper and specified
in such opinion, upon the opinion (which shall be dated the First Closing Date
or the Second Closing Date, as the case may be, shall be satisfactory in form
and substance to the Underwriters, shall expressly state that the Underwriters
may rely on such opinion as if it were addressed to them and shall be furnished
to the Representatives) of other counsel of good standing whom they believe to
be reliable and who are satisfactory to counsel for the Underwriters; provided,
however, that such counsel shall further state that they believe that they and
the Underwriters are justified in relying upon such opinion of other counsel,
and (B) as to matters of fact, to the extent they deem proper, on certificates
of responsible officers of the Company and public officials.
A-6
<PAGE>
EXHIBIT B
The opinion of such counsel pursuant to Section 5(h) shall be rendered to
the Representatives at the request of the Company and shall so state therein.
References to the Prospectus in this Exhibit B include any supplements thereto
at the Closing Date.
(i) The Underwriting Agreement has been duly authorized, executed and
delivered by or on behalf of, and is a valid and binding agreement of, such
Selling Shareholder, enforceable in accordance with its terms, except as
rights to indemnification thereunder may be limited by applicable law and
except as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
(ii) The execution and delivery by such Selling Shareholder of, and the
performance by such Selling Shareholder of its obligations under, the
Underwriting Agreement, its Custody Agreement, the Shareholder Agreement, the
Indemnity Agreement, and its Power of Attorney will not contravene or conflict
with, result in a breach of, or constitute a default under, the articles of
incorporation or by-laws, partnership agreement, trust agreement or other
organizational documents, as the case may be, of such Selling Shareholder, or
violate or contravene any provision of applicable law or regulation, or
violate, result in a breach of or constitute a default under the terms of any
other agreement or instrument to which such Selling Shareholder is a party or
by which it is bound, or any judgment, order or decree applicable to such
Selling Shareholder of any court, regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over such Selling
Shareholder.
(iii) Such Selling Shareholder has good and valid title to all of the
Common Shares which may be sold by such Selling Shareholder under the
Underwriting Agreement and has the legal right and power, and all
authorizations and approvals required under the applicable Trust Agreement or
other organizational documents, as the case may be, to enter into the
Underwriting Agreement and its Custody Agreement and its Power of Attorney, to
sell, transfer and deliver all of the Common Shares which may sold by such
Selling Shareholder under the Underwriting Agreement and to comply with its
other obligations under the Underwriting Agreement, its Custody Agreement and
its Power of Attorney.
(iv) Each of the Custody Agreement, the Shareholder Agreement, the
Indemnity Agreement and Power of Attorney of such Selling Shareholder has been
duly authorized, executed and delivered by such Selling Shareholder and is a
valid and binding agreement of such Selling Shareholder, enforceable in
accordance with its terms, except as rights to indemnification thereunder may
be limited by applicable law and except as the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles.
(v) Each of the Trust Agreements (i) has been duly authorized, executed and
delivered by all necessary parties, (ii) creates a valid and binding fiduciary
relationship under the applicable state law, (iii) confers upon Raymond L.
Gellein, Jr. or Jeffrey A. Adler, as
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the case may be, (1) all requisite legal right, power and authority to sell
such shares as contemplated by the Underwriting Agreement, (2) all requisite
legal right, power and authority to vote such shares in his sole discretion,
which right, power and authority is subject to no time limits, and (3) all
requisite legal right, power and authority to enter into the Underwriting
Agreement and the Consolidation Agreements, as applicable, on behalf of such
trust and the beneficiaries thereunder and to carry out the transactions
contemplated thereby and (iii) is a valid and binding agreement enforceable in
accordance with its terms, except as may be limited by applicable law and
except as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights and remedies of creditors or by general equitable principles. To the
best knowledge of such counsel, other than the Trust Agreements, the
Subscription Agreement, the Registration Rights Agreement and the
Shareholders' Agreement, there are no agreements relating to any shares of
Common Stock held under the Trust Agreements or control thereof.
(vi) Assuming that the Underwriters purchase the Common Shares which are
sold by such Selling Shareholder pursuant to the Underwriting Agreement for
value, in good faith and without notice of any adverse claim, the delivery of
such Common Shares pursuant to the Underwriting Agreement will pass good and
valid title to such Common Shares, free and clear of either any security
interest, mortgage, pledge, lieu encumbrance or other claim.
(vii) No consent, approval, authorization or other order of, or
registration or filing with, any court or governmental authority or agency, is
required for the consummation by such Selling Shareholder of the transactions
contemplated in the Underwriting Agreement, except as required under the
Securities Act, applicable state securities or blue sky laws, and from the
NASD.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the General
Corporation Law of the State of Delaware, the General Corporation Law of the
State of California, the laws of the State of New York or the federal law of the
United States, to the extent they deem proper and specified in such opinion,
upon the opinion (which shall be dated the First Closing Date or the Second
Closing Date, as the case may be, shall be satisfactory in form and substance to
the Underwriters, shall expressly state that the Underwriters may rely on such
opinion as if it were addressed to them and shall be furnished to the
Representatives) of other counsel of good standing whom they believe to be
reliable and who are satisfactory to counsel for the Underwriters; provided,
however, that such counsel shall further state that they believe that they and
the Underwriters are justified in relying upon such opinion of other counsel,
and (B) as to matters of fact, to the extent they deem proper, on certificates
of the Selling Shareholders and public officials.
B-2
<PAGE>
EXHIBIT C
[Date]
Montgomery Securities
Smith Barney Inc.
As Representatives of the Several Underwriters
c/o Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
RE: Vistana, Inc. (the "Company")
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain
shares of Common Stock of the Company ("Common Stock") or securities convertible
into or exchangeable or exercisable for Common Stock. The Company proposes to
carry out a public offering of Common Stock (the "Offering") for which you will
act as the representatives of the underwriters. The undersigned recognizes that
the Offering will be of benefit to the undersigned and will benefit the Company
by, among other things, raising additional capital for its operations. The
undersigned acknowledges that you and the other underwriters are relying on the
representations and agreements of the undersigned contained in this letter in
carrying out the Offering and in entering into underwriting arrangements with
the Company with respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees that
the undersigned will not, without the prior written consent of Montgomery
Securities (which consent may be withheld in its sole discretion), directly or
indirectly, sell, offer, contract or grant any option to sell (including without
limitation any short sale), pledge, transfer, establish an open "put equivalent
position" within the meaning of Rule 16a-1(h) under the Securities Exchange Act
of 1934, or otherwise dispose of any shares of Common Stock, options or warrants
to acquire shares of Common Stock, or securities exchangeable or exercisable for
or convertible into shares of Common Stock currently or hereafter owned either
of record or beneficially (as defined in Rule 13d-3 under Securities Exchange
Act of 1934, as amended) by the undersigned, or publicly announce the
undersigned's intention to do any of the foregoing (collectively for purposes of
this paragraph, "Sales"), for a period commencing on the date hereof and
continuing through the close of trading on the date 180 days after the date of
the Prospectus; provided, however, that Sales to family members in connection
with bona fide estate planning of the undersigned and transfers to or from any
grantor retained annuity trusts shall be allowed without the prior written
consent of Montgomery Securities (provided advance written notice is provided to
Montgomery Securities) and provided further that such transferees shall be bound
by this agreement and shall agree not to make any Sales for the remainder of
such 180 day period without the prior written consent of Montgomery Securities.
The undersigned also agrees and consents to the entry of stop transfer
instructions with the Company's transfer agent and registrar against the
transfer of shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock held by the undersigned except in
compliance with the foregoing restrictions.
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<PAGE>
With respect to the Offering only, the undersigned waives any
registration rights relating to registration under the Securities Act of any
Common Stock owned either of record or beneficially by the undersigned,
including any rights to receive notice of the Offering.
This agreement is irrevocable and will be binding on the undersigned
and the respective successors, heirs, personal representatives, and assigns of
the undersigned.
- -------------------------------------------
Printed Name of Holder
By:
---------------------------------------
Signature
- -------------------------------------------
Printed Name of Person Signing
(and indicate capacity of person signing if
signing as custodian, trustee, or on behalf
of an entity)
C-2
<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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<PAGE>
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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<PAGE>
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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<PAGE>
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,
-6-
<PAGE>
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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<PAGE>
(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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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, any two of the following officers: the Chairman of
the Board; the President; any Vice President (regardless of designation); the
Secretary; any Assistant Secretary; the Treasurer; and any Assistant Treasurer
(provided that at least one of such officers shall be the Chairman of the Board
or President). 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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<PAGE>
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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<PAGE>
EXHIBIT 4.1
-----------
Description of Specimen Common Stock Certificate
Face of Certificate:
The front of the certificate contains the logo and the name of Vistana,
Inc. (the "Corporation"), the Corporation's CUSIP number (92839P 10 8). The
certificate indicates that it has been countersigned and registered by an
authorized officer of First Union National Bank of North Carolina (Charlotte,
North Carolina) as Transfer Agent and Registrar. The Certificate is signed by
Raymond L. Gellein, Jr., Chairman of the Corporation, and Jeffery A. Adler,
President of the Corporation. The Certificate contains the following language:
This certifies that ________________ is the holder of _______________
fully paid and non-assessable shares of Common Stock, par value $.01
per share, of Vistana, Inc. (hereinafter called the "Corporation"),
transferable on the books of the Corporation by the holder hereof in
person or by duly authorized attorney upon surrender of this
certificate properly endorsed. This certificate is not valid unless
countersigned and registered by the Transfer Agent and Registrar.
Witness the facsimile signatures of the Corporation's duly authorized
officers.
Reverse of Certificate:
The reverse of the Certificate contains the name of the Corporation
and standard stock transfer provisions.
<PAGE>
EXHIBIT 10.1
------------
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT, dated as of December 27, 1996 (this "Agreement")
between VISTANA, INC., a Florida corporation (the "Company"), and RAYMOND L.
GELLEIN, JR. ("Employee") (capitalized terms used herein and not otherwise
defined shall have the meanings ascribed thereto in Section 13),
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company, through its Affiliates, is engaged in the business of
timeshare or vacation ownership, development, sales and resort management, as
well as the installation and management of voice, data and cable television
systems, and related operations;
WHEREAS, Vistana Development, Ltd., Vistana Management, Ltd., and VCH
Communication, Inc., each Affiliates of the Company, and Employee are parties to
that certain Amended and Restated Employment Agreement dated October 31, 1991
(the "Old Agreement"); and
WHEREAS, the parties hereto desire to enter this Agreement upon the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing, of the mutual covenants
and agreements herein contained and for other good and valuable consideration,
the receipt, adequacy and sufficiency of which are hereby acknowledged, the
parties, intending legally to be bound, hereby agree as follows:
1. Employment. The Company hereby employs Employee, and Employee hereby
----------
accepts such employment, upon the terms and conditions hereinafter set forth.
2. Position, Duties and Responsibilities.
-------------------------------------
(a) Position. Employee's title and primary responsibilities are set
--------
forth on Schedule A attached hereto and incorporated herein by this reference.
----------
<PAGE>
(b) Place of Employment. During the term of this Agreement, Employee
-------------------
shall perform the services required by this Agreement at the Company's place of
business set forth on Schedule A attached hereto; provided, however, that the
---------- -------- -------
Company may at its discretion require Employee to travel extensively to other
locations on the Company's business.
(c) Other Activities. During the term of this Agreement, Employee
----------------
shall be an employee of the Company, shall not be engaged in any other
employment or business activities, shall devote Employee's full business time
and effort to the Company and shall not serve as an officer or director of any
public company, other than the Company. Notwithstanding the foregoing, Employee
shall not be prohibited from investing or trading in stocks, bonds, commodities
or other forms of passive investment, including real property (provided that
such investments do not violate Section 10 hereof).
3. Term.
----
(a) Effective Date. This Agreement shall become effective (the
--------------
"Effective Date") concurrently with the completion of the Company's issuance and
sale of its common stock, $0.01 par value, pursuant to a public offering as
evidenced by an effective Registration Statement on Form S-1 (Registration No.
333-19045). The parties agree that upon the Effective Date, this Agreement
supersedes the Old Agreement in its entirety and that the Old Agreement shall
have no further force and effect whatsoever. Until the Effective Date, the Old
Agreement shall continue in effect.
(b) Termination Date. The term of employment under this Agreement
----------------
shall terminate upon the earliest to occur of the following events (the date
specified in each such event is referred to as the "Termination Date"):
(i) the fourth anniversary of the Effective Date; provided,
--------
however, that such period of employment may be extended by written
-------
agreement of the parties (it being understood that if Employee remains
employed by the Company after the Termination Date described in this clause
(i), such employment shall be "at-will" unless different terms are
established in writing);
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<PAGE>
(ii) the date upon which the Company terminates Employee's
employment by the Company for Cause or without Cause (it being understood
that the date of termination shall be the date upon which the Company
provides Employee written notice of either such event);
(iii) the date of Employee's death;
(iv) the date upon which the Company terminates Employee's
employment by the Company as a result of Employee's Permanent Disability
(it being understood that the date of termination shall be the date upon
which the Company provides Employee written notice of such event); or
(v) the date upon which Employee effects a Voluntary
Termination (it being understood that the date of termination shall be the
date upon which the Employee provides the Company written notice of such
event).
(c) Performance of Duties During Notice Period. In the event that
------------------------------------------
either (i) the Company terminates Employee's employment by the Company pursuant
to Section 3(b)(ii) hereof or (ii) Employee effects a Voluntary Termination
pursuant to Section 3(b)(v), Employee, if requested by the Company, shall
continue to render services hereunder to the Company for the 30-day notice
period (or, if shorter, until the Termination Date), and shall, in such event,
be paid the compensation and benefits hereunder for the remainder of such
period.
(d) Employment-At-Will/Employee Acknowledgement. Notwithstanding the
-------------------------------------------
term of this Agreement having a duration of four years and Sections 4(a) and (b)
hereof relating to the annual salary and annual bonus to be paid to Employee
during Employee's employment by the Company, nothing in this Agreement should be
construed as to confer any right of Employee to be employed by the Company for a
fixed or definite term. Subject to Section 8 hereof, Employee agrees that the
Company may dismiss Employee under Section 3(b)(ii) without regard to (i) any
general or specific policies (whether written or oral) of the Company relating
to the employment or termination of employment of the Company employees; or (ii)
any statements made to Employee, whether made orally or contained in any
document or instrument, pertaining to Employee's relationship with the Company.
Notwithstanding anything to the contrary
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<PAGE>
contained herein, Employee's employment by the Company is not for any specified
term, is at-will and may be terminated by the Company pursuant to Section
3(b)(ii) at any time by delivery of the notice referred to therein, for any
reason, for Cause or without cause, without any liability whatsoever, except
with respect to the payments provided for in Section 8.
(e) Termination Obligations.
-----------------------
(i) Employee hereby acknowledges and agrees that all personal
property and equipment, including, without limitation, all books, manuals,
records, reports, notes, contracts, lists, blueprints, and other documents,
or materials, or copies thereof (including computer files), and all other
proprietary information relating to the business of the Company, furnished
to or prepared by Employee in the course of or incident to Employee's
employment, belongs to the Company and shall be promptly returned to the
Company within 10 days after the Termination Date. Following the
Termination Date, Employee will not retain any written or other tangible
material containing any proprietary information of the Company.
(ii) [INTENTIONALLY OMITTED]
(iii) The covenants and agreements of Employee contained in
Sections 3(e), 9, 10, 11, 12 and 14(b) and (c) shall survive termination of
Employee's employment by the Company and the termination of this Agreement.
(f) Release. In exchange for the Company entering into the
-------
Agreement, Employee agrees that, at the time of Employee's resignation or
termination from the Company, Employee will execute a release acceptable to the
Company of all liability of the Company and its officers, shareholders,
employees, directors and Affiliates to Employee in connection with or arising
out of Employee's employment by the Company, except with respect to (i) any
then-vested rights under the Company's Stock Plan, (ii) any amounts which may be
payable to Employee pursuant to Section 8 and (iii) any claims Employee may have
pursuant to the Company's disability and workmen's compensation insurance
policies (it being understood that the foregoing is not intended to provide
Employee duplicative rights to those provided for in Section 8(c)(ii)).
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<PAGE>
4. Compensation.
------------
(a) Annual Salary. The Company shall pay to Employee an annual
-------------
salary equal to the base salary set forth on Schedule B attached hereto and
----------
incorporated herein by this reference (the "Base Salary"). The Base Salary shall
be in effect, on a pro-rated basis, from and after the Effective Date through
December 31, 1997. For each calendar year during the term of this Agreement
commencing with the 1998 calendar year, the Company shall pay Employee an annual
salary (the "Adjusted Base Salary") determined by the Company's Board of
Directors (or the Compensation Committee thereof); provided, however, that the
-------- -------
Adjusted Base Salary shall be no less than the product of (i) the Base Salary,
multiplied by (ii) a fraction, the numerator of which shall be the last Consumer
Price Index figure published prior to the December 31st immediately preceding
the beginning of such calendar year (the "Base Salary Adjustment Date") and the
denominator of which shall be the most recent Consumer Price Index figure
published prior to December 31, 1996; provided, further, however, in no event
-------- ------- -------
shall the Adjusted Base Salary, as so adjusted on such Base Salary Adjustment
Date, be less than the Annual Salary for the preceding calendar year. The Base
Salary and the Adjusted Base Salary shall be paid in equal installments, subject
to all applicable withholding and deductions, in accordance with the usual
payroll practices of the Company, but not less frequently than monthly.
(b) Annual Bonus Amount. Employee shall be entitled to be paid an
-------------------
annual bonus amount (the "Annual Bonus Amount") in respect of each calendar year
beginning with the 1997 calendar year as further specified and described on
Schedule B attached hereto. The Annual Bonus Amount shall be deemed earned as of
- ----------
December 31 of the applicable calendar year and shall be due and payable,
subject to all applicable withholding and deductions, within 31 days following
the end of the calendar year to which such Annual Bonus Amount relates based
upon the Company's good faith preliminary estimate thereof for such calendar
year; provided, that upon certification by the Company's auditors of the
--------
Company's consolidated financial statements for such calendar year, the
definitive Annual Bonus Amount for such calendar year shall be determined by the
Company and the Company shall promptly pay to Employee (in the case the
preliminary estimate resulted in an underpayment), or the Employee shall
promptly repay to the Company (in the case the preliminary estimate resulted in
an overpayment),
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<PAGE>
the amount necessary to provide Employee with full payment of the definitive
Annual Bonus Amount as finally determined in accordance with such audited
consolidated financial statements for such calendar year.
5. Fringe Benefits. During the term of this Agreement, Employee shall be
---------------
entitled to all such employment benefits as may, from time to time, be made
generally available to similar level management employees of the Company
including, without limitation, pension or other retirement benefits, health,
hospitalization and similar insurance and group or individual life insurance,
and Employee's family shall be entitled to participate in the Company's medical
and health insurance plans; provided, however, that such benefits and
-------- -------
arrangements are made available at the discretion of the Company and nothing in
this Agreement establishes any right of Employee to the availability or
continuance of any such plan or arrangement.
6. Business Expenses. Except as otherwise provided herein, the Company
-----------------
shall pay, either directly or by reimbursement to Employee, such reasonable and
necessary business expenses incurred by Employee, including travel and
entertainment expenses, in the course of employment by the Company as are
consistent with the Company's policies in existence from time to time. Such
expenses shall include, but shall not be limited to, occupational license fees,
membership dues in professional organizations, educational expenses, and
subscriptions to professional journals.
7. Vacation and Sick Leave. Employee shall be entitled to four weeks'
-----------------------
paid vacation time, in the aggregate, per calendar year, and such paid sick
leave as shall be authorized by the Company pursuant to the Company's written
policies, as determined from time to time. Additionally, Employee may be
entitled to additional paid vacation time to the extent that the operations and
needs of the business permit as determined by the Company. All vacations shall
be taken by Employee at such time or times as may be reasonably approved by the
Company.
8. Compensation Upon Termination of Employment.
-------------------------------------------
(a) Compensation. If Employee's employment by the Company is
------------
terminated, Employee shall receive the compensation and
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<PAGE>
other benefits expressly provided under this Agreement through the Termination
Date.
(b) Continuation of Health Insurance Coverage. At Employee's own
-----------------------------------------
expense, Employee and Employee's dependents shall also be entitled to any
continuation of health insurance coverage rights under any applicable law.
(c) Right of Offset; Compliance with Covenants.
------------------------------------------
(i) If the Employee's employment by the Company is terminated
for any reason, Employee shall be entitled to the compensation and other
benefits expressly provided under this Agreement, subject to the Company's
right of offset for any amounts owed by Employee to the Company (or to any
of its Affiliates).
(ii) The continuing obligation of the Company to make the
Monthly Severance Payment to Employee is expressly conditioned upon the
Employee complying in all respects and continuing to comply in all respects
with Employee's obligations under Sections 9, 10 and 11 hereof following
the Termination Date.
9. Confidential Information and Ownership of Property.
--------------------------------------------------
(a) Confidential Information. Employee agrees to use all
------------------------
Confidential Information solely in connection with the performance of services
for or on behalf of the Company. Employee shall not, during the term of this
Agreement, or at any time after the termination of this Agreement, in any
manner, either directly or indirectly, (i) disseminate, disclose, use or
communicate any Confidential Information to any person or entity, regardless of
whether such Confidential Information is considered to be confidential by third
parties, or (ii) otherwise directly or indirectly misuse any Confidential
Information; provided, however, that (y) none of the provisions of this Section
-------- -------
9 shall apply to disclosures made for valid business purposes of the Company or
(z) that Employee shall not be obligated to treat as confidential any
Confidential Information that (I) was publicly known at the time of disclosure
to Employee; (II) becomes publicly known or available thereafter other than by
means in violation of this Agreement or any other duty owned to the Company or
any of its
-7-
<PAGE>
Affiliates by any person or entity; or (III) is lawfully disclosed to Employee
by a third party. Notwithstanding the foregoing, Employee shall be permitted to
disclose Confidential Information to the extent required to enforce Employee's
rights hereunder in any litigation arising under, or pertaining to, this
Agreement provided that Employee shall give prior written notice to the Company
of any such disclosure so that the Company may have an opportunity to protect
the confidentiality of such Confidential Information in such litigation.
(b) Ownership of Property. Employee agrees that all works of
---------------------
authorship developed, authored, written, created or contributed to during the
term of this Agreement for the benefit of the Company, whether solely or jointly
with others, shall be considered works-made-for-hire. Employee agrees that such
works shall be the sole and exclusive property of the Company (or its
appropriate Affiliate) and that all right, title and interest therein or
thereto, including all intellectual property rights existing or obtained in
connection therewith, shall likewise be the sole and exclusive property of the
Company (or its appropriate Affiliate). Employee agrees further that, in the
event that any work is not considered to be work-made-for-hire by operation of
law, Employee will immediately, and without further compensation, assign all of
Employee's right, title and interest therein to the Company (or its designated
Affiliate), its successors and assigns. At the request and expense of the
Company, Employee agrees to perform in a timely manner such further acts as may
be necessary or desirable to transfer, defend or perfect the Company's ownership
of such work and all rights incident thereto.
10. Covenant Not to Compete. Unless the disinterested members of the
-----------------------
Company's Board of Directors determines that any of the following conduct is in
the Company's best interests, during the term of Employee's employment by the
Company and for the Non-Compete Period, Employee shall not:
(a) directly or indirectly for himself/herself or for any other
person or entity engage, whether as owner, investor, creditor, consultant,
partner, shareholder, director, financial backer, agent, employee or
otherwise, in the business, enterprise or employment of owning, operating,
marketing or selling a time-share, vacation plan, vacation
-8-
<PAGE>
ownership or interval ownership project within the Territory; or
(b) directly or indirectly for himself/herself or for any other
person or entity sell, or otherwise procure purchasers for, any time-share,
vacation plan, vacation ownership or interval ownership project within the
Territory; or
(c) have any business (as owner, investor, creditor, consultant,
partner, debtor or otherwise) or be employed in any capacity by a person or
entity that is engaged, directly or indirectly, in (i) operating, or
providing sales, marketing or development services to, a time-share,
vacation plan, vacation ownership or interval ownership project within the
Territory, or (ii) in an activity formed or entered into for the primary
purpose of engaging in a time-share, vacation plan, vacation ownership or
interval ownership business within the Territory; or
(d) [INTENTIONALLY OMITTED]
(e) directly or indirectly for himself/herself or for any other
person or entity become employed in any capacity by or otherwise render
services in any capacity to any national enterprise having time-share,
vacation plan, vacation ownership or interval ownership activities,
including, without limitation, Walt Disney Company, Hilton Hotels
Corporation, Hyatt Corporation, Four Seasons Hotels and Resorts, Inc.,
Marriott International, Inc., Inter-Continental Hotels and Resorts, Inc.,
Promus Hotels, Inc., Fairfield Communities, Inc., Signature Resorts, Inc.
or Vacation Break U.S.A., Inc. or any of their respective Affiliates; or
(f) directly or indirectly for himself, herself or for any other
person or entity pursue or consummate or otherwise interfere with any
Existing Project; or
(g) (i) directly or indirectly, for himself, herself, or any other
person or entity, pursue, consummate or otherwise interfere with any
Prospective Project or (ii) directly or indirectly for himself/herself or
for any other person or entity become employed in any capacity by or
otherwise render
-9-
<PAGE>
services in any capacity to any other person or entity (other than the
Company and its Affiliates) described in clause (ii) of the definition of
Prospective Project.
Notwithstanding the foregoing, Employee may purchase stock as a stockholder
in any publicly traded company, including any company engaged in the timeshare
or vacation ownership business; provided, however, that Employee may not own
-------- -------
(individually or collectively with Employee's family members, trusts for the
benefit of Employee's family members and affiliates of Employee) more than 5% of
any company (other than the Company).
In light of the substantial remuneration provided to Employee
hereunder and Employee's management position with the Company, Employee hereby
specifically acknowledges and agrees that the provisions of this Section 10
(including, without limitation, its time and geographic limits), as well as the
provisions of Sections 9 and 11, are reasonable and appropriate, and that
Employee will not claim to the contrary in any action brought by the Company to
enforce such any of such provisions.
11. Covenant Against Solicitation of Employees. During the term of
------------------------------------------
Employee's employment by the Company and for the Non-Compete Period, the
Employee shall not employ employees or agents or former employees or agents of
the Company or its Affiliates or, directly or indirectly, solicit or otherwise
encourage the employment of employees or agents or former employees or agents of
the Company or its Affiliates; provided, however, that this restriction shall
-------- -------
not apply to former employees or agents who, as of the date of termination of
Employee's employment by the Company, have not worked for any of the Company or
its Affiliates during the twelve preceding months.
12. Remedies For Breach. It is understood and agreed by the parties that
-------------------
no amount of money would adequately compensate the Company for damages which the
parties acknowledge would be suffered as a result of a violation by the Employee
of the covenants contained in Sections 9, 10 and 11 above, and that, therefore,
the Company shall be entitled, upon application to a court of competent
jurisdiction, to obtain injunctive relief (without the need to post bond) to
enforce the provisions of Sections 9, 10 or 11, which injunctive relief shall be
in addition to any other rights or
-10-
<PAGE>
remedies available to the Company. The provisions of this Section 12 shall
survive the termination of this Agreement.
13. Certain Defined Terms. For purposes of this Agreement the following
---------------------
terms and phrases shall have the following meanings:
"Affiliate" means any person or entity who or which, directly or
---------
indirectly, through one or more intermediaries, controls or is controlled by, or
is under common control with, a specified person or entity (the term "control"
for these purposes meaning the ability, whether by ownership of shares or other
equity interests, by contract or otherwise, to elect a majority of the directors
of a corporation, to act as or select the managing or general partner of a
partnership, or otherwise to select, or have the power to remove and then
select, a majority of those persons exercising governing authority over an
entity).
"Cause", with respect to the termination of Employee's employment by the
-----
Company, shall mean (a) the commission by Employee of an act of fraud,
embezzlement or willful breach of a fiduciary duty to the Company (including the
unauthorized disclosure of confidential or proprietary material information of
the Company); (b) the commission by Employee of a breach of any material
covenant, provision, term, condition, understanding or undertaking set forth in
this Agreement; (c) the commission by Employee (other than in Employee's
capacity as an agent of the Company) of a crime constituting a felony under
applicable law (or a plea of nolo contendere in lieu thereof); (d) the exposure
---- ----------
of the Company to any criminal liability substantially caused by the conduct of
Employee which results in a material adverse effect upon the Company's business,
operations, financial condition or results of operations or the exposure of the
Company to any civil liability caused by Employee's unlawful harassment in
employment; (e) any habitual absenteeism, gross negligence, bad faith, or
willful misconduct by Employee in the performance of Employee's duties to the
Company which such conduct results in a material detriment to the Company; or
(f) Employee's habitual abuse of alcohol or any controlled substance or
Employee's reporting to work under the influence of alcohol or a controlled
substance (other than those for which Employee is taking under a current
prescription).
"Confidential Information" means all software, trade secrets, work products
------------------------
created by Employee for the Company or any of its
-11-
<PAGE>
Affiliates, know-how, ideas, techniques, theories, discoveries, formulas, plans,
charts, designs, drawings, lists of current or prospective clients, business
plans and proposals, current or prospective business opportunities, financial
records, research and development, marketing strategies and programs (including
present and prospective OPC locations and the terms of leases of similar
arrangements) and reports and other proprietary information created or obtained
by Employee for the benefit of the Company or any of its Affiliates during the
course of employment by the Company.
"Consumer Price Index" means the United States Department of Labor's Bureau
--------------------
of Labor Statistics' Consumer Price Index, All Urban Consumers, All Items,
Orlando, Florida Area (1982-84 = 100), or the successor of such index (or if the
index is not published for the Orlando, Florida area, a comparable index
applicable to the Tampa, Florida or Jacksonville, Florida area or in the event
they are not available, any other areas as may be reasonably determined by the
Company).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Existing Project" means a time-share, vacation plan, vacation ownership or
----------------
interval ownership resort or project which the Company or any of its Affiliates
owns, operates or has commenced to develop, acquire or otherwise undertake as of
the Termination Date.
"Non-Compete Period" shall mean the period commencing on the Termination
------------------
Date and ending on the second anniversary of the Termination Date.
"Permanent Disability" shall mean the inability of the Employee to perform
--------------------
substantially all Employee's duties and responsibilities to the Company by
reason of a physical or mental disability or infirmity for either (i) a
continuous period of six months or (ii) 180 days during any consecutive twelve-
month period. The date of such Permanent Disability shall be (y), in the case of
clause (i) above, the last day of such six-month period or, if later, the day on
which satisfactory medical evidence of such Permanent Disability is obtained by
the Company, or (z) in the case of clause (ii) above, such date as is determined
in good faith by the Company. In the event that any disagreement or dispute
arises between the Company and Employee as to whether the Employee has
-12-
<PAGE>
incurred a Permanent Disability, then, in any such event, Employee shall submit
to a physical and/or mental examination by a competent and qualified physician
licensed under the laws of the State of Florida who shall be mutually selected
by the Company and Employee, and such physician shall make the determination of
whether Employee suffers from any disability. In the absence of fraud or bad
faith, the determination of such physician as to Employee's condition at such
time shall be final and binding upon both the Company and the Employee. The
entire cost of any such examination shall be borne solely by the Company.
"Prospective Project" means (i) a prospective time-share, vacation plan,
-------------------
vacation ownership or interval ownership resort or project with respect to which
Employee has been made aware or has been advised prior to the Termination Date
that the Company or any of its Affiliates is considering developing or
undertaking and (ii) any person or entity, including its respective Affiliates,
with respect to which Employee has been made aware or has been advised prior to
the Termination Date that the Company or any of its Affiliates has commenced to
evaluate or negotiate with in respect of any transaction involving (y) the
acquisition by the Company or any of its Affiliates of all or a portion of such
person or entity or its consolidated assets or (z) the acquisition by such
person or entity (or its Affiliates) of all or a portion of the Company or its
consolidated assets.
"Territory" means the total geographic area located within a 150-mile
---------
radius of each Existing Project and each Prospective Project.
"Voluntary Termination" shall mean the voluntary termination by Employee of
---------------------
Employee's employment by the Company by voluntary resignation or any other means
(other than (i) death or Permanent Disability or (ii) simultaneous with or
following termination for Cause or an event which if known to the Company at the
time of such voluntary termination by Employee would constitute Cause).
14. Miscellaneous.
-------------
(a) Severability. If any provision of this Agreement shall be
------------
declared invalid or unenforceable by a court of competent jurisdiction, the
invalidity or unenforceability of such provision shall not affect the other
provisions hereof, and this Agreement
-13-
<PAGE>
shall be construed and enforced in all respects as if such invalid or
unenforceable provision was omitted.
(b) Attorneys' Fees and Costs. In the event a dispute arises between
-------------------------
the parties hereto and suit is instituted, the prevailing party or parties in
such litigation shall be entitled to recover reasonable attorneys' fees and
other costs and expenses from the non-prevailing party or parties, whether
incurred at the trial level or in any appellate proceeding. For purposes
hereof, the Company shall be deemed to have prevailed in any suit involving a
breach or alleged breach by Employee of any of the covenants contained in
Sections 9, 10 and 11 above if the Company prevails to any degree in such suit
(even if such covenant or covenants are not enforced to the fullest extent
otherwise sought by the Company).
(c) Governing Law and Venue. This Agreement shall be governed by and
-----------------------
construed in accordance with the laws of the State of Florida. In the event of
any legal or equitable action arising under this Agreement, the venue of such
action shall be exclusively within either the state courts of Florida located in
Orange County, Florida, or the United States District Court for the Middle
District of Florida, Orlando Division, and the parties waive any other
jurisdiction and venue.
(d) Completeness of Agreement. All understandings and agreements
-------------------------
heretofore made between the parties hereto with respect to the subject matter of
this Agreement are merged into this document which alone fully and completely
expresses their agreement. No change or modification may be made to this
Agreement except by instrument in writing duly executed by the parties hereto
with the same formalities as this document.
(e) Notices. Any and all notices or other communica tions provided
-------
for herein shall be given in writing and shall be hand delivered or sent by
United States mail, postage prepaid, registered or certified, return receipt
requested, addressed as follows:
If to the Company:
Vistana, Inc.
8801 Vistana Centre Drive
Orlando, Florida 32821
-14-
<PAGE>
Attn: President
If to Employee: at the address specified
in Schedule A attached hereto.
----------
provided, however, that any of the parties may, from time to time, give notice
- -------- -------
to the other parties of some other address to which notices or other
communications to such party shall be sent, in which event, notices or other
communications to such party shall be sent to such address. Any notice or other
communication shall be deemed to have been given and received hereunder as of
the date the same is actually hand delivered or, if mailed, when deposited in
the United States mail, postage prepaid, registered or certified, return receipt
requested.
(f) Binding Effect. This Agreement shall be binding upon and inure
--------------
to the benefit of the respective parties hereto, their heirs, legal
representatives, successors and permitted assigns.
(g) Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original, and all of which shall
constitute but one and the same instrument.
(h) Captions. The captions appearing in this Agreement are inserted
--------
only as a matter of convenience and in no way define, limit, construe or
describe the scope or intent of any provisions of this Agreement or in any way
affect this Agreement.
(i) Additional Understandings. Certain additional understandings
-------------------------
between the Company and Employee are set forth on Schedule C attached hereto and
----------
incorporated herein by this reference.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
date and year set forth above.
THE COMPANY:
-----------
VISTANA, INC., a Florida corporation
-15-
<PAGE>
By: /s/ Jeffrey A. Adler
---------------------------------
Name: Jeffrey A. Adler
Title: President and Co-Chief
Executive Officer
EMPLOYEE:
--------
/s/ Raymond L. Gellein, Jr.
------------------------------------
Name: Raymond L. Gellein, Jr.
-16-
<PAGE>
SCHEDULE A
----------
Employee Title and Primary Employment Responsibilities
------------------------------------------------------
1. Employee Name and Address: Raymond L. Gellein, Jr.
-------------------------
1171 Via Lugano
Winter Park, Florida 32789
2. Employee Title: Chairman of the Board
--------------
3. Primary Employment Responsibilities:
-----------------------------------
Employee shall serve as Chairman of the Board of the Company.
Employee shall devote his best efforts and substantially full business
time and attention to the performance of services to the Company in
his capacity as an officer thereof and as may reasonably be requested
by the Board. The Company shall retain full direction and control of
the means and methods by which Employee performs his services thereto.
Both Employee and the Company agree that the nature and scope of
Employee's responsibility and authority will be consistent with being
the Chairman of the Board of a public company.
4. Place of Employment: The Company's office located in Orlando, Florida.
-------------------
A-1
<PAGE>
SCHEDULE B
----------
Employee Compensation
---------------------
1. Employee Name: Raymond L. Gellein, Jr.
-------------
2. Base Salary: $360,000
-----------
3. Annual Bonus Amount: Up to 60% of Adjusted Base Salary; Formula to
-------------------
approximate that of other senior executive officers.
4. Severance Amount: [INTENTIONALLY OMITTED]
----------------
5. Monthly Severance Payment: [INTENTIONALLY OMITTED]
-------------------------
B-1
<PAGE>
SCHEDULE C
----------
Additional Understandings
-------------------------
None
C-1
<PAGE>
EXHIBIT 10.2
------------
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT, dated as of December 27, 1996 (this "Agreement")
between VISTANA, INC., a Florida corporation (the "Company"), and JEFFREY A.
ADLER ("Employee") (capitalized terms used herein and not otherwise defined
shall have the meanings ascribed thereto in Section 13),
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company, through its Affiliates, is engaged in the business of
timeshare or vacation ownership, development, sales and resort management, as
well as the installation and management of voice, data and cable television
systems, and related operations;
WHEREAS, Vistana Development, Ltd., Vistana Management, Ltd., and VCH
Communication, Inc., each Affiliates of the Company, and Employee are parties to
that certain Amended and Restated Employment Agreement dated October 31, 1991
(the "Old Agreement"); and
WHEREAS, the parties hereto desire to enter this Agreement upon the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing, of the mutual covenants
and agreements herein contained and for other good and valuable consideration,
the receipt, adequacy and sufficiency of which are hereby acknowledged, the
parties, intending legally to be bound, hereby agree as follows:
1. Employment. The Company hereby employs Employee, and Employee
----------
hereby accepts such employment, upon the terms and conditions hereinafter set
forth.
2. Position, Duties and Responsibilities.
-------------------------------------
(a) Position. Employee's title and primary responsibilities are set
--------
forth on Schedule A attached hereto and incorporated herein by this reference.
----------
<PAGE>
(b) Place of Employment. During the term of this Agreement, Employee
-------------------
shall perform the services required by this Agreement at the Company's place of
business set forth on Schedule A attached hereto; provided, however, that the
---------- -------- -------
Company may at its discretion require Employee to travel extensively to other
locations on the Company's business.
(c) Other Activities. During the term of this Agreement, Employee
----------------
shall be an employee of the Company, shall not be engaged in any other
employment or business activities, shall devote Employee's full business time
and effort to the Company and shall not serve as an officer or director of any
public company, other than the Company. Notwithstanding the foregoing, Employee
shall not be prohibited from investing or trading in stocks, bonds, commodities
or other forms of passive investment, including real property (provided that
such investments do not violate Section 10 hereof).
3. Term.
----
(a) Effective Date. This Agreement shall become effective (the
--------------
"Effective Date") concurrently with the completion of the Company's issuance and
sale of its common stock, $0.01 par value, pursuant to a public offering as
evidenced by an effective Registration Statement on Form S-1 (Registration No.
333-19045). The parties agree that upon the Effective Date, this Agreement
supersedes the Old Agreement in its entirety and that the Old Agreement shall
have no further force and effect whatsoever. Until the Effective Date, the Old
Agreement shall continue in effect.
(b) Termination Date. The term of employment under this Agreement
----------------
shall terminate upon the earliest to occur of the following events (the date
specified in each such event is referred to as the "Termination Date"):
(i) the fourth anniversary of the Effective Date; provided,
--------
however, that such period of employment may be extended by written
-------
agreement of the parties (it being understood that if Employee remains
employed by the Company after the Termination Date described in this clause
(i), such employment shall be "at-will" unless different terms are
established in writing);
-2-
<PAGE>
(ii) the date upon which the Company terminates Employee's
employment by the Company for Cause or without Cause (it being understood
that the date of termination shall be the date upon which the Company
provides Employee written notice of either such event);
(iii) the date of Employee's death;
(iv) the date upon which the Company terminates Employee's
employment by the Company as a result of Employee's Permanent Disability
(it being understood that the date of termination shall be the date upon
which the Company provides Employee written notice of such event); or
(v) the date upon which Employee effects a Voluntary
Termination (it being understood that the date of termination shall be the
date upon which the Employee provides the Company written notice of such
event).
(c) Performance of Duties During Notice Period. In the event that
------------------------------------------
either (i) the Company terminates Employee's employment by the Company pursuant
to Section 3(b)(ii) hereof or (ii) Employee effects a Voluntary Termination
pursuant to Section 3(b)(v), Employee, if requested by the Company, shall
continue to render services hereunder to the Company for the 30-day notice
period (or, if shorter, until the Termination Date), and shall, in such event,
be paid the compensation and benefits hereunder for the remainder of such
period.
(d) Employment-At-Will/Employee Acknowledgement. Notwithstanding the
-------------------------------------------
term of this Agreement having a duration of four years and Sections 4(a) and (b)
hereof relating to the annual salary and annual bonus to be paid to Employee
during Employee's employment by the Company, nothing in this Agreement should be
construed as to confer any right of Employee to be employed by the Company for a
fixed or definite term. Subject to Section 8 hereof, Employee agrees that the
Company may dismiss Employee under Section 3(b)(ii) without regard to (i) any
general or specific policies (whether written or oral) of the Company relating
to the employment or termination of employment of the Company employees; or (ii)
any statements made to Employee, whether made orally or contained in any
document or instrument, pertaining to Employee's relationship with the Company.
Notwithstanding anything to the contrary
-3-
<PAGE>
contained herein, Employee's employment by the Company is not for any specified
term, is at-will and may be terminated by the Company pursuant to Section
3(b)(ii) at any time by delivery of the notice referred to therein, for any
reason, for Cause or without cause, without any liability whatsoever, except
with respect to the payments provided for in Section 8.
(e) Termination Obligations.
-----------------------
(i) Employee hereby acknowledges and agrees that all personal
property and equipment, including, without limitation, all books, manuals,
records, reports, notes, contracts, lists, blueprints, and other documents,
or materials, or copies thereof (including computer files), and all other
proprietary information relating to the business of the Company, furnished
to or prepared by Employee in the course of or incident to Employee's
employment, belongs to the Company and shall be promptly returned to the
Company within 10 days after the Termination Date. Following the
Termination Date, Employee will not retain any written or other tangible
material containing any proprietary information of the Company.
(ii) [INTENTIONALLY OMITTED]
(iii) The covenants and agreements of Employee contained in
Sections 3(e), 9, 10, 11, 12 and 14(b) and (c) shall survive termination of
Employee's employment by the Company and the termination of this Agreement.
(f) Release. In exchange for the Company entering into the
-------
Agreement, Employee agrees that, at the time of Employee's resignation or
termination from the Company, Employee will execute a release acceptable to the
Company of all liability of the Company and its officers, shareholders,
employees, directors and Affiliates to Employee in connection with or arising
out of Employee's employment by the Company, except with respect to (i) any
then-vested rights under the Company's Stock Plan, (ii) any amounts which may be
payable to Employee pursuant to Section 8 and (iii) any claims Employee may have
pursuant to the Company's disability and workmen's compensation insurance
policies (it being understood that the foregoing is not intended to provide
Employee duplicative rights to those provided for in Section 8(c)(ii)).
-4-
<PAGE>
4. Compensation.
------------
(a) Annual Salary. The Company shall pay to Employee an annual
-------------
salary equal to the base salary set forth on Schedule B attached hereto and
----------
incorporated herein by this reference (the "Base Salary"). The Base Salary shall
be in effect, on a pro-rated basis, from and after the Effective Date through
December 31, 1997. For each calendar year during the term of this Agreement
commencing with the 1998 calendar year, the Company shall pay Employee an annual
salary (the "Adjusted Base Salary") determined by the Company's Board of
Directors (or the Compensation Committee thereof); provided, however, that the
-------- -------
Adjusted Base Salary shall be no less than the product of (i) the Base Salary,
multiplied by (ii) a fraction, the numerator of which shall be the last Consumer
Price Index figure published prior to the December 31st immediately preceding
the beginning of such calendar year (the "Base Salary Adjustment Date") and the
denominator of which shall be the most recent Consumer Price Index figure
published prior to December 31, 1996; provided, further, however, in no event
-------- ------- -------
shall the Adjusted Base Salary, as so adjusted on such Base Salary Adjustment
Date, be less than the Annual Salary for the preceding calendar year. The Base
Salary and the Adjusted Base Salary shall be paid in equal installments, subject
to all applicable withholding and deductions, in accordance with the usual
payroll practices of the Company, but not less frequently than monthly.
(b) Annual Bonus Amount. Employee shall be entitled to be paid an
-------------------
annual bonus amount (the "Annual Bonus Amount") in respect of each calendar year
beginning with the 1997 calendar year as further specified and described on
Schedule B attached hereto. The Annual Bonus Amount shall be deemed earned as
- ----------
of December 31 of the applicable calendar year and shall be due and payable,
subject to all applicable withholding and deductions, within 31 days following
the end of the calendar year to which such Annual Bonus Amount relates based
upon the Company's good faith preliminary estimate thereof for such calendar
year; provided, that upon certification by the Company's auditors of the
--------
Company's consolidated financial statements for such calendar year, the
definitive Annual Bonus Amount for such calendar year shall be determined by the
Company and the Company shall promptly pay to Employee (in the case the
preliminary estimate resulted in an underpayment), or the Employee shall
promptly repay to the Company (in the case the preliminary estimate resulted in
an overpayment),
-5-
<PAGE>
the amount necessary to provide Employee with full payment of the definitive
Annual Bonus Amount as finally determined in accordance with such audited
consolidated financial statements for such calendar year.
5. Fringe Benefits. During the term of this Agreement, Employee shall be
---------------
entitled to all such employment benefits as may, from time to time, be made
generally available to similar level management employees of the Company
including, without limitation, pension or other retirement benefits, health,
hospitalization and similar insurance and group or individual life insurance,
and Employee's family shall be entitled to participate in the Company's medical
and health insurance plans; provided, however, that such benefits and
-------- -------
arrangements are made available at the discretion of the Company and nothing in
this Agreement establishes any right of Employee to the availability or
continuance of any such plan or arrangement.
6. Business Expenses. Except as otherwise provided herein, the Company
-----------------
shall pay, either directly or by reimbursement to Employee, such reasonable and
necessary business expenses incurred by Employee, including travel and
entertainment expenses, in the course of employment by the Company as are
consistent with the Company's policies in existence from time to time. Such
expenses shall include, but shall not be limited to, occupational license fees,
membership dues in professional organizations, educational expenses, and
subscriptions to professional journals.
7. Vacation and Sick Leave. Employee shall be entitled to four weeks'
-----------------------
paid vacation time, in the aggregate, per calendar year, and such paid sick
leave as shall be authorized by the Company pursuant to the Company's written
policies, as determined from time to time. Additionally, Employee may be
entitled to additional paid vacation time to the extent that the operations and
needs of the business permit as determined by the Company. All vacations shall
be taken by Employee at such time or times as may be reasonably approved by the
Company.
8. Compensation Upon Termination of Employment.
-------------------------------------------
(a) Compensation. If Employee's employment by the Company is
------------
terminated, Employee shall receive the compensation and
-6-
<PAGE>
other benefits expressly provided under this Agreement through the Termination
Date.
(b) Continuation of Health Insurance Coverage. At Employee's own
-----------------------------------------
expense, Employee and Employee's dependents shall also be entitled to any
continuation of health insurance coverage rights under any applicable law.
(c) Right of Offset; Compliance with Covenants.
------------------------------------------
(i) If the Employee's employment by the Company is terminated
for any reason, Employee shall be entitled to the compensation and other
benefits expressly provided under this Agreement, subject to the Company's
right of offset for any amounts owed by Employee to the Company (or to any
of its Affiliates).
(ii) The continuing obligation of the Company to make the
Monthly Severance Payment to Employee is expressly conditioned upon the
Employee complying in all respects and continuing to comply in all respects
with Employee's obligations under Sections 9, 10 and 11 hereof following
the Termination Date.
9. Confidential Information and Ownership of Property.
--------------------------------------------------
(a) Confidential Information. Employee agrees to use all
------------------------
Confidential Information solely in connection with the performance of services
for or on behalf of the Company. Employee shall not, during the term of this
Agreement, or at any time after the termination of this Agreement, in any
manner, either directly or indirectly, (i) disseminate, disclose, use or
communicate any Confidential Information to any person or entity, regardless of
whether such Confidential Information is considered to be confidential by third
parties, or (ii) otherwise directly or indirectly misuse any Confidential
Information; provided, however, that (y) none of the provisions of this Section
-------- -------
9 shall apply to disclosures made for valid business purposes of the Company or
(z) that Employee shall not be obligated to treat as confidential any
Confidential Information that (I) was publicly known at the time of disclosure
to Employee; (II) becomes publicly known or available thereafter other than by
means in violation of this Agreement or any other duty owned to the Company or
any of its
-7-
<PAGE>
Affiliates by any person or entity; or (III) is lawfully disclosed to Employee
by a third party. Notwithstanding the foregoing, Employee shall be permitted to
disclose Confidential Information to the extent required to enforce Employee's
rights hereunder in any litigation arising under, or pertaining to, this
Agreement provided that Employee shall give prior written notice to the Company
of any such disclosure so that the Company may have an opportunity to protect
the confidentiality of such Confidential Information in such litigation.
(b) Ownership of Property. Employee agrees that all works of
---------------------
authorship developed, authored, written, created or contributed to during the
term of this Agreement for the benefit of the Company, whether solely or jointly
with others, shall be considered works-made-for-hire. Employee agrees that such
works shall be the sole and exclusive property of the Company (or its
appropriate Affiliate) and that all right, title and interest therein or
thereto, including all intellectual property rights existing or obtained in
connection therewith, shall likewise be the sole and exclusive property of the
Company (or its appropriate Affiliate). Employee agrees further that, in the
event that any work is not considered to be work-made-for-hire by operation of
law, Employee will immediately, and without further compensation, assign all of
Employee's right, title and interest therein to the Company (or its designated
Affiliate), its successors and assigns. At the request and expense of the
Company, Employee agrees to perform in a timely manner such further acts as may
be necessary or desirable to transfer, defend or perfect the Company's ownership
of such work and all rights incident thereto.
10. Covenant Not to Compete. Unless the disinterested members of the
-----------------------
Company's Board of Directors determines that any of the following conduct is in
the Company's best interests, during the term of Employee's employment by the
Company and for the Non-Compete Period, Employee shall not:
(a) directly or indirectly for himself/herself or for any other
person or entity engage, whether as owner, investor, creditor, consultant,
partner, shareholder, director, financial backer, agent, employee or
otherwise, in the business, enterprise or employment of owning, operating,
marketing or selling a time-share, vacation plan, vacation
-8-
<PAGE>
ownership or interval ownership project within the Territory; or
(b) directly or indirectly for himself/herself or for any other
person or entity sell, or otherwise procure purchasers for, any time-share,
vacation plan, vacation ownership or interval ownership project within the
Territory; or
(c) have any business (as owner, investor, creditor, consultant,
partner, debtor or otherwise) or be employed in any capacity by a person or
entity that is engaged, directly or indirectly, in (i) operating, or
providing sales, marketing or development services to, a time-share,
vacation plan, vacation ownership or interval ownership project within the
Territory, or (ii) in an activity formed or entered into for the primary
purpose of engaging in a time-share, vacation plan, vacation ownership or
interval ownership business within the Territory; or
(d) [INTENTIONALLY OMITTED]
(e) directly or indirectly for himself/herself or for any other
person or entity become employed in any capacity by or otherwise render
services in any capacity to any national enterprise having time-share,
vacation plan, vacation ownership or interval ownership activities,
including, without limitation, Walt Disney Company, Hilton Hotels
Corporation, Hyatt Corporation, Four Seasons Hotels and Resorts, Inc.,
Marriott International, Inc., Inter-Continental Hotels and Resorts, Inc.,
Promus Hotels, Inc., Fairfield Communities, Inc., Signature Resorts, Inc.
or Vacation Break U.S.A., Inc. or any of their respective Affiliates; or
(f) directly or indirectly for himself, herself or for any other
person or entity pursue or consummate or otherwise interfere with any
Existing Project; or
(g) (i) directly or indirectly, for himself, herself, or any other
person or entity, pursue, consummate or otherwise interfere with any
Prospective Project or (ii) directly or indirectly for himself/herself or
for any other person or entity become employed in any capacity by or
otherwise render
-9-
<PAGE>
services in any capacity to any other person or entity (other than the
Company and its Affiliates) described in clause (ii) of the definition of
Prospective Project.
Notwithstanding the foregoing, Employee may purchase stock as a stockholder
in any publicly traded company, including any company engaged in the timeshare
or vacation ownership business; provided, however, that Employee may not own
-------- -------
(individually or collectively with Employee's family members, trusts for the
benefit of Employee's family members and affiliates of Employee) more than 5% of
any company (other than the Company).
In light of the substantial remuneration provided to Employee
hereunder and Employee's management position with the Company, Employee hereby
specifically acknowledges and agrees that the provisions of this Section 10
(including, without limitation, its time and geographic limits), as well as the
provisions of Sections 9 and 11, are reasonable and appropriate, and that
Employee will not claim to the contrary in any action brought by the Company to
enforce such any of such provisions.
11. Covenant Against Solicitation of Employees. During the term of
------------------------------------------
Employee's employment by the Company and for the Non-Compete Period, the
Employee shall not employ employees or agents or former employees or agents of
the Company or its Affiliates or, directly or indirectly, solicit or otherwise
encourage the employment of employees or agents or former employees or agents of
the Company or its Affiliates; provided, however, that this restriction shall
-------- -------
not apply to former employees or agents who, as of the date of termination of
Employee's employment by the Company, have not worked for any of the Company or
its Affiliates during the twelve preceding months.
12. Remedies For Breach. It is understood and agreed by the parties that
-------------------
no amount of money would adequately compensate the Company for damages which the
parties acknowledge would be suffered as a result of a violation by the Employee
of the covenants contained in Sections 9, 10 and 11 above, and that, therefore,
the Company shall be entitled, upon application to a court of competent
jurisdiction, to obtain injunctive relief (without the need to post bond) to
enforce the provisions of Sections 9, 10 or 11, which injunctive relief shall be
in addition to any other rights or
-10-
<PAGE>
remedies available to the Company. The provisions of this Section 12 shall
survive the termination of this Agreement.
13. Certain Defined Terms. For purposes of this Agreement the following
---------------------
terms and phrases shall have the following meanings:
"Affiliate" means any person or entity who or which, directly or
---------
indirectly, through one or more intermediaries, controls or is controlled by, or
is under common control with, a specified person or entity (the term "control"
for these purposes meaning the ability, whether by ownership of shares or other
equity interests, by contract or otherwise, to elect a majority of the directors
of a corporation, to act as or select the managing or general partner of a
partnership, or otherwise to select, or have the power to remove and then
select, a majority of those persons exercising governing authority over an
entity).
"Cause", with respect to the termination of Employee's employment by the
-----
Company, shall mean (a) the commission by Employee of an act of fraud,
embezzlement or willful breach of a fiduciary duty to the Company (including the
unauthorized disclosure of confidential or proprietary material information of
the Company); (b) the commission by Employee of a breach of any material
covenant, provision, term, condition, understanding or undertaking set forth in
this Agreement; (c) the commission by Employee (other than in Employee's
capacity as an agent of the Company) of a crime constituting a felony under
applicable law (or a plea of nolo contendere in lieu thereof); (d) the exposure
---- ----------
of the Company to any criminal liability substantially caused by the conduct of
Employee which results in a material adverse effect upon the Company's business,
operations, financial condition or results of operations or the exposure of the
Company to any civil liability caused by Employee's unlawful harassment in
employment; (e) any habitual absenteeism, gross negligence, bad faith, or
willful misconduct by Employee in the performance of Employee's duties to the
Company which such conduct results in a material detriment to the Company; or
(f) Employee's habitual abuse of alcohol or any controlled substance or
Employee's reporting to work under the influence of alcohol or a controlled
substance (other than those for which Employee is taking under a current
prescription).
"Confidential Information" means all software, trade secrets, work products
------------------------
created by Employee for the Company or any of its
-11-
<PAGE>
Affiliates, know-how, ideas, techniques, theories, discoveries, formulas, plans,
charts, designs, drawings, lists of current or prospective clients, business
plans and proposals, current or prospective business opportunities, financial
records, research and development, marketing strategies and programs (including
present and prospective OPC locations and the terms of leases of similar
arrangements) and reports and other proprietary information created or obtained
by Employee for the benefit of the Company or any of its Affiliates during the
course of employment by the Company.
"Consumer Price Index" means the United States Department of Labor's Bureau
--------------------
of Labor Statistics' Consumer Price Index, All Urban Consumers, All Items,
Orlando, Florida Area (1982-84 = 100), or the successor of such index (or if the
index is not published for the Orlando, Florida area, a comparable index
applicable to the Tampa, Florida or Jacksonville, Florida area or in the event
they are not available, any other areas as may be reasonably determined by the
Company).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Existing Project" means a time-share, vacation plan, vacation ownership or
----------------
interval ownership resort or project which the Company or any of its Affiliates
owns, operates or has commenced to develop, acquire or otherwise undertake as of
the Termination Date.
"Non-Compete Period" shall mean the period commencing on the Termination
------------------
Date and ending on the second anniversary of the Termination Date.
"Permanent Disability" shall mean the inability of the Employee to perform
--------------------
substantially all Employee's duties and responsibilities to the Company by
reason of a physical or mental disability or infirmity for either (i) a
continuous period of six months or (ii) 180 days during any consecutive twelve-
month period. The date of such Permanent Disability shall be (y), in the case of
clause (i) above, the last day of such six-month period or, if later, the day on
which satisfactory medical evidence of such Permanent Disability is obtained by
the Company, or (z) in the case of clause (ii) above, such date as is determined
in good faith by the Company. In the event that any disagreement or dispute
arises between the Company and Employee as to whether the Employee has
-12-
<PAGE>
incurred a Permanent Disability, then, in any such event, Employee shall submit
to a physical and/or mental examination by a competent and qualified physician
licensed under the laws of the State of Florida who shall be mutually selected
by the Company and Employee, and such physician shall make the determination of
whether Employee suffers from any disability. In the absence of fraud or bad
faith, the determination of such physician as to Employee's condition at such
time shall be final and binding upon both the Company and the Employee. The
entire cost of any such examination shall be borne solely by the Company.
"Prospective Project" means (i) a prospective time-share, vacation plan,
-------------------
vacation ownership or interval ownership resort or project with respect to which
Employee has been made aware or has been advised prior to the Termination Date
that the Company or any of its Affiliates is considering developing or
undertaking and (ii) any person or entity, including its respective Affiliates,
with respect to which Employee has been made aware or has been advised prior to
the Termination Date that the Company or any of its Affiliates has commenced to
evaluate or negotiate with in respect of any transaction involving (y) the
acquisition by the Company or any of its Affiliates of all or a portion of such
person or entity or its consolidated assets or (z) the acquisition by such
person or entity (or its Affiliates) of all or a portion of the Company or its
consolidated assets.
"Territory" means the total geographic area located within a 150-mile
---------
radius of each Existing Project and each Prospective Project.
"Voluntary Termination" shall mean the voluntary termination by Employee of
---------------------
Employee's employment by the Company by voluntary resignation or any other means
(other than (i) death or Permanent Disability or (ii) simultaneous with or
following termination for Cause or an event which if known to the Company at the
time of such voluntary termination by Employee would constitute Cause).
14. Miscellaneous.
-------------
(a) Severability. If any provision of this Agreement shall be
------------
declared invalid or unenforceable by a court of competent jurisdiction, the
invalidity or unenforceability of such provision shall not affect the other
provisions hereof, and this Agreement
-13-
<PAGE>
shall be construed and enforced in all respects as if such invalid or
unenforceable provision was omitted.
(b) Attorneys' Fees and Costs. In the event a dispute arises between
-------------------------
the parties hereto and suit is instituted, the prevailing party or parties in
such litigation shall be entitled to recover reasonable attorneys' fees and
other costs and expenses from the non-prevailing party or parties, whether
incurred at the trial level or in any appellate proceeding. For purposes hereof,
the Company shall be deemed to have prevailed in any suit involving a breach or
alleged breach by Employee of any of the covenants contained in Sections 9, 10
and 11 above if the Company prevails to any degree in such suit (even if such
covenant or covenants are not enforced to the fullest extent otherwise sought by
the Company).
(c) Governing Law and Venue. This Agreement shall be governed by and
-----------------------
construed in accordance with the laws of the State of Florida. In the event of
any legal or equitable action arising under this Agreement, the venue of such
action shall be exclusively within either the state courts of Florida located in
Orange County, Florida, or the United States District Court for the Middle
District of Florida, Orlando Division, and the parties waive any other
jurisdiction and venue.
(d) Completeness of Agreement. All understandings and agreements
-------------------------
heretofore made between the parties hereto with respect to the subject matter of
this Agreement are merged into this document which alone fully and completely
expresses their agreement. No change or modification may be made to this
Agreement except by instrument in writing duly executed by the parties hereto
with the same formalities as this document.
(e) Notices. Any and all notices or other communica tions provided
-------
for herein shall be given in writing and shall be hand delivered or sent by
United States mail, postage prepaid, registered or certified, return receipt
requested, addressed as follows:
If to the Company:
Vistana, Inc.
8801 Vistana Centre Drive
Orlando, Florida 32821
-14-
<PAGE>
Attn: President
If to Employee: at the address specified
in Schedule A attached hereto.
----------
provided, however, that any of the parties may, from time to time, give notice
- -------- -------
to the other parties of some other address to which notices or other
communications to such party shall be sent, in which event, notices or other
communications to such party shall be sent to such address. Any notice or other
communication shall be deemed to have been given and received hereunder as of
the date the same is actually hand delivered or, if mailed, when deposited in
the United States mail, postage prepaid, registered or certified, return receipt
requested.
(f) Binding Effect. This Agreement shall be binding upon and inure
--------------
to the benefit of the respective parties hereto, their heirs, legal
representatives, successors and permitted assigns.
(g) Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original, and all of which shall
constitute but one and the same instrument.
(h) Captions. The captions appearing in this Agreement are inserted
--------
only as a matter of convenience and in no way define, limit, construe or
describe the scope or intent of any provisions of this Agreement or in any way
affect this Agreement.
(i) Additional Understandings. Certain additional understandings
-------------------------
between the Company and Employee are set forth on Schedule C attached hereto and
----------
incorporated herein by this reference.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
date and year set forth above.
THE COMPANY:
-----------
VISTANA, INC., a Florida corporation
-15-
<PAGE>
By: /s/ Raymond L. Gellein, Jr.
--------------------------------
Name: Raymond L. Gellein, Jr.
Title: Chairman of the Board and
Co-Chief Executive Officer
EMPLOYEE:
--------
/s/ Jeffrey A. Adler
------------------------------------
Name: Jeffrey A. Adler
-16-
<PAGE>
SCHEDULE A
----------
Employee Title and Primary Employment Responsibilities
------------------------------------------------------
1. Employee Name and Address: Jeffrey A. Adler
-------------------------
3125 Hassi Point
Longwood, Florida 32779
2. Employee Title: President
--------------
3. Primary Employment Responsibilities:
-----------------------------------
Employee shall serve as President of the Board of the Company.
Employee shall devote his best efforts and substantially full business
time and attention to the performance of services to the Company in
his capacity as an officer thereof and as may reasonably be requested
by the Board. The Company shall retain full direction and control of
the means and methods by which Employee performs his services thereto.
Both Employee and the Company agree that the nature and scope of
Employee's responsibility and authority will be consistent with being
the President of the Board of a public company.
4. Place of Employment: The Company's office located in Orlando, Florida.
-------------------
A-1
<PAGE>
SCHEDULE B
----------
Employee Compensation
---------------------
1. Employee Name: Jeffrey A. Adler
-------------
2. Base Salary: $360,000
-----------
3. Annual Bonus Amount: Up to 60% of Adjusted Base Salary; Formula to
-------------------
approximate that of other senior executive officers.
4. Severance Amount: [INTENTIONALLY OMITTED]
----------------
5. Monthly Severance Payment: [INTENTIONALLY OMITTED]
-------------------------
B-1
<PAGE>
SCHEDULE C
----------
Additional Understandings
-------------------------
None
C-1
<PAGE>
EXHIBIT 10.3
------------
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT, dated as of December 27, 1996 (this "Agreement")
between VISTANA, INC., a Florida corporation (the "Company"), and MATTHEW E.
AVRIL ("Employee") (capitalized terms used herein and not otherwise defined
shall have the meanings ascribed thereto in Section 13),
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company, through its Affiliates, is engaged in the business of
timeshare or vacation ownership, development, sales and resort management, as
well as the installation and management of voice, data and cable television
systems, and related operations;
WHEREAS, Vistana Development, Ltd., Vistana Management, Ltd., and VCH
Communication, Inc., each Affiliates of the Company, and Employee are parties to
that certain Amended and Restated Employment Agreement dated June 27, 1995 (the
"Old Agreement"); and
WHEREAS, the parties hereto desire to enter this Agreement upon the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing, of the mutual covenants
and agreements herein contained and for other good and valuable consideration,
the receipt, adequacy and sufficiency of which are hereby acknowledged, the
parties, intending legally to be bound, hereby agree as follows:
1. Employment. The Company hereby employs Employee, and Employee hereby
----------
accepts such employment, upon the terms and conditions hereinafter set forth.
2. Position, Duties and Responsibilities.
-------------------------------------
(a) Position. Employee's title and primary responsibilities are set
--------
forth on Schedule A attached hereto and incorporated herein by this reference.
----------
<PAGE>
(b) Place of Employment. During the term of this Agreement, Employee
-------------------
shall perform the services required by this Agreement at the Company's place of
business set forth on Schedule A attached hereto; provided, however, that the
---------- -------- -------
Company may at its discretion require Employee to travel extensively to other
locations on the Company's business.
(c) Other Activities. During the term of this Agreement, Employee
----------------
shall be an employee of the Company, shall not be engaged in any other
employment or business activities, shall devote Employee's full business time
and effort to the Company and shall not serve as an officer or director of any
public company, other than the Company. Notwithstanding the foregoing, Employee
shall not be prohibited from investing or trading in stocks, bonds, commodities
or other forms of passive investment, including real property (provided that
such investments do not violate Section 10 hereof).
3. Term.
----
(a) Effective Date. This Agreement shall become effective (the
--------------
"Effective Date") concurrently with the completion of the Company's issuance and
sale of its common stock, $0.01 par value, pursuant to a public offering as
evidenced by an effective Registration Statement on Form S-1 (Registration No.
333-19045). The parties agree that upon the Effective Date, this Agreement
supersedes the Old Agreement in its entirety and that the Old Agreement shall
have no further force and effect whatsoever. Until the Effective Date, the Old
Agreement shall continue in effect.
(b) Termination Date. The term of employment under this Agreement
----------------
shall terminate upon the earliest to occur of the following events (the date
specified in each such event is referred to as the "Termination Date"):
(i) the fourth anniversary of the Effective Date; provided,
--------
however, that such period of employment may be extended by written
-------
agreement of the parties (it being understood that if Employee remains
employed by the Company after the Termination Date described in this clause
(i), such employment shall be "at-will" unless different terms are
established in writing);
-2-
<PAGE>
(ii) the date upon which the Company terminates Employee's
employment by the Company for Cause or without Cause (it being understood
that the date of termination shall be the date upon which the Company
provides Employee written notice of either such event);
(iii) the date of Employee's death;
(iv) the date upon which the Company terminates Employee's
employment by the Company as a result of Employee's Permanent Disability
(it being understood that the date of termination shall be the date upon
which the Company provides Employee written notice of such event); or
(v) the date upon which Employee effects a Voluntary
Termination (it being understood that the date of termination shall be the
date upon which the Employee provides the Company written notice of such
event).
(c) Performance of Duties During Notice Period. In the event that
------------------------------------------
either (i) the Company terminates Employee's employment by the Company pursuant
to Section 3(b)(ii) hereof or (ii) Employee effects a Voluntary Termination
pursuant to Section 3(b)(v), Employee, if requested by the Company, shall
continue to render services hereunder to the Company for the 30-day notice
period (or, if shorter, until the Termination Date), and shall, in such event,
be paid the compensation and benefits hereunder for the remainder of such
period.
(d) Employment-At-Will/Employee Acknowledgement. Notwithstanding the
-------------------------------------------
term of this Agreement having a duration of four years and Sections 4(a) and (b)
hereof relating to the annual salary and annual bonus to be paid to Employee
during Employee's employment by the Company, nothing in this Agreement should be
construed as to confer any right of Employee to be employed by the Company for a
fixed or definite term. Subject to Section 8 hereof, Employee agrees that the
Company may dismiss Employee under Section 3(b)(ii) without regard to (i) any
general or specific policies (whether written or oral) of the Company relating
to the employment or termination of employment of the Company employees; or (ii)
any statements made to Employee, whether made orally or contained in any
document or instrument, pertaining to Employee's relationship with the Company.
Notwithstanding anything to the contrary
-3-
<PAGE>
contained herein, Employee's employment by the Company is not for any specified
term, is at-will and may be terminated by the Company pursuant to Section
3(b)(ii) at any time by delivery of the notice referred to therein, for any
reason, for Cause or without cause, without any liability whatsoever, except
with respect to the payments provided for in Section 8.
(e) Termination Obligations.
-----------------------
(i) Employee hereby acknowledges and agrees that all personal
property and equipment, including, without limitation, all books, manuals,
records, reports, notes, contracts, lists, blueprints, and other documents,
or materials, or copies thereof (including computer files), and all other
proprietary information relating to the business of the Company, furnished
to or prepared by Employee in the course of or incident to Employee's
employment, belongs to the Company and shall be promptly returned to the
Company within 10 days after the Termination Date. Following the
Termination Date, Employee will not retain any written or other tangible
material containing any proprietary information of the Company.
(ii) Effective as of the Termination Date, Employee shall be
deemed to have resigned from all offices and directorships then held with
the Company or any Affiliate of the Company.
(iii) The covenants and agreements of Employee contained in
Sections 3(e), 9, 10, 11, 12 and 14(b) and (c) shall survive termination of
Employee's employment by the Company and the termination of this Agreement.
(f) Release. In exchange for the Company entering into the
-------
Agreement, Employee agrees that, at the time of Employee's resignation or
termination from the Company, Employee will execute a release acceptable to the
Company of all liability of the Company and its officers, shareholders,
employees, directors and Affiliates to Employee in connection with or arising
out of Employee's employment by the Company, except with respect to (i) any
then-vested rights under the Company's Stock Plan, (ii) any amounts which may be
payable to Employee pursuant to Section 8 and (iii) any claims Employee may have
pursuant to the Company's
-4-
<PAGE>
disability and workmen's compensation insurance policies (it being understood
that the foregoing is not intended to provide Employee duplicative rights to
those provided for in Section 8(c)(ii)).
4. Compensation.
------------
(a) Annual Salary. The Company shall pay to Employee an annual
-------------
salary equal to the base salary set forth on Schedule B attached hereto and
----------
incorporated herein by this reference (the "Base Salary"). The Base Salary
shall be in effect, on a pro-rated basis, from and after the Effective Date
through December 31, 1997. For each calendar year during the term of this
Agreement commencing with the 1998 calendar year, the Company shall pay Employee
an annual salary (the "Adjusted Base Salary") determined by the Company's Board
of Directors (or the Compensation Committee thereof); provided, however, that
-------- -------
the Adjusted Base Salary shall be no less than the product of (i) the Base
Salary, multiplied by (ii) a fraction, the numerator of which shall be the last
Consumer Price Index figure published prior to the December 31st immediately
preceding the beginning of such calendar year (the "Base Salary Adjustment
Date") and the denominator of which shall be the most recent Consumer Price
Index figure published prior to December 31, 1996; provided, further, however,
-------- ------- -------
in no event shall the Adjusted Base Salary, as so adjusted on such Base Salary
Adjustment Date, be less than the Annual Salary for the preceding calendar year.
The Base Salary and the Adjusted Base Salary shall be paid in equal
installments, subject to all applicable withholding and deductions, in
accordance with the usual payroll practices of the Company, but not less
frequently than monthly.
(b) Annual Bonus Amount. Employee shall be entitled to be paid an
-------------------
annual bonus amount (the "Annual Bonus Amount") in respect of each calendar year
beginning with the 1997 calendar year as further specified and described on
Schedule B attached hereto. The Annual Bonus Amount shall be deemed earned as
- ----------
of December 31 of the applicable calendar year and shall be due and payable,
subject to all applicable withholding and deductions, within 31 days following
the end of the calendar year to which such Annual Bonus Amount relates based
upon the Company's good faith preliminary estimate thereof for such calendar
year; provided, that upon certification by the Company's auditors of the
--------
Company's consolidated financial statements for such calendar year, the
definitive Annual Bonus Amount for such calendar year shall be
-5-
<PAGE>
determined by the Company and the Company shall promptly pay to Employee (in the
case the preliminary estimate resulted in an underpayment), or the Employee
shall promptly repay to the Company (in the case the preliminary estimate
resulted in an overpayment), the amount necessary to provide Employee with full
payment of the definitive Annual Bonus Amount as finally determined in
accordance with such audited consolidated financial statements for such calendar
year.
5. Fringe Benefits. During the term of this Agreement, Employee shall be
---------------
entitled to all such employment benefits as may, from time to time, be made
generally available to similar level management employees of the Company
including, without limitation, pension or other retirement benefits, health,
hospitalization and similar insurance and group or individual life insurance,
and Employee's family shall be entitled to participate in the Company's medical
and health insurance plans; provided, however, that such benefits and
-------- -------
arrangements are made available at the discretion of the Company and nothing in
this Agreement establishes any right of Employee to the availability or
continuance of any such plan or arrangement.
6. Business Expenses. Except as otherwise provided herein, the Company
-----------------
shall pay, either directly or by reimbursement to Employee, such reasonable and
necessary business expenses incurred by Employee, including travel and
entertainment expenses, in the course of employment by the Company as are
consistent with the Company's policies in existence from time to time. Such
expenses shall include, but shall not be limited to, occupational license fees,
membership dues in professional organizations, educational expenses, and
subscriptions to professional journals.
7. Vacation and Sick Leave. Employee shall be entitled to four weeks'
-----------------------
paid vacation time, in the aggregate, per calendar year, and such paid sick
leave as shall be authorized by the Company pursuant to the Company's written
policies, as determined from time to time. Additionally, Employee may be
entitled to additional paid vacation time to the extent that the operations and
needs of the business permit as determined by the Company. All vacations shall
be taken by Employee at such time or times as may be reasonably approved by the
Company.
8. Compensation Upon Termination of Employment.
-------------------------------------------
-6-
<PAGE>
(a) Expiration of Term. If Employee's employment by the Company is
------------------
terminated as a result of the occurrence of the fourth anniversary of the
Effective Date, Employee shall receive the compensation and other benefits
expressly provided under this Agreement through the Termination Date.
(b) Death. If Employee's employment by the Company is terminated as
-----
a result of the occurrence of Employee's death pursuant to Section 3(a)(iii),
the Company shall pay Employee's estate (i) the compensation and other benefits
expressly provided under this Agreement through the Termination Date; and (ii)
an aggregate of the amount set forth on Schedule B attached hereto (the
----------
"Severance Amount"), payable in 24 equal monthly installments of the amount set
forth on Schedule B attached hereto (the "Monthly Severance Payment") commencing
----------
with the first calendar month after the Termination Date.
(c) Permanent Disability. If Employee's employment by the Company is
--------------------
terminated by the Company as a result of the occurrence of Employee's Permanent
Disability pursuant to Section 3(a)(iv), the Company shall pay Employee (i) the
compensation and other benefits expressly provided under this Agreement through
the Termination Date; and (ii) the Monthly Severance Payment for the lesser of
24 months or the duration of such Permanent Disability; provided, however, that
-------- -------
the amount of all payments of the Monthly Severance Amount shall be reduced by
the sum of the amount, if any, payable to Employee at or prior to the time of
any such payment under any disability benefit plan of the Company.
(d) Termination by the Company for Cause. If Employee's employment
------------------------------------
by the Company is terminated by the Company for Cause pursuant to Section
3(b)(ii), Employee shall receive the compensation and other benefits expressly
provided under this Agreement through the Termination Date.
(e) Termination by the Company without Cause. If Employee's
----------------------------------------
employment by the Company is terminated by the Company without Cause pursuant to
Section 3(b)(ii), the Company shall pay Employee (i) the compensation and other
benefits expressly provided under this Agreement through the Termination Date;
and (ii) the Severance Amount, payable in 24 equal monthly installments of the
-7-
<PAGE>
Monthly Severance Payment commencing with the first calendar month after the
Termination Date.
(f) Termination by Employee for Good Reason. If Employee's
---------------------------------------
employment by the Company is terminated by Employee for Good Reason pursuant to
Section 3(b)(v), the Company shall pay Employee (i) the compensation and other
benefits expressly provided under this Agreement through the Termination Date;
and (ii) the Severance Amount, payable in 24 equal monthly installments of the
Monthly Severance Payment commencing with the first calendar month after the
Termination Date.
(g) Termination by Employee without Good Reason. If Employee's
-------------------------------------------
employment by the Company is terminated by Employee without Good Reason pursuant
to Section 3(b)(v), Employee shall receive the compensation and other benefits
expressly provided under this Agreement through the Termination Date.
(h) Continuation of Health Insurance Coverage. At Employee's own
-----------------------------------------
expense, Employee and Employee's dependents shall also be entitled to any
continuation of health insurance coverage rights under any applicable law.
(i) Right of Offset; Compliance with Covenants.
------------------------------------------
(i) If the Employee's employment by the Company is terminated
for any reason, Employee shall be entitled to the compensation and other
benefits expressly provided under this Agreement, subject to the Company's
right of offset for any amounts owed by Employee to the Company (or to any
of its Affiliates).
(ii) The continuing obligation of the Company to make the
Monthly Severance Payment to Employee is expressly conditioned upon the
Employee complying in all respects and continuing to comply in all respects
with Employee's obligations under Sections 9, 10 and 11 hereof following
the Termination Date.
9. Confidential Information and Ownership of Property.
--------------------------------------------------
(a) Confidential Information. Employee agrees to use all
------------------------
Confidential Information solely in connection with the
-8-
<PAGE>
performance of services for or on behalf of the Company. Employee shall not,
during the term of this Agreement, or at any time after the termination of this
Agreement, in any manner, either directly or indirectly, (i) disseminate,
disclose, use or communicate any Confidential Information to any person or
entity, regardless of whether such Confidential Information is considered to be
confidential by third parties, or (ii) otherwise directly or indirectly misuse
any Confidential Information; provided, however, that (y) none of the
-------- -------
provisions of this Section 9 shall apply to disclosures made for valid business
purposes of the Company or (z) that Employee shall not be obligated to treat as
confidential any Confidential Information that (I) was publicly known at the
time of disclosure to Employee; (II) becomes publicly known or available
thereafter other than by means in violation of this Agreement or any other duty
owned to the Company or any of its Affiliates by any person or entity; or (III)
is lawfully disclosed to Employee by a third party. Notwithstanding the
foregoing, Employee shall be permitted to disclose Confidential Information to
the extent required to enforce Employee's rights hereunder in any litigation
arising under, or pertaining to, this Agreement provided that Employee shall
give prior written notice to the Company of any such disclosure so that the
Company may have an opportunity to protect the confidentiality of such
Confidential Information in such litigation.
(b) Ownership of Property. Employee agrees that all works of
---------------------
authorship developed, authored, written, created or contributed to during the
term of this Agreement for the benefit of the Company, whether solely or jointly
with others, shall be considered works-made-for-hire. Employee agrees that such
works shall be the sole and exclusive property of the Company (or its
appropriate Affiliate) and that all right, title and interest therein or
thereto, including all intellectual property rights existing or obtained in
connection therewith, shall likewise be the sole and exclusive property of the
Company (or its appropriate Affiliate). Employee agrees further that, in the
event that any work is not considered to be work-made-for-hire by operation of
law, Employee will immediately, and without further compensation, assign all of
Employee's right, title and interest therein to the Company (or its designated
Affiliate), its successors and assigns. At the request and expense of the
Company, Employee agrees to perform in a timely manner such further acts as may
be necessary or
-9-
<PAGE>
desirable to transfer, defend or perfect the Company's ownership of such work
and all rights incident thereto.
10. Covenant Not to Compete. Unless the Company's Board of Directors
-----------------------
determines that any of the following conduct is in the Company's best interests,
during the term of Employee's employment by the Company and for the Non-Compete
Period, Employee shall not:
(a) directly or indirectly for himself/herself or for any other
person or entity engage, whether as owner, investor, creditor, consultant,
partner, shareholder, director, financial backer, agent, employee or
otherwise, in the business, enterprise or employment of owning, operating,
marketing or selling a time-share, vacation plan, vacation ownership or
interval ownership project within the Territory; or
(b) directly or indirectly for himself/herself or for any other
person or entity sell, or otherwise procure purchasers for, any time-share,
vacation plan, vacation ownership or interval ownership project within the
Territory; or
(c) have any business (as owner, investor, creditor, consultant,
partner, debtor or otherwise) or be employed in any capacity by a person or
entity that is engaged, directly or indirectly, in (i) operating, or
providing sales, marketing or development services to, a time-share,
vacation plan, vacation ownership or interval ownership project within the
Territory, or (ii) in an activity formed or entered into for the primary
purpose of engaging in a time-share, vacation plan, vacation ownership or
interval ownership business within the Territory; or
(d) [INTENTIONALLY OMITTED]
(e) directly or indirectly for himself/herself or for any other
person or entity become employed in any capacity by or otherwise render
services in any capacity to any national enterprise having time-share,
vacation plan, vacation ownership or interval ownership activities,
including, without limitation, Walt Disney Company, Hilton Hotels
Corporation, Hyatt Corporation, Four Seasons Hotels and Resorts, Inc.,
-10-
<PAGE>
Marriott International, Inc., Inter-Continental Hotels and Resorts, Inc.,
Promus Hotels, Inc., Fairfield Communities, Inc., Signature Resorts, Inc.
or Vacation Break U.S.A., Inc. or any of their respective Affiliates; or
(f) directly or indirectly for himself, herself or for any other
person or entity pursue or consummate or otherwise interfere with any
Existing Project; or
(g) (i) directly or indirectly, for himself, herself, or any other
person or entity, pursue, consummate or otherwise interfere with any
Prospective Project or (ii) directly or indirectly for himself/herself or
for any other person or entity become employed in any capacity by or
otherwise render services in any capacity to any other person or entity
(other than the Company and its Affiliates) described in clause (ii) of the
definition of Prospective Project.
Notwithstanding the foregoing, Employee may purchase stock as a stockholder
in any publicly traded company, including any company engaged in the timeshare
or vacation ownership business; provided, however, that Employee may not own
-------- -------
(individually or collectively with Employee's family members, trusts for the
benefit of Employee's family members and affiliates of Employee) more than 5% of
any company (other than the Company).
In light of the substantial remuneration provided to Employee
hereunder and Employee's management position with the Company, Employee hereby
specifically acknowledges and agrees that the provisions of this Section 10
(including, without limitation, its time and geographic limits), as well as the
provisions of Sections 9 and 11, are reasonable and appropriate, and that
Employee will not claim to the contrary in any action brought by the Company to
enforce such any of such provisions.
11. Covenant Against Solicitation of Employees. During the term of
------------------------------------------
Employee's employment by the Company and for the Non-Compete Period, the
Employee shall not employ employees or agents or former employees or agents of
the Company or its Affiliates or, directly or indirectly, solicit or otherwise
encourage the employment of employees or agents or former employees or agents of
the Company or its Affiliates; provided, however, that this restriction shall
-------- -------
not apply to former employees or agents who, as
-11-
<PAGE>
of the date of termination of Employee's employment by the Company, have not
worked for any of the Company or its Affiliates during the twelve preceding
months.
12. Remedies For Breach. It is understood and agreed by the parties that
-------------------
no amount of money would adequately compensate the Company for damages which the
parties acknowledge would be suffered as a result of a violation by the Employee
of the covenants contained in Sections 9, 10 and 11 above, and that, therefore,
the Company shall be entitled, upon application to a court of competent
jurisdiction, to obtain injunctive relief (without the need to post bond) to
enforce the provisions of Sections 9, 10 or 11, which injunctive relief shall be
in addition to any other rights or remedies available to the Company. The
provisions of this Section 12 shall survive the termination of this Agreement.
13. Certain Defined Terms. For purposes of this Agreement the following
---------------------
terms and phrases shall have the following meanings:
"Affiliate" means any person or entity who or which, directly or
---------
indirectly, through one or more intermediaries, controls or is controlled by, or
is under common control with, a specified person or entity (the term "control"
for these purposes meaning the ability, whether by ownership of shares or other
equity interests, by contract or otherwise, to elect a majority of the directors
of a corporation, to act as or select the managing or general partner of a
partnership, or otherwise to select, or have the power to remove and then
select, a majority of those persons exercising governing authority over an
entity).
"Cause", with respect to the termination of Employee's employment by the
-----
Company, shall mean (a) the commission by Employee of an act of fraud,
embezzlement or willful breach of a fiduciary duty to the Company (including the
unauthorized disclosure of confidential or proprietary material information of
the Company); (b) the commission by Employee of a breach of any material
covenant, provision, term, condition, understanding or undertaking set forth in
this Agreement; (c) the commission by Employee (other than in Employee's
capacity as an agent of the Company) of a crime constituting a felony under
applicable law (or a plea of nolo contendere in lieu thereof); (d) the exposure
---- ----------
of the Company to any criminal liability substantially caused by the conduct of
Employee which results in a material adverse effect upon
-12-
<PAGE>
the Company's business, operations, financial condition or results of operations
or the exposure of the Company to any civil liability caused by Employee's
unlawful harassment in employment; (e) any habitual absenteeism, gross
negligence, bad faith, or willful misconduct by Employee in the performance of
Employee's duties to the Company which such conduct results in a material
detriment to the Company; or (f) Employee's habitual abuse of alcohol or any
controlled substance or Employee's reporting to work under the influence of
alcohol or a controlled substance (other than those for which Employee is taking
under a current prescription).
"Change in Control" means the occurrence of any one of the following
-----------------
events:
(i) any (A) consolidation or merger of the Company in which
the Company is not the continuing or surviving corporation or which
contemplates that all or substantially all of the business and/ or assets
of the Company shall be controlled by another corporation or (B) a
recapitalization (including an exchange of Company equity securities by the
holders thereof), in either case, in which any "Person" (as such term is
used in Sections 13(d) and 14(d)(2) of the Exchange Act), other than the
Controlling Shareholders, becomes the beneficial owner (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of securities of the
Company representing more than 50% of the combined voting power of the
Company's then outstanding securities ordinarily having the right to vote
in the election of directors;
(ii) any sale, lease, exchange or transfer (in one transaction
or series of related transactions) of all or substantially all of the
assets of the Company and its Affiliates;
(iii) approval by the shareholders of the Company of any plan or
proposal for the liquidation or dissolution of the Company, unless such
plan or proposal is abandoned within 60 days following such approval; or
(iv) any "Person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act), other than the Controlling Shareholders,
shall become the beneficial
-13-
<PAGE>
owner of securities of the Company representing more than 50% of the
combined voting power of the Company's then outstanding securities
ordinarily having the right to vote in the election of directors.
"Confidential Information" means all software, trade secrets, work products
------------------------
created by Employee for the Company or any of its Affiliates, know-how, ideas,
techniques, theories, discoveries, formulas, plans, charts, designs, drawings,
lists of current or prospective clients, business plans and proposals, current
or prospective business opportunities, financial records, research and
development, marketing strategies and programs (including present and
prospective OPC locations and the terms of leases of similar arrangements) and
reports and other proprietary information created or obtained by Employee for
the benefit of the Company or any of its Affiliates during the course of
employment by the Company.
"Consumer Price Index" means the United States Department of Labor's Bureau
--------------------
of Labor Statistics' Consumer Price Index, All Urban Consumers, All Items,
Orlando, Florida Area (1982-84 = 100), or the successor of such index (or if the
index is not published for the Orlando, Florida area, a comparable index
applicable to the Tampa, Florida or Jacksonville, Florida area or in the event
they are not available, any other areas as may be reasonably determined by the
Company).
"Controlling Shareholders" means Raymond L. Gellein, Jr., Jeffrey A. Adler
------------------------
and JGG Holdings Trust, in each case together with their respective Affiliates,
family members, former spouses (if applicable) and trusts for the benefit of any
of the foregoing.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Existing Project" means a time-share, vacation plan, vacation ownership or
----------------
interval ownership resort or project which the Company or any of its Affiliates
owns, operates or has commenced to develop, acquire or otherwise undertake as of
the Termination Date.
"Good Reason" shall mean the occurrence, without the express written
-----------
consent of Employee, of any of the following events unless such events are
substantially corrected within 30 days following written notification by
Employee to the Company that Employee
-14-
<PAGE>
intends to effect a Voluntary Termination as a result of (i) a material
alteration, reduction or diminution in Employee's duties or responsibilities or
relocation from the Company's office described on Schedule A (Item No. 4)
-----------------------
attached hereto; (ii) a material breach by the Company of any covenant,
provision, term, condition, understanding or undertaking set forth in this
Agreement; or (iii) a Voluntary Termination within 90 days after the
consummation of a Change in Control (it being understood that a Voluntary
Termination shall not be for Good Reason as a result of any personal or family
reasons not otherwise set forth in this definition).
"Non-Compete Period" shall mean the period commencing on the Termination
------------------
Date and ending on (i) the Termination Date in case of the termination of
Employee's employment by the Company pursuant to Section 3(b)(i); provided,
--------
however, such period will be extended to the first anniversary of the
- -------
Termination Date in the event that the Company notifies Employee in writing that
it will pay Employee the Monthly Severance Payment (in accordance with the
Company's payroll policies) in effect at the Termination Date for 12 months
after the Termination Date; or (ii) the second anniversary of the Termination
Date in case of (w) the termination of Employee's employment by the Company for
Cause pursuant to Section 3(b)(ii), (x) the termination of Employee's employment
by the Company without Cause pursuant to Section 3(b)(ii), (y) the termination
of Employee's employment by Employee for Good Reason pursuant to Section 3(b)(v)
and (z) the termination of Employee's employment by Employee without Good Reason
pursuant to Section 3(b)(v) (it being understood that if such termination of
employment is due to a Voluntary Termination for Good Reason in respect of a
Change in Control of which both Messrs. Raymond L. Gellein, Jr. and Jeffrey A.
Adler have not approved, by vote in their capacities as directors of the Company
or otherwise, then the Non-Compete Period shall not be applicable).
"Permanent Disability" shall mean the inability of the Employee to perform
--------------------
substantially all Employee's duties and responsibilities to the Company by
reason of a physical or mental disability or infirmity for either (i) a
continuous period of six months or (ii) 180 days during any consecutive twelve-
month period. The date of such Permanent Disability shall be (y), in the case
of clause (i) above, the last day of such six-month period or, if later, the day
on which satisfactory medical evidence of such Permanent Disability is obtained
by the Company, or (z) in the case
-15-
<PAGE>
of clause (ii) above, such date as is determined in good faith by the Company.
In the event that any disagreement or dispute arises between the Company and
Employee as to whether the Employee has incurred a Permanent Disability, then,
in any such event, Employee shall submit to a physical and/or mental examination
by a competent and qualified physician licensed under the laws of the State of
Florida who shall be mutually selected by the Company and Employee, and such
physician shall make the determination of whether Employee suffers from any
disability. In the absence of fraud or bad faith, the determination of such
physician as to Employee's condition at such time shall be final and binding
upon both the Company and the Employee. The entire cost of any such examination
shall be borne solely by the Company.
"Prospective Project" means (i) a prospective time-share, vacation plan,
-------------------
vacation ownership or interval ownership resort or project with respect to which
Employee has been made aware or has been advised prior to the Termination Date
that the Company or any of its Affiliates is considering developing or
undertaking and (ii) any person or entity, including its respective Affiliates,
with respect to which Employee has been made aware or has been advised prior to
the Termination Date that the Company or any of its Affiliates has commenced to
evaluate or negotiate with in respect of any transaction involving (y) the
acquisition by the Company or any of its Affiliates of all or a portion of such
person or entity or its consolidated assets or (z) the acquisition by such
person or entity (or its Affiliates) of all or a portion of the Company or its
consolidated assets.
"Territory" means the total geographic area located within a 150-mile
---------
radius of each Existing Project and each Prospective Project.
"Voluntary Termination" shall mean the voluntary termination by Employee of
---------------------
Employee's employment by the Company by voluntary resignation or any other means
(other than (i) death or Permanent Disability or (ii) simultaneous with or
following termination for Cause or an event which if known to the Company at the
time of such voluntary termination by Employee would constitute Cause).
14. Miscellaneous.
-------------
-16-
<PAGE>
(a) Severability. If any provision of this Agreement shall be
------------
declared invalid or unenforceable by a court of competent jurisdiction, the
invalidity or unenforceability of such provision shall not affect the other
provisions hereof, and this Agreement shall be construed and enforced in all
respects as if such invalid or unenforceable provision was omitted.
(b) Attorneys' Fees and Costs. In the event a dispute arises between
-------------------------
the parties hereto and suit is instituted, the prevailing party or parties in
such litigation shall be entitled to recover reasonable attorneys' fees and
other costs and expenses from the non-prevailing party or parties, whether
incurred at the trial level or in any appellate proceeding. For purposes
hereof, the Company shall be deemed to have prevailed in any suit involving a
breach or alleged breach by Employee of any of the covenants contained in
Sections 9, 10 and 11 above if the Company prevails to any degree in such suit
(even if such covenant or covenants are not enforced to the fullest extent
otherwise sought by the Company).
(c) Governing Law and Venue. This Agreement shall be governed by and
-----------------------
construed in accordance with the laws of the State of Florida. In the event of
any legal or equitable action arising under this Agreement, the venue of such
action shall be exclusively within either the state courts of Florida located in
Orange County, Florida, or the United States District Court for the Middle
District of Florida, Orlando Division, and the parties waive any other
jurisdiction and venue.
(d) Completeness of Agreement. All understandings and agreements
-------------------------
heretofore made between the parties hereto with respect to the subject matter of
this Agreement are merged into this document which alone fully and completely
expresses their agreement, other than certain understandings with respect to
certain provisions of the Old Agreement set forth in that certain letter dated
the date hereof from the Employers (as defined in the Old Agreement) to
Employee. No change or modification may be made to this Agreement except by
instrument in writing duly executed by the parties hereto with the same
formalities as this document.
(e) Notices. Any and all notices or other communications provided
-------
for herein shall be given in writing and shall be hand delivered or sent by
United States mail, postage
-17-
<PAGE>
prepaid, registered or certified, return receipt requested, addressed as
follows:
If to the Company:
Vistana, Inc.
8801 Vistana Centre Drive
Orlando, Florida 32821
Attn: President
If to Employee: at the address specified
in Schedule A attached hereto.
----------
provided, however, that any of the parties may, from time to time, give notice
- -------- -------
to the other parties of some other address to which notices or other
communications to such party shall be sent, in which event, notices or other
communications to such party shall be sent to such address. Any notice or other
communication shall be deemed to have been given and received hereunder as of
the date the same is actually hand delivered or, if mailed, when deposited in
the United States mail, postage prepaid, registered or certified, return receipt
requested.
(f) Binding Effect. This Agreement shall be binding upon and inure
--------------
to the benefit of the respective parties hereto, their heirs, legal
representatives, successors and permitted assigns.
(g) Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original, and all of which shall
constitute but one and the same instrument.
(h) Captions. The captions appearing in this Agreement are inserted
--------
only as a matter of convenience and in no way define, limit, construe or
describe the scope or intent of any provisions of this Agreement or in any way
affect this Agreement.
(i) Additional Understandings. Certain additional understandings
-------------------------
between the Company and Employee are set forth on Schedule C attached hereto and
----------
incorporated herein by this reference.
-18-
<PAGE>
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-19-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
date and year set forth above.
THE COMPANY:
-----------
VISTANA, INC., a Florida corporation
By: /s/ Raymond L. Gellein, Jr.
-------------------------------------
Name: Raymond L. Gellein, Jr.
Title: Chairman of the Board and
Co-Chief Executive Officer
By: /s/ Jeffrey A. Adler
-------------------------------------
Name: Jeffrey A. Adler
Title: President and Co-Chief
Executive Officer
EMPLOYEE:
--------
/s/ Matthew E Avril
----------------------------------------
Name: Matthew E. Avril
-20-
<PAGE>
SCHEDULE A
----------
Employee Title and Primary Employment Responsibilities
------------------------------------------------------
1. Employee Name and Address: Matthew E. Avril
-------------------------
3856 Hunters Isle Drive
Orlando, Florida 32837
2. Employee Title: Executive Vice President and
--------------
Chief Operating Officer
3. Primary Employment Responsibilities:
-----------------------------------
Employee shall serve as Executive Vice President and Chief
Operating Officer of the Company. Employee shall devote his best
efforts and substantially full business time and attention to the
performance of services to the Company in his capacity as an officer
thereof and as may reasonably be requested by the Board. The Company
shall retain full direction and control of the means and methods by
which Employee performs his services thereto. Both Employee and the
Company agree that the nature and scope of Employee's responsibility
and authority will be consistent with being the Executive Vice
President and Chief Operating Officer of a public company, as
described in more detail herein. Employee shall report directly to
Messrs. Raymond L. Gellein, Jr. and Jeffrey A. Adler (the "Executive
Officers"), and the Executive Officers shall be generally available to
Employee on a day-to-day basis.
4. Place of Employment: The Company's office located in Orlando, Florida.
-------------------
A-1
<PAGE>
SCHEDULE B
----------
Employee Compensation
---------------------
1. Employee Name: Matthew E. Avril
-------------
2. Base Salary: $250,000
-----------
3. Annual Bonus Amount: Up to 60% of Adjusted Base
------------------- Salary; Formula to approximate that of other
senior executive officers.
4. Severance Amount: The product of (i) 120% of Employee's Adjusted Base
---------------- Salary as of the Termination Date, multiplied by
(ii) two.
5. Monthly Severance Payment: The quotient of (i) the Severance Amount
------------------------- determined in accordance with Item No. 4 above,
divided by (ii) 52.
B-1
<PAGE>
SCHEDULE C
----------
Additional Understandings
-------------------------
None
C-1
<PAGE>
EXHIBIT 10.4
------------
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT, dated as of December 27, 1996 (this "Agreement")
between VISTANA, INC., a Florida corporation (the "Company"), and SUSAN WERTH
("Employee") (capitalized terms used herein and not otherwise defined shall have
the meanings ascribed thereto in Section 13),
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company, through its Affiliates, is engaged in the business of
timeshare or vacation ownership, development, sales and resort management, as
well as the installation and management of voice, data and cable television
systems, and related operations;
WHEREAS, Vistana Development, Ltd., Vistana Management, Ltd., and VCH
Communication, Inc., each Affiliates of the Company, and Employee are parties to
that certain Amended and Restated Employment Agreement dated March 2, 1996 (the
"Old Agreement"); and
WHEREAS, the parties hereto desire to enter this Agreement upon the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing, of the mutual covenants
and agreements herein contained and for other good and valuable consideration,
the receipt, adequacy and sufficiency of which are hereby acknowledged, the
parties, intending legally to be bound, hereby agree as follows:
1. Employment. The Company hereby employs Employee, and Employee hereby
----------
accepts such employment, upon the terms and conditions hereinafter set forth.
2. Position, Duties and Responsibilities.
-------------------------------------
(a) Position. Employee's title and primary responsibilities are set
--------
forth on Schedule A attached hereto and incorporated herein by this reference.
----------
<PAGE>
(b) Place of Employment. During the term of this Agreement, Employee
-------------------
shall perform the services required by this Agreement at the Company's place of
business set forth on Schedule A attached hereto; provided, however, that the
---------- -------- -------
Company may at its discretion require Employee to travel extensively to other
locations on the Company's business.
(c) Other Activities. During the term of this Agreement, Employee
----------------
shall be an employee of the Company, shall not be engaged in any other
employment or business activities, shall devote Employee's full business time
and effort to the Company and shall not serve as an officer or director of any
public company, other than the Company. Notwithstanding the foregoing, Employee
shall not be prohibited from investing or trading in stocks, bonds, commodities
or other forms of passive investment, including real property (provided that
such investments do not violate Section 10 hereof).
3. Term.
----
(a) Effective Date. This Agreement shall become effective (the
--------------
"Effective Date") concurrently with the completion of the Company's issuance and
sale of its common stock, $0.01 par value, pursuant to a public offering as
evidenced by an effective Registration Statement on Form S-1 (Registration No.
333-19045). The parties agree that upon the Effective Date, this Agreement
supersedes the Old Agreement in its entirety and that the Old Agreement shall
have no further force and effect whatsoever. Until the Effective Date, the Old
Agreement shall continue in effect.
(b) Termination Date. The term of employment under this Agreement
----------------
shall terminate upon the earliest to occur of the following events (the date
specified in each such event is referred to as the "Termination Date"):
(i) the fourth anniversary of the Effective Date; provided,
--------
however, that such period of employment may be extended by written
-------
agreement of the parties (it being understood that if Employee remains
employed by the Company after the Termination Date described in this clause
(i), such employment shall be "at-will" unless different terms are
established in writing);
-2-
<PAGE>
(ii) the date upon which the Company terminates Employee's
employment by the Company for Cause or without Cause (it being understood
that the date of termination shall be the date upon which the Company
provides Employee written notice of either such event);
(iii) the date of Employee's death;
(iv) the date upon which the Company terminates Employee's
employment by the Company as a result of Employee's Permanent Disability
(it being understood that the date of termination shall be the date upon
which the Company provides Employee written notice of such event); or
(v) the date upon which Employee effects a Voluntary
Termination (it being understood that the date of termination shall be the
date upon which the Employee provides the Company written notice of such
event).
(c) Performance of Duties During Notice Period. In the event that
------------------------------------------
either (i) the Company terminates Employee's employment by the Company pursuant
to Section 3(b)(ii) hereof or (ii) Employee effects a Voluntary Termination
pursuant to Section 3(b)(v), Employee, if requested by the Company, shall
continue to render services hereunder to the Company for the 30-day notice
period (or, if shorter, until the Termination Date), and shall, in such event,
be paid the compensation and benefits hereunder for the remainder of such
period.
(d) Employment-At-Will/Employee Acknowledgement. Notwithstanding the
-------------------------------------------
term of this Agreement having a duration of four years and Sections 4(a) and (b)
hereof relating to the annual salary and annual bonus to be paid to Employee
during Employee's employment by the Company, nothing in this Agreement should be
construed as to confer any right of Employee to be employed by the Company for a
fixed or definite term. Subject to Section 8 hereof, Employee agrees that the
Company may dismiss Employee under Section 3(b)(ii) without regard to (i) any
general or specific policies (whether written or oral) of the Company relating
to the employment or termination of employment of the Company employees; or (ii)
any statements made to Employee, whether made orally or contained in any
document or instrument, pertaining to Employee's relationship with the Company.
Notwithstanding anything to the contrary
-3-
<PAGE>
contained herein, Employee's employment by the Company is not for any specified
term, is at-will and may be terminated by the Company pursuant to Section
3(b)(ii) at any time by delivery of the notice referred to therein, for any
reason, for Cause or without cause, without any liability whatsoever, except
with respect to the payments provided for in Section 8.
(e) Termination Obligations.
-----------------------
(i) Employee hereby acknowledges and agrees that all personal
property and equipment, including, without limitation, all books, manuals,
records, reports, notes, contracts, lists, blueprints, and other documents,
or materials, or copies thereof (including computer files), and all other
proprietary information relating to the business of the Company, furnished
to or prepared by Employee in the course of or incident to Employee's
employment, belongs to the Company and shall be promptly returned to the
Company within 10 days after the Termination Date. Following the
Termination Date, Employee will not retain any written or other tangible
material containing any proprietary information of the Company.
(ii) Effective as of the Termination Date, Employee shall be
deemed to have resigned from all offices and directorships then held with
the Company or any Affiliate of the Company.
(iii) The covenants and agreements of Employee contained in
Sections 3(e), 9, 10, 11, 12 and 14(b) and (c) shall survive termination of
Employee's employment by the Company and the termination of this Agreement.
(f) Release. In exchange for the Company entering into the
-------
Agreement,agrees that, at the time of Employee's resignation or termination from
the Company, Employee will execute a release acceptable to the Company of all
liability of the Company and its officers, shareholders, employees, directors
and Affiliates to Employee in connection with or arising out of Employee's
employment by the Company, except with respect to (i) any then-vested rights
under the Company's Stock Plan, (ii) any amounts which may be payable to
Employee pursuant to Section 8 and (iii) any claims Employee may have pursuant
to the Company's
-4-
<PAGE>
disability and workmen's compensation insurance policies (it being understood
that the foregoing is not intended to provide Employee duplicative rights to
those provided for in Section 8(c)(ii)).
4. Compensation.
------------
(a) Annual Salary. The Company shall pay to Employee an annual
-------------
salary equal to the base salary set forth on Schedule B attached hereto and
----------
incorporated herein by this reference (the "Base Salary"). The Base Salary shall
be in effect, on a pro-rated basis, from and after the Effective Date through
December 31, 1997. For each calendar year during the term of this Agreement
commencing with the 1998 calendar year, the Company shall pay Employee an annual
salary (the "Adjusted Base Salary") determined by the Company's Board of
Directors (or the Compensation Committee thereof); provided, however, that the
-------- -------
Adjusted Base Salary shall be no less than the product of (i) the Base Salary,
multiplied by (ii) a fraction, the numerator of which shall be the last Consumer
Price Index figure published prior to the December 31st immediately preceding
the beginning of such calendar year (the "Base Salary Adjustment Date") and the
denominator of which shall be the most recent Consumer Price Index figure
published prior to December 31, 1996; provided, further, however, in no event
-------- ------- -------
shall the Adjusted Base Salary, as so adjusted on such Base Salary Adjustment
Date, be less than the Annual Salary for the preceding calendar year. The Base
Salary and the Adjusted Base Salary shall be paid in equal installments, subject
to all applicable withholding and deductions, in accordance with the usual
payroll practices of the Company, but not less frequently than monthly.
(b) Annual Bonus Amount. Employee shall be entitled to be paid an
-------------------
annual bonus amount (the "Annual Bonus Amount") in respect of each calendar year
beginning with the 1997 calendar year as further specified and described on
Schedule B attached hereto. The Annual Bonus Amount shall be deemed earned as
- ----------
of December 31 of the applicable calendar year and shall be due and payable,
subject to all applicable withholding and deductions, within 31 days following
the end of the calendar year to which such Annual Bonus Amount relates based
upon the Company's good faith preliminary estimate thereof for such calendar
year; provided, that upon certification by the Company's auditors of the
--------
Company's consolidated financial statements for such calendar year, the
definitive Annual Bonus Amount for such calendar year shall be
-5-
<PAGE>
determined by the Company and the Company shall promptly pay to Employee (in the
case the preliminary estimate resulted in an underpayment), or the Employee
shall promptly repay to the Company (in the case the preliminary estimate
resulted in an overpayment), the amount necessary to provide Employee with full
payment of the definitive Annual Bonus Amount as finally determined in
accordance with such audited consolidated financial statements for such calendar
year.
5. Fringe Benefits. During the term of this Agreement, Employee shall be
---------------
entitled to all such employment benefits as may, from time to time, be made
generally available to similar level management employees of the Company
including, without limitation, pension or other retirement benefits, health,
hospitalization and similar insurance and group or individual life insurance,
and Employee's family shall be entitled to participate in the Company's medical
and health insurance plans; provided, however, that such benefits and
-------- -------
arrangements are made available at the discretion of the Company and nothing in
this Agreement establishes any right of Employee to the availability or
continuance of any such plan or arrangement. In addition, the Company agrees to
reimburse Employee for any COBRA costs incurred by Employee to maintain the
current health insurance coverage for Employee and Employee's dependents through
Employee's prior employer until the date of effectiveness of the Employee's
health insurance coverage provided by the Company.
6. Business Expenses. Except as otherwise provided herein, the Company
-----------------
shall pay, either directly or by reimbursement to Employee, such reasonable and
necessary business expenses incurred by Employee, including travel and
entertainment expenses, in the course of employment by the Company as are
consistent with the Company's policies in existence from time to time. Such
expenses shall include, but shall not be limited to, occupational license fees,
membership dues in professional organizations, educational expenses, and
subscriptions to professional journals.
7. Vacation and Sick Leave. Employee shall be entitled to four weeks'
-----------------------
paid vacation time, in the aggregate, per calendar year, and such paid sick
leave as shall be authorized by the Company pursuant to the Company's written
policies, as determined from time to time. Additionally, Employee may be
entitled to additional paid vacation time to the extent that the operations and
-6-
<PAGE>
needs of the business permit as determined by the Company. All vacations shall
be taken by Employee at such time or times as may be reasonably approved by the
Company.
8. Compensation Upon Termination of Employment.
-------------------------------------------
(a) Expiration of Term. If Employee's employment by the Company is
------------------
terminated as a result of the occurrence of the fourth anniversary of the
Effective Date, Employee shall receive the compensation and other benefits
expressly provided under this Agreement through the Termination Date.
(b) Death. If Employee's employment by the Company is terminated as
-----
result of the occurrence of Employee's death pursuant to Section 3(a)(iii), the
Company shall pay Employee's estate (i) the compensation and other benefits
expressly provided under this Agreement through the Termination Date; and (ii)
an aggregate of the amount set forth on Schedule B attached hereto (the
----------
"Severance Amount"), payable in 24 equal monthly installments of the amount set
forth on Schedule B attached hereto (the "Monthly Severance Payment") commencing
----------
with the first calendar month after the Termination Date.
(c) Permanent Disability. If Employee's employment by the Company is
--------------------
terminated by the Company as a result of the occurrence of Employee's Permanent
Disability pursuant to Section 3(a)(iv), the Company shall pay Employee (i) the
compensation and other benefits expressly provided under this Agreement through
the Termination Date; and (ii) the Monthly Severance Payment for the lesser of
24 months or the duration of such Permanent Disability; provided, however, that
-------- -------
the amount of all payments of the Monthly Severance Amount shall be reduced by
the sum of the amount, if any, payable to Employee at or prior to the time of
any such payment under any disability benefit plan of the Company.
(d) Termination by the Company for Cause. If Employee's employment
------------------------------------
by the Company is terminated by the Company for Cause pursuant to Section
3(b)(ii), Employee shall receive the compensation and other benefits expressly
provided under this Agreement through the Termination Date.
-7-
<PAGE>
(e) Termination by the Company without Cause. If Employee's
----------------------------------------
employment by the Company is terminated by the Company without Cause pursuant to
Section 3(b)(ii), the Company shall pay Employee (i) the compensation and other
benefits expressly provided under this Agreement through the Termination Date;
and (ii) the Severance Amount, payable in 24 equal monthly installments of the
Monthly Severance Payment commencing with the first calendar month after the
Termination Date.
(f) Termination by Employee for Good Reason. If Employee's
---------------------------------------
employment by the Company is terminated by Employee for Good Reason pursuant to
Section 3(b)(v), the Company shall pay Employee (i) the compensation and other
benefits expressly provided under this Agreement through the Termination Date;
and (ii) the Severance Amount, payable in 24 equal monthly installments of the
Monthly Severance Payment commencing with the first calendar month after the
Termination Date.
(g) Termination by Employee without Good Reason. If Employee's
-------------------------------------------
employment by the Company is terminated by Employee without Good Reason pursuant
to Section 3(b)(v), Employee shall receive the compensation and other benefits
expressly provided under this Agreement through the Termination Date.
(h) Continuation of Health Insurance Coverage. At Employee's own
-----------------------------------------
expense, Employee and Employee's dependents shall also be entitled to any
continuation of health insurance coverage rights under any applicable law.
(i) Right of Offset; Compliance with Covenants.
------------------------------------------
(i) If the Employee's employment by the Company is terminated
for any reason, Employee shall be entitled to the compensation and other
benefits expressly provided under this Agreement, subject to the Company's
right of offset for any amounts owed by Employee to the Company (or to any
of its Affiliates).
(ii) The continuing obligation of the Company to make the Monthly
Severance Payment to Employee is expressly conditioned upon the Employee
complying in all respects and continuing to comply in all respects with
Employee's
-8-
<PAGE>
obligations under Sections 9, 10 and 11 hereof following the Termination
Date.
9. Confidential Information and Ownership of Property.
--------------------------------------------------
(a) Confidential Information. Employee agrees to use all
------------------------
Confidential Information solely in connection with the performance of services
for or on behalf of the Company. Employee shall not, during the term of this
Agreement, or at any time after the termination of this Agreement, in any
manner, either directly or indirectly, (i) disseminate, disclose, use or
communicate any Confidential Information to any person or entity, regardless of
whether such Confidential Information is considered to be confidential by third
parties, or (ii) otherwise directly or indirectly misuse any Confidential
Information; provided, however, that (y) none of the provisions of this Section
-------- -------
9 shall apply to disclosures made for valid business purposes of the Company or
(z) that Employee shall not be obligated to treat as confidential any
Confidential Information that (I) was publicly known at the time of disclosure
to Employee; (II) becomes publicly known or available thereafter other than by
means in violation of this Agreement or any other duty owned to the Company or
any of its Affiliates by any person or entity; or (III) is lawfully disclosed to
Employee by a third party. Notwithstanding the foregoing, Employee shall be
permitted to disclose Confidential Information to the extent required to enforce
Employee's rights hereunder in any litigation arising under, or pertaining to,
this Agreement provided that Employee shall give prior written notice to the
Company of any such disclosure so that the Company may have an opportunity to
protect the confidentiality of such Confidential Information in such litigation.
(b) Ownership of Property. Employee agrees that all works of
---------------------
authorship developed, authored, written, created or contributed to during the
term of this Agreement for the benefit of the Company, whether solely or jointly
with others, shall be considered works-made-for-hire. Employee agrees that such
works shall be the sole and exclusive property of the Company (or its
appropriate Affiliate) and that all right, title and interest therein or
thereto, including all intellectual property rights existing or obtained in
connection therewith, shall likewise be the sole and exclusive property of the
Company (or its appropriate Affiliate). Employee agrees further that, in the
event that any
-9-
<PAGE>
work is not considered to be work-made-for-hire by operation of law, Employee
will immediately, and without further compensation, assign all of Employee's
right, title and interest therein to the Company (or its designated Affiliate),
its successors and assigns. At the request and expense of the Company, Employee
agrees to perform in a timely manner such further acts as may be necessary or
desirable to transfer, defend or perfect the Company's ownership of such work
and all rights incident thereto.
10. Covenant Not to Compete. Unless the Company's Board of Directors
-----------------------
determines that any of the following conduct is in the Company's best interests,
during the term of Employee's employment by the Company and for the Non-Compete
Period, Employee shall not:
(a) directly or indirectly for himself/herself or for any other
person or entity engage, whether as owner, investor, creditor, consultant,
partner, shareholder, director, financial backer, agent, employee or
otherwise, in the business, enterprise or employment of owning, operating,
marketing or selling a time-share, vacation plan, vacation ownership or
interval ownership project within the Territory; or
(b) directly or indirectly for himself/herself or for any other
person or entity sell, or otherwise procure purchasers for, any time-share,
vacation plan, vacation ownership or interval ownership project within the
Territory; or
(c) have any business (as owner, investor, creditor, consultant,
partner, debtor or otherwise) or be employed in any capacity by a person or
entity that is engaged, directly or indirectly, in (i) operating, or
providing sales, marketing or development services to, a time-share,
vacation plan, vacation ownership or interval ownership project within the
Territory, or (ii) in an activity formed or entered into for the primary
purpose of engaging in a time-share, vacation plan, vacation ownership or
interval ownership business within the Territory; or
(d) [INTENTIONALLY OMITTED]
-10-
<PAGE>
(e) directly or indirectly for himself/herself or for any other
person or entity become employed in any capacity by or otherwise render
services in any capacity to any national enterprise having time-share,
vacation plan, vacation ownership or interval ownership activities,
including, without limitation, Walt Disney Company, Hilton Hotels
Corporation, Hyatt Corporation, Four Seasons Hotels and Resorts, Inc.,
Marriott International, Inc., Inter-Continental Hotels and Resorts, Inc.,
Promus Hotels, Inc., Fairfield Communities, Inc., Signature Resorts, Inc.
or Vacation Break U.S.A., Inc. or any of their respective Affiliates; or
(f) directly or indirectly for himself, herself or for any other
person or entity pursue or consummate or otherwise interfere with any
Existing Project; or
(g) (i) directly or indirectly, for himself, herself, or any other
person or entity, pursue, consummate or otherwise interfere with any
Prospective Project or (ii) directly or indirectly for himself/herself or
for any other person or entity become employed in any capacity by or
otherwise render services in any capacity to any other person or entity
(other than the Company and its Affiliates) described in clause (ii) of the
definition of Prospective Project.
Notwithstanding the foregoing, Employee may purchase stock as a stockholder
in any publicly traded company, including any company engaged in the timeshare
or vacation ownership business; provided, however, that Employee may not own
-------- -------
(individually or collectively with Employee's family members, trusts for the
benefit of Employee's family members and affiliates of Employee) more than 5% of
any company (other than the Company).
In light of the substantial remuneration provided to Employee
hereunder and Employee's management position with the Company, Employee hereby
specifically acknowledges and agrees that the provisions of this Section 10
(including, without limitation, its time and geographic limits), as well as the
provisions of Sections 9 and 11, are reasonable and appropriate, and that
Employee will not claim to the contrary in any action brought by the Company to
enforce such any of such provisions.
-11-
<PAGE>
11. Covenant Against Solicitation of Employees. During the term of
------------------------------------------
Employee's employment by the Company and for the Non-Compete Period, the
Employee shall not employ employees or agents or former employees or agents of
the Company or its Affiliates or, directly or indirectly, solicit or otherwise
encourage the employment of employees or agents or former employees or agents of
the Company or its Affiliates; provided, however, that this restriction shall
-------- -------
not apply to former employees or agents who, as of the date of termination of
Employee's employment by the Company, have not worked for any of the Company or
its Affiliates during the twelve preceding months.
12. Remedies For Breach. It is understood and agreed by the parties that
-------------------
no amount of money would adequately compensate the Company for damages which the
parties acknowledge would be suffered as a result of a violation by the Employee
of the covenants contained in Sections 9, 10 and 11 above, and that, therefore,
the Company shall be entitled, upon application to a court of competent
jurisdiction, to obtain injunctive relief (without the need to post bond) to
enforce the provisions of Sections 9, 10 or 11, which injunctive relief shall be
in addition to any other rights or remedies available to the Company. The
provisions of this Section 12 shall survive the termination of this Agreement.
13. Certain Defined Terms. For purposes of this Agreement the following
---------------------
terms and phrases shall have the following meanings:
"Affiliate" means any person or entity who or which, directly or
---------
indirectly, through one or more intermediaries, controls or is controlled by, or
is under common control with, a specified person or entity (the term "control"
for these purposes meaning the ability, whether by ownership of shares or other
equity interests, by contract or otherwise, to elect a majority of the directors
of a corporation, to act as or select the managing or general partner of a
partnership, or otherwise to select, or have the power to remove and then
select, a majority of those persons exercising governing authority over an
entity).
"Cause", with respect to the termination of Employee's employment by the
-----
Company, shall mean (a) the commission by Employee of an act of fraud,
embezzlement or willful breach of a fiduciary duty to the Company (including the
unauthorized disclosure of confidential or proprietary material information of
-12-
<PAGE>
the Company); (b) the commission by Employee of a breach of any material
covenant, provision, term, condition, understanding or undertaking set forth in
this Agreement; (c) the commission by Employee (other than in Employee's
capacity as an agent of the Company) of a crime constituting a felony under
applicable law (or a plea of nolo contendere in lieu thereof); (d) the exposure
---- ----------
of the Company to any criminal liability substantially caused by the conduct of
Employee which results in a material adverse effect upon the Company's business,
operations, financial condition or results of operations or the exposure of the
Company to any civil liability caused by Employee's unlawful harassment in
employment; (e) any habitual absenteeism, gross negligence, bad faith, or
willful misconduct by Employee in the performance of Employee's duties to the
Company which such conduct results in a material detriment to the Company; or
(f) Employee's habitual abuse of alcohol or any controlled substance or
Employee's reporting to work under the influence of alcohol or a controlled
substance (other than those for which Employee is taking under a current
prescription).
"Change in Control" means the occurrence of any one of the following
-----------------
events:
(i) any (A) consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation or which
contemplates that all or substantially all of the business and/ or assets
of the Company shall be controlled by another corporation or (B) a
recapitalization (including an exchange of Company equity securities by the
holders thereof), in either case, in which any "Person" (as such term is
used in Sections 13(d) and 14(d)(2) of the Exchange Act), other than the
Controlling Shareholders, becomes the beneficial owner (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of securities of the
Company representing more than 50% of the combined voting power of the
Company's then outstanding securities ordinarily having the right to vote
in the election of directors;
(ii) any sale, lease, exchange or transfer (in one transaction
or series of related transactions) of all or substantially all of the
assets of the Company and its Affiliates;
-13-
<PAGE>
(iii) approval by the shareholders of the Company of any plan or
proposal for the liquidation or dissolution of the Company, unless such
plan or proposal is abandoned within 60 days following such approval; or
(iv) any "Person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act), other than the Controlling Shareholders,
shall become the beneficial owner of securities of the Company representing
more than 50% of the combined voting power of the Company's then
outstanding securities ordinarily having the right to vote in the election
of directors.
"Confidential Information" means all software, trade secrets, work products
------------------------
created by Employee for the Company or any of its Affiliates, know-how, ideas,
techniques, theories, discoveries, formulas, plans, charts, designs, drawings,
lists of current or prospective clients, business plans and proposals, current
or prospective business opportunities, financial records, research and
development, marketing strategies and programs (including present and
prospective OPC locations and the terms of leases of similar arrangements) and
reports and other proprietary information created or obtained by Employee for
the benefit of the Company or any of its Affiliates during the course of
employment by the Company.
"Consumer Price Index" means the United States Department of Labor's Bureau
--------------------
of Labor Statistics' Consumer Price Index, All Urban Consumers, All Items,
Orlando, Florida Area (1982-84 = 100), or the successor of such index (or if the
index is not published for the Orlando, Florida area, a comparable index
applicable to the Tampa, Florida or Jacksonville, Florida area or in the event
they are not available, any other areas as may be reasonably determined by the
Company).
"Controlling Shareholders" means Raymond L. Gellein, Jr., Jeffrey A. Adler
------------------------
and JGG Holdings Trust, in each case together with their respective Affiliates,
family members, former spouses (if applicable) and trusts for the benefit of any
of the foregoing.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
-14-
<PAGE>
"Existing Project" means a time-share, vacation plan, vacation ownership or
----------------
interval ownership resort or project which the Company or any of its Affiliates
owns, operates or has commenced to develop, acquire or otherwise undertake as of
the Termination Date.
"Good Reason" shall mean the occurrence, without the express written
-----------
consent of Employee, of any of the following events unless such events are
substantially corrected within 30 days following written notification by
Employee to the Company that Employee intends to effect a Voluntary Termination
as a result of (i) a material alteration, reduction or diminution in Employee's
duties or responsibilities or relocation from the Company's office described on
Schedule A (Item No. 4) attached hereto; (ii) a material breach by the Company
- -----------------------
of any covenant, provision, term, condition, understanding or undertaking set
forth in this Agreement; or (iii) a Voluntary Termination within 90 days after
the consummation of a Change in Control (it being understood that a Voluntary
Termination shall not be for Good Reason as a result of any personal or family
reasons not otherwise set forth in this definition).
"Non-Compete Period" shall mean the period commencing on the Termination
------------------
Date and ending on (i) the Termination Date in case of the termination of
Employee's employment by the Company pursuant to Section 3(b)(i); provided,
--------
however, such period will be extended to the first anniversary of the
- -------
Termination Date in the event that the Company notifies Employee in writing that
it will pay Employee the Monthly Severance Payment (in accordance with the
Company's payroll policies) in effect at the Termination Date for 12 months
after the Termination Date; or (ii) the second anniversary of the Termination
Date in case of (w) the termination of Employee's employment by the Company for
Cause pursuant to Section 3(b)(ii), (x) the termination of Employee's employment
by the Company without Cause pursuant to Section 3(b)(ii), (y) the termination
of Employee's employment by Employee for Good Reason pursuant to Section 3(b)(v)
and (z) the termination of Employee's employment by Employee without Good Reason
pursuant to Section 3(b)(v) (it being understood that if such termination of
employment is due to a Voluntary Termination for Good Reason in respect of a
Change in Control of which both Messrs. Raymond L. Gellein, Jr. and Jeffrey A.
Adler have not approved, by vote in their capacities as directors of the Company
or otherwise, then the Non-Compete Period shall not be applicable).
-15-
<PAGE>
"Permanent Disability" shall mean the inability of the Employee to perform
--------------------
substantially all Employee's duties and responsibilities to the Company by
reason of a physical or mental disability or infirmity for either (i) a
continuous period of six months or (ii) 180 days during any consecutive
twelve-month period. The date of such Permanent Disability shall be (y), in the
case of clause (i) above, the last day of such six-month period or, if later,
the day on which satisfactory medical evidence of such Permanent Disability is
obtained by the Company, or (z) in the case of clause (ii) above, such date as
is determined in good faith by the Company. In the event that any disagreement
or dispute arises between the Company and Employee as to whether the Employee
has incurred a Permanent Disability, then, in any such event, Employee shall
submit to a physical and/or mental examination by a competent and qualified
physician licensed under the laws of the State of Florida who shall be mutually
selected by the Company and Employee, and such physician shall make the
determination of whether Employee suffers from any disability. In the absence of
fraud or bad faith, the determination of such physician as to Employee's
condition at such time shall be final and binding upon both the Company and the
Employee. The entire cost of any such examination shall be borne solely by the
Company.
"Prospective Project" means (i) a prospective time-share, vacation plan,
-------------------
vacation ownership or interval ownership resort or project with respect to which
Employee has been made aware or has been advised prior to the Termination Date
that the Company or any of its Affiliates is considering developing or
undertaking and (ii) any person or entity, including its respective Affiliates,
with respect to which Employee has been made aware or has been advised prior to
the Termination Date that the Company or any of its Affiliates has commenced to
evaluate or negotiate with in respect of any transaction involving (y) the
acquisition by the Company or any of its Affiliates of all or a portion of such
person or entity or its consolidated assets or (z) the acquisition by such
person or entity (or its Affiliates) of all or a portion of the Company or its
consolidated assets.
"Territory" means the total geographic area located within a 150-mile
---------
radius of each Existing Project and each Prospective Project.
-16-
<PAGE>
"Voluntary Termination" shall mean the voluntary termination by Employee of
---------------------
Employee's employment by the Company by voluntary resignation or any other means
(other than (i) death or Permanent Disability or (ii) simultaneous with or
following termination for Cause or an event which if known to the Company at the
time of such voluntary termination by Employee would constitute Cause).
14. Miscellaneous.
-------------
(a) Severability. If any provision of this Agreement shall be
------------
declared invalid or unenforceable by a court of competent jurisdiction, the
invalidity or unenforceability of such provision shall not affect the other
provisions hereof, and this Agreement shall be construed and enforced in all
respects as if such invalid or unenforceable provision was omitted.
(b) Attorneys' Fees and Costs. In the event a dispute arises between
-------------------------
the parties hereto and suit is instituted, the prevailing party or parties in
such litigation shall be entitled to recover reasonable attorneys' fees and
other costs and expenses from the non-prevailing party or parties, whether
incurred at the trial level or in any appellate proceeding. For purposes hereof,
the Company shall be deemed to have prevailed in any suit involving a breach or
alleged breach by Employee of any of the covenants contained in Sections 9, 10
and 11 above if the Company prevails to any degree in such suit (even if such
covenant or covenants are not enforced to the fullest extent otherwise sought by
the Company).
(c) Governing Law and Venue. This Agreement shall be governed by and
-----------------------
construed in accordance with the laws of the State of Florida. In the event of
any legal or equitable action arising under this Agreement, the venue of such
action shall be exclusively within either the state courts of Florida located in
Orange County, Florida, or the United States District Court for the Middle
District of Florida, Orlando Division, and the parties waive any other
jurisdiction and venue.
(d) Completeness of Agreement. All understandings and agreements
-------------------------
heretofore made between the parties hereto with respect to the subject matter of
this Agreement are merged into this document which alone fully and completely
expresses their agreement, other than certain understandings with respect to
certain provisions of the Old Agreement set forth in that certain
-17-
<PAGE>
letter dated the date hereof from the Employers (as defined in the Old
Agreement) to Employee. No change or modification may be made to this Agreement
except by instrument in writing duly executed by the parties hereto with the
same formalities as this document.
(e) Notices. Any and all notices or other communications provided
-------
for herein shall be given in writing and shall be hand delivered or sent by
United States mail, postage prepaid, registered or certified, return receipt
requested, addressed as follows:
If to the Company:
Vistana, Inc.
8801 Vistana Centre Drive
Orlando, Florida 32821
Attn: President
If to Employee: at the address specified
in Schedule A attached hereto.
----------
provided, however, that any of the parties may, from time to time, give notice
- -------- -------
to the other parties of some other address to which notices or other
communications to such party shall be sent, in which event, notices or other
communications to such party shall be sent to such address. Any notice or other
communication shall be deemed to have been given and received hereunder as of
the date the same is actually hand delivered or, if mailed, when deposited in
the United States mail, postage prepaid, registered or certified, return receipt
requested.
(f) Binding Effect. This Agreement shall be binding upon and inure
--------------
the benefit of the respective parties hereto, their heirs, legal
representatives, successors and permitted assigns.
(g) Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original, and all of which shall
constitute but one and the same instrument.
(h) Captions. The captions appearing in this Agreement are inserted
--------
only as a matter of convenience and in no way define,
-18-
<PAGE>
limit, construe or describe the scope or intent of any provisions of this
Agreement or in any way affect this Agreement.
(i) Additional Understandings. Certain additional understandings
-------------------------
between the Company and Employee are set forth on Schedule C attached hereto and
----------
incorporated herein by this reference.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-19-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
date and year set forth above.
THE COMPANY:
-----------
VISTANA, INC., a Florida corporation
By: /s/ Raymond L. Gellein, Jr.
---------------------------------
Name: Raymond L. Gellein, Jr.
Title: Chairman of the Board and
Co-Chief Executive
Officer
By: /s/ Jeffrey A. Adler
---------------------------------
Name: Jeffrey A. Adler
Title: President and Co-Chief Executive
Officer
EMPLOYEE:
--------
/s/ Susan Werth
------------------------------------
Name: Susan Werth
-20-
<PAGE>
SCHEDULE A
----------
Employee Title and Primary Employment Responsibilities
------------------------------------------------------
1. Employee Name and Address: Susan Werth
-------------------------
1725 South Bayshore Drive
Miami, Florida 33133
2. Employee Title: Senior Vice President, General Counsel
--------------
and Secretary
3. Primary Employment Responsibilities:
-----------------------------------
Employee shall serve as Senior Vice President, General Counsel and
Secretary of the Company. Employee shall devote her best efforts and
substantially full business time and attention to the performance of
services to the Company in her capacity as an officer thereof and as may
reasonably be requested by the Board. The Company shall retain full
direction and control of the means and methods by which Employee performs
his services thereto. Both Employee and the Company agree that the nature
and scope of Employee's responsibility and authority will be consistent
with being the Senior Vice President, General Counsel and Secretary of a
public company, as described in more detail herein. Employee shall report
directly to Messrs. Raymond L. Gellein, Jr., Jeffrey A. Adler and Matthew
E. Avril (the "Executive Officers"), and the Executive Officers shall be
generally available to Employee on a day-to-day basis.
4. Place of Employment: The Company's office located in Miami, Florida.
-------------------
A-1
<PAGE>
SCHEDULE B
----------
Employee Compensation
---------------------
1. Employee Name: Susan Werth
-------------
2. Base Salary: $230,000
-----------
3. Annual Bonus Amount: Up to 40% of Adjusted Base Salary;
-------------------
Formula to approximate that of other
senior executive officers.
4. Severance Amount: The product of (i) 120% of Employee's Adjusted
---------------- Base Salary as of the Termination Date,
multiplied by (ii) two.
5. Monthly Severance Payment: The quotient of (i) the Severance Amount
------------------------- determined in accordance with Item No. 4
above, divided by (ii) 52.
B-1
<PAGE>
SCHEDULE C
----------
Additional Understandings
------------------------
1. Residence:
The Company acknowledges that Employee intends to continue to reside in
Miami for the indefinite future and agrees Employee may fully perform Employee's
responsibilities under this Agreement pursuant to the following arrangements.
2. Place of Employment:
Employee will work two consecutive business days each week at the Company's
executive office in Orlando as such days are determined by mutual agreement and
subject to other travel on behalf of Employers. Employee acknowledges that
performance of her responsibilities may from time to time require more than two
business days per week be spent at the Orlando office and agrees to perform
accordingly. Employer will provide Employee with an office and secretarial
assistance within Employer's executive office suite in Orlando.
3. Office Facilities in Miami:
The Company will provide the following at this expense:
- an office in Miami, which may be maintained a Miami law firm
- legal secretary to be employed in Miami office with salary and benefits
paid by the Company
- telephone, computer and fax equipment and necessary lines for Employee's
Miami office to be electronically linked to the Company's main office
- appropriate property damage/liability and other insurance for Miami
office
- reasonable additional office expenses
4. Travel Arrangements:
Employee's travel expenses to and from Miami and Orlando and lodging at Vistana
Resort will be provided by the Company in addition to other travel expenses
described in this Agreement.
5. Additional Options:
In the event Employee elects to relocate to the Company's executive offices, the
Company will grant to Employee, simultaneously with such relocation, the option
to purchase an additional 46,000 shares pursuant to the Vistana Stock Plan at an
exercise price per share equal to the market price per share on the date of
grant. Such grant of options will be made pursuant to an Option Agreement
between the Company and Employee.
6. Health Insurance:
In addition to the health insurance benefits provided by the Company pursuant to
this Agreement, the Company shall continue to reimburse Employee for the cost of
maintaining Employee's prior family health insurance in full force and effect
for the remainder of the eligibility for such coverage.
C-1
<PAGE>
EXHIBIT 10.5
------------
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT, dated as of December 27, 1996 (this "Agreement")
between VISTANA, INC., a Florida corporation (the "Company"), and CAROL A. LYTLE
("Employee") (capitalized terms used herein and not otherwise defined shall have
the meanings ascribed thereto in Section 13),
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company, through its Affiliates, is engaged in the business of
timeshare or vacation ownership, development, sales and resort management, as
well as the installation and management of voice, data and cable television
systems, and related operations;
WHEREAS, Vistana Development, Ltd., Vistana Management, Ltd., and VCH
Communication, Inc., each Affiliates of the Company, and Employee are parties to
that certain Amended and Restated Employment Agreement dated June 27, 1995 (the
"Old Agreement"); and
WHEREAS, the parties hereto desire to enter this Agreement upon the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing, of the mutual covenants
and agreements herein contained and for other good and valuable consideration,
the receipt, adequacy and sufficiency of which are hereby acknowledged, the
parties, intending legally to be bound, hereby agree as follows:
1. Employment. The Company hereby employs Employee, and Employee hereby
----------
accepts such employment, upon the terms and conditions hereinafter set forth.
2. Position, Duties and Responsibilities.
-------------------------------------
(a) Position. Employee's title and primary responsibilities are set
--------
forth on Schedule A attached hereto and incorporated herein by this reference.
----------
<PAGE>
(b) Place of Employment. During the term of this Agreement, Employee
-------------------
shall perform the services required by this Agreement at the Company's place of
business set forth on Schedule A attached hereto; provided, however, that the
---------- -------- -------
Company may at its discretion require Employee to travel extensively to other
locations on the Company's business.
(c) Other Activities. During the term of this Agreement, Employee
----------------
shall be an employee of the Company, shall not be engaged in any other
employment or business activities, shall devote Employee's full business time
and effort to the Company and shall not serve as an officer or director of any
public company, other than the Company. Notwithstanding the foregoing, Employee
shall not be prohibited from investing or trading in stocks, bonds, commodities
or other forms of passive investment, including real property (provided that
such investments do not violate Section 10 hereof).
3. Term.
----
(a) Effective Date. This Agreement shall become effective (the
--------------
"Effective Date") concurrently with the completion of the Company's issuance and
sale of its common stock, $0.01 par value, pursuant to a public offering as
evidenced by an effective Registration Statement on Form S-1 (Registration No.
333-19045). The parties agree that upon the Effective Date, this Agreement
supersedes the Old Agreement in its entirety and that the Old Agreement shall
have no further force and effect whatsoever. Until the Effective Date, the Old
Agreement shall continue in effect.
(b) Termination Date. The term of employment under this Agreement
----------------
shall terminate upon the earliest to occur of the following events (the date
specified in each such event is referred to as the "Termination Date"):
(i) the fourth anniversary of the Effective Date; provided,
--------
however, that such period of employment may be extended by written
-------
agreement of the parties (it being understood that if Employee remains
employed by the Company after the Termination Date described in this clause
(i), such employment shall be "at-will" unless different terms are
established in writing);
-2-
<PAGE>
(ii) the date upon which the Company terminates Employee's
employment by the Company for Cause or without Cause (it being understood
that the date of termination shall be the date upon which the Company
provides Employee written notice of either such event);
(iii) the date of Employee's death;
(iv) the date upon which the Company terminates Employee's
employment by the Company as a result of Employee's Permanent Disability
(it being understood that the date of termination shall be the date upon
which the Company provides Employee written notice of such event); or
(v) the date upon which Employee effects a Voluntary
Termination (it being understood that the date of termination shall be the
date upon which the Employee provides the Company written notice of such
event).
(c) Performance of Duties During Notice Period. In the event that
------------------------------------------
either (i) the Company terminates Employee's employment by the Company pursuant
to Section 3(b)(ii) hereof or (ii) Employee effects a Voluntary Termination
pursuant to Section 3(b)(v), Employee, if requested by the Company, shall
continue to render services hereunder to the Company for the 30-day notice
period (or, if shorter, until the Termination Date), and shall, in such event,
be paid the compensation and benefits hereunder for the remainder of such
period.
(d) Employment-At-Will/Employee Acknowledgement. Notwithstanding the
-------------------------------------------
term of this Agreement having a duration of four years and Sections 4(a) and (b)
hereof relating to the annual salary and annual bonus to be paid to Employee
during Employee's employment by the Company, nothing in this Agreement should be
construed as to confer any right of Employee to be employed by the Company for a
fixed or definite term. Subject to Section 8 hereof, Employee agrees that the
Company may dismiss Employee under Section 3(b)(ii) without regard to (i) any
general or specific policies (whether written or oral) of the Company relating
to the employment or termination of employment of the Company employees; or (ii)
any statements made to Employee, whether made orally or contained in any
document or instrument, pertaining to Employee's relationship with the Company.
Notwithstanding anything to the contrary
-3-
<PAGE>
contained herein, Employee's employment by the Company is not for any specified
term, is at-will and may be terminated by the Company pursuant to Section
3(b)(ii) at any time by delivery of the notice referred to therein, for any
reason, for Cause or without cause, without any liability whatsoever, except
with respect to the payments provided for in Section 8.
(e) Termination Obligations.
-----------------------
(i) Employee hereby acknowledges and agrees that all personal
property and equipment, including, without limitation, all books, manuals,
records, reports, notes, contracts, lists, blueprints, and other documents,
or materials, or copies thereof (including computer files), and all other
proprietary information relating to the business of the Company, furnished
to or prepared by Employee in the course of or incident to Employee's
employment, belongs to the Company and shall be promptly returned to the
Company within 10 days after the Termination Date. Following the
Termination Date, Employee will not retain any written or other tangible
material containing any proprietary information of the Company.
(ii) Effective as of the Termination Date, Employee shall be deemed
to have resigned from all offices and directorships then held with the
Company or any Affiliate of the Company.
(iii) The covenants and agreements of Employee contained in Sections
3(e), 9, 10, 11, 12 and 14(b) and (c) shall survive termination of
Employee's employment by the Company and the termination of this Agreement.
(f) Release. In exchange for the Company entering into the
-------
Agreement, Employee agrees that, at the time of Employee's resignation or
termination from the Company, Employee will execute a release acceptable to the
Company of all liability of the Company and its officers, shareholders,
employees, directors and Affiliates to Employee in connection with or arising
out of Employee's employment by the Company, except with respect to (i) any
then-vested rights under the Company's Stock Plan, (ii) any amounts which may be
payable to Employee pursuant to Section 8 and (iii) any claims Employee may have
pursuant to the Company's
-4-
<PAGE>
disability and workmen's compensation insurance policies (it being understood
that the foregoing is not intended to provide Employee duplicative rights to
those provided for in Section 8(c)(ii)).
4. Compensation.
------------
(a) Annual Salary. The Company shall pay to Employee an annual
-------------
salary equal to the base salary set forth on Schedule B attached hereto and
----------
incorporated herein by this reference (the "Base Salary"). The Base Salary
shall be in effect, on a pro-rated basis, from and after the Effective Date
through December 31, 1997. For each calendar year during the term of this
Agreement commencing with the 1998 calendar year, the Company shall pay Employee
an annual salary (the "Adjusted Base Salary") determined by the Company's Board
of Directors (or the Compensation Committee thereof); provided, however, that
-------- -------
the Adjusted Base Salary shall be no less than the product of (i) the Base
Salary, multiplied by (ii) a fraction, the numerator of which shall be the last
Consumer Price Index figure published prior to the December 31st immediately
preceding the beginning of such calendar year (the "Base Salary Adjustment
Date") and the denominator of which shall be the most recent Consumer Price
Index figure published prior to December 31, 1996; provided, further, however,
-------- ------- -------
in no event shall the Adjusted Base Salary, as so adjusted on such Base Salary
Adjustment Date, be less than the Annual Salary for the preceding calendar year.
The Base Salary and the Adjusted Base Salary shall be paid in equal
installments, subject to all applicable withholding and deductions, in
accordance with the usual payroll practices of the Company, but not less
frequently than monthly.
(b) Annual Bonus Amount. Employee shall be entitled to be paid an
-------------------
annual bonus amount (the "Annual Bonus Amount") in respect of each calendar year
beginning with the 1997 calendar year as further specified and described on
Schedule B attached hereto. The Annual Bonus Amount shall be deemed earned as
- ----------
of December 31 of the applicable calendar year and shall be due and payable,
subject to all applicable withholding and deductions, within 31 days following
the end of the calendar year to which such Annual Bonus Amount relates based
upon the Company's good faith preliminary estimate thereof for such calendar
year; provided, that upon certification by the Company's auditors of the
--------
Company's consolidated financial statements for such calendar year, the
definitive Annual Bonus Amount for such calendar year shall be
-5-
<PAGE>
determined by the Company and the Company shall promptly pay to Employee (in the
case the preliminary estimate resulted in an underpayment), or the Employee
shall promptly repay to the Company (in the case the preliminary estimate
resulted in an overpayment), the amount necessary to provide Employee with full
payment of the definitive Annual Bonus Amount as finally determined in
accordance with such audited consolidated financial statements for such calendar
year.
5. Fringe Benefits. During the term of this Agreement, Employee shall be
---------------
entitled to all such employment benefits as may, from time to time, be made
generally available to similar level management employees of the Company
including, without limitation, pension or other retirement benefits, health,
hospitalization and similar insurance and group or individual life insurance,
and Employee's family shall be entitled to participate in the Company's medical
and health insurance plans; provided, however, that such benefits and
-------- -------
arrangements are made available at the discretion of the Company and nothing in
this Agreement establishes any right of Employee to the availability or
continuance of any such plan or arrangement.
6. Business Expenses. Except as otherwise provided herein, the Company
-----------------
shall pay, either directly or by reimbursement to Employee, such reasonable and
necessary business expenses incurred by Employee, including travel and
entertainment expenses, in the course of employment by the Company as are
consistent with the Company's policies in existence from time to time. Such
expenses shall include, but shall not be limited to, occupational license fees,
membership dues in professional organizations, educational expenses, and
subscriptions to professional journals.
7. Vacation and Sick Leave. Employee shall be entitled to four weeks'
-----------------------
paid vacation time, in the aggregate, per calendar year, and such paid sick
leave as shall be authorized by the Company pursuant to the Company's written
policies, as determined from time to time. Additionally, Employee may be
entitled to additional paid vacation time to the extent that the operations and
needs of the business permit as determined by the Company. All vacations shall
be taken by Employee at such time or times as may be reasonably approved by the
Company.
8. Compensation Upon Termination of Employment.
-------------------------------------------
-6-
<PAGE>
(a) Expiration of Term. If Employee's employment by the Company is
------------------
terminated as a result of the occurrence of the fourth anniversary of the
Effective Date, Employee shall receive the compensation and other benefits
expressly provided under this Agreement through the Termination Date.
(b) Death. If Employee's employment by the Company is terminated as
-----
a result of the occurrence of Employee's death pursuant to Section 3(a)(iii),
the Company shall pay Employee's estate (i) the compensation and other benefits
expressly provided under this Agreement through the Termination Date; and (ii)
an aggregate of the amount set forth on Schedule B attached hereto (the
----------
"Severance Amount"), payable in 24 equal monthly installments of the amount set
forth on Schedule B attached hereto (the "Monthly Severance Payment") commencing
----------
with the first calendar month after the Termination Date.
(c) Permanent Disability. If Employee's employment by the Company is
--------------------
terminated by the Company as a result of the occurrence of Employee's Permanent
Disability pursuant to Section 3(a)(iv), the Company shall pay Employee (i) the
compensation and other benefits expressly provided under this Agreement through
the Termination Date; and (ii) the Monthly Severance Payment for the lesser of
24 months or the duration of such Permanent Disability; provided, however, that
-------- -------
the amount of all payments of the Monthly Severance Amount shall be reduced by
the sum of the amount, if any, payable to Employee at or prior to the time of
any such payment under any disability benefit plan of the Company.
(d) Termination by the Company for Cause. If Employee's employment
------------------------------------
by the Company is terminated by the Company for Cause pursuant to Section
3(b)(ii), Employee shall receive the compensation and other benefits expressly
provided under this Agreement through the Termination Date.
(e) Termination by the Company without Cause. If Employee's
----------------------------------------
employment by the Company is terminated by the Company without Cause pursuant to
Section 3(b)(ii), the Company shall pay Employee (i) the compensation and other
benefits expressly provided under this Agreement through the Termination Date;
and (ii) the Severance Amount, payable in 24 equal monthly installments of the
-7-
<PAGE>
Monthly Severance Payment commencing with the first calendar month after the
Termination Date.
(f) Termination by Employee for Good Reason. If Employee's
---------------------------------------
employment by the Company is terminated by Employee for Good Reason pursuant to
Section 3(b)(v), the Company shall pay Employee (i) the compensation and other
benefits expressly provided under this Agreement through the Termination Date;
and (ii) the Severance Amount, payable in 24 equal monthly installments of the
Monthly Severance Payment commencing with the first calendar month after the
Termination Date.
(g) Termination by Employee without Good Reason. If Employee's
-------------------------------------------
employment by the Company is terminated by Employee without Good Reason pursuant
to Section 3(b)(v), Employee shall receive the compensation and other benefits
expressly provided under this Agreement through the Termination Date.
(h) Continuation of Health Insurance Coverage. At Employee's own
-----------------------------------------
expense, Employee and Employee's dependents shall also be entitled to any
continuation of health insurance coverage rights under any applicable law.
(i) Right of Offset; Compliance with Covenants.
------------------------------------------
(i) If the Employee's employment by the Company is terminated
for any reason, Employee shall be entitled to the compensation and other
benefits expressly provided under this Agreement, subject to the Company's
right of offset for any amounts owed by Employee to the Company (or to any
of its Affiliates).
(ii) The continuing obligation of the Company to make the
Monthly Severance Payment to Employee is expressly conditioned upon the
Employee complying in all respects and continuing to comply in all respects
with Employee's obligations under Sections 9, 10 and 11 hereof following
the Termination Date.
9. Confidential Information and Ownership of Property.
--------------------------------------------------
(a) Confidential Information. Employee agrees to use all
------------------------
Confidential Information solely in connection with the
-8-
<PAGE>
performance of services for or on behalf of the Company. Employee shall not,
during the term of this Agreement, or at any time after the termination of this
Agreement, in any manner, either directly or indirectly, (i) disseminate,
disclose, use or communicate any Confidential Information to any person or
entity, regardless of whether such Confidential Information is considered to be
confidential by third parties, or (ii) otherwise directly or indirectly misuse
any Confidential Information; provided, however, that (y) none of the provisions
-------- -------
of this Section 9 shall apply to disclosures made for valid business purposes of
the Company or (z) that Employee shall not be obligated to treat as confidential
any Confidential Information that (I) was publicly known at the time of
disclosure to Employee; (II) becomes publicly known or available thereafter
other than by means in violation of this Agreement or any other duty owned to
the Company or any of its Affiliates by any person or entity; or (III) is
lawfully disclosed to Employee by a third party. Notwithstanding the foregoing,
Employee shall be permitted to disclose Confidential Information to the extent
required to enforce Employee's rights hereunder in any litigation arising under,
or pertaining to, this Agreement provided that Employee shall give prior written
notice to the Company of any such disclosure so that the Company may have an
opportunity to protect the confidentiality of such Confidential Information in
such litigation.
(b) Ownership of Property. Employee agrees that all works of
---------------------
authorship developed, authored, written, created or contributed to during the
term of this Agreement for the benefit of the Company, whether solely or jointly
with others, shall be considered works-made-for-hire. Employee agrees that such
works shall be the sole and exclusive property of the Company (or its
appropriate Affiliate) and that all right, title and interest therein or
thereto, including all intellectual property rights existing or obtained in
connection therewith, shall likewise be the sole and exclusive property of the
Company (or its appropriate Affiliate). Employee agrees further that, in the
event that any work is not considered to be work-made-for-hire by operation of
law, Employee will immediately, and without further compensation, assign all of
Employee's right, title and interest therein to the Company (or its designated
Affiliate), its successors and assigns. At the request and expense of the
Company, Employee agrees to perform in a timely manner such further acts as may
be necessary or
-9-
<PAGE>
desirable to transfer, defend or perfect the Company's ownership of such work
and all rights incident thereto.
10. Covenant Not to Compete. Unless the Company's Board of Directors
-----------------------
determines that any of the following conduct is in the Company's best interests,
during the term of Employee's employment by the Company and for the Non-Compete
Period, Employee shall not:
(a) directly or indirectly for himself/herself or for any other
person or entity engage, whether as owner, investor, creditor, consultant,
partner, shareholder, director, financial backer, agent, employee or
otherwise, in the business, enterprise or employment of owning, operating,
marketing or selling a time-share, vacation plan, vacation ownership or
interval ownership project within the Territory; or
(b) directly or indirectly for himself/herself or for any other
person or entity sell, or otherwise procure purchasers for, any time-share,
vacation plan, vacation ownership or interval ownership project within the
Territory; or
(c) have any business (as owner, investor, creditor, consultant,
partner, debtor or otherwise) or be employed in any capacity by a person or
entity that is engaged, directly or indirectly, in (i) operating, or
providing sales, marketing or development services to, a time-share,
vacation plan, vacation ownership or interval ownership project within the
Territory, or (ii) in an activity formed or entered into for the primary
purpose of engaging in a time-share, vacation plan, vacation ownership or
interval ownership business within the Territory; or
(d) [INTENTIONALLY OMITTED]
(e) directly or indirectly for himself/herself or for any other
person or entity become employed in any capacity by or otherwise render
services in any capacity to any national enterprise having time-share,
vacation plan, vacation ownership or interval ownership activities,
including, without limitation, Walt Disney Company, Hilton Hotels
Corporation, Hyatt Corporation, Four Seasons Hotels and Resorts, Inc.,
Marriott International, Inc., Inter-Continental Hotels and
-10-
<PAGE>
Resorts, Inc., Promus Hotels, Inc., Fairfield Communities, Inc., Signature
Resorts, Inc. or Vacation Break U.S.A., Inc. or any of their respective
Affiliates; or
(f) directly or indirectly for himself, herself or for any other
person or entity pursue or consummate or otherwise interfere with any
Existing Project; or
(g) (i) directly or indirectly, for himself, herself, or any other
person or entity, pursue, consummate or otherwise interfere with any
Prospective Project or (ii) directly or indirectly for himself/herself or
for any other person or entity become employed in any capacity by or
otherwise render services in any capacity to any other person or entity
(other than the Company and its Affiliates) described in clause (ii) of the
definition of Prospective Project.
Notwithstanding the foregoing, Employee may purchase stock as a stockholder
in any publicly traded company, including any company engaged in the timeshare
or vacation ownership business; provided, however, that Employee may not own
-------- -------
(individually or collectively with Employee's family members, trusts for the
benefit of Employee's family members and affiliates of Employee) more than 5% of
any company (other than the Company).
In light of the substantial remuneration provided to Employee
hereunder and Employee's management position with the Company, Employee hereby
specifically acknowledges and agrees that the provisions of this Section 10
(including, without limitation, its time and geographic limits), as well as the
provisions of Sections 9 and 11, are reasonable and appropriate, and that
Employee will not claim to the contrary in any action brought by the Company to
enforce such any of such provisions.
11. Covenant Against Solicitation of Employees. During the term of
------------------------------------------
Employee's employment by the Company and for the Non-Compete Period, the
Employee shall not employ employees or agents or former employees or agents of
the Company or its Affiliates or, directly or indirectly, solicit or otherwise
encourage the employment of employees or agents or former employees or agents of
the Company or its Affiliates; provided, however, that this restriction shall
-------- -------
not apply to former employees or agents who, as of the date of termination of
Employee's employment by the Company,
-11-
<PAGE>
have not worked for any of the Company or its Affiliates during the twelve
preceding months.
12. Remedies For Breach. It is understood and agreed by the parties that
-------------------
no amount of money would adequately compensate the Company for damages which the
parties acknowledge would be suffered as a result of a violation by the Employee
of the covenants contained in Sections 9, 10 and 11 above, and that, therefore,
the Company shall be entitled, upon application to a court of competent
jurisdiction, to obtain injunctive relief (without the need to post bond) to
enforce the provisions of Sections 9, 10 or 11, which injunctive relief shall be
in addition to any other rights or remedies available to the Company. The
provisions of this Section 12 shall survive the termination of this Agreement.
13. Certain Defined Terms. For purposes of this Agreement the following
---------------------
terms and phrases shall have the following meanings:
"Affiliate" means any person or entity who or which, directly or
---------
indirectly, through one or more intermediaries, controls or is controlled by, or
is under common control with, a specified person or entity (the term "control"
for these purposes meaning the ability, whether by ownership of shares or other
equity interests, by contract or otherwise, to elect a majority of the directors
of a corporation, to act as or select the managing or general partner of a
partnership, or otherwise to select, or have the power to remove and then
select, a majority of those persons exercising governing authority over an
entity).
"Cause", with respect to the termination of Employee's employment by the
-----
Company, shall mean (a) the commission by Employee of an act of fraud,
embezzlement or willful breach of a fiduciary duty to the Company (including the
unauthorized disclosure of confidential or proprietary material information of
the Company); (b) the commission by Employee of a breach of any material
covenant, provision, term, condition, understanding or undertaking set forth in
this Agreement; (c) the commission by Employee (other than in Employee's
capacity as an agent of the Company) of a crime constituting a felony under
applicable law (or a plea of nolo contendere in lieu thereof); (d) the exposure
---- ----------
of the Company to any criminal liability substantially caused by the conduct of
Employee which results in a material adverse effect upon the Company's business,
operations, financial condition or results
-12-
<PAGE>
of operations or the exposure of the Company to any civil liability caused by
Employee's unlawful harassment in employment; (e) any habitual absenteeism,
gross negligence, bad faith, or willful misconduct by Employee in the
performance of Employee's duties to the Company which such conduct results in a
material detriment to the Company; or (f) Employee's habitual abuse of alcohol
or any controlled substance or Employee's reporting to work under the influence
of alcohol or a controlled substance (other than those for which Employee is
taking under a current prescription).
"Change in Control" means the occurrence of any one of the following
-----------------
events:
(i) any (A) consolidation or merger of the Company in which
the Company is not the continuing or surviving corporation or which
contemplates that all or substantially all of the business and/ or assets
of the Company shall be controlled by another corporation or (B) a
recapitalization (including an exchange of Company equity securities by the
holders thereof), in either case, in which any "Person" (as such term is
used in Sections 13(d) and 14(d)(2) of the Exchange Act), other than the
Controlling Shareholders, becomes the beneficial owner (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of securities of the
Company representing more than 50% of the combined voting power of the
Company's then outstanding securities ordinarily having the right to vote
in the election of directors;
(ii) any sale, lease, exchange or transfer (in one transaction
or series of related transactions) of all or substantially all of the
assets of the Company and its Affiliates;
(iii) approval by the shareholders of the Company of any plan or
proposal for the liquidation or dissolution of the Company, unless such
plan or proposal is abandoned within 60 days following such approval; or
(iv) any "Person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act), other than the Controlling Shareholders,
shall become the beneficial owner of securities of the Company representing
more than 50%
-13-
<PAGE>
of the combined voting power of the Company's then outstanding securities
ordinarily having the right to vote in the election of directors.
"Confidential Information" means all software, trade secrets, work products
------------------------
created by Employee for the Company or any of its Affiliates, know-how, ideas,
techniques, theories, discoveries, formulas, plans, charts, designs, drawings,
lists of current or prospective clients, business plans and proposals, current
or prospective business opportunities, financial records, research and
development, marketing strategies and programs (including present and
prospective OPC locations and the terms of leases of similar arrangements) and
reports and other proprietary information created or obtained by Employee for
the benefit of the Company or any of its Affiliates during the course of
employment by the Company.
"Consumer Price Index" means the United States Department of Labor's Bureau
--------------------
of Labor Statistics' Consumer Price Index, All Urban Consumers, All Items,
Orlando, Florida Area (1982-84 = 100), or the successor of such index (or if the
index is not published for the Orlando, Florida area, a comparable index
applicable to the Tampa, Florida or Jacksonville, Florida area or in the event
they are not available, any other areas as may be reasonably determined by the
Company).
"Controlling Shareholders" means Raymond L. Gellein, Jr., Jeffrey A. Adler
------------------------
and JGG Holdings Trust, in each case together with their respective Affiliates,
family members, former spouses (if applicable) and trusts for the benefit of any
of the foregoing.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Existing Project" means a time-share, vacation plan, vacation ownership or
----------------
interval ownership resort or project which the Company or any of its Affiliates
owns, operates or has commenced to develop, acquire or otherwise undertake as of
the Termination Date.
"Good Reason" shall mean the occurrence, without the express written
-----------
consent of Employee, of any of the following events unless such events are
substantially corrected within 30 days following written notification by
Employee to the Company that Employee intends to effect a Voluntary Termination
as a result of (i) a
-14-
<PAGE>
material alteration, reduction or diminution in Employee's duties or
responsibilities or relocation from the Company's office described on Schedule A
----------
(Item No. 4) attached hereto; (ii) a material breach by the Company of any
- ------------
covenant, provision, term, condition, understanding or undertaking set forth in
this Agreement; or (iii) a Voluntary Termination within 90 days after the
consummation of a Change in Control (it being understood that a Voluntary
Termination shall not be for Good Reason as a result of any personal or family
reasons not otherwise set forth in this definition).
"Non-Compete Period" shall mean the period commencing on the Termination
------------------
Date and ending on (i) the Termination Date in case of the termination of
Employee's employment by the Company pursuant to Section 3(b)(i); provided,
--------
however, such period will be extended to the first anniversary of the
- -------
Termination Date in the event that the Company notifies Employee in writing that
it will pay Employee the Monthly Severance Payment (in accordance with the
Company's payroll policies) in effect at the Termination Date for 12 months
after the Termination Date; or (ii) the second anniversary of the Termination
Date in case of (w) the termination of Employee's employment by the Company for
Cause pursuant to Section 3(b)(ii), (x) the termination of Employee's employment
by the Company without Cause pursuant to Section 3(b)(ii), (y) the termination
of Employee's employment by Employee for Good Reason pursuant to Section 3(b)(v)
and (z) the termination of Employee's employment by Employee without Good Reason
pursuant to Section 3(b)(v) (it being understood that if such termination of
employment is due to a Voluntary Termination for Good Reason in respect of a
Change in Control of which both Messrs. Raymond L. Gellein, Jr. and Jeffrey A.
Adler have not approved, by vote in their capacities as directors of the Company
or otherwise, then the Non-Compete Period shall not be applicable).
"Permanent Disability" shall mean the inability of the Employee to perform
--------------------
substantially all Employee's duties and responsibilities to the Company by
reason of a physical or mental disability or infirmity for either (i) a
continuous period of six months or (ii) 180 days during any consecutive twelve-
month period. The date of such Permanent Disability shall be (y), in the case of
clause (i) above, the last day of such six-month period or, if later, the day on
which satisfactory medical evidence of such Permanent Disability is obtained by
the Company, or (z) in the case of clause (ii) above, such date as is determined
in good faith by
-15-
<PAGE>
the Company. In the event that any disagreement or dispute arises between the
Company and Employee as to whether the Employee has incurred a Permanent
Disability, then, in any such event, Employee shall submit to a physical and/or
mental examination by a competent and qualified physician licensed under the
laws of the State of Florida who shall be mutually selected by the Company and
Employee, and such physician shall make the determination of whether Employee
suffers from any disability. In the absence of fraud or bad faith, the
determination of such physician as to Employee's condition at such time shall be
final and binding upon both the Company and the Employee. The entire cost of any
such examination shall be borne solely by the Company.
"Prospective Project" means (i) a prospective time-share, vacation plan,
-------------------
vacation ownership or interval ownership resort or project with respect to which
Employee has been made aware or has been advised prior to the Termination Date
that the Company or any of its Affiliates is considering developing or
undertaking and (ii) any person or entity, including its respective Affiliates,
with respect to which Employee has been made aware or has been advised prior to
the Termination Date that the Company or any of its Affiliates has commenced to
evaluate or negotiate with in respect of any transaction involving (y) the
acquisition by the Company or any of its Affiliates of all or a portion of such
person or entity or its consolidated assets or (z) the acquisition by such
person or entity (or its Affiliates) of all or a portion of the Company or its
consolidated assets.
"Territory" means the total geographic area located within a 150-mile
---------
radius of each Existing Project and each Prospective Project.
"Voluntary Termination" shall mean the voluntary termination by Employee of
---------------------
Employee's employment by the Company by voluntary resignation or any other means
(other than (i) death or Permanent Disability or (ii) simultaneous with or
following termination for Cause or an event which if known to the Company at the
time of such voluntary termination by Employee would constitute Cause).
14. Miscellaneous.
-------------
(a) Severability. If any provision of this Agreement shall be
------------
declared invalid or unenforceable by a court of competent
-16-
<PAGE>
jurisdiction, the invalidity or unenforceability of such provision shall not
affect the other provisions hereof, and this Agreement shall be construed and
enforced in all respects as if such invalid or unenforceable provision was
omitted.
(b) Attorneys' Fees and Costs. In the event a dispute arises between
-------------------------
the parties hereto and suit is instituted, the prevailing party or parties in
such litigation shall be entitled to recover reasonable attorneys' fees and
other costs and expenses from the non-prevailing party or parties, whether
incurred at the trial level or in any appellate proceeding. For purposes
hereof, the Company shall be deemed to have prevailed in any suit involving a
breach or alleged breach by Employee of any of the covenants contained in
Sections 9, 10 and 11 above if the Company prevails to any degree in such suit
(even if such covenant or covenants are not enforced to the fullest extent
otherwise sought by the Company).
(c) Governing Law and Venue. This Agreement shall be governed by and
-----------------------
construed in accordance with the laws of the State of Florida. In the event of
any legal or equitable action arising under this Agreement, the venue of such
action shall be exclusively within either the state courts of Florida located in
Orange County, Florida, or the United States District Court for the Middle
District of Florida, Orlando Division, and the parties waive any other
jurisdiction and venue.
(d) Completeness of Agreement. All understandings and agreements
-------------------------
heretofore made between the parties hereto with respect to the subject matter of
this Agreement are merged into this document which alone fully and completely
expresses their agreement, other than certain understandings with respect to
certain provisions of the Old Agreement set forth in that certain letter dated
the date hereof from the Employers (as defined in the Old Agreement) to
Employee. No change or modification may be made to this Agreement except by
instrument in writing duly executed by the parties hereto with the same
formalities as this document.
(e) Notices. Any and all notices or other communications provided
-------
for herein shall be given in writing and shall be hand delivered or sent by
United States mail, postage prepaid, registered or certified, return receipt
requested, addressed as follows:
-17-
<PAGE>
If to the Company:
Vistana, Inc.
8801 Vistana Centre Drive
Orlando, Florida 32821
Attn: President
If to Employee: at the address specified
in Schedule A attached hereto.
----------
provided, however, that any of the parties may, from time to time, give notice
- -------- -------
to the other parties of some other address to which notices or other
communications to such party shall be sent, in which event, notices or other
communications to such party shall be sent to such address. Any notice or other
communication shall be deemed to have been given and received hereunder as of
the date the same is actually hand delivered or, if mailed, when deposited in
the United States mail, postage prepaid, registered or certified, return receipt
requested.
(f) Binding Effect. This Agreement shall be binding upon and inure
--------------
to the benefit of the respective parties hereto, their heirs, legal
representatives, successors and permitted assigns.
(g) Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original, and all of which shall
constitute but one and the same instrument.
(h) Captions. The captions appearing in this Agreement are inserted
--------
only as a matter of convenience and in no way define, limit, construe or
describe the scope or intent of any provisions of this Agreement or in any way
affect this Agreement.
(i) Additional Understandings. Certain additional understandings
-------------------------
between the Company and Employee are set forth on Schedule C attached hereto and
----------
incorporated herein by this reference.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-18-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
date and year set forth above.
THE COMPANY:
-----------
VISTANA, INC., a Florida corporation
By: /s/ Raymond L. Gellein, Jr.
---------------------------------
Name: Raymond L. Gellein, Jr.
Title: Chairman of the Board and
Co-Chief Executive Officer
By: /s/ Jeffrey A. Adler
---------------------------------
Name: Jeffrey A. Adler
Title: President and Co-Chief
Executive Officer
EMPLOYEE:
--------
/s/ Carol A. Lytle
------------------------------------
Name: Carol A. Lytle
-19-
<PAGE>
SCHEDULE A
----------
Employee Title and Primary Employment Responsibilities
------------------------------------------------------
1. Employee Name and Address: Carol A. Lytle
-------------------------
9017 Crichton Wood Drive
Orlando, Florida 32819
2. Employee Title: Vice President
--------------
3. Primary Employment Responsibilities:
-----------------------------------
Employee shall serve as Vice President of the Company. Employee
shall devote her best efforts and substantially full business time and
attention to the performance of services to the Company in her
capacity as an officer thereof and as may reasonably be requested by
the Board. The Company shall retain full direction and control of the
means and methods by which Employee performs his services thereto.
Both Employee and the Company agree that the nature and scope of
Employee's responsibility and authority will be consistent with being
a Vice President of a public company, as described in more detail
herein. Employee shall report directly to Messrs. Raymond L. Gellein,
Jr., Jeffrey A. Adler and Matthew E. Avril (the "Executive Officers"),
and the Executive Officers shall be generally available to Employee on
a day-to-day basis.
4. Place of Employment: The Company's office located in Orlando, Florida.
-------------------
A-1
<PAGE>
SCHEDULE B
----------
Employee Compensation
---------------------
1. Employee Name: Carol A. Lytle
-------------
2. Base Salary: $250,000
-----------
3. Annual Bonus Amount: To be determined based upon the Company's
------------------- achievement of certain performance goals to be
agreed.
4. Severance Amount: The product of (i) 120% of Employee's Adjusted Base
---------------- Salary as of the Termination Date, multiplied by (ii)
two.
5. Monthly Severance Payment: The quotient of (i) the Severance Amount
------------------------- determined in accordance with Item No. 4 above,
divided by (ii) 52.
B-1
<PAGE>
SCHEDULE C
----------
Additional Understandings
-------------------------
None
C-1
<PAGE>
EXHIBIT 10.6
------------
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT, dated as of February 10, 1997 (this "Agreement")
between VISTANA, INC., a Florida corporation (the "Company"), and JOHN M. SABIN
("Employee") (capitalized terms used herein and not otherwise defined shall have
the meanings ascribed thereto in Section 13),
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company, through its Affiliates, is engaged in the business of
timeshare or vacation ownership, development, sales and resort management, as
well as the installation and management of voice, data and cable television
systems, and related operations; and
WHEREAS, the parties hereto desire to enter this Agreement upon the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing, of the mutual covenants
and agreements herein contained and for other good and valuable consideration,
the receipt, adequacy and sufficiency of which are hereby acknowledged, the
parties, intending legally to be bound, hereby agree as follows:
1. Employment. The Company hereby employs Employee, and Employee
----------
hereby accepts such employment, upon the terms and conditions hereinafter set
forth.
2. Position, Duties and Responsibilities.
-------------------------------------
(a) Position. Employee's title and primary responsibilities are
--------
set forth on Schedule A attached hereto and incorporated herein by this
----------
reference.
(b) Place of Employment. During the term of this Agreement, Employee
-------------------
shall perform the services required by this Agreement at the Company's place of
business set forth on Schedule A attached hereto; provided, however, that the
---------- -------- -------
Company may
<PAGE>
at its discretion require Employee to travel extensively to other locations on
the Company's business.
(c) Other Activities. During the term of this Agreement, Employee
----------------
shall be an employee of the Company, shall not be engaged in any other
employment or business activities, shall devote Employee's full business time
and effort to the Company and, except for being a member of the board of
directors of each of Oceanix Biosciences Corporation, Alta Software, Inc. and
Competitive Technologies Corporation, shall not serve as an officer or director
of any public company, other than the Company. Notwithstanding the foregoing,
Employee shall not be prohibited from investing or trading in stocks, bonds,
commodities or other forms of passive investment, including real property
(provided that such investments do not violate Section 10 hereof).
3. Term.
----
(a) Effective Date. This Agreement shall become effective as of the
--------------
date hereof (the "Effective Date").
(b) Termination Date. The term of employment under this Agreement
----------------
shall terminate upon the earliest to occur of the following events (the date
specified in each such event is referred to as the "Termination Date"):
(i) the fourth anniversary of the Effective Date;
provided, however, that such period of employment may be extended by
-------- -------
written agreement of the parties (it being understood that if Employee
remains employed by the Company after the Termination Date described in
this clause (i), such employment shall be "at-will" unless different terms
are established in writing);
(ii) the date upon which the Company terminates Employee's
employment by the Company for Cause or without Cause (it being understood
that the date of termination shall be the date upon which the Company
provides Employee written notice of either such event);
(iii) the date of Employee's death;
-2-
<PAGE>
(iv) the date upon which the Company terminates Employee's
employment by the Company as a result of Employee's Permanent Disability
(it being understood that the date of termination shall be the date upon
which the Company provides Employee written notice of such event); or
(v) the date upon which Employee effects a Voluntary
Termination (it being understood that the date of termination shall be the
date upon which the Employee provides the Company written notice of such
event).
(c) Performance of Duties During Notice Period. In the event that
------------------------------------------
either (i) the Company terminates Employee's employment by the Company pursuant
to Section 3(b)(ii) hereof or (ii) Employee effects a Voluntary Termination
pursuant to Section 3(b)(v), Employee, if requested by the Company, shall
continue to render services hereunder to the Company for the 30-day notice
period (or, if shorter, until the Termination Date), and shall, in such event,
be paid the compensation and benefits hereunder for the remainder of such
period.
(d) Employment-At-Will/Employee Acknowledgement. Notwithstanding the
-------------------------------------------
term of this Agreement having a duration of four years and Sections 4(a) and (b)
hereof relating to the annual salary and annual bonus to be paid to Employee
during Employee's employment by the Company, nothing in this Agreement should be
construed as to confer any right of Employee to be employed by the Company for a
fixed or definite term. Subject to Section 8 hereof, Employee agrees that the
Company may dismiss Employee under Section 3(b)(ii) without regard to (i) any
general or specific policies (whether written or oral) of the Company relating
to the employment or termination of employment of the Company employees; or (ii)
any statements made to Employee, whether made orally or contained in any
document or instrument, pertaining to Employee's relationship with the Company.
Notwithstanding anything to the contrary contained herein, Employee's employment
by the Company is not for any specified term, is at-will and may be terminated
by the Company pursuant to Section 3(b)(ii) at any time by delivery of the
notice referred to therein, for any reason, for Cause or without cause, without
any liability whatsoever, except with respect to the payments provided for in
Section 8.
(e) Termination Obligations.
-----------------------
-3-
<PAGE>
(i) Employee hereby acknowledges and agrees that all personal
property and equipment, including, without limitation, all books, manuals,
records, reports, notes, contracts, lists, blueprints, and other documents,
or materials, or copies thereof (including computer files), and all other
proprietary information relating to the business of the Company, furnished
to or prepared by Employee in the course of or incident to Employee's
employment, belongs to the Company and shall be promptly returned to the
Company within 10 days after the Termination Date. Following the
Termination Date, Employee will not retain any written or other tangible
material containing any proprietary information of the Company.
(ii) Effective as of the Termination Date, Employee shall be deemed
to have resigned from all offices and directorships then held with the
Company or any Affiliate of the Company.
(iii) The covenants and agreements of Employee contained in Sections
3(e), 9, 10, 11, 12 and 14(b) and (c) shall survive termination of
Employee's employment by the Company and the termination of this Agreement.
(f) Release. In exchange for the Company entering into the Agreement,
-------
Employee agrees that, at the time of Employee's resignation or termination from
the Company, Employee will execute a release acceptable to the Company of all
liability of the Company and its officers, shareholders, employees, directors
and Affiliates to Employee in connection with or arising out of Employee's
employment by the Company, except with respect to (i) any then-vested rights
under the Company's Stock Plan, (ii) any amounts which may be payable to
Employee pursuant to Section 8 and (iii) any claims Employee may have pursuant
to the Company's disability and workmen's compensation insurance policies (it
being understood that the foregoing is not intended to provide Employee
duplicative rights to those provided for in Section 8(c)(ii)).
4. Compensation.
------------
(a) Annual Salary. The Company shall pay to Employee an annual salary
-------------
equal to the base salary set forth on Schedule B attached hereto and
----------
incorporated herein by this reference (the
-4-
<PAGE>
"Base Salary"). The Base Salary shall be in effect, on a pro-rated basis, from
and after the Effective Date through December 31, 1997. For each calendar year
during the term of this Agreement commencing with the 1998 calendar year, the
Company shall pay Employee an annual salary (the "Adjusted Base Salary")
determined by the Company's Board of Directors (or the Compensation Committee
thereof); provided, however, that the Adjusted Base Salary shall be no less than
-------- -------
the product of (i) the Base Salary, multiplied by (ii) a fraction, the numerator
of which shall be the last Consumer Price Index figure published prior to the
December 31st immediately preceding the beginning of such calendar year (the
"Base Salary Adjustment Date") and the denominator of which shall be the most
recent Consumer Price Index figure published prior to December 31, 1996;
provided, further, however, in no event shall the Adjusted Base Salary, as so
- -------- ------- -------
adjusted on such Base Salary Adjustment Date, be less than the Annual Salary for
the preceding calendar year. The Base Salary and the Adjusted Base Salary shall
be paid in equal installments, subject to all applicable withholding and
deductions, in accordance with the usual payroll practices of the Company, but
not less frequently than monthly.
(b) Annual Bonus Amount. Employee shall be entitled to be paid an
-------------------
annual bonus amount (the "Annual Bonus Amount") in respect of each calendar year
beginning with the 1997 calendar year as further specified and described on
Schedule B attached hereto. The Annual Bonus Amount shall be deemed earned as
- ----------
of December 31 of the applicable calendar year and shall be due and payable,
subject to all applicable withholding and deductions, within 31 days following
the end of the calendar year to which such Annual Bonus Amount relates based
upon the Company's good faith preliminary estimate thereof for such calendar
year; provided, that upon certification by the Company's auditors of the
--------
Company's consolidated financial statements for such calendar year, the
definitive Annual Bonus Amount for such calendar year shall be determined by the
Company and the Company shall promptly pay to Employee (in the case the
preliminary estimate resulted in an underpayment), or the Employee shall
promptly repay to the Company (in the case the preliminary estimate resulted in
an overpayment), the amount necessary to provide Employee with full payment of
the definitive Annual Bonus Amount as finally determined in accordance with such
audited consolidated financial statements for such calendar year.
-5-
<PAGE>
5. Fringe Benefits. During the term of this Agreement, Employee shall be
---------------
entitled to all such employment benefits as may, from time to time, be made
generally available to similar level management employees of the Company
including, without limitation, pension or other retirement benefits, health,
hospitalization and similar insurance and group or individual life insurance,
and Employee's family shall be entitled to participate in the Company's medical
and health insurance plans; provided, however, that such benefits and
-------- -------
arrangements are made available at the discretion of the Company and nothing in
this Agreement establishes any right of Employee to the availability or
continuance of any such plan or arrangement. In addition, the Company agrees to
reimburse Employee for any COBRA costs incurred by Employee to maintain the
current health insurance coverage for Employee and Employee's dependents through
Employee's prior employer until the date of effectiveness of the Employee's
health insurance coverage provided by the Company.
6. Business Expenses. Except as otherwise provided herein, the Company
-----------------
shall pay, either directly or by reimbursement to Employee, such reasonable and
necessary business expenses incurred by Employee, including travel and
entertainment expenses, in the course of employment by the Company as are
consistent with the Company's policies in existence from time to time. Such
expenses shall include, but shall not be limited to, occupational license fees,
membership dues in professional organizations, educational expenses, and
subscriptions to professional journals.
7. Vacation and Sick Leave. Employee shall be entitled to four weeks'
-----------------------
paid vacation time, in the aggregate, per calendar year, and such paid sick
leave as shall be authorized by the Company pursuant to the Company's written
policies, as determined from time to time. Additionally, Employee may be
entitled to additional paid vacation time to the extent that the operations and
needs of the business permit as determined by the Company. All vacations shall
be taken by Employee at such time or times as may be reasonably approved by the
Company.
8. Compensation Upon Termination of Employment.
-------------------------------------------
(a) Expiration of Term. If Employee's employment by the Company is
------------------
terminated as a result of the occurrence of the fourth anniversary of the
Effective Date, Employee shall receive the
-6-
<PAGE>
compensation and other benefits expressly provided under this Agreement through
the Termination Date.
(b) Death. If Employee's employment by the Company is terminated as a
-----
result of the occurrence of Employee's death pursuant to Section 3(a)(iii), the
Company shall pay Employee's estate (i) the compensation and other benefits
expressly provided under this Agreement through the Termination Date; and (ii)
an aggregate of the amount set forth on Schedule B attached hereto (the
----------
"Severance Amount"), payable in 24 equal monthly installments of the amount set
forth on Schedule B attached hereto (the "Monthly Severance Payment") commencing
----------
with the first calendar month after the Termination Date.
(c) Permanent Disability. If Employee's employment by the Company is
--------------------
terminated by the Company as a result of the occurrence of Employee's Permanent
Disability pursuant to Section 3(a)(iv), the Company shall pay Employee (i) the
compensation and other benefits expressly provided under this Agreement through
the Termination Date; and (ii) the Monthly Severance Payment for the lesser of
24 months or the duration of such Permanent Disability; provided, however, that
-------- -------
the amount of all payments of the Monthly Severance Amount shall be reduced by
the sum of the amount, if any, payable to Employee at or prior to the time of
any such payment under any disability benefit plan of the Company.
(d) Termination by the Company for Cause. If Employee's employment by
------------------------------------
the Company is terminated by the Company for Cause pursuant to Section 3(b)(ii),
Employee shall receive the compensation and other benefits expressly provided
under this Agreement through the Termination Date.
(e) Termination by the Company without Cause. If Employee's
----------------------------------------
employment by the Company is terminated by the Company without Cause pursuant to
Section 3(b)(ii), the Company shall pay Employee (i) the compensation and other
benefits expressly provided under this Agreement through the Termination Date;
and (ii) the Severance Amount, payable in 24 equal monthly installments of the
Monthly Severance Payment commencing with the first calendar month after the
Termination Date.
-7-
<PAGE>
(f) Termination by Employee for Good Reason. If Employee's employment
---------------------------------------
by the Company is terminated by Employee for Good Reason pursuant to Section
3(b)(v), the Company shall pay Employee (i) the compensation and other benefits
expressly provided under this Agreement through the Termination Date; and (ii)
the Severance Amount, payable in 24 equal monthly installments of the Monthly
Severance Payment commencing with the first calendar month after the Termination
Date.
(g) Termination by Employee without Good Reason. If Employee's
-------------------------------------------
employment by the Company is terminated by Employee without Good Reason pursuant
to Section 3(b)(v), Employee shall receive the compensation and other benefits
expressly provided under this Agreement through the Termination Date.
(h) Continuation of Health Insurance Coverage. At Employee's own
-----------------------------------------
expense, Employee and Employee's dependents shall also be entitled to any
continuation of health insurance coverage rights under any applicable law.
(i) Right of Offset; Compliance with Covenants.
------------------------------------------
(i) If the Employee's employment by the Company is
terminated for any reason, Employee shall be entitled to the compensation
and other benefits expressly provided under this Agreement, subject to the
Company's right of offset for any amounts owed by Employee to the Company
(or to any of its Affiliates).
(ii) The continuing obligation of the Company to make the
Monthly Severance Payment to Employee is expressly conditioned upon the
Employee complying in all respects and continuing to comply in all respects
with Employee's obligations under Sections 9, 10 and 11 hereof following
the Termination Date.
9. Confidential Information and Ownership of Property.
--------------------------------------------------
(a) Confidential Information. Employee agrees to use all Confidential
------------------------
Information solely in connection with the performance of services for or on
behalf of the Company. Employee shall not, during the term of this Agreement, or
at any time after the termination of this Agreement, in any manner, either
directly
-8-
<PAGE>
or indirectly, (i) disseminate, disclose, use or communicate any Confidential
Information to any person or entity, regardless of whether such Confidential
Information is considered to be confidential by third parties, or (ii) otherwise
directly or indirectly misuse any Confidential Information; provided, however,
-------- -------
that (y) none of the provisions of this Section 9 shall apply to disclosures
made for valid business purposes of the Company or (z) that Employee shall not
be obligated to treat as confidential any Confidential Information that (I) was
publicly known at the time of disclosure to Employee; (II) becomes publicly
known or available thereafter other than by means in violation of this Agreement
or any other duty owned to the Company or any of its Affiliates by any person or
entity; or (III) is lawfully disclosed to Employee by a third party.
Notwithstanding the foregoing, Employee shall be permitted to disclose
Confidential Information to the extent required to enforce Employee's rights
hereunder in any litigation arising under, or pertaining to, this Agreement
provided that Employee shall give prior written notice to the Company of any
such disclosure so that the Company may have an opportunity to protect the
confidentiality of such Confidential Information in such litigation.
(b) Ownership of Property. Employee agrees that all works of
---------------------
authorship developed, authored, written, created or contributed to during the
term of this Agreement for the benefit of the Company, whether solely or jointly
with others, shall be considered works-made-for-hire. Employee agrees that such
works shall be the sole and exclusive property of the Company (or its
appropriate Affiliate) and that all right, title and interest therein or
thereto, including all intellectual property rights existing or obtained in
connection therewith, shall likewise be the sole and exclusive property of the
Company (or its appropriate Affiliate). Employee agrees further that, in the
event that any work is not considered to be work-made-for-hire by operation of
law, Employee will immediately, and without further compensation, assign all of
Employee's right, title and interest therein to the Company (or its designated
Affiliate), its successors and assigns. At the request and expense of the
Company, Employee agrees to perform in a timely manner such further acts as may
be necessary or desirable to transfer, defend or perfect the Company's ownership
of such work and all rights incident thereto.
-9-
<PAGE>
10. Covenant Not to Compete. Unless the Company's Board of Directors
-----------------------
determines that any of the following conduct is in the Company's best interests,
during the term of Employee's employment by the Company and for the Non-Compete
Period, Employee shall not:
(a) directly or indirectly for himself/herself or for any other
person or entity engage, whether as owner, investor, creditor, consultant,
partner, shareholder, director, financial backer, agent, employee or
otherwise, in the business, enterprise or employment of owning, operating,
marketing or selling a time-share, vacation plan, vacation ownership or
interval ownership project within the Territory; or
(b) directly or indirectly for himself/herself or for any other
person or entity sell, or otherwise procure purchasers for, any time-share,
vacation plan, vacation ownership or interval ownership project within the
Territory; or
(c) have any business (as owner, investor, creditor, consultant,
partner, debtor or otherwise) or be employed in any capacity by a person or
entity that is engaged, directly or indirectly, in (i) operating, or
providing sales, marketing or development services to, a time-share,
vacation plan, vacation ownership or interval ownership project within the
Territory, or (ii) in an activity formed or entered into for the primary
purpose of engaging in a time-share, vacation plan, vacation ownership or
interval ownership business within the Territory; or
(d) [INTENTIONALLY OMITTED]
(e) directly or indirectly for himself/herself or for any other
person or entity become employed in any capacity by or otherwise render
services in any capacity to any national enterprise having time-share,
vacation plan, vacation ownership or interval ownership activities,
including, without limitation, Walt Disney Company, Hilton Hotels
Corporation, Hyatt Corporation, Four Seasons Hotels and Resorts, Inc.,
Marriott International, Inc., Inter-Continental Hotels and Resorts, Inc.,
Promus Hotels, Inc., Fairfield Communities,
-10-
<PAGE>
Inc., Signature Resorts, Inc. or Vacation Break U.S.A., Inc. or any of
their respective Affiliates; or
(f) directly or indirectly for himself, herself or for any other
person or entity pursue or consummate or otherwise interfere with any
Existing Project; or
(g) (i) directly or indirectly, for himself, herself, or any other
person or entity, pursue, consummate or otherwise interfere with any
Prospective Project or (ii) directly or indirectly for himself/herself or
for any other person or entity become employed in any capacity by or
otherwise render services in any capacity to any other person or entity
(other than the Company and its Affiliates) described in clause (ii) of the
definition of Prospective Project.
Notwithstanding the foregoing, Employee may purchase stock as a stockholder
in any publicly traded company, including any company engaged in the timeshare
or vacation ownership business; provided, however, that Employee may not own
-------- -------
(individually or collectively with Employee's family members, trusts for the
benefit of Employee's family members and affiliates of Employee) more than 5% of
any company (other than the Company).
In light of the substantial remuneration provided to Employee
hereunder and Employee's management position with the Company, Employee hereby
specifically acknowledges and agrees that the provisions of this Section 10
(including, without limitation, its time and geographic limits), as well as the
provisions of Sections 9 and 11, are reasonable and appropriate, and that
Employee will not claim to the contrary in any action brought by the Company to
enforce such any of such provisions.
11. Covenant Against Solicitation of Employees. During the term of
------------------------------------------
Employee's employment by the Company and for the Non-Compete Period, the
Employee shall not employ employees or agents or former employees or agents of
the Company or its Affiliates or, directly or indirectly, solicit or otherwise
encourage the employment of employees or agents or former employees or agents of
the Company or its Affiliates; provided, however, that this restriction shall
-------- -------
not apply to former employees or agents who, as of the date of termination of
Employee's employment by the Company,
-11-
<PAGE>
have not worked for any of the Company or its Affiliates during the twelve
preceding months.
12. Remedies For Breach. It is understood and agreed by the parties that
-------------------
no amount of money would adequately compensate the Company for damages which the
parties acknowledge would be suffered as a result of a violation by the Employee
of the covenants contained in Sections 9, 10 and 11 above, and that, therefore,
the Company shall be entitled, upon application to a court of competent
jurisdiction, to obtain injunctive relief (without the need to post bond) to
enforce the provisions of Sections 9, 10 or 11, which injunctive relief shall be
in addition to any other rights or remedies available to the Company. The
provisions of this Section 12 shall survive the termination of this Agreement.
13. Certain Defined Terms. For purposes of this Agreement the following
---------------------
terms and phrases shall have the following meanings:
"Affiliate" means any person or entity who or which, directly or
---------
indirectly, through one or more intermediaries, controls or is controlled by, or
is under common control with, a specified person or entity (the term "control"
for these purposes meaning the ability, whether by ownership of shares or other
equity interests, by contract or otherwise, to elect a majority of the directors
of a corporation, to act as or select the managing or general partner of a
partnership, or otherwise to select, or have the power to remove and then
select, a majority of those persons exercising governing authority over an
entity).
"Cause", with respect to the termination of Employee's employment by the
-----
Company, shall mean (a) the commission by Employee of an act of fraud,
embezzlement or willful breach of a fiduciary duty to the Company (including the
unauthorized disclosure of confidential or proprietary material information of
the Company); (b) the commission by Employee of a breach of any material
covenant, provision, term, condition, understanding or undertaking set forth in
this Agreement; (c) the commission by Employee (other than in Employee's
capacity as an agent of the Company) of a crime constituting a felony under
applicable law (or a plea of nolo contendere in lieu thereof); (d) the exposure
---- ----------
of the Company to any criminal liability substantially caused by the conduct of
Employee which results in a material adverse effect upon the Company's business,
operations, financial condition or results
-12-
<PAGE>
of operations or the exposure of the Company to any civil liability caused by
Employee's unlawful harassment in employment; (e) any habitual absenteeism,
gross negligence, bad faith, or willful misconduct by Employee in the
performance of Employee's duties to the Company which such conduct results in a
material detriment to the Company; or (f) Employee's habitual abuse of alcohol
or any controlled substance or Employee's reporting to work under the influence
of alcohol or a controlled substance (other than those for which Employee is
taking under a current prescription).
"Change in Control" means the occurrence of any one of the following
-----------------
events:
(i) any (A) consolidation or merger of the Company in which
the Company is not the continuing or surviving corporation or which
contemplates that all or substantially all of the business and/ or assets
of the Company shall be controlled by another corporation or (B) a
recapitalization (including an exchange of Company equity securities by the
holders thereof), in either case, in which any "Person" (as such term is
used in Sections 13(d) and 14(d)(2) of the Exchange Act), other than the
Controlling Shareholders, becomes the beneficial owner (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of securities of the
Company representing more than 50% of the combined voting power of the
Company's then outstanding securities ordinarily having the right to vote
in the election of directors;
(ii) any sale, lease, exchange or transfer (in one transaction
or series of related transactions) of all or substantially all of the
assets of the Company and its Affiliates;
(iii) approval by the shareholders of the Company of any plan or
proposal for the liquidation or dissolution of the Company, unless such
plan or proposal is abandoned within 60 days following such approval; or
(iv) any "Person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act), other than the Controlling Shareholders,
shall become the beneficial owner of securities of the Company representing
more than 50%
-13-
<PAGE>
of the combined voting power of the Company's then outstanding securities
ordinarily having the right to vote in the election of directors.
"Confidential Information" means all software, trade secrets, work products
------------------------
created by Employee for the Company or any of its Affiliates, know-how, ideas,
techniques, theories, discoveries, formulas, plans, charts, designs, drawings,
lists of current or prospective clients, business plans and proposals, current
or prospective business opportunities, financial records, research and
development, marketing strategies and programs (including present and
prospective OPC locations and the terms of leases of similar arrangements) and
reports and other proprietary information created or obtained by Employee for
the benefit of the Company or any of its Affiliates during the course of
employment by the Company.
"Consumer Price Index" means the United States Department of Labor's Bureau
--------------------
of Labor Statistics' Consumer Price Index, All Urban Consumers, All Items,
Orlando, Florida Area (1982-84 = 100), or the successor of such index (or if the
index is not published for the Orlando, Florida area, a comparable index
applicable to the Tampa, Florida or Jacksonville, Florida area or in the event
they are not available, any other areas as may be reasonably determined by the
Company).
"Controlling Shareholders" means Raymond L. Gellein, Jr., Jeffrey A. Adler
------------------------
and JGG Holdings Trust, in each case together with their respective Affiliates,
family members, former spouses (if applicable) and trusts for the benefit of any
of the foregoing.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Existing Project" means a time-share, vacation plan, vacation ownership or
----------------
interval ownership resort or project which the Company or any of its Affiliates
owns, operates or has commenced to develop, acquire or otherwise undertake as of
the Termination Date.
"Good Reason" shall mean the occurrence, without the express written
-----------
consent of Employee, of any of the following events unless such events are
substantially corrected within 30 days following written notification by
Employee to the Company that Employee intends to effect a Voluntary Termination
as a result of (i) a
-14-
<PAGE>
material alteration, reduction or diminution in Employee's duties or
responsibilities or relocation from the Company's office described on Schedule A
----------
(Item No. 4) attached hereto; (ii) a material breach by the Company of any
- ------------
covenant, provision, term, condition, understanding or undertaking set forth in
this Agreement; or (iii) a Voluntary Termination within 90 days after the
consummation of a Change in Control (it being understood that a Voluntary
Termination shall not be for Good Reason as a result of any personal or family
reasons not otherwise set forth in this definition).
"Non-Compete Period" shall mean the period commencing on the Termination
------------------
Date and ending on (i) the Termination Date in case of the termination of
Employee's employment by the Company pursuant to Section 3(b)(i); provided,
--------
however, such period will be extended to the first anniversary of the
- -------
Termination Date in the event that the Company notifies Employee in writing that
it will pay Employee the Monthly Severance Payment (in accordance with the
Company's payroll policies) in effect at the Termination Date for 12 months
after the Termination Date; or (ii) the second anniversary of the Termination
Date in case of (w) the termination of Employee's employment by the Company for
Cause pursuant to Section 3(b)(ii), (x) the termination of Employee's employment
by the Company without Cause pursuant to Section 3(b)(ii), (y) the termination
of Employee's employment by Employee for Good Reason pursuant to Section 3(b)(v)
and (z) the termination of Employee's employment by Employee without Good Reason
pursuant to Section 3(b)(v) (it being understood that if such termination of
employment is due to a Voluntary Termination for Good Reason in respect of a
Change in Control of which both Messrs. Raymond L. Gellein, Jr. and Jeffrey A.
Adler have not approved, by vote in their capacities as directors of the Company
or otherwise, then the Non-Compete Period shall not be applicable).
"Permanent Disability" shall mean the inability of the Employee to perform
--------------------
substantially all Employee's duties and responsibilities to the Company by
reason of a physical or mental disability or infirmity for either (i) a
continuous period of six months or (ii) 180 days during any consecutive twelve-
month period. The date of such Permanent Disability shall be (y), in the case
of clause (i) above, the last day of such six-month period or, if later, the day
on which satisfactory medical evidence of such Permanent Disability is obtained
by the Company, or (z) in the case of clause (ii) above, such date as is
determined in good faith by
-15-
<PAGE>
the Company. In the event that any disagreement or dispute arises between the
Company and Employee as to whether the Employee has incurred a Permanent
Disability, then, in any such event, Employee shall submit to a physical and/or
mental examination by a competent and qualified physician licensed under the
laws of the State of Florida who shall be mutually selected by the Company and
Employee, and such physician shall make the determination of whether Employee
suffers from any disability. In the absence of fraud or bad faith, the
determination of such physician as to Employee's condition at such time shall be
final and binding upon both the Company and the Employee. The entire cost of any
such examination shall be borne solely by the Company.
"Prospective Project" means (i) a prospective time-share, vacation plan,
-------------------
vacation ownership or interval ownership resort or project with respect to which
Employee has been made aware or has been advised prior to the Termination Date
that the Company or any of its Affiliates is considering developing or
undertaking and (ii) any person or entity, including its respective Affiliates,
with respect to which Employee has been made aware or has been advised prior to
the Termination Date that the Company or any of its Affiliates has commenced to
evaluate or negotiate with in respect of any transaction involving (y) the
acquisition by the Company or any of its Affiliates of all or a portion of such
person or entity or its consolidated assets or (z) the acquisition by such
person or entity (or its Affiliates) of all or a portion of the Company or its
consolidated assets.
"Territory" means the total geographic area located within a 150-mile
---------
radius of each Existing Project and each Prospective Project.
"Voluntary Termination" shall mean the voluntary termination by Employee of
---------------------
Employee's employment by the Company by voluntary resignation or any other means
(other than (i) death or Permanent Disability or (ii) simultaneous with or
following termination for Cause or an event which if known to the Company at the
time of such voluntary termination by Employee would constitute Cause).
14. Miscellaneous.
-------------
(a) Severability. If any provision of this Agreement shall be
------------
declared invalid or unenforceable by a court of competent
-16-
<PAGE>
jurisdiction, the invalidity or unenforceability of such provision shall not
affect the other provisions hereof, and this Agreement shall be construed and
enforced in all respects as if such invalid or unenforceable provision was
omitted.
(b) Attorneys' Fees and Costs. In the event a dispute arises between
-------------------------
the parties hereto and suit is instituted, the prevailing party or parties in
such litigation shall be entitled to recover reasonable attorneys' fees and
other costs and expenses from the non-prevailing party or parties, whether
incurred at the trial level or in any appellate proceeding. For purposes
hereof, the Company shall be deemed to have prevailed in any suit involving a
breach or alleged breach by Employee of any of the covenants contained in
Sections 9, 10 and 11 above if the Company prevails to any degree in such suit
(even if such covenant or covenants are not enforced to the fullest extent
otherwise sought by the Company).
(c) Governing Law and Venue. This Agreement shall be governed by and
-----------------------
construed in accordance with the laws of the State of Florida. In the event of
any legal or equitable action arising under this Agreement, the venue of such
action shall be exclusively within either the state courts of Florida located in
Orange County, Florida, or the United States District Court for the Middle
District of Florida, Orlando Division, and the parties waive any other
jurisdiction and venue.
(d) Completeness of Agreement. All understandings and agreements
-------------------------
heretofore made between the parties hereto with respect to the subject matter of
this Agreement are merged into this document which alone fully and completely
expresses their agreement. No change or modification may be made to this
Agreement except by instrument in writing duly executed by the parties hereto
with the same formalities as this document.
(e) Notices. Any and all notices or other communications provided for
-------
herein shall be given in writing and shall be hand delivered or sent by United
States mail, postage prepaid, registered or certified, return receipt requested,
addressed as follows:
-17-
<PAGE>
If to the Company:
Vistana, Inc.
8801 Vistana Centre Drive
Orlando, Florida 32821
Attn: President
If to Employee: at the address specified
in Schedule A attached hereto.
----------
provided, however, that any of the parties may, from time to time, give notice
- -------- -------
to the other parties of some other address to which notices or other
communications to such party shall be sent, in which event, notices or other
communications to such party shall be sent to such address. Any notice or other
communication shall be deemed to have been given and received hereunder as of
the date the same is actually hand delivered or, if mailed, when deposited in
the United States mail, postage prepaid, registered or certified, return receipt
requested.
(f) Binding Effect. This Agreement shall be binding upon and inure to
--------------
the benefit of the respective parties hereto, their heirs, legal
representatives, successors and permitted assigns.
(g) Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original, and all of which shall
constitute but one and the same instrument.
(h) Captions. The captions appearing in this Agreement are inserted
--------
only as a matter of convenience and in no way define, limit, construe or
describe the scope or intent of any provisions of this Agreement or in any way
affect this Agreement.
(i) Additional Understandings. Certain additional understandings
-------------------------
between the Company and Employee are set forth on Schedule C attached hereto and
----------
incorporated herein by this reference.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-18-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
date and year set forth above.
THE COMPANY:
-----------
VISTANA, INC., a Florida corporation
By: /s/ Raymond L. Gellein, Jr.
---------------------------------
Name: Raymond L. Gellein, Jr.
Title: Chairman of the Board and Co-Chief
Executive Officer
By: /s/ Jeffrey A. Adler
---------------------------------
Name: Jeffrey A. Adler
Title: President and Co-Chief Executive
Officer
EMPLOYEE:
--------
/s/ John M. Sabin
------------------------------------
Name: John M. Sabin
-19-
<PAGE>
SCHEDULE A
----------
Employee Title and Primary Employment Responsibilities
------------------------------------------------------
1. Employee Name and Address: John Sabin
-------------------------
8801 Vistana Centre Drive
Orlando, Florida 32821
2. Employee Title: Senior Vice President and
--------------
Chief Financial Officer
3. Primary Employment Responsibilities:
-----------------------------------
Employee shall serve as Senior Vice President and Chief Financial
Officer of the Company. Employee shall devote his best efforts and
substantially full business time and attention to the performance of
services to the Company in his capacity as an officer thereof and as may
reasonably be requested by the Board. The Company shall retain full
direction and control of the means and methods by which Employee performs
his services thereto. Both Employee and the Company agree that the nature
and scope of Employee's responsibility and authority will be consistent
with being the Senior Vice President and Chief Financial Officer of a
public company, as described in more detail herein. Employee shall report
directly to Messrs. Raymond L. Gellein, Jr., Jeffrey A. Adler and Matthew
E. Avril (the "Executive Officers"), and the Executive Officers shall be
generally available to Employee on a day-to-day basis. In no order of
priority, the following are the responsibilities and duties that Employee
would have:
(i) To work closely with the Company's executive level
senior-most officers and the Executive Officers to structure strategic
initiatives, including acquisitions, and to analyze the financial impact of
such initiatives; and to participate actively in the negotiations thereof
and oversee the completion of such initiatives.
A-1
<PAGE>
(ii) To maintain a current understanding of the Company's
progress in achieving stated financial goals and objectives (i.e., internal
----
and Wall Street estimates) relative to applicable Company projections and
budgets prepared by others.
(iii) To serve as the primary point of contact for investor
relations and investment banking, research and analyst communications; to
participate in investor and analyst meetings and conferences; to coordinate
press releases, quarterly and annual filings; and to coordinate the design
and preparation of the Company's annual shareholders' report; and to be
involved in such other similar matters with the assistance of Company
counsel.
(iv) To analyze and structure the Company's capital base,
including, without limitation, coordinating and implementing equity and
debt initiatives such as follow-on offerings, lines of credit and
securitization programs; and, generally, to manage the Company's commercial
banking relationships and lines of credit.
(v) To develop and oversee cash management policies.
(vi) To oversee the Company's policies and procedures
respecting employee purchases and sales of the Company's stock and the
exercise of its stock options.
(vii) To oversee the Company's treasury function, with the
assistance of appropriate personnel.
(viii) To oversee the Company's insurance and risk management
program, with the assistance of appropriate personnel.
(ix) To carry out such other customary duties and
responsibilities of an executive vice president and chief financial officer
of a public company.
The Company recognizes that to accomplish these responsibilities,
Employee will require full cooperation and extensive interaction with the
Executive Officers, the
A-2
<PAGE>
Company's controller and accounting department, as well as the use of
reasonably necessary staff resources dedicated exclusively to assisting
Employee in discharging his duties.
4. Place of Employment: The Company's office located at 8801 Vistana Centre
-------------------
Drive, Orlando, Florida 32821.
A-3
<PAGE>
SCHEDULE B
----------
Employee Compensation
---------------------
1. Employee Name: JOHN SABIN
-------------
2. Base Salary: $210,000
-----------
3. Annual Bonus Amount: Up to 40% of Adjusted Base Salary; Formula to
------------------- approximate that of other senior executive officers.
4. Severance Amount: The product of (i) 120% of Employee's Adjusted Base
---------------- Salary as of the Termination Date, multiplied by (ii)
two.
5. Monthly Severance Payment: The quotient of (i) the Severance Amount
------------------------- determined in accordance with Item No. 4 above,
divided by (ii) 52.
B-1
<PAGE>
SCHEDULE C
----------
Additional Understandings
-------------------------
1. Signing Bonus: The Company shall pay Employee a signing bonus of
-------------
$55,000, payable on the Effective Date.
2. Home-Financing: The Company will lend Employee up to $300,000 secured by
--------------
a mortgage on Employee's existing home, subject to
satisfactory appraisal. This loan will be evidenced by
Employee's promissory note and a customary mortgage and
will be due and payable upon the sale of such home. It is
anticipated that such home will be sold prior to
September 1, 1997.
In addition, the Company will make all necessary
arrangements so that any mortgage loan having a principal
amount of up to $360,000 obtained by Employee to purchase
a home in the Orlando, Florida area will not bear
interest in excess of 7-1/4% per annum.
3. Stock Options: The Company will grant Employee the option to purchase
-------------
75,000 shares of common stock pursuant to the Vistana
Stock Plan at an exercise price per share equal to the
price to public in the Company's initial public offering.
Such grant of options will be made pursuant to an Option
Agreement between the Company and Employee.
Certain of the existing shareholders of the Company have
agreed to grant Employee options to purchase an aggregate
of 25,000 shares of the Company's common stock at an
exercise price per share equal to the price to public in
the
C-1
<PAGE>
Company's initial public offering. Such grant of options
will be made pursuant to a Shareholders Option Agreement
among certain of the Company's existing shareholders and
Employee.
4. Other: The Company will reimburse Employee for all moving
-----
expenses incurred by Employee, including monthly house
hunting trips by Employee's spouse for no more than six
months, upon presentation of applicable receipts or other
appropriate documentation.
The Company will provide Employee rent-free use of a
Vistana Resort unit, until Employee purchases and
relocates to a new home.
The Company will reimburse Employee for up to $5,000 of
miscellaneous expenses incurred at time of actual
relocation, upon presentation of applicable receipts or
other appropriate documentation.
C-2
<PAGE>
EXHIBIT 10.7
------------
AMENDED AND RESTATED SUBSCRIPTION AGREEMENT
-------------------------------------------
SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of February 10, 1997
among VISTANA, INC., a Florida corporation (the "Company"), and the persons
whose signatures appear on the execution pages of this Agreement (collectively,
the "Purchasers"),
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company has heretofore been organized under the Florida
Business Corporation Act, as amended;
WHEREAS, the Company is authorized to issue an aggregate of 105,000,000
shares of capital stock, of which (i) 5,000,000 shares are designated as
Preferred Stock, $.01 par value; and (ii) 100,000,000 shares are designated as
common stock, par value U.S. $0.01 per share (the "Common Stock");
WHEREAS, the Company and certain of the Purchasers executed a Subscription
Agreement dated as of December 27, 1996 (the "Original Agreement") relating to
the matters referred to herein;
WHEREAS, subsequent to the date of the Original Agreement, certain of the
Purchasers who are parties to the Original Agreement expressed their desire to
transfer certain of their respective Securities (as hereinafter defined) to
certain specified transferees and the contemplated transferees of such
Securities indicated their desire to assume the obligations of a Purchaser under
the Original Agreement;
WHEREAS, the Company has consented to the transfers referred to in the
foregoing recital and the related assignments of the relevant Purchaser's rights
under the Original Agreement;
WHEREAS, each Purchaser desires to subscribe for and purchase the number of
shares of Common Stock hereinafter specified, and the Company desires to accept
such subscription and to issue and sell such shares of Common Stock to
Purchaser, on the terms herein set forth;
WHEREAS, in light of the foregoing, the parties hereto desire to amend and
restate the Original Agreement upon the terms and subject to the conditions set
forth below; and
NOW, THEREFORE, in consideration of the premises, the mutual covenants,
representations, warranties and agreements set forth in this Agreement, and of
other good and valuable consideration, the receipt, sufficiency and adequacy of
which is hereby acknowledged, the parties hereto, intending legally to be bound,
hereby covenant and agree, and amend and restate the Original Agreement, as
follows:
<PAGE>
ARTICLE I
ISSUANCE AND SALE OF COMMON STOCK
---------------------------------
1.1 Sale of the Common Stock.
-----------------------
(a) Subject to the terms and conditions set forth herein, on the
Closing Date (as hereinafter defined), each Purchaser will purchase, and the
Company will issue and sell to such Purchaser, the number of shares of Common
Stock set forth on Schedule A attached hereto and incorporated herein by this
----------
reference.
(b) In consideration for the Company's issuance and sale of Common
Stock pursuant to this Agreement, on or prior to the Closing Date, each
Purchaser shall deliver to the Company one or more stock certificates or other
instruments evidencing such Purchaser's ownership of the securities (the
"Securities") set forth on Schedule B attached hereto and incorporated herein by
----------
this reference, together with appropriate assignments separate from certificate
or other appropriate instruments duly executed and in proper form to effect the
transfer of the Securities to the Company on the books of the respective issuer
of the Securities (or such issuer's security transfer agent) at such time as the
Company may desire to do so.
(c) On the Closing Date, the Company will deliver to each Purchaser
certificates representing the Common Stock purchased by such Purchaser, duly
registered in the name of such Purchaser.
1.2 Conditions to Closing.
---------------------
(a) The obligation of each Purchaser to purchase the shares of
Common Stock described herein pursuant to Section 1.1 and to deliver such
Purchaser's Securities to the Company shall be subject to satisfaction or waiver
of each of the following conditions precedent:
(i) each other Purchaser shall have consummated its respective
purchase of Common Stock pursuant to this Agreement and satisfied its
obligations to deliver its respective Securities to the Company pursuant
to Section 1.1(b);
(ii) the representations and warranties of the Company set
forth in Article II hereof shall be true and correct in all respects on and
as of the Closing Date as if such representations and warranties were made
on such date;
(iii) the Company shall have performed all covenants and
obligations and satisfied all conditions on its
-2-
<PAGE>
part to be performed or satisfied pursuant to this Agreement;
(iv) each other Purchaser shall have executed and delivered a
counterpart to that certain Shareholders' Agreement dated as of December
27, 1996 (the "Shareholders' Agreement"), a copy of which has been
previously made available to each Purchaser; and
(v) the Company shall have completed the sale of approximately
4,625,000 shares of Common Stock to the public pursuant to an underwritten
offering (the "Initial Public Offering").
(b) The Company's obligation to issue and sell the shares of Common
Stock described herein pursuant to Section 1.1 shall be subject to satisfaction
or waiver of each of the following conditions precedent:
(i) each Purchaser shall have consummated its respective
purchases of Common Stock pursuant to this Agreement and satisfied its
obligation to deliver its respective Securities to the Company pursuant to
Section 1.1(b);
(ii) the representations and warranties of Purchaser set forth
in Article III hereof shall be true and correct in all respects on and as
of the Closing Date as if such representations and warranties were made on
such date;
(iii) Purchaser shall have performed all covenants and
obligations and satisfied all conditions on its part to be performed or
satisfied by it pursuant to this Agreement; and
(iv) the Company shall have completed the Initial Public
Offering.
1.3 Timing of Closing; Termination.
------------------------------
(a) The completion of the transactions contemplated hereby (the
"Closing") shall take place at the offices of Neal, Gerber & Eisenberg, Two
North LaSalle Street, Suite 2200, Chicago, Illinois 60602 concurrently with the
completion of the Initial Public Offering or such earlier date as (i) all of the
conditions set forth in Section 1.2 hereof are satisfied; or (ii) such other
date, place or time as shall be agreed upon by the parties hereto (the date of
the Closing is hereinafter referred to as the "Closing Date").
(b) Each Purchaser and the Company shall have the right to terminate
this Agreement, without any liability of any party hereto, (i) if one or more
identified conditions to such party's
-3-
<PAGE>
obligations to consummate the transactions contemplated herein shall not have
been satisfied prior to the Closing Date or (ii) the Closing shall not have
occurred prior to June 30, 1997.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
In order to induce each Purchaser to purchase shares of Common Stock
hereunder, the Company represents and warrants to each Purchaser that the
following representations and warranties are true and correct in all respects as
of the date hereof, and will be so as of the Closing Date, and that:
2.1 Corporate Status.
----------------
(a) The Company is duly incorporated and validly existing and its
status is active under the laws of the State of Florida.
(b) The Company has the corporate power and authority to own, lease
and operate its properties and to conduct its business as currently owned,
leased, operated and conducted and to enter into and perform its obligations
under this Agreement.
2.2 Authorization/Enforceability. This Agreement has been duly
----------------------------
authorized, executed and delivered by the Company and constitutes a valid and
legally binding obligation of the Company, enforceable against the Company in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
2.3 Non-Contravention. The issuance and sale of shares of Common Stock
-----------------
pursuant to Section 1.1 hereof, the compliance by the Company with all of the
provisions of this Agreement and the consummation of the transactions herein
contemplated will not conflict with or result in a breach or violation of any of
the terms or provisions of, or constitute a default under, or result in the
creation or imposition of any mortgage or deed of trust, pledge, hypothecation,
assignment, deposit arrangement, security interest, lien, charge, easement
(other than any easement not materially impairing usefulness or marketability),
encumbrance, preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement having substantially the
same economic effect as any of the foregoing) (any of the foregoing, a "Lien")
upon any share of such Common Stock, or any properties or assets of the Company
pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument to which the Company is
-4-
<PAGE>
a party or by which the Company is bound or to which any share of such Common
Stock, properties or assets of the Company is subject, nor will such action
result in any violation of the provisions of the Articles of Incorporation of
the Company or any statute or any order, rule or regulation of any governmental
authority having jurisdiction over the Company or any of its properties or
assets.
2.4 Consents/Approvals. No consent, approval, authorization, order,
------------------
registration or qualification of or with any governmental authority or other
person or entity is required for the issuance and sale of shares of Common Stock
by the Company to any Purchaser or the consummation by the Company of the
transactions contemplated by this Agreement.
2.5 Share Authorization. The shares of Common Stock to be issued pursuant
-------------------
to this Agreement have been duly authorized and, when issued and delivered
against payment therefor as provided herein, will be duly and validly issued and
fully paid and nonassessable. At the Closing, good and valid title to each
share of Common Stock to be issued pursuant to this Agreement will be
transferred by the Company to each Purchaser, free and clear of all Liens.
2.6 Capitalization. As of the date hereof, the authorized capital stock
--------------
of the Company consists of 105,000,000 shares of capital stock, of which (i)
5,000,000 shares are designated Preferred Stock, $.01 par value, none of which
are issued or outstanding; and (ii) 100,000,000 shares are designated as Common
Stock, 20 shares of which are issued and outstanding. No other class or series
of capital stock of the Company is authorized. Except as contemplated by this
Agreement and the Initial Public Offering and except for options to acquire
shares of Common Stock granted under the Vistana Stock Plan (of which options to
acquire 535,000 shares of Common Stock had been granted as of the date hereof),
there are not as of the date hereof, and at the Closing Date there will not be,
any shares of capital stock of the Company issued or outstanding or any
subscriptions, options, warrants, calls, rights, convertible securities or other
agreements or commitments of any character relating to issued or unissued
capital stock or other securities of the Company, or otherwise obligating the
Company to issue, transfer or sell any of such securities.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
------------------------------------------------
In order to induce the Company to issue and sell shares of Common Stock
hereunder, each Purchaser severally represents and warrants to the Company that
the following representations and warranties are true and correct in all
respects as of the date hereof, and will be so as of the Closing Date, and that:
-5-
<PAGE>
3.1Corporate Status.
----------------
(a) Purchaser is duly organized as a trust under the laws of the
jurisdiction of it organization.
(b) Purchaser has the requisite power and authority to enter into and
perform its obligations under this Agreement.
3.2Authorization/Enforceability. Each of this Agreement and the
----------------------------
Shareholders' Agreement has been duly authorized, executed and delivered by
Purchaser and constitutes a valid and legally binding obligation of Purchaser,
enforceable against such Purchaser in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
3.3Non-Contravention. The purchase of shares of Common Stock pursuant to
-----------------
Section 1.1 hereof by Purchaser, the compliance by Purchaser with all of the
provisions of this Agreement and the Shareholders' Agreement and the
consummation of the transactions herein contemplated will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, or result in the creation or imposition of any Lien
upon any of the shares of Common Stock purchased by Purchaser hereunder pursuant
to the terms of any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which Purchaser is a party or by which it is bound or
to which any of its properties or assets is subject, nor will such action result
in any violation of the provisions of Purchaser's governing instruments, as
amended to date, or any statute or any order, rule or regulation of any
governmental authority having jurisdiction over Purchaser or any of its
properties or assets.
3.4Consents/Approvals. No consent, approval, authorization, order,
------------------
registration or qualification of or with any governmental authority or other
entity or person is required for the purchase of shares of Common Stock or the
consummation by Purchaser of the transactions contemplated by this Agreement.
3.5Investment Intent.
-----------------
(a) Purchaser (i) qualifies as an "accredited investor" (as defined in
Rule 501(a) of Regulation D under the Securities Act of 1933, as amended (the
"Securities Act")) or, if not an accredited investor, Purchaser, either alone or
with such Purchaser's purchaser representative (as defined in Rule 501(h) of
Regulation D under the Securities Act) has such knowledge and experience in
financial and business matters that he is capable of evaluating the merits and
risks of an investment in the Common Stock and (ii) is acquiring shares of
Common Stock hereunder for its own account and with no intention of distributing
or selling
-6-
<PAGE>
such shares of Common Stock, except for the sale of certain shares of Common
Stock in the Initial Public Offering. Purchaser understands that shares of
Common Stock being acquired by it hereunder have not been (and are not being)
registered under the Securities Act by reason of their contemplated issuance in
transaction(s) exempt from the registration and prospectus delivery requirements
of the Securities Act pursuant to Section 4(2) thereof, and that the reliance of
the Company on such exemption from registration is predicated in part on the
representations and warranties of Purchaser hereunder.
(b) Purchaser agrees that it will not sell or otherwise dispose of
any share(s) of Common Stock acquired by it hereunder unless such sale or other
disposition has been registered or is exempt from registration under the
Securities Act and has been registered or qualified or is exempt from
registration or qualification under applicable securities laws of any State.
(c) Purchaser understands that a restrictive legend substantially in
the form set forth in Section 4.1 of the Shareholders' Agreement has been or
will be placed on the certificates evidencing shares of Common Stock to be
issued to Purchaser hereunder, and related stop transfer instructions will be
noted in the transfer records of the Company and/or its transfer agent for the
Common Stock.
3.6The Securities. Purchaser has good title to each of the Securities to
--------------
be transferred by Purchaser to the Company pursuant to Section 1.1(b) free and
clear of all Liens. At the Closing, Purchaser will convey to the Company good
and valid title to the Securities to be transferred by Purchaser to the Company
pursuant to Section 1.1(b), free and clear of any and all Liens.
ARTICLE IV
MISCELLANEOUS
-------------
4.1 Non-Waiver of Remedies and Actions. No course of dealing between the
----------------------------------
Company and Purchaser, whether jointly or severally, with respect to any shares
of Common Stock, or any delay on the part of any party in exercising any rights
available to such party, shall operate as a waiver of any right of such party,
except to the extent expressly waived in writing by such party.
4.2 Headings and terms. The headings in this Agreement are for purposes
------------------
of reference only and shall not be considered in construing this Agreement.
Terms defined in the singular shall have a comparable meaning when used in the
plural, and vice versa.
4.3 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall constitute an
original and all together shall
-7-
<PAGE>
constitute one agreement.
4.4 Successors and Assigns. Except as otherwise specifically provided
----------------------
herein, this Agreement shall bind and inure to the benefit of the Company's and
each Purchaser's respective successors and permitted assigns; provided, however,
-------- -------
that neither the Company nor any Purchaser shall have any right to assign any of
its rights hereunder or any interest herein without obtaining the written
consent of the other parties to such assignment, and any purported assignment
made without obtaining such written consent shall be null and void.
4.5 Survival. Notwithstanding any investigation made by either party, all
--------
covenants, agreements, representations and warranties made herein and in
certificates delivered pursuant hereto shall survive the Closing Date and the
delivery to each Purchaser of shares of Common Stock pursuant hereto.
4.6 Enforceability. If any term or provision of this Agreement, or the
--------------
application thereof to any person, entity or circumstance, shall, to any extent,
be invalid or unenforceable, the remaining terms and provisions of this
Agreement or application to other persons, entities and circumstances shall not
be invalidated thereby, and each term and provision hereof shall be construed
with all other remaining terms and provisions hereof to effect the intent of the
parties hereto to the fullest extent permitted by law.
4.7 Law Governing. This Agreement shall be construed and enforced in
-------------
accordance with and shall be governed by the laws of the State of Florida,
without giving effect to its conflict of laws provisions.
4.8 Notices. All communications among the parties shall be in writing and
-------
shall be deemed to have been duly given as of the date of hand delivery or three
days after mailing via certified or registered mail, return receipt requested,
proper postage prepaid, to the addresses specified for each party on attached
Schedule A or such other address as a party shall from time to time specify in a
- ----------
notice delivered in accordance with this Section 4.8.
4.9 Integration. This Agreement and the Schedules hereto contain the
-----------
entire understanding of the parties with respect to the subject matter hereof,
and cancel and supersede any and all prior agreements, understandings or
arrangements, whether written or oral, among the parties hereto with respect to
such subject matter.
4.10Trustee Exculpation. The execution of this Agreement by the trustees
-------------------
of a Purchaser is by such trustees, not individually, but solely in their
capacities as trustees, and nothing contained herein shall be deemed to impose
any personal liability on such trustees individually.
-8-
<PAGE>
4.11Several Obligations. The Xn of this Agreement by the trustees of a
-------------------
Purchaser is by such trustees, not individually, but solely in their capacities
as trustees, and nothing contained herein shall be deemed to impose any personal
liability on such trustees individually.
4.11Several Obligations. The obligations of the Purchasers hereunder are
-------------------
several and not joint.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
THE COMPANY:
-----------
VISTANA, INC., a Florida corporation
By: /s/ Raymond L. Gellein, Jr.
-------------------------------------
Name: Raymond L. Gellein, Jr.
Title: Chairman of the Board
By: /s/ Jeffrey A. Adler
-------------------------------------
Name: Jeffrey A. Adler
Title: President
PURCHASERS:
----------
/s/ Raymond L. Gellein, Jr.
----------------------------------------
Raymond L. Gellein, Jr., Trustee of the
Raymond L. Gellein, Jr. Revocable Trust
/s/ Raymond L. Gellein, Jr.
----------------------------------------
Raymond L. Gellein, Jr., Trustee of the
Raymond L. Gellein, Jr. Grantor Retained
Annuity Trust
/s/ Raymond L. Gellein, Jr.
----------------------------------------
Raymond L. Gellein, Jr., Trustee of the
Matthew James Gellein Irrevocable Trust
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
-9-
<PAGE>
/s/ Raymond L. Gellein, Jr.
----------------------------------------
Raymond L. Gellein, Jr., Trustee of the
Brett Tyler Gellein Irrevocable Trust
/s/ Raymond L. Gellein, Jr.
----------------------------------------
Raymond L. Gellein, Jr., Trustee of JGG
Holdings Trust
/s/ Raymond L. Gellein, Jr.
----------------------------------------
Raymond L. Gellein, Jr., Trustee of the
Janice G. Gellein Grantor Annuity Trust
/s/ Raymond L. Gellein, Jr.
----------------------------------------
Raymond L. Gellein, Jr., Trustee of the
Catherine Male Gift Trust
/s/ Raymond L. Gellein, Jr.
----------------------------------------
Raymond L. Gellein, Jr., Trustee of the
Cherie Doherty Gift Trust
/s/ Raymond L. Gellein, Jr.
----------------------------------------
Raymond L. Gellein, Jr., Trustee of
Susan Faetz Gift Trust
/s/ Jeffrey A. Adler
----------------------------------------
Jeffrey A. Adler, Trustee of the Jeffrey
A. Adler Revocable Trust
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
-10-
<PAGE>
/s/ Jeffrey A. Adler
----------------------------------------
Jeffrey A. Adler, Trustee of the Jeffrey
A. Adler Grantor Annuity Trust #1
/s/ Jeffrey A. Adler
----------------------------------------
Jeffrey A. Adler, Trustee of the Jeffrey
A. Adler Grantor Annuity Trust #2
/s/ Lee I. Miller
----------------------------------------
Lee I. Miller, Trustee of the ARA Trust
/s/ Lee I. Miller
----------------------------------------
Lee I. Miller, Trustee of the DLA Trust
[SIGNATURES CONTINUED FROM PRECEDING PAGE]
-11-
<PAGE>
SCHEDULE A
----------
Purchaser Name and Address/(1)/ No of Shares
- -------------------------- ------------
Raymond L. Gellein, Jr. 3,203,540
Revocable Trust
c/o Raymond L. Gellein, Jr.,
Trustee
Raymond L. Gellein, Jr. 254,440
Grantor Retained Annuity
Trust
c/o Raymond L. Gellein, Jr.,
Trustee
Matthew James Gellein 42,880
Irrevocable Trust
c/o Raymond L. Gellein, Jr.,
Trustee
Brett Tyler Gellein 42,880
Irrevocable Trust
c/o Raymond L. Gellein, Jr.,
Trustee
JGG Holdings Trust 3,203,550
c/o Raymond L. Gellein, Jr.,
Trustee
Janice G. Gellein Grantor 278,700
Annuity Trust
c/o Raymond L. Gellein, Jr.,
Trustee
Catherine Male Gift Trust 20,500
c/o Raymond L. Gellein, Jr.,
Trustee
Cherie Doherty Gift Trust 20,500
c/o Raymond L. Gellein, Jr.,
Trustee
Susan Faetz Gift Trust 20,500
c/o Raymond L. Gellein, Jr.,
Trustee
Jeffrey A. Adler Revocable Trust 6,854,490
c/o Jeffrey A. Adler,
Trustee
A-1
<PAGE>
Purchaser Name and Address No of Shares
- -------------------------- ------------
Jeffrey A. Adler Grantor Annuity 50,000
Trust #1
c/o Jeffrey A. Adler,
Trustee
Jeffrey A. Adler Grantor Annuity 60,000
Trust #2
c/o Jeffrey A. Adler,
Trustee
ARA Trust 61,500
c/o Lee I. Miller,
Trustee
Suite 1800
203 North LaSalle Street
Chicago, Illinois 60601-1293
DLA Trust 61,500
----------
c/o Lee I. Miller,
Trustee
Suite 1800
203 North LaSalle Street
Chicago, Illinois 60601-1293
14,174,980
==========
______________________
/(1)/ Unless otherwise specified, all addresses are 8001 Vistana Centre Drive,
Orlando, Florida 32821.
A-2
<PAGE>
SCHEDULE B
----------
Securities to be Delivered to the Company
-----------------------------------------
Raymond L. Gellein, Jr. Revocable Trust.
- ---------------------------------------
(1) 33 shares of Class A Voting Common Stock and 1,459.5 shares of Class B
Non-Voting Common Stock of VISTANA CAPITAL HOLDINGS, INC.
(2) 33 shares of Class A Voting Common Stock and 1,633.5 shares of Class B
Non-Voting Common Stock of VISTANA CAPITAL MANAGEMENT, INC.
(3) 33 shares of Class A Voting Common Stock and 1,633.5 shares of Class B
Non-Voting Common Stock of VCH COMMUNICATIONS, INC.
(4) 33 shares of Class A Voting Common Stock and 1,633.5 shares of Class B
Non-Voting Common Stock of VCH TRADEMARK, INC.
(5) 33 shares of Class A Voting Common Stock and 1,633.5 shares of Class B
Non-Voting Common Stock of WE4FUN, INC.
(6) 500 shares of Class A Voting Common Stock and 2,000 shares of Class B
Non-Voting Common Stock of VISTANA WGV HOLDINGS, INC.
(7) Any and all rights to receive shares of Common Stock of VISTANA
INTERNATIONAL, INC.
(8) 500 shares of Class A Voting Common Stock and 2,000 shares of Class B
Non-Voting Common Stock of VCH SALES, INC.
(9) 500 shares of Class A Voting Common Stock and 2,000 shares of Class B
Non-Voting Common Stock of VCH OAKS, INC.
(10) 500 shares of Class A Voting Common Stock and 2,000 shares of Class B
Non-Voting Common Stock of VCM OAKS, INC.
(11) 500 shares of Class A Voting Common Stock and 2,000 shares of Class B
Non-Voting Common Stock of VCH FINANCIAL SERVICES, INC.
(12) 500 shares of Class A Voting Common Stock and 2,000 shares of Class B
Non-Voting Common Stock of VCH ADMINISTRATION, INC.
B-1
<PAGE>
ADMINISTRATION, INC.
Raymond L. Gellein, Jr. Revocable Trust (continued).
- ---------------------------------------------------
(13) 33 shares of Class A Voting Common Stock and 1,633.5 shares of Class B
Non-Voting Common Stock of VCH SYSTEMS, INC.
(14) 371 shares of Class A Voting Common Stock and 1,481 shares of Class B
Non-Voting Common Stock of VACATION MANAGEMENT SERVICES, INC.
(15) Any and all rights to receive shares of Common Stock of TRADING
PLACES, INC.
(16) Any and all rights to receive shares of Common Stock of VCH
CONSULTING, INC.
(17) Any and all rights to receive shares of Common Stock of VCH
CONTRACTING, INC.
(18) 500 shares of Class A Voting Common Stock and 2,000 shares of Class B
Non-Voting Common Stock of VISTANA MB, INC.
(19) 500 shares of Class A Voting Common Stock and 2,000 shares of Class B
Non-Voting Common Stock of VISTANA WGV INVESTMENT, INC.
(20) 500 shares of Class A Voting Common Stock and 2,000 shares of Class B
Non-Voting Common Stock of VISTANA OP INVESTMENT, INC.
B-2
<PAGE>
Raymond L. Gellein, Jr. Grantor Retained Annuity Trust
- ------------------------------------------------------
(1) 130 shares of Class B Non-Voting Common Stock of VISTANA CAPITAL
HOLDINGS, INC.
B-3
<PAGE>
Matthew James Gellein Irrevocable Trust.
- ---------------------------------------
(1) 22 shares of Class B Non-Voting Common Stock of VISTANA CAPITAL
HOLDINGS, INC.
B-4
<PAGE>
Brett Tyler Gellein Irrevocable Trust.
- -------------------------------------
(1) 22 shares of Class B Non-Voting Common Stock of VISTANA CAPITAL
HOLDINGS, INC.
B-5
<PAGE>
JGG Holdings Trust.
- ------------------
(1) 1,490.5 shares of Class B Non-Voting Common Stock of VISTANA CAPITAL
HOLDINGS, INC.
(2) 1,666.5 shares of Class B Non-Voting Common Stock of VISTANA CAPITAL
MANAGEMENT, INC.
(3) 1,666.5 shares of Class B Non-Voting Common Stock of VCH
COMMUNICATIONS, INC.
(4) 1,666.5 shares of Class B Non-Voting Common Stock of VCH TRADEMARK,
INC.
(5) 1,666.5 shares of Class B Non-Voting Common Stock of WE4FUN, INC.
(6) 2,500 shares of Class B Non-Voting Common Stock of VISTANA WGV
HOLDINGS, INC.
(7) Any and all rights to receive shares of Common Stock of VISTANA
INTERNATIONAL, INC.
(8) 2,500 shares of Class B Non-Voting Common Stock of VCH SALES, INC.
(9) 2,500 shares of Class B Non-Voting Common Stock of VCH OAKS, INC.
(10) 2,500 shares of Class B Non-Voting Common Stock of VCM OAKS, INC.
(11) 2,500 shares of Class B Non-Voting Common Stock of VCH FINANCIAL
SERVICES, INC.
(12) 2,500 shares of Class B Non-Voting Common Stock of VCH ADMINISTRATION,
INC.
(13) 1,666.5 shares of Class B Non-Voting Common Stock of VCH SYSTEMS, INC.
(14) 1,852 shares of Class B Non-Voting Common Stock of VACATION MANAGEMENT
SERVICES, INC.
(15) Any and all rights to receive shares of Common Stock of TRADING
PLACES, INC.
(16) Any and all rights to receive shares of Common Stock of VCH
CONSULTING, INC.
(17) Any and all rights to receive shares of Common Stock of VCH
CONTRACTING, INC.
B-6
<PAGE>
JGG Holdings Trust (continued).
- ------------------------------
(18) 2,500 shares of Class B Non-Voting Common Stock of VISTANA MB, INC.
(19) 2,500 shares of Class B Non-Voting Common Stock of VISTANA WGV
INVESTMENT, INC.
(20) 2,500 shares of Class B Non-Voting Common Stock of VISTANA OP
INVESTMENT, INC.
B-7
<PAGE>
Janice G. Gellein Grantor Annuity Trust.
- ---------------------------------------
(1) 143 shares of Class B Non-Voting Common Stock of VISTANA CAPITAL
HOLDINGS, INC.
B-8
<PAGE>
Catherine Male Gift Trust.
- -------------------------
(1) 11 shares of Class B Non-Voting Common Stock of VISTANA CAPITAL
HOLDINGS, INC.
B-9
<PAGE>
Cherie Doherty Gift Trust.
- -------------------------
(1) 11 shares of Class B Non-Voting Common Stock of VISTANA CAPITAL
HOLDINGS, INC.
B-10
<PAGE>
Susan Faetz Gift Trust.
- ----------------------
(1) 11 shares of Class B Non-Voting Common Stock of VISTANA CAPITAL
HOLDINGS, INC.
B-11
<PAGE>
Jeffrey A. Adler Revocable Trust.
- --------------------------------
(1) 33 shares of Class A Voting Common Stock and 3,179 shares of Class B
Non-Voting Common Stock of VISTANA CAPITAL HOLDINGS, INC.
(2) 33 shares of Class A Voting Common Stock and 3,300 shares of Class B
Non-Voting Common Stock of VISTANA CAPITAL MANAGEMENT, INC.
(3) 33 shares of Class A Voting Common Stock and 3,300 shares of Class B
Non-Voting Common Stock of VCH COMMUNICATIONS, INC.
(4) 33 shares of Class A Voting Common Stock and 3,300 shares of Class B
Non-Voting Common Stock of VCH TRADEMARK, INC.
(5) 33 shares of Class A Voting Common Stock and 3,300 shares of Class B
Non-Voting Common Stock of WE4FUN, INC.
(6) 500 shares of Class A Voting Common Stock and 4,500 shares of Class B
Non-Voting Common Stock of VISTANA WGV HOLDINGS, INC.
(7) Any and all rights to receive shares of Common Stock of VISTANA
INTERNATIONAL, INC.
(8) 500 shares of Class A Voting Common Stock and 4,500 shares of Class B
Non-Voting Common Stock of VCH SALES, INC.
(9) 500 shares of Class A Voting Common Stock and 4,500 shares of Class B
Non-Voting Common Stock of VCH OAKS, INC.
(10) 500 shares of Class A Voting Common Stock and 4,500 shares of Class B
Non-Voting Common Stock of VCM OAKS, INC.
(11) 500 shares of Class A Voting Common Stock and 4,500 shares of Class B
Non-Voting Common Stock of VCH FINANCIAL SERVICES, INC.
(12) 500 shares of Class A Voting Common Stock and 4,500 shares of Class B
Non-Voting Common Stock of VCH ADMINISTRATION, INC.
(13) 33 shares of Class A Voting Common Stock and 3,300 shares of Class B
Non-Voting Common Stock of VCH SYSTEMS, INC.
B-12
<PAGE>
Jeffrey A. Adler Revocable Trust (continued).
- --------------------------------------------
(14) 371 shares of Class A Voting Common Stock and 3,333 shares of Class B
Non-Voting Common Stock of VACATION MANAGEMENT SERVICES, INC.
(15) Any and all rights to receive shares of Common Stock of TRADING
PLACES, INC.
(16) Any and all rights to receive shares of Common Stock of VCH
CONSULTING, INC.
(17) Any and all rights to receive shares of Common Stock of VCH
CONTRACTING, INC.
(18) 500 shares of Class A Voting Common Stock and 4,500 shares of Class B
Non-Voting Common Stock of VISTANA MB, INC.
(19) 500 shares of Class A Voting Common Stock and 4,500 shares of Class B
Non-Voting Common Stock of VISTANA WGV INVESTMENT, INC.
(20) 500 shares of Class A Voting Common Stock and 4,500 shares of Class B
Non-Voting Common Stock of VISTANA OP INVESTMENT, INC.
(21) 49% interest as a limited partner of VISTANA WGV INVESTMENT, LTD.
(22) 49% interest in and to a interest as a limited partner of VISTANA OP
INVESTMENT, LTD.
(23) 49% interest as a limited partner of VISTANA MYRTLE BEACH, L.P.
B-13
<PAGE>
Jeffrey A. Adler Grantor Annuity Trust #1.
- -----------------------------------------
(1) 26 shares of Class B Non-Voting Common Stock of VISTANA CAPITAL
HOLDINGS, INC.
B-14
<PAGE>
Jeffrey A. Adler Grantor Annuity Trust #2.
- -----------------------------------------
(1) 31 shares of Class B Non-Voting Common Stock of VISTANA CAPITAL
HOLDINGS, INC.
B-15
<PAGE>
ARA Trust.
- ---------
(1) 32 shares of Class B Non-Voting Common Stock of VISTANA CAPITAL
HOLDINGS, INC.
B-16
<PAGE>
DLA Trust.
- ---------
(1) 32 shares of Class B Non-Voting Common Stock of VISTANA CAPITAL
HOLDINGS, INC.
B-17
<PAGE>
EXHIBIT 10.8
------------
VISTANA STOCK PLAN
1. Preamble.
--------
Vistana, Inc., a Florida corporation (the "Company"), hereby establishes
the Vistana Stock Plan (the "Plan") as a means whereby the Company may, through
awards of (i) incentive stock options within the meaning of Section 422 of the
Code (as herein defined), (ii) stock appreciation rights, (iii) non-qualified
stock options, (iv) restricted stock, and (v) phantom stock:
(a) provide employees of the Company and its Subsidiaries and
Affiliates with additional incentive to promote the success of the
businesses of the Company and its Subsidiaries and Affiliates;
(b) enable such employees to acquire proprietary interests in the
Company;
(c) encourage such employees to remain in the employ of the Company
and its Subsidiaries and Affiliates; and
(d) provide Officers and Directors of, and consultants to, the
Company and its Subsidiaries and Affiliates (who are not otherwise
employees) with additional incentive to promote the success of the
businesses of the Company and its Subsidiaries and Affiliates.
2. Definitions.
-----------
1.021 "Affiliate" means any person or entity who or which, directly or
---------
indirectly, through one or more intermediaries, controls or is controlled by, or
is under common control with, a specified person or entity (the term "control"
for these purposes meaning the ability, whether by ownership of shares or other
equity interests, by contract or otherwise, to elect a majority of the directors
of a corporation, to act as or select the managing or general partner of a
partnership or the managing member of a limited liability company, or otherwise
to select, or have the power to remove and then select, a majority of those
persons exercising governing authority over an entity).
<PAGE>
1.022 "Board" or "Board of Directors" means the board of directors of the
----- ------------------
Company.
1.023 "Cause" shall mean (a) the commission by Participant of an act of
-----
fraud, embezzlement or willful breach of a fiduciary duty to the Company or a
Subsidiary or an Affiliate of the Company (including the unauthorized disclosure
of confidential or proprietary material information of the Company or a
Subsidiary or an Affiliate of the Company); (b) the commission by Participant of
a breach of any material covenant, provision, term, condition, understanding or
undertaking set forth in the Participant's employment agreement, if any, with
the Company or a Subsidiary or an Affiliate of the Company; (c) the commission
by Participant (other than in Participant's capacity as an agent of the Company
or a Subsidiary or an Affiliate of the Company) of a crime constituting a felony
under applicable law (or a plea of nolo contendere in lieu thereof); (d) the
---- ----------
exposure of the Company or a Subsidiary or an Affiliate of the Company to any
criminal liability substantially caused by the conduct of Participant which
results in a material adverse effect upon the Company's business, operations,
financial condition or results of operations or the exposure of the Company to
any civil liability caused by Participant's unlawful harassment in employment;
(e) any habitual absenteeism, gross negligence, bad faith, or willful misconduct
by Participant in the performance of Participant's duties to the Company or a
Subsidiary or an Affiliate of the Company which such conduct results in a
material detriment to the Company or a Subsidiary or an Affiliate of the
Company; or (f) Participant's habitual abuse of alcohol or any controlled
substance or Participant's reporting to work under the influence of alcohol or a
controlled substance (other than those for which Participant is taking under a
current prescription).
1.024 "Change in Control" means the occurrence of any one of the following
-----------------
events:
(a) any (A) consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation or which
contemplates that all or substantially all of the business and/ or assets
of the Company shall be controlled by another corporation or (B) a
recapitalization (including an exchange of Company equity securities by the
holders thereof), in either case, in which any "Person" (as
-2-
<PAGE>
such term is used in Sections 13(d) and (14(d)(2) of the Exchange Act),
other than the Controlling Shareholders, becomes the beneficial owner
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
securities of the Company representing more than 50% of the combined voting
power of the Company's then outstanding securities ordinarily having the
right to vote in the election of directors;
(b) any sale, lease, exchange or transfer (in one transaction or
series of related transactions) of all or substantially all of the assets
of the Company and its Subsidiaries or Affiliates;
(c) approval by the shareholders of the Company of any plan or
proposal for the liquidation or dissolution of the Company, unless such
plan or proposal is abandoned within 60 days following such approval; or
(d) any "Person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act), other than the Controlling Shareholders,
shall become the beneficial owner of securities of the Company representing
more than 50% of the combined voting power of the Company's then
outstanding securities ordinarily having the right to vote in the election
of directors.
1.025 "Code" means the Internal Revenue Code of 1986, as it exists now and
----
as it may be amended from time to time.
1.026 "Committee" means the committee comprised of two or more Directors
---------
appointed by the Board to administer the Plan. Each member of the Committee
shall (a) be a "Non-Employee Director" as determined under Rule 16b-3(b)(3)(i)
of the Exchange Act; and (b) once the reliance period expires under Treasury
Regulation 26 CFR (S) 1.162-27(f), be an outside Director as determined under
Treasury Regulation 26 CFR (S)1.162-27(e)(3) or any successor regulation
thereto. Once appointed, the Committee shall continue to serve until otherwise
directed by the Board of Directors.
1.027 "Common Stock" means the common stock of the Company, $0.01 par
------------
value, or, if the various series of common stock are eliminated by amendment to,
or restatement of, the Company's Articles of Incorporation, the resulting class
of equity securities
-3-
<PAGE>
ordinarily (and apart from rights accruing under special circumstances) having
the right to vote for the election of directors.
1.028 "Company" means Vistana, Inc., a Florida corporation, and any
-------
successor thereto.
1.029 "Controlling Shareholders" means Raymond L. Gellein, Jr., Jeffrey A.
------------------------
Adler and JGG Holdings Trust, in each case together with their respective
Affiliates, family members, former spouses (if applicable) and trusts for the
benefit of any of the foregoing.
2.10 "Director" means a member of the Board.
--------
2.11 "Exchange Act" shall mean the Securities Exchange Act of 1934, as it
------------
exists now or from time to time may hereafter be amended.
2.12 "Fair Market Value" means for the relevant day: (i) the closing
-----------------
price of a share of Common Stock on the principal exchange on which the Common
Stock is then trading, if any, on such date, or, if shares were not traded on
such date, then on the next preceding trading day during which a sale occurred;
(ii) if the Common Stock is not traded on an exchange but is quoted on Nasdaq or
a successor quotation system, (1) the closing price (if the Common Stock is then
listed as a National Market Issue under the NASD National Market System) or (2)
the mean between the closing representative bid and asked prices (in all other
cases) for a share of the Common Stock on such date, or, if shares were not
traded on such date, then on the next preceding trading day during which a sale
occurred, as reported by Nasdaq or such successor quotation system; (iii) if the
Common Stock is not publicly traded on an exchange and not quoted on Nasdaq or a
successor quotation system, the mean between the closing bid and asked prices
for a share of Common Stock on such date, or, if shares were not traded on such
date, then on the next preceding trading day during which a sale occurred, as
determined in good faith by the Committee; or (iv) if the Common Stock is not
publicly traded, the fair market value of a share of Common Stock established by
the Committee acting in good faith.
2.13 "IPO" is defined at Section 11 of the Plan.
---
-4-
<PAGE>
2.14 "ISO" means incentive stock options within the meaning of Section 422
---
of the Code.
2.15 "Naked SAR" means a SAR issued not in connection with an ISO or NSO.
---------
2.16 "NSO" means non-qualified stock options, which are not intended to
---
qualify under Section 422 of the Code.
2.17 "Officer" means a corporate officer of the Company or any Subsidiary
-------
or Affiliate of the Company.
2.18 "Option" means the right of a Participant, whether granted as an ISO
------
or an NSO, to purchase a specified number of shares of Common Stock, subject to
the terms and conditions of the Plan.
2.19 "Option Date" means the date upon which an Option, SAR, Restricted
-----------
Stock or Phantom Stock is awarded to a Participant under the Plan.
2.20 "Option Price" means the price per share at which an Option may be
------------
exercised.
2.21 "Participant" means an individual to whom an Option, SAR, Phantom
-----------
Stock or Restricted Stock has been granted under the Plan.
2.22 "Phantom Stock" means a hypothetical share of Common Stock issued as
-------------
phantom stock under the Plan.
2.23 "Plan" means the Vistana Stock Plan, as set forth herein and as from
----
time to time amended.
2.24 "Restricted Stock" means Common Stock awarded to a Participant
----------------
pursuant to this Plan and subject to the restrictions contained in Section 9.
2.25 "SAR" means a stock appreciation right. A SAR may be a Naked SAR or
---
a Tandem SAR.
2.26 "Securities Act" means the Securities Act of 1933, as it exists now
--------------
or from time to time may hereinafter be amended.
-5-
<PAGE>
2.27 "Subsidiary" shall mean (i) any corporation (whether now existing or
----------
hereafter organized) of which at least a majority of the voting stock having
ordinary voting power for the election of directors is, at the time as of which
any determination is being made, directly or indirectly owned or controlled by
the Company and (ii) any partnership, joint venture, association or other
business entity (either now existing or hereafter organized) of which more than
50% of the equity interest is, at the time any such determination is being made,
directly or indirectly controlled by the Company.
2.28 "Tandem SAR" means a SAR associated with and issued in connection
----------
with an ISO or NSO.
2.29 Rules of Construction.
---------------------
(a) Governing Law. The construction and operation of this Plan are
-------------
governed by the laws of the State of Florida.
(b) Undefined Terms. Unless the context requires another meaning,
---------------
any term not specifically defined in this Plan has the meaning given to it
by the Code.
(c) Headings. All headings in this Plan are for reference only and
--------
are not to be utilized in construing the Plan.
(d) Gender. Unless clearly appropriate, all nouns of whatever gender
------
refer indifferently to persons of any gender.
(e) Singular and Plural. Unless clearly inappropriate, singular
-------------------
terms refer also to the plural and vice versa.
---- -----
(f) Severability. If any provision of this Plan is determined to be
------------
illegal or invalid for any reason, the remaining provisions shall continue
in full force and effect and shall be construed and enforced as if the
illegal or invalid provision did not exist, unless the continuance of the
Plan in such circumstances is not consistent with its purposes.
-6-
<PAGE>
3. Stock Subject to the Plan.
-------------------------
Except as otherwise provided in Section 15, the aggregate number of shares
of Common Stock that may be issued under Options or as Restricted Stock, under
this Plan may not exceed 1,900,000 shares. Reserved shares may be either
authorized but unissued shares or treasury shares, in the Board's discretion. If
any awards hereunder shall terminate or expire, as to any number of shares, new
ISOs, NSOs, and Restricted Stock may thereafter be awarded with respect to such
shares. Except as otherwise provided in Section 15, 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 for any Participant may not
exceed 1,000,000.
4. Administration.
--------------
The Plan shall be administered by the Committee. In addition to any other
powers set forth in this Plan, the Committee has the exclusive authority:
(a) to construe and interpret the Plan, and to remedy any ambiguities
or inconsistencies therein;
(b) to establish, amend and rescind appropriate rules and regulations
relating to the Plan;
(c) subject to the express provisions of the Plan, to determine the
individuals who will receive awards of Options, Restricted Stock, Phantom
Stock and/or SARs, the times when they will receive them, the number of
shares to be subject to each award and the Option Price, payment terms,
payment method, and expiration date applicable to each award;
(d) to contest on behalf of the Company or Participants, at the
expense of the Company, any ruling or decision on any matter relating to
the Plan or to any awards of ISOs, NSOs, Restricted Stock, Phantom Stock
and/or SARs;
(e) generally, to administer the Plan, and to take all such steps and
make all such determinations in connection with the Plan and the awards of
ISOs, NSOs, Restricted Stock,
-7-
<PAGE>
Phantom Stock and/or SARs granted thereunder as it may deem necessary or
advisable;
(f) to determine the form in which payment of a SAR or a Phantom
Stock award granted hereunder will be made (i.e., cash, Common Stock or a
combination thereof) or to approve a Participant's election to receive cash
in whole or in part in settlement of the SAR or Phantom Stock award; and
(g) to determine the form in which tax withholding under Section 18
of this Plan will be made.
All expenses and liabilities incurred by members of the Committee in connection
with the administration of the Plan shall be borne by the Company. The Committee
may, with the approval of the Board, employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Committee, the Company and its
officers and directors shall be entitled to rely upon the advice, opinions or
valuations of any such persons. All actions taken and all interpretations and
determinations made by the Committee in good faith shall be final and binding
upon all Participants, the Company and all other interested persons. No member
of the Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or the Options, and
all members of the Committee shall be fully protected by the Company in respect
to any such action, determination, or interpretation.
5. Eligible Employees.
------------------
Subject to the provisions of the Plan, the Committee shall determine from
time to time those employees, Directors and Officers of, and consultants to, the
Company, a Subsidiary or an Affiliate of the Company who shall be designated as
Participants and the number, if any, of Options, SARs, Restricted Stock, and
Phantom Stock, or any combination thereof, to be awarded to each such
Participant; provided, however, that no ISOs or Tandem SARs granted with respect
-------- -------
to ISOs, shall be awarded under the Plan after the expiration of the period of
ten years from the date this Plan is adopted by the Board. In addition, no ISOs
may be awarded to a Director, Officer or consultant who is not an employee of
the Company or of a "subsidiary corporation" (within the meaning of Section
424(f) of the Code).
-8-
<PAGE>
6. Terms and Conditions of Incentive Stock Options.
-----------------------------------------------
The Committee may in its discretion, grant ISOs to any Participant under
the Plan; provided, however, that no ISOs may be granted to a Participant who is
-------- -------
not an employee of the Company or a "subsidiary corporation" (within the meaning
of Section 424(f) of the Code). Each ISO shall be evidenced by an agreement
between the Company and the Participant. Each ISO agreement, in such form as is
approved by the Committee, shall be subject to the following express terms and
conditions and to such other terms and conditions, not inconsistent with the
Plan, as the Committee may deem appropriate;
(a) Option Period. Each ISO will expire as of the earliest of:
-------------
(i) the date on which it is forfeited under the provisions of
Section 13;
(ii) ten years (or five years as specified in Section 6(e))
from the Option Date;
(iii) the date which is three months after the Participant's
termination of employment for any reason other than Cause,
death or "disability" (within the meaning of Section
22(e)(3) of the Code);
(iv) the date on which the Participant's employment is
terminated for Cause; or
(v) the date which is twelve months after the Participant's
death or termination of Participant's employment due to a
"disability" (within the meaning of Section 22(e)(3) of
the Code).
(b) Option Price. Subject to the provisions of Section 6(e), the
------------
Option Price per share shall be determined by the Committee at the time any
ISO is granted, and shall not be less than the Fair Market Value of the
Common Stock subject to the ISO on the Option Date.
-9-
<PAGE>
(c) Other Option Provisions. The form of ISO authorized by the Plan
-----------------------
may contain such other provisions as the Committee may, from time to time,
determine; provided, however, that such other provisions may not be
-------- -------
inconsistent with any requirements imposed on qualified stock options under
Section 422 of the Code.
(d) Limitations on Awards. The aggregate Fair Market Value,
---------------------
determined as of the Option Date, of Common Stock with respect to which
ISOs are exercisable by a Participant for the first time during any
calendar year under all ISO plans of the Company and any Subsidiary shall
not exceed $100,000.
(e) Awards to Certain Shareholders. Notwithstanding Sections 6(a) and
------------------------------
6(b) hereof, if an ISO is granted to a Participant who owns stock
representing more than 10 percent of the voting power of all classes of
stock of the Company or a Subsidiary (as determined under the Code), the
exercise period specified in the ISO agreement for which the ISO thereunder
is granted shall not exceed five years from the Option Date, and the Option
Price shall be at least 110% of the Fair Market Value (as of the Option
Date) of the Common Stock subject to the ISO.
7. Terms and Conditions of Non-Qualified Stock Option.
--------------------------------------------------
The Committee may, in its discretion, grant NSOs to any Participant under
the Plan. Each NSO shall be evidenced by an agreement between the Company and
the Participant. Each NSO agreement, in such form as is approved by the
Committee, shall be subject to the following express terms and conditions and to
such other terms and conditions, not inconsistent with the Plan as the Committee
may deem appropriate:
(a) Option Period. Each NSO will expire as of the earliest of:
-------------
(i) the date on which it is forfeited under the provisions of
Section 13;
(ii) ten years from the Option Date;
-10-
<PAGE>
(iii) the date which is three months after the Participant's
termination of employment, retention as a consultant or
membership on the Board, as applicable, for any reason
other than Cause, death or "disability" (within the
meaning of Section 22(e)(3) of the Code);
(iv) the date on which the Participant's employment, retention
as a consultant or membership on the Board, as applicable,
is terminated for Cause; or
(v) the date which is twelve months after the Participant's
death or termination of employment, consultancy or
membership on the Board due to a "disability" (within the
meaning of Section 22(e)(3) of the Code).
(b) Option Price. At the time when the NSO is granted, the Committee
------------
will fix the Option Price. The Option Price may be greater than, less than,
or equal to Fair Market Value on the Option Date, as determined in the sole
discretion of the Committee.
(c) Other Option Provisions. The form of NSO authorized by the Plan
-----------------------
may contain such other provisions as the Committee may from time to time
determine.
8. Terms and Conditions of Stock Appreciation Rights.
-------------------------------------------------
The Committee may, in its discretion, grant a SAR to any Participant under
the Plan. Each SAR shall be evidenced by an agreement between the Company and
the Participant, and may be a Naked SAR or a Tandem SAR. Each SAR awarded to
Participants under the Plan shall be subject to the following express terms and
conditions and to such other terms and conditions, not inconsistent with the
Plan, as the Committee shall deem appropriate:
(a) Tandem SARs. Tandem SARs shall terminate on the same date as the
-----------
related ISO or NSO. A Tandem SAR shall be exercisable only if the Fair
Market Value of a share of Common Stock on the date of surrender exceeds
either the Option Price for the related ISO or the Fair Market Value of the
Common
-11-
<PAGE>
Stock on the Option Date, if related to an NSO, and then shall be
exercisable to the extent, and only to the extent, that the related ISO or
NSO is exercisable. A Tandem SAR shall entitle the Participant to whom it
is granted the right to elect, so long as such Tandem SAR is exercisable
and subject to such limitations as the Committee shall have imposed, to
surrender any then exercisable portion of his related ISO or NSO, in whole
or in part, and receive from the Company in exchange, without any payment
of cash (except for applicable employee withholding taxes), that number of
shares of Common Stock having an aggregate Fair Market Value on the date of
surrender equal to the product of (i) the excess of the Fair Market Value
of a share of Common Stock on the date of surrender over the per share
Option Price under such ISO or the Fair Market Value of the Common Stock on
the Option Date, if such SAR is related to an NSO and (ii) the number of
shares of Common Stock subject to such ISO or NSO or portion thereof which
is surrendered. Any ISO or NSO or portion thereof which is surrendered
shall no longer be exercisable. The Committee, in its sole discretion, may
allow the Company to settle all or part of the Company's obligation arising
out of the exercise of a Tandem SAR by the payment of cash equal to the
aggregate Fair Market Value of the shares of Common Stock which the Company
would otherwise be obligated to deliver.
(b) Naked SARs. Naked SARs shall terminate as provided in the
----------
Participant's SAR agreement. The Committee may at the time of granting any
Naked SAR add such conditions and limitations to the Naked SAR as it shall
deem advisable, including but not limited to, limitations on the period
within which the Naked SAR shall be exercisable and the maximum amount of
appreciation to be recognized with regard to such Naked SAR.
(c) Other Conditions. If a Participant is subject to Section 16(a)
----------------
and Section 16(b) of the Exchange Act, the Committee may at any time add
such additional conditions and limitations to such SAR which the Committee,
in its discretion, deems necessary or desirable in order to comply with
Section 16(a) or Section 16(b) of the Exchange Act and the rules and
regulations issued thereunder, or in order to obtain any exemption
therefrom.
-12-
<PAGE>
9. Terms and Conditions of Restricted Stock Awards.
-----------------------------------------------
The Committee, in its discretion, may grant Restricted Stock to any
Participant under the Plan. Each grant of Restricted Stock shall be evidenced
by an agreement between the Company and the Participant. All shares of Common
Stock awarded to Participants under the Plan as Restricted Stock shall be
subject to the following express terms and conditions and to such other terms
and conditions, not inconsistent with the Plan, as the Committee shall deem
appropriate:
(a) Restricted Period. Shares of Restricted Stock awarded to
-----------------
Participants may not be sold, transferred, pledged or otherwise encumbered
before they vest. Subject to the provisions of subparagraphs (b) and (c)
below and any other restrictions imposed by law, any shares of Restricted
Stock that vest will be transferred to the Participant or, in the event of
his death, to the beneficiary or beneficiaries designated by writing filed
by the Participant with the Committee for such purpose or, if none, to his
estate. Delivery of shares in accordance with the preceding sentence shall
be made within the 30-day period after they vest.
(b) Forfeitures. A Participant shall forfeit all unpaid accumulated
-----------
dividends and all shares of Restricted Stock which have not vested prior to
the date that his employment with the Company, or if a Director, his
membership on the Board, is terminated for any reason.
(c) Certificates Deposited With Company. Each certificate issued in
-----------------------------------
respect of shares of Restricted Stock awarded under the Plan shall be
registered in the name of the Participant and deposited with the Company.
Each such certificate shall bear the following (or a similar) legend:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) relating to Restricted Stock contained in the Vistana
Stock Plan and an agreement entered into between the registered owner
and Vistana, Inc. Copies of such Plan
-13-
<PAGE>
and agreement are on file at the principal office of Vistana, Inc."
(d) Shareholder Rights. Subject to the foregoing restrictions, each
------------------
Participant shall have all the rights of a shareholder with respect to his
shares of Restricted Stock including, but not limited to, the right to vote
such shares.
(e) Dividends. On each Common Stock dividend payment date, each
---------
Participant shall receive an amount equal to the dividend paid on that date
on a share of Common Stock, multiplied by his number of shares of
Restricted Stock.
10. Terms and Conditions of Phantom Stock.
-------------------------------------
The Committee may, in its discretion, award Phantom Stock to any
Participant under the Plan. Each award of Phantom Stock shall be evidenced by an
agreement between the Company and the Participant. The Committee may at the time
of awarding any Phantom Stock add such additional conditions and limitations to
the Phantom Stock as it shall deem advisable, including, but not limited to, the
right for Participants to receive dividends equivalent to those paid on Common
Stock, limitations on the period or periods within which the Phantom Stock may
be surrendered, and the maximum amount of appreciation to be recognized with
regard to such Phantom Stock. If a Participant is subject to Section 16(a) and
Section 16(b) of the Exchange Act, the Committee may at any time add such
additional conditions and limitations to such Phantom Stock which, in its
discretion, the Committee deems necessary or desirable in order to comply with
Section 16(a) or Section 16(b) of the Exchange Act and the rules and regulations
issued thereunder, or in order to obtain any exemption therefrom. An award of
Phantom Stock shall entitle the Participant to whom it is awarded the right to
elect, so long as such Phantom Stock is vested and subject to such limitations
as the Committee shall have imposed, to surrender any then vested portion of the
Phantom Stock, in whole or in part, and receive from the Company in exchange
therefor the Fair Market Value on the date of surrender of the Common Stock to
which the surrendered Phantom Stock relates in cash or in shares of Common Stock
as the Committee may determine.
11. Director Stock Options.
----------------------
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<PAGE>
(a) Each Director who is not otherwise an employee of the Company or
the beneficial owner of 5% or more of the outstanding Common Stock and who
is a Director upon completion of the Company's initial public offering of
Common Stock on a firm-commitment underwritten basis (the "IPO"), shall
automatically be granted as of that date NSOs to purchase 45,000 shares of
Common Stock having an exercise price per share equal to the price to the
public in the IPO. The NSOs granted pursuant to this Section 11(a) shall,
notwithstanding the provisions of Section 13, vest as follows:
(i) one-third (15,000 shares) on the Option Date;
(ii) one-third (15,000 shares) immediately following the date
of the 1998 annual meeting of the Company's shareholders,
provided that such Director continues to be a Director
following such annual meeting; and
(iii) one-third (15,000 shares) immediately following the date
of the 1999 annual meeting of the Company's shareholders,
provided that such Director continues to be a Director
following such annual meeting.
For purposes of this Section, if there is no annual meeting of the
Company's shareholders in any year, the applicable date will be the
scheduled date for such annual meeting as set forth in the Company's by-
laws.
(b) Commencing with the date of the annual meeting of the shareholders of the
Company scheduled to be held in 2000, or, if no annual meeting of the
shareholders of the Company occurs on the scheduled date for such meeting as
specified in the Company's by-laws, and annually thereafter each Director who is
not otherwise an employee of the Company or the beneficial owner of 5% or more
of the outstanding Common Stock shall automatically be granted NSOs to purchase
5,000 shares of Common Stock having an exercise price per share equal to 100% of
the Fair Market Value of the Common Stock at the Option Date.
-15-
<PAGE>
(c) A Director NSO shall be granted hereunder only if as of each
Option Date the Director (i) is not otherwise an employee of the Company or
any Subsidiary or Affiliate of the Company and (ii) has not been an
employee of the Company or any Subsidiary or Affiliate of the Company for
any part of the preceding fiscal year.
(d) Each NSO granted pursuant to Section 11 (b) shall notwithstanding
the provisions of Section 13, be 100% vested as of the Option Date.
(e) NSOs granted pursuant to this Section 11 shall expire as of the
earliest of:
(i) ten years from the Option Date;
(ii) the date three months after the Participant's termination
of membership on the Board, for any reason other than
Cause, death or "disability" (within the meaning of
Section 22(e)(3) of the Code);
(iii) the date on which the Participant's membership on the
Board is terminated for Cause; or
(iv) the date twelve months after the Participant's death or
termination of Board membership due to a "disability"
(within the meaning of Section 22(e)(3) of the Code).
The provisions of Section 7(a) shall not apply to any NSO granted pursuant
to this Section 11.
(f) In the event that the number of shares of Common Stock available
for future grant under the Plan is insufficient to make all automatic
grants required to be made on such date, then all non-employee Directors
entitled to a grant on such date shall share ratably in the number of NSOs
shares available for grant under the Plan.
(g) Except as expressly provided in this Section 11, any NSO granted
hereunder shall be subject to the terms and
-16-
<PAGE>
conditions of the Plan if the grant were made pursuant to Section 7 hereof.
12. Manner of Exercise of Options.
-----------------------------
To exercise an Option in whole or in part, a Participant (or, after the
Participant's death, the Participant's executor or administrator) must give
written notice to the Committee, stating the number of shares to which he or she
intends to exercise the Option. The Company will issue the shares with respect
to which the Option is exercised upon payment in full of the Option Price. The
Option Price may be paid in (i) cash, (ii) shares of Common Stock having an
aggregate Fair Market Value, as determined on the date of delivery, equal to the
Option Price, (iii) by delivery of irrevocable instructions to a broker to
promptly deliver to the Company the amount of sale or loan proceeds necessary to
pay for all Common Stock acquired through such exercise and any tax withholding
obligations resulting from such exercise, or (iv) through a cashless exercise.
The number of shares of Common Stock to be issued by the Company pursuant to a
cashless exercise equals the result of dividing (1) the product of (a) the
number of shares of Common Stock for which the Option may be exercised and (b)
the difference between the Fair Market Value of a share of the Common Stock on
the date of exercise and the Option Price, by (ii) the Fair Market Value of a
share of Common Stock on the date of exercise. The Option Price may be paid in
shares of Common Stock which were received by the Participant upon the exercise
of one or more Options. The Option Price may be paid in shares of Common Stock
which were received by the Participant as an award of Restricted Stock under the
Plan. The Option Price may be paid by surrender of Tandem SARs equals to the
Option Price. The Company shall not issue fractional shares of Common Stock and
shall round any fractional shares to the nearest whole share.
-17-
<PAGE>
13. Vesting.
-------
A Participant may not exercise an Option or surrender a SAR or Phantom
Stock until it has become vested. The portion of an Option, SAR or Phantom Stock
award that is vested depends upon the period that has elapsed since the Option
Date. Except with respect to Options granted under Section 11, unless the
Committee establishes a different vesting schedule at the time when an Option is
granted or the Restricted Stock, SAR or Phantom Stock is awarded, all Options
granted under this Plan, Restricted Stock, SARs, and Phantom Stock awarded under
this Plan shall become 25% vested 12 months after the Option Date and shall vest
pro rata in arrears on a monthly basis over a period of 36 months beginning on
the first day of the month which is 12 months after the Option Date. Except as
provided below or in Section 14, if a Participant terminates his employment with
the Company or its Subsidiaries or Affiliates if an employee, his membership on
the Board if a Director, or his retention as a consultant, for any reason, he
forfeits any Options, Restricted Stock, SARs and/or Phantom Stock that are not
yet vested. A transfer of employment from the Company to a Subsidiary or an
Affiliate of the Company, or vice versa (or from a Subsidiary to an Affiliate
---- -----
of the Company, or vice versa) is not a termination-of employment for purposes
---- -----
of this Plan.
14. Change of Control.
-----------------
Notwithstanding the provisions of Section 13 or anything contained in a
Participant's agreement to the contrary, upon a Change in Control all Options,
Restricted Stock, SARs and/or Phantom Stock shall become 100% vested and
immediately exercisable.
15. Adjustments to Reflect Changes in Capital Structure.
---------------------------------------------------
If there is any change in the corporate structure or shares of the Company,
the Board of Directors shall, in its discretion, make any adjustments necessary
to prevent accretion, or to protect against dilution, in the number and kind of
shares authorized by the Plan and, with respect to outstanding Options,
Restricted Stock, Phantom Stock and/or SARs, in the number and kind of shares
covered thereby and in the applicable Option Price. For the purpose of this
Section 15, a change in the corporate structure or shares of the Company
includes, without limitation, any change resulting from a recapitalization,
stock split, stock dividend,
-18-
<PAGE>
consolidation, rights offering, spin-off, reorganization, or liquidation and any
transaction in which shares of Common Stock are changed into or exchanged for a
different number or kind of shares of stock or other securities of the Company
or another corporation; provided, however, that a change in corporate structure
-------- -------
or shares of the Company does not include the issuance of Common Stock for a
negotiated or determined issuance price.
16. Non-Transferability of Options, SARs and Phantom Stock.
------------------------------------------------------
The Options and SARs granted or Phantom Stock awarded under the Plan are
not transferable, voluntarily or involuntarily, other than by will or the laws
of descent and distribution, or pursuant to a qualified domestic relations order
as defined in Section 414(p) of the Code; provided, however, that ISOs (to the
-------- -------
extent permissible by Section 422 of the Code), NSOs, SARs and Phantom Stock may
be transferred to (i) any members of the immediate family of such Participant,
and (ii) a trust which has as its exclusive beneficiaries such Participant or
members of the immediate family of such Participant. For purposes of this
Section, "immediate family" means children, stepchildren and grandchildren,
including relationships arising from legal adoption.
17. Rights as Shareholder.
---------------------
No Common Stock may be delivered upon the exercise of any Option until full
payment has been made. A Participant has no rights whatsoever as a shareholder
with respect to any shares covered by an Option until the date of the issuance
of a stock certificate for the shares. A Participant who has been granted SARs
or Phantom Stock shall have no rights whatsoever as a shareholder with respect
to such SARs or Phantom Stock.
18. Withholding Tax.
---------------
The Company shall have the right to withhold in cash or shares of Common
Stock with respect to any payments made to Participants under the Plan any taxes
required by law to be withheld because of such payments. Notwithstanding the
foregoing, with respect to a Participant subject to Section 16(a) or 16(b) of
the Exchange Act, all amounts required to be withheld upon either (i) the
vesting of Restricted Stock or (ii) the exercise of a SAR or surrender of
Phantom Stock which had a set duration and for which payment is
-19-
<PAGE>
made in Common Stock, shall automatically be withheld in Common Stock otherwise
deliverable to the Participant and having a Fair Market Value determined on the
date the income is includable in the Participant's income equal to the amount of
taxes required to be withheld.
19. No Right To Employment.
----------------------
Participation in the Plan will not give any Participant a right to be
retained as an employee of the Company or any Subsidiary or Affiliate, or any
right or claim to any benefit under the Plan, unless the right or claim has
specifically accrued under the Plan.
20. Amendment of the Plan.
---------------------
The Committee may from time to time amend or revise the terms of this Plan
in whole or in part and may without limitation, adopt any amendment deemed
necessary; provided, however, that (a) no change in any award previously granted
-------- -------
to a Participant may be made that would impair the rights of the Participant
without the Participant's consent and (b) no amendment may extend the period
during which a Participant may exercise an ISO beyond the period set forth in
Section 6(a)(ii) or 6(e).
21. Shareholder Approval.
--------------------
Continuance of the Plan shall be subject to approval by the shareholders of
the Company within 12 months before or after the date the Plan is adopted by the
Committee.
22. Conditions Upon Issuance of Shares.
----------------------------------
An Option shall not be exercisable, a share of Common Stock shall not be
issued pursuant to the exercise of an Option, and Restricted Stock shall not be
awarded until such time as the Plan has been approved by the shareholders of the
Company and unless the award of Restricted Stock, exercise of such Option and
the issuance and delivery of such share pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act,
the Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the shares of Common stock may
then be listed, and shall
-20-
<PAGE>
be further subject to the approval of counsel for the Company with respect to
such compliance. As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Common Stock is being purchased only for
investment and without any present intention to sell or distribute such shares
if, in the opinion of counsel for the Company, such a representation is required
by any of the aforementioned relevant provisions of law.
23. Participation Rights.
--------------------
In the event of a sale of equity securities by or on behalf of one or more
of the Company's shareholders (in one transaction or series of transactions)
resulting in a Change in Control, Participants shall be given timely notice
thereof and shall have the right to surrender Options, Phantom Stock or SARs in
such sale and receive, on a pro rata basis, the amount as to which the Option,
Phantom Stock or SARs could be converted if such Option Phantom Stock or SAR was
exercised immediately prior to such transaction, less the Option Price.
24. Effective Date and Termination of Plan.
--------------------------------------
24.1 Effective Date. This Plan is effective as of the later of the date of
--------------
its adoption by the Committee, or the date it is approved by the shareholders of
the Company, pursuant to Section 21.
24.2 Termination of the Plan. The Committee may terminate the Plan at any
-----------------------
time with respect to any shares that are not then subject to Options or
Restricted Stock. Termination of the Plan will not affect the rights and
obligations of any Participant with respect to Options, SARs, Phantom Stock or
Restricted Stock awarded before termination.
* * * * *
I hereby certify that the foregoing Plan was adopted by the Board of
Directors of Vistana, Inc. on December 27, 1996.
Executed as of December 27, 1996.
-21-
<PAGE>
/s/ Jeffrey A. Adler
-------------------------------------------
Jeffrey A. Adler
Director, President and Co-Chief Executive Officer
I hereby certify that the foregoing Plan was approved by the shareholders
of Vistana, Inc. December 27, 1996.
Executed at Orlando, Florida as of December 27, 1996.
/s/ Jeffrey A. Adler
-------------------------------------------
Jeffrey A. Adler
Director, President and Co-Chief Executive Officer
-22-
<PAGE>
EXHIBIT 10.9
------------
VISTANA, INC.
EMPLOYEE STOCK PURCHASE PLAN
----------------------------
Vistana, Inc., a corporation organized under the laws of the State of
Florida (the "Company"), hereby adopts The Vistana, Inc. Employee Stock Purchase
Plan (the "Plan"). The purposes of the Plan are as follows:
(1) To assist employees of the Company and its Subsidiary Corporations (as
defined below) in acquiring a stock ownership interest in the Company pursuant
to a plan which is intended to qualify as an "employee stock purchase plan"
within the meeting of Section 423(b) of the Internal Revenue Code of 1986, as
amended (the "Code").
(2) To help employees provide for their future security and to encourage
them to remain in the employment of the Company and its Subsidiary Corporations.
1. Definitions.
-----------
Whenever any of the following terms is used in the Plan with the first
letter or letters capitalized, it shall have the following meaning unless
context clearly indicates to the contrary (such definitions to be equally
applicable to both the singular and the plural forms of the terms defined):
(a) "Authorization" has the meaning assigned to that term in Section
3(b) hereof.
(b) "Board of Directors" or "Board" means the Board of Directors of
the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the committee appointed to administer the Plan
pursuant to Section 12 hereof.
(e) "Company" means Vistana, Inc., a Florida corporation.
(f) "Date of Exercise" means, with respect to any Option, the last
day of the Offering Period for which the Option was granted.
(g) "Date of Grant" means, with respect to any Option, the date upon
which the Option is granted, as set forth in Section 3(a) hereof.
(h) "Eligible Compensation" means the employee's base
<PAGE>
pay.
(i) "Eligible Employee" means an employee of the Company or any
Subsidiary Corporation (1) who does not, immediately after the option is
granted, own stock possessing five percent or more of the total combined voting
power or value of all classes of stock of the Company, a Parent Corporation or a
Subsidiary Corporation; (2) who has been employed by the Company or any
Subsidiary Corporation for not less than six months; (3) whose customary
employment is for more than 20 hours per week; and (4) whose customary
employment is for more than five months in any calendar year. For purposes of
paragraph (i), the rules of Section 424(d) of the Code with regard to the
attribution of stock ownership shall apply in determining the stock ownership of
an individual, and stock which an employee may purchase under outstanding
options shall be treated as stock owned by the employee. During a leave of
absence meeting the requirements of Treasury Regulation (S)1.421-7(h)(2), an
individual shall be treated as an employee of the Company or Subsidiary
Corporation employing such individual immediately prior to such leave.
"Eligible Employee" shall not include any director of the Company or any
Subsidiary Corporation who does not render services to the Company in the status
of an employee within the meaning of Section 3401(c) of the Code.
(j) "Offering Period" shall mean the six-month periods commencing
April 1 and October 1 of each Plan Year as specified in section 3(a) hereof or
such other dates which may be determined by the Committee. The first Offering
Period shall commence April 1, 1997 or such other date which may be determined
by the Committee. Options shall be granted on the Date of Grant and exercised
on the Date of Exercise as provided in Sections 3(a) and 4(a) hereof.
(k) "Option" means an option granted under the Plan to an Eligible
Employee to purchase shares of the Company's Stock.
(l) "Option Period" means, with respect to any Option, the period
beginning upon the Date of Grant and ending upon the Date of Exercise.
(m) "Option Price" has the meaning set forth in Section 4(b) hereof.
(n) "Parent Corporation" means any corporation, other than the
Company, in an unbroken chain of corporations ending with the Company if, at the
time of the granting of the Option, each of the corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
(o) "Participant" means an Eligible Employee who has
-2-
<PAGE>
complied with the provisions of Section 3(b) hereof.
(p) "Payday" means the regular and recurring established day for
payment of cash compensation to employees of the Company or any Subsidiary
Corporation.
(q) "Plan" means The Vistana, Inc. Employee Stock Purchase Plan.
(r) "Plan Year" means the calendar year.
(s) "Stock" means the shares of the Company's Common Stock, $0.01 par
value.
(t) "Subsidiary Corporation" means any corporation, other than the
Company, in an unbroken chain of corporations beginning with the Company if, at
the time of the granting of the Option, each of the corporations other than the
last corporation in an unbroken chain owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
2. Stock Subject to the Plan.
-------------------------
Subject to the provisions of Section 9 hereof (relating to adjustments upon
changes in the Stock) and Section 11 hereof (relating to amendments of the
Plan), the Stock which may be sold pursuant to Options granted under the Plan
shall not exceed in the aggregate 1,000,000 shares in total and may be unissued
shares or treasury shares or shares bought on the market for purposes of the
Plan.
3. Grant of Options.
----------------
(a) General Statement. The Company shall offer Options under the Plan
-----------------
to all Eligible Employees in successive three-month Offering Periods until the
earlier of (i) the date when the number of shares of Stock available under the
Plan have been sold or (ii) the date when the Plan is terminated. Dates of Grant
shall include April 1 and October 1 of each Plan Year and/or such other date or
dates as the Committee may from time to time determine. Each Option shall expire
on the Date of Exercise immediately after the automatic exercise of the Option
pursuant to Section 4(a) hereof. The number of shares of Stock subject to each
Option shall equal the payroll deductions authorized by each Participant in
accordance with subsection (b) hereof for the Option Period, divided by the
Option Price, except as provided in Section 4(a).
(b) Election to Participate; Payroll Deduction Authorization. Except
--------------------------------------------------------
as provided in subsection (d) hereof, an Eligible Employee shall participate in
the Plan only by means of payroll deduction. Each Eligible Employee who elects
to
-3-
<PAGE>
participate in the Plan shall deliver to the Company during the calendar month
preceding a Date of Grant no later than five (5) working days before such Date
of Grant, a completed and executed written payroll deduction authorization in a
form prepared by the Company (the "Authorization"). An Eligible Employee's
Authorization shall give notice of such Eligible Employee's election to
participate in the Plan for the next following Offering Period and subsequent
Offering Periods and shall designate a stated whole dollar amount of Eligible
Compensation to be withheld on each Payday. The amount withheld shall not be
less than $10.00 each Payday and the stated amount shall not exceed 10% of
Eligible Compensation. The cash compensation payable to a Participant for an
Offering Period shall be reduced each Payday through a payroll deduction in an
amount equal to the stated withdrawal amount specified in the Authorization
payable on such Payday, and such amount shall be credited to the Participant's
account under the Plan. Any Authorization shall remain in effect until the
Eligible Employee amends the same pursuant to this subsection, withdraws
pursuant to Section 5 or ceases to be an Eligible Employee pursuant to Section
6.
(c) $25,000 Limitation. No Eligible Employee shall be granted an
------------------
Option under the Plan which permits his rights to purchase stock under the Plan
and under all other employee stock purchase plans of the Company, any Parent
Corporation or any Subsidiary Corporation subject to Section 423 of the Code to
accrue at a rate which exceeds $25,000 of fair market value of such stock
(determined at the time the Option is granted) for each calendar year in which
the Option is outstanding at any time. For purpose of the limitation imposed by
this subsection, the right to purchase stock under an Option accrues when the
Option (or any portion thereof) first becomes exercisable during the calendar
year, the right to purchase stock under an Option accrues at the rate provided
in the Option, but in no case may such rate exceed $25,000 of the fair market
value of such stock (determined at the time such Option is granted) for any one
calendar year, and a right to purchase stock which has accrued under an Option
may not be carried over to any other Option.
(d) Leaves of Absence. During a leave of absence meeting the
-----------------
requirements of Treasury Regulation Section 1.421-7(h)(2), a Participant may
continue to participate in the Plan by making cash payments to the Company on
each Payday equal to the amount of the Participant's payroll deductions under
the Plan for the Payday immediately preceding the first day of such
Participant's leave of absence.
4. Exercise of Options; Option Price.
---------------------------------
(a) General Statement. Each Participant automatically and without any
-----------------
act on such Participant's part shall be deemed to have exercised such
Participant's Option on the Date of Exercise to
-4-
<PAGE>
the extent that the balance then in the Participant's account under the Plan is
sufficient to purchase at the Option Price whole shares of the Stock subject to
the Option. Certificates representing fractional shares will not be issued.
(b) Option Price Defined. The option price per share of Stock (the
--------------------
"Option Price") to be paid by a Participant upon the exercise of the
Participant's Option shall be equal to 85% of the lesser of (i) the fair market
value of a share of Stock on the Date of Exercise or (ii) the fair market value
of a share of Stock on the Date of Grant. The fair market value of a share of
Stock as of a given date shall be: (i) the closing price of a share of Stock on
the principal exchange on which the Stock is then trading, if any, on such date,
or, if shares were not traded on such date, then on the next preceding trading
day during which a sale occurred; (ii) if the Stock is not traded on an exchange
but is quoted on Nasdaq or a successor quotation system, (1) the closing sales
price (if the Stock is then listed as a National Market Issue under the NASD
National Market System) or (2) the mean between the closing representative bid
and asked prices (in all other cases) for a share of the Stock on such date, or,
if shares were not traded on such date, then on the next preceding trading day
during which a sale occurred, as reported by Nasdaq or such successor quotation
system; (iii) if the Stock is not publicly traded on an exchange and not quoted
on Nasdaq or a successor quotation system, the mean between the closing bid and
asked prices for a share of Stock on such date, or, if shares were not traded on
such date, then on the next preceding trading day during which a sale occurred,
as determined in good faith by the Committee; or (iv) if the Stock is not
publicly traded, the fair market value of a share of Stock established by the
Committee acting in good faith.
(c) Delivery of Share Certificate. As soon as practicable after the
-----------------------------
exercise of any Option, the Company will deliver to the Participant or his or
her nominee the whole shares of Stock purchased by the Participant from funds
credited to the Participant's account under the Plan. Any cash in lieu of
fractional shares of Stock remaining after the purchase of whole shares of Stock
upon exercise of an Option will be credited to such Participant's account and
carried forward and applied toward the purchase of whole shares of Stock
pursuant to the Option, if any, granted to such Participant for the next
following Offering Period. Certificates representing fractional shares will not
be issued. In the event the Company is required to obtain authority from any
commission or agency to issue any such certificate, the Company shall seek to
obtain such authority. The inability of the Company to obtain authority from
any such commission or agency which the Committee in its absolute discretion,
deems necessary for the lawful issuance of any such certificate shall relieve
the Company from liability to any Participant except to pay to the Participant
the amount of the balance in the Participant's account in cash in one lump sum
without any interest thereon.
-5-
<PAGE>
(d) Pro Rata Allocations. If the total number of shares of Stock for
--------------------
which options are to be exercised on any date exceeds the number of shares
remaining unsold under the Plan (after deduction of all shares for which Options
have theretofore been exercised), the Committee shall make a pro rata allocation
--- ----
of the available remaining shares in as nearly a uniform manner as shall be
practicable and any balance of payroll deductions credited to the accounts of
Participants which have not been applied to the purchase of shares of Stock
shall be paid to such Participants in cash in one lump sum within sixty (60)
days after the Date of Exercise, without any interest thereon.
5. Withdrawal from the Plan.
------------------------
(a) General Statement. Any Participant may withdraw from
-----------------
participation under the Plan at any time except that no Participant may withdraw
during the last ten (10) days of any Offering Period. A Participant who wishes
to withdraw from the Plan must deliver to the Company a notice of withdrawal in
a form prepared by the Company (the "Withdrawal Election") not later than ten
(10) days prior to the Date of Exercise during any Offering Period. Upon
receipt of a Participant's Withdrawal Election, the Company shall pay to the
Participant the amount of the balance in the Participant's account under the
Plan in cash in one lump sum within sixty (60) days, without any interest
thereon. Upon receipt of a Participant's Withdrawal Election by the Company,
the Participant shall cease to participate in the Plan and the Participant's
Option shall terminate.
(b) Eligibility Following Withdrawal. A Participant who withdraws
--------------------------------
from the Plan and who is still an Eligible Employee shall be eligible to
participate again in the Plan as of any subsequent Date of Grant by delivering
to the Company an Authorization pursuant to Section 3(b) hereof.
6. Termination of Employment.
-------------------------
(a) Termination of Employment Other than by Death. If the employment
---------------------------------------------
of a Participant terminates other than by death, the Participant's participation
in the Plan automatically and without any act on the Participant's part shall
terminate as of the date of the termination of the Participant's employment. As
soon as practicable after such a termination of employment, the Company will pay
to the Participant the amount of the balance in the Participant's account under
the Plan without any interest thereon. Upon a Participant's termination of
employment covered by this Section 6(a), the Participant's Authorization,
interest in the Plan and Option under the Plan shall terminate.
(b) Termination By Death. If the employment of a Participant is
--------------------
terminated by the Participant's death, the executor
-6-
<PAGE>
of the Participant's will or the administrator of the Participant's estate by
written notice to the Company may request payment of the balance in the
Participant's account under the Plan, in which event the Company shall make such
payment without any interest thereon as soon as practicable after receiving such
notice; upon receipt of such notice the Participant's Authorization, interest in
the Plan and Option under the Plan shall terminate. If the Company does not
receive such notice prior to the next Date of Exercise, the Participant's Option
shall be deemed to have been exercised on such Date of Exercise.
7. Restriction Upon Assignment.
---------------------------
An Option granted under the Plan shall not be transferable other than by
will or the laws of descent and distribution, and is exercisable during the
Participant's lifetime only by the Participant. Except as provided in Section
6(b) hereof, an Option may not be exercised to any extent except by the
Participant. The Company shall not recognize and shall be under no duty to
recognize any assignment or alienation of the Participant's interest in the
Plan, the Participant's Option or any rights under the Participant's Option.
8. No Rights of Shareholders Until Shares Issued.
---------------------------------------------
With respect to shares of Stock subject to an Option, a Participant shall
not be deemed to be a shareholder of the Company, and the Participant shall not
have any of the rights or privileges of a shareholder, until such shares have
been issued to the Participant or his or her nominee following exercise of the
Participant's Option. No adjustments shall be made for dividends (ordinary or
extraordinary, whether in cash, securities, or other property) or distribution
or other rights for which the record date occurs prior to the date of such
issuance, except as otherwise expressly provided herein.
9. Changes in the Stock; Adjustments of an Option.
----------------------------------------------
Whenever any change is made in the Stock or to Options outstanding under
the Plan, by reason of a stock split, stock dividend, recapitalization or other
subdivision, combination, or reclassification of shares, appropriate action
shall be taken by the Committee to adjust accordingly the number of shares of
Stock subject to the Plan and the number and the Option Price of shares of Stock
subject to the Options outstanding under the Plan to preserve, but not increase,
the rights of Participants hereunder.
10. Use of Funds; No Interest Paid.
------------------------------
All funds received or held by the Company under the Plan shall be included
in the general funds of the Company free of any trust or other restriction and
may be used for any corporate purpose. No
-7-
<PAGE>
interest will be paid to any Participant or credited to any Participant's
account under the Plan with respect to such funds.
11. Amendment of the Plan.
---------------------
The Board of Directors may amend, suspend, or terminate the Plan at any
time and from time to time, provided that shareholder approval shall be required
to amend the Plan (i) to increase the total number of shares of Stock reserved
for sale pursuant to Options under the Plan; (ii) change the classification of
employees eligible to participate under the Plan, (iii) in any manner that would
cause the Plan to no longer be an "employee stock purchase plan" within the
meaning of Section 423(b) of the Code or (iv) in any manner that would require
shareholder approval under applicable law, regulation or rule.
12. Administration by Committee; Rules and Regulations.
--------------------------------------------------
(a) Appointment of Committee. The Plan shall be administered by the
------------------------
Committee. The Committee shall consist of two or more members of the Board of
Directors appointed by the Board of Directors to administer the Plan. Each
member of the Committee shall be (A) a "non-employee director" (as defined by
Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Act"));
and (B) once the reliance period expires under Section 1.162-27(f) of the
Treasury Department Regulations, an "outside director" under Section 1.162-
27(a)(3) of the Treasury Department Regulations. The Committee at its option
may utilize the services of an agent to assist in the administration of the Plan
including establishing and maintaining an individual securities account under
the Plan for each Participant.
(b) Duties and Powers of Committee. It shall be the duty of the
------------------------------
Committee to conduct the general administration of the Plan in accordance with
the provisions of the Plan. The Committee shall have the power to interpret the
Plan and the terms of the Options and to adopt such rules for the
administration, interpretation, and application of the Plan as are consistent
therewith and to interpret, amend or revoke any such rules. In its absolute
discretion, the Board may at any time and from time to time exercise any and all
rights and duties of the Committee under the Plan.
(c) Majority Rule. The Committee shall act by a majority of its
-------------
members in office. The Committee may act either by vote at a meeting or by a
memorandum or other written instrument signed by a majority of the Committee.
(d) Compensation; Professional Assistance; Good Faith Actions. All
---------------------------------------------------------
expenses and liabilities incurred by members of the Committee in connection with
the administration of the Plan shall be borne by the Company. The Committee
may, with the approval of
-8-
<PAGE>
the Board, employ attorneys, consultants, accountants, appraisers, brokers or
other persons. The Committee, the Company and its officers and directors shall
be entitled to rely upon the advice, opinions or valuations of any such persons.
All actions taken and all interpretations and determinations made by the
Committee in good faith shall be final and binding upon all Participants, the
Company and all other interested persons. No member of the Committee shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Plan or the Options, and all members of the Committee
shall be fully protected by the Company in respect to any such action,
determination, or interpretation.
13. No Rights as an Employee.
------------------------
Nothing in the Plan shall be construed to give any person (including any
Eligible Employee or Participant) the right to remain in the employ of the
Company, a Parent Corporation or a Subsidiary Corporation or to affect the right
of the Company, any Parent Corporation or any Subsidiary Corporation to
terminate the employment of any person (including any Eligible Employee or
Participant) at any time, with or without cause.
14. Merger, Acquisition or Liquidation of the Company.
-------------------------------------------------
In the event of the merger or consolidation of the Company into another
corporation, the acquisition by another corporation of all or substantially all
of the Company's assets or 50% or more of the Company's then outstanding voting
stock, the liquidation or dissolution of the Company or any other reorganization
of the Company, the Date of Exercise with respect to outstanding Options shall
be the business day immediately preceding the effective date of such merger,
consolidation, acquisition, liquidation, dissolution, or reorganization unless
the Committee shall, in its sole discretion, provide for the assumption or
substitution of such Options in a manner complying with Section 424(a) of the
Code.
15. Term; Approval by Shareholders.
------------------------------
No Option may be granted during any period of suspension of the Plan or
after termination of the Plan. The Plan shall be submitted for the approval of
the Company's shareholders within 12 months after the date of the Board of
Directors' adoption of the Plan. Options may be granted prior to such
shareholder approval; provided, however, that such Options shall not be
-------- -------
exercisable prior to the time when the Plan is approved by the shareholders; and
provided, further, that if such approval has not been obtained by the end of
- -------- -------
said 12-month period, all Options previously granted under the Plan shall
thereupon expire.
-9-
<PAGE>
16. Effect Upon Other Plans.
-----------------------
The adoption of the Plan shall not affect any other compensation or
incentive plans in effect for the Company, any Parent Corporation or any
Subsidiary Corporation. Nothing in this Plan shall be construed to limit the
right of the Company, any Parent Corporation or any Subsidiary Corporation (a)
to establish any other forms of incentives or compensation for employees of the
Company, any Parent Corporation or any Subsidiary Corporation or (b) to grant or
assume options otherwise than under this Plan in connection with any proper
corporate purpose, including, but not by way of limitation, the grant or
assumption of options in connection with the acquisition, by purchase, lease,
merger, consolidation or otherwise, of the business, stock or assets of any
corporation, firm or association.
17. Conditions to Issuance of Stock Certificates.
--------------------------------------------
The Company shall not be required to issue or deliver any certificate or
certificates for shares of Stock purchased upon the exercise of Options prior to
fulfillment of all the following conditions:
(a) The admission of such shares to listing on all stock exchanges,
if any, on which is then listed; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under the rulings or regulations of the
Securities and Exchange Commission or any other governmental regulatory body,
which the Committee shall, in its absolute discretion, deem necessary or
advisable; and
(c) The obtaining of any approval or other clearance from any state
or federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The payment to the Company of all amounts which it is required to
withhold under federal, state or local law upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may from time to time establish for
reasons of administrative convenience.
18. Notification of Disposition.
---------------------------
Each Participant shall give prompt notice to the Company of any disposition
or other transfer of any shares of Stock purchased upon exercise of an Option if
such disposition or transfer is made (a) within two (2) years from the Date of
Grant of the Option or
-10-
<PAGE>
(b) within one (1) year after the transfer of such shares to such Participant
upon exercise of such Option. Such notice shall specify the date of such
disposition or other transfer and the amount realized, in cash, other property,
assumption of indebtedness or other consideration, by the Participant in such
disposition or other transfer.
19. Notices.
-------
Any notice to be given under the terms of the Plan to the Company shall be
addressed to the Company in care of its Secretary and any notice to be given to
any Eligible Employee or Participant shall be addressed to such Eligible
Employee at such Eligible Employee's last address as reflected in the Company's
records. By a notice given pursuant to this Section, either party may designate
a different address for notices to be given to it, him or her. Any notice which
is required to be given to an Eligible Employee or a Participant shall, if the
Eligible Employee or Participant is then deceased, be given to the Eligible
Employee's or Participant's personal representative if such representative has
previously informed the Company of his status and address by written notice
under this Section. Any notice shall have been deemed duly given if enclosed in
a properly sealed envelope or wrapper addressed as aforesaid at the time it is
deposited (with postage prepaid) in a post office or branch post office
regularly maintained by the United States Postal Service.
20. Commencement. The Plan shall become effective on such date as may be
------------
specified by the Committee which absent a resolution of the Board to the
contrary shall be the date set forth in Section 1(j); provided, however, that in
-------- -------
no event shall the Plan become effective unless within 12 months of the date of
its adoption by the Board, it has been approved by the shareholders of the
Company.
21. Headings.
--------
Headings are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of the Plan.
I hereby certify that the foregoing Plan was adopted by the Board of
Directors of Vistana, Inc. on December 27, 1996.
Executed as of December 27, 1996.
/s/ Jeffrey A. Adler
------------------------------------
Jeffrey A. Adler
Director, President and Co-Chief
Executive Officer
-11-
<PAGE>
I hereby certify that the foregoing Plan was approved by the shareholders
of Vistana, Inc. on December 27, 1996.
Executed at Orlando, Florida on December 27, 1996.
/s/ Jeffrey A. Adler
------------------------------------
Jeffrey A. Adler
Director, President and Co-Chief
Executive Officer
-12-
<PAGE>
EXHIBIT 10.10
-------------
FORM OF
VISTANA, INC.
INDEMNIFICATION AGREEMENT
-------------------------
INDEMNIFICATION AGREEMENT (this "Agreement") dated as of February 10, 1997,
between VISTANA, INC., a Florida corporation (the "Company"), and
___________________ ("Indemnitee"):
W I T N E S S E T H:
-------------------
WHEREAS, Indemnitee is or has agreed to become an officer and/or director
of the Company and in such capacity performs or will perform a valuable service
for the Company;
WHEREAS, the Company's Articles of Incorporation (the "Articles of
Incorporation") authorize the Company to indemnify its officers and directors in
accordance with the Florida Business Corporation Act (the "Act");
WHEREAS, Section 607.0850 of the Act provides that the indemnification
provided under the Act is not exclusive of any other rights in respect to
indemnification or otherwise to which those seeking indemnification may be
entitled under the Company's Articles of Incorporation, an agreement, a vote of
shareholders or disinterested directors, or otherwise, to the extent the
provisions of such instruments or contract are consistent with the Act;
WHEREAS, the Act thus contemplates that agreements may be entered into
between the Company and the Company's directors and officers with respect to
indemnification of such individuals; and
WHEREAS, in order to encourage Indemnitee to begin or to continue to serve
as an officer or a member of the Board of Directors of the Company, and to
perform other designated services for the Company at its request, the Company
has determined and agreed to enter into this Agreement with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's continued service as an
officer and/or director of the Company, and the performance of such other
services as requested by the Company, the parties hereby agree as follows:
1. Statutory Indemnity of Indemnitee. Except as expressly set forth
---------------------------------
herein and subject to the provisions of this Agreement, the Company shall
defend, hold harmless and indemnify Indemnitee to the full extent authorized or
permitted by the provisions of the Act, as currently in effect, or by any
amendment thereof or other statutory provision authorizing or permitting such
indemnification adopted after the date hereof.
<PAGE>
2. General Indemnity. Except as expressly set forth herein and subject
-----------------
to the provisions of this Agreement, in addition to any other indemnification to
which Indemnitee may be entitled pursuant to the Act, the Company's Articles of
Incorporation or Bylaws, or otherwise, the Company shall defend, hold harmless
and indemnify Indemnitee in the event Indemnitee was, is, or is threatened to be
made a named defendant or respondent, in any threatened, pending or completed
dispute, action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal, by reason of the fact that
Indemnitee is or was an officer, director, employee or agent of the Company, or
is or was serving at the request of the Company as an officer, director,
partner, trustee, employee or agent of another foreign or domestic corporation,
partnership, limited liability company, joint venture, trust, employee benefit
plan or other enterprise, against any obligation to pay a judgment, settlement,
penalty, fine (including an excise tax assessed with respect to an employment
benefit plan), expenses (including attorneys' fees), and amounts paid in
settlement actually and reasonably incurred by Indemnitee in connection with
such dispute, action, suit or proceeding. For purposes of this Section 2,
Indemnitee shall be considered to be serving an employee benefit plan at the
request of the Company if Indemnitee's duties to the Company also impose duties
on, or otherwise involve services by, Indemnitee to the plan or to participants
in or beneficiaries of the plan.
3. Limitations on General Indemnity.
--------------------------------
(a) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise subject to indemnification hereunder if and to the
extent Indemnitee has otherwise actually received such payment under directors'
and officers' liability insurance carried by the Company, or pursuant to any
other insurance policy, contract, agreement or otherwise.
(b) No indemnity pursuant to Section 2 of this Agreement shall be paid
by the Company to the extent of any liability incurred in a proceeding in which
Indemnitee is adjudged liable to the Company or is subjected to injunctive
relief in favor of the Company:
(i) for any appropriation, in violation of Indemnitee's
duties, of any business opportunities of the Company;
(ii) for acts or omissions which involve intentional
misconduct or a knowing violation of law;
(iii) for the types of liability set forth in Section
607.0834 of the Act (relating to unlawful payment of dividends, etc.);
-2-
<PAGE>
(iv) for any transaction from which Indemnitee received
any improper personal benefit;
(v) for any action or inaction by Indemnitee, which
action or inaction is beyond the scope of his duties as an officer,
director, or agent of the Company, or which action or inaction is
beyond the scope of his duties, while serving at the request of the
Company, as an officer, director, partner, trustee, employee, or agent
of another foreign or domestic corporation, partnership, limited
liability company, joint venture, trust, employee benefit plan, or
other enterprise;
(vi) in connection with or as a result of any action, suit
or proceeding brought by the Company or any of its subsidiaries,
except a derivative proceeding commenced by any third party; or
(vii) for matters as to which indemnification would be in
contravention of the laws of the State of Florida or of the United
States of America, whether as a matter of policy or pursuant to
statutory provision.
4. Notification and Defense of Claim.
---------------------------------
(a) Promptly after receipt by Indemnitee of notice of the
commencement of any action, suit or proceeding, Indemnitee will, if a claim in
respect thereto is to be made against the Company under this Agreement, promptly
notify the Company of the commencement thereof, but the failure to so notify the
Company will not relieve the Company from any liability which it may have to
Indemnitee otherwise under this Agreement, unless such failure causes the rights
of the Company to be materially prejudiced.. With respect to any such action,
suit or proceeding as to which Indemnitee so notifies the Company:
(i) the Company will be entitled to participate therein at
its own expense; and
(ii) except as otherwise provided below, to the extent that
it may desire, the Company may assume the defense thereof.
(b) After notice from the Company to Indemnitee of the Company's
election to assume the defense thereof, the Company will not be liable to
Indemnitee under this Agreement for any legal or other expenses subsequently
incurred by Indemnitee in connection with the defense thereof other than
reasonable costs of investigation or as otherwise provided below. Indemnitee
shall have the right to employ counsel of Indemnitee's choosing in such action,
suit or proceeding but the fees and expenses of such counsel incurred after
notice from the Company of its assumption of
-3-
<PAGE>
the defense thereof shall be at the expense of Indemnitee unless (x) the
employment of counsel by Indemnitee has been authorized in writing by the
Company, (y) the Company and Indemnitee shall reasonably conclude that there may
be a conflict of interest between the Company and Indemnitee in the conduct of
the defense of such action, or (z) the Company shall not in fact have timely
employed counsel to assume the defense of such action, in each of which cases
the reasonable fees and expenses of Indemnitee's counsel shall be paid by the
Company.
(c) The Company shall not be liable to Indemnitee under this
Agreement for any amounts paid in settlement of any threatened or pending
action, suit or proceeding without the Company's prior written consent. The
Company shall not settle any such action, suit or proceeding in any manner which
would impose any penalty or limitation on Indemnitee without Indemnitee's prior
written consent. Neither the Company nor Indemnitee will unreasonably withhold
consent to any proposed settlement.
5. Prepayment Of Expenses. Unless Indemnitee otherwise elects, expenses
----------------------
incurred in defending any civil or criminal action, suit or proceeding will be
paid by the Company in advance of the final disposition of such action, suit or
proceeding if: (i) Indemnitee furnishes the Company a written affirmation of
Indemnitee's good faith belief that Indemnitee's conduct does not constitute
behavior of the kind described in Section 3(b) of this Agreement; and (ii)
Indemnitee furnishes the Company a written undertaking to repay any advances if
it is ultimately determined that Indemnitee is not entitled to be indemnified by
the Company under this Agreement (which written undertaking will provide that
the Company shall be entitled to collect its attorneys' fees and other out-of-
pocket costs incurred in connection with the enforcement of such undertaking).
6. Continuation Of Indemnity. Subject to Sections 2 and 3 hereof, all
-------------------------
agreements and obligations of the Company contained in this Agreement shall
continue during the period Indemnitee is an officer or director of the Company
and shall continue thereafter so long as Indemnitee shall be subject to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, and whether formal or informal, by
reason of the fact that Indemnitee was an officer, employee or agent of the
Company, or is or was serving at the request of the Company as an officer,
director, employee or agent of another corporation, partnership, limited
liability company, joint venture, trust or other enterprise.
7. Enforcement.
-----------
(a) The Company expressly confirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on it hereby in order to
induce Indemnitee to serve or to continue
-4-
<PAGE>
to serve as a director and/or officer of the Company and/or a subsidiary or
other affiliate of the Company, and acknowledges that Indemnitee is relying upon
this Agreement in agreeing to serve or to continue to serve in such capacity.
(b) In the event Indemnitee is required to bring any action to
enforce Indemnitee's rights or to collect moneys due under this Agreement and is
successful in such action, the Company shall promptly reimburse Indemnitee for
all of Indemnitee's reasonable fees and expenses in bringing and pursuing such
action, including reasonable attorneys' fees, court costs and other related
expenses.
8. Severability; Reformation. Each of the provisions of this Agreement
-------------------------
is a separate and distinct agreement and independent of the others, so that if
any provision hereof shall be held to be invalid or unenforceable in whole or in
part for any reason, such invalidity or unenforceability shall not affect the
validity or enforceability of the other provisions hereof. In the event that
all or any portion of this Agreement is ever held void or unenforceable by a
court of competent jurisdiction, then the parties hereto expressly authorize
such court to modify any provision(s) held void or unenforceable to the extent,
and only to the extent, necessary to render it valid and enforceable.
9. Notices. All notices, demands and other communications required or
-------
permitted hereunder ("Notices") shall be in writing and shall be deemed to have
been duly given (i) if delivered personally, upon receipt of delivery; or (ii)
if mailed by certified mail, return receipt requested, with proper postage
prepaid, on the fifth (5th) business day after mailing. All Notices shall be
delivered or addressed as follows:
If to the Company:
Vistana, Inc.
8801 Vistana Centre Drive
Orlando, Florida 32821
Attention: Chairman of the Board
---------
If to the Indemnitee:
____________________
____________________
____________________
Any party may change its address for Notices by giving a Notice hereunder
specifically setting forth such new address. If receipt of any Notice is
refused, such Notice shall be deemed to have been given on the date of such
refusal to accept receipt.
-5-
<PAGE>
10. Miscellaneous.
-------------
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Florida, without giving effect to the principles
of conflicts of law thereof.
(b) Neither this Agreement nor any rights or obligations hereunder
shall be assigned or transferred by Indemnitee and any such assignment shall
render this Agreement null and void for all purposes and in all respects.
(c) This Agreement shall be binding upon Indemnitee and upon the
Company, and their respective successors and assigns, including successors by
merger or consolidation, and shall inure to the benefit of Indemnitee, his or
her heirs and personal representatives, and to the benefit of the Company, its
successors and assigns.
(d) No amendment, modification or termination of this Agreement shall
be effective unless in writing signed by both parties hereto.
(e) Whenever the masculine, feminine or neuter gender is used in this
Agreement, it shall, where appropriate and the context so requires, include the
other genders as well, and the plural shall include the singular and the
singular the plural where appropriate and the context so requires.
(f) This Agreement may be executed in one or more counterparts, each
of which shall for all purposes be deemed to be an original but all of which
together shall constitute one and the same Agreement.
(g) The provisions of this Agreement shall cover claims, actions,
suits and proceedings, whether now pending or hereafter commenced, and shall be
retroactive to cover acts or omissions or alleged acts or omissions that
heretofore have taken place.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as
of the day and year first above written.
THE COMPANY:
-----------
VISTANA, INC., a Florida corporation
By:________________________________
Name:
Title:
INDEMNITEE:
----------
____________________________________
Print Name:
-7-
<PAGE>
EXHIBIT 10.11
-------------
REGISTRATION RIGHTS AGREEMENT
-----------------------------
REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as of February 10,
1997 among VISTANA, INC., a Florida corporation (together with its permitted
successors and assigns, the "Company"), and the persons whose signatures appear
on the execution pages of this Agreement (the "Holders") (capitalized and other
terms used herein and not otherwise defined shall have the meanings set forth in
Section 1 hereof).
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, immediately prior to the completion of the Initial Public
Offering, the Holders will own the number of shares of Common Stock, or options
to acquire the number of shares of Common Stock, set forth opposite such
Holder's name on Schedule A attached hereto and incorporated herein by this
----------
reference; and
WHEREAS, the Company desires to grant to each of the Holders, and each of
the Holders desires to accept, certain rights relating to the registration of
such Holder's Registrable Shares under the Securities Act.
The parties hereto, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, intending to be bound hereby, agree
as follows:
SECTION 1. Definitions.
-----------
As used in this Agreement, the following terms shall have the following
meanings:
Advice: See Section 6 hereof.
------
Adler means Jeffrey A. Adler and his executors and personal
-----
representatives.
Affiliate means, as to any person (i) any corporation, partnership, limited
---------
liability company, joint venture, trust or individual directly or indirectly
through one or more intermediaries controlled by or under common control with
such person, or which controls directly or indirectly through one or more
intermediaries, such person; (ii) a trust which has as its principal income
beneficiaries or remaindermen such person or any direct or indirect holder of
such person, or members of the immediate family of such person or direct or
indirect holder of such person; and (iii) any members of the immediate family of
such person or a member of the immediate family of any direct or indirect holder
of such person. For purposes of this definition, (i) no person, by virtue of
his, her or its direct or indirect
<PAGE>
ownership of Shares, shall be deemed to be an Affiliate of another person; (ii)
the terms "control", "controlled" and "common control with" mean the ability,
whether by the direct or indirect ownership of voting securities or other equity
interest, by contract or otherwise, to elect a majority of the directors of a
corporation, to select the managing partner of a partnership, or otherwise to
select, or have the power to remove and then select, a majority of those persons
exercising governing authority over an entity; and (iii) the term "immediate
family" means spouses, siblings and lineal descendants of a person.
Business Day means any day that is not a Saturday, a Sunday or a legal
------------
holiday on which banking institutions in the State of Florida are not required
to be open.
Cause, with respect to each Executive, has the meaning ascribed thereto in
-----
the then effective employment agreement, if any, between the Company and such
Executive, as the same may be amended, restated, modified or supplemented.
Change in Control means the occurrence of any one of the following events:
-----------------
(i) any (A) consolidation or merger of the Company in which
the Company is not the continuing or surviving corporation or which
contemplates that all or substantially all of the business and/ or assets
of the Company shall be controlled by another corporation or (B) a
recapitalization (including an exchange of Company equity securities by the
holders thereof), in either case, in which any "Person" (as such term is
used in Sections 13(d) and 14(d)(2) of the Exchange Act), other than the
Controlling Shareholders, becomes the beneficial owner (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of securities of the
Company representing more than 50% of the combined voting power of the
Company's then outstanding securities ordinarily having the right to vote
in the election of directors;
(ii) any sale, lease, exchange or transfer (in one transaction
or series of related transactions) of all or substantially all of the
assets of the Company and its Affiliates;
(iii) approval by the shareholders of the Company of any plan or
proposal for the liquidation or dissolution of the Company, unless such
plan or proposal is abandoned within 60 days following such approval; or
(iv) any "Person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act), other than the Controlling Shareholders,
shall become the beneficial
-2-
<PAGE>
owner of securities of the Company representing more than 50% of the
combined voting power of the Company's then outstanding securities
ordinarily having the right to vote in the election of directors.
Claims: See Section 8(a) hereof.
------
Closing Date means the date upon which the Initial Public Offering is
------------
completed.
Common Stock means the Common Stock, $0.01 par value, of the Company, or
------------
any other shares of capital stock of the Company into which such stock shall be
reclassified or changed (by operation of law or otherwise). If the Common Stock
has been so reclassified or changed, or if the Company pays a dividend or makes
a distribution on its Common Stock in shares of capital stock, or subdivides (or
combines) its outstanding shares of Common Stock into a greater (or smaller)
number of shares of Common Stock, a share of Common Stock shall be deemed to be
such number of shares of capital stock and amount of other securities to which a
holder of a share of Common Stock outstanding immediately prior to such
reclassification, exchange, dividend, distribution, subdivision or combination
would be entitled.
Controlling Shareholders means Gellein, Adler and JGG Holdings Trust, in
------------------------
each case together with their respective Affiliates, family members, former
spouses (if applicable) and trusts for the benefit of any of the foregoing.
Cutback Registration means any registration in which the managing
--------------------
underwriter advises the Company that marketing factors require a limitation of
the number of Registrable Shares to be underwritten in such registration.
Delay Period: See Section 2(d) hereof.
------------
Delay Notice: See Section 2(d) hereof.
------------
Delaying Notice: See Section 3(d) hereof.
---------------
Demand Effectiveness Period: See Section 3(b) hereof.
---------------------------
Demand Request: See Section 3(a) hereof.
--------------
Effectiveness Period: See Section 2(b) hereof.
--------------------
Exchange Act means the Securities Exchange Act of 1934, as amended.
------------
Executives means (i) each Holder (other than Affiliates of Gellein or
----------
Adler) and such Holder's respective executors and personal representatives and
(ii) any Person to whom an Affiliate
-3-
<PAGE>
of Gellein or Adler grants options to acquire Registrable Shares after the date
hereof (it being understood that any such Person must assume this Agreement in
writing in order to obtain the benefits hereof).
Gellein means Raymond L. Gellein, Jr. and his executors and personal
-------
representatives.
Good Reason, with respect to each Executive, has the meaning ascribed
-----------
thereto in the then effective employment agreement, if any, between the Company
and such Executive, as the same may be amended, restated, modified or
supplemented.
Holders: See the introductory clauses hereof.
-------
Initial Public Offering means the sale by the Company of approximately
-----------------------
4,625,000 shares of Common Stock to the public pursuant to an underwritten
offering.
Notice of Demand Request: See Section 3(a) hereof.
------------------------
Permanent Disability, with respect to each Executive, has the meaning
--------------------
ascribed thereto in the then effective Employment Agreement, if any, between the
Company and such Executive, as the same may be amended, restated, modified or
supplemented. If an Executive does not have an effective Employment Agreement,
then the term "Permanent Disability" means the inability of the Executive to
perform substantially all Executive's duties and responsibilities to the Company
by reason of a physical or mental disability or infirmity for either (i) a
continuous period of six months or (ii) 180 days during any consecutive twelve-
month period. The date of such Permanent Disability shall be (y), in the case
of clause (i) above, the last day of such six-month period or, if later, the day
on which satisfactory medical evidence of such Permanent Disability is obtained
by the Company, or (z) in the case of clause (ii) above, such date as is
determined in good faith by the Company. In the event that any disagreement or
dispute arises between the Company and Executive as to whether the Executive has
incurred a Permanent Disability, then, in any such event, Executive shall submit
to a physical and/or mental examination by a competent and qualified physician
licensed under the laws of the State of Florida who shall be mutually selected
by the Company and Executive, and such physician shall make the determination of
whether Executive suffers from any disability. In the absence of fraud or bad
faith, the determination of such physician as to Executive's condition at such
time shall be final and binding upon both the Company and the Executive. The
entire cost of any such examination shall be borne solely by the Company.
Person means any individual, corporation, partnership, joint venture,
------
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision
-4-
<PAGE>
thereof.
Prospectus means the prospectus included in any Registration Statement
----------
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective Registration
Statement in reliance upon Rule 430A), as amended or supplemented by any
prospectus supplement, with respect to the terms of the offering of any portion
of the Registrable Shares covered by such Registration Statement and all other
amendments and supplements to the prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
Registrable Shares means the shares of Common Stock owned, or acquirable,
------------------
by the Holders and their respective Affiliates as more particularly set forth on
Schedule A hereto, until in the case of any such share (i) it has been
- ----------
effectively registered under Section 5 of the Securities Act and disposed of
pursuant to an effective Registration Statement under the Securities Act; (ii)
it has been transferred other than pursuant to Rule "4(1-1/2)" (or any similar
private transfer exemption) under the Securities Act; (iii) it may be
transferred by a holder without registration pursuant to Rule 144 under the
Securities Act or any successor rule without regard to the volume limitations
contained in such rule; or (iv) it has ceased to be outstanding.
Registration Documents: See Section 8(a) hereof.
----------------------
Registration Statement means any registration statement of the Company that
----------------------
covers any of the Registrable Shares pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated by reference
in such registration statement.
Requested Registration means a registration demanded pursuant to Section 3
----------------------
for which the Registration Statement relating thereto has been declared
effective by the SEC and for which no stop-order suspending the effectiveness of
such registration statement has been issued by the SEC within the Demand
Effectiveness Period which prevents the Holders from completing the distribution
of their Registrable Shares included in such Registration Statement.
SEC means the Securities and Exchange Commission.
---
Securities Act means the Securities Act of 1933, as amended.
--------------
Shelf Registration means a registration pursuant to a Registration
------------------
Statement which provides for the sale by the Registrable Shares included therein
from time to time on a delayed
-5-
<PAGE>
or continuous basis pursuant to Rule 415 under the Securities Act, but shall not
provide for an underwritten registration (unless the Company, in its sole and
absolute discretion otherwise determines).
Underwritten Registration or Underwritten Offering means a registration in
--------------------------------------------------
which securities of the Company are sold to or through one or more underwriters,
on a firm commitment basis, for reoffering or sale to the public.
Voluntary Termination, with respect to each Executive, has the meaning
---------------------
ascribed thereto in then effective employment agreement, if any, between the
Company and such Executive, as the same may be amended, restated, modified or
supplemented.
SECTION 2. Required Shelf Registration.
---------------------------
(a) (i) Within 45 days prior to each of the second and third
anniversaries of the Closing Date, the Company shall give notice to each of
the Executives and their Affiliates who or which are holders of Registrable
Shares informing such parties that, on or shortly after such anniversary of
the Closing Date, the Company intends to file a registration statement for
the purpose of effecting a Shelf Registration for Registrable Shares of the
Executives and their respective Affiliates pursuant to this Section 2(a).
(ii) Each Executive and his or her Affiliates which hold
Registrable Shares may elect to include in such Shelf Registration up to
50% of such Person's Registrable Shares (determined as of the date hereof)
by giving notice to the Company to such effect within 20 days after the
date of the Company's notice referred to in Section 2(a)(i).
(iii) No Shelf Registration statement effected pursuant to this
Section 2(a) shall include an aggregate number of Registrable Shares in
excess of 5% of the outstanding Common Stock, in each case as of December
31, 1998 or December 31, 1999, respectively. In the event that the
Executives and their Affiliates which hold Registrable Shares seek to
include in any such Shelf Registration a number of Registrable Shares in
excess of such limitation, the Company shall register in such Shelf
Registration the Registrable Shares proposed to be sold by the Executives
and their respective Affiliates on a pro rata basis, based upon the number
--- ----
of Registrable Shares that each such party and their Affiliates originally
sought to include in such Shelf Registration.
(iv) The Company shall not be required to effect any Shelf
Registration pursuant to this Section 2(a) unless at least an aggregate of
25,000 Registrable Shares are sought to be included therein.
-6-
<PAGE>
(b) (i) Notwithstanding Section 2(a), each Executive shall have
the right to require the Company to effect a Shelf Registration for all of
the Registrable Shares of such Executive and his or her respective
Affiliates in the event of (A) such Executive's death or Permanent
Disability; (B) the termination of such Executive's employment by the
Company without Cause following the Closing Date; (C) a Change in Control;
or (D) Executive's Voluntary Termination of employment by the Company for
Good Reason.
(ii) In order to exercise his or her rights under Section 2(b),
an Executive shall deliver notice to the Company to such effect within 12-
months after the occurrence of any of the events described in Section
2(b)(i).
(c) The Company agrees to use its reasonable best efforts to keep
each Registration Statement filed pursuant to this Section 2 continuously
effective and usable for the resale of Registrable Shares for a period ending on
the earlier of (i) one year, two years in the case of a Registration Statement
filed pursuant to Section 2(b), from the date upon which such Registration
Statement was declared effective and (ii) the first date on which all the
Registrable Shares covered by such Shelf Registration have been sold pursuant to
such Registration Statement.
(d) Notwithstanding anything to the contrary contained in this
Agreement, the Company shall not be required to file a Registration Statement or
cause it to be declared effective at a time (x) after completion of a fiscal
year end, but prior to the availability of the year end audited financial
statements, (y) when the Company, in the good faith judgement of its board of
directors shall determine that any offering of Registrable Shares would impede,
delay or otherwise interfere with any pending or contemplated acquisition or
other material transaction involving the Company or (z) when the Company is in
possession of material information which, in the good faith judgment of the
Company's board of directors, if disclosed in a Registration Statement, would be
materially harmful to the interests of the Company and its holders (any such
period in clauses (y) or (z) is referred to as a "Delay Period"). A Delay
Period shall commence on and include the date that the Company gives written
notice (such notice referred to herein as the "Delay Notice") to the Holders
that it is not required to file a Registration Statement or cause it to be
declared effective pursuant to the provisions of this Section 2(d) and shall end
on the date when the Holders are advised in writing by the Company that the
current Delay Period is over (it being understood that the Company shall give
such notice to all Holders promptly upon making the determination that the Delay
Period is over); provided; however, that the Company shall not be entitled to
-------- -------
Delay Periods having durations that exceed 120 days in the
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<PAGE>
aggregate during any calendar year. Each Holder shall cease all disposition
efforts with respect to Registrable Shares held by them immediately upon receipt
of a Delay Notice.
(e) The time period for which the Company is required to maintain the
effectiveness of any Registration Statement shall be extended by the aggregate
number of days of all Delay Periods and such time period or the extension
thereof required by the preceding sentence is hereafter referred to as the
"Effectiveness Period."
(f) All registrations under this Section 2 shall be effected by the
Company's filing of a Registration Statement on Form S-2 or S-3 or any similar
short-form Registration Statement. If the Company is not eligible to use Form
S-2 or S-3 or any similar short-form Registration Statement at the time a
Registration Statement is required to be filed pursuant to this Section 2, the
rights of the each Executive hereunder shall be extended until the Company
becomes so eligible.
(g) The Company may, in its sole discretion, include other securities
in such Shelf Registration (whether for the account of the Company or other
Persons or otherwise combine the offering of the Registrable Shares with any
offering of other securities of the Company (whether for the account of the
Company or otherwise).
SECTION 3. Requested Registration.
----------------------
(a) At any time after the third anniversary of the Closing Date, each
of Gellein and Adler shall have the right to require the Company, by written
request (the "Demand Request"), to effect an Underwritten Registration with
respect to Registrable Shares owned by such individuals, if any, and their
respective Affiliates. The Company will give prompt written notice (the "Notice
of Demand Request") of such demand for an Underwritten Registration to all
Holders and thereupon the Company shall, as expeditiously as reasonably
practicable, file a Registration Statement relating to the registration under
the Securities Act of the Registrable Shares which the Company has been so
requested to register by the demanding Holder and all other Registrable Shares
as to which Holders (other than the demanding Holder) shall have made a written
request to the Company for registration thereof within 30 days after the Notice
of Demand Request, all to the extent necessary to permit the sale or other
disposition in an Underwritten Offering by such Holders of the Registrable
Shares to be so registered; provided; however, that (i) if such registration is
-------- -------
a Cutback Registration, the Company shall register in such registration (A)
first, the Registrable Shares proposed to be sold by Gellein and Adler and their
respective Affiliates on a pro rata basis, based upon the number of Registrable
--- ----
Shares that each such party and their Affiliates originally sought to include in
such
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<PAGE>
registration and (B) second, the Registrable Shares proposed to be sold by each
of the Holders and their respective Affiliates, other than Gellein and Adler and
their respective Affiliates, on a pro rata basis, based upon the number of
--- ----
Registrable Shares that each such party and their respective Affiliates
originally sought to include in such registration; and (ii) that the Company
shall not be obligated to take any action to effect any such registration,
qualification or compliance pursuant to this Section 4(a) (A) within 90 days (or
such other date as may be agreed between the Company, the Holders, and the
managing underwriter of an Underwritten Offering of Registrable Shares)
immediately following the effective date of any Registration Statement
pertaining to such an Underwritten Offering; (B) if a Requested Registration has
become effective under the Securities Act within the past 360 days; or (C) if
the demanding Holder has requested the registration of a number of Registrable
Shares which is less than 5% of the outstanding Common Stock or greater than 15%
of the outstanding Common Stock, in each case set forth in the Company's
Quarterly Report on Form 10-Q (or any successor form) for the Company's most
recently completed fiscal quarter prior to the Company's receipt of the Demand
Request.
(b) The Company agrees to keep each Registration Statement filed
pursuant to this Section 3 continuously effective and usable for the resale of
Registrable Shares for a period of up to 90 days or until all Registrable Shares
included in such Registration Statement have completed the distribution
described in the Registration Statement relating thereto, whichever first occurs
(the "Demand Effectiveness Period"), provided, however, that during such 90-day
-------- -------
period the Company may give notice to all such Holders that the Registration
Statement or the prospectus included therein is no longer usable for offers and
sales of Registrable Shares, in which case the 90-day period will be tolled
until such time as each such Holder and the managing underwriter of such
Underwritten Offering either receives copies of a supplemented or amended
prospectus or is advised in writing by the Company that use of the prospectus
may be resumed (it being understood that in such case the Company shall promptly
comply with its obligations under Section 6(a)).
(c) The Company, if eligible to do so, shall file a Registration
Statement covering the Registrable Shares so requested to be registered on Form
S-2 or S-3 or any similar short-form registration under the Securities Act as
soon as reasonably practicable after the receipt of the Demand Request;
provided, however, that if the managing underwriter of such Underwritten
- -------- -------
Offering shall advise the Company in writing that, in its opinion, the use of
another form of Registration Statement is of material importance to the success
of such proposed Underwritten Offering, then such Underwritten Registration
shall be effected on such other form.
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<PAGE>
(d) Each of Gellein and Adler shall be entitled to two Requested
Registrations. Notwithstanding anything contained in this Section 3, if (x) the
SEC has issued a stop-order as a result of actions taken by a demanding Holder
or (y) a demanding Holder gives notice (the "Delaying Notice"), at any time
prior to the time the Registration Statement is declared effective or prior to
the last day of Demand Effectiveness Period, that such demanding Holder desires
the Company to either withdraw the Registration Statement with the SEC, if the
Registration Statement has been filed with the SEC, or postpone filing the
Registration Statement, if the Registration Statement has not been filed with
the SEC and the Company is immediately able to file the Registration Statement,
then, in the case of clause (x) herein, the issuance of the stop-order, or, in
the case of clause (y) herein, the Delaying Notice, shall reduce by one the
number of Requested Registrations to which such demanding Holder is entitled.
(e) An Underwritten Registration requested pursuant to this Section 3
shall not be deemed to have been effected unless the Registration Statement
relating thereto and any post-effective amendment required to commence the
Underwritten Offering contemplated thereby has been declared effective by the
SEC and maintained continuously effective for the Demand Effectiveness Period.
(f) The right of any Holder to registration pursuant to this Section
3 shall be conditioned upon inclusion of the Registrable Shares held by the
Holder in the underwriting and the Holder entering into an underwriting
agreement, in a form reasonably acceptable to the Company, with the underwriter
or underwriters selected for such underwriting by the demanding Holder which are
reasonably satisfactory to the Company. The Company shall enter an underwriting
agreement with a managing underwriter or underwriters of an Underwritten
Offering containing representations, warranties, indemnities and agreements
customarily included (but not inconsistent with the agreements contained herein)
by an issuer of common stock in underwriting agreements with respect to
offerings of common stock for the account of, or on behalf of, selling holders.
The Company may include securities for its own account or the account of any
other Person in such registration if the managing underwriter so agrees and if
so doing would not make such registration a Cutback Registration.
SECTION 4. Piggyback Registration.
----------------------
(a) If, in connection with an Underwritten Offering (other than the
Initial Public Offering), the Company proposes to register under the Securities
Act any of the Company's securities for its account or for the account of any
other Person (other than a registration relating solely to employee stock option
or employee stock purchase plans or pursuant to Form S-4 (or successor form)
under the Securities Act), the Company shall:
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<PAGE>
(i) promptly give to each Holder written notice thereof (which
written notice shall include a list of jurisdictions in which the Company
intends to attempt to qualify such securities under or otherwise comply
with the applicable blue sky or other state securities laws); and
(ii) include in such registration (and any related qualification
under or other compliance with blue sky or other state securities laws),
and in the underwriting involved therein, all the Registrable Shares
specified in a written request, made within 15 days from such written
notice from the Company, by any Holder; provided that if such registration
--------
is a Cutback Registration, then (x) if such registration is a primary
registration on behalf of the Company, the Company shall register in such
registration (A) first, the Company securities which the Company proposes
to sell in such registration, and (B) second, Registrable Shares held by
each Holder and such Holder's Affiliates, on a pro rata basis, based upon
--- ----
the number of Registrable Shares the Holders and their respective
Affiliates originally sought to include in such registration ; provided,
--------
however, that no Executive, together with such Executive's Affiliates,
-------
shall, by virtue of this Section 4(a)(ii)(x)(B), be permitted to include in
any registration statement contemplated by this Section 4, a number of
Registrable Shares which, when aggregated with all other registrations of
Registrable Shares held by such Executive and such Executive's Affiliates,
exceeds the limitations described in Section 2(a) (unless an event
described in Section 2(b)(i) has occurred); (y) if such registration is a
secondary registration on behalf of a holder of Company securities pursuant
to Section 3 hereof, the Company shall register in such registration the
Registrable Shares determined in accordance with clause (i) of the proviso
to Section 3(a) hereof; and (z) if such registration is a secondary
registration on behalf of a holder of Company securities, the Company shall
register in such registration (A) first, the Registrable Shares proposed to
be sold by the holder thereof; and (B) second, Registrable Shares held by
each Holder and such Holder's Affiliates, on a pro rata basis, based upon
--- ----
the number of Registrable Shares the Holders and their Affiliates
originally sought to include in such registration; provided, however, that
-------- -------
no Executive, together with such Executive's Affiliates, shall, by virtue
of this Section 4(a)(ii)(z)(B), be permitted to include in any registration
statement contemplated by this Section 4, a number of Registrable Shares
which, when aggregated with all other registrations of Registrable Shares
held by such Executive and such Executive's Affiliates, exceeds the
limitations described in Section 2(a) (unless an event described in Section
2(b)(i) has occurred).
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<PAGE>
(b) Notwithstanding anything in this Section 4, the Company shall not
be required under Section 4(a)(ii) to include any Registrable Shares in any
registration unless an aggregate of 25,000 or more Registrable Shares are sought
to be included in such registration pursuant to Section 4(a)(ii).
(c) The right of any Holder to registration pursuant to this Section
shall be conditioned upon the inclusion of the Registrable Shares held by the
Holder in the underwriting and the Holder entering into an underwriting
agreement, in a form reasonably acceptable to the Company, with the underwriter
or underwriters selected for such underwriting by the Company, or the Holder
requesting registration, as the case may be.
SECTION 5. Hold-Back Agreements.
--------------------
(a) Each holder of Registrable Shares agrees, if such holder is
reasonably requested by an underwriter in an Underwritten Offering for the
Company (whether for the account of the Company or otherwise), not to effect any
public sale or distribution of any of the Company's equity securities, including
a sale pursuant to Rule 144 (except as part of such Underwritten Registration),
during the 10-day period prior to, and during the 90-day period beginning on,
the closing date of such Underwritten Offering.
(b) The Company agrees, to the extent not inconsistent with
applicable law, and if and to the extent requested by the managing underwriter
of an Underwritten Registration of Registrable Shares pursuant to Section 3
hereof, not to effect any public sale or distribution of any of its equity
securities or of any security convertible into or exchangeable or exercisable
for any equity security of the Company (other than any such sale or distribution
of such securities on Form S-4 or in connection with an employee stock option or
other benefit plan) during the 15 days prior to, and for a period of 90 days (or
such longer period as the underwriters of such Underwritten Offering may
reasonably request) beginning on, the effective date of such Registration
Statement (except as part of such registration).
SECTION 6. Registration Procedures.
-----------------------
In connection with the registration obligations of the Company pursuant to
and in accordance with Sections 2, 3 and 4 hereof (and subject to the Company's
rights under Sections 2, 3 and 4), the Company will use its reasonable best
efforts to effect such registration to permit the sale of such Registrable
Shares in accordance with the intended method or methods of disposition thereof,
and pursuant thereto the Company shall as expeditiously as possible:
(a) prepare and file with the SEC a Registration Statement on any
form which the Company shall deem appropriate
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<PAGE>
(unless the managing underwriter of an Underwritten Offering shall specify the
form to be used for such Registration Statement), and which form shall be
available for the sale of the Registrable Shares as part of such registration,
and use its reasonable best efforts to cause such Registration Statement to
become effective;
(b) before filing with the SEC any such Registration Statement or
prospectus or any amendments or supplements thereto, the Company shall furnish
to one counsel selected by the holders of a majority of the Registrable Shares
covered by such Registration Statement and counsel for the underwriter, if any,
in connection therewith, drafts of all such documents proposed to be filed and
provide such counsel with a reasonable opportunity for review thereof and
comment thereon, such review to be conducted and such comments to be delivered
with reasonable promptness;
(c) use its reasonable best efforts to keep such Registration
Statement effective for the period required by the applicable provision of this
Agreement;
(d) notify the selling holders of Registrable Shares promptly and (if
requested by any such Person) confirm such notice in writing, (i) when a
Prospectus or any Prospectus supplement or post-effective amendment has been
filed, and, with respect to a Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of any request by the SEC
for amendments or supplements to a Registration Statement or related Prospectus
or for additional information regarding such holder, (iii) of the issuance by
the SEC of any stop order suspending the effectiveness of a Registration
Statement or the initiation of any proceedings for that purpose, (iv) of the
receipt by the Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable Shares
for sale in any jurisdiction or the initiation or threatening of any proceeding
for such purpose, and (v) of the happening of any event that requires the making
of any changes in such Registration Statement, Prospectus or documents so that
they will not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading;
(e) except during any Delay Period, upon the occurrence of any event
contemplated by paragraph 6(d)(ii) or 6(d)(v) above, prepare a supplement or
post-effective amendment to each Registration Statement or related Prospectus or
any document incorporated or deemed to be incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of the Registrable Shares being sold thereunder, such Prospectus will
not contain an untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
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<PAGE>
(f) use its best reasonable efforts to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement, or the lifting
of any suspension of the qualification or exemption from qualification of any of
the Registrable Shares for sale in any jurisdiction in the United States;
(g) if requested by the selling holders, furnish to counsel for the
selling holders of Registrable Shares, without charge, one conformed copy of
each Registration Statement as declared effective by the SEC and of each post
effective amendment thereto, in each case including financial statements and
schedules and all exhibits and reports incorporated or deemed to be incorporated
therein by reference; and such number of copies of the preliminary prospectus,
each amended preliminary prospectus, each final Prospectus and each post
effective amendment or supplement thereto, as the selling holders may reasonably
request in order to facilitate the disposition of the Registrable Shares covered
by each Registration Statement in conformity with the requirements of the
Securities Act;
(h) prior to any public offering of Registrable Shares, register or
qualify such Registrable Shares for offer and sale under the securities or Blue
Sky laws of such jurisdictions in the United States as any selling holder shall
reasonably request in writing; and do any and all other reasonable acts or
things necessary or advisable to enable such holders to consummate the
disposition in such jurisdictions of such Registrable Shares covered by the
Registration Statement; provided, however, that the Company shall in no event be
required to qualify generally to do business as a foreign corporation or as a
dealer in any jurisdiction where it is not at the time so qualified or to
execute or file a general consent to service of process in any such jurisdiction
where it has not theretofore done so or to take any action that would subject it
to general service of process or taxation in any such jurisdiction where it is
not then subject;
(i) cause all Registrable Shares covered by the Registration
Statement to be listed on each securities exchange and included in the over-the-
counter market, if any, on which similar securities issued by the Company are
then listed or traded;
(j) if requested by the managing underwriter or underwriters of any
registration or by the holders of a majority of the Registrable Shares included
in any Registration Statement, subject to approval of counsel to the Company in
its reasonable judgement, promptly incorporate in a prospectus, supplement or
post-effective amendment to the Registration Statement such information
concerning underwriters and the plan of distribution of the Registrable Shares
as such managing underwriter or underwriters or such holders reasonably shall
furnish to the Company in writing
-14-
<PAGE>
and request be included therein, including, without limitation, with respect to
the number of Registrable Shares being sold by such holders to such underwriter
or underwriters, the purchase price being paid therefor by such underwriter or
underwriters and with respect to any other terms of the Underwritten Offering of
the Registrable Shares to be sold in such offering; and make all required
filings of such prospectus, supplement or post-effective amendment as soon as
reasonably possible after being notified of the matters to be incorporated in
such prospectus, supplement or post-effective amendment;
(k) make available for inspection by any seller of Registrable
Shares, any underwriter participating in any disposition pursuant to such
Registration Statement, and any attorney, accountant or other agent retained by
any such seller or underwriter (in each case in a manner which minimizes
disruption of the Company's business), all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors, employees, attorneys and independent accountants
to supply all information in each case reasonably requested by any such sellers,
underwriters, attorneys, accountants or agents in connection with such
Registration Statement, subject to the right of the Company to limit access to
any such information (i) to the extent that the Company is restricted from
providing such information pursuant to any bona fide confidentiality agreement
to which the Company or any of its subsidiaries or Affiliates is a party and
(ii) the Company shall have delivered to each seller of the Registrable Shares a
certificate duly executed by the chief executive officer of the Company stating
that such information does not contain any material information that has not
been publicly disclosed and which would be required to be disclosed in, or which
would materially affect any information required to be disclosed in, such
Registration Statement;
(l) comply with all applicable laws related to such Registration
Statement and offering and sale of securities and all applicable rules and
regulations of governmental authorities in connection therewith (including,
without limitation, the Securities Act and the Exchange Act, and the rules and
regulations promulgated by the SEC) and make generally available to its security
holders as soon as practicable (but in any event not later than fifteen (15)
months after the effectiveness of such Registration Statement) an earnings
statement of the Company and its subsidiaries complying with Section 11(a) of
the Securities Act;
(m) deliver promptly to each Holder participating in a registration
copies of all correspondence between the SEC and the Company, its counsel or
auditors and all memoranda relating to discussions with the SEC or its staff
with respect to the Registration Statement;
(n) provide a transfer agent and registrar for all such
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<PAGE>
Registrable Shares covered by such Registration Statement not later than the
effective date of such Registration Statement;
(o) with respect to an Underwritten Registration only, obtain an
opinion from the Company's counsel and "cold comfort" letters from the Company's
independent public accountants (including one letter when such Registration
Statement goes effective and one at the closing) in customary form and covering
such matters of the type customarily covered by such opinions and "cold comfort"
letters;
(p) make any necessary arrangements with The Depository Trust
Company;
(q) cause unlegended stock certificates for the Registrable Shares to
be prepared and printed;
(r) make any necessary filings with the National Association of
Securities Dealers, Inc., or with respect to an Underwritten Registration only,
assist the underwriters to make any necessary filings.
The Company may require each seller of Registrable Shares as to which
any registration is being effected to furnish such information regarding the
distribution of such Registrable Shares and as to such seller as it may from
time to time reasonably request. If any such information with respect to any
seller is not furnished prior to the filing of the Registration Statement, the
Company may exclude such seller's Registrable Shares from such Registration
Statement.
Each holder of Registrable Shares agrees by acquisition of such
Registrable Shares that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 6(d)(ii), 6(d)(iii),
6(d)(iv) or 6(d)(v) hereof or upon notice of the commencement of any Delay
Period, such holder shall forthwith discontinue disposition of such Registrable
Shares covered by such Registration Statement or Prospectus until such holder's
receipt of the copies of the supplemented or amended Prospectus contemplated by
Section 6(e) hereof, or until it is advised in writing (the "Advice") by the
Company that the use of the applicable Prospectus may be resumed, and has
received copies of any amended or supplemented Prospectus or any additional or
supplemental filings which are incorporated, or deemed to be incorporated, by
reference in such Prospectus and, if requested by the Company, such holder shall
deliver to the Company (at the expense of the Company) all copies, other than
permanent file copies then in such holder's possession, of the Prospectus
covering such Registrable Shares at the time of receipt of such request. Each
holder of Registrable Shares further agrees not to utilize any material other
than the applicable current Prospectus in connection with the offering of
Registrable Shares pursuant to this Agreement.
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<PAGE>
SECTION 7. Registration Expenses.
---------------------
Whether or not any Registration Statement becomes effective, the Company
shall pay all costs, fees and expenses incident to the Company's performance of
or compliance with this Agreement including, without limitation, (i) all
registration and filing fees, (ii) fees and expenses of compliance with
securities or Blue Sky laws, (iii) printing expenses (including, without
limitation, expenses of printing of prospectuses if the printing of prospectuses
is requested by the holders of a majority of the Registrable Shares included in
any Registration Statement), (iv) fees and disbursements of counsel for the
Company, (v) fees and disbursements of all independent certified public
accountants of the Company and all other Persons retained by the Company in
connection with the Registration Statement, (vi) to the extent an Underwritten
Registration is involved in accordance with the terms of this Agreement, to the
extent provided in the underwriting agreement, all fees and expenses of
underwriters in connection therewith (excluding discounts and commissions) and
(vii) the reasonable fees and expenses of no more than one counsel for the
holders (as a group) of the Registrable Shares included in such registration.
Notwithstanding the foregoing, any discounts, commissions, underwriting or
advisory fees, brokers' fees or fees of similar securities industry professional
(including any "qualified independent underwriter" retained for the purpose of
Section 3 of Schedule E of the By-laws of the National Association of Securities
Dealers, Inc.) relating to the distribution of the Registrable Shares will be
payable by such holder and the Company will have no obligation to pay any such
amounts.
SECTION 8. Indemnification.
---------------
(a) In connection with any Registration Statement effected or to be
effected pursuant to this Agreement, the Company shall indemnify each holder of
Registrable Shares included in such Registration Statement and each Person who
controls (within the meaning of Section 15 of the Securities Act) such holder of
Registrable Shares from and against all losses, claims, damages, liabilities or
expenses, joint or several, or actions in respect thereof ("Claims") to which
each such indemnified party may become subject, under the Securities Act or
otherwise, insofar as such Claims (or actions in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or prospectus or any
preliminary prospectus or summary or final prospectus or any amendment or
supplement thereto or any document filed under a state securities or blue sky
law (collectively, "Registration Documents") or insofar as such Claims arise out
of or are based upon the omission or alleged omission to state in any
Registration Document a material fact required to be stated therein or necessary
to make the statements made therein not misleading; provided that the
--------
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<PAGE>
Company shall not be liable in any such case to the extent such Claim arises out
of or is based upon an untrue statement or alleged untrue statement of a
material fact or omission or alleged omission of a material fact made in any
Registration Document in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such indemnified party
specifically for use in the preparation of such Registration Document.
(b) In connection with any Registration Statement effected or to be
effected pursuant to this Agreement, each holder of Registrable Shares included
in such Registration Statement shall indemnify the Company, its directors,
officers, employees or agents, and each Person who controls (within the meaning
of Section 15 of the Securities Act) the Company from and against all Claims to
which each such indemnified party may become subject under the Securities Act or
otherwise, insofar as such Claims (or actions in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any Registration Document, or insofar as such Claims
arise out of or are based upon the omission or alleged omission to state in any
Registration Document a material fact required to be stated therein or necessary
to make the statements made therein not misleading; provided, however, that such
-------- -------
indemnification or reimbursement shall be payable only if, and to the extent
that, any such Claim arises out of or is based upon an untrue statement or
alleged untrue statement of a material fact or omission or alleged omission of a
material fact made in any Registration Document in reliance upon and in
conformity with written information furnished to the Company by such holder of
Registrable Shares specifically for use in the preparation of such Registration
Document; provided further, however, that no holder of Registrable Shares shall
-------- ------- -------
be liable under this Section 7(b) for any amounts in excess of the dollar amount
of the gross proceeds to be received by such Holder from the sale of its
Registrable Shares pursuant to such registration.
(c) Any Person entitled to indemnification under Section 8(a) or 8(b)
above shall notify promptly the indemnifying party in writing of the
commencement of any Claim if a claim for indemnification in respect thereof is
to be made against an indemnifying party pursuant to this Section 8, but the
omission of such notice shall not relieve the indemnifying party from any
liability which it may have to any indemnified party, except to the extent that
the indemnifying party has been materially prejudiced by such failure to provide
such notice. In case any action is brought against the indemnified party and it
shall notify the indemnifying party in writing of the commencement thereof, the
indemnifying party shall be entitled to participate in, and, to the extent that
it shall wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof with counsel satisfactory to the indemnified party;
and, after notice from the indemnifying party to the indemnified party that it
so
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<PAGE>
chooses, the indemnifying party shall not be liable for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation; provided, however,
-------- -------
that (i) if the indemnifying party fails to take reasonable steps necessary to
defend diligently the Claim within twenty (20) days after receiving notice from
the indemnified party that the indemnified party believes it has failed to do
so; or (ii) if the indemnified party who is a defendant in any action or
proceeding which is also brought against the indemnifying party reasonably shall
have concluded that there may be legal defenses available to the indemnified
party which are not available to the indemnifying party; or (iii) if
representation of both parties by the same counsel is otherwise inappropriate
under applicable standards of professional conduct, the indemnified party shall
have the right to assume or continue its own defense as set forth above (but
with no more than one firm of counsel for all indemnified parties in each
jurisdiction, except to the extent any party or parties reasonably shall have
concluded that there may be legal defenses available to such party or parties
which are not available to the other indemnified parties or to the extent
representation of all indemnified parties by the same counsel is otherwise
inappropriate under applicable standards of professional conduct) and the
indemnifying party shall be liable for any reasonable expenses therefor;
provided, that no indemnifying party shall be subject to any liability for any
- --------
settlement of a Claim made without its consent (which may not be unreasonably
withheld). If the indemnifying party assumes the defense of any Claim hereunder,
such indemnifying party shall not enter into any settlement without the consent
of the indemnified party if such settlement attributes liability to the
indemnified party (which consent may not be unreasonably withheld).
(d) If for any reason the foregoing indemnity is unavailable, or is
insufficient to hold harmless, an indemnified party, then the indemnifying party
shall contribute to the amount paid or payable by the indemnified party as a
result of any Claim in such proportion as is appropriate to reflect the relative
fault of the indemnifying party and the indemnified party as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among-other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The parties
hereto agree that it would not be just and equitable if contributions pursuant
to this Section 8(d) were determined by pro rata allocation or by any other
--- ----
method of allocation which does not take account of the equitable considerations
referred to above in this Section.
SECTION 9. Miscellaneous.
-------------
-19-
<PAGE>
9.1 Termination. This Agreement and the obligations of the Company
-----------
hereunder shall terminate on the earliest of (i) the first date on which no
Registrable Shares remain outstanding, and (ii) the close of business on the
last day of the last Effectiveness Period or Demand Effectiveness Period,
whichever is later.
9.2 Rule 144. The Company hereby covenants that, from and after the
--------
Closing date, the Company will file in a timely manner all reports required to
be filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder (or, if the Company is not required to
file such reports, it will, upon the request of any holder of Registrable
Shares, make publicly available other information so long as necessary to permit
sales under Rule 144 under the Securities Act), and it will take such further
action as any holder of Registrable Shares may reasonably request, all to the
extent required from time to time to enable such holder to sell Registrable
Shares without registration under the Securities Act within the limitation of
the exemptions provided by (i) Rule 144 under the Securities Act, as such Rule
may be amended from time to time, or (ii) any similar rule or regulation
hereafter adopted by the SEC.
9.3 Amendments and Waivers. The provisions of this Agreement, including
----------------------
the provisions of this Section 9.3 may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the Company has obtained the written consent of holders
representing a majority of the Registrable Shares. Notwithstanding the
foregoing, (i) the provisions of Section 2 hereof may not be amended, modified
or supplemented, and waivers or consents to departures from the provisions
thereof may not be given, unless the Company has obtained the written consent
representing a majority of the Registrable Shares then held by the Executives
and their respective Affiliates; and (ii) a waiver or consent to depart from the
provisions hereof with respect to a matter which relates exclusively to the
rights of holders of Registrable Shares whose securities are being sold pursuant
to a Registration Statement and that does not directly or indirectly affect the
rights of a holder whose securities are not being sold pursuant to such
Registration Statement may be given by holders of a majority of the Registrable
Shares being sold by such holders.
9.4 Notices. All notices, requests, demands and other communications
-------
required or permitted hereunder shall be in writing and shall be deemed given:
when delivered personally; one Business Day after being deposited with a next-
day air courier; five Business Days after being deposited in the mail, postage
prepaid, if mailed; when answered back if telexed and when receipt is
acknowledged, if telecopied, in each case to the Company at 8801 Vistana Centre
Drive, Orlando, Florida 32821 and to each Holder at the address specified for
such Holder on Schedule A (or
----------
-20-
<PAGE>
at such other address for a party as shall be specified by like notice: provided
--------
that notices of a change of address shall be effective only upon receipt
thereof).
9.5 Successors and Assigns. This Agreement, other than the provisions of
----------------------
Section 3, shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties; provided, however, that no party may assign its
-------- -------
rights under this Agreement to any third party (other than an assignment by a
Holder of rights to an Affiliate of such Holder in connection with a transfer of
Registrable Shares to such Affiliate) without the prior written consent of the
Company (which may be given or withheld in the Company's sole and absolute
discretion). The provisions of Section 3 shall not be assignable by Gellein or
Adler.
9.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
9.7 Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
9.8 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF FLORIDA WITHOUT GIVING EFFECT
TO THE PROVISIONS THEREOF GOVERNING CONFLICT OF LAWS PRINCIPLES.
9.9 Severability. If any term, provision, covenant or restriction of this
------------
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their reasonable best efforts to find and employ an alternative means to achieve
the same or substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
9.10 Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and a complete and exclusive statement of
the agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein, with respect to
the registration rights granted by the Company with respect to the
-21-
<PAGE>
Registrable Shares described on Schedule A. This Agreement supersedes all prior
----------
agreements and understandings between the parties with respect to such subject
matter.
9.11 Calculation of Time Periods. Except as otherwise indicated, all
---------------------------
periods of time referred to herein shall include all Saturdays, Sundays and
holidays; provided, that if the date to perform the act or give any notice with
respect to this Agreement shall fall on a day other than a Business Day, such
act or notice may be timely performed or given if performed or given on the next
succeeding Business Day.
9.12 Existing Registration Rights; No Inconsistent Agreements. The Company
--------------------------------------------------------
represents and warrants that there are no existing agreements with respect to
its securities which are inconsistent with the rights granted to the holders of
Registrable Shares in this Agreement or otherwise conflict with the provisions
hereof and agrees that it will not enter into any agreements which are
inconsistent with or limit or impair the rights granted to the holders of
Registrable Shares prior to the termination of this Agreement. Each Holder
represents and warrants that there are no existing agreements with respect to
such Holder's Registrable Shares which are inconsistent with the rights of such
Holder in this Agreement or otherwise conflict with the provisions hereof and
agrees that such Holder will not enter into any agreements which are
inconsistent with or limit or impair the rights of such Holder prior to the
termination of this Agreement.
9.13 Equitable Relief. Each party hereto specifically acknowledges and
----------------
agrees that the remedy at law for any breach of its obligations hereunder will
be inadequate and that, in addition to any other relief available to the non-
breaching parties, the non-breaching parties shall be entitled to temporary and
permanent injunctive relief without the necessity of proving actual damages.
9.14 Attorneys' Fees and Costs. In the event a dispute arises between the
-------------------------
parties hereto and suit is instituted, the prevailing party or parties in such
litigation shall be entitled to recover reasonable attorneys' fees and other
costs and expenses from the non-prevailing party or parties, whether incurred at
the trial level or in any appellate proceeding.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-22-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
THE COMPANY:
-----------
VISTANA, INC., a Florida corporation
By: /s/ Raymond L. Gellein, Jr.
---------------------------------
Name: Raymond L. Gellein, Jr.
Title: Chairman of the Board
By: /s/ Jeffrey A. Adler
---------------------------------
Name: Jeffrey A. Adler
Title: President
THE HOLDERS:
-----------
/s/ Raymond L. Gellein, Jr.
---------------------------------------------
Raymond L. Gellein, Jr., Trustee of the Raymond L.
Gellein, Jr. Revocable Trust
/s/ Raymond L. Gellein, Jr.
---------------------------------------------
Raymond L. Gellein, Jr., Trustee of the Raymond L.
Gellein, Jr. Grantor Retained Annuity Trust
/s/ Raymond L. Gellein, Jr.
---------------------------------------------
Raymond L. Gellein, Jr., Trustee of the Matthew
James Gellein Irrevocable Trust
/s/ Raymond L. Gellein, Jr.
---------------------------------------------
Raymond L. Gellein, Jr., Trustee of the Brett
Tyler Gellein Irrevocable Trust
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
-23-
<PAGE>
/s/ Raymond L. Gellein, Jr.
---------------------------------------------
Raymond L. Gellein, Jr., Trustee of JGG Holdings
Trust
/s/ Raymond L. Gellein, Jr.
---------------------------------------------
Raymond L. Gellein, Jr., Trustee of the Janice G.
Gellein Grantor Annuity Trust
/s/ Raymond L. Gellein, Jr.
---------------------------------------------
Raymond L. Gellein, Jr., Trustee of the Catherine
Male Gift Trust
/s/ Raymond L. Gellein, Jr.
---------------------------------------------
Raymond L. Gellein, Jr., Trustee of the Cherie
Doherty Gift Trust
/s/ Raymond L. Gellein, Jr.
---------------------------------------------
Raymond L. Gellein, Jr., Trustee of Susan Faetz
Gift Trust
/s/ Jeffrey A. Adler
---------------------------------------------
Jeffrey A. Adler, Trustee of the Jeffrey A. Adler
Revocable Trust
/s/ Jeffrey A. Adler
---------------------------------------------
Jeffrey A. Adler, Trustee of the Jeffrey A. Adler
Grantor Annuity Trust #1
/s/ Jeffrey A. Adler
---------------------------------------------
Jeffrey A. Adler, Trustee of the Jeffrey A. Adler
Grantor Annuity Trust #2
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
-24-
<PAGE>
/s/ Lee I. Miller
--------------------------------------
Lee I. Miller, Trustee of the ARA Trust
/s/ Lee I. Miller
-------------------------------------
Lee I. Miller, Trustee of the DLA Trust
/s/ Matthew E. Avril
-------------------------------------
Matthew E. Avril
/s/ Susan B. Werth
-------------------------------------
Susan B. Werth
/s/ Carol A. Lytle
-------------------------------------
Carol A. Lytle
/s/ Barbara Hollkamp
-------------------------------------
Barbara Hollkamp
/s/ James A. McKnight
-------------------------------------
James A. McKnight
/s/ William J. McLaughlin
-------------------------------------
William J. McLaughlin
/s/ Alain J.A. Grange
-------------------------------------
Alain J.A. Grange
/s/ John M. Sabin
-------------------------------------
John M. Sabin
-25-
<PAGE>
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
THE UNDERSIGNED EXECUTE THIS
AGREEMENT SOLELY FOR PURPOSES
OF SECTION 3 HEREOF:
/s/ Raymond L. Gellein, Jr.
- ----------------------------------
Raymond L. Gellein, Jr.
/s/ Jeffrey A. Adler
- ----------------------------------
Jeffrey A. Adler
[SIGNATURES CONTINUED FROM PRECEDING PAGE]
-26-
<PAGE>
SCHEDULE A
----------
Holders
-------
<TABLE>
<CAPTION>
No. of No. of Shares
Name and Address/(1)/ Shares s/t Options
- ------------------------------ --------- -------------
<S> <C> <C>
Raymond L. Gellein, Jr. 3,203,550 -
Revocable Trust
c/o Raymond L. Gellein, Jr.,
Trustee
Raymond L. Gellein, Jr. 254,440 -
Grantor Retained Annuity
Trust
c/o Raymond L. Gellein, Jr.,
Trustee
Matthew James Gellein 42,880 -
Irrevocable Trust
c/o Raymond L. Gellein, Jr.,
Trustee
Brett Tyler Gellein 42,880 -
Irrevocable Trust
c/o Raymond L. Gellein, Jr.,
Trustee
JGG Holdings Trust 3,203,550 -
c/o Raymond L. Gellein, Jr.,
Trustee
Janice G. Gellein Grantor 278,700 -
Annuity Trust
c/o Raymond L. Gellein, Jr.,
Trustee
Catherine Male Gift Trust 20,500 -
c/o Raymond L. Gellein, Jr.,
Trustee
Cherie Doherty Gift Trust 20,500 -
c/o Raymond L. Gellein, Jr.,
Trustee
Susan Faetz Gift Trust 20,500 -
c/o Raymond L. Gellein, Jr.,
Trustee
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
No. of
Name and Address (continued) Shares
---------------------------- ------
<S> <C> <C>
Jeffrey A. Adler Revocable Trust 6,854,500 -
c/o Jeffrey A. Adler,
Trustee
Jeffrey A. Adler Grantor Annuity 50,000 -
Trust #1
c/o Jeffrey A. Adler,
Trustee
Jeffrey A. Adler Grantor Annuity 60,000 -
Trust #2
c/o Jeffrey A. Adler,
Trustee
ARA Trust 61,500 -
c/o Lee I. Miller,
Trustee
Suite 1800
203 North LaSalle Street
Chicago, Illinois 60601-1293
DLA Trust 61,500 -
c/o Lee I. Miller,
Trustee
Suite 1800
203 North LaSalle Street
Chicago, Illinois 60601-1293
Matthew E. Avril - 400,000
3856 Hunters Isle Drive
Orlando, Florida 32837
Susan B. Werth - 125,000
1725 South Bayshore Drive
Miami, Florida 33133
Carol A. Lytle - 400,000
9017 Crichton Wood Drive
Orlando, Florida 32819
Barbara Hollkamp - 100,000
2916 Sunbittern Court
Windermere, Florida 34786
James A. McKnight - 100,000
1011 Greentree Drive
Winter Park, Florida 32789
</TABLE>
S-2
<PAGE>
<TABLE>
<CAPTION>
No. of
Name and Address (continued) Shares
---------------------------- ------
<S> <C> <C>
William J. McLaughlin - 100,000
9649 Wild Oak Drive
Windermere, Florida 34786
Alain J.A. Grange - 100,000
9020 Classic Court
Orlando, Florida 32819
John M. Sabin - 25,000
14709 Lancraft Court
Darnestown, Maryland 20874
---------- ---------
14,175,000 1,350,000
========== =========
</TABLE>
______________________
/(1)/ Unless otherwise specified, all addresses are 8001 Vistana Centre Drive,
Orlando, Florida 32821.
S-3
<PAGE>
EXHIBIT 10.17-A
FIRST AMENDMENT TO
EXCLUSIVE JOINT VENTURE AGREEMENT
---------------------------------
THIS FIRST AMENDMENT TO EXCLUSIVE JOINT VENTURE AGREEMENT, dated
February 7, 1997, is entered into by and between PROMUS HOTELS, INC., a Delaware
corporation ("PHI"), and VISTANA DEVELOPMENT, LTD., a Florida limited
partnership ("Vistana").
R E C I T A L S:
A. PHI and Vistana are parties to a certain Exclusive Joint Venture
Agreement dated December 24, 1996 (the "Initial Agreement") pursuant to which,
among other things, the parties have agreed to jointly develop Vacation Resorts.
B. PHI and Vistana desire to amend the Initial Agreement as provided
herein.
NOW, THEREFORE, in consideration of the foregoing, and of other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending legally to be bound, have agreed and
by these presents do amend the Initial Agreement and agree as follows:
1. Defined Terms. All capitalized terms used herein shall have the
same meanings ascribed to them in the Initial Agreement except as otherwise
defined herein to the contrary or unless the context requires otherwise.
2. Amendments to Section 7 of the Initial Agreement. Sections 7(a)
and 7(b) of the Initial Agreement are hereby amended by deleting the date
"January 31, 1997" and by substituting therefor the date "February 28,
1997".
3. Amendment to Section 15 of the Initial Agreement. Section
15(a)(ii) of the Initial Agreement is hereby amended by deleting the date
"January 31, 1997" and by substituting therefor the date "February 28,
1997".
4. Integration of Amendment. Except as provided herein, the Initial
Agreement is hereby confirmed and the terms and provisions thereof, unless
modified herein, shall remain in full force and effect.
5. Counterparts. This Amendment may be executed in several
counterparts and all so executed shall constitute one
<PAGE>
agreement binding on the parties hereto, notwithstanding that all the
parties are not signatories to the original or the same counterpart.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment,
or have caused this First Amendment 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 21.1
SUBSIDIARIES OF VISTANA, INC.*
Wholly-owned corporate Subsidiaries:
- -----------------------------------
Vistana Capital Holdings, Inc.
Vistana Capital 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.
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>
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 27, 1997
<PAGE>
EXHIBIT 99.4
CONSENT
-------
In reference to the Registration Statement on Form S-1 (No. 333-19045)
initially filed by Vistana, Inc., a Florida corporation, on December 31, 1996
(as the same may be amended or supplemented from time to time, the "Registration
Statement"), we hereby consent to inclusion of our name in said Registration
Statement, to the inclusion of data derived from various reports and other
information compiled by us, and to the filing of this consent as an exhibit
thereto.
Dated: February 26, 1997
AMERICAN RESORT DEVELOPMENT
ASSOCIATION
By: /s/ Christopher D. Larson
---------------------------------
Christopher D. Larson
Director of Communications
