<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number 0-29114
Vistana, Inc.
-------------
(Exact name of registrant as specified in its charter)
Florida 59-3415620
------------- ---------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8801 Vistana Centre Drive, Orlando, Florida 32821
------------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(407) 239-3000
--------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _______
-------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 5, 1999, there were 21,224,172 shares of the registrant's
common stock outstanding. The aggregate market value of the registrant's voting
stock that was held by non-affiliates on such date was $128,810,358 based on the
closing sale price of the registrant's common stock on March 5, 1999 as reported
on the Nasdaq National Market.
Documents Incorporated by Reference:
Portions of Vistana, Inc.'s 1998 Annual Report to Shareholders and
definitive proxy statement for its annual meeting of shareholders to be held on
April 28, 1999 are incorporated by reference into Parts II and III of this Form
10-K, as indicated.
<PAGE>
PART I
Except where otherwise indicated, the information contained in this Annual
Report on Form 10-K ("Annual Report") assumes Vacation Ownership Interests
("VOI's") (as defined herein) are presented on an annual, as opposed to an
alternate-year, basis. See "Item 1. Business-Company Resorts." Unless the
context otherwise requires, the "Company" means Vistana, Inc., its consolidated
subsidiaries, its corporate and partnership predecessors, partnerships in which
the Company owns a controlling interest and, following September 16, 1997,
Success and Points (as defined herein). 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.
Vistana(R) and Vistana Resort(R) are trademarks of Vistana, Inc. or its
affiliates. Embassy Vacation Resort(R), Hampton Vacation Resort(R) and Homewood
Vacation Resort/SM/ are trademarks and service marks of Promus Hotel
Corporation, its subsidiaries and affiliates. PGA(R), PGA Golf Club/TM/ and PGA
Village/TM/ are trademarks of The Professional Golfers' Association of America.
World Golf Village/(R)/ is a trademark of World Golf Foundation, Inc.
Atlantis(R) is a service mark for lodging accommodation services of Sun
International Representation, Inc.
This Annual Report, including all information incorporated by reference
herein, contains "forward-looking statements" within the meaning of the federal
securities laws, relating to, among other things, the Company's future prospects
and financial performance, expansion plans, business strategies and their
intended results. Individuals considering an investment in the Company are
cautioned that such statements are predictions only and that actual events or
results may differ materially. Such statements are subject to numerous risks and
uncertainties, including the effects of economic conditions, interest rates,
consumer demand, payment and default risks on customer mortgages receivable,
competitive conditions, the impact of government regulations and approval
requirements, the availability and cost of capital to finance future growth, the
ability to acquire, develop and sell vacation ownership inventory cost-
effectively, the availability of qualified personnel, the ability to transfer
the experience and historical operating results of the Company's mature resorts
to its new properties, the ability to avoid disruption from year 2000 technology
problems, the satisfactory completion of proposed joint venture, licensing,
financing and other agreements, the satisfaction of various conditions and
compliance with various covenants contained in the Company's existing
agreements, and other risks described elsewhere in this Annual Report. Such
risks could cause actual results to differ materially from those expressed or
implied by the forward-looking statements contained in this Annual Report.
Item 1. Business.
General
Founded in 1980, the Company is a leading developer and operator of high
quality timeshare resorts in the United States. The Company's principal
operations consist of acquiring, developing and operating vacation ownership
resorts, marketing and selling VOI's 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), and providing financing to customers who
purchase VOI's at its resorts. The Company also furnishes management,
operations, maintenance, and telecommunications services at its resorts and
provides limited telecommunications contracting services to other customers.
<PAGE>
At December 31, 1998, the Company operated eight vacation ownership
resorts, with four in active sales. Four of these resorts are in Florida
(Vistana Resort in Orlando, Hampton Vacation Resort-Oak Plantation in Kissimmee,
Vistana's Beach Club on Hutchinson Island, and Vistana Resort at World Golf
Village in St. Augustine), two in Colorado (Eagle Point in Vail and Falcon Point
in Avon), one in South Carolina (Embassy Vacation Resort at Myrtle Beach) and
one in Arizona (Villas of Cave Creek located north of Scottsdale). Available
inventory at four of these eight resorts (Vistana's Beach Club, Eagle Point,
Falcon Point and Villas of Cave Creek) is primarily limited to VOI's that the
Company has reacquired in connection with owner upgrades and defaults under
customer mortgages. At December 31, 1998, the Company had two new resorts under
development where VOI's were being sold on a pre-opening basis. These resorts
are Lakeside Terrace in Avon, Colorado (which opened in the first quarter 1999)
and Embassy Vacation Resort in Scottsdale, Arizona (which is scheduled to open
in late March 1999). In addition, the Company acts as exclusive sales and
marketing agent for The Christie Lodge, a large vacation ownership resort in
Avon, Colorado. The Company is also planning three new resorts: PGA Vacation
Resort by Vistana at PGA Village in Port St. Lucie, Florida; Harborside at
Atlantis on Paradise Island in The Bahamas (which will be developed in a joint
venture with a subsidiary of Sun International Hotels Limited ("Sun")); and a
large successor property to the Company's flagship Vistana Resort in Orlando.
See "Company-Resorts."
During its 18-year history, the Company has sold in excess of $820 million
of VOI's and has developed an ownership base of over 79,000 VOI owners residing
in more than 100 countries. The Company was the first to open a vacation
ownership resort in the Orlando, Florida market, which has become one of the
largest vacation ownership resort markets in the world in terms of VOI's sold.
Since completing its initial public offering in March 1997, the Company has
been using four business strategies to achieve growth: (i) continuing sales of
VOI's at the Company's existing resorts; (ii) developing and selling additional
vacation ownership resorts; (iii) pursuing selected acquisitions; and (iv)
improving margins, principally by reducing the cost of the Company's financing.
There is no assurance that these strategies will be successful during future
periods.
The Company's ability to develop and sell additional vacation ownership
resorts will depend on a number of factors, including (i) the availability of
attractive resort development opportunities; (ii) the Company's ability to
acquire unimproved or improved real estate for such opportunities on
economically feasible terms; (iii) the Company's ability to obtain the capital
necessary to finance the acquisition, construction, development, conversion and
expansion of vacation ownership resorts, as well as to cover any necessary
sales, marketing and resort operation expenditures; (iv) the Company's ability
to market and sell VOI's at newly-developed vacation ownership resorts in
accordance with budgeted parameters; 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.
-2-
<PAGE>
Company Resorts
The following table sets forth certain information as of December 31, 1998
and for the year then ended regarding each of the Company's existing vacation
ownership resorts, resorts under construction and planned resorts, including
location, the year sales of VOI's commenced (or are expected to commence), the
number of existing and total planned units, the number of VOI's sold at each
existing resort since its development by the Company and the number of VOI's
sold during the year ended December 31, 1998, the average sales price of VOI's
sold during the year ended December 31, 1998 and the number of VOI's available
for sale at December 31, 1998 and after giving effect to planned expansion. The
exact number of units ultimately constructed and VOI's available for sale at
each resort may differ from the following planned estimates based on, among
other things, future land use, project development, site layout considerations
and customer demand. The number of VOI's available for sale will also vary
depending upon whether certain two-bedroom lockoff units are sold as a single
unit (as assumed in the following table) or as two one-bedroom units. In
addition, the Company's construction and development of new vacation ownership
resorts or additional units at its existing resorts (and its sales of the
related VOI's) 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.
-3-
<PAGE>
<TABLE>
<CAPTION>
Unsold
VOI's VOI's at Unsold
Units at Resort Sold(a) Resorts(a)
---------------- -------------- --------------------
Year Sales Average
Commenced/ Sales
Vacation Ownership Expected to Total Price in Current Planned
Resorts Location Commence(b) Current Planned Total 1998 1998(a) Inventory Expansion
- ----------------------------- ------------------ ------------ ------- ------- ------ ------ --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Existing Resorts:
Vistana Resort (c) Orlando, Florida 1980 1,326 1,539 71,341 8,865 $10,396 4,087 10,655
Vistana's Beach Hutchinson Island,
Club (d) (e) Florida 1989 76 76 3,965 33 $ 9,969 159 0
Hampton Vacation
Resort-Oak
Plantation (f) Kissimmee, Florida 1996 242 242 3,757 2,324 $ 7,469 9,386 0
Eagle Point Resort (d) (g) Vail, Colorado 1987 54 54 3,664 95 $ 9,537 17 0
Falcon Point Resort (d) (h) Avon, Colorado 1986 58 58 4,574 1,176 $ 9,024 472 0
Villas of Cave Creek (d) (i) Cave Creek,
Arizona 1996 25 25 950 452 $10,040 181 0
Embassy Vacation Myrtle Beach,
Resort at Myrtle Beach (j) South Carolina 1997 88 550 2,477 1,980 $ 9,146 2,317 23,562
Vistana Resort at World St. Augustine,
Golf Village (k) Florida 1998 102 408 548 548 $11,518 4,715 15,606
Resorts Under
Development:
Embassy Vacation Resort Scottsdale,
at Scottsdale (l) Arizona 1998 -- 150 2,218 2,218 $ 9,213 -- 6,606
Lakeside Terrace (m) Avon, Colorado 1998 -- 24 446 446 $12,483 -- 920
Planned Resorts:
PGA Vacation Resort by Port St. Lucie,
Vistana (n) Florida 1999 -- 306 -- -- -- -- 15,606
Harborside at Atlantis (o) Paradise Island,
The Bahamas 1999 -- 375 -- -- -- -- 19,125
Vistana II (p) Orlando, Florida 1999 -- 1,400 -- -- -- -- 71,400
-------------------------------- --------------------
TOTAL 1,971 5,207 93,940 18,137 21,334 163,480
================================ ====================
</TABLE>
- ------------
(a) The Company sells both annual VOI's (entitling the owner to the use of a
unit for a one-week period on an annual basis) and alternate-year VOI's
(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 unit per year (with one
week reserved for maintenance of the unit) or 52 weeks per unit per year
(with maintenance scheduled as occupancy permits), depending upon the
resort. Accordingly, the Company is generally able to sell 51 or 52 annual
VOI's or 102 or 104 alternate-year VOI's per unit. For purposes of
calculating the number of VOI's Sold and Average Sales Price in 1998, data
with respect to VOI's reflects VOI's sold regardless of classification as
an annual or alternate-year VOI. If these figures were adjusted on an
annualized basis, the number of VOI's sold would be decreased and the
Average Sales Price would be increased. VOI's Sold includes pre-opening
sales for which the revenue is recognized using the percentage of
completion method. For purposes of calculating Unsold VOI's at Resorts,
both the Current Inventory and Planned Expansion numbers are based on
sales of VOI's on an annual basis only and assume the sale of 51 weeks per
unit per year and the sale of two-bedroom lockoff units as a single unit.
To the extent that alternate-year VOI's or 52 weeks per unit per year are
sold, the actual number of Unsold VOI's at Resorts would be increased.
(b) Dates listed represent the dates the Company began recording (or expects
to begin recording) sales, including pre-opening sales, of VOI's for
financial reporting purposes.
(c) At December 31, 1998, Vistana Resort consisted of eight development
phases, seven of which had been completed and one of which was in
development. The number of units at Vistana Resort at December 31, 1998
included (i) 1,326 existing units and (ii) 213 additional planned units
(representing an estimated 10,863 annual VOI's, or 10,655 net of VOI's
sold as of December 31, 1998). Construction of 110 of the additional units
(representing 5,610 VOI's) was underway at that date. VOI's Sold includes
pre-opening sales for certain of the units under
-4-
<PAGE>
construction. The Company constructs additional units at various times
depending upon general market conditions and other factors. Accordingly,
construction of the remaining 103 additional units will be commenced from
time to time as demand and other conditions merit. Figures with respect to
this resort assume that all units to be constructed will consist of one-
and two-bedroom units; however, the actual number of additional VOI's
resulting from planned construction could vary depending upon the
configuration of these units.
(d) Inventory at this resort is primarily limited to VOI's that the Company
has reacquired in connection with owner upgrades and defaults under
customer mortgages.
(e) Vistana's Beach Club consists of two buildings containing a total of 76
existing units, which represent 3,876 VOI's.
(f) Hampton Vacation Resort-Oak Plantation consists of 242 existing units,
representing 12,342 annual VOI's. 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, 1998, the
conversion of 236 units (representing 12,036 annual VOI's) had been
completed. The Company intends to convert the remaining 6 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. Hampton Vacation Resort-Oak Plantation is operated as a Hampton
Vacation Resort franchise. The Company owns a 67% controlling interest in
the limited partnership that operates the resort.
(g) Eagle Point Resort consists of 54 existing units, representing 2,808
VOI's. This resort was acquired by the Company in September 1997. See
"Business-Acquisition of Success and Points."
(h) Falcon Point Resort consists of 58 existing units, representing 3,016
VOI's. This resort was acquired by the Company in September 1997. See
"Business-Acquisition of Success and Points."
(i) Villas of Cave Creek consists of 25 existing units, representing 1,300
VOI's. This resort was acquired by the Company in September 1997. See
"Business-Acquisition of Success and Points."
(j) Embassy Vacation Resort at Myrtle Beach consists of 88 units, representing
an estimated 4,488 annual VOI's. The Company commenced construction of the
28-unit second phase of this resort, representing 1,428 annual VOI's,
during the fourth quarter of 1998. The Company also has an option until
December 31, 2003 to acquire up to 24 additional acres of contiguous
property for phased expansion of this resort, with a total of 550 units,
or 28,050 annual VOI's, planned at build-out in future years. Because the
Company constructs additional units at its resorts based on general market
conditions and other factors, construction of the remaining 434 units at
this resort (assuming acquisition of the remaining 24 acres) will be
commenced from time to time as demand and other conditions merit. Myrtle
Beach is operated as an Embassy Vacation Resort franchise.
(k) Vistana Resort at World Golf Village consists of 102 units, representing
an estimated 5,202 annual VOI's with a total of 408 units, or 20,808
annual VOI's, being planned through build-out, over future years. Because
the Company constructs additional units at its resorts based on general
market conditions and other factors, construction of the remaining 306
units at this resort will be commenced from time to time as demand and
other conditions merit. The Company owns a 37.5% controlling interest in
the limited partnership that owns Vistana Resort at World Golf Village.
(l) Embassy Vacation Resort at Scottsdale is expected to consist of 150 units,
representing an estimated 7,800 annual VOI's, or 6,606 net of VOI's sold
as of December 31, 1998. The Company commenced construction of the 72-unit
first phase of this resort (representing 3,744 annual VOI's) during the
second quarter of 1998. The first buildings in this phase are scheduled to
open in March 1999. VOI's sold at this resort consist of pre-opening
sales. Because the Company constructs additional units at its resorts
based on general market conditions and other factors, construction of the
remaining 78 units at this resort will be commenced from time to time as
demand and other conditions merit. The Scottsdale property is expected to
be operated as an Embassy Vacation Resort franchise.
(m) Lakeside Terrace consists of 24 units, representing an estimated 1,248
annual VOI's, or 920 net of VOI's sold as of December 31, 1998, located on
property adjacent to the Company's Falcon Point Resort. The resort opened
during the first quarter of 1999. VOI's sold at this resort consist of
pre-opening sales.
(n) PGA Vacation Resort by Vistana is expected to consist of an estimated 306
units, representing an estimated 15,606 annual VOI's, and will be
constructed by the Company on 25 acres of land which the Company acquired
in September 1997. The Company anticipates that it will commence
construction of the 30-unit first phase of this resort (representing 1,530
annual VOI's) during the second quarter of 1999. Because the Company
constructs additional units at its resorts based on general market
conditions and other factors, construction of the remaining 276 units at
this resort will be commenced from time to time as demand and other
conditions merit.
(o) Harborside at Atlantis is expected to consist of an estimated 375 units,
representing 19,125 VOI's. The Company expects to commence construction of
82-units of the first phase of this resort (representing 4,182 annual
VOI's) during mid-1999. The Company intends to commence construction of
the remaining additional units from time to time as demand and other
conditions merit. The proposed resort is being developed as a joint
venture between subsidiaries of the Company and Sun. The Company expects
to have a 50% ownership interest in the resort.
(p) Vistana II is expected to consist of an estimated 1,400 units,
representing 71,400 VOI's. The Company expects to commence construction on
the first phase of this resort during mid-1999. The Company intends to
commence construction on the remaining phases from time to time as demand
and other conditions merit. This resort, which has not yet been named, is
being developed as a successor to the Company's Vistana Resort.
-5-
<PAGE>
Pricing of VOI's. The following table sets forth the current range of
selling prices of annual and alternate-year VOI's 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)...................................... $ 7,950 - $ 19,000 $ 4,770 - $ 11,500
Vistana's Beach Club(c)................................ $ 8,995 - $ 9,950 N/A
Hampton Vacation Resort-Oak Plantation(d).............. $ 7,050 - $ 10,750 $ 4,350 - $ 6,550
Eagle Point Resort(d).................................. $ 7,995 - $ 12,995 $ 5,995 - $ 7,495
Falcon Point Resort(b)................................. $ 8,995 - $ 17,995 $ 6,495 - $ 9,995
Villas of Cave Creek(c)................................ $ 13,495 - $ 13,495 $ 9,495 - $ 9,495
Embassy Vacation Resort at Myrtle Beach(b)............. $ 4,500 - $ 17,500 $ 2,800 - $ 10,600
Vistana Resort at World Golf Village(b)................ $ 8,200 - $ 19,000 $ 5,100 - $ 11,500
Lakeside Terrace (c)................................... $ 12,995 - $ 34,995 $ 8,495 - $ 20,495
Embassy Vacation Resort at Scottsdale(c)(e)............ $ 9,495 - $ 16,995 $ 6,495 - $ 10,995
PGA Vacation Resort by Vistana......................... Not determined Not determined
Harborside at Atlantis................................. Not determined Not determined
Vistana II............................................. Not determined Not determined
</TABLE>
- -------------
(a) Selling prices vary depending upon the specific calendar week or season to
which a VOI relates and unit-specific factors.
(b) Includes one-, two- and two-bedroom lockoff unit VOI's.
(c) Includes two-bedroom unit VOI's only.
(d) Includes one- and two-bedroom unit VOI's.
(e) Selling prices listed reflect pre-opening prices.
Vistana Resort (Orlando, Florida). Vistana Resort, the Company's flagship
vacation ownership property, is an award-winning destination resort located less
than one mile from the Walt Disney World Resort(R) complex. Vistana Resort
opened as the first vacation ownership resort in Orlando in 1980 with an initial
phase containing 98 units on a 25-acre parcel. At December 31, 1998, the resort
had 1,326 units (with 1,539 units planned at build-out) in eight villages. The
resort has received the Gold Crown designation since the inception of the
designation by Resort Condominiums International ("RCI").
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 7 recreation
centers, 13 lighted tennis courts, a tennis pro shop, 7 outdoor temperature-
controlled swimming pools, 7 outdoor whirlpools, 5 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 three restaurants and a general store
containing a Pizza Hut(R) facility. 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 terraces
or balconies with water views. Later phases include units with an optional two-
bedroom
-6-
<PAGE>
lockoff floor plan, a feature that allows the 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 VOI 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.
Located on a 3.5-acre oceanfront parcel, Vistana's Beach Club was purchased by
the Company in January 1989. The resort consists of a nine-story building
containing 48 units and an eight-story building containing 28 units. The resort
has numerous recreational amenities, including a freshwater swimming pool,
outdoor whirlpool, children's pool, elevated sun deck and access to 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 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 resort has
received RCI's Gold Crown designation. Sales at this resort consist primarily
of previously-sold VOI's that the Company has reacquired in connection with
owner upgrades and defaults under customer mortgages.
Hampton Vacation Resort-Oak Plantation (Kissimmee, Florida). Hampton
Vacation Resort-Oak Plantation is a 242-unit property located in Kissimmee,
Florida, approximately ten miles from Walt Disney World Resort. The resort was
developed from a multi-family rental apartment complex purchased in 1996. 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 landscaped resort includes a scenic lake with a
lighted fountain, swimming pools and other recreational amenities. The resort
has received the Gold Crown designation from RCI. The property is operated as a
Hampton Vacation Resort franchise. The Company holds a 67% controlling
ownership interest in the limited partnership that operates the resort. See
"Promus Relationship."
Eagle Point Resort (Vail, Colorado). Eagle Point Resort is a 54-unit,
courtyard resort which is bordered by Gore Creek in Vail, Colorado. Amenities
include a heated swimming pool, indoor and outdoor hot tubs, a sauna and a coin-
operated laundry. Additionally, Eagle Point Resort offers a complimentary
shuttle service to the Lionshead Gondola at Vail during the ski season. Eagle
Point has one- and two-bedroom units, each of which includes a fully-equipped
kitchen. The Company acquired the remaining inventory in the resort in
September 1997. See "Business-Acquisition of Success and Points." Eagle Point
participates in the II exchange network but does not carry a rating by Interval
International ("II"), a resort exchange network, or RCI. Sales at this resort
consist primarily of previously-sold VOI's that the Company has reacquired in
connection with owner upgrades and defaults under customer mortgages.
Falcon Point Resort (Avon, Colorado). Falcon Point is a 58-unit
condominium resort located in Avon, Colorado at the foot of Beaver Creek Ski
Area in Vail Valley. The Company acquired the remaining inventory in the resort
in September 1997. See "Business-Acquisition of Success and Points." Amenities
include a clubhouse, a heated swimming pool, indoor and outdoor hot tubs, sauna,
ski lockers and a coin operated laundry. This resort contains studio, as well
as one- and two-bedroom units. All Falcon Point units, except studios, contain
a fully-equipped kitchen. The resort has received a Five Star rating from II.
Sales at this resort consist primarily of previously-sold VOI's that the Company
has reacquired in connection with owner upgrades and defaults under customer
mortgages.
-7-
<PAGE>
Villas of Cave Creek (Cave Creek, Arizona). The Villas of Cave Creek is
comprised of 25, two-story villas located at the base of Black Mountain in the
Sonoran Desert foothills, just north of Scottsdale. Amenities include two
swimming pools, a clubhouse, an exercise room, a lawn game area and a
playground. All of the villas have a master suite, fully-equipped kitchen,
dining room, living room, a second bedroom and two full baths. The Company
acquired the remaining inventory in the resort in its acquisition of Success and
Points in September 1997. The resort has received a Five Star rating from II.
Sales at this resort consist primarily of previously-sold VOI's that the Company
has reacquired in connection with owner upgrades and defaults under customer
mortgages.
Embassy Vacation Resort at Myrtle Beach (Myrtle Beach, South Carolina).
Embassy Vacation Resort at Myrtle Beach is located in Myrtle Beach, adjacent to
Broadway at the Beach, a large entertainment and specialty retail complex. The
first phase of 88 units opened in the second quarter of 1998. An additional 28
units are under construction with a total of 550 units planned at build-out.
The first 116 units are located on approximately 16 acres of a 40-acre site.
The Company holds options to acquire the remainder of the 40 acres in multiple
phases through 2003. This resort contains one-, two- and two-bedroom lockoff
units, each of which offers a fully-equipped kitchen, washer/dryer, whirlpool
tub, stereo system, color television and video cassette player and outdoor
balcony. Amenities include a heated indoor/outdoor swimming pool, tennis court,
basketball court, sand volleyball court, kids' activity room and exercise room.
The resort has received RCI's Gold Crown designation. The Company operates the
property as an Embassy Vacation Resort franchise. See "Promus Relationship."
Vistana Resort at World Golf Village (St. Augustine, Florida). Vistana
Resort at World Golf Village is located in the World Golf Village complex near
St. Augustine, Florida. The first 102-unit phase of a planned 408-unit resort
opened in the second quarter of 1998. Vistana Resort at World Golf Village
consists of one- and two-bedroom units which 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 resort is located adjacent to the
17th and 18th fairways of the first golf course at World Golf Village. Resort
guests and owners have preferred access to daily tee times on the course and a
second course which is in the development stage. The resort has received RCI's
Gold Crown designation.
In addition to the Company's vacation ownership resort, the World Golf
Village resort complex also includes the World Golf Hall of Fame, 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, a 300-room
World Golf Village Resort Hotel and 80,000 square-foot St. Johns County
Conference Center, themed retail space, the headquarters and television
production studios for PGA Tour Productions and a theater. The component
facilities within World Golf Village are linked by the Walk of Champions
honoring each member of the World Golf Hall of Fame. A total of three golf
courses are planned.
The World Gold Hall of Fame is operated by World Golf Foundation, Inc.,
which is supported by the world's leading golf organizations. The member
organizations of World Golf Foundation, 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.
-8-
<PAGE>
The Company holds a 37.5% controlling ownership interest in a limited
partnership which is developing Vistana Resort at World Golf Village. The
partnership has the exclusive right to develop and market VOI's at World Golf
Village, and has exclusive multi-year marketing agreements for solicitation at
key locations throughout World Golf Village, including the golf course, Walk of
Champions and retail facilities. Neither the partnership nor the Company is
developing World Golf Village itself or any of the other facilities or
amenities. 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.
Embassy Vacation Resort at Scottsdale (Scottsdale, Arizona). In 1999, the
Company commenced construction of a 150-unit Embassy Vacation Resort at
Scottsdale on a 10-acre site which the Company purchased in 1997 near the TPC
Scottsdale golf course. Construction of the 72-unit first phase is scheduled to
be completed during the second quarter of 1999, with the initial units opening
in late March 1999. Amenities are expected to include a clubhouse, a recreation
complex, a free-form swimming pool, a children's club and a fully-equipped
fitness center. All of the villas are anticipated to have two-bedrooms, two
baths, a fully-equipped kitchen, dining room, living room, and an in-room washer
and dryer. The resort has received RCI's Gold Crown designation. The Scottsdale
property is expected to be operated as an Embassy Vacation Resort franchise. See
"Promus Relationship."
Lakeside Terrace (Avon, Colorado). Lakeside Terrace is a 24-unit
condominium resort located in the heart of ski country in Avon, Colorado, near
Beaver Creek and adjacent to the Company's Falcon Point Resort. Lakeside Terrace
contains two-bedroom units, each of which includes a fully-equipped kitchen, gas
fireplace, two whirlpool tubs, wet bar and two color televisions with cable
access. Amenities include an indoor/outdoor pool, dry sauna, recreation facility
and covered parking. The resort has received a five-star rating from II.
PGA Vacation Resort by Vistana (Port St. Lucie, Florida). In September
1997, the Company purchased from an affiliate of PGA of America approximately 25
acres of land within PGA Village in Port St. Lucie, Florida for the purpose of
developing, marketing and operating a vacation ownership resort. The resort
will be developed as a PGA Vacation Resort by Vistana and will be contiguous to
the South Course of the PGA Golf Club at PGA Village, a nationally-acclaimed
golf course complex that opened in early 1996. PGA of America is constructing a
golf learning center and a third golf course at the facility. In addition to
resort amenities, the PGA Vacation Resort by Vistana will, pursuant to a golf
access agreement, also offer its owners and renters preferred access to the PGA
Golf Club and other PGA golf courses in St. Lucie County. The resort is planned
to contain approximately 306 units at build-out. The 30-unit first phase is
expected to open in 2000. See "PGA of America Relationship."
Harborside at Atlantis (Paradise Island, The Bahamas). In November 1997,
the Company and Sun entered into an agreement to form a 50-50 joint venture to
design, develop, sell and manage a planned vacation ownership resort with up to
375 units adjacent to Sun's Atlantis Resort and Casino on Paradise Island, The
Bahamas. Construction of the 82-unit first phase is expected to commence during
mid-1999 on approximately ten acres of land that Sun plans to contribute to the
joint venture. The Company plans to contribute up to approximately $7.8 million
to the joint venture as part of the initial development. The agreement calls
for Sun to oversee the development and construction and manage the hospitality
elements of Harborside at Atlantis and for the Company to oversee all timeshare
operations, including portfolio management, sales and marketing, and property
management services. The resort is expected to open in 2000.
-9-
<PAGE>
Accommodations at Harborside at Atlantis are expected to consist almost
entirely of two-bedroom lockoff units, each of which will contain a separate
master bedroom with a whirlpool tub, a fully-equipped kitchen, and living and
dining areas. Owners and guests at the resort will have access to Sun's
Atlantis Resort and Casino, including all of its amenities. The Atlantis Resort
and Casino is a 2,340-room luxury resort with the largest casino in the
Caribbean. Amenities of the Atlantis Resort include a 14-acre waterscape, a
lagoon, waterfalls, water slides, underground grottos, a rope suspension bridge,
a 63-berth world class marina, full resort spa and five pools. Other amenities
include 12 indoor and outdoor restaurants and six lounges. Guests can also
enjoy snorkeling, scuba diving, windsurfing, sailing, championship tennis and
golf, and an extensive children's program.
Vistana II at Orlando ( Orlando, Florida). In 1998, the Company purchased
approximately 45 acres of land in Orlando, Florida on which it plans to
construct a successor resort to the Company's flagship Vistana Resort. The
Company has an option to purchase approximately 45 acres of contiguous land for
additional phases through 2003. The resort is expected to contain approximately
1,400 units at build-out. The Company expects to begin construction on the
first phase during mid-1999 and to open the resort in 2000. The name of the
proposed resort has not yet been determined.
Risks Associated with World Golf Village
The success of the Company's Vistana Resort at World Golf Village is
dependent upon the continued development and promotion 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 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 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 Development and Construction Activities
The acquisition, development, construction, conversion and expansion of
existing and new vacation ownership resorts involve a number of risks, including
risks that (i) acquisition or development opportunities may be abandoned,
requiring project costs to be expensed during the current period; (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 acquisition, development, construction, conversion or
expansion activities may not be obtained or may not be available on satisfactory
terms. As of December 31, 1998, the Company does not have the financing
available to construct and develop all of the vacation ownership resorts it
plans to develop and market. In addition, certain state, local and foreign 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
-10-
<PAGE>
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 development of the remaining phases at its existing resorts;
(ii) undertake and complete the development of its planned resorts; or (iii)
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 materially adversely impacted.
Risks Associated with Expansion into New Markets
Because certain of the Company's recently opened and proposed resorts are
outside the Company's historical geographical area of operation, the Company's
resort development and operation experience does not ensure the success of the
development or operation of these properties or the marketing of VOI's at these
locations. Accordingly, in connection with these resorts, 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 new locations; (iii) the inability
to obtain, or obtain in a timely manner, necessary permits and approvals from
state and local government agencies and qualified construction tradesmen at
competitive prices; (iv) the inability to secure sufficient, cost-effective
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 and cash
flow requirements which may be associated with, selling VOI's prior to
completion of the related units. Additionally, with respect to any vacation
ownership resort located in a foreign market, such as The Bahamas, the Company's
operations may be materially and adversely affected by developments with respect
to inflation, interest rates, government policies and regulations, import
tariffs, price and wage controls, exchange control regulations, exchange rates,
taxation, political and social instability and other political or economic
developments in or affecting such foreign jurisdiction. The Company's operations
may also be materially and adversely affected by foreign government regulations
which may restrict the Company from using its existing personnel in the foreign
jurisdiction and require the Company to hire and train local workers, some of
whom may have less experience in the vacation ownership industry.
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 and usage levels of the golf courses and golf-related
facilities associated with the Company's resorts. Linking the success of the
Company's resorts to related golf course operations is a relatively 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.
Promus Relationship
In December 1996, the Company and Promus Hotels, Inc. ("Promus") entered into
an exclusive five-
-11-
<PAGE>
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 (the "Promus
Agreement"). Promus is a wholly-owned operating subsidiary of Promus Hotel
Corporation.
On March 12, 1999, Promus Hotel Corporation and the Company announced that
they were holding discussions to modify the exclusive nature of their
relationship in order to increase development opportunities for both parties.
The discussions relate, among other things, to the provisions in the Promus
Agreement which restrict Promus from independently developing new vacation
ownership resorts and which prevent the Company from developing vacation
ownership resorts with other multi-hotel brands. The Company is unable to
predict the outcome of such discussions, the effect such discussions may have on
the Promus Agreement or other aspects of the Company's relationship with Promus,
or the effect that any changes in the Promus Agreement or the Company's
relationship with Promus may have on the Company's business or results of
operations. The following paragraphs describe the Promus Agreement and certain
other relationships between the Company and Promus, prior to any changes that
may occur as a result of the discussions between the parties referenced above.
Under the Promus Agreement, as originally executed, the Company is Promus'
exclusive joint venture partner for the development and operation of vacation
ownership resorts in North America and also had the option of operating vacation
ownership resorts on a franchise basis. At December 31, 1998, the Company was
the sole franchisee in North America of the Hampton Vacation Resort and the
Homewood Vacation Resort brands, and one of only two franchisees in North
America of the Embassy Vacation Resort brand. The Promus Agreement also
provides that, in six selected markets agreed to by the parties, the Company
will be the sole franchisee in North America of the Embassy Vacation Resort
brand. These six markets consist of three coastal areas of Florida (including
portions of the southeastern and western coasts of Florida and the Panhandle);
the coastal region between Jacksonville, Florida and Myrtle Beach, South
Carolina; Phoenix and Scottsdale, Arizona; and Palm Springs and Palm Desert,
California. As originally executed, 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 develop vacation
ownership resorts with unique, non-multi-hotel brand hotel properties (such as
the Atlantis Resort and Casino), and to acquire or develop vacation ownership
resorts under the Vistana name (other than in the six selected markets referred
to above).
The Promus Agreement provides that each jointly developed vacation
ownership resort will be acquired, developed and operated by a newly-formed
entity owned equally by Promus and the Company and managed by the Company. The
parties agreed that each of these entities would enter into a sales and
marketing agreement with the Company, pursuant to which the Company would be
responsible for marketing and sales of VOI's at the resort and for which the
Company would receive a fee based on a percentage of sales and rental revenues.
Additionally, the Company and Promus agreed to enter into a license agreement
and hospitality management agreement, pursuant to which Promus would license the
applicable brand name and provide other hospitality-related services at the
resort and for which Promus would receive a fee based on a percentage of sales
and rental revenues. The Promus Agreement provides that both parties must first
offer vacation ownership resort development opportunities in the six 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
-12-
<PAGE>
rights to develop the resort independently or, in the case of Promus, franchise
an Embassy Vacation Resort to its existing franchisee. However, 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. 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 (i.e.,
by December 1999). The Promus Agreement is also terminable upon a change in
control of Promus or the Company. Although the Company and Promus have evaluated
a number of new resort development opportunities for possible joint venture, no
firm commitments have been made for any joint venture developments and there is
no assurance that any such commitments will be made. However, Promus has granted
franchises for three of the Company's properties: (i) Hampton Vacation Resort-
Oak Plantation in Florida; (ii) Embassy Vacation Resort at Myrtle Beach in South
Carolina; and (iii) the Embassy Vacation Resort at Scottsdale, currently under
construction in Arizona. See "Company Resorts." There can be no assurance that
the Company will continue to operate these properties as Embassy or Hampton
franchises.
The Promus Agreement and the relationship between the Company and Promus
may be modified as a result of the discussions between the parties described
above or as a result of other business decisions or events. Management believes
that the Company will be able to develop relationships with other multi-hotel
brands if the exclusivity restrictions of the Promus Agreement are lifted, but
there can be no assurance that the Company will be successful in doing so.
PGA of America Relationship
The Company and an affiliate of PGA of America have entered into a ten-year
affiliation agreement (the "Affiliation Agreement"), pursuant to which the
Company has the exclusive right to acquire, develop, manage, market and sell
vacation ownership resorts in St. Lucie County, Florida, and potentially in
other, yet to be determined, areas, under the PGA name, initials, trademark and
logo. PGA Vacation Resort by Vistana is the first resort scheduled to be
developed pursuant to the Affiliation Agreement. See "Company Resorts."
Under the Affiliation Agreement, the Company has the right of first offer
to be the developer of additional PGA vacation resorts at other potential
properties (outside St. Lucie County, Florida) identified by the Company or by
PGA of America or its affiliates. If the parties mutually agree to develop any
other property, the Company will have the exclusive rights and licenses to use
the PGA name, initials, trademark and logos in connection with such property.
In the event that either party elects not to pursue development of another
potential resort, the other party has certain rights to develop that resort
independently. Except for Port St. Lucie, there are no current commitments for
development of any other vacation ownership resorts, and there is no assurance
that the parties will successfully negotiate and execute any future development
agreements. If the Company and PGA of America enter into future development
agreements, the Affiliation Agreement contemplates that the parties will execute
similar agreements and covenants as those regarding the PGA Vacation Resort by
Vistana.
The Company's exclusive right to develop the PGA Vacation Resort by
Vistana, and its right of first offer for other potential vacation ownership
resorts, does not apply to development projects outside St. Lucie County,
Florida which already bear the PGA name. Likewise, the Affiliation Agreement
does not limit, prohibit or restrict the Company or any of its affiliates from
conducting its business in any manner it
-13-
<PAGE>
determines to be necessary or advantageous to it, including, without limitation,
developing, marketing, managing, owning, operating or selling vacation ownership
resorts other than the PGA Vacation Resort by Vistana or other properties that
may be developed by the parties.
The Company has the right under the Affiliation Agreement, but not the
obligation, to include one or more of the PGA Vacation Resorts in a vacation
club or other exchange program in combination with other vacation resorts of
comparable or superior quality owned or operated by the Company or one of its
affiliates, subject to PGA of America's approval.
In addition, the Company and PGA of America entered into a marketing
agreement under which the Company is granted access to the PGA mailing list
(which includes over 72,000 names of PGA members, apprentices and business
contacts) as well as media recognition in certain publications.
Risks Related to Joint Venture and Franchise Agreements
The Company's joint venture and franchise agreements expose the Company to
certain restrictions, costs and risks. Although the Company is engaged in
discussions which may modify or eliminate such restrictions, the Promus
Agreement as originally executed prevents the Company from developing vacation
ownership resorts with other (non-Promus) multi-hotel brands and significantly
restricts the Company's ability to develop vacation ownership resorts 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, as originally
executed, will not prevent the Company from developing resorts which would be in
the Company's best interests. The Promus Agreement provides, and the Company's
proposed joint venture agreement with Sun is expected to provide, that the
operating profits from a jointly-owned resort will be divided between the
partners in accordance with their respective partnership interests. There can be
no assurance that the benefits derived by the Company from the joint venture
relationship will be sufficient to justify sharing the percentage of operating
profits mandated by the joint venture agreement.
Although the Company has entered into an agreement with Sun to form a joint
venture to develop and operate the planned Harborside at Atlantis resort in The
Bahamas, the parties have not yet completed negotiations for or entered into the
definitive joint venture agreement. Development of the Harborside at Atlantis
project is subject to the adoption of certain legislation in The Bahamas,
including legislation which would apply tariff exemptions on the importation of
construction materials to the development of vacation ownership resorts. The
project is also subject to the availability of satisfactory construction and
receivables financing. Financing for the resort may be more difficult or
expensive to obtain than comparable financing for the Company's other resorts
due to the foreign location of the project, the joint venture ownership and
legal structure for the resort, construction cost and other project-specific
factors. There can be no assurance that the Company and Sun will enter into a
definitive joint venture agreement or that the other conditions necessary for
development of the resort will be satisfied.
In order to maintain its franchise relationship with Promus or any other
franchisor, the Company may be required to incur expenditures and meet other
obligations at the franchised resorts required by the applicable franchise
agreements. These requirements may increase the Company's operating costs and
limit its flexibility with respect to the operation of the resort. The
expenditures which the Company may be required to incur and the obligations
which the Company may be required to satisfy will depend,
-14-
<PAGE>
among other things, on the extent to which the applicable franchise agreement
requires the Company to incur construction and development costs, resort and
other operating expenses, capital expenditures and maintenance costs. There is
no assurance that the Company will receive benefits from a franchise
relationship sufficient to justify these costs and the franchise fees paid to
the franchisor. If the Company were to decide to terminate a franchise agreement
relating to a resort, the Company could be required to pay a termination fee to
the franchisor and incur construction and other expenses in renaming or
rebranding the property.
Acquisition of Success and Points
On September 16, 1997, the Company completed the acquisition (the
"Acquisition") of entities comprising The Success Companies, Success
Developments, L.L.C. and Points of Colorado, Inc. (collectively, "Success and
Points") from Donald J. Dubin, Larry D. Doll, Ronald R. Sharp, David E. Bruce
and David E. Friedman (collectively, the "Sellers"). Pursuant to the Agreement
and Plan of Reorganization dated as of August 15, 1997 (the "Agreement and Plan
of Reorganization"), the Company acquired all of the outstanding stock of
Success and Points for a purchase price consisting of approximately $24 million
in cash (financed with bank borrowings of approximately $24 million) and 638,444
shares of common stock of the Company, par value $.01 per share (the "Common
Stock"). Delivery of 430,814 of such shares is contingent upon Success and
Points achieving certain operating results on a quarterly basis during the
calendar years 1998 through 2000. For the year ended December 31, 1998,
approximately 140,000 shares were earned relative to the achievement of the
required results. In addition, future earnings will be adversely impacted by
the amortization of the goodwill associated with the Acquisition. Based upon
recorded goodwill of approximately $17.2 million as of December 31, 1998 and an
amortization period of 20 years, earnings will be adversely impacted by
approximately $0.96 million per year. The goodwill included in this calculation
does not include the potential impact of the final two years of the contingent
consideration associated with the Acquisition.
As part of the Acquisition, the Company acquired three vacation ownership
resorts: (i) the Villas of Cave Creek, near Scottsdale, Arizona; (ii) Eagle
Point Resort in Vail, Colorado; and (iii) Falcon Point Resort in Avon, Colorado.
See "Company Resorts." In addition, Success and Points served, and the Company
is continuing to serve, as the exclusive marketing and sales agent for the
largest vacation ownership resort in Colorado, The Christie Lodge, located in
Avon. As a result of the Acquisition, the Company also acquired undeveloped land
in Avon, Colorado, on which it is completing the development of the Lakeside
Terrace Resort, and in Scottsdale, Arizona on which it is completing the
development of the Embassy Vacation Resort at Scottsdale.
Success and Points provided a foundation for the Company's sales, marketing
and resort operations in the western region of the United States and also
provided the Company with experience in direct marketing to consumers in Arizona
and Colorado. The Company believes that the strategic relationships and
operational expertise gained in the Acquisition have improved its ability to
identify additional developments and acquisitions in Arizona, Colorado and other
western states.
Additional Acquisitions and Expansion
The Company regularly examines opportunities to acquire additional vacation
ownership resorts, additional land for the expansion or development of vacation
ownership resorts, and companies having vacation ownership assets, management,
or sales or marketing expertise relevant to the Company's existing
-15-
<PAGE>
or future business in the vacation ownership industry. Such acquisitions, if
consummated, may involve the issuance of additional debt or equity securities,
increased debt leverage, and business operations, geographic locations and risks
that are different from those associated with the Company's existing business.
There is no assurance that any such acquisitions will be consummated or, if
consummated, that they will be successfully integrated into the Company's
business.
Sales and Marketing
Marketing Programs. The Company's marketing programs vary by resort
location. For Company resorts in the eastern United States, the primary
marketing programs are off-premise contacts, in-house contacts, telemarketing
and, primarily for resorts in Central Florida, off-site international contacts.
For Company resorts in the western United States, the primary marketing programs
are telemarketing and in-house contacts. In addition to these programs, the
Company uses a variety of other marketing approaches, including vacation sampler
programs (designed to allow a prospective purchaser to be a guest at the resort
and experience vacation ownership before making a decision to buy) and, more
recently, strategic alliances and affinity and database marketing programs with
travel, lodging and recreation companies. The Company intends to increase its
telemarketing, vacation sampler, and strategic alliance marketing programs
during future periods. 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.
The Company's off-premise contact programs involve 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 these programs is to generate a regular flow
of qualified potential VOI purchasers to visit the on-site sales centers at the
Company's resorts. Any loss or increase in the cost of the Company's off-site
contact sites could have a material adverse effect on the Company. The
Company's in-house marketing programs focus on guests staying at its 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. These programs are more effective
at larger and more mature resorts, such as Vistana Resort in Orlando, which have
a high number of owners, renters, and VOI exchangers. The Company's
telemarketing programs use a combination of outgoing calls to potential
customers and incoming responses from direct mail and other promotions.
Sales Focus. The Company's marketing efforts are currently supported by
resort-based sales operations, which, in the Company's view, have been important
to the Company's successful performance during its history. Prospective
purchasers visiting one of the Company's resorts are given a personalized on-
site tour of the resort and provided information about vacation ownership and
available financing options. Presentations to potential buyers, which typically
last between one and one-half and four hours, are individually tailored to take
into account each 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. The Company is continuing to evaluate
new sales techniques.
Because the most critical component of the Company's sales effort is its
sales personnel, the Company strives to attract, train and retain a superior
sales force. The Company's policy is for each of its
-16-
<PAGE>
sales representatives to be a licensed real estate professional and undergo
instruction and training. In addition, except for certain independent
contractors primarily at the Company's western resorts, each sales
representative is an employee of the Company and receives full employment
benefits. See "Governmental Regulation."
International Sales and Marketing. In addition to its domestic operations,
the Company sells VOI's in its resorts to international customers.
International sales are made to customers visiting the United States, who are
generally contacted through one of the Company's off-premise or in-house
marketing programs described above. International sales are also made to
foreign purchasers who buy the VOI "sight unseen" based upon the Company's
reputation for delivering a high quality vacation experience. These prospective
customers are generally contacted through international brokers and direct sales
offices located in foreign countries, primarily South and Central America and
the Caribbean basin. During the years ended December 31, 1998 and 1997,
approximately 20.0% and 34.0%, respectively, of the Company's sales were to
purchasers residing in countries other than the United States and Canada (with
all sales made in United States dollars). In 1998 and 1997, substantially all
of the Company's sales to residents of countries other than the United States or
Canada involved Company resorts located in Central Florida. Because of adverse
economic and weather conditions in South and Central America and hurricane
damage in the Caribbean basin during 1998, the Company closed several of its
off-site offices in South and Central America and is evaluating other action
intended to reduce the sales and marketing costs of its off-site international
business. Certain of these remedial actions may increase costs in the short
term. The Company's international sales generally involve higher sales and
marketing expenses and greater risks than its sales to domestic purchasers.
These risks include potential adverse effects from foreign governmental policies
and regulations, inflation, interest rates, price and wage controls, exchange
control regulations, exchange rates, taxation, political and social instability
and other political or economic developments in or affecting such foreign
jurisdictions.
Customer and Other Financing
The Company extends financing to purchasers of VOI's 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
VOI's and amortize over periods ranging up to ten years. As of December 31,
1998 and 1997, the Company had a portfolio of approximately 36,250 and 26,068
customer mortgages receivable, respectively, totaling approximately $223.3
million and $155.0 million, net, with an average stated (contractual) yield of
14.7% and 14.2%, per annum, respectively. The Company funds its operations in
part by borrowing up to 90% of the aggregate principal amount of its eligible
customer mortgages receivable under its credit facilities. As of December 31,
1998 and 1997, the Company had approximately $133.3 million and $79.2 million,
respectively, of indebtedness outstanding under its existing customer mortgages
receivable credit facilities (including the securitization Notes referred to
below) at a weighted average interest rate of 8.4% and 9.5% per annum,
respectively, secured by the Company's pledge of a portion of its customer
mortgages receivable. As of December 31, 1998 and 1997, the Company had loan
facilities secured by customer mortgages receivable with available but unused
capacity (assuming the availability of sufficient receivables) of up to $130.5
million and $115.0 million, respectively. As of December 31, 1998 and 1997, (i)
approximately 2.7% and 3.0%, respectively, of the Company's customer mortgages
receivable were 60 to 120 days past due; and (ii) approximately 3.7% and 4.0%,
respectively, of the Company's customer mortgages receivable were more than 120
days past due and the subject of legal proceedings. The
-17-
<PAGE>
Company maintains and periodically monitors an allowance for doubtful accounts
to provide for future losses associated with any defaults on customer mortgages
receivable through a provision for doubtful accounts. Management believes that
the allowance is adequate for such future losses. The Company's provision for
doubtful accounts for the years ended 1998 and 1997 was 7.4% and 6.9%,
respectively, of VOI sales. At December 31, 1998 and 1997, the allowance for
doubtful accounts was $19.2 million, or 8.6% of net period end customer
mortgages receivable, and $12.6 million, or 8.1% of such period end receivables,
respectively.
In September 1998, the Company completed a private placement of $66.2
million in principal amount of timeshare mortgage-backed notes (the "Notes").
The outstanding balance of the Notes of $58.6 million as of December 31, 1998 is
included in the amount outstanding under its existing customer mortgages
receivable credit facilities referenced above. The securitization was
structured as two classes of fixed-rate notes, with approximately $32.0 million
of 5.89% notes being rated 'AAA,' and $34.2 million of 6.28% notes being rated
'A,' by Duff & Phelps Credit Rating Co. ("DCR"). The Notes are secured by
approximately $71.1 million in first mortgage liens on VOI's sold by Vistana
subsidiaries in Florida and Colorado. The weighted average cost of the Notes,
including the yield on the Notes and the cost of a letter of credit used to
provide credit enhancement, is approximately 6.30% per annum. The Notes were
issued through a bankruptcy-remote Vistana subsidiary. The securitization was
treated as an on balance sheet financing for accounting purposes. The net
proceeds of the securitization were used primarily to repay $60.2 million of
outstanding debt secured by customer mortgages receivable and bearing interest
at LIBOR plus 2.5% and LIBOR plus 1.0%.
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 VOI and the interest rates
it pays its lenders. Because a substantial amount of the Company's indebtedness
bears interest at variable rates and the Company's customer mortgages receivable
bear interest at fixed rates, the Company bears the risk of increases in
interest rates with respect to this indebtedness. The Company from time to time
has engaged, and may in the future engage, in limited interest rate hedging
activities in an effort to reduce the risk and impact of increases in interest
rates with respect to such indebtedness. There is no assurance such activities
will be adequate to protect the Company from any adverse changes in interest
rates. In addition, the Company also faces the risk that a reduction in
interest rates would cause customers to prepay their mortgages, which would
reduce the Company's income from financing activities.
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 finance its customer mortgages receivable, construct and develop
its existing and proposed resorts, and fund its ongoing operations, and there
can be no assurance that alternative or additional credit arrangements can be
obtained on terms that are satisfactory to the Company. Future sales of VOI's
are significantly dependent upon the continued availability of funds to cover
the initial negative cash flow attributable to VOI sales financed by the Company
(i.e., the amount by which the Company's product cost and marketing, sales and
general and administrative expenses per VOI exceed the customer's down payment).
The acquisition, construction and development of future resorts and VOI
inventory are also significantly dependent upon the availability of financing.
If the Company were unable to obtain credit facilities or debt or equity
financing in amounts, and on terms and conditions, satisfactory to its needs,
such an event would have a material adverse effect on the Company's business and
results of operations. 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
-18-
<PAGE>
report income attributable to sales of VOI's 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.
The Company bears the risk of defaults under its customer mortgages on
VOI's. If a purchaser of a VOI defaults on the mortgage during the early part
of the loan amortization period, the Company will not have recovered its
marketing, selling (other than commissions in certain events), and general and
administrative costs per VOI, and such costs will again be incurred in
connection with the subsequent resale of the repossessed VOI. 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 VOI (which the Company views as
indicative of a customer's financial wherewithal to meet obligations under the
mortgage related to the VOI) and that the customer mortgage is secured by the
underlying VOI, the Company does not believe that credit history verification is
cost-effective or necessary. However, the Company may elect to use credit
history verification or other underwriting practices in the future and such
practices, if implemented, could have the effect of reducing VOI sales or
increasing sales and marketing expense as a percentage of VOI sales. In
addition, although in certain jurisdictions (including Florida) the Company may
seek recourse against a defaulting customer for the sales price of the VOI, the
Company has not historically pursued such a remedy. Accordingly, there is no
assurance 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
allowance for loss will be adequate.
Until recently, 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 certain such financing to up to ten years. The Company has recently
begun to offer ten-year financing for some of its customer mortgages receivable.
Although the increased term has been introduced on a limited basis, there is 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.
Resort Operations
Resort Management Services. The Company currently provides both
hospitality and homeowners' association management services at its existing
vacation ownership resorts, and intends to provide, or arrange for the provision
of, the same services, directly or through subcontracts with third parties, at
its future vacation ownership resorts pursuant to management agreements with the
homeowners' associations present at such resorts (which are comprised of owners
of VOI's at the resort or, in the case of Vistana Resort, a particular phase of
the resort). Under each such management agreement, the Company is paid by the
applicable homeowners' association an annual management fee which is generally
equal to approximately 10% of applicable costs and expenses incurred by the
homeowners' association. The Company is responsible for, and has 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 or more
years, with automatic renewals. In general, the homeowners' associations may
remove the Company as manager upon obtaining the requisite owner vote. The
Company
-19-
<PAGE>
also provides, directly or indirectly, 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. The Company may be exposed to risks
associated with existing resort operations and the commencement of new resort
operations including increased operating costs, acquiring/retaining qualified
personnel, and condominium related fees for unsold inventory.
The Company historically has provided hospitality management services for
its vacation ownership resorts. However, pursuant to management and
submanagement agreements with the Company, hospitality management services for
Embassy Vacation Resort at Myrtle Beach are provided, and hospitality management
services for the Embassy Vacation Resort at Scottsdale are expected to be
provided, by Promus. Promus may also provide such services for any other future
resorts developed under franchise or joint venture agreements with Promus. Sun
is expected to provide hospitality management services to the proposed
Harborside at Atlantis resort. These hospitality management services furnished
by Promus and Sun are provided or expected to be provided for a negotiated
management fee which in some cases may result in a sharing of the homeowner
association management fee payable to the Company.
VOI Unit Rental Operations. The Company generates additional revenues at
its resorts that have an inventory of unused or unsold VOI's from the rental of
the unoccupied units on a nightly or weekly basis. The Company offers these
unoccupied units through direct consumer sales (including telemarketing
promotions), travel agents and vacation package wholesalers. In addition to
providing the Company with supplemental revenues, the Company's room rental
operations provide it with lead generation for the sale of VOI's. As part of
the resort management services provided by the Company, at the request of a VOI
owner, the Company will seek to rent the owner's VOI in the event the owner is
unable to use or exchange it. The Company generally charges the owner a fee
equal to 50% of the unit's rental rate, net of commission, for each completed
rental.
Other Operations
Telecommunications Services. The Company's telecommunications business
generates revenues from the installation of telephone, data and cable television
equipment and infrastructure at certain of 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 as a contractor or subcontractor to third parties, including hotels,
universities, hospitals and airports.
-20-
<PAGE>
Participation in VOI Exchange Networks
Each of the Company's vacation ownership resorts participates in the
exchange network operated by RCI or, in the case of existing resorts acquired in
the Acquisition of Success and Points, II. Membership in RCI or II allows the
Company's customers to exchange in a particular year their occupancy right in
the unit in which they own a VOI 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 VOI for an
occupancy right in another participating resort by listing the VOI 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. The exchange network assigns a rating to
each listed VOI, 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 VOI is available, and attempts to satisfy the exchange request by providing
an occupancy right in another VOI with a similar rating. If RCI or II is unable
to meet the member's initial request, the network operator suggests alternative
resorts based on availability. Participants in RCI and II generally pay an
annual membership fee plus an additional fee for each exchange. 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 exchange network or any other exchange network, or that the Company's
customers will continue to be satisfied with RCI's exchange network or any other
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 or II cease to be leading VOI exchange networks, the Company's sales
of VOI's could be materially adversely affected.
The agreements between one of the Company's predecessors and RCI generally
provide that, until May 2001, the RCI exchange program will be the only exchange
program permitted at resorts developed by that entity and any other entity which
it controls. In addition, Messrs. Gellein and Adler have agreed with RCI that,
until May 2001, each vacation ownership resort owned, developed or managed by an
entity in which Messrs. Gellein or Adler, individually or collectively, have a
controlling interest will execute an affiliation agreement with RCI with an
initial six-year term.
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 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 VOI's under their
brand names, including Marriott International, Inc., The Walt Disney Company,
Hilton Hotels Corporation, Hyatt Corporation, Four Seasons Hotels & Resorts,
Inc., Inter-Continental Hotels and Resorts, Inc., Westin Hotels & Resorts and
Promus. In addition, other publicly-traded companies focused on the vacation
ownership industry, such as Sunterra Corporation, Fairfield Communities, Inc.,
Silverleaf Resorts, Inc., Trendwest Resorts, Inc. and Bluegreen Corporation have
competed, currently compete, or may in the future compete, with the Company.
Competition in the Orlando market is particularly intense, and includes many
nationally recognized lodging,
-21-
<PAGE>
hospitality and entertainment companies, as well as large privately-owned local
operators of vacation ownership resorts such as Central Florida Investments,
Inc. and Orange Lake Country Club. Significant competition also exists in other
markets in which the Company currently operates or is developing vacation
ownership resorts. Certain entities with which the Company competes 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 competition in the
vacation ownership industry will be increased by consolidation in the industry,
by increased development of vacation ownership resorts by industry participants,
and by the entry of additional hospitality companies and other entities into the
vacation ownership industry.
Governmental Regulation
General. The Company's marketing and sales of VOI's 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 VOI's 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 VOI's, 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
VOI's. Many other states have adopted similar legislation as well as specific
laws and regulations regarding the sale of VOI's. The laws of most states,
including Arizona, Colorado and Florida, require a designated state authority to
approve a detailed offering statement describing the developer and all material
aspects of the resort and sale of VOI's at such resort. In addition, the laws of
most states in which the Company sells VOI's grant the VOI purchaser 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, prize, 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.
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. These 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
-22-
<PAGE>
toxic substances at a disposal or treatment facility also may be liable for the
costs of removal or remediation of a release of hazardous or toxic substances at
such disposal or treatment facility, whether or not such facility is owned or
operated by such person. In addition, some environmental laws create a lien on
the contaminated site in favor of the government for damages and costs it incurs
in connection with the contamination. Finally, the owner or operator of a site
may be subject to common law claims by third parties based on damages and costs
resulting from environmental contamination emanating from a site. In connection
with its ownership and operation of its properties, the Company may be
potentially liable for such costs.
The Company has conducted Phase I environmental assessments at each of its
existing resorts and properties under development 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.
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 some instances or reduce profit margins on the
Company's operations.
Employees
As of December 31, 1998, the Company had approximately 3,009 full-time and
55 part-time employees and utilized the services of approximately 163
independent contractors as sales agents. The Company believes that its
relations with its employees and independent contractors are good. None of the
Company's employees are represented by a labor union.
-23-
<PAGE>
Insurance
The Company carries comprehensive liability, fire, windstorm, tropical
storm and business interruption insurance with respect to its properties and
interests in its resorts (including its inventory of unsold VOI's, construction
in process and developed land) with policy specifications, insured limits and
deductibles customarily carried for similar properties, which the Company
believes are adequate. However, there are certain types of losses that are not
generally insured because they are either uninsurable or not economically
feasible to insure and for which the Company does not have insurance coverage.
Should an uninsured loss or a loss in excess of insured limits occur, the
Company could lose its investment in a resort as well as the anticipated future
revenues from such resort, and would continue to be obligated on any mortgage
indebtedness or other obligations related to the resort. Moreover, if a
homeowners' association fails to adequately insure the property committed to the
condominium form of ownership (typically, all units, common areas, facilities
and amenities), any uninsured or under-insured casualty may affect the Company's
ability to collect customer mortgages receivable related to such condominium
property. Certain of the Company's vacation ownership resorts are located in
areas that are susceptible to high winds, tropical storms, hurricanes, and
tornadoes. The Company's resorts could suffer significant damage as a result of
such storms, floods and other natural disasters. Any such damage, as well as
adverse weather conditions generally, could impair or delay the Company's
ability to sell VOI's at its existing resorts and complete the development of
its proposed resorts and in either event have a material adverse effect on the
Company's results of operations.
Other Risk Factors
Investors considering an investment in the Company should carefully
consider the following information in conjunction with the other information
contained or incorporated by reference in this Annual Report; however, the
Company cautions the reader that the following risk factors and those discussed
previously or incorporated by reference may not be exhaustive.
Limited Resale Market for VOI's. The Company sells VOI's to buyers for
leisure and not investment purposes. The Company believes that the market for
resale of VOI's by such buyers is presently limited and that any resales of
VOI's are typically at prices substantially less than the original purchase
price. These factors may make ownership of VOI's less attractive to prospective
buyers. In addition, attempts by buyers to resell their VOI's may compete with
sales of VOI's by the Company. Moreover, the market price of VOI's sold by the
Company could be depressed by a substantial number of VOI's offered for resale
by the Company's customers.
Risks Associated with Leverage. The Company expects that its 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 existing credit facilities
contain, and those with respect to future facilities may 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 vacation ownership resorts, 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
-24-
<PAGE>
facilities, the lenders could foreclose on the vacation ownership resorts
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 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.
Seasonality. The Company's revenues are seasonal. Owner and guest activity
at the Company's resorts in the eastern United States are currently the greatest
from February through April and June through August. Owner and guest activity at
the Company's resorts in the western United States are currently the greatest
from June 15 to Labor Day and Christmas to Easter. As a result of this
seasonality, the Company currently anticipates its weakest operating results
during the first quarter, and its strongest operating results during the third
quarter, of each calendar year. However, as the Company opens new resorts and
expands into new markets and geographic locations it may experience increased or
different seasonality dynamics creating fluctuations in operating results that
are different from those experienced in the past.
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.
Effective Control by Principal Shareholders; Shareholders' Agreement.
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 ''Principal Shareholders'') own and/or have voting
control of approximately 55.0% of the outstanding shares of common stock. As a
result, by maintaining their ownership of common stock, the Principal
Shareholders have the power to exert substantial influence over the election of
the Board of Directors, the determination of the policies of the Company, the
appointment of the persons constituting the Company's management and the
determination of the outcome of corporate actions requiring shareholder
approval. In addition, pursuant to a shareholders' agreement, the Principal
Shareholders have agreed to vote their shares of Company 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.
Volatility of Stock Price. The Company's common stock first became
publicly traded on February 28, 1997. Since then, the per share price of the
common stock has fluctuated substantially. The market price of the common stock
is likely to continue to be highly volatile and could be subject to wide
fluctuations in response to industry trends, quarterly variations in operating
results, announcements of new acquisitions, changes in financial estimates by
securities analysts or other events or factors. The market price of the common
stock also may be affected by the Company's ability to meet analysts'
expectations,
-25-
<PAGE>
and any failure to meet such expectations, even if minor, could have a material
adverse effect on the market price of the common stock. In addition, the stock
market has experienced significant price and volume fluctuations affecting the
market prices of equity securities within the vacation ownership and hospitality
industries and the market generally that have often been unrelated to the
operating performance of the companies issuing such securities. These industry
and broader market fluctuations may adversely affect the market price of the
Company's Common Stock. In the past, following periods of volatility in the
market price of a company's securities, securities class action litigation has
often been instituted against such a company. Any such litigation instigated
against the Company could result in substantial costs and a diversion of
management's attention and resources, which could have a material adverse effect
on the Company's business, results of operations or financial condition.
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, 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. The Board of Directors of the Company consists of three classes
of directors. Directors for each class are elected for a three-year term. 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.
The Board of Directors has 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 are
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.
Florida law contains provisions that may have the effect of delaying,
deferring or preventing a non-negotiated merger or other business combination
involving the Company. These provisions are intended to encourage any person
interested in acquiring the Company to negotiate with and obtain the approval of
the Company's Board of Directors in connection with the proposed transaction.
Certain of these provisions may, however, discourage a future acquisition of the
Company not approved by the Board of Directors in which shareholders might
receive an enhanced value for their shares, even though a substantial number or
majority of the Company's shareholders might believe the acquisition is in their
best interest. As a result, shareholders who desire to participate in such a
transaction may not have the opportunity to do so. Such provisions could also
discourage bids for the shares of common stock at a premium as well as create a
depressive effect on the market price of the shares of common stock.
General Economic and Industry Conditions. 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 travel or
fuel, could have a material adverse effect on the Company's business. Such
-26-
<PAGE>
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 from the buyers of VOI's. 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 VOI's; (ii) a reduction in demand for
VOI's; (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.
Item 2. Properties.
The Company's other owned properties include an office plaza consisting of
two three-story buildings (totaling approximately 67,000-square feet), which
house the Company's headquarters and administrative operations, a 27,000-square
foot two-story reception center and resort operations complex, maintenance and
laundry facilities, a freestanding general store and a gift shop. All of these
other properties are owned by the Company, and are located within or adjacent to
Vistana Resort in Orlando. At certain of the Company's resorts including
Vistana Resort in Orlando, Vistana Resort at World Golf Village, and the Embassy
Vacation Resort at Myrtle Beach, the Company owns guest registration and on-site
sales and marketing facilities. The Company has subleased approximately 53,000
square feet of office space in the Orlando area for a new customer service and
call center, which the Company expects to begin occupying in May 1999. In
addition, the Company leases office and warehouse space in various locations
near its existing resorts and resorts under development for sales and marketing,
construction and development, and administrative operations.
Item 3. 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, results of operations or financial condition.
-27-
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's shareholders during
the fourth quarter of its fiscal year ended December 31, 1998.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's initial public offering of common stock was consummated in
March 1997 (the "Initial Offering") at an initial public offering price of
$12.00 per share. The Company's common stock is quoted on the Nasdaq National
Market under the symbol "VSTN." The following table sets forth, for the periods
indicated, the range of high and low sale prices for the common stock, as quoted
on the Nasdaq National Market.
<TABLE>
<CAPTION>
Common Stock
---------------------------------
High Low
-------------- ----------------
<S> <C> <C>
Year Ending December 31, 1998:
First Quarter....................................................... $27 1/2 $20
Second Quarter...................................................... 29 3/4 16
Third Quarter....................................................... 21 1/2 11
Fourth Quarter...................................................... 16 1/2 6 13/16
</TABLE>
<TABLE>
<CAPTION>
Common Stock
---------------------------------
High Low
--------------- ---------------
<S> <C> <C>
Year Ending December 31, 1997:
First Quarter (commencing February 28, 1997)........................ $15 7/8 $11
Second Quarter...................................................... 15 1/2 9
Third Quarter....................................................... 22 7/8 14 3/4
Fourth Quarter...................................................... 27 3/4 18 1/2
</TABLE>
As of March 5, 1999, there were 21,224,172 shares of common stock
outstanding, held by approximately 66 shareholders of record.
The Company has never declared or paid any cash dividends on its common
stock and does not anticipate declaring or paying cash dividends on its common
stock in 1999 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 may deem relevant.
-28-
<PAGE>
Item 6. Selected Financial Data.
There is hereby incorporated by reference the information appearing under
the caption "Selected Financial Data" appearing in the Company's 1998 Annual
Report to Shareholders.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
There is hereby incorporated by reference the information appearing under
the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operation" appearing in the Company's 1998 Annual Report to
Shareholders.
Item 7A. Quantitative & Qualitative Disclosures about Market Risk
The Company is exposed to interest rate changes primarily as a result of
its notes and mortgages payable used to finance customer mortgages receivable
originated from financing customer purchases of VOI's as well as to finance the
acquisition and development of vacation ownership resorts and related inventory
and to fund working capital. The Company is also exposed to interest rate
changes with respect to its customer mortgages receivable which earn interest at
fixed rates. The Company's interest rate risk management objective is to limit
the impact of interest rate changes on earnings and cash flows and to lower its
overall borrowing costs. To achieve its objectives the Company may enter into
derivative financial instruments such as interest rate swaps in order to
mitigate its interest rate risk on a related financial instrument. The Company
does not enter into derivative or interest rate transactions for speculative
purposes.
The Company's interest rate risk is monitored using a variety of
techniques. The table below presents the principal amounts, weighted average
interest rates, fair values and estimated repayments by year of expected
maturity to evaluate the expected cash flows and sensitivity to interest rate
changes. The estimated principal repayments of fixed and variable rate debt by
year reflect the scheduled repayments for notes and mortgages payable secured by
real estate and other notes and mortgage loans payable as well as estimated
repayments on notes payable secured by customer mortgages receivable which do
not have fixed amortization dates. All collections of principal and interest on
the customer mortgages receivable serving as collateral for these notes are paid
to the lender on a monthly basis. Payments are first applied to outstanding
interest and then to principal.
-29-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fair
(in thousands) 1999 2000 2001 2002 2003 Thereafter Total Value
------- ------- ------- ------- ------- ---------- -------- --------
Fixed rate debt $20,495 $15,447 $13,752 $11,410 $ 8 $ 54 $ 61,166 $ 61,166
Average interest rate 6.11%
Variable rate LIBOR debt $79,296 $20,311 $ 5,362 $ 5,230 $ 656 -- $110,855 $110,855
Average interest rate 7.37%
Variable rate prime debt $24,373 $17,044 $10,772 $13,836 $ 4,598 -- $ 70,623 $ 70,623
Average interest rate 9.75%
- ----------------------------------------------------------------------------------------------------------------
Customer mortgages
receivable $81,001 $51,645 $43,652 $29,194 $20,209 $17,562 $243,263 $244,093
Average stated rate 14.7%
</TABLE>
As the table incorporates only those exposures that existed as of December
31, 1998, it does not consider exposures or positions which could arise after
that date. Moreover, because the Company had loan facilities with available but
unused capacity (assuming the availability of sufficient collateral) that are
not presented in the table above, the information presented has limited
predictive value. As a result, the Company's ultimate realized gain or loss
with respect to interest rate fluctuations will depend on the exposures that
arise during the period, the Company's hedging strategies at that time, and the
levels of market interest rates. At December 31, 1998, the carrying amounts of
variable rate debt approximated fair value as the interest rates on the
underlying instruments reprice frequently. In addition, because of its issuance
in September of 1998, the carrying amount of fixed rate debt approximated fair
value at December 31, 1998.
Item 8. Financial Statements and Supplementary Data.
There is hereby incorporated by reference from the Company's 1998 Annual
Report to Shareholders the Consolidated Balance Sheets as of December 31, 1998
and 1997, the Consolidated Statements of Income, Shareholders' Equity and Cash
Flows for each of the years in the three year period ended December 31,
1998, the Notes to Consolidated Financial Statements, and the Report of KPMG
LLP, the Company's Independent Auditors.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
There is hereby incorporated by reference the information appearing under
the captions "Proposal 1: Election of Directors" and "Executive Officers" in
the Company's definitive proxy statement for its 1999 Annual Meeting of
Shareholders.
Item 11. Executive Compensation.
-30-
<PAGE>
There is hereby incorporated by reference the information appearing under
the captions "Executive Officers-Executive Compensation" and "Executive
Officers-Employment Agreements" in the Company's definitive proxy statement for
its 1999 Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
There is hereby incorporated by reference the information appearing under
the caption "Security Ownership of Certain Beneficial Owners and Management" in
the Company's definitive proxy statement for its 1999 Annual Meeting of
Shareholders.
Item 13. Certain Relationships and Related Transactions.
There is hereby incorporated by reference the information appearing under
the caption "Executive Officers-Certain Relationships and Related Transactions"
in the Company's definitive proxy statement for its 1999 Annual Meeting of
Shareholders.
-31-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
(1) Financial Statements
There is hereby incorporated by reference from the Company's 1998
Annual Report to Shareholders the following:
(i) Report of Independent Auditors;
(ii) Consolidated Balance Sheets as of December 31, 1998 and
1997;
(iii) Consolidated Statements of Income for each of the years in
the three-year period ended December 31, 1998;
(iv) Consolidated Statements of Shareholders' Equity for each
of the years in the three-year period ended December 31,
1998;
(v) Consolidated Statements of Cash Flows for each of the
years in the three-year period ended December 31, 1998;
and
(vi) Notes to Consolidated Financial Statements.
(2) Financial Statement Schedules
None.
(3) Exhibits:
EXHIBIT INDEX
Exhibit
Number Document Description
- ------- --------------------
2.1 Agreement and Plan of Reorganization dated as of August 15, 1997 among
Vistana, Inc., V Sub-1, Inc., Donald J. Dubin, Ronald R. Sharp, David
E. Bruce, Larry D. Doll, and David H. Freidman and Schedule 1.5A
thereto (incorporated by reference to the correspondingly numbered
exhibit to the Current Report on Form 8-K dated September 29, 1997 of
Vistana, Inc. (File No. 0-29114))
*2.1-A Amendment No. 1 to Agreement and Plan of Reorganization dated as of
March 18, 1999 among Vistana, Inc., Vistana West, Inc., Donald J.
Dubin, Ronald R. Sharp, David E. Bruce, Larry D. Doll, and David H.
Friedman. (6)
3.1 Articles of Incorporation of Vistana, Inc. (1)
-32-
<PAGE>
3.2 Amended and Restated By-Laws of Vistana, Inc. (2)
4.1 Form of Common Stock certificate of Vistana, Inc. (1)
10.1 Employment Agreement, dated as of December 27, 1996, between Vistana,
Inc. and Raymond L. Gellein, Jr. (1, 3)
*10.1-A Letter amendment dated May 28, 1998 between Vistana, Inc. and Raymond
L. Gellein, Jr. (3)
*10.1-B Second Amendment dated March 4, 1999 between Vistana, Inc. and
Raymond L. Gellein, Jr. (3)
10.2 Employment Agreement, dated as of December 27, 1996, between Vistana,
Inc. and Jeffrey A. Adler (1, 3)
*10.2-A Letter amendment dated May 28, 1998 between Vistana, Inc. and Jeffrey
A. Adler (3)
*10.2-B Second Amendment dated March 4, 1999 between Vistana, Inc. and
Jeffrey A. Adler (3)
10.3 Employment Agreement, dated as of December 27, 1996, between Vistana,
Inc. and Matthew E. Avril (1, 3)
10.3-A Resignation Agreement dated as of September 30, 1998 between Vistana,
Inc. and Matthew E. Avril (4)
10.3-B Consulting Agreement dated as of September 30, 1998 between Vistana,
Inc. and Matthew E. Avril (4)
10.4 Employment Agreement, dated as of December 27, 1996, between Vistana,
Inc. and Susan Werth (1, 3)
*10.4-A Letter amendment dated May 28, 1998 between Vistana, Inc. and Susan
Werth (3)
*10.4-B Second Amendment dated March 4, 1999 between Vistana, Inc. and
Susan Werth (3)
10.5 Employment Agreement, dated as of December 27, 1996, between Vistana,
Inc. and Carol Lytle (1, 3)
10.6 Employment Agreement, dated as of February 10, 1997, between Vistana,
Inc. and John M. Sabin (1, 3)
10.6-A Agreement, dated as of February 5, 1998, between Vistana, Inc. and
John M. Sabin (3, 5)
10.6-B Employment Agreement, dated as of November 18, 1997, between Vistana,
Inc. and Charles E. Harris (3, 5)
*10.6-C Letter amendment dated May 28, 1998 between Vistana, Inc. and
Charles E. Harris (3)
*10.6-D Second Amendment dated March 4, 1999 between Vistana, Inc. and
Charles E. Harris (3)
*10.6-E Employee Agreement, dated as of January 30, 1998, between Vistana,
Inc. and Mark E. Patten (3)
*10.6-F First Amendment dated March 4, 1999 between Vistana, Inc. and Mark
E. Patten
-33-
<PAGE>
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 (1)
10.8 Vistana Stock Plan (1, 3)
10.8-A Vistana, Inc. Stock Plan as amended through May 15, 1998 (incorporated
by reference to Exhibit 4.1 to the Registration Statement on Form S-8
of Vistana, Inc. (File No. 333-53283)) (3)
*10.9 Vistana, Inc. Employee Stock Purchase Plan as amended through May 15,
1998 (3)
10.10 Form of Indemnification Agreement between Vistana, Inc. and certain
officers and directors of Vistana, Inc. (1)
10.11 Registration Rights Agreement, dated as of February 10, 1997, 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
(1)
10.11-A Joinder to Registration Rights Agreement, dated as of November 18,
1997, between Vistana, Inc. and Charles E. Harris (5)
10.11-B Assignment and Assumption Agreement, dated as of December 21, 1997,
between Raymond L. Gellein, Jr., Trustee of Raymond L. Gellein, Jr.
Revocable Trust, and NevWest Limited Partnership (5)
10.11-C Assignment and Assumption Agreement, dated as of December 21, 1997,
between Raymond L. Gellein, Jr., Trustee of JGG Holdings Trust, and
NevEast Limited Partnership (5)
10.11-D Assignment and Assumption Agreement, dated as of December 21, 1997,
between Jeffrey A. Adler, Trustee of Jeffrey A. Adler Trust, and Rija
Limited Partnership (5)
*10.11-E Amendment No. 1 to Registration Rights Agreement dated as of March 5,
1999 among Vistana, Inc. and the individuals, trusts and partnerships
that are signatories thereto
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 (1)
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. (1)
*10.13-A First Amendment to Limited Partnership Agreement, dated as of June 30,
1998 among Vistana WGV Holdings, Inc., Vistana WGV Investment, Inc.,
United Timeshares, Inc., A. Zimand WGV Investment, Inc. and National
Coal Company
10.14 Parcel One Property Sale Agreement, dated as of June 4, 1996, by and
Between SJH Partnership, Ltd. and Vistana WGV, Ltd. (1)
10.15 Amended and Restated Joint Venture Agreement, dated as of June 25,
1996, among R. Edward
-34-
<PAGE>
Noble, Andrew E. Kidd, Noble-Kidd Corporation and VCH Oaks, Ltd. (1)
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. (1)
10.17 Exclusive Joint Venture Agreement, dated as of December 24, 1996,
between Vistana Development, Ltd. and Promus Hotels, Inc. (1)
10.17-A First Amendment to Exclusive Joint Venture Agreement, dated February
7, 1997, between Vistana Development, Ltd. and Promus Hotels, Inc. (1)
10.17-B Second Amendment to Exclusive Joint Venture Agreement, dated February
27, 1997 between Vistana Development, Ltd. and Promus Hotels, Inc. (2)
10.17-C Third Amendment to Exclusive Joint Venture Agreement, dated May 1,
1997 between Vistana Development, Ltd. and Promus Hotels, Inc. (2)
10.18 Land Purchase Agreement, dated as of December 30, 1996, between Myrtle
Beach Farms Company Inc. and Vistana Myrtle Beach, L.P. (1)
10.19 Purchase and Sale Agreement dated as of August 12, 1997 by and between
PGA Golf Development, Inc. and Vistana PSL, Inc.(2)
10.19-A First Amendment to Purchase and Sale Agreement dated as of September
12, 1997 by and between PGA Golf Development, Inc. and Vistana PSL,
Inc. (2)
10.19-B Second Amendment to Purchase and Sale Agreement dated as of September
17, 1997 by and between PGA Golf Development, Inc. and Vistana PSL,
Inc. (2)
10.20 Affiliation Agreement dated as of September 15, 1997 by and between
PGA Golf Properties, Inc. and Vistana, Inc. (2)
10.21 Loan and Security Agreement, dated as of November 1, 1997, between
Vistana Timeshare Mortgage Corp., as Borrower, and Dresdner Bank AG
New York and Grand Cayman Branches, as Lender (5)
*10.21-A Amendment to Loan and Security Agreement dated as of November 24, 1998
between Vistana Timeshare Mortgage Corp. and Dresdner Bank AG New York
and Grand Cayman Branches.
10.22 Line of Credit Agreement, dated as of November 1, 1997, among Vistana,
Inc. and Vistana Development, Ltd. and Dresdner Bank AG New York and
Grand Cayman Branches (5)
10.23 Revolving Credit Facility Agreement dated as of July 9, 1998 between
FINOVA Capital Corporation and Vistana, Inc. (4)
10.24 Indenture dated as of July 31, 1998 between Vistana 1998-A Timeshare
Mortgage Corp. and Norwest Bank Minnesota, National Association. (4)
10.25 Servicing Agreement dated as of July 31, 1998 between Vistana 1998-A
Timeshare Mortgage Corp. and VCH Portfolio Services, Inc. (4)
*10.26 Master Vistana Resort Construction Loan Facility dated as of October
9, 1998 between Heller
-35-
<PAGE>
Financial, Inc. and Vistana, Inc.
*10.27 Master Vistana Resort Receivables Loan Facility dated as of December
30, 1998 between Heller Financial, Inc. and Vistana, Inc.
*13.1 Vistana, Inc. 1998 Annual Report to Shareholders
*21.1 List of subsidiaries of Vistana, Inc.
*27.1 Financial Data Schedule
_________
*Filed herewith.
(1) Incorporated by reference to the correspondingly numbered exhibit to
the Registration Statement (File No. 333-19045) on Form S-1, as
amended, filed by Vistana, Inc. under the Securities Act of 1933, as
amended.
(2) Incorporated by reference to the correspondingly numbered exhibit to
the Registration Statement (File No. 333-38187) on Form S-1, as
amended, filed by Vistana, Inc. under the Securities Act of 1933, as
amended.
(3) Management contract or compensatory plan or arrangement.
(4) Incorporated by reference to the correspondingly numbered exhibit to
the Company's Quarterly Report on Form 10-Q dated November 16, 1998.
(5) Incorporated by reference to the correspondingly numbered exhibit to
the Company's Annual Report on Form 10-K dated March 26, 1998.
(6) In accordance with Rule 601(b)(2) of Regulation S-K, the exhibits and
the disclosure schedules to this Agreement have not been filed. Vistana
agrees to furnish supplementally a copy of any such omitted exhibit or
schedule to the Commission upon request.
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed by the Company during the year
ended December 31, 1998.
-36-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City Orlando,
State of Florida, on March 23, 1999.
Vistana, Inc.
By: /s/ Raymond L. Gellein, Jr.
-------------------------------------
Name: Raymond L. Gellein, Jr.
Title: Chairman of the Board and Co-Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on March 23, 1999 by the following persons on behalf of
the registrant and in the capacities indicated:
<TABLE>
<CAPTION>
<S> <C>
/s/ RAYMOND L. GELLEIN, JR. Chairman of the Board, Co-Chief Executive Officer
- ---------------------------------- and Director (Principal Executive Officer)
Raymond L. Gellein, Jr.
/s/ JEFFREY A. ADLER President, Co-Chief Executive Officer and Director
- ----------------------------------
Jeffrey A. Adler
/s/ CHARLES E. HARRIS Vice Chairman of the Board, Chief Financial
- ---------------------------------- Officer, Treasurer and Director (Principal
Charles E. Harris Financial Officer)
/s/ MARK E. PATTEN Vice President and Chief Accounting Officer
- ---------------------------------- (Principal Accounting Officer)
Mark E. Patten
/s/ JAMES G. BROCKSMITH, JR. Director
- ----------------------------------
James G. Brocksmith, Jr.
/s/ LAURENCE S. GELLER Director
- ----------------------------------
Laurence S. Geller
/s/ STEVEN J. HEYER Director
- ----------------------------------
Steven J. Heyer
</TABLE>
-37-
<PAGE>
EXECUTION COPY
--------------
AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF REORGANIZATION
------------------------------------
AMENDMENT NO. 1 (this "Amendment") dated as of March 18, 1999, effective
---------
for all purposes and respects as of January 1, 1999, to Agreement and Plan of
Reorganization dated as of August 15, 1997 (the "Original Agreement") among
------------------
VISTANA, INC., a Florida corporation ("Vistana"), VISTANA WEST, INC. (f/k/a V
-------
Sub-1, Inc.), a Florida corporation and a wholly-owned subsidiary of Vistana
("VS1"), DONALD J. DUBIN ("Dubin"), LARRY D. DOLL ("Doll"), RONALD R. SHARP
- ----- ----- ----
("Sharp"), DAVID E. BRUCE ("Bruce") and DAVID H. FRIEDMAN ("Friedman")
- ------- ----- --------
(capitalized terms not otherwise defined in this Amendment are used herein as
defined in the Original Agreement);
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the parties hereto desire to amend the Original Agreement pursuant
to Section 8.6 thereof upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual promises
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending
legally to be bound, hereby agree as follows:
1. Amendments to Original Agreement. Schedule 1.5A to the Original
-------------------------------- -------------
Agreement is hereby amended in its entirety by substituting attached Schedule
--------
1.5A (Amended) therefor.
- --------------
2. Miscellaneous.
-------------
(a) Full Force and Effect. Except as expressly set forth herein, this
---------------------
Amendment does not constitute a waiver or modification of any provision of the
Original Agreement. Except as expressly amended hereby, the Original Agreement
shall continue in full force and effect in accordance with the provisions
thereof on the date hereof. As used in the Original Agreement, the terms "the
Agreement," "herein," "hereof," "hereinafter," "hereto" and words of similar
import, shall, unless the context otherwise requires, mean the Original
Agreement as amended by the Amendment. References to the terms "Agreement"
appearing in the Exhibits or Schedules to the Original Agreement, shall, unless
the context otherwise requires, mean the Original Agreement as amended by this
Amendment.
(b) Headings and terms. The headings in this Amendment are for
------------------
purposes of reference only and shall not be considered in construing this
Amendment. Terms defined in the singular shall have a comparable meaning when
used in the plural, and vice versa.
<PAGE>
(c) Counterparts. This Amendment may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall constitute an
original and all together shall constitute one agreement.
(d) Law Governing. THIS AMENDMENT 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.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
VISTANA:
-------
VISTANA, INC., a Florida corporation
By: /S/ Jeffrey A. Adler
---------------------------------
Name: Jeffrey A. Adler
Title: President and Co-Chief Executive
Officer
VS1:
---
VISTANA WEST, INC., a Florida corporation
By: /S/ Charles E. Harris
---------------------------------
Name: Charles E. Harris
Title: Senior Vice President
DUBIN:
-----
/S/ Donald J. Dubin
---------------------------------
Donald J. Dubin
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
-2-
<PAGE>
DOLL:
----
/S/ Larry D. Doll
---------------------------------
Larry D. Doll
SHARP:
-----
/S/ Ronald R. Sharp
---------------------------------
Ronald R. Sharp
BRUCE:
-----
/S/ David E. Bruce
---------------------------------
David E. Bruce
FRIEDMAN:
--------
/S/ David H. Friedman
---------------------------------
David H. Friedman
[SIGNATURES CONTINUED FROM PRECEDING PAGE]
<PAGE>
EXECUTION COPY
--------------
Schedule 1.5A
(Amended)
All capitalized terms used in this Schedule 1.5A but not defined
-------------
herein shall have the meaning ascribed to them in the Agreement and Plan of
Reorganization dated as of August 15, 1997, as amended by Amendment No. 1
thereto dated as of March 18, 1999 and effective as of January 1, 1998 (as
amended, the "Agreement") among VISTANA, INC., a Florida corporation, VISTANA
---------
WEST, INC. (f/k/a V Sub-1, Inc.), a Florida corporation and a wholly-owned
subsidiary of Vistana, DONALD J. DUBIN, LARRY D. DOLL, RONALD R. SHARP, DAVID E.
BRUCE and DAVID H. FRIEDMAN.
Section 1. The shares of Vistana Common Stock to be delivered
----------
pursuant to Section 1.5(a) of the Agreement (the "Contingent Shares") are
-----------------
subject to delivery by Vistana depending upon the Net Sales (as hereinafter
defined) and the Cost of Sales Percentage (as hereinafter defined) achieved by
the Limited Liability Companies (other than SD), SCI, DMA and SWC (collectively,
the "Marketing Entities") during the three-year period beginning January 1, 1998
------------------
and ending December 31, 2000 (the "Earnout Period"). The Contingent Shares to
--------------
be delivered pursuant to the POC Stock Purchase are sometimes herein referred to
as the "POC Contingent Shares" and the Contingent Shares to be delivered
---------------------
pursuant to the SCI Stock Purchase and the DMA/SWC Stock Purchase are sometimes
herein referred to as the "Success Contingent Shares".
-------------------------
Section 2. Various levels of Net Sales and various ranges of Cost of
----------
Sales Percentages for each calendar quarter and calendar year during the Earnout
Period are set forth in Schedule A attached hereto under the headings "Total Net
----------
Sales" and "Range of Costs," respectively, along with the related percentage of
the Contingent Shares earned in any applicable period based upon the actual
level of Net Sales and actual Cost of Sales Percentage achieved (the number of
Contingent Shares earned in any applicable period or periods, in the case of
cumulative analysis, is referred to as an "Outcome"). For purposes of Schedule
------- --------
A, it is understood that the percentages apply to the amount of Contingent
- -
Shares allocable to such period and not the total amount of Contingent Shares
for the Earnout Period. For these purposes, one-third (1/3) of the POC
Contingent Shares and one-third (1/3) of the Success Contingent Shares shall be
allocated to each calendar year during the Earnout Period.
Section 3.
----------
(a) The parties shall determine the number of Contingent Shares earned
by the Selling Parties on a quarterly basis (with twenty-five percent (25%) of
the total number of Contingent Shares for each calendar year being allocated to
each calendar quarter of such calendar year); provided, however, that for each
-------- -------
calendar quarter of a calendar year (other than the first calendar quarter) the
determination of the number of Contingent Shares earned shall, subject to
Section 3(d) hereof, be based upon the relevant Outcome for the actual
cumulative Net
<PAGE>
Sales for the calendar year to date and the actual Cost of Sales Percentage for
the calendar year to date.
Example: Subject to Section 3(d) hereof, if the actual Net Sales for
-------
the six-month period ending June 30, 1998 are at least $14,811,402 but less
than $15,551,972, the Selling Parties shall have earned (i) 100% of the
Contingent Shares allocable to the first two quarters of 1998 so long as
the actual Cost of Sales Percentage is less than 46.0%; (ii) 95% of the
Contingent Shares allocable to the first two quarters of 1998 so long as
the actual Cost of Sales Percentage is greater than 46.0% but less than
46.5%; and (iii) 90% of the Contingent Shares allocable to the first two
quarters of 1998 so long as the actual Cost of Sales Percentage is greater
than 46.50% but less than 47.0%. Thus, in clause (iii) of the preceding
sentence, if the Selling Parties earned all of the Contingent Shares for
the first calendar quarter of 1998, the number of Contingent Shares earned
for the second calendar quarter of 1998 would be that number of Contingent
Shares required to cause the total number of Contingent Shares earned for
the first two calendar quarters of 1998 to equal 90% of the total number of
Contingent Shares allocable to the first two calendar quarters of 1998.
(b) For each calendar year during the Earnout Period, the Selling
Parties shall be entitled to earn all of the Contingent Shares allocable to such
calendar year if, subject to Section 3(d) hereof, the actual Net Sales of the
Marketing Entities for the calendar year as a whole and the actual Cost of Sales
Percentage for the calendar year as a whole are such that the applicable table
of Schedule A indicates such an Outcome, notwithstanding the fact that the
----------
applicable Outcome for any one or more calendar quarters indicate that less than
100% of the Contingent Shares allocable to such calendar quarter(s) have been
earned. Any Contingent Shares earned in one calendar quarter during such
calendar year shall in no event be subject to forfeiture or retransfer to
Vistana.
(c) (i) Except to the extent set forth in Section 3(c)(ii) hereof,
all determinations hereunder with respect to the number of Contingent
Shares earned shall be made independently for each calendar year during the
Earnout Period. Thus, if the Marketing Entities have Net Sales for any
calendar year during the Earnout Period that are greater than those
required to earn 100% of the Contingent Shares for such calendar year or a
Cost of Sales Percentage which is less than that required to earn 100% of
the Contingent Shares for such year, neither of such results shall have any
impact whatsoever on Net Sales or Cost of Sales Percentage for any
subsequent calendar year. Similarly, neither the failure to achieve any
level of Net Sales nor any level of Cost of Sales Percentage for any
calendar year shall have any impact whatsoever on Net Sales or Cost of
Sales Percentage for any subsequent calendar year. Any Contingent Shares
not earned during any calendar year shall be forfeited by the Selling
Parties (and may not be earned in respect of any subsequent period) and
Vistana shall have no obligation to deliver any of such shares to any of
the Selling Parties.
-2-
<PAGE>
(ii) Notwithstanding Section 3(c)(i) hereof, in the event that
aggregate Net Sales of the Marketing Entities for the 1999 calendar year
exceed $48,000,000 (such excess Net Sales being referred to as the
"Excess"), the Selling Parties shall have the right and option (the
------
"Inclusion Option"), but not the obligation, to include the Excess in Net
-----------------
Sales of the Marketing Entities for the 2000 calendar year upon the terms
and conditions set forth in this Section 3(c)(ii). The Selling Parties may
exercise the Inclusion Option by delivering written notice to Vistana at
any time prior to or concurrently with the Selling Parties' delivery to
Vistana of any summary schedule described in Section 7(a) hereof. If the
Inclusion Option is exercised, the Outcome for the end of the most recently
completed calendar quarter during the 2000 calendar year, or the end of the
2000 calendar year, as applicable, shall be determined by (y) adding the
Applicable Share (as hereinafter defined) of the Excess to the actual Net
Sales of the Marketing Entities for the calendar year through the end of
the most recently completed calendar quarter or the calendar year, as
applicable; and (z) utilizing the Cost of Sales Percentage resulting from
the following equation:
CSP = (A x 1999 CSP) + (B x 2000 CSP)
Where:
CSP = the Cost of Sales Percentage to be used for determining
the Outcome
A = the quotient of (i) the Applicable Share of the Excess
divided by (ii) the sum of the Applicable Share of the
Excess and the actual Net Sales of the Marketing
Entities for the calendar year through the end of the
most recently completed calendar quarter or the
calendar year, as applicable
1999 CSP = the actual Cost of Sales Percentage achieved for the
1999 calendar year
B = the quotient of (i) the actual Net Sales of the
Marketing Entities for the calendar year through the
end of the most recently completed calendar quarter or
the calendar year, as applicable, divided by (ii) the
sum of the Applicable Share of the Excess and the
actual Net Sales of the Marketing Entities for the
calendar year through the end of the most recently
completed calendar quarter or the calendar year, as
applicable
-3-
<PAGE>
2000 CSP = the actual Cost of Sales Percentage achieved for the
calendar year through the end of the most recently
completed calendar quarter, or the calendar year, as
applicable
For purposes of this Section 3(c)(ii), the term "Applicable Share"
----------------
means 25% for determinations relating to the calendar quarter ended March
31, 2000; 50% for determinations relating to the calendar quarter ended
June 30, 2000; 75% for determinations relating to the calendar quarter
ended September 30, 2000; and 100% for determinations relating to the
calendar year ended December 31, 2000.
Example:
-------
Assumptions:
. Excess = $8,000,000
. 1999 CSP = 45%
. 2000 CSP (through June 30, 2000) = 46%
. Applicable Share of Excess = $2,000,000 per quarter
. Net Sales of Marketing Entities for the 2000 calendar year through
June 30, 2000 = $30,000,000
Accordingly:
. A = $4M/[$4M + $30M] or 11.7647%
. B = $30M/[$4M + $30M] or 88.2353%
. CSP = (11.7647% x 45%) + (88.2353% x 46%) or 45.8823%
. For purposes of this example, the Cost of Sales Percentage that
will apply to the Net Sales of the Marketing Entities of $34M
($30M + $4M) is 45.8823%
(d) (i) In the event that (A) for any calendar quarter, Vistana
and its subsidiaries do not have sufficient Colorado Inventory (as
hereinafter defined) to enable the Marketing Entities to achieve Net Sales
in such calendar quarter which equal or exceed the applicable Agreed
Colorado Sales Volume (as hereinafter defined) and (B) the Selling Parties
fail to earn 100% of the Contingent Shares allocable to such calendar
quarter (or calendar year to date), the Selling Parties shall have the
right and option (the
-4-
<PAGE>
"Substitution Option"), but not the obligation, to substitute Agreed
-------------------
Colorado Sales Volume for such calendar quarter for Actual Colorado Sales
Volume (as hereinafter defined) for such calendar quarter or calendar year
to date, as the case may be, in each case on the terms and conditions set
forth in Section 3(d)(ii) hereof. The Selling Parties may exercise the
Substitution Option by delivering written notice to Vistana at any time
prior to or concurrently with the Selling Parties' delivery to Vistana of
any summary schedule described in Section 7(a) hereof.
(ii) If the Substitution Option is exercised, the Outcome for the
end of the most recently completed calendar quarter or calendar year to
date, as applicable, shall be determined by
(w) subtracting from the actual Net Sales of the Marketing
Entities for the relevant calendar quarter or calendar year to date,
as applicable, the actual Net Sales of Colorado Inventory of the
Marketing Entities for such calendar quarter or calendar year to date,
as applicable;
(x) subtracting from the actual Applicable Expenses of the
Marketing Entities for the relevant calendar quarter or calendar year
to date, as applicable, the actual Applicable Expenses incurred by the
Marketing Entities in connection with Net Sales of Colorado Inventory
for such calendar quarter or calendar year to date, as applicable;
(y) adding to the actual Net Sales of the Marketing Entities
for the relevant calendar quarter or calendar year to date, as
applicable, the Agreed Colorado Sales Volume of the Marketing Entities
for such calendar quarter or calendar year to date, as applicable; and
(z) adding to the actual Applicable Expenses of the
Marketing Entities for the relevant calendar quarter or calendar year
to date, as applicable, the Hypothetical Applicable Expenses (as
hereinafter defined) for such calendar quarter or calendar year to
date, as applicable.
(iii) For purposes of this Section 3(d), the following terms
shall have the following meanings:
"Actual Colorado Sales Volume" means the actual Net Sales of
----------------------------
Colorado Inventory achieved by the Marketing Entities for a calendar
quarter or calendar year to date, as applicable.
"Agreed Colorado Sales Volume" means the applicable projected
----------------------------
"Total Sales" of Colorado Inventory for a calendar quarter or calendar year
to date, as applicable, set forth on attached Schedule B.
----------
-5-
<PAGE>
"Colorado Inventory" means vacation ownership interests available
------------------
for sale at one or more resorts which are located within a 15-mile radius
of Vistana's existing sales center located in Lakeside Terrace, Colorado.
"Hypothetical Applicable Expenses" means the product of (i)
--------------------------------
Agreed Colorado Sales Volume for a relevant calendar quarter, multiplied by
(ii) 40.8%, in respect of the first quarter of a calendar year, 38.2%, in
respect of the second quarter of a calendar year, 34.3%, in respect of the
third quarter of a calendar year, or 40.3% in respect of the fourth quarter
of a calendar year, as applicable. Hypothetical Applicable Expenses for a
calendar year to date shall equal the sum of Hypothetical Applicable
Expenses for all calendar quarters ended prior to the date of
determination.
(e) As soon as practical following each calendar quarter during the
Earnout Period (or, if the parties mutually agree, following the close of each
calendar year during the Earnout Period), a determination shall be made (in
accordance with the terms hereof) as to the number of Contingent Shares earned
during such calendar quarter (or during each calendar quarter of such calendar
year, in the case of annual determinations hereunder) and the parties shall
cause the Escrow Agent under the Escrow Agreement to deliver the relevant number
of Contingent Shares to the Selling Parties (acting pursuant to the
representatives appointed under Section 10.15 of the Agreement) or Vistana, as
appropriate.
Section 4.
----------
(a) For purposes of the foregoing, the term "Net Sales" shall mean the
---------
total net sales volume (less any applicable discounts and/or buyer incentives
deducted from the sales price, which shall also be excluded from the expense
calculation, under generally accepted accounting principles) of the Marketing
Entities (which shall include all sales during the relevant period for which (i)
the relevant paperwork has been signed by the purchaser, (ii) the purchaser has
paid the required down payment so as to qualify for recognition under generally
accepted accounting principles, and (iii) the statutory recision period
applicable to such sales has expired.
(b) As used herein, "Cost of Sales Percentage" shall mean the quotient
of the aggregate sales, marketing and related operating expenses of the
Marketing Entities outlined in paragraphs 4(b)(i), (ii) and (iii) below
(collectively, the "Applicable Expenses"), divided by Net Sales. The Applicable
Expenses shall consist of the following:
(i) sales and marketing expenses of the Marketing Entities, which
shall mean those expenses directly attributable to the sales and marketing
activities of the Marketing Entities, as generally described in the budget
attached hereto as Schedule C;
----------
(ii) general and administrative expenses of the Marketing
Entities, which shall include only those general and administrative
expenses directly incurred by the Marketing Entities. For purposes of
determining the Applicable
-6-
<PAGE>
Expenses, the Marketing Entities shall not be allocated any of the general
and administrative expenses of Vistana or of any other company or entity
owned, directly or indirectly, by Vistana; and
(iii) the base compensation and any commission, bonus or other
income of the executive officers of the Marketing Entities, who for these
purposes shall be Donald J. Dubin, Ronald R. Sharp and David E. Bruce, or
such other similarly situated individuals hired to perform the sales and
marketing activities of the Marketing Entities.
(c) In determining the actual Applicable Expenses of the Marketing
Entities, such determination shall be made before any provision for state, local
or federal incomes taxes and shall generally be made in a manner consistent
with, and shall include or exclude items included in or excluded from, as the
case may be, the target Applicable Expense numbers attached hereto as Schedule
--------
C, except the following adjustments shall be made:
(i) depreciation and amortization shall be computed without
taking into account any increase in the basis of the depreciable or
amortizable assets of the Marketing Entities which may result from the
closing of the transactions contemplated by the Agreement, and any
increased depreciation or amortization attributable to the transactions
contemplated by the Agreement shall be disregarded;
(ii) all expenditures by the Marketing Entities that are required
or permitted to be capitalized in accordance with generally accepted
accounting principles shall not be deducted in the year incurred for
purposes of determining the Applicable Expenses for such year, but instead
shall be depreciated or amortized over the useful life of the relevant
asset (in accordance with the depreciation or amortization conventions
customarily employed by Vistana) and deducted for purposes of determining
Applicable Expenses based upon such amortization or depreciation schedule;
(iii) the moving costs and related expenses (including, without
limitation, furniture, fixtures and equipment and wall tours) associated
with the openings of, and transition to, the contemplated new sales centers
for the timeshare complex at Vail, Colorado and the timeshare complex at
Scottsdale, Arizona shall be excluded from the calculation of Applicable
Expenses;
(iv) all management fees and charges, allocations of Vistana
overhead or similar expenses or charges whatsoever made by Vistana or any
of its affiliates, and any other charges made by Vistana or its affiliates,
against the income or expenses of the Marketing Entities shall be
disregarded;
(v) all intercompany receivables or payables between Vistana or
its affiliates, on the one hand, and one or more of the Marketing Entities,
on the other
-7-
<PAGE>
hand, and all interest, fees and other charges attributable to such
receivables or payables shall be disregarded;
(vi) if after the Closing, the Marketing Entities are required to
incur travel and development expenses or related costs at the request of
Vistana and if such costs and expenses are not otherwise related to the
sales and marketing activities contemplated hereby, then such costs and
expenses shall be excluded from the determination of Applicable Expenses;
and
(vii) if after the Closing, Vistana makes the decision (for
whatever reason) to hire and treat as employees those individuals who are
currently retained by the Marketing Entities on an independent contractor
basis (except for the executive officers of the Marketing Entities), the
additional costs associated with such treatment shall be excluded from the
determination of Applicable Expenses.
(d) The parties recognize that, upon consummation of the
Reorganization, the Selling Parties are to have a reasonable opportunity to
cause the Marketing Entities to achieve the target Net Sales levels and Cost of
Sales Percentage and obtain the Contingent Shares, but that Vistana may from
time to time make certain decisions in connection with the operation of the
Marketing Entities, POC and SD that may impact the ability of the Selling
Parties to achieve the target Net Sales levels and Cost of Sales Percentage and
earn the Contingent Shares. In that regard, Vistana shall endeavor to adopt
policies for the businesses of the Marketing Entities, POC and SD in a manner
consistent with the rights of the Selling Parties to (y) have a reasonable
opportunity to earn the Contingent Shares and (z) manage the day-to-day affairs
of the Marketing Entities, POC and SD in a manner reasonably consistent with
past practices (subject to the terms and provisions of the employment agreements
of the Selling Parties); provided, however, that Vistana shall have the
-------- -------
discretion to operate the Marketing Entities in any manner that it determines
reasonable if Donald J. Dubin's employment with SCI is terminated for any
reason, other than a termination of Mr. Dubin by SCI without Cause (as such term
is defined in Mr. Dubin's employment agreement); and provided, further that
-------- -------
Vistana shall have the discretion to operate POC and SD in any manner that it
determines reasonable if Larry D. Doll's employment with POC is terminated for
any reason, other than a termination of Mr. Doll by POC without Cause (as such
term is defined in Mr. Doll's employment agreement). Additionally, Mr. Doll
shall work with Vistana to identify and implement integration steps that will
result in more consolidated operations for various support and administrative
functions currently provided in Denver being performed in Orlando or elsewhere.
Vistana acknowledges that certain actions, which are identified below, may
change the nature of the businesses of the Marketing Entities, POC, or SD
causing the Marketing Entities to incur short-term costs that could adversely
impact the ability of the Selling Parties to earn the Contingent Shares. If
Vistana causes the Marketing Entities, POC or SD to take the following actions
without the consent of the Selling Parties, the Marketing Entities shall
separately account for such actions with reasonable accuracy so as to permit the
determination of actual Net Sales levels and Cost of Sales Percentage as
contemplated hereby, with the effect that the actual Net Sales and Cost
-8-
<PAGE>
of Sales Percentage of the Marketing Entities for purposes of the Contingent
Shares calculation shall be restated without consideration of such excluded
costs:
(i) enter into any business other than the business of timeshare
or vacation ownership, development, sales and resort management;
(ii) construct or acquire new resorts or close or shut down
existing resorts;
(iii) borrow funds from any person other than Vistana or its
affiliates (which loans shall be subject to the provisions of Section
4(b)(v) hereof);
(iv) fail to maintain the Marketing Entities, POC or SD as
separate corporate entities; provided, however, Vistana may maintain the
-------- -------
Marketing Entities, POC or SD as a separate division with separate accounts
if such separate accounts fairly reflect the separate income and financial
condition of the division that comprises the businesses of the Marketing
Entities;
(v) dispose of any asset of the Marketing Entities, POC or SD,
the disposal of which materially and negatively affects the ability of the
Marketing Entities to achieve the Net Sales levels and Cost of Sales
Percentage hereunder;
(vi) enter into leases, either as lessee or lessor, except in the
ordinary course of business;
(vii) cause the Marketing Entities to purchase or acquire any
other business;
(viii) sell, merge, consolidate or otherwise dispose of the
Marketing Entities or all or substantially all of its assets as a going
concern (other than the sale of inventory sold in the ordinary course of
business);
(ix) materially alter the existing sales force or personnel of
the Marketing Entities;
(x) cause the working capital of the Marketing Entities to fall
below those levels reasonably necessary for the operation of the Marketing
Entities;
(xi) materially diminish the compensation of any executive of the
Marketing Entities from that set forth in his employment agreement as of
the Closing Date;
(xii) initiate any policy or practice which the Selling Parties
can demonstrate to have a material detrimental impact on the their ability
to earn the
-9-
<PAGE>
Contingent Shares; provided, however that the Selling Parties shall not be
-------- -------
entitled to question any policy or practice if (y) the Selling Parties fail
to object to such policy or practice within ten (10) days of the receipt of
a written notice from Vistana that such policy or practice will be adopted
or (z) the Selling Parties fail to object in a timely manner with respect
to any policy or practice of which they have knowledge. The parties
acknowledge that the modification to the earnout calculations outlined in
this amended Exhibit 1.5A is intended to provide for the potential impact
of day-to-day types of items that could have an effect on operations and
only those items which can be demonstrated to have a material detrimental
impact will be addressed.
(e) The Selling Parties acknowledge that, for purposes of calculating
the target Net Sales levels and Cost of Sales Percentage, and achieving the
actual Net Sales amounts and Cost of Sales Percentage, (i) Vistana has not
promised or represented that it will undertake any actions (other than as
expressly provided herein) and the Selling Parties believe (but are not making
any representation or warranty hereby as to actual results) that the target Net
Sales and Cost of Sales Percentage numbers can be achieved based upon the
current inventory of POC and SD (together with the Acquisition Property and any
property or inventory that the Marketing Entities, POC or SD have a right to
purchase, such as the Christie Lodge property) and the existing sales force and
materials of the Marketing Entities (together with the sales centers to be
opened in 1998), and (ii) the Acquisition Property in Scottsdale, Arizona will
be an Embassy Vacation Resort if reasonably possible;
(f) If Vistana causes the Marketing Entities or POC or SD, if
applicable, to take any of the above listed actions during the Earnout Period
without the written consent of the Selling Parties and the Marketing Entities
cannot separately account with reasonable accuracy for such activities, Vistana
shall cause the Contingent Shares allocable to the calendar year of such actions
to be immediately delivered to the Selling Parties. In addition, if any such
actions are reasonably anticipated to have a similar effect in subsequent
calendar years, the Contingent Shares allocable to such subsequent calendar
years shall also be immediately delivered to the Selling Parties.
(g) If during the Earnout Period, Vistana (directly or indirectly by
causing the Marketing Entities, POC or SD to take such actions) (i) terminates
Donald J. Dubin or Larry D. Doll without Cause, as such term is defined in their
respective employment agreements, (ii) deprives Messrs. Dubin or Doll, without
Cause, as such term is defined in their respective employment agreements, and
without their written consent, of the level of authority with respect to the
day-to-day operations of the Marketing Entities, POC or SD commonly attendant to
the executive offices such individuals hold in the Marketing Entities, POC, or
SD (as applicable and established in their respective employment agreements;
provided, however that those costs and expenditures not included in the expenses
- -------- -------
of the Marketing Entities for purposes of calculating the Cost of Sales
Percentage hereunder shall be subject to Vistana's final review and approval) or
(iii) otherwise materially and adversely affect the ability of Messrs. Dubin or
Doll to manage the day-to-day operations of the Marketing Entities, POC, or SD,
Vistana shall cause the Contingent Shares allocable to the calendar year of such
termination or deprivation and to all
-10-
<PAGE>
subsequent calendar years during the Earnout Period to be immediately delivered
to the Selling Parties.
Section 5. Vistana shall be permitted to increase the number of resorts
----------
being managed and marketed by the Marketing Entities during the Earnout Period;
provided, that upon the addition of each additional resort, all of the revenues
- --------
attributable to such resort and the following expenses shall be excluded from
the calculation of Net Sales and Cost of Sales Percentage: (a) all of the
expenses directly attributable to such resort (whether pre- or post-opening of
the resort), and (b) an appropriate portion of any indirect expenses of the
Marketing Entities, which shall be determined in good faith by Vistana and the
Selling Parties at the time any new resort is added and which shall be adjusted
from time to time thereafter as appropriate and as agreed to by Vistana and the
Selling Parties.
Section 6. In the event of a Change of Control (as herein defined) during
----------
the Earnout Period, the Contingent Shares shall be considered as earned in their
entirety for the remainder of the Earnout Period and for all prior periods of
the Earnout Period. For purposes of the foregoing, a "Change of Control" means
-----------------
(i) any transaction involving the dissolution or liquidation of Vistana other
than a dissolution or liquidation undertaken in connection with a transaction or
series of related transactions described in clause (iii) below, (ii) any sale or
other disposition of one or more of the Marketing Entities to an unaffiliated
third party(ies), or (iii) any (x) sale or other disposition of all or
substantially all of the assets of Vistana to an unaffiliated third party(ies),
(y) merger, reorganization or consolidation to which Vistana is a party and as a
result of which Vistana is not the surviving corporation or becomes at least an
80% owned subsidiary of another unaffiliated corporation, or (z) transaction or
series of transactions pursuant to which one or more unaffiliated third parties
acquire more than 50% of the issued and outstanding Vistana Common Stock, in
each case, if, within twelve months of the effective date of such transaction,
Raymond L. Gellein, Jr. and Jeffrey A. Adler cease to be employed by Vistana (or
its successor) in substantially the same capacity employed as of the date
hereof.
Section 7.
----------
(a) Promptly upon the determination of the actual Net Sales and the
actual Cost of Sales Percentage for each calendar quarter during the Earnout
Period (or, if the parties mutually agree, following the close of each calendar
year during the Earnout Period), the Selling Parties shall deliver to Vistana a
summary schedule reflecting (i) the determination of the actual Net Sales
pursuant to Section 4(a) hereof; (ii) the determination of the Cost of Sales
Percentage pursuant to Section 4(b) hereof; and (iii) the number of Contingent
Shares earned pursuant to Section 3 hereof based on the Outcome of such actual
Net Sales and such actual Cost of Sales Percentage, and thereafter shall deliver
such supporting documentation as Vistana shall reasonably request. If Vistana
shall object to the determination of the actual Net Sales, the determination of
the Cost of Sales Percentage, or to the calculation of the number of Contingent
Shares earned by the Selling Parties, Vistana shall notify the Selling Parties
by written notice to the Selling Parties, delivered in accordance with the
notice provisions set forth in Section 10.1
-11-
<PAGE>
of the Agreement, within 10 days after notice of such determination is given to
Vistana. If Vistana and the Selling Parties fail to agree on the actual Net
Sales and/or the actual Cost of Sales Percentage, as applicable, for the period
at issue within 15 days after such objection, the Net Sales and/or the actual
Cost of Sales Percentage, as applicable, for such period shall be examined by
Vistana's independent auditors and by a firm of independent public accountants
of recognized standing selected by the Selling Parties. Any determination of
actual Net Sales and/or the actual Cost of Sales Percentage for such period
which is agreed to either by Vistana and the Selling Parties or by Vistana's
independent auditors and such other firm of independent public accountants, and
any determination of actual Net Sales by the Selling Parties and/or the actual
Cost of Sales Percentage, which is not objected to as provided in this paragraph
(a), shall be conclusive and binding upon Vistana and the Selling Parties and
their respective successors and permitted assigns.
(b) In the event Vistana's independent auditors and such other firm of
independent public accountants do not agree on the actual Net Sales and/or the
actual Cost of Sales Percentage for a calendar quarter within 45 days after such
objection to the Selling Parties' determination, such Net Sales and/or the
actual Cost of Sales Percentage shall be examined by a third firm of independent
public accountants of recognized standing selected by agreement of the two
accounting firms, and the report of such third firm of independent public
accountants shall be conclusive and binding upon Vistana and the Selling Parties
and their respective successors and permitted assigns, and shall be enforceable
by a court of competent jurisdiction.
(c) If Vistana's auditors or any firm of independent public
accountants selected pursuant to paragraphs (a) or (b) of this Section 7 shall
advise Vistana and the Selling Parties that they are unable to determine one or
more issues or amounts necessary to make a determination of the actual Net Sales
and/or the actual Cost of Sales Percentage for the period at issue, each such
issue or amount shall be determined by arbitration by three arbitrators, with
one arbitrator being selected by Vistana and one arbitrator being selected by
the Selling Parties and the third arbitrator being selected by the two
arbitrators. The decision of a majority of such arbitrators shall be the
decision of the arbitrators and conclusive and binding on Vistana and the
Selling Parties and their respective successors and permitted assigns, and shall
be enforceable by a court of competent jurisdiction.
(d) Vistana shall bear the fees and expenses of its independent
auditors and any arbitrator selected by it and one-half (1/2) of the fees and
expenses of any third firm of independent public accountants selected pursuant
to paragraph (b) of this Section 7 and any third arbitrator selected pursuant to
paragraph (c) of this Section 7. The fees and expenses of the firm of
independent public accountants and any arbitrator selected by the Selling
Parties and one-half ( 1/2) of the fees and expenses of any such third firm of
independent public accountants and any such third arbitrator shall be borne by
the Selling Parties.
-12-
<PAGE>
Section 8.
----------
(a) No certificates for fractions of shares of Vistana Common Stock
and no scrip or other certificates evidencing fractional interests in such
shares shall be delivered hereunder. If the number of Contingent Shares
delivered to a person at any time results in a fractional Contingent Share or
interest therein, the number of Contingent Shares issued to each person shall be
amended up or down (as appropriate) to the nearest whole share.
(b) In the event of any reclassification, stock split or stock
dividend of or in respect of the Vistana Common Stock after the Closing Date and
prior to delivery of any Contingent Shares in accordance herewith, proportionate
adjustment shall be made in the number or kind of any Contingent Shares which
shall thereafter be delivered hereunder. In the event the outstanding Vistana
Common Stock is converted, changed, exchanged or reclassified into another
security or form of property pursuant to any merger, consolidation, acquisition
of business and assets, reorganization or recapitalization, if any Contingent
Shares become deliverable thereafter (taking into account the provisions of
Section 6 hereof) there shall be delivered, in lieu of Vistana Common Stock, the
kind and amount of securities or other property into which a share of Vistana
Common Stock was converted, changed, exchanged or reclassified. This Section 8
shall apply to successive mergers, consolidations, acquisitions, reorganizations
and recapitalization.
(c) In addition to any rights pursuant to Section 6 hereof, in the
event the outstanding Vistana Common Stock is converted, changed, exchanged or
reclassified (i) into another security or form of property pursuant to any
merger, consolidation, acquisition of business and assets, or other
reorganization in which Vistana is not the surviving corporation, or (ii) into a
non-equity security of which Vistana is the issuer; then Vistana agrees to
deliver, prior to such event, the balance of any Contingent Shares which might
thereafter become deliverable.
Section 9.
----------
(a) The right to receive the Contingent Shares, if any, to be
delivered pursuant hereto shall not be assignable or transferable except by
operation of law.
(b) A certificate for any Contingent Shares which become deliverable
shall be mailed, in accordance with the customary practice of Vistana or its
transfer agent, to the Selling Party, or his successor by operation of law, to
whom the Contingent Shares represented thereby are being delivered, at such
person's last known address as provided in the stockholder records of Vistana or
such other address, or in the name of such successor, as shall be furnished in
writing to Vistana by the Selling Party, his duly appointed personal
representative or successor. Vistana may require proper evidence of succession
and, in any event, shall be fully protected in delivering and mailing
certificates for Contingent Shares to and registered in the name of such person
at such address.
-13-
<PAGE>
Section 10. During the Earnout Period, Vistana will, and will cause the
-----------
Marketing Entities to, make available to the Selling Parties and their
representatives the books and records of the Marketing Entities for purposes of
determining, verifying or contesting any of the amounts relevant to the
determination of the Net Sales (or any component part thereof) and the
determination of the Cost of Sales Percentage (or any component part thereof)
during the Earnout Period or the calculation of the amount of the Contingent
Shares earned by the Selling Parties.
-14-
<PAGE>
VISTANA, INC.
8801 VISTANA CENTRE DRIVE
ORLANDO, FLORIDA 32821
May 28, 1998
Mr. Raymond L. Gellein, Jr.
Chairman
Vistana, Inc.
Re: Corrections to Employment Agreement Schedule
--------------------------------------------
Dear Rip:
Attached hereto is a revised Schedule B to the Employment Agreement
dated December 27, 1996 between Vistana, Inc. and you which incorporates the
adjustment to your Base Salary and Annual Bonus Amount for the 1998 fiscal year
approved by the Compensation Committee at its January meeting.
Please carefully review the enclosed Schedule B to confirm the accuracy
thereof. If the enclosed Schedule B is accurate, please execute the enclosed
copy of this letter in the space provided below and return it to the
undersigned, whereupon the enclosed Schedule B will be substituted for the
existing Schedule B. Please keep your copy of this letter and revised Schedule B
with your own copy of your Employment Agreement.
Very truly yours,
VISTANA, INC.
/s/ Jeffrey A. Adler
By:_________________________
Name: Jeffrey A. Adler
Title: President
Enclosure
ACKNOWLEDGED AND CONFIRMED:
/s/ Raymond L. Gellein, Jr.
______________________________
Name: Raymond L. Gellein, Jr.
<PAGE>
SCHEDULE B
----------
EMPLOYEE COMPENSATION
---------------------
(Revised Effective January 1, 1998)
1. Employee Name: Raymond L. Gellein, Jr.
-------------
2. Base Salary: $400,000
-----------
3. Annual Bonus Amount: Up to 100% of Adjusted Base Salary; Formula to
-------------------
approximate that of other senior executive
officers.
4. Severance Amount: [Intentionally Omitted]
----------------
5. Monthly Severance Payment: [Intentionally Omitted]
-------------------------
<PAGE>
VISTANA, INC.
8801 VISTANA CENTRE DRIVE
ORLANDO, FLORIDA 32821
March 4, 1999
Mr. Raymond L. Gellein, Jr.
Chairman
Vistana, Inc.
Re: Second Amendment to Employment Agreement
----------------------------------------
Dear Rip:
Attached hereto is a revised Schedule B to the Employment Agreement dated
December 27, 1996 and amended as of May 28, 1998 between Vistana, Inc. and you
which incorporates the adjustment to your Base Salary and Annual Bonus Amount
for the 1999 fiscal year approved by the Compensation Committee at its February
meeting.
Please carefully review the enclosed Schedule B to confirm the accuracy
thereof. If the enclosed Schedule B is accurate, please execute the enclosed
copy of this letter in the space provided below and return it to the
undersigned, whereupon the enclosed Schedule B will be substituted for the
existing Schedule B. Please keep your copy of this letter and revised Schedule B
with your own copy of your Employment Agreement.
Very truly yours,
VISTANA, INC.
/s/ Jeffrey A. Adler
By:_________________________
Name: Jeffrey A. Adler
Title: President
Enclosure
ACKNOWLEDGED AND CONFIRMED:
/s/ Raymond L. Gellein, Jr.
_________________________________
Name: Raymond L. Gellein, Jr.
<PAGE>
SCHEDULE B
----------
EMPLOYEE COMPENSATION
---------------------
(Revised Effective January 1, 1999)
1. Employee Name: Raymond L. Gellein, Jr.
-------------
2. Base Salary: $430,000
-----------
3. Annual Bonus Amount: Up to 100% of Adjusted Base Salary; Formula to
-------------------
approximate that of other senior executive
officers.
4. Severance Amount: [Intentionally Omitted]
----------------
5. Monthly Severance Payment: [Intentionally Omitted]
-------------------------
<PAGE>
VISTANA, INC.
8801 VISTANA CENTRE DRIVE
ORLANDO, FLORIDA 32821
May 28, 1998
Mr. Jeffrey A. Adler
President
Vistana, Inc.
Re: Corrections to Employment Agreement Schedule
--------------------------------------------
Dear Jeff:
Attached hereto is a revised Schedule B to the Employment Agreement dated
December 27, 1996 between Vistana, Inc. and you which incorporates the
adjustment to your Base Salary and Annual Bonus Amount for the 1998 fiscal year
approved by the Compensation Committee at its January meeting.
Please carefully review the enclosed Schedule B to confirm the accuracy
thereof. If the enclosed Schedule B is accurate, please execute the enclosed
copy of this letter in the space provided below and return it to the
undersigned, whereupon the enclosed Schedule B will be substituted for the
existing Schedule B. Please keep your copy of this letter and revised Schedule B
with your own copy of your Employment Agreement.
Very truly yours,
VISTANA, INC.
/s/ Raymond L. Gellein, Jr.
By:____________________________
Name: Raymond L. Gellein, Jr.
Title: Chairman
Enclosure
ACKNOWLEDGED AND CONFIRMED:
/s/ Jeffrey A. Adler
____________________________
Name: Jeffrey A. Adler
<PAGE>
SCHEDULE B
----------
EMPLOYEE COMPENSATION
---------------------
(Revised Effective January 1, 1998)
1. Employee Name: Jeffrey A. Adler
--------------
2. Base Salary: $400,000
------------
3. Annual Bonus Amount: Up to 100% of Adjusted Base Salary; Formula
--------------------
to approximate that of other senior executive
officers.
4. Severance Amount: [Intentionally Omitted]
-----------------
5. Monthly Severance Payment: [Intentionally Omitted]
--------------------------
<PAGE>
VISTANA, INC.
8801 VISTANA CENTRE DRIVE
ORLANDO, FLORIDA 32821
March 4, 1999
Mr. Jeffrey A. Adler
President
Vistana, Inc.
Re: Second Amendment to Employment Agreement Schedule
-------------------------------------------------
Dear Jeff:
Attached hereto is a revised Schedule B to the Employment Agreement dated
December 27, 1996 and amended as of May 28, 1998 between Vistana, Inc. and you
which incorporates the adjustment to your Base Salary and Annual Bonus Amount
for the 1999 fiscal year approved by the Compensation Committee at its February
meeting.
Please carefully review the enclosed Schedule B to confirm the accuracy
thereof. If the enclosed Schedule B is accurate, please execute the enclosed
copy of this letter in the space provided below and return it to the
undersigned, whereupon the enclosed Schedule B will be substituted for the
existing Schedule B. Please keep your copy of this letter and revised Schedule B
with your own copy of your Employment Agreement.
Very truly yours,
VISTANA, INC.
/s/ Raymond L. Gellein, Jr.
By:____________________________
Name: Raymond L. Gellein, Jr.
Title: Chairman
Enclosure
ACKNOWLEDGED AND CONFIRMED:
/s/ Jeffrey A. Adler
_________________________________
Name: Jeffrey A. Adler
<PAGE>
SCHEDULE B
----------
EMPLOYEE COMPENSATION
---------------------
(Revised Effective January 1, 1999)
1. Employee Name: Jeffrey A. Adler
-------------
2. Base Salary: $430,000
-----------
3. Annual Bonus Amount: Up to 100% of Adjusted Base Salary; Formula
-------------------
to approximate that of other senior executive
officers.
4. Severance Amount: [Intentionally Omitted]
----------------
5. Monthly Severance Payment: [Intentionally Omitted]
--------------------------
<PAGE>
VISTANA, INC.
8801 VISTANA CENTRE DRIVE
ORLANDO, FLORIDA 32821
May 28, 1998
Ms. Susan Werth
Senior Vice President & General Counsel
Vistana, Inc.
Re: Corrections to Employment Agreement Schedule
--------------------------------------------
Dear Susan:
As we have discussed, Schedule B to the Employment Agreement dated December
27, 1996 between Vistana, Inc. and you contains a typographical error relating
to the period during which you are entitled to receive severance payments in the
event you cease to be employed by Vistana for certain reasons specified in your
Employment Agreement. In the section entitled "Monthly Severance Amount," the
denominator was incorrectly shown as 52 when it should have been 24 to
correspond to a 24-month severance period. Enclosed is a new Schedule B to your
Employment Agreement which corrects this error and incorporates the adjustment
to your Base Salary for the 1998 fiscal year approved by the Compensation
Committee at its January meeting.
Please carefully review the enclosed Schedule B to confirm the accuracy
thereof. If the enclosed Schedule B is accurate, please execute the enclosed
copy of this letter in the space provided below and return it to the
undersigned, whereupon the enclosed Schedule B will be substituted for the
existing Schedule B. Please keep your copy of this letter and revised Schedule
B with your own copy of your Employment Agreement.
Very truly yours,
VISTANA, INC.
/s/ Jeffrey A. Adler
By:_________________________
Name: Jeffrey A. Adler
Title: President
Enclosure
ACKNOWLEDGED AND CONFIRMED:
/s/ Susan Werth
____________________________
Name: Susan Werth
<PAGE>
SCHEDULE B
----------
EMPLOYEE COMPENSATION
---------------------
(Revised Effective January 1, 1998)
1. Employee Name: Susan Werth
--------------
2. Base Salary: $236,900
------------
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) 24.
<PAGE>
VISTANA, INC.
8801 VISTANA CENTRE DRIVE
ORLANDO, FLORIDA 32821
March 4, 1999
Ms. Susan Werth
Senior Vice President & General Counsel
Vistana, Inc.
Re: Second Amendment to Employment Agreement
----------------------------------------
Dear Susan:
Attached hereto is a revised Schedule B to the Employment Agreement dated
December 27, 1996 and amended as of May 28, 1998 between Vistana, Inc. and you
which incorporates the adjustment to your Base Salary and Annual Bonus Amount
for the 1999 fiscal year approved by the Compensation Committee at its February
meeting.
Please carefully review the enclosed Schedule B to confirm the accuracy
thereof. If the enclosed Schedule B is accurate, please execute the enclosed
copy of this letter in the space provided below and return it to the
undersigned, whereupon the enclosed Schedule B will be substituted for the
existing Schedule B. Please keep your copy of this letter and revised Schedule
B with your own copy of your Employment Agreement.
Very truly yours,
VISTANA, INC.
/s/ Jeffrey A. Adler
By:_________________________
Name: Jeffrey A. Adler
Title: President
Enclosure
ACKNOWLEDGED AND CONFIRMED:
/s/ Susan Werth
____________________________
Name: Susan Werth
<PAGE>
SCHEDULE B
----------
EMPLOYEE COMPENSATION
---------------------
(Revised Effective January 1, 1999)
1. Employee Name: Susan Werth
--------------
2. Base Salary: $275,000
--------------
3. Annual Bonus Amount: Up to 45% 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) 24.
<PAGE>
VISTANA, INC
8801 VISTANA CENTRE DRIVE
ORLANDO, FLORIDA 32821
May 28, 1998
Mr. Charles E. Harris
Vice Chairman and Chief Financial Officer
Vistana, Inc.
Re: Corrections to Employment Agreement Schedule
--------------------------------------------
Dear Charlie:
As we have discussed, Schedule B to the Employment Agreement dated December
27, 1996 between Vistana, Inc. and you contains a typographical error relating
to the period during which you are entitled to receive severance payments in the
event you cease to be employed by Vistana for certain reasons specified in your
Employment Agreement. In the section entitled "Monthly Severance Amount," the
denominator was incorrectly shown as 12 when it should have been 24 to
correspond to a 24 month severance period. Enclosed is a new Schedule B to your
Employment Agreement which corrects this error and incorporates the adjustment
to your Base Salary for the 1998 fiscal year approved by the Compensation
Committee at its January meeting.
Please carefully review the enclosed Schedule B to confirm the accuracy
thereof. If the enclosed Schedule B is accurate, please execute the enclosed
copy of this letter in the space provided below and return it to the
undersigned, whereupon the enclosed Schedule B will be substituted for the
existing Schedule B. Please keep your copy of this letter and revised Schedule
B with your own copy of your Employment Agreement.
Very truly yours,
VISTANA, INC.
/s/ Jeffrey A. Adler
By:_________________________
Name: Jeffrey A. Adler
Title: President
Enclosure
ACKNOWLEDGED AND CONFIRMED:
/s/ Charles E. Harris
____________________________
Name: Charles E. Harris
<PAGE>
SCHEDULE B
----------
Employee Compensation
---------------------
(Revised Effective January 1, 1998)
1. Employee Name: Charles E. Harris
-------------
2. Base Salary: $380,000
-----------
3. Formula Salary: Ninety-five percent (95%) of the annual salary payable for
--------------
the applicable calendar year to the Chief Executive Officer of the Company
or, if the Company then has more than one Chief Executive Officer, the
Chief Executive Officer having the highest annual salary.
4. Annual Bonus Amount: Up to 60% of Adjusted Base Salary; Formula to
-------------------
approximate that of other senior executive officers; provided, however,
-------- -------
that for each of the calendar years 1998 and 1999, the aggregate of
Employee's Adjusted Base Salary and Annual Bonus Amount shall not be less
than $500,000.
5. Severance Amount: The product of (i) the greater of (x) 120% of Employee's
----------------
Adjusted Base Salary as of the Termination Date and (y) $500,00, multiplied
by (ii) two.
6. Monthly Severance Payment: The quotient of (i) the Severance Amount
-------------------------
determined in accordance with Item No. 5 above, divided by (ii) 24.
7. Transition Payment: The greater of (i) Employee's Adjusted Base Salary as
------------------
of the Termination Date and (ii) $500,000.
8. Change in Control Amount: The product of (i) three, multiplied by (ii) the
------------------------
sum of (x) Employee's Adjusted Base Salary as of the effective date of the
Change in Control and (y) the Annual Bonus Amount paid or payable to
Employee for the calendar year immediately preceding the year in which the
Change in Control occurs (or, if such amount is higher, the Annual Bonus
Amount paid or payable to Employee for the calendar year in which the
Change in Control occurs); plus, with respect to any portion of the Change
in Control Amount, and any other amount which constitutes an "excess
parachute payment" within the meaning of Section 280G(b) of the Internal
Revenue Code of 1986 (or any other amended or successor
B-1
<PAGE>
provision thereto) (including, without limitation, any amounts attributable
to the value of stock options granted to Employee by the Company or by the
Controlling Shareholders that became accelarated or vested as a result of
such Change in Control), that is subject to the tax imposed pursuant to
Section 4999 of the Internal Revenue Code of 1986 (or any other amended or
successor provision thereto) (the "Excise Tax"), an amount (the "Gross-Up
Amount") that, after reduction of the amount of such Gross-Up Amount for
all federal, state and local tax to which the Gross-Up Amount is subject
(including the Excise Tax to which the Gross-Up Amount is subject), is
equal to the amount of the Excise Tax to which such Change in Control
Amount, or other amount constituting an "excess parachute payment," is
subject. For purposes of determining the amount of any Gross-Up Amount,
Employee shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in which the
Gross-Up Amount is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of residence of
Employee on the Termination Date, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes.
B-2
<PAGE>
VISTANA, INC.
8801 VISTANA CENTRE DRIVE
ORLANDO, FLORIDA 32821
March 4, 1999
Mr. Charles E. Harris
3339 Northglenn Drive
Orlando, Florida 32806
Re: Second Amendment to Employment Agreement
----------------------------------------
Dear Charlie:
Attached hereto is a revised Schedule B to the Employment Agreement dated
December 27, 1996 and amended as of May 28, 1998 between Vistana, Inc. and you
which incorporates the adjustment to your Base Salary and Annual Bonus Amount
for the 1999 fiscal year approved by the Compensation Committee at its February
meeting.
Please carefully review the enclosed Schedule B to confirm the accuracy
thereof. If the enclosed Schedule B is accurate, please execute the enclosed
copy of this letter in the space provided below and return it to the
undersigned, whereupon the enclosed Schedule B will be substituted for the
existing Schedule B. Please keep your copy of this letter and revised Schedule
B with your own copy of your Employment Agreement.
Very truly yours,
VISTANA, INC.
By: /s/ Jeffrey A. Adler
_________________________
Name: Jeffrey A. Adler
Title: President
Enclosure
ACKNOWLEDGED AND CONFIRMED:
/s/ Charles E. Harris
______________________________
Name: Charles E. Harris
<PAGE>
SCHEDULE B
----------
Employee Compensation
---------------------
(Revised Effective January 1, 1999)
1. Employee Name: Charles E. Harris
-------------
2. Base Salary: $408,500.
-----------
3. Formula Salary: Ninety-five percent (95%) of the annual salary payable for
--------------
the applicable calendar year to the Chief Executive Officer of the Company
or, if the Company then has more than one Chief Executive Officer, the
Chief Executive Officer having the highest annual salary.
4. Annual Bonus Amount: Up to 80% of Adjusted Base Salary; Formula to
-------------------
approximate that of other senior executive officers; provided; however,
-------- -------
that for each of the calendar years 1998 and 1999, the aggregate of
Employee's Adjusted Base Salary and Annual Bonus Amount shall not be less
than $500,000.
5. Severance Amount: The product of (i) the greater of (x) 120% of Employee's
----------------
Adjusted Base Salary as of the Termination Date and (y) $500,00, multiplied
by (ii) two.
6. Monthly Severance Payment: The quotient of (i) the Severance Amount
-------------------------
determined in accordance with Item No. 5 above, divided by (ii) 24.
7. Transition Payment: The greater of (i) Employee's Adjusted Base Salary as
------------------
of the Termination Date and (ii) $500,000.
8. Change in Control Amount: The product of (i) three, multiplied by (ii) the
------------------------
sum of (x) Employee's Adjusted Base Salary as of the effective date of the
Change in Control and (y) the Annual Bonus Amount paid or payable to
Employee for the calendar year immediately preceding the year in which the
Change in Control occurs (or, if such amount is higher, the Annual Bonus
Amount paid or payable to Employee for the calendar year in which the
Change in Control occurs); plus, with respect to any portion of the Change
in Control Amount, and any other amount which constitutes an "excess
parachute payment" within the meaning of Section 280G(b) of the Internal
Revenue Code of 1986 (or any other amended or successor
B-1
<PAGE>
provision thereto) (including, without limitation, any amounts attributable
to the value of stock options granted to Employee by the Company or by the
Controlling Shareholders that became accelerated or vested as a result of
such Change in Control), that is subject to the tax imposed pursuant to
Section 4999 of the Internal Revenue Code of 1986 (or any other amended or
successor provision thereto) (the "Excise Tax"), an amount (the "Gross-Up
Amount") that, after reduction of the amount of such Gross-Up Amount for
all federal, state and local tax to which the Gross-Up Amount is subject
(including the Excise Tax to which the Gross-Up Amount is subject), is
equal to the amount of the Excise Tax to which such Change in Control
Amount, or other amount constituting an "excess parachute payment," is
subject. For purposes of determining the amount of any Gross-Up Amount,
Employee shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in which the
Gross-Up Amount is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of residence of
Employee on the Termination Date, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes.
B-2
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of January 30, 1998
between VISTANA, INC., a Florida corporation ("Company" or "Vistana"), and MARK
E. PATTEN ("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, Vistana, directly or 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 corporate and functional titles and primary
responsibilities are set forth on Schedule A attached hereto and incorporated
herein by this reference. The Company shall have the right from time to time to
assign Employee an equal or higher corporate title and an alternative functional
title, consistent with Employee's responsibilities and the needs of the
Company's business.
(b) Place of Employment. During the term of this Agreement, Employee
shall perform the services required by this Agreement at the Company's location
set forth on Schedule A attached hereto; provided, however, that the Company may
at its reasonable discretion require Employee to travel 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. Notwithstanding the foregoing, Employee shall not be prohibited
from investing or trading in stocks, bonds, commodities or other forms of
passive
-1-
<PAGE>
investment, including real property (provided that such investments do not
violate Section 10 hereof).
3. Term.
(a) Effective Date. This Agreement shall become effective on the
effective date (the "Effective Date") set forth on Schedule A attached hereto.
(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 expiration date (the "Expiration Date") set forth on
Schedule A attached hereto; 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
Expiration Date, 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;
(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 which occurs 30 days after Employee has tendered
written notice of resignation; provided, however, that the Company shall
have the right in its sole discretion to accelerate Employee's Termination
Date to a date selected by the Company if the Company determines not to
continue Employee's employment after Employee has tendered written notice
of resignation (in which event the accelerated date selected by the Company
shall be deemed to be the Termination Date).
(c) Performance of Duties During Notice Period. In the event that the
Company terminates Employee's employment by the Company pursuant to Section
3(b)(ii) hereof, Employee, if requested by the Company, shall continue to render
services hereunder to the Company for the 30-day period after receipt of the
Company's notice, and shall, in such event, be paid the compensation and
benefits hereunder for the remainder of such period (and any such compensation
shall offset and reduce any Severance Pay payable to Employee hereunder).
(d) Employment-At-Will/Employee Acknowledgment. Notwithstanding
Section 3 of this Agreement and Sections 4(a) and (b) hereof relating to the
annual salary and bonus to
-2-
<PAGE>
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.
-----------------------
(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 of Employee's employment by
the Company (which for this purpose includes Vistana and all Affiliates of
Vistana). Following the termination of Employee's employment by the Company
(which for this purpose includes Vistana and all Affiliates of Vistana),
Employee will not retain any written or other tangible material containing
any proprietary or other non-public information of Vistana and its
Affiliates.
(ii) Effective as of the termination of Employee's employment
by the Company (which for this purpose includes Vistana and all Affiliates
of Vistana), Employee shall be deemed to have resigned from all offices and
directorships then held with Vistana and/or any of its Affiliates.
(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, if any, under the Vistana 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)).
-3-
<PAGE>
4. Compensation.
(a) Salary. The Company shall pay to Employee the annual salary (the
"Base Salary") set forth on Schedule B attached hereto and incorporated herein
by this reference (prorated for partial calendar years). The 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) Bonus Amount. Employee shall be eligible to receive an annual
bonus amount (the "Bonus Amount") in respect of the term of this Agreement as
set forth on Schedule B attached hereto. The Bonus Amount shall be calculated
and determined on a January through December calendar-year basis and shall be
prorated if Employee was not an employee of the Company as of January 1 of the
applicable year. Any Bonus Amount due to Employee shall be paid within 60 days
after the close of the applicable calendar year, subject to all applicable
withholding and deductions, but only if Employee is an employee of the Company
or an Affiliate thereof as of the close of such year and as of the date of such
payout.
5. Fringe Benefits. During the term of this Agreement, Employee shall be
entitled to such group employment benefits as may, from time to time, be made
generally available to similar level employees of the Company; 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.
7. Vacation and Sick Leave. Employee shall be entitled to the period of
paid vacation time, in the aggregate, per calendar year (pro-rated for partial
calendar years) set forth on Schedule B attached hereto, 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. 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 of the Expiration Date pursuant to Section 3(b)(i), 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(b)(iii), the
Company shall pay Employee's estate the compensation and other benefits
expressly provided under this Agreement through the Termination Date.
-4-
<PAGE>
(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(b)(iv), the Company shall pay Employee the
compensation and other benefits expressly provided under this Agreement through
the Termination Date.
(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, if any, set forth on Schedule B, attached hereto,
payable as specified therein.
(f) Resignation. If the Employee resigns pursuant to Section 3(b)(v),
the Company shall pay Employee the compensation and other benefits expressly
provided under this Agreement through the applicable Termination Date.
(g) 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.
(h) 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
payments to Employee contemplated by Section 8(e) 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 (to the extent
applicable) 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 and its Affiliates. 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 none of the
-5-
<PAGE>
provisions of this Section 9 shall apply to disclosures made for valid business
purposes of the Company and its Affiliates and provided further that Employee
shall not be obligated to treat as confidential any Confidential Information
that (x) was publicly known at the time of disclosure to Employee; (y) becomes
publicly known or available thereafter other than by means in violation of this
Agreement or any other duty owned to Vistana or any of its Affiliates by any
person or entity; or (z) 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
Employee's employment by the Company (which for this purpose includes Vistana
and all Affiliates of Vistana) for the benefit of the Company (which for this
purpose includes Vistana and all affiliates of Vistana), 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 an
appropriate Affiliate of Vistana) 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 such other appropriate Affiliate of Vistana). Employee agrees
further that, in the event that any such 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 any Affiliate of Vistana which it may designate), 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 ownership of such work and all rights incident
thereto by Vistana or such Affiliate.
10. Covenant Not to Compete. During Employee's employment by the Company
and during 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-
-6-
<PAGE>
share, vacation plan, vacation ownership or interval ownership business
within the Territory; or
(d) 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., Vacation Break
U.S.A., Inc., Trendwest Resorts, Inc. or Silverleaf Resorts, Inc. or any of
their respective Affiliates; provided, however, that the provisions of this
Section 10(d) shall not be applicable if and to the extent that Employee
does not directly or indirectly participate in or provide services or
advice to, and Employee is not directly or indirectly employed in, involved
with, or responsible for, any of the time-share, vacation plan, vacation
ownership or interval ownership activities of such national enterprise in
any capacity; or
(e) directly or indirectly for himself, herself or for any other
person or entity pursue or consummate or otherwise interfere with any
Existing Project; or
(f) (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 publicly traded company (other than Vistana) engaged in the timeshare or
vacation ownership business.
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 Employee's
employment by the Company and during the Non-Compete Period, Employee shall not
employ employees or agents or former employees or agents of Vistana or any of
its Affiliates or, directly or indirectly, solicit or otherwise encourage the
employment of employees or agents or former employees or agents of Vistana or
any of its Affiliates; provided, however, that this restriction shall not apply
to
-7-
<PAGE>
former employees or agents who, as of the date of the employment or solicitation
by Employee, have not worked for Vistana or any of its Affiliates during the
immediately preceding twelve 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) Employee's failure to properly perform Employee's
duties and responsibilities as described on Exhibit A, Employee's failure to
adhere to the policies of the Company, or Employee's neglect of duty, which
failure or neglect (as the case may be) persists or recurs after written notice
of such failure or neglect is given by the Company to Employee; (b) the
commission by Employee of an act of fraud, embezzlement or willful breach of a
fiduciary duty to the Company or any of its Affiliates (including the
unauthorized disclosure of confidential or proprietary material information of
the Company); (c) the commission by Employee of a breach of any material
covenant, provision, term, condition, understanding or undertaking set forth in
this Agreement; (d) the conviction or indictment of Employee for a crime
constituting a felony or a crime involving moral turpitude under applicable law
(or a plea of nolo contendere in lieu thereof); (e) the exposure of the Company
to any criminal liability substantially caused by the conduct of Employee or the
exposure of the Company to any civil liability caused by Employee's unlawful
discrimination or harassment in employment; (f) any habitual absenteeism, gross
negligence, bad faith, or willful misconduct by Employee in the performance of
Employee's duties to the Company or any willful conduct by Employee which
results in damage to the property, business, reputation or goodwill of the
Company or any of its Affiliates; or (g) 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 controlled substances for
which Employee is taking under a then current prescription).
-8-
<PAGE>
"Confidential Information" means all software, trade secrets, work
products created by Employee for the Company, Vistana or any of their respective
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, Vistana or any of their respective
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
(1982-84 = 100) covering Employee's place of employment (as specified in
Schedule A), or the successor of such index (or if the index is not published
for such area, a comparable index applicable to such area as may be reasonably
determined by the Company).
"Existing Project" means a time-share, vacation plan, vacation
ownership or interval ownership resort or project which Vistana or any of its
Affiliates owns, operates or has commenced to develop, acquire or otherwise
undertake as of the termination of Employee's employment by the Company (which
for this purpose includes Vistana and all Affiliates of Vistana).
"Non-Compete Period" shall mean the period commencing on the Effective
Date and ending on the following date (as applicable):
(i) the later to occur of (A) the first day following the
termination of Employee's employment by the Company (which for this purpose
includes Vistana and all Affiliates of Vistana) and (B) the Termination
Date, in case of the termination of Employee's employment pursuant to
Section 3(b)(i) or (iv); provided, however, that, in either event, the
Company may extend the Non-Compete Period for a period not to exceed the
first anniversary of the date provided in the foregoing clauses (A) or (B),
by notifying Employee in writing that it will continue to pay Employee the
Base Salary or the Adjusted Base Salary (as defined in Schedule B) then in
effect (in accordance with the Company's payroll policies) through the end
of such extended period;
(ii) the Termination Date, in case of the termination of Employee's
employment pursuant to Section 3(b)(iii);
(iii) the first day following the severance period (the "Severance
Period") set forth on Schedule B attached hereto, in case of the
termination of Employee's employment pursuant to Section 3(b)(ii)(whether
or not the Severance Amount is payable); or
(iv) the first day following the Severance Period, in case of
Employee's resignation pursuant to Section 3(b)(v)(whether or not the
Severance Amount is payable).
"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
-9-
<PAGE>
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
of Employee's employment by the Company (which, for this purpose, includes
Vistana and all Affiliates of Vistana) that Vistana 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 of Employee's employment by the
Company (which, for this purpose, includes Vistana and all Affiliates of
Vistana) that Vistana or any of its Affiliates has commenced to evaluate or
negotiate with in respect of any transaction involving (y) the acquisition by
Vistana 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 Vistana or its consolidated assets.
"Territory" means the total geographic area located within a 150-mile
radius of each Existing Project and each Prospective Project.
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.
(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
-10-
<PAGE>
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:
If to the Company: Vistana, Inc.
8801 Vistana Centre Drive
Orlando, Florida 32821
Attention: 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 (it being understood that
Employee may not assign this Agreement, or any rights hereunder, without
the prior written consent of the Company and that the Company may assign
this Agreement, or any rights hereunder, to any Affiliate of the Company
without the consent of Employee).
(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) Employee Representation. Employee represents that the execution of this
Agreement by Employee does not, and the performance of this Agreement by
Employee will not,
-11-
<PAGE>
violate or conflict with any other agreement to which Employee is a party
or otherwise subject. Employee also represents and agrees that in
performing Employee's obligations pursuant to this Agreement, Employee will
not breach the confidentiality, non-solicitation, non-competition or other
provisions of any other agreement to which Employee is a party or is
otherwise subject. Employee agrees to hold harmless and indemnify each of
the Company and its Affiliates from any and all claims, losses,
liabilities, actions, costs or expenses, which any of them may incur or
suffer as a result of a breach of the foregoing representation.
(j) Additional Understandings. Any 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
By: /s/ Charles E. Harris
-------------------------------------------
Name: Charles E. Harris
Title: Vice Chairman and Chief
Financial Officer
EMPLOYEE:
/s/ Mark E. Patten
-------------------------------------------
Name: Mark E. Patten
-12-
<PAGE>
SCHEDULE A
to
EMPLOYMENT AGREEMENT with MARK E. PATTEN
1. Employee Name and Address: Mark E. Patten
6240 Donegal Drive
Orlando, Florida 32819
2. Employee Title: Vice President and Chief Accounting Officer
Corporate Title: Vice President and Chief Accounting
Officer
Functional Title: Not applicable
3. Primary Employment Responsibilities: Employee shall be responsible for
performing the duties and responsibilities of the chief accounting officer
of a public company. Employee shall also perform such additional duties and
responsibilities, consistent with Employee's title and position, as may be
specified from time to time by the Company's Board of Directors, Chief
Executive Officer(s), and Employee's supervising officer(s). Employee's
supervising officer(s) shall be designated by the Company's Chief Executive
Officer(s).
4. Place of Employment: The Company office(s) located in the Orlando, Florida
Metropolitan Statistical Area, as designated from time to time by the
Company.
5. Effective Date: January 30, 1998
6. Expiration Date: January 30, 2002
Initials: CEH A-1 Initials: MEP
--- ---
<PAGE>
SCHEDULE B
to
EMPLOYMENT AGREEMENT with MARK E. PATTEN
1. Base Salary: For the 1998 calendar year, the Company shall pay to Employee
an annual salary equal to $160,000 (the "Base Salary"). For each calendar
year during the term of this Agreement commencing with the next ensuing
calendar year, the Company shall pay Employee an annual salary (the
"Adjusted Base Salary") determined by the Company's Chief Executive Officer
or its Board of Directors (or the Compensation Committee thereof);
provided, however, that the Adjusted Base Salary shall be no less than the
Base Salary.
2. Bonus Amount: From and after January 1, 1998, Employee shall be entitled to
annual bonuses, if any, as shall be specified in written performance plans
which are agreed to by the Company and Employee on a year-to-year basis.
The Company and Employee acknowledge that (i) such performance plans shall
be similar in form to that currently in effect for similar level employees
of the Company having responsibilities similar to the responsibilities of
Employee hereunder and (ii) such performance plans shall provide
eligibility for annual bonuses approximating 20% to 30% of Employee's Base
Salary or Adjusted Base Salary (as applicable).
3. Paid Vacation Time: Four weeks per calendar year. (Unused vacation time may
not be carried over from year to year unless approved by the Company in
writing or permitted by Company policy.)
4. Severance Amount: Employee's monthly Base Salary (or, if applicable,
Adjusted Base Salary) payable (in accordance with the Company's normal
payroll policies) during the Severance Period.
5. Severance Period: The period from the Termination Date until the earlier to
occur of (i) the twelve months' anniversary of the Termination Date and
(ii) the Expiration Date.
Initials: CEH B-1 Initials: MEP
--- ---
<PAGE>
SCHEDULE C
to
EMPLOYMENT AGREEMENT with MARK E. PATTEN
1. Stock Options: Subject to the approval of the Compensation
Committee of Vistana's Board of Directors, Vistana
will grant Employee a compensatory (nonqualified)
option to purchase 25,000 shares of Vistana common
stock pursuant to the Vistana Stock Plan at an
exercise price per share equal to the closing
price per share of Vistana common stock on the
NASDAQ National Market System on the date of grant
(it being understood by Employee that (i) 25% of
such options shall vest and become exercisable on
the first year anniversary of the Effective Date
and the remaining 75% of such options shall vest
and become exercisable in equal amounts on each
ensuing annual anniversary of the Effective Date
until all such options have become fully vested
and exercisable and (ii) in the event that, at
Vistana's next ensuing Annual Meeting of
Shareholders, Vistana's shareholders do not
approve of an increase in the number of options
available for grant under the Vistana Stock Plan,
such grant of options shall be null and void for
all purposes and in all respects, in which event
Vistana shall grant such options as soon as a
sufficient number of options become available
under the Vistana Stock Plan). Such grant of
options will be made pursuant to an Option
Agreement between Vistana and Employee
substantially similar in form to the Option
Agreements currently in effect for similar level
executives.
2. Relocation: The Company will pay or reimburse Employee for the
reasonable cost of: (i) moving Employee's
household goods (including packing, unpacking,
insurance, and billing) from Employee's Miami,
Florida residence to Employee's new residence in
the Orlando, Florida area; and (ii) house hunting
trips for Employee's spouse, with round trip
airfare (Miami-Orlando) once a month, up to six
months. At Employee's option, the Company will:
(a) for a maximum of six months, provide Employee
with rent-free use of a Vistana Resort unit, or
reimburse Employee for the reasonable cost of
renting an apartment in the Orlando area, until
Employee acquires a home in, and Employee's family
relocates to, the Orlando area; or (b) provide
Employee with such rent-free
Initials: CEH C-1 Initials: MEP
--- ---
<PAGE>
use of a Vistana Resort unit for up to three
months and reimburse Employee for up to three
months of the mortgage payments on Employee's
Miami residence, subject to a maximum of $1,300
per month, if and to the extent Employee is
required to pay mortgage payments on residences in
both Miami and Orlando.
The Company will reimburse Employee for up to
$2,500 of miscellaneous relocation expenses
incurred at time of actual relocation to the
Orlando, Florida area, upon presentation of
receipts or other documentation acceptable to the
Company.
3. Non-Compete: Following the termination of Employee's employment
by the Company (which for this purpose includes
Vistana and all Affiliates of Vistana), the
provisions of Section 10 of this Agreement shall
not be deemed to prevent Employee from working as
a partner, shareholder, or professional employee
of a public accounting or similar professional
services firm that has one or more clients in the
timeshare or vacation ownership business, provided
that such firm is not an Affiliate of any of the
organizations described in Section 10 and such
clients do not account for more than fifty percent
(50%) of Employee's billings for the firm.
C-2
<PAGE>
VISTANA, INC.
8801 VISTANA CENTRE DRIVE
ORLANDO, FLORIDA 32821
March 4, 1999
Mr. Mark E. Patten
Vice President & Chief Accounting Officer
Vistana, Inc.
Re: First Amendment to Employment Agreement
---------------------------------------
Dear Mark:
Attached hereto is a revised Schedule B to the Employment Agreement dated
January 30, 1998 between Vistana, Inc. and you which incorporates the adjustment
to your Base Salary and Annual Bonus Amount for the 1999 fiscal year approved by
the Compensation Committee at its February meeting.
Please carefully review the enclosed Schedule B to confirm the accuracy
thereof. If the enclosed Schedule B is accurate, please execute the enclosed
copy of this letter in the space provided below and return it to the
undersigned, whereupon the enclosed Schedule B will be substituted for the
existing Schedule B. Please keep your copy of this letter and revised Schedule
B with your own copy of your Employment Agreement.
Very truly yours,
VISTANA, INC.
By: /s/ Jeffrey A. Adler
---------------------
Name: Jeffrey A. Adler
Title: President
Enclosure
ACKNOWLEDGED AND CONFIRMED:
/s/ Mark E. Patten
- --------------------------
Name: Mark E. Patten
<PAGE>
SCHEDULE B
to
EMPLOYMENT AGREEMENT with MARK E. PATTEN
(Revised Effective January 30, 1999)
1. Base Salary: For the remainder of the 1999 calendar year, the Company shall
pay to Employee an annual salary equal to $177,500 (the "Base Salary"). For
each calendar year during the term of this Agreement commencing with the
next ensuing calendar year, the Company shall pay Employee an annual salary
(the "Adjusted Base Salary") determined by the Company's Chief Executive
Officer or its Board of Directors (or the Compensation Committee thereof);
provided, however, that the Adjusted Base Salary shall be no less than the
Base Salary.
2. Bonus Amount: From and after January 1, 1999, Employee shall be entitled to
annual bonuses, if any, as shall be specified in written performance plans
which are agreed to by the Company and Employee on a year-to-year basis.
The Company and Employee acknowledge that (i) such performance plans shall
be similar in form to that currently in effect for similar level employees
of the Company having responsibilities similar to the responsibilities of
Employee hereunder and (ii) such performance plans shall provide
eligibility for annual bonuses not to exceed 30% of Employee's Base Salary
or Adjusted Base Salary (as applicable).
3. Paid Vacation Time: Four weeks per calendar year. (Unused vacation time may
not be carried over from year to year unless approved by the Company in
writing or permitted by Company policy).
4. Severance Amount: Employee's monthly Base Salary (or, if applicable,
Adjusted Base Salary) payable (in accordance with the Company's normal
payroll policies) during the Severance period.
5. Severance Period: The period from the Termination Date until the earlier to
occur of (i) the twelve months' anniversary of the Termination Date and
(ii) the Expiration Date.
2
<PAGE>
EXECUTION COPY
--------------
(CONFORMED, AS AMENDED)
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.
<PAGE>
(h) "Eligible Compensation" means the employee's base 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 complied with the
provisions of Section 3(b) hereof.
<PAGE>
(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 six-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 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
<PAGE>
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 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.
<PAGE>
(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 fair market value of a share
of Stock on the Date of Exercise. 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.
(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
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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 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.
<PAGE>
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.
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.
<PAGE>
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 (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
<PAGE>
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 l(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.
* * * * *
<PAGE>
I hereby certify that the foregoing Plan is the Employee Stock Purchase
Plan of Vistana, Inc. as adopted by the Board of Directors of Vistana, Inc. on
December 27, 1996 and as amended through May 15, 1998.
Executed as of May 15, 1998.
/s/ Jeffrey A. Adler
--------------------
Jeffrey A. Adler
Director, President and Co-Chief
Executive Officer
<PAGE>
EXECUTION COPY
--------------
AMENDMENT NO. 1 TO
REGISTRATION RIGHTS AGREEMENT
-----------------------------
AMENDMENT NO. 1 (this "Amendment") dated as of March 5, 1999 to
REGISTRATION RIGHTS AGREEMENT dated as of February 10, 1997 (the "Original
Agreement"), among VISTANA, INC., a Florida corporation (the "Company") and the
individuals and entities set forth on Schedule A attached hereto (capitalized
terms not otherwise defined in this Amendment are used herein as defined in the
Original Agreement);
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, subsequent to the date of the Original Agreement (i) Gellein,
Adler and certain of their respective Affiliates have transferred certain of
their Registrable Shares to certain other Affiliates of Gellein and Adler; (ii)
certain Affiliates of Gellein and Adler have granted to one new Executive an
option to acquire certain Registrable Shares and such new Executive has executed
a joinder to the Original Agreement; and (iii) certain Affiliates of Gellein and
Adler have granted two original Executives options to acquire additional
Registrable Shares;
WHEREAS, the Company and the other parties hereto, which include Holders
owning a majority of the Registrable Shares held by the Executives as of the
date of this Amendment, desire to amend the Original Agreement pursuant to
Section 9.3 thereof upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual promises
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending
legally to be bound, hereby agree as follows:
1. Amendments to Original Agreement. Subject to the conditions of Section
2 hereof, the Original Agreement is hereby amended as follows:
(a) Amendment to Section 2(a). Section 2(a) of the Original Agreement
is hereby amended in its entirety as follows:
"(a) (i) Within 45 days prior to each of the second, third and
fourth 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 of Registrable
Shares of the Executives and their respective Affiliates in accordance with
this Section 2(a).
<PAGE>
(ii) Each Executive and his or her Affiliates which hold
Registrable Shares may elect to include in such Registration Statement up
to 50% of such Person's Registrable Shares which are not subject to any
vesting limitations (determined as of the date of the Company's notice
pursuant to Section 2(a)(i) hereof); provided, however, that
notwithstanding the foregoing, each Executive and his or her Affiliates
which hold Registrable Shares may elect to include in the Registration
Statement contemplated to be filed after the fourth anniversary of the
Closing Date all of such Person's Registrable Shares (whether or not any
such Registrable Shares are then subject to any vesting limitations). Each
Executive may exercise the election described in the preceding sentence 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 Registration Statement filed 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 the last
day of the immediately preceding fiscal year of the Company. The
limitation set forth in the preceding sentence shall not apply to the
Registration Statement contemplated to be filed after the fourth
anniversary of the Closing Date. In the event that the Executives and
their Affiliates which hold Registrable Shares seek to include in any such
Registration Statement a number of Registrable Shares in excess of such
limitation, if applicable the Company shall include in such Registration
Statement 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 such Registration Statement.
(iv) Notwithstanding anything to the contrary contained in this
Section 2(a), 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. The
limitation set forth in the preceding sentence shall not apply to the
Registration Statement contemplated to be filed after the fourth
anniversary of the Closing Date."
(b) Amendment to Section 2(c). Section 2(c) of the Original
Agreement is hereby amended in its entirety as follows:
"(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 each of the
Registration Statement contemplated to be filed after the fourth
anniversary of the Closing Date and any 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."
S-2
<PAGE>
(c) Amendment to Section 6. The last paragraph of Section 6 is
hereby amended by adding the following sentence to the end thereof:
"Each holder of Registrable Shares hereby agrees that any actions,
requests or notices which may be taken, made or delivered pursuant to this
paragraph shall not require, in order to be valid, a resolution or written
consent of the Company's Board of Directors but may instead be effected at
the direction of the Company's Chairman of the Board, President or Vice
Chairman of the Board without such a resolution or written consent. The
Effectiveness Period shall be extended by the aggregate number of days
during which a holder is restricted from disposing of Registrable Shares
pursuant to this paragraph."
(d) Amendment to Schedule A. Schedule A to the Original
Agreement is hereby amended in its entirety by replacing such Schedule with
Amended Schedule A attached hereto.
2. Conditions to Effectiveness. The effectiveness of this Amendment is
subject to the satisfaction in full of the following conditions precedent:
(a) The Board of Directors of the Company shall have approved of the
Company's execution, delivery and performance of this Amendment; and
(b) The Company shall have executed this Amendment and shall have
received fully executed counterparts of this Amendment from Holders owning
a majority of the Registrable Shares held by the Executives as of the date
of this Amendment.
3. Miscellaneous.
(a) Full Force and Effect. Except as expressly set forth herein,
this Amendment does not constitute a waiver or modification of any
provision of the Original Agreement. Except as expressly amended hereby,
the Original Agreement shall continue in full force and effect in
accordance with the provisions thereof on the date hereof. As used in the
Original Agreement, the terms "the Agreement," "herein," "hereof,"
"hereinafter," "hereto" and words of similar import, shall, unless the
context otherwise requires, mean the Original Agreement as amended by the
Amendment. References to the terms "Agreement" appearing in the Exhibits or
Schedules to the Original Agreement, shall, unless the context otherwise
requires, mean the Original Agreement as amended by this Amendment.
(b) Headings and terms. The headings in this Amendment are for
purposes of reference only and shall not be considered in construing this
Amendment. Terms defined in the singular shall have a comparable meaning
when used in the plural, and vice versa.
S-3
<PAGE>
(c) Counterparts. This Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall constitute
an original and all together shall constitute one agreement.
(d) Law Governing. This Amendment 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.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
THE COMPANY:
-----------
VISTANA, INC., a Florida corporation
By: /s/ Raymond L. Gellein, Jr.
----------------------------------------------
Name: Raymond L. Gellein, Jr.
Title: Chairman
THE HOLDERS:
-----------
NEVWEST LIMITED PARTNERSHIP
By: /s/ Ronald Smith
---------------------------------------------
Name: Ronald Smith
Title: President of NevGel, Inc., General
Partner
/s/ Raymond L. Gellein, Sr.
--------------------------------------------------
Raymond L. Gellein, Sr., Trustee of the Raymond L.
Gellein, Jr. Grantor Retained Annuity Trust
/s/ Catherine G. Male
--------------------------------------------------
Catherine G. Male, Trustee of the Matthew James
Gellein Irrevocable Trust
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
S-4
<PAGE>
/s/ Catherine G. Male
----------------------------------------------
Catherine G. Male, Trustee of the Brett Tyler
Gellein Irrevocable Trust
NEVEAST LIMITED PARTNERSHIP
By: /s/ Ronald Smith
-----------------------------------------
Name: Ronald Smith
Title: President of NevJan I, Inc.,
General Partner
/s/ Raymond L. Gellein, Sr.
----------------------------------------------
Raymond L. Gellein, Sr., Trustee of the
Janice G. Gellein Grantor Annuity Trust
/s/ Raymond L. Gellein, Sr.
----------------------------------------------
Raymond L. Gellein, Sr., Trustee of the
Catherine Male Gift Trust
/s/ Raymond L. Gellein, Sr.
----------------------------------------------
Raymond L. Gellein, Sr., Trustee of the
Cherie Doherty Gift Trust
/s/ Raymond L. Gellein, Sr.
----------------------------------------------
Raymond L. Gellein, Sr., Trustee of Susan
Faetz Gift Trust
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
S-5
<PAGE>
RIJA LIMITED PARTNERSHIP
By: /s/ Richard Adler
-------------------------------------------------
Name: Richard Adler
Title: President of Alexdann corporation,
General Partner
/s/ Jeffrey A. Adler, Trustee
-------------------------------------------------
Jeffrey A. Adler, Trustee of the Jeffrey A. Adler
Grantor Annuity Trust #1
/s/ Jeffrey A. Adler, Trustee
-------------------------------------------------
Jeffrey A. Adler, Trustee of the Jeffrey A. Adler
Grantor Annuity Trust #2
/s/ Lee I. Miller, Trustee
-------------------------------------------------
Lee I. Miller, Trustee of the ARA Trust
/s/ Lee I. Miller, Trustee
-------------------------------------------------
Lee I. Miller, Trustee of the DLA Trust
/s/ Matthew E. Avril
-------------------------------------------------
Matthew E. Avril
/s/ Susan B. Werth
-------------------------------------------------
Susan B. Werth
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
S-6
<PAGE>
/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/ Charles E. Harris
------------------------------
Charles E. Harris
/s/ John M. Sabin
------------------------------
John M. Sabin
[SIGNATURES CONTINUED FROM PRECEDING PAGE]
S-7
<PAGE>
AMENDED SCHEDULE A
------------------
<TABLE>
<CAPTION>
Holders
-------
No. of No. of Shares
Name and Address/(1)/ Shares s/t Options
- ---------------- ------ -------------
<S> <C> <C>
NevWest Limited Partnership 2,778,728 -
c/o NevGel, Inc., General Partner
5851 West Charleston Blvd.
Suite 1000
Las Vegas, Nevada 89102
Raymond L. Gellein, Jr. 239,137 -
Grantor Retained Annuity
Trust
c/o Raymond L. Gellein, Sr.,
Trustee
Matthew James Gellein 42,880 -
Irrevocable Trust
c/o Catherine G. Male,
Trustee
Brett Tyler Gellein 42,880 -
Irrevocable Trust
c/o Catherine G. Male,
Trustee
NevEast Limited Partnership 2,798,953 -
c/o NevJan I, Inc., General Partner
5851 West Charleston Blvd.
Suite 1000
Las Vegas, Nevada 89102
Janice G. Gellein Grantor 243,172 -
Annuity Trust
c/o Raymond L. Gellein, Sr.,
Trustee
Catherine Male Gift Trust 20,500 -
c/o Raymond L. Gellein, Sr.,
Trustee
</TABLE>
S-8
<PAGE>
<TABLE>
<CAPTION>
No. of No. of Shares
Name and Address (continued) Shares s/t Options
- ---------------------------- --------- -------------
<S> <C> <C>
Cherie Doherty Gift Trust 20,500 --
c/o Raymond L. Gellein, Sr.,
Trustee
Susan Faetz Gift Trust 20,500 --
c/o Raymond L. Gellein, Sr.,
Trustee
Rija Limited Partnership 5,989,710 --
c/o Alexdann Corporation,
General Partner
5851 West Charleston Blvd.
Suite 1000
Las Vegas, Nevada 89102
Jeffrey A. Adler Grantor Annuity 42,973 --
Trust #1
c/o Jeffrey A. Adler, Trustee
Jeffrey A. Adler Grantor Annuity 51,567 --
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
Susan B. Werth -- 125,000
</TABLE>
S-9
<PAGE>
<TABLE>
<CAPTION>
No. of No. of Shares
Name and Address (continued) Shares s/t Options
- ---------------------------- ---------- -------------
<S> <C> <C>
Carol A. Lytle -- 400,000
Barbara Hollkamp -- 100,000
James A. McKnight -- 100,000
William J. McLaughlin -- 140,000
Alain J.A. Grange -- 140,000
Charles E. Harris -- 400,000
John M. Sabin -- 22,000
---------- ------------
TOTAL 12,414,500 1,827,000
========== ============
</TABLE>
- -------------------------
/(1)/ Unless otherwise specified, all addresses are 8801 Vistana Centre Drive,
Orlando, Florida 32821.
S-10
<PAGE>
FIRST AMENDMENT TO LIMITED PARTNERSHIP AGREEMENT
OF
VISTANA WGV, LTD.
THIS FIRST AMENDMENT TO LIMITED PARTNERSHIP AGREEMENT OF VISTANA WGV,
LTD. ("First Amendment") is made and entered into as of the 30th day of June
1998, by and among VISTANA WGV HOLDINGS, INC., a Florida corporation ("General
Partner"), VISTANA WGV INVESTMENT, INC., a Florida corporation ("Vistana"),
UNITED TIMESHARES, INC., a Florida corporation ("United"), A. ZIMAND WGV
INVESTMENT, INC., a Florida corporation ("Zimand") and NATIONAL COAL COMPANY, a
Virginia general partnership ("NCC"). Any capitalized terms used in this First
Amendment which are not defined herein shall have the same definitions as set
forth in the Limited Partnership Agreement of Vistana WGV, Ltd. entered into as
of June 28, 1996, among General Partner, Vistana WGV Investment, Ltd., United
and Zimand (the "Partnership Agreement").
RECITALS
A. General Partner, Vistana WGV Investment, Ltd. (the predecessor of
Vistana), United and Zimand executed the Partnership Agreement in order to form
Vistana WGV, Ltd. (the "Partnership").
B. On December 31, 1997, Vistana WGV Investment, Ltd. was converted
from a Florida limited partnership to a Florida corporation known as "Vistana
WGV Investment, Inc.," all of the stock of which is owned by Vistana, Inc.
C. On June 30, 1998, United assigned all of its rights, obligations
and responsibilities as a limited partner in the Partnership to NCC, a Virginia
general partnership consisting of James W. McGlothlin, W. W. McGlothlin and
N. D. Street (who also collectively own all of the stock of The United Company,
which in turn owns all of the stock of United).
D. The Partners wish to amend the Partnership Agreement to reflect
the substitution of Vistana for Vistana WGV Investment, Ltd. as a Limited
Partner in the Partnership, and the substitution of NCC for United as a Limited
Partner in the Partnership, both in accordance with the terms and conditions set
forth below, and to make certain other modifications as hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth and for other good and valuable considerations, the receipt and
sufficiency of which are hereby acknowledged, it is AGREED as follows:
<PAGE>
1. Recitals. The statements of facts set forth in Recitals A through
D above are true and correct and are incorporated herein and made a part hereof.
2. Assignment of Partnership Interests and Substitution of Limited
Partners.
(a) Vistana. The assignment by Vistana WGV Investment, Ltd. to
Vistana WGV Investment, Inc. (pursuant to the conversion of Vistana WGV
Investment, Ltd. from a Florida limited partnership to a Florida corporation) of
all of its rights, obligations and responsibilities as a Limited Partner in the
Partnership is hereby consented to by the General Partner, and Vistana is hereby
substituted as a Limited Partner for Vistana WGV Investment, Ltd. effective as
of the beginning of business on January 1, 1998. Vistana hereby affirms that it
has assumed all of the rights, obligations and responsibilities of Vistana WGV
Investment, Ltd. as a Limited Partner in the Partnership as of the beginning of
business on January 1, 1998, and Vistana further agrees to be bound by all of
the terms and conditions of the Partnership Agreement as amended hereby.
(b) United. The assignment by United of all of its rights,
obligations and responsibilities as a Limited Partner in the Partnership to NCC
effective as of the close of business on June 30, 1998, is hereby consented to
by the General Partner, and NCC is hereby substituted as a Limited Partner for
United effective as of the beginning of business on July 1, 1998. NCC hereby
affirms that it has assumed all of the rights, obligations and responsibilities
of United as a Limited Partner in the Partnership, including, but not limited
to, the loan obligations described in Section 5.4 of the Partnership Agreement,
and NCC further agrees to be bound by all of the terms and conditions of the
Partnership Agreement as amended hereby.
(c) References. Any and all references to "Vistana" in the
Partnership Agreement shall be deemed to refer to Vistana WGV Investment, Inc.
effective as of the beginning of business on January 1, 1998. Any and all
references to "United" in the Partnership Agreement shall be deemed to refer to
NCC effective as of the beginning of business on July 1, 1998.
(d) Covenant Not to Compete. As a result of the substitution of
NCC for United and the assumption by NCC of all of United's obligations and
responsibilities as a Limited Partner in the Partnership, NCC acknowledges that
it is bound by all the terms of covenant not to compete set forth in Section 7.8
of the Partnership Agreement. Likewise, United acknowledges that it is an
"Affiliate" (as defined in Subsection 1.6.E. of the Partnership Agreement) of
NCC and that, as such, it will continue to be bound by all the terms and
conditions of the non-compete provisions set forth in Section 7.8 of the
Partnership Agreement after June 30, 1998, even though it will no longer be a
Partner after that date.
(e) Waiver of Opinion of Tax Counsel. In light of the changes
made to Section 12.4 and Subsection 12.6.B. below, the requirement for an
opinion of tax counsel as a
-2-
<PAGE>
condition precedent to the admission of Vistana and NCC as additional and
substitute Limited Partners in the Partnership is hereby waived.
3. Amendment to Section 3.2. Section 3.2 of the Partnership
Agreement is hereby deleted in its entirety and the following is substituted in
lieu thereof:
SECTION 3.2 Limited Partners. The names and addresses of the
Limited Partners are:
Vistana WGV Investment, Inc.
8801 Vistana Centre Drive
Orlando, FL 32821
Fax No. (407) 239-3222
National Coal Company
c/o The United Company
P. O. Box 1280
Bristol, VA 24203
Fax No. (540) 645-1431
A. Zimand WGV Investment, Inc.
5426 Osprey Isle Lane
Orlando, FL 32819
Fax No. (407) 876-1962
4. Amendment to Section 7.3. Section 7.3 of the Partnership
Agreement shall be amended by: (i) deleting the word "or" at the end of
Subsection 7.3.G.; (ii) changing the period at the end of Subsection 7.3.H. to a
semi-colon and adding the word "or" after the semi-colon; and (iii) adding a new
Subsection 7.3.I. which shall read as follows:
I. File an election under Treasury Regulation (S)301.7701-3 or
under any other provision of the Code or the applicable
Treasury Regulations to have the Partnership classified as
anything other than a partnership for federal income tax
purposes.
5. Amendment to Section 12.4. In recognition of the final adoption
of Treasury Regulation (S)(S)301.7701-2 and 3 relating to the classification of
business entities for federal income tax purposes, it is agreed that the second
paragraph of Section 12.4 of the Partnership Agreement shall be deleted in its
entirety and the following shall be substituted in lieu thereof:
-3-
<PAGE>
Each Limited Partner may Assign all or any portion of its interest in
the Partnership as a Limited Partner to an Affiliate of such Limited
Partner; provided, however, that the transferee of such Limited Partner's
interest shall be treated as an assignee of such interest under the
Partnership Law and shall not be admitted as an additional Limited Partner
(i.e., as a substitute Limited Partner) unless such transferee executes and
delivers to the General Partner a joinder to this Agreement in form and
content satisfactory to the General Partner in the reasonable exercise of
its discretion evidencing such transferee's agreement to be bound by all
the terms and conditions of this Agreement (as amended). For purposes of
the authorization for a Limited Partner to Assign its interest in the
Partnership to an Affiliate under this Section 12.4, the term "Affiliate"
in the case of Vistana shall also be deemed to include all of those Persons
identified in Schedule 12.1 attached hereto and made a part hereof.
6. Amendment to Subsection 12.6.B. Subsection 12.6.B. shall be
deleted in its entirety and the following shall be substituted in lieu thereof:
B. The Purchaser of an interest of a Limited Partner pursuant
to this Section 12.6 shall be treated as an assignee of such interest under
the Partnership Law and shall not be admitted as an additional Limited
Partner (i.e., as a substitute Limited Partner) unless such Purchaser
executes and delivers to the General Partner a joinder to this Agreement in
form and content satisfactory to the General Partner in the reasonable
exercise of its discretion evidencing such Purchaser's agreement to be
bound by all the terms and conditions of this Agreement (as amended).
7. Amendment to Section 15.1. The notice provisions applicable to
Vistana and United set forth in Section 15.1 shall be deleted and the following
shall be substituted in lieu thereof:
To Vistana at:
Vistana WGV Investment, Inc.
8801 Vistana Centre Drive
Orlando, FL 32821
With a copy to:
Charles H. Egerton, Esq.
Dean, Mead, Egerton, Bloodworth, Capouano & Bozarth, P.A.
P. O. Box 2346
Orlando, FL 32802
-4-
<PAGE>
To NCC at:
National Coal Company
c/o The United Company
P. O. Box 1280
Bristol, VA 24203-1280
With copies to:
Dan B. Miller, Esq.
Jones, Day, Reavis & Pogue
77 West Wacker Drive, Suite 3500
Chicago, IL 60601-1692
and to:
Wayne L. Bell, Esq.
Executive Vice President and General Counsel
The United Company
P. O. Box 1280
Bristol, VA 24203-1280
This First Amendment may be executed in counterparts, each of which
shall be deemed to be an original and shall be binding upon the party or parties
who executed the same, but all of such counterparts shall constitute one and the
same agreement.
Except as set forth above, the terms and conditions of the Partnership
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment the day and year first above written.
Witnesses:
GENERAL PARTNER
VISTANA WGV HOLDINGS, INC.,
a Florida corporation
By: /s/ Susan Werth
-----------------------------------
Susan Werth,
its Senior Vice President - Law
-5-
<PAGE>
LIMITED PARTNERS
VISTANA WGV INVESTMENT, INC.,
a Florida corporation
By: /s/ Susan Werth
-----------------------------------
Susan Werth,
its Senior Vice President - Law
NATIONAL COAL COMPANY,
a Virginia General Partnership
By: /s/ James W. McGlothlin
-----------------------------------
James W. McGlothlin, Partner
By: /s/ W.W. McGlothlin
-----------------------------------
W.W. McGlothlin, Partner
By: /s/ N.D. Street
-----------------------------------
N. D. Street, Partner
A. ZIMAND WGV INVESTMENT, INC.,
a Florida corporation
By: /s/ Art Zimand
-----------------------------------
Art Zimand,
its President
FOR PURPOSES OF PARAGRAPH 2(d)
HEREOF ONLY:
UNITED TIMESHARES, INC.,
a Florida corporation
By: /s/ James W. McGlothlin,
-----------------------------------
James W. McGlothlin,
its President
<PAGE>
AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS AMENDMENT, dated as of November 24, 1998 ("Amendment"), to that
---------
certain Loan and Security Agreement, dated as of November 1, 1997, by and
between Vistana Timeshare Mortgage Corp. (the "Borrower") and Dresdner Bank AG
--------
New York and Grand Cayman Branches (the "Lender"), (as amended from time to
------
time, the "Agreement"), in the maximum principal amount of $70,000,000.00.
WITNESSETH:
----------
WHEREAS, the parties have previously entered into the Agreement pursuant to
which the Lender agreed to make a revolving loan (the "Loan") to Borrower,
----
secured by certain level payment promissory notes and related mortgages on
timeshare interests, in the initial maximum principal amount of $70,000,000.00;
WHEREAS, the Lender and Borrower desire to amend certain terms of the
Agreement, as amended, with regard to the maximum principal amount that may be
borrowed and extension of the maturity date;
NOW THEREFORE, in consideration of the promises and mutual covenants herein
contained, the parties hereto agree as follows:
SECTION 1. Defined Terms. Unless otherwise amended by the terms of this
-------------
Amendment terms used in this Amendment shall have the meanings assigned to them
in the Agreement.
SECTION 2. Increase of Commitment of the Lender and the Borrower. Effective
-----------------------------------------------------
the date of execution and delivery hereof and until the last day of the
Borrowing Term, the commitment of the Lender under the Agreement shall be
increased from $70,000,000 to the maximum principal amount of $100,000,000. In
connection with such increase of its commitment, the Borrower agrees to execute
and deliver to the Lender, simultaneously with the execution of this Amendment,
a new Note in the maximum principal amount of up to $100,000,000. Such new Note
shall replace and supersede any note or notes previously issued to the Borrower
pursuant to the Agreement. The new Note shall be secured by the Collateral in
accordance with the terms of the Agreement. The new Note is issued as a
replacement for and shall not constitute a prepayment or repayment of the
original Note, dated November 25, 1997, in the maximum principal amount of up to
$70,000,000.00.
SECTION 3. Amendments to Agreement. Effective upon the execution and
------------- ---------
delivery of this Amendment, the Agreement shall be amended as follows:
a. The definition of "Borrowing Term" set forth in Section 1.14 of the
Agreement is hereby amended to read:
"Borrowing Term": the period terminating upon the close of business
November 24, 1999, and as the same may be extended any number of times
by the Lender, in its sole discretion, for a 364 day period that
commences upon the date upon which the Borrowing Term would have
expired but for the Lender's election to so extend (each
<PAGE>
such date upon which such extension occurs, an "Extension Commencement
Date"); provided that the Lender shall have delivered at least sixty
(60) days prior to such Extension Commencement Date written notice to
the Borrower that sets forth the Lender's decision to make or not to
make such election, as the case may be, or such shorter period of time
as is acceptable to the Borrower, provided, further, that if the
Lender shall not provide any notice of its intention to so extend, any
Advance extended to the Borrower after the expiry of such 60 day
period shall be conclusive evidence of acceptability to the Borrower."
b. The eighth word of the definition of "Exit Fee" is hereby amended to
read:
"0.0050."
c. The definition of "Loan" set forth in Section 1.74 of the Agreement is
hereby amended to read:
"Loan": the Loan of up to $100,000,000.00 evidenced by the Note."
d. The definition of "Note" set forth in Section 1.88 of the Agreement is
hereby amended to read:
"Note": the amended and restated promissory note from Borrower in
favor of Lender in a form substantially similar to Exhibit D hereto,
as it may from time to time be amended, renewed, restated or
replaced."
e. The proviso in the first sentence of Section 2.1 of the Agreement is
hereby amended to read as follows:
"... provided, however, that the unpaid principal balance of the Loan
shall not exceed One Hundred Million Dollars ($100,000,000.00)."
f. The second sentence of Section 2.3 of the Agreement 1 is hereby
amended to read as follows:
"The Note shall be dated the Closing Date, and shall be in the maximum
principal amount of up to $100,000,000.00 and payable to the order of
Lender in an amount equal to the sum of (a) the aggregate unpaid
principal amount of all Advances made to the Borrower by the Lender
and (b) all other Obligations hereunder."
g. Section 2.13(a) of the Agreement is amended to read as follows:
Exit Fee Payments. (a) End of Borrowing Term. On the expiration of the
----------------- ---------------------
Borrowing Term the Borrower shall pay the Lender the Exit Fee,
provided that, no Exit Fee shall be due under the terms of this
subsection 2.13(a) to the extent and only with respect to those Assets
with regard for which, (x) a securitization has been consummated
during the Borrowing Term and for which a mutually agreed upon
advisory or
<PAGE>
placement fee has been paid to Lender or any affiliate of Lender or
(y) the Lender has, prior to the end of the Borrowing Term, received
after November 1, 1998 a Notice to Securitize from the Borrower and
the Lender and the Borrower are, in the good faith judgment of the
Lender, then working to consummate the Securitization that uses such
Assets as contemplated by such Notice to Securitize, provided further,
that in the event the Lender informs the Borrower in writing after the
expiration of the Borrowing Term (whether the initial or as extended)
that, in the Lender's sole good faith judgement, a Securitization to
occur after October 31, 1998 contemplated by the Notice to Securitize
will not be consummated, the Exit Fee shall be due on demand upon the
Borrower's receipt of such notification, unless the failure to be able
to so consummate is due to an Adverse Financial Condition.
h. Exhibit D to the Agreement is hereby replaced by Annex 1 to this
Amendment.
SECTION 4. Events of Default. The Borrower represents and warrants that no
-----------------
Event of Default or, in the good faith and reasonable business judgment of
Borrower, Incipient Default has occurred or is continuing on the date hereof.
SECTION 5. Conditions Precedent. As conditions precedent to the
--------------------
effectiveness of this Amendment, and in addition to all conditions precedent in
Section 4.1(b) and 4.1(c) of the Agreement, Borrower shall have delivered the
Amended and Restated Note to the Lender and the Borrower shall have delivered to
the Lender an opinion of either Weil, Gotshal & Manges LLP, or, Dean, Mead,
Egerton, Bloodworth, Capouano & Bozarth, P.A., to the effect that the Agreement,
as amended by this Amendment and the Amended and Restated Note have been duly
authorized, executed and delivered by the Borrower and are legal, valid, and
binding obligations of the Borrower, enforceable against the Borrower in
accordance with their respective terms.
SECTION 6. Effectiveness of Agreement. Except as expressly amended by the
---------------- ---------
terms of this Amendment, all terms and conditions of the Agreement shall remain
in full force and effect.
SECTION 7. Execution in Counterparts, Effectiveness. This Amendment may be
----------------------------------------
executed by the parties hereto in several counterparts, each of which shall be
executed by the Borrower and the Lender and be deemed to be an original and all
of which shall constitute together but one and the same agreement.
SECTION 8. Governing Law. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT
-------------
MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT
REFERENCE TO CONFLICT OF LAW PRINCIPLES.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Amendment to be duly executed and delivered as of the date hereof
BORROWER:
VISTANA TIMESHARE MORTGAGE CORP.
a Delaware corporation
/s/ Susan Werth
By:________________________________
Susan Werth
Name:______________________________
SVP - Law
Title:_____________________________
LENDER:
DRESDNER BANK AG NEW YORK AND GRAND
CAYMAN BRANCHES
/s/ Andrew Stein
By:________________________________
Andrew A. Stein
Name:______________________________
Vice President
Title:_____________________________
/s/ Christine Dalton
By:________________________________
Christine Dalton
Name:______________________________
Assistant Treasurer
Title:_____________________________
<PAGE>
Annex I to
the Amendment
Exhibit D to
------------
Loan and Security Agreement
---------------------------
AMENDED AND RESTATED PROMISSORY NOTE
Originally Executed
November 25, 1997
New York, New York
Amended and Restated
as of November 25, 1998
Up to $100,000,000.00 maximum principal amount.
FOR VALUE RECEIVED, VISTANA TIMESHARE MORTGAGE CORP., a Delaware
corporation, whose address is c/o VCH Administration, Inc., 8801 Vistana Centre
Drive, Orlando, Florida 32821 (the "Borrower"), promises to pay to the order of
DRESDNER BANK AG NEW YORK AND GRAND CAYMAN BRANCHES, whose address is 75 Wall
Street, New York, New York 10005-2889 (the "Lender") on or before the final
Maturity Date described in the Agreement (defined below), in lawful money of the
United States of America, the lesser of (x) $100,000,000.00 and (y) the
Outstanding principal amount of all Advances (as defined in the Agreement) made
by the Lender to the undersigned pursuant to that certain Loan and Security
Agreement, dated as of November 1, 1997, as amended or otherwise modified from
time to time, by and between the Lender and the Borrower (the "Agreement"), plus
-----------
Interest (as defined in the Agreement) thereon from the commencement date of
each such Advance at the Interest Rate set forth in the Agreement.
Capitalized terms used but not defined herein shall have the meaning
assigned to them in the Agreement as such Agreement may be amended, restated or
modified from time to time.
All such payment obligations (whether in respect of the aggregate principal
amount of Outstanding Advances made, Interest thereon, or other Obligations of
the Borrower under the Agreement) shall be made in lawful money of the United
States of America, in immediately available funds, on the dates and in the
amounts, specified in, or determined in accordance with, the Agreement.
The holder of this Note is authorized to record the date and amount of each
Advance, and the date and amount of each repayment of principal thereof, on the
schedule annexed hereto, and any such recordation shall be presumptive evidence
of the accuracy of the amounts so recorded (absent manifest error); provided
that the failure of the holder hereof to make such recordation (or any error
<PAGE>
in such recordation) shall not affect the Obligations of the Borrower hereunder
or under the Agreement.
It is the intent of the Lender and the Borrower hereto to comply with any
applicable usury law. In no event whatsoever shall the amount of Interest paid
or agreed to be paid by Borrower pursuant to the Agreement or this Note exceed
the highest lawful rate of interest permissible under applicable law. If from
any circumstances whatsoever, fulfillment of any provision of the Agreement or
this Note shall involve exceeding the lawful rate of interest which a court of
competent jurisdiction may deem applicable hereto ("Excess Interest"), then ipso
---------------
facto, the obligation to be fulfilled shall be reduced to the highest lawful
rate of interest permissible under such law, and, if for any reason whatsoever,
Lender shall receive, as Interest, an amount which would be deemed unlawful
under such applicable law, such amount shall be applied to the Loan (whether or
not due and payable), and not to the payment of Interest, or refunded to
Borrower if the Loan has been paid in full. Borrower shall not have any action
against Lender for any damages whatsoever arising out of the payment or
collection of any such Excess Interest.
All payments hereon shall be made, and all notices to the Lender required
or authorized hereby shall be given, at the office of the Lender at the address
designated in the Agreement, or to such other place as the Lender may from time
to time direct by written notice to the Borrower. Payments remitted by the
Borrower via wire transfer received after 1:30 p.m. New York City shall be
deemed to be received on the next Business Day, as more particularly set forth
in the Agreement.
The Borrower agrees to pay all the Lender's respective costs of collection
and enforcement (including reasonable attorneys' fees and disbursements of the
Lender's respective counsel) in respect of this Note and the Agreement when
incurred, including, without limitation, reasonable attorney's fees through
appellate proceedings, as more particularly set forth in the Agreement.
Notwithstanding the pledge of the Collateral, the Borrower hereby
acknowledges, admits and agrees that the Borrower's obligations under this Note
are recourse obligations of the Borrower to which the Borrower pledges its
respective full faith and credit.
The Borrower, and any endorsers or guarantors hereof, (a) severally waive
diligence, presentment, protest and demand and also notice of protest, demand,
dishonor and nonpayments of this Note, (b) expressly agree that this Note, or
any payment hereunder, may be extended from time to time, and consent to the
acceptance of further Collateral, the release of any Collateral for this Note,
the release of any party primarily or secondarily liable hereon, and (c)
expressly agree that it will not be necessary for the Lender, in order to
enforce payment of this Note, to first institute or exhaust the Lender's
remedies against the Borrower or any other party liable hereon or against any
Collateral for this Note. No extension of time for the payment of this Note, or
any installment hereof, made by agreement by the Lender with any person now or
hereafter liable for the payment of this Note, shall affect the liability under
this Note of the Borrower, even if the Borrower is not a party to such
agreement; provided, however, that the Lender and the Borrower, by written
agreement between them, may affect the liability of the Borrower.
<PAGE>
This Note has been issued in replacement for, and does not constitute a
repayment or prepayment, of the Note, dated November 25, 1997, in the original
maximum principal amount of $70,000,000.00, which was issued on November 25,
1997.
Any reference herein to the Lender shall be deemed to include and apply to
every subsequent holder of this Note including, but not limited to, any Trustee.
Reference is made to the Agreement for provisions concerning mandatory
principal and Interest repayments, Collateral, prepayments, acceleration and
other material terms affecting this Note.
To the extent such provision is applicable, the Borrower hereby
acknowledges and agrees that any enforcement action relating to this Note may be
brought by motion for motion for summary judgment in lieu of a complaint
pursuant to Section 3213 of the New York Civil Practice Law and Rules.
This Note shall be governed by and construed under the laws of the State of
New York (without reference to choice of law doctrine) whose laws the Borrower
expressly elects to apply to this Note. The Borrower agrees that any action or
proceeding brought to enforce or arising out of this Note may be commenced in
the Supreme Court of the State of New York, Borough of Manhattan, or in the
District Court of the United States for the Southern District of New York.
The Borrower waives the right to trial by jury in any action, suit,
proceeding or counterclaim of any kind arising out of or related to the
Agreement or this Note. In the event of litigation, the Agreement may be filed
as a written consent to a trial by the court.
The Borrower irrevocably consents to the service of process by registered
or certified mail, postage prepaid, to it at either its address given in the
Agreement or its designated agent for service of process pursuant to the terms
thereof. Nothing in the Agreement or this Note shall be deemed or operate to
affect the rights of the Lender to serve legal process in any other manner
permitted by law, or to preclude the enforcement by the Lender of any judgment
or order obtained in such forum or the taking of any action under the Agreement,
or as applicable to enforce same in any other appropriate forum or jurisdiction.
To the extent that the Borrower has or may hereafter acquire any immunity
from the jurisdiction of any court or from any legal process (whether through
service or notice, attachment prior to judgment, attachment in aid of execution,
execution or otherwise) with respect to the Borrower or the Borrower's property,
the Borrower hereby irrevocably waives such immunity in respect of its
obligations under the Agreement, this Note and any other Document.
<PAGE>
The Borrower waives the right to trial by jury in any action, suit,
proceeding or counterclaim of any kind arising out of or related to the
Agreement or this Note. In the event of litigation, the Agreement may be filed
as a written consent to a trial by the court.
VISTANA TIMESHARE MORTGAGE
CORP.
By:_____________________________
Name:
Title:
<PAGE>
MASTER VISTANA RESORT CONSTRUCTION LOAN FACILITY
<PAGE>
<TABLE>
<S> <C>
SECTION 1. EXTENSION OF FINANCING 1
1.1 Financing Generally. 1
-------------------
1.2 Requests for Financing 3
----------------------
1.3 Closing of Resort Loans 3
-----------------------
1.4 Payment of Resort Loans 3
-----------------------
1.5 Funding Fee 4
-----------
1.6 Maximum Loan Amount 5
-------------------
1.7 Vistana Guaranty 5
----------------
1.8 Prepayment 5
----------
SECTION 2. FINANCING CLOSING CONDITIONS 5
2.1 Resort Loan Documents 5
---------------------
2.2 Deliveries Prior to Each Resort Loan 5
------------------------------------
2.3 Resort Loan Mortgage 6
--------------------
2.4 Other Security Documents 6
------------------------
2.5 Representations and Warranties 6
------------------------------
2.6 No Termination Events 6
---------------------
2.7 Performance of Agreements 6
-------------------------
2.8 Opinions of Counsel 6
-------------------
2.9 Eligible Vistana Subsidiary 6
---------------------------
2.10 Vistana Guaranties 7
------------------
2.11 Cross Collateralization 7
-----------------------
2.12 Trigger Events 7
--------------
2.13 Intentionally Omitted 7
---------------------
2.14 Expenses 7
--------
2.15 Proceedings Satisfactory 8
------------------------
SECTION 3. FINANCIAL COVENANTS 8
SECTION 4. REPRESENTATIONS AND WARRANTIES 8
4.1 Existence 8
---------
4.2 Authorization and Enforceability 8
--------------------------------
4.3 Financial Statements and Business Condition 8
-------------------------------------------
4.4 Litigation and Proceedings 9
--------------------------
4.5 No Breach or Default 9
--------------------
4.6 Licenses and Permits 9
--------------------
4.7 Disclosure 9
----------
4.8 Employee Benefit Plans 10
----------------------
4.9 Year 2000. 10
----------
4.10 Vistana's Deposit 10
-----------------
SECTION 5. REPORTING REQUIREMENTS 10
5.1 Monthly Construction Activity Reports 10
-------------------------------------
5.2 Monthly Sales Activity Reports 10
------------------------------
5.3 Quarterly Financial Reports 11
---------------------------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
5.4 Year-End Financial Reports 11
--------------------------
5.5 Audit Reports 11
-------------
5.6 Other Reports 12
-------------
5.7 SEC Reports 12
-----------
5.8 Notice of Litigation, Claims, and Financial Change 12
--------------------------------------------------
SECTION 6. TERMINATION EVENTS 12
6.1 Termination Events 12
------------------
SECTION 7. RIGHTS AND REMEDIES OF LENDER 14
7.1 Rights of Lender 14
----------------
7.2 No Waiver or Exhaustion 14
-----------------------
7.3 Marshalling Waiver 14
------------------
SECTION 8. MISCELLANEOUS 15
8.1 Notices 15
-------
8.2 Entire Agreement and Modifications 16
----------------------------------
8.3 Severability 16
------------
8.4 Election of Remedies 16
--------------------
8.5 Form and Substance 16
------------------
8.6 No Third Party Beneficiary 16
--------------------------
8.7 Vistana in Control 16
------------------
8.8 Number and Gender 16
-----------------
8.9 Captions 17
--------
8.10 Applicable Law 17
--------------
8.11 Venue 17
-----
8.12 Jury Trial Waiver 17
-----------------
8.13 Attorneys' Fees 17
---------------
8.14 Counterparts 17
------------
8.15 Participating Lenders 17
---------------------
8.16 Consent to Advertising and Publicity 18
------------------------------------
</TABLE>
iii
<PAGE>
MASTER VISTANA RESORT CONSTRUCTION LOAN FACILITY
------------------------------------------------
This MASTER VISTANA RESORT CONSTRUCTION LOAN FACILITY (this "Agreement")
dated as of October 9, 1998, is made by and between HELLER FINANCIAL, INC., a
Delaware corporation ("Lender"), and VISTANA, INC., a Florida corporation
("Vistana").
R E C I T A L S:
- - - - - - - -
A. All capitalized terms used herein shall have the meanings ascribed
thereto in the Appendix attached hereto and made a part hereof by this
reference.
B. Vistana, directly or through one or more of its subsidiaries, is in the
business of acquiring, constructing, renovating and developing certain Resorts
for the purpose of selling Intervals therein.
C. Upon satisfaction of the terms and conditions set forth herein, Lender
may extend financing from time to time to certain Eligible Vistana Subsidiaries,
the proceeds of which will be used to acquire, construct, renovate and develop
certain Eligible Resorts, the first of which is Lakeside Terrace Condominiums
located in Avon, Colorado, for which Resort Loan Documents shall be executed as
of the date hereof the form of which Resort Loan Documents shall be the basis
for execution of future Resort Loan Documents for future Eligible Resorts
hereunder, subject to modifications as required on a resort by resort basis.
D. The second Eligible Resort hereunder which is hereby approved by Lender
is the Embassy Vacation Resort located in Scottsdale, Arizona for which Resort
Loan Documents shall be prepared and executed subsequent to the Closing of the
Resort Loan for the Lakeside Terrace Condominiums.
E. Vistana has agreed to guarantee all of the obligations of such Eligible
Vistana Subsidiaries under this Agreement and the other Resort Loan Documents,
including, without limitation, all of the obligations of the Eligible Vistana
Subsidiaries with respect to any financing provided from time to time by Lender.
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements, provisions and covenants herein contained, Vistana and Lender agree
as follows:
SECTION 1. EXTENSION OF FINANCING
1.1 Financing Generally.
-------------------
(a) Extension of Resort Loans. During the Eligibility Period but
-------------------------
subject to the requirements of this Section 1.1 and the requirements of Sections
1.2, 1.3 and 2
<PAGE>
hereof, Lender shall extend Resorts Loans to Eligible Vistana Subsidiaries
identified from time to time by Vistana to Lender as being the owners and
developers of particular Eligible Resorts. Each such Resort Loan shall
(i) be made to an Eligible Vistana Subsidiary that is the owner and
developer of an Eligible Resort whose Resort Development Costs are to be
financed, in whole or in part, by such Resort Loan;
(ii) be disbursed in a series of Resort Advances during the then
remaining unexpired portion of the Eligibility Period to pay the Resort
Development Costs incurred or to be incurred by such Eligible Vistana Subsidiary
in acquiring, constructing, renovating and developing such Eligible Resort (each
such Resort Advance shall relate to particular line item or items identified in
the Approved Development Budget and Completion Schedule for such Resort; no more
than two Resort Advances (plus one addition Resort Advance of the Interest
Reserve) shall be made in any calendar month);
(iii) shall have a final maturity date of seven (7) years from the
Facility Closing Date inclusive of a three (3) year Eligibility Period;
provided, however, that with respect to a particular Resort Loan, such final
maturity date will be the projected date on which such Resort Loan is required
to be amortized to a zero balance based on the agreed upon amortization schedule
for such Resort Loan, subject to extension for up to ninety (90) days in the
event completion of the subject improvements is delayed beyond the applicable
"Completion Date" as a result of Force Majeure as such term is defined in the
applicable Resort Loan Documents;
(iv) bear interest at the Interest Rate in effect from time to time
(which interest shall be computed on the unpaid principal balance which exists
from time to time with respect to each Resort Advance under such Resort Loan
only from the date on which such Resort Advance is made and shall be paid by
such Eligible Vistana Subsidiary to Lender on a monthly basis as provided in the
applicable construction loan agreement or promissory note for such Resort Loan);
(v) be guaranteed in full by Vistana and be secured by all right,
title and interest of such Eligible Vistana Subsidiary in and to the Eligible
Resort related to such Resort Loan, and in and to all leases, rents, products
and proceeds in respect thereof in accordance with the terms and description of
collateral set forth in the Resort Loan Documents; and
(vi) be otherwise governed by the Resort Loan Documents for such
Resort Loan; provided, that, in no event shall the maximum principal amount
--------
available under such Resort Loan at the time of the initial extension thereof
exceed the Resort Loan Limit determined at such time; it is the intention of
Lender and Vistana that this Master Vistana Resort Construction Loan Facility is
a revolving credit facility pursuant to which Vistana or the Eligible Vistana
Subsidiary may borrow, repay and reborrow principal in an
<PAGE>
amount not to exceed the maximum loan amount set forth in Section 1.6 below;
provided, however, each Resort Loan described herein is a term Resort Loan and
not a revolving credit facility and if an Eligible Resort is to be developed in
successive phases, a Resort Loan shall be extended separately for each agreed
upon phase. Each such separate Resort Loan for an Eligible Resort may be
referred to herein from time to time as tranche "A," "B," "C," etc. with respect
to each successive phase of an Eligible Resort.
(b) Resort Loan Documents. On or prior to the Resort Loan Closing
---------------------
Date for each Resort Loan, Lender and the Eligible Vistana Subsidiary for such
Resort Loan shall enter into the Resort Loan Documents for such Resort Loan.
1.2 Requests for Financing. During the Eligibility Period, Vistana
----------------------
shall have the right to request Lender to make one or more Resort Loans with
respect to an Eligible Resort. Each such request shall be made not less than
thirty (30) days and not more than one hundred twenty (120) days prior to the
Resort Loan Closing Date requested by Vistana for such Resort Loan, shall
identify the Eligible Vistana Subsidiary and the Eligible Resort in respect of
such requested Resort Loan and shall be substantially in the form of SCHEDULE
--------
1.2 attached hereto and made a part hereof. Upon receipt of all items set forth
- ---
on SCHEDULE 1.2, Lender shall have no more than fifteen (15) Business Days to
------------
complete its review and approval process with respect to the requested Resort
Loan. Anything contained herein to the contrary notwithstanding, Vistana
acknowledges that Lender has reserved its right to approve each request on a
case-by-case basis in its sole discretion and that Lender must apply its credit
approval standards and processes to each such request and each such Resort Loan
and Eligible Resort that is the subject thereof. Notwithstanding the foregoing,
Lender acknowledges its approval of both Lakeside Terrace Condominiums as an
Eligible Resort for the initial Resort Loan hereunder and Embassy Vacation
Resort located in Scottsdale, Arizona, as an Eligible Resort for the second
Resort Loan hereunder.
1.3 Closing of Resort Loans. Resort Advances under each Resort Loan
-----------------------
shall be advanced upon the satisfaction of the conditions precedent set forth in
the Resort Loan Documents in respect thereof. The first Resort Advance under
each Resort Loan shall be subject to such conditions precedent and the
conditions set forth in the Resort Loan Documents. All Resort Advances under
each Resort Loan shall be disbursed by Lender pursuant to construction loan
disbursement procedures set forth in the Resort Loan Documents which shall
include, among other things, inspections and certifications by Lender's
Architect, general contractor certifications, mechanic's lien partial or final
(as the case may be) waivers (within sixty (60) days after each Resort Loan
Advance), and mortgagee title insurance policy bringdown endorsements as more
particularly set forth in the Resort Loan Documents.
1.4 Payment of Resort Loans. Each Resort Loan shall be due and payable
-----------------------
in accordance with the Resort Loan Documents for such Resort Loan. Such Resort
Loan Documents shall provide that any security interest or lien granted pursuant
thereto upon any Interval in the Eligible Resort shall be released from time to
time by Lender from
<PAGE>
such security interest or lien only after payment to Lender of a release price
equal to the amount as set forth in each such Resort Loan. For each Resort Loan,
an interval release price will be established at an amount sufficient to repay
100.0% of the Resort Loan amount at a 90.0% sell-out of the phase which relates
to such Resort Loan. Notwithstanding this requirement, there shall be a special
allocation of the amenity portion of the release price over all benefitted
phases. The Eligible Vistana Subsidiary will also be required to meet mutually
agreed-upon quarterly amortization payments for each Resort Loan. The amount of
each amortization payment for a Resort Loan will be based on achieving sales of
not more than eighty percent (80%) of the sales projected in the Approved Sales
and Marketing Plan for such Resort Loan. The due date for each of the required
amortization payments will be the last day of a calendar quarter with the first
amortization payment due on the earlier of (i) the last day of the first full
calendar quarter following the calendar quarter during which the Completion of
the Unit Building Improvements (as defined in the applicable Resort Loan
Documents) occurs, or (ii) the last day of the first full calendar quarter
following three (3) months after the date for Completion of such Unit Building
Improvements as set forth in the applicable Resort Loan Documents; provided,
however, that if the Unit Building Improvements consist of more than one
building, the amortization payment dates will be adjusted for Force Majeure (as
defined in the applicable Resort Loan Documents).
1.5 Funding Fee. Vistana acknowledges and agrees that the Funding Fee
-----------
to be paid by Vistana or one or more Eligible Vistana Subsidiaries pursuant
hereto shall be $350,000 (.875% of the maximum loan amount of the Master Vistana
Resort Construction Loan Facility), 50% of which shall be earned and payable on
the date of this Agreement with the balance earned and payable on the first
anniversary date of this Agreement. At Vistana's option, on the first
anniversary date of this Agreement, the maximum loan amount of $40,000,000 may
be reduced to the greater of (i) $20,000,000, or (ii) another amount between
$20,000,000 and $40,000,000 (but in no event less than the then outstanding
principal balance of the Master Vistana Resort Construction Loan Facility as of
such date). In the event Vistana exercises such option, the second installment
of the Funding Fee due and payable on the first anniversary date of this
Agreement shall be equal to (i) zero ($0) if Vistana elects to establish the
maximum loan amount as of such date at $20,000,000 (assuming the outstanding
principal balance of the Master Vistana Resort Construction Loan Facility as of
such date is not more than $20,000,000), or (ii) an amount equal to the product
of .875% times the amount, if any, by which the amount selected at Vistana's
option between $20,000,000 and $40,000,00 (but in no event less than the
outstanding principal balance of the Master Vistana Resort Construction Loan
Facility as of such date) exceeds $20,000,000.
1.6 Maximum Loan Amount. Notwithstanding any provision to the contrary
-------------------
in this Agreement or the Resort Loan Documents, the outstanding principal
balance under this Master Vistana Resort Construction Loan Facility shall never
exceed in the aggregate $40,000,000.
4
<PAGE>
1.7 Vistana Guaranty. In connection with this Master Vistana Resort
----------------
Construction Loan Facility, Vistana shall execute the Vistana Guaranty which
shall guaranty the payment by Vistana of all amounts outstanding under this
Master Vistana Resort Construction Loan Facility upon the occurrence of a
Termination Event of the type described in Section 6.1(a) or 6.1(b) hereto.
1.8 Prepayment. Each Resort Loan is prepayable in whole or in part
----------
without premium or penalty.
SECTION 2. FINANCING CLOSING CONDITIONS
The obligation of Lender to extend any Resort Loan hereunder to an Eligible
Vistana Subsidiary in respect of an Eligible Resort is subject to the
satisfaction, in Lender's sole discretion, of all of the conditions set forth
below.
2.1 Resort Loan Documents. Lender shall have received, in form and
---------------------
substance satisfactory to Lender, counterparts of the Resort Loan Documents for
such Resort Loan executed by the Eligible Vistana Subsidiary and Vistana, as the
case may be, and each of such Resort Loan Documents shall be in form and
substance acceptable to Lender in Lender's reasonable discretion and based upon
the form Resort Loan Documents for the Lakeside Terrace Condominiums located in
Avon, Colorado with modifications which reflect differences in each resort
subject to this Agreement.
2.2 Deliveries Prior to Each Resort Loan. Prior to the extension of
------------------------------------
such Resort Loan, Lender shall have received copies (certified to be true and
correct) of the Purchase Agreement for such Eligible Resort, the Resort
Construction Contract for such Eligible Resort, the Resort Architectural
Contract for such Eligible Resort and all plans, specifications and drawings for
such Eligible Resort, the Approved Development Budget and Completion Schedule
for such Eligible Resort, the Approved Sales and Marketing Plan for such
Eligible Resort, a Sources and Uses of Cash Projection for such Eligible Resort,
all other deliveries required to be delivered in order for Vistana to
demonstrate to Lender that such Eligible Resort satisfies the requirements of
the applicable Resort Loan Documents and this Agreement with respect thereto and
such other instruments and information applicable to such Resort Loan as are
identified on the form of closing checklist set forth on SCHEDULE 2.2 attached
------------
hereto and made a part hereof.
2.3 Resort Loan Mortgage. Lender shall have received satisfactory
--------------------
evidence that the lien of the Resort Loan Mortgage constitutes a first priority
lien in and to such Eligible Resort, which satisfactory evidence shall include
receipt by Lender of a mortgagee's title insurance policy in the maximum amount
of each such Resort Loan in form and content acceptable to Lender in Lender's
sole discretion in respect of such
5
<PAGE>
Resort Loan and such Eligible Resort (together with such endorsements thereto as
Lender may request in its reasonable determination).
2.4 Other Security Documents. In addition to, but without duplication
------------------------
of, the Resort Loan Documents in respect of such Resort Loan, Vistana and/or
such Eligible Vistana Subsidiary shall have executed and delivered to Lender
such other instruments as may be necessary or required by Lender in order to
create, maintain, perfect or protect a lien or security interest in any
collateral relating to such Eligible Resort as described in the Resort Loan
Documents, including, without limitation, an assignment of rents from such
Eligible Resort, an assignment of all construction and other contracts relating
to such Eligible Resort and UCC-1 financing statements required in connection
with such Resort Loan, with the exception of marketing contracts, property
management contracts, resort affiliation agreements and reservation agreements
to reserve and use a Unit at the Resort.
2.5 Representations and Warranties. The representations and warranties
------------------------------
contained herein and in the Resort Loan Documents for such Resort Loan shall be
true, correct and complete in all material respects on and as of the Resort Loan
Closing Date for such Resort Loan.
2.6 No Termination Events. No Termination Event as defined hereunder
---------------------
shall be in existence as of the Resort Loan Closing Date for such Resort Loan.
2.7 Performance of Agreements. Vistana and the Eligible Vistana
-------------------------
Subsidiary shall have performed all agreements, paid all fees, costs and
expenses and satisfied all conditions which this Agreement or any Resort Loan
Document for such Resort Loan provides shall be paid, performed or satisfied as
of the Resort Loan Closing Date for such Resort Loan.
2.8 Opinions of Counsel. Lender shall have received from independent
-------------------
counsel for Vistana and such Eligible Vistana Subsidiary, one or more closing
opinions, each dated as of the Resort Loan Closing Date for such Resort Loan as
to such matters in respect of Vistana, such Eligible Vistana Subsidiary, such
Resort Loan, the Resort Loan Documents for such Resort Loan, and such Eligible
Resort as Lender may request in its reasonable discretion.
2.9 Eligible Vistana Subsidiary. Such Eligible Vistana Subsidiary shall
---------------------------
be acceptable to Lender in Lender's reasonable discretion, and Lender shall have
received such financial statements, credit reports, UCC searches and other
similar background information relating to such Eligible Vistana Subsidiary as
Lender shall require in Lender's discretion. Such Eligible Vistana Subsidiary
shall have provided Lender with copies of its organizational documents, and the
same shall be acceptable to Lender in Lender's reasonable discretion. Lender
acknowledges that an Eligible Vistana Subsidiary may be a newly formed entity
with no credit history.
6
<PAGE>
2.10 Vistana Guaranties. Vistana shall have executed and delivered to
------------------
Lender a guaranty of such Resort Loan and all obligations of such Eligible
Vistana Subsidiary under the Resort Loan Documents for such Resort Loan. Vistana
shall have executed and delivered to Lender a guaranty of the completion of the
construction of the phase or phases of such Eligible Resort which is subject of
the Resort Loan. Vistana shall have executed the Vistana Guaranty as set forth
in Section 1.7 above.
2.11 Cross Collateralization. The Resort Loan Documents for each Resort
-----------------------
Loan shall provide that the collateral securing such Resort Loan and the payment
and completion guaranties of Vistana for such Resort Loan shall secure such
Resort Loan and any other Resort Loans for the same Eligible Resort. The
collateral securing each such Resort Loan and the payment and completion
guaranties of Vistana for such Resort Loan shall not secure any receivables
loans of Lender arising from the sale of Intervals at such Resort or Resort
Loans by Lender to an Eligible Vistana Subsidiary for any other Eligible Resort.
Vistana acknowledges Lender and Vistana may establish a master receivables loan
facility, which master receivables loan facility may include receivables
originated by Vistana MB, Inc. Vistana further acknowledges that any portion of
such master receivables loan facility secured by receivables originated by
Vistana MB, Inc. will continue to be cross -collateralized with the existing
construction loan from Lender to Vistana MB, Inc.
2.12 Trigger Events. In the event that (i) Completion of improvements
--------------
related to any Resort Loan for an Eligible Resort is not achieved by the
Completion Trigger Date (as defined in the applicable Resort Loan Documents), or
(ii) the Eligible Vistana Subsidiary which is the borrower under such Resort
Loan fails to achieve Borrower's Minimum Net Earnings (as defined in the
applicable Resort Loan Documents and determined in accordance with the
applicable provisions thereof) for each calendar quarter beginning with the
fifth calendar quarter subsequent to Completion of the subject improvements at
such Eligible Resort, then Lender on a going forward basis shall not be required
to fund any future Resort Loans for such Eligible Resort.
2.13 Intentionally Omitted.
---------------------
2.14 Expenses. Vistana and such Eligible Vistana Subsidiary for such
--------
Resort Loan shall have paid all costs and expenses incurred by or on behalf of
Lender in connection with such Resort Loan, including, without limitation, all
reasonable costs and expenses of Lender's counsel and Lender's Architect.
2.15 Proceedings Satisfactory. Such Resort Loan and such Eligible
------------------------
Resort, all Resort Loan Documents in respect thereof, and all due diligence
information in respect thereof shall be satisfactory to Lender in Lender's
reasonable discretion. Lender and its counsel shall have received copies of
such documents, instruments and information as Lender or its counsel may request
in connection therewith, and all such documents, instruments and information
shall be in form and substance satisfactory to Lender and its counsel.
7
<PAGE>
SECTION 3. FINANCIAL COVENANTS
Vistana covenants that on and after the Facility Closing Date and so long
as any Resort Loan shall be outstanding or there are any outstanding obligations
of Vistana under any guarantee of any such Resort Loan, Vistana will comply with
the applicable covenants set forth in the Resort Loan Documents for each Resort
Loan and maintain Vistana's Minimum Net Worth from and after the Loan Facility
Closing Date.
SECTION 4. REPRESENTATIONS AND WARRANTIES
Vistana hereby represents and warrants to Lender as of the date hereof and
as of the date on which any Resort Loan is extended to an Eligible Vistana
Subsidiary hereunder:
4.1 Existence. Vistana is a Florida corporation duly formed, validly
---------
existing and in good standing under the laws of the State of Florida with its
principal place of business at Orlando, Florida. Vistana is authorized to
transact business in the State of Florida and in each other state where the
failure to so comply would have a Material Adverse Effect.
4.2 Authorization and Enforceability.
--------------------------------
(a) Execution. This Agreement has been duly authorized, executed and
---------
delivered and constitutes the duly authorized, valid and legally binding
obligations of Vistana, enforceable against Vistana in accordance with its
terms.
(b) Other Agreements. The execution, delivery and compliance with the
----------------
terms and provisions of this Agreement, will not (i) to the best of Vistana's
knowledge, violate any applicable law or regulation, order or other decree of
any court or governmental entity, or (ii) conflict or be inconsistent with, or
result in any default under, any contract, agreement or commitment to which
Vistana is bound.
4.3 Financial Statements and Business Condition. The most recent annual
-------------------------------------------
consolidated and consolidating and quarterly consolidated financial statements
of Vistana and its consolidated subsidiaries have been delivered to Lender and
fairly present the financial condition and (if applicable) results of operations
of such Persons as of the date or dates thereof and for the periods covered
thereby. Lender acknowledges that Vistana's Form 10-Q and 10-K quarterly and
annual financial statements are acceptable to Lender to satisfy the annual and
quarterly consolidated financial statements requirements for Vistana, Inc.
Except for any such changes heretofore expressly disclosed in writing to Lender,
there has been no material adverse change in the financial condition of Vistana
or its consolidated subsidiaries from the financial condition shown in such
consolidated financial statements. Vistana is able to pay all of its debts as
they become due, and Vistana shall maintain such solvent financial condition,
giving effect to all obligations, absolute and contingent, of Vistana.
8
<PAGE>
Vistana's obligations under this Agreement will not render it unable to pay its
debts as they become due.
4.4 Litigation and Proceedings. Except as previously disclosed to
--------------------------
Lender in writing (which disclosures shall be satisfactory to Lender in its
reasonable determination), there are no actions, suits, proceedings, orders or
injunctions pending or, to the best of Vistana's knowledge, threatened against
or affecting Vistana or any Affiliate, at law or in equity, or before or by any
Governmental Authority which if adversely determined would have a Material
Adverse Effect. Neither Vistana nor any Affiliate has received any notice from
any court or Governmental Authority alleging that such Person or any Affiliate
has violated any applicable Governmental Regulation, any of the rules or
regulations thereunder, or any other applicable laws, the result of which, if
adversely determined, would have a Material Adverse Effect. Vistana shall
promptly inform Lender of (a) any litigation against Vistana or affecting any
Eligible Resort, which, if determined adversely, is reasonably likely to have a
Material Adverse Effect or might cause an Event of Default under a Resort Loan
or a Termination Event hereunder, (b) any claim or controversy which is
reasonably likely to become the subject of such litigation, and (c) any material
adverse change in the financial condition of Vistana.
4.5 No Breach or Default. The consummation of the transactions
--------------------
contemplated hereby, and the performance of any of the terms and conditions
hereof, will not result in a breach of, or constitute a default in, Vistana's
organizational documents or in any mortgage, deed of trust, lease, promissory
note, loan agreement, credit agreement, partnership agreement or other agreement
to which Vistana is a party or by which Vistana may be bound or affected where
such breach or default would have a Material Adverse Effect. Vistana is not in
default of any order of any court or any applicable requirement of any
Governmental Authority which default would have a Material Adverse Effect.
4.6 Licenses and Permits. Vistana possesses all requisite franchises,
--------------------
certificates of convenience and necessity, operating rights, licenses, permits,
consents, authorizations, exemptions and orders as are necessary to carry on its
business as now being conducted.
4.7 Disclosure. There is no fact of which Vistana is aware that Vistana
----------
has not disclosed to Lender in writing that could have a Material Adverse Effect
on the property, business or financial condition of Vistana.
4.8 Employee Benefit Plans. Vistana is in compliance in all material
----------------------
respects with all applicable provisions of the Employee Retirement Income
Security Act, the Internal Revenue Code and all other applicable laws and the
regulations and interpretations thereof with respect to all employee benefit
plans adopted by Vistana for the benefit of its employees. No material
liability has been incurred by Vistana which remains unsatisfied for any funding
obligation, taxes or penalties with respect to any such employee benefit plan.
9
<PAGE>
4.9 Year 2000. Vistana has made an assessment of the microchip and
---------
computer-based systems and the software used in its business and based upon such
assessment believes that it will be "Year 2000 Compliant" by January 1, 2000.
For purposes of this paragraph, "Year 2000 Compliant" means that all software,
embedded microchips and other processing capabilities utilized by, and material
to the business operations or financial condition of Vistana are able to
interpret, store, transmit receive and manipulate data on and involving all
calendar dates correctly and without causing any abnormal ending scenarios in
relation to dates in and after the Year 2000. From time to time, at the request
of Lender, Vistana shall provide to Lender such updated information as is
requested regarding the status of its efforts to become Year 2000 Compliant.
4.10 Vistana's Deposit. If pursuant to the "borrower's deposit" covenant
-----------------
in the Resort Loan Documents for any Resort Loan to an Eligible Vistana
Subsidiary, such Eligible Vistana Subsidiary fails to deposit funds as required
therein, then Lender has the option to require Vistana to deposit such required
funds in the manner set forth in the applicable Resort Loan Documents.
SECTION 5. REPORTING REQUIREMENTS
So long as any Resort Loan is outstanding or there are any outstanding
obligations of Vistana under any guarantee in respect of a Resort Loan, Vistana
shall deliver to Lender the following:
5.1 Monthly Construction Activity Reports. As part of any request for
-------------------------------------
an Advance with respect to any Resort Loan hereunder, a summary of construction
activity at each Eligible Resort which is the subject of a Resort Loan for the
period of time covered by the Advance request, in form, content and detail
acceptable to Lender in Lender's reasonable discretion.
5.2 Monthly Sales Activity Reports. Within twenty-five (25) days after
------------------------------
the end of each month, a summary of sales activity at each Eligible Resort which
is the subject of a Resort Loan for such month, in form, content and detail
acceptable to Lender in Lender's reasonable discretion.
5.3 Quarterly Financial Reports. Within forty-five (45) days after the
---------------------------
end of each fiscal quarterly period, unaudited financial statements of Vistana
and each Eligible Vistana Subsidiary that is an obligor under a Resort Loan,
certified by the chief financial officer or chief operating officer of Vistana
to be true and correct, as well as, to the extent requested by the Lender,
unaudited financial statements of each Resort Association in respect of each
Eligible Resort available after the first closing (recordation of applicable
documents) with respect to the sale of an Interval at such Eligible Resort.
5.4 Year-End Financial Reports. As soon as available and in any event
--------------------------
within one hundred and twenty (120) days after the end of each fiscal year of
Vistana and
10
<PAGE>
each Eligible Vistana Subsidiary that is an obligor under a Resort Loan: (i) the
consolidated and consolidating balance sheets of Vistana and, to the extent
provided to Lender in connection with Lender's initial approval of this
facility, its consolidated subsidiaries and the balance sheets of each such
Eligible Vistana Subsidiary as of the end of such year and the related
consolidated and consolidating statements of income and cash flow for such
fiscal year for Vistana and to the extent provided to Lender in connection with
Lender's initial approval of this facility, its consolidated subsidiaries and
the related statements of income and cash flow for such fiscal year for each
such Eligible Vistana Subsidiary; (ii) a schedule of all outstanding
Indebtedness of Vistana and such Eligible Vistana Subsidiary describing in
reasonable detail each such debt or loan outstanding and the principal amount
and amount of accrued and unpaid interest with respect to each such debt or loan
which separate schedule may be part of the balance sheet; (iii) in the case of
Vistana, copies of reports from a firm of independent certified public
accountants, selected by Vistana, which reports shall be unqualified as to going
concern and scope of audit and shall state that such financial statements
present fairly the financial position of Vistana and its consolidated
subsidiaries, as of the dates indicated and the results of Vistana's operations
and cash flow for the periods indicated in conformity with GAAP; and (iv) in the
case of each such Eligible Subsidiary, a certificate from the chief financial
officer or chief operating officer of Vistana certifying that such financial
statements present fairly the financial position of such Eligible Vistana
Subsidiary, as of the dates indicated and the results of such Eligible Vistana
Subsidiary's operations for the periods indicated in conformity with such
Eligible Vistana Subsidiary's current preparation of these reports. Lender
acknowledges that Vistana's Form 10-Q and 10-K quarterly and annual financial
statements are acceptable to Lender for Vistana's financial statements required
by this Section 5.4.
5.5 Audit Reports. Promptly upon receipt thereof, one (1) copy of each
-------------
other report submitted to Vistana or such Eligible Vistana Subsidiary by
independent public accountants in connection with any annual audit made by them
of the books of Vistana or such Eligible Vistana Subsidiary.
5.6 Other Reports. Such other reports, statements, notices or written
-------------
communications relating to Vistana or such Eligible Vistana Subsidiary, as
Lender may require, in its reasonable discretion.
5.7 SEC Reports. Promptly upon their becoming available one (1) copy of
-----------
each financial statement, report, notice or proxy statement sent by Vistana to
security holders generally, and of each regular or periodic report and any
registration statement, prospectus or written communication (other than
transmittal letters) in respect thereof filed by Vistana with, or received by
Vistana in connection therewith from, any securities exchange or the Securities
and Exchange Commission or any successor agency.
5.8 Notice of Litigation, Claims, and Financial Change. Notice of (i)
--------------------------------------------------
any litigation against Vistana or any Eligible Vistana Subsidiary or affecting
any Eligible Resort, which, if determined adversely, is reasonably likely to
have a Material Adverse Effect or is reasonably likely to cause an Event of
Default under a Resort Loan or a
11
<PAGE>
Termination Event hereunder, (ii) any claim or controversy which is reasonably
likely to become the subject of such litigation, and (iii) any material adverse
change in the financial condition of Vistana or any Eligible Vistana Subsidiary.
SECTION 6. TERMINATION EVENTS
6.1 Termination Events. A "Termination Event" shall exist hereunder
------------------
upon the occurrence and during the continuance of any one or more of the
following:
(a) Events:
------
(i) Vistana does not pay its debts as they become due or
admits in writing its inability to pay its debts or makes a general assignment
for the benefit of creditors; or
(ii) Vistana commences any case, proceeding or other action
seeking reorganization, arrangement, adjustment, liquidation, dissolution or
composition of it or its debts under any Debtor Relief Laws; or
(iii) Vistana in any involuntary case, proceeding or other
action commenced against it which seeks to have an order for relief entered
against it, as debtor, or seeks reorganization, arrangement, liquidation,
dissolution or composition of it or its debts under any Debtor Relief Laws, (i)
fails to obtain a dismissal of such case, proceeding or other action within
sixty (60) days of its commencement, or (ii) converts the case from one chapter
of the Federal Bankruptcy Code to another chapter, or (iii) is the subject of an
order for relief; or
(iv) Vistana conceals, removes, or permits to be concealed
or removed any part of its property, with intent to hinder, delay or defraud its
creditors or any of them, or makes or suffers a transfer of any of its property
which may be fraudulent under any bankruptcy, fraudulent conveyance or similar
law; or makes any transfer of its property to or for the benefit of a creditor
at a time when other creditors similarly situated have not been paid; or suffers
or permits, while insolvent, any creditor to obtain a lien upon any of its
property through legal proceedings which is not vacated within sixty (60) days
from the date thereof; or
(v) Vistana has a trustee, receiver, custodian or other
similar official appointed for, or take possession of, all or any part of its
property or has any court take jurisdiction of any other of its property which
continues for a period of sixty (60) days (except where a shorter period is
specified in the immediately following subparagraph (vi)); or
(vi) Vistana fails to have discharged within a period of
sixty (60) days any attachment, sequestration, or similar writ levied upon any
property of such owner; or
12
<PAGE>
(vii) Vistana fails to pay within sixty (60) days of issuance
or entry any final money judgment, after appeal, any tax, lien, or attachment in
the amount of One Hundred Thousand Dollars and 00/100 ($100,000) or greater; or
(viii) a Declared Default by Vistana, any Eligible Vistana
Subsidiary or a wholly-owned Affiliate of Vistana or of any Eligible Vistana
Subsidiary under the terms of any Indebtedness in an aggregate principal amount
in excess of $5,000,000 in one or a series of related or unrelated transactions;
or
(ix) Vistana fails to maintain Vistana's Minimum Net Worth;
or
(x) any statements, representations, warranties or
covenants of Vistana in this Agreement or any financial statement or any other
writing delivered by Vistana to Lender in connection with this Agreement is
false, misleading or incorrect in any material respect as of the date made;
provided, however, that such occurrence shall not constitute a Termination Event
unless the actual conditions have a reasonable likelihood of adversely and
materially affecting any of the collateral for any Resort Loan, or business or
financial condition of Vistana or the ability of Vistana to perform its
obligations under this Agreement or any Resort Loan Documents.
(b) A Declared Default by Vistana, any Eligible Vistana
Subsidiary or a wholly-owned Affiliate of Vistana or of any Eligible Vistana
Subsidiary in the payment of any Indebtedness owed to Lender shall constitute a
Termination Event hereunder without regard to any dollar threshold or any notice
and cure provisions granted to Vistana pursuant to the terms hereof.
Notwithstanding the foregoing provisions of this 6.1(b) to the contrary, a
Termination Event hereunder shall not be deemed to exist if within thirty (30)
days following a Declared Default by Vistana, by any Eligible Vistana Subsidiary
or by a wholly-owned Affiliate of Vistana or of any Eligible Vistana Subsidiary
in the payment of any Indebtedness owed to Lender, Vistana, the Eligible Vistana
Subsidiary or the wholly-owned Affiliate of Vistana or of the Eligible Vistana
Subsidiary which is the borrower with respect to the Indebtedness the failure to
pay which has given rise to the Declared Default pays Lender the total amount of
the Indebtedness as to which such occurrences pertained, together with any
accrued but unpaid interest thereon and any other amounts advanced by or
otherwise owed to Lender in connection with such Indebtedness.
SECTION 7. RIGHTS AND REMEDIES OF LENDER
7.1 Rights of Lender. Upon the occurrence of a Termination Event of the
----------------
type described in Section 6.1(a) or 6.1(b) hereof, Lender shall have the right
(i) to declare all of the Resort Loans for all Eligible Resorts and any
Indebtedness owed to Lender with respect to this Master Vistana Resort
Construction Loan Facility immediately due and payable, together with interest
accrued thereon, and any costs, fees and charges in connection therewith,
without presentment, demand, protest or notice of any kind, all of
13
<PAGE>
which are hereby expressly waived, (ii) to terminate Lender's obligation to
extend future Resort Loans, Lender's obligations to make Resort Advances under
existing Resort Loans and all other obligations of Lender under this Agreement
and under the Resort Loan Documents for any Eligible Resort, and (iii) to
exercise such remedies under or in respect of the Resort Loan Documents for any
Eligible Resort, this Agreement and the Vistana Guaranty as may be permitted
thereunder or under applicable law, all as more particularly set forth in the
Resort Loan Documents for any Eligible Resort, this Agreement and the Vistana
Guaranty.
7.2 No Waiver or Exhaustion. No waiver by Lender of any of its rights
-----------------------
or remedies hereunder, in the Resort Loan Documents, under any Indebtedness owed
to Lender by Vistana, any Eligible Vistana Subsidiary or by a wholly-owned
Affiliate of Vistana or of any Eligible Vistana Subsidiary, or otherwise, shall
be considered a waiver of any other or subsequent right or remedy of Lender; no
delay or omission in the exercise or enforcement by Lender of any rights or
remedies shall ever be construed as a waiver of any right or remedy of Lender;
and no exercise or enforcement of any such rights or remedies shall ever be held
to exhaust any right or remedy of Lender.
7.3 Marshalling Waiver. Vistana waives any and all rights to require
------------------
the marshalling of assets in connection with the exercise of any of the remedies
hereunder.
SECTION 8. MISCELLANEOUS
8.1 Notices. Any notice or other communication required or permitted to
-------
be given shall be in writing addressed to the respective party as set forth
below and may be personally served, telecopied, or sent by overnight courier, or
sent by registered or certified U.S. Mail return receipt requested, and shall be
deemed given: (a) if served in person, when served; (b) if telecopied, on the
date of transmission if before 3:00 p.m. (Chicago time) on a Business Day
otherwise, on the next Business Day; provided that a confirmation of the receipt
--------
of any such telecopy is obtained and retained by the sending party and that a
hard copy of such notice is also sent pursuant to (c) or (d) below; (c) if by
overnight courier, on the first Business Day after delivery to the courier; or
(d) if by certified or registered U.S. Mail, return receipt requested, on the
fourth (4th) day after deposit in the mail postage prepaid.
Notices to Vistana: Vistana, Inc.
Attn: Chief Financial Officer
8801 Vistana Centre Drive
Orlando, Florida 32821-6353
Telecopy: (407) 239-3198
With a Copy to: Vistana, Inc.
Attn: Susan Werth, Esq.
701 Brickell Avenue
Suite 2100
Miami, Florida 33131
14
<PAGE>
Telecopy: (305) 374-7159
Notices to Lender: Heller Financial, Inc.
Attn: Portfolio Manager, Vacation Ownership Finance
Loan No. 98-151
500 West Monroe Street
Chicago, Illinois 60661
Telecopy: (312)441-7924
With a copy to: Heller Financial, Inc.
Attn: Vacation Ownership Legal Representative
Loan No. 98-151
500 West Monroe Street
Chicago, Illinois 60661
Telecopy: (312)441-7872
8.2 Entire Agreement and Modifications. This Agreement and the Resort
----------------------------------
Loan Documents constitute the entire understanding and agreement between the
undersigned with respect to the transactions arising in connection with the
Resort Loans and supersede all prior written or oral understandings and
agreements between the undersigned in connection therewith. No provision of
this Agreement or the Resort Loan Documents may be modified, waived, terminated,
supplemented, changed or amended except by a written instrument executed by all
parties hereto or thereto. Notwithstanding the foregoing, in the event there is
a conflict between this Agreement and the Resort Loan Documents with respect to
a certain Resort Loan, the terms of the Resort Loan Documents for such Resort
Loan shall govern.
8.3 Severability. In case any of the provisions of this Agreement shall
------------
for any reason be held to be invalid, illegal, or unenforceable, such
invalidity, illegality, or unenforceability shall not affect any other provision
hereof, and this Agreement shall be construed as if such invalid, illegal, or
unenforceable provision had never been contained herein.
8.4 Election of Remedies. Lender shall have all of the rights and
--------------------
remedies granted herein and in the Resort Loan Documents and available at law or
in equity, and these same rights and remedies shall be cumulative and may be
pursued separately, successively, or concurrently against Vistana, any Eligible
Vistana Subsidiary, or any property encumbered by the Resort Loan Documents, at
the sole discretion of Lender. The exercise or failure to exercise any of the
same shall not constitute a waiver or release thereof or of any other right or
remedy, and the same shall be nonexclusive.
8.5 Form and Substance. All documents, certificates, insurance
------------------
policies, evidence, and other items required under this Agreement to be executed
and/or
15
<PAGE>
delivered to Lender shall be in form and substance satisfactory to Lender in
Lender's reasonable discretion.
8.6 No Third Party Beneficiary. This Agreement is for the sole benefit
--------------------------
of Lender and Vistana and is not for the benefit of any third party.
8.7 Vistana in Control. In no event shall Lender's rights and interests
------------------
under the Resort Loan Documents be construed to give Lender the right to, or be
deemed to indicate that Lender is in control of the business, management or
properties of Vistana or any Eligible Vistana Subsidiary or has power over the
daily management functions and operating decisions made by Vistana.
8.8 Number and Gender. Whenever used herein, the singular number shall
-----------------
include the plural and the plural the singular, and the use of any gender shall
be applicable to all genders.
8.9 Captions. The captions, headings, and arrangements used in this
--------
Agreement are for convenience only and do not in any way affect, limit, amplify,
or modify the terms and provisions hereof.
8.10 Applicable Law. This Agreement shall be governed by and construed
--------------
in accordance with the laws of the State of Illinois (without regard to
conflicts of law principles) and the laws of the United States applicable to
transactions within such state.
8.11 Venue. VISTANA HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR
-----
FEDERAL COURT LOCATED WITHIN THE COUNTY OF COOK STATE OF ILLINOIS AND
IRREVOCABLY AGREES THAT, SUBJECT TO LENDER'S ELECTION, ALL ACTIONS OR
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE LITIGATED IN
SUCH COURTS. VISTANA EXPRESSLY SUBMITS AND CONSENTS TO THE JURISDICTION OF THE
AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS. VISTANA HEREBY
WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE
OF PROCESS MAY BE MADE UPON VISTANA BY CERTIFIED OR REGISTERED MAIL, RETURN
RECEIPT REQUESTED, ADDRESSED TO VISTANA, AT THE ADDRESS SET FORTH IN THIS
AGREEMENT AND SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS
BEEN POSTED.
8.12 Jury Trial Waiver. VISTANA AND LENDER HEREBY WAIVE THEIR
-----------------
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT. VISTANA AND LENDER ACKNOWLEDGE THAT THIS WAIVER
IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS
RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE
TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. VISTANA AND
16
<PAGE>
LENDER WARRANT AND REPRESENT THAT EACH HAS HAD THE OPPORTUNITY OF REVIEWING THIS
JURY WAIVER WITH LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES
ITS JURY TRIAL RIGHTS.
8.13 Attorneys' Fees. In any action hereunder between the parties
---------------
hereto, the prevailing party shall be entitled to reasonable attorneys' fees and
costs including those for pretrial, trial and appellate proceedings.
8.14 Counterparts. This Agreement may be signed in multiple
------------
counterparts which taken together shall constitute the entire agreement between
the parties.
8.15 Participating Lenders. Lender shall have the right to designate up
---------------------
to three participating lenders and to grant to such participating lenders
undivided participation interests in this Master Vistana Resort Construction
Loan Facility or in any one or more of the Resort Loans, on terms and conditions
satisfactory to Lender. Lender shall provide Vistana with the name of each such
proposed participating lender and Vistana shall have the right to approve each
such participating lender (such approval not to be unreasonably withheld) for a
period of four (4) Business Days after written notice is provided by Lender to
Vistana. It would be reasonable for Vistana to withhold its consent in the
event the potential participating lender is a timeshare developer (not including
a lender that has taken back timeshare assets as a result of a defaulted
timeshare related loan or credit facility), a timeshare exchange company or
hospitality industry company. Such participating lenders shall communicate and
deal only with Lender with respect to such participating lenders' participation
interests in this Master Vistana Resort Construction Loan Facility, and neither
Vistana nor any Eligible Vistana Subsidiary shall be required to deal with any
participating lender unless such participating lender accompanies Lender on any
inspection or site visit. Neither Vistana nor any Eligible Vistana Subsidiary
shall be liable hereunder to make any payment to any participating lender or
incur any related expenses as a result of such participation arrangement. The
Lender may furnish any information concerning Vistana or the transactions
contemplated herein in the possession of Lender from time to time to such
participating lenders (including prospective participating lenders which are not
a timeshare developer, timeshare exchange company or hospitality industry
company), provided that such participating lenders shall treat any such
--------
information as "confidential."
8.16 Consent to Advertising and Publicity. Lender may issue and
------------------------------------
disseminate to the public press releases and other information describing the
credit accommodations entered into pursuant to this Agreement and/or pursuant to
any Resort Loan, provided that Vistana shall approve the description of such
--------
credit accommodation and the timing of such announcement, which approval shall
not be unreasonably withheld.
IN WITNESS WHEREOF, the parties set their hands as of the date above first
written.
17
<PAGE>
LENDER:
HELLER FINANCIAL, INC.
/s/ Elisa Nicely
By: __________________________________
Elisa Nicely
Name:__________________________________
Assistant Vice President
Its: __________________________________
VISTANA:
VISTANA, INC., a Florida corporation
/s/ Susan Werth
By: ________________________________
Name: Susan Werth
Its: Senior Vice President and General Counsel
18
<PAGE>
APPENDIX
--------
DEFINED TERMS
-------------
For purposes of this Agreement, the following terms shall have the
respective meanings assigned to them:
AFFILIATE. Any individual, trust, estate, partnership, limited liability
company, corporation or any other incorporated or unincorporated organization
that directly or indirectly, through one or more intermediaries, Controls or is
Controlled by or is under common Control with Vistana, any officer, director,
partner or shareholder of Vistana, or any relative of any of the foregoing. The
term "Control" means possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.
AGREEMENT. First paragraph of this Agreement.
APPROVED DEVELOPMENT BUDGET AND COMPLETION SCHEDULE. As defined in clause
(e) of the definition of Eligible Resort.
APPROVED SALES AND MARKETING PLAN. As defined in clause (f) of the
definition of Eligible Resort.
BUSINESS DAY. The term "business day" shall mean a day which is not a
Saturday or Sunday on which banks are open for business in Illinois and Florida.
COMPLETION. The substantial completion of any of the improvements,
including units and amenities, in any applicable phase of an Eligible Resort in
accordance with the Approved Development Budget and Completion Schedule, the
Construction Contract, the Architectural Contract and the plans, as evidenced by
(i) a certificate of occupancy (or its equivalent), if applicable, permitting
legal occupancy thereof in the respective completed improvements, issued by the
local Governmental Authority with jurisdiction over construction of the
improvements, (ii) a certificate of the contractor in form and substance
satisfactory to Lender regarding completion of the improvements, (iii) a
certificate of the architect in form and substance satisfactory to Lender
regarding completion of the Improvements and (iv) a certificate of the
Inspecting Lender's Architect in form and substance satisfactory to Lender.
CONTROL. As defined in the definition of "Affiliate."
DEBTOR RELIEF LAWS. Any applicable liquidation, conservatorship,
bankruptcy, moratorium, rearrangement, insolvency, reorganization, or similar
laws affecting the rights or remedies of creditors generally, as in effect from
time to time.
<PAGE>
DECLARATION. With respect to any Resort, that certain condominium
declaration to be recorded in the appropriate land records office of the
applicable Governmental Authority in which such Resort is located, pursuant to
which a condominium regime will be created in and to such Resort.
DECLARED DEFAULT. With respect to any Person at any date, a default under
any instrument evidencing any Indebtedness for which (i) such Person has
received written notice of default by the holder of such Indebtedness and (ii)
said default has not been cured by such Person or waived in writing by the
holder of such Indebtedness, and the period for cure, if any, has expired.
ELIGIBLE RESORT. Any Resort which has satisfied the following requirements
(in the sole determination of Lender):
(a) such Resort is located in a state of the United States of America or in
the Bahamas; other countries shall be considered on a country-by-country basis
subject to Lender's reasonable approval;
(b) the acquisition of such Resort shall be pursuant to a purchase and sale
agreement (a "PURCHASE AGREEMENT") which shall have been delivered to Lender and
shall be satisfactory to Lender in its reasonable discretion; and the Eligible
Vistana Subsidiary's right, title and interest in and to such Resort (including,
without limitation, all title exceptions set forth on Schedule B to a mortgagee
policy in respect of such Resort) is or shall be satisfactory to Lender in its
reasonable discretion;
(c) if Lender is advancing funds for construction, the construction of such
Resort shall be pursuant to a contract (a "RESORT CONSTRUCTION CONTRACT") with a
general contractor, if any, licensed by the applicable Governmental Authority
in the jurisdiction in which the Resort is located, which contract shall have
been delivered to Lender and which contract and general contractor, if any,
shall be approved by Lender, which approval shall not be unreasonably withheld.
Lender acknowledges that there may be no Resort Construction Contract in the
event an Affiliate of Vistana acts as the general contractor for construction in
which case Vistana agrees to provide customary information and disclosures as
would typically be provided in a standard Resort Construction Contract;
(d) if Lender is advancing funds for construction, the construction of such
Resort shall be pursuant to an architectural contract (a "RESORT ARCHITECTURAL
CONTRACT") and certain plans, specifications and designs prepared by an
architect licensed by the applicable Governmental Authority in the jurisdiction
in which the Resort is located, which contract, plans, specifications and
designs shall have been delivered to Lender's Architect for review and approval,
which approval shall not be unreasonably withheld;
(e) a detailed construction budget and time schedule (with respect to any
Resort, an "APPROVED DEVELOPMENT BUDGET AND COMPLETION SCHEDULE") shall have
2
<PAGE>
been delivered to Lender and shall be satisfactory to Lender in its sole
discretion (such budget shall include, among other things, all costs of
materials, fixtures, furnishings, personal property and labor to be incurred in
the construction and furnishing of such Resort, all common elements and
amenities in respect thereof and the provision of all utilities to such Resort
and shall, among other things, consist of
(i) a description of work (such work being classified and shown on a
line item basis reasonably satisfactory to Lender for all buildings and the
other improvements to be built at such Resort; such classification should
include: "construction line items" for site work, concrete work, masonry work,
rough carpentry work, finish carpentry and cabinet work, architectural carpentry
work, waterproofing, insulation, fireproofing, drywall, ceiling work, flooring
and base work, painting and finishing work, wall covering work, windows, ceramic
tile work, bathroom fixtures and hardware, kitchen fixtures and hardware, HVAC,
plumbing work, sprinkler work and electrical work; "furniture, fixtures and
equipment line items"; "professional fee line items" (including architectural,
engineering, accounting and legal services); and overhead, general conditions
and contingency),
(ii) an allocation to each construction line item of a scheduled
portion of the fixed construction price in the Resort Construction Contract for
such Resort, if applicable, and
(iii) an estimated completion time line for each construction line
item indicating the date that such item is anticipated to be completed);
(f) a detailed sales and marketing budget (with respect to any Resort, an
"APPROVED SALES AND MARKETING PLAN") showing all expenses and out-of-pocket
costs to be incurred by the applicable Eligible Vistana Subsidiary or the
Borrower in connection with selling and marketing of the Intervals in respect of
such Resort (together with an estimated sales time line indicating the Intervals
expected to be sold on a monthly and annual basis) shall have been delivered to
Lender and shall be satisfactory to Lender in its sole discretion (such budget
shall show "marketing costs line items;" "sale cost line items"; "commissions
payable line items"; and "professional fee line items");
(g) (i) the Resort Development Costs for such Eligible Resort to be funded
from a particular Resort Loan shall be equal to the lesser of (A) 100% of the
total acquisition costs, construction costs (including so-called "soft costs"
but excluding any sales and marketing costs) and furnishing costs of such Resort
as set forth in the Approved Development Budget and Completion Schedule for such
Resort, or (B) the Eligible Vistana Subsidiary's actual out-of-pocket expenses
for the applicable Eligible Resort (collectively, with respect to any Resort,
the "RESORT DEVELOPMENT COSTS"); and (ii) the Resort Development Costs for such
Resort shall not exceed 35% of the Projected Resort Net Sales Proceeds for such
Resort as determined prior to the first Advance of a Resort Loan from the
information submitted prior to the Resort Loan Closing Date; and (iii) a
detailed certificate of the chief financial officer or chief
3
<PAGE>
operating officer of Vistana shall have been received by Lender confirming the
correctness and calculations of clauses (i) and (ii) above and shall be
satisfactory to Lender in its reasonable discretion;
(h) The portion of the Resort Development Costs attributable to
construction of identified amenities of such Resort as set forth in the
amenities portion of the Approved Development Budget and Completion Schedule
shall not exceed 30% of the total Resort Development Costs of all phases of such
Resort that benefit from such identified amenities (which calculation shall be
certified to Lender by the chief financial officer or chief operating officer of
Vistana and which shall be acceptable to Lender in its reasonable discretion);
(i) The portion of the Resort Development Costs attributable to working
capital purposes for such Resort as set forth in the Approved Development Budget
and Completion Schedule shall not exceed 10% of the total Resort Development
Costs for all such Resort Loans for a subject Resort (which calculation shall be
certified to Lender by the chief financial officer or chief operating officer of
Vistana and which shall be acceptable to Lender in its sole discretion);
provided, however, that the total amount of Resort Advances with respect to all
Resort Loans on all Eligible Resorts hereunder for working capital purposes
shall not exceed an overall maximum outstanding amount of $2,000,000 across all
Eligible Resorts at any one time. For purposes of this Agreement, "working
capital" shall be all costs relating to start-up.
(j) A projected sources and uses of cash for such Resort and the Eligible
Vistana Subsidiary that will own it (presented in a month-by-month format) for
each year during which the requested Resort Loan for such Resort is anticipated
to be outstanding shall be delivered to Lender together with a detailed
statement of the assumptions upon which such sources and uses statement was
prepared and such statement and such assumptions shall be satisfactory to Lender
in its sole discretion (with respect to any Resort, a "SOURCES AND USES OF CASH
PROJECTION");
(k) The following additional deliveries shall be made to Lender in respect
of such Resort and shall be satisfactory to Lender in its sole discretion: (i) a
current phase I environmental survey in respect of such Resort, (ii) a soil
report in respect of such Resort, (iii) copies of all payment and performance
bonds in respect of the general contractor under the Resort Construction
Contract for such Resort to the extent required by Vistana, (iv) copies of such
general contractor's builder's risk insurance policy, (v) copies of all
excavation, foundation and building permits for such Resort prior to the initial
Advance with the exception of reimbursements for acquisition costs, (vi) copies
of all zoning, density and design approvals, waivers or variances (except to the
extent the same are contingent upon completion of construction) prior to the
initial Advance with the exception of reimbursements for acquisition costs,
(vii) copies of all organization documents, bylaws, operating agreements and
other organic documents of the Eligible Vistana Subsidiary that is to own such
Resort, (viii) a perimeter survey of the Resort by a licensed surveyor that
meets the ALTA/ACSM 1997 Minimum Survey Requirements (which shall show any flood
zones or plains in which such Resort may be
4
<PAGE>
located) and (ix) such other documents, reports or information as Lender may
reasonably request in order for Lender to make a credit/resort determination in
respect of such Resort; and
(l) The maximum amount outstanding shall not be in excess of the Resort
Loan Limit.
ELIGIBLE VISTANA SUBSIDIARY. With respect to any Resort, a subsidiary of
Vistana (which may be a corporation, limited liability company or limited
partnership), (a) all of whose capital stock and other equity interests are
wholly owned directly or indirectly by Vistana, and (b) whose sole business is
the ownership, construction, development, operation and management of one or
more resorts (including at least one (1) Eligible Resort) and the sale of
Intervals in respect thereof.
ELIGIBILITY PERIOD. The period commencing on the Facility Closing Date and
ending on the earlier of (a) October 31, 2001 or (b) the date on which this
Agreement is terminated under Section 7.1 as a result of the existence of a
Termination Event.
ESTIMATED NET SALES PRICE. With respect to any Resort, the sales prices
for an Interval therein (giving effect to the type of Unit associated with such
Interval, the seasonality of such Interval and any other use restrictions or
advantages associated with such Interval) certified by the chief financial
officer or chief operating officer to Lender (which certification shall be
acceptable to Lender in its reasonable discretion) less all estimated out-of-
pocket costs and expenses (including commissions) that would be incurred in
consummating the sale of such Interval, likewise certified to Lender (which
certification shall also be acceptable to Lender in its reasonable discretion).
If a Resort is to be developed in phases, "Estimated Net Sales Price" shall be
determined in respect of each phase of such Resort.
FACILITY CLOSING DATE. October 9, 1998.
FUNDING FEE. A funding fee which is payable in accordance with Section 1.5
hereof.
GAAP. Generally accepted accounting principles, applied on a consistent
basis, set forth in Opinions of the Accounting Principles Board of the American
Institute of Certified Public Accountants and/or in statements of the Financial
Accounting Standards Board which are applicable in the circumstances as of the
date in question; and the requisite that such principles be applied on a
consistent basis means that the accounting principles in a current period are
comparable in all material respects to those applied in a preceding period, with
any exceptions thereto noted.
GOVERNMENTAL AUTHORITY. The United States of America, the states and
counties in which any of the Eligible Resorts are located, the Bahamas and any
other governmental authorities (including other foreign countries if approved by
Lender as the location of an Eligible Resort) having jurisdiction over Vistana
or any Eligible Vistana
5
<PAGE>
Subsidiary, any of the Eligible Resorts or any other property of either Vistana
or any Eligible Vistana Subsidiary, or the sale of Intervals in any of the
Eligible Resorts.
GOVERNMENTAL REGULATIONS. All rules, regulations, ordinances, laws and
statutes of any Governmental Authority which affect any one or more of the
Eligible Resorts or the right of Vistana or any Eligible Vistana Subsidiary to
sell Intervals.
INDEBTEDNESS. With respect to any Person at any date, (a) all indebtedness
of such Person for borrowed money or for the deferred purchase price of property
or services, including, without limitation, any Resort Loans and any pre-sale or
other receivables financing, other than: (i) current liabilities incurred in the
ordinary course of business and payable in accordance with customary trade
practices; or (ii) liabilities incurred or to be incurred among, from, under or
through one or a series of related or unrelated transactions each of which
qualify for treatment as a "true sale" in accordance with FAS-125 issued by the
Financial Accounting Standards Board of the American Institute of Certified
Public Accountants; (b) all obligations of such Person under capital leases; (c)
all obligations of such Person in respect of acceptances issued or created for
the account of such Person; and (d) all liabilities secured by any lien on any
property owned by such Person even though such Person has not assumed or
otherwise become liable for the payment thereof.
INTEREST RATE. A floating rate per annum equal to the Base Rate plus 265
basis points, (2.65%) (the aggregate rate referred to as the "Interest Rate").
"Base Rate" shall mean the rate published each Business Day in The Wall Street
---------------
Journal for notes maturing three (3) months after issuance under the caption
- -------
"Money Rates, London Interbank Offered Rates (LIBOR)". The Interest Rate for
each calendar month shall be fixed based upon the Interest Rate published prior
to and in effect on the first (1st) Business Day of such month. Interest shall
be calculated based on a 360 day year and charged for the actual number of days
elapsed.
INTERVAL. An undivided fee simple ownership interest as tenants in common
with all other Purchasers with respect to any Unit, with a right to use an
assigned unit at the Resort for one week annually, or on an every other year
basis, together with all appurtenant rights and interests as more particularly
described in the Timeshare Declaration.
LENDER. First paragraph of this Agreement.
LENDER'S ARCHITECT. With respect to any Eligible Resort, (a) an architect
or engineer licensed by the applicable Governmental Authority in the
jurisdiction in which such Eligible Resort is located that has been hired by
Lender or (b) any other construction consultant selected and retained by Lender
in its sole discretion.
MATERIAL ADVERSE EFFECT. With respect to any event or circumstance, a
material adverse effect on:
6
<PAGE>
(a) the business, assets, financial condition or operations of Vistana and
its subsidiaries, taken as a whole;
(b) the ability of Vistana or any Eligible Vistana Subsidiary to perform
its respective obligations under this Agreement or any Resort Loan Document to
which it is a party;
(c) the validity, enforceability or collectibility against Vistana or any
Eligible Vistana Subsidiary of this Agreement or any Resort Loan Document to
which it is a party; or
(d) the status, existence, perfection or priority of (i) Lender's security
interest and lien in the collateral securing any Resort Loan or (ii) any
Eligible Vistana Subsidiary's ownership interest in any Eligible Resort.
PERSON. Natural persons, corporations, limited partnerships, general
partnerships, limited liability companies, limited liability partnerships, joint
stock companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and governments and agencies and political subdivisions thereof.
PROJECTED RESORT NET SALES PROCEEDS. With respect to any Resort, the
product of (a) the number of Intervals in respect of the Units to be constructed
at such Resort that will be available for sale to the public times (b) the
-----
Estimated Net Sales Price in respect of such Intervals. If a Resort is to be
developed in phases, "Projected Resort Net Sales Proceeds" shall be determined
in respect of each phase of such Resort.
PURCHASE AGREEMENT. As defined in clause (b) of the definition of Eligible
Resort.
RESORT. Any property and the improvements and amenities existing or to be
constructed thereon that (a) is owned or will be owned on the applicable Resort
Loan Closing Date by an Eligible Vistana Subsidiary pursuant to the terms of a
Purchase Agreement, (b) is to be made subject to a condominium and timeshare
regime under applicable Governmental Regulations, (c) pursuant to such
condominium and timeshare regime is to be divided into Intervals and (d) is to
be directly marketed and sold as a timeshare resort.
RESORT ADVANCE. As defined in the definition of Resort Loan.
RESORT ARCHITECTURAL CONTRACT. As defined in clause (d) of the definition
of Eligible Resort.
RESORT ASSOCIATION. A condominium, timeshare or owners' association in
which owners of Intervals in an Eligible Resort are members.
7
<PAGE>
RESORT CONSTRUCTION CONTRACT. As defined in clause (c) of the definition
of Eligible Resort.
RESORT DEVELOPMENT COSTS. As defined in clause (g) of the definition of
Eligible Resort.
RESORT LOAN. With respect to any Resort, a loan from Lender to the
Eligible Vistana Subsidiary that owns such Resort to fund 100% (or such lesser
amount as may be requested by such Eligible Vistana Subsidiary) of the Resort
Development Costs for such Resort but not in excess of any of the requirements
of subsections (g), (h) and (i) under the definition of "Eligible Resort," which
loan is to be advanced in a series of advances (each a "RESORT ADVANCE"); and
Resort Advances in respect of such Resort Loan shall be made available to such
Eligible Vistana Subsidiary (subject to the satisfaction of the conditions
precedent set forth in the Resort Loan Documents in respect thereof) during the
Eligibility Period (with a maximum of two such Resort Advances plus an interest
Advance to be extended during each calendar month in the Eligibility Period).
Notwithstanding this definition, the amount outstanding under any Resort Loan
hereunder shall not be in excess of the Resort Loan Limit.
RESORT LOAN CLOSING DATE. With respect to any Resort Loan, the date on
which the Resort Loan Documents for such Resort Loan are signed and delivered
and all conditions precedent in respect of the extension of such Resort Loan to
the applicable Eligible Vistana Subsidiary are satisfied or otherwise waived by
Lender.
RESORT LOAN DOCUMENTS. With respect to any Eligible Resort and the Resort
Loan in respect thereof, each of the following: (a) the acquisition and
construction loan agreement for such Resort Loan, (b) the
acquisition/construction promissory note or notes for such Resort Loan, (c) the
guarantee of Vistana in respect of such Resort Loan, (d) the guarantee of
Vistana in respect of the completion of the construction of such Eligible
Resort, (e) the mortgage, security agreement and assignment of leases and rents
or the deed of trust, security agreement and assignment of leases and rents in
and to such Eligible Resort securing such Resort Loan (a "RESORT LOAN
MORTGAGE"), (f) the collateral assignment of the Resort Construction Contract in
respect of such Eligible Resort, (g) the collateral assignment of the Resort
Architectural Contract in respect of such Eligible Resort, (h) the collateral
assignment of Purchase Agreement in respect of such Eligible Resort, (i) the
hazardous material indemnity agreement in respect of such Eligible Resort and
(j) such other collateral security documents as are customarily obtained by
prudent construction lenders.
RESORT LOAN LIMIT. The maximum principal amount outstanding at any time
with respect to all Resort Loans for any Eligible Resort; provided, however,
such amount outstanding shall never be in excess of $35,000,000 for any Eligible
Resort.
RESORT LOAN MORTGAGE. As defined in the definition of Resort Loan
Documents.
8
<PAGE>
SOURCES AND USES OF CASH PROJECTION. As defined in clause (i) of the
definition of Eligible Resort.
TERMINATION EVENT. As defined in Section 6 hereof.
TIMESHARE DECLARATION. With respect to any Resort, that certain timeshare
declaration to be recorded in the appropriate land records office for the
applicable Governmental Authority in the jurisdiction in which such Resort is
located, pursuant to which a timeshare regimen based on Intervals will be
created in and to such Resort. The Timeshare Declaration may be combined with,
and made a part of, a Declaration.
UNIT. With respect to any Resort, an individual condominium unit within
such Resort, together with all furniture, fixtures and furnishings therein, and
together with any and all interest in common elements appurtenant thereto, as
provided in the Declaration or Timeshare Declaration of such Resort.
VISTANA. First paragraph of this Agreement.
VISTANA GUARANTY. The guaranty agreement executed by Vistana of even date
herewith which guarantees all amounts outstanding pursuant to the terms of this
Agreement.
VISTANA'S MINIMUM NET WORTH. Vistana agrees to (i) maintain a consolidated
minimum net worth of One Hundred Million and 00/100 Dollars ($100,000,000.00) as
determined in accordance with Vistana's Form 10-Q and Form 10-K quarterly and
annual financial statements from and after the date hereof; and (ii) such
Vistana minimum net worth shall increase over time by an amount equal to fifty
percent (50%) of Vistana's after-tax net income over time as determined in
accordance with Vistana's Form 10-Q and Form 10-K quarterly and annual financial
statements; and (iii) maintain a minimum tangible net worth of Eighty Million
and 00/100 Dollars ($80,000,000.00), defined as total shareholders equity plus
subordinated indebtedness less any intangible assets and inter-company
receivables not eliminated in consolidated financial statements as determined in
accordance with Vistana's Form 10-Q and 10-K quarterly and annaul financial
statements from and after the date hereof.
9
<PAGE>
SCHEDULE 1.2
------------
[REQUEST FOR RESORT LOAN]
DATE:___________________________
Heller Financial, Inc.
Attn: Portfolio Manager, Vacation Ownership
500 West Monroe Street
Chicago, Illinois 60661
RE: Loan No.
$_______ Master Vistana Resort Construction Loan Facility (the
"AGREEMENT") between Heller Financial, Inc. ("LENDER") and Vistana,
Inc. ("VISTANA")
Dear Sir or Madam:
Capitalized terms used herein shall have the meanings assigned thereto in
the Agreement.
In accordance with the terms of the Agreement, Vistana hereby notifies
Lender that it desires to obtain a new Resort Loan from Lender in a maximum
principal amount not to exceed $_______________________. The following
information is true and correct with respect to such Resort Loan:
(a) Borrower: [Name of Eligible Vistana Subsidiary].
(b) All of the equity of Borrower is wholly owned directly or indirectly by
Vistana.
(c) Borrower's certificate of incorporation and bylaws are attached hereto
as Exhibit A.
(d) The Borrower satisfies all of the eligibility requirements of an
"Eligible Vistana Subsidiary."
(e) The Resort is described on Exhibit B hereto and is located at
_____________.
(f) The Purchase Agreement for such Resort is attached hereto as Exhibit C.
(g) The Resort Construction Contract for such Resort is attached hereto as
Exhibit D.
10
<PAGE>
(h) The Resort Architectural Contract for such Resort is attached hereto
as Exhibit E.
(i) The construction and sales and marketing budgets for such Resort are
attached hereto as Exhibit F.
(j) The Sources and Uses of Cash Projection for such Resort is attached
hereto as Exhibit G.
(k) The total Resort Development Costs for the Resort to be funded from the
Resort Loan are estimated to be $_______________. Vistana's Chief Financial
Officer of Chief Operating Officer certifies to the best of his knowledge
as of the date hereof with respect to the information contained in Exhibit
F that:
(i) the requested Resort Development Costs set forth on Exhibit
F do not exceed 35% of the Projected Resort Net Sales Proceeds;
(ii) not more than 10% of the requested Resort Development Costs
has been requested for working capital purposes; and
(iii) the amenities portion of requested Resort Development Costs
set forth on Exhibit F does not exceed 30% of the total cost of all
phases at the Resort which benefit from such amenities.
(l) The Resort satisfies all of the eligibility requirements of an
"Eligible Resort."
(m) A current phase I environmental survey of the Resort is attached
hereto as Exhibit I.
(n) A soil report in respect of the Resort is attached hereto as Exhibit J.
(o) A perimeter survey of the Resort is attached hereto as Exhibit K.
(p) A [preliminary] owner's title insurance policy is attached hereto as
Exhibit L.
(q) Vistana requests that the Resort Loan have a maturity date of ____ [may not
be later than 7 years from the Facility Closing Date] and a draw period
during which Resort Advances will be available for ____ years [may not
extend beyond Eligibility Period].
11
<PAGE>
(r) The Resort Loan Limit is $35,000,000. The overall outstanding amount
of working capital in all Resort Loans for all Eligible Resorts shall
not exceed $2,000,000 at any one time.
(s) At the conclusion of the fifteen (15) Business Day approval process,
Heller will prepare the release fee schedule per Interval and Vistana
will have the opportunity to approve (subject to adjustment as
provided for in Section 1.4 of the Construction Loan Agreement for the
Resort Loan) and that the minimum amortization be as set forth on
Exhibit N hereto.
(t) Vistana requests that the Resort Loan Closing Date for the requested
Resort Loan be ______ __, ____.
(u) The form of Declaration and/or Timeshare Declaration for the Resort
are set forth on Exhibit O hereto or will be submitted to Lender at
the time such documents are prepared.
(v) No Termination Event has occurred and is continuing. The Master
Vistana Receivables Loan Facility is in full force and effect.
(w) Vistana confirms that Intervals at the Resort will be sold on a deeded
basis using mortgage notes and mortgages substantially in the form set
forth on Exhibit P hereto or on such forms as will be submitted to
Lender at the time such documents are prepared.
(x) The Approved Development Budget and Completion Schedule (as
updated) is attached hereto as Exhibit Q.
(y) Any franchise management, submanagement or Affiliate agreements
are attached hereto as Exhibit R or will be submitted to Lender at the
time such documents are prepared.
(z) All public offering statements for the Resort which have been
filed with the applicable Governmental Authority in the jurisdiction
in which the Eligible Resort is located, along with the consumer
documents for the sale of timeshares at such Resort, are attached
hereto as Exhibit S or will be submitted to Lender at the time such
documents are prepared.
2. The representations and warranties contained in this Agreement are
true, correct and complete in all material respects to the same extent as though
made on the date of this Agreement except for any representation or warranty
limited by its terms to a specific date and taking into account any amendments
to the schedules or exhibits as a result of any subsequent disclosures made by
Vistana in writing to and approved by Lender.
12
<PAGE>
3. Vistana is in compliance in all material respects with each and every
one of its covenants, agreements and obligations under this Agreement.
4. To the best of Vistana's knowledge, Vistana has no defenses or offsets
with respect to the payment of any amounts due Lender pursuant to this
Agreement.
5. Vistana acknowledges that this request is subject to approval by
Lender.
VISTANA, INC.
By: ________________________________
Name: ________________________________
Its: ________________________________
13
<PAGE>
SCHEDULE 2.2
------------
[Closing Checklist]
HFS NO.
HELLER FINANCIAL, INC. $__________
RESORT LOAN TO [NAME OF ELIGIBLE VISTANA SUBSIDIARY]
LENDER: Heller Financial, Inc.
500 West Monroe Street
Suite 2800
Chicago, Illinois 60640
Attention: Nora Ciesla , Account Executive
Telephone: 312-441-7606
Facsimile: 312-441-7924
Stephen Lewis, Esq.
Telephone: 312-441-7309
Facsimile: 312-441-7173
LENDER'S COUNSEL:
BORROWER: [Name of Eligible Vistana Subsidiary], a ________
corporation
BORROWER'S COUNSEL: [To Be Supplied]
GUARANTOR: Vistana, Inc.
RESORT: [Name of Eligible Resort]
14
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
ITEM RESPONSIBILITY STATUS
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. BORROWER/GUARANTOR BACKGROUND DOCUMENTS
---------------------------------------------------------------------------------------------------------------------------------
a. UCC judgment and tax lien search Lender's counsel
i. Borrower
ii. Guarantor
iii. Resort
- ---------------------------------------------------------------------------------------------------------------------------------
b. Borrower's/Guarantor's Certificate re: litigation and other matters Borrower;
affecting Borrower and Guarantor Guarantor
- ---------------------------------------------------------------------------------------------------------------------------------
c. Intercompany agreements and loans between Borrower, Guarantor or any Borrower;
other affiliate Guarantor
- ---------------------------------------------------------------------------------------------------------------------------------
d. Credit reports Lender
- ---------------------------------------------------------------------------------------------------------------------------------
2. ACQUISITION/CONSTRUCTION DOCUMENTS
- ---------------------------------------------------------------------------------------------------------------------------------
a. Resort Purchase and Sale Contract Borrower
i. Owner's policy of title insurance and copies of all exceptions and
liens on Schedule B thereto
- ---------------------------------------------------------------------------------------------------------------------------------
b. Resort Architectural Contract Borrower
- ---------------------------------------------------------------------------------------------------------------------------------
c. Resort Construction Contract Borrower
i. Copies of major subcontracts
Borrower
- ---------------------------------------------------------------------------------------------------------------------------------
d. Plans, Specifications and Drawings Borrower
- ---------------------------------------------------------------------------------------------------------------------------------
e. Approved Development Budget and Completion Schedule Borrower
i. Construction time line
Borrower
- ---------------------------------------------------------------------------------------------------------------------------------
f. Approved Sales and Marketing Plan Borrower
- ---------------------------------------------------------------------------------------------------------------------------------
g. Soil/Engineering Report Borrower
- ---------------------------------------------------------------------------------------------------------------------------------
h. Payment and Performance Bonds Borrower
i. Co-obligee endorsement in favor of Lender
Borrower
- ---------------------------------------------------------------------------------------------------------------------------------
i. Sources and Uses of Cash Projection Borrower
- ---------------------------------------------------------------------------------------------------------------------------------
j. Excavation, foundation and building permits; water connection Borrower
permit; storm sewer connection permit; other permits
- ---------------------------------------------------------------------------------------------------------------------------------
3. RESORT DOCUMENTS
- ---------------------------------------------------------------------------------------------------------------------------------
a. Draft Condominium Declaration Borrower
i. Draft condominium plat and horizontal/vertical site drawings
Borrower
- ---------------------------------------------------------------------------------------------------------------------------------
b. Draft Timeshare Declaration Borrower
- ---------------------------------------------------------------------------------------------------------------------------------
c. [PUD or other Horizontal Plan Documents] Borrower
- ---------------------------------------------------------------------------------------------------------------------------------
d. [Copies of all Restrictive Covenants Running with Land] Borrower
- ---------------------------------------------------------------------------------------------------------------------------------
e. Draft Articles of Incorporation and Bylaws of Condominium Borrower
Homeowners' Association
- ---------------------------------------------------------------------------------------------------------------------------------
f. Draft Articles of Incorporation and Bylaws of Timeshare Owners' Borrower
Association
- ---------------------------------------------------------------------------------------------------------------------------------
g. Draft Condominium Rules and Regulations Borrower
- ---------------------------------------------------------------------------------------------------------------------------------
h. Draft Timesharing Rules and Regulations Borrower
- ---------------------------------------------------------------------------------------------------------------------------------
i. Draft Management Agreement for Resort Borrower
- ---------------------------------------------------------------------------------------------------------------------------------
j. [Registration, Public Offering Statement and other Filed Time Share Borrower
Documents for Resort in _______, _______, ________ and ______]
- ---------------------------------------------------------------------------------------------------------------------------------
k. Form of purchaser credit application Borrower
- ---------------------------------------------------------------------------------------------------------------------------------
l. Form of reservation agreement Borrower
</TABLE>
15
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
m. Form of escrow agreement for pre-sales Borrower
i. Location of down payment escrow deposit
- --------------------------------------------------------------------------------------------------------------------------
n. Form of purchaser buy/sell agreement Borrower
- --------------------------------------------------------------------------------------------------------------------------
o. Form of purchase money mortgage note Borrower
- --------------------------------------------------------------------------------------------------------------------------
p. Form of purchase money mortgage Borrower -
- --------------------------------------------------------------------------------------------------------------------------
q. Form of Regulation Z Disclosure Statement Borrower
- --------------------------------------------------------------------------------------------------------------------------
r. Form of Rescission Statement Borrower
- --------------------------------------------------------------------------------------------------------------------------
s. Form of Regulation X Servicing Statement Borrower
- --------------------------------------------------------------------------------------------------------------------------
t. Form of RESPA Settlement Statement Borrower
- --------------------------------------------------------------------------------------------------------------------------
u. Pro-forma Mortgagee's Title Insurance Policy Borrower
- --------------------------------------------------------------------------------------------------------------------------
v. Form of timeshare documents receipt Borrower
- --------------------------------------------------------------------------------------------------------------------------
w. Purchaser's affidavit and acknowledgment Borrower
- --------------------------------------------------------------------------------------------------------------------------
x. State timeshare filings (______, _____ and ______) Borrower
i. Subdivision/Developer/Declarant licensing
Borrower
- --------------------------------------------------------------------------------------------------------------------------
y. Evidence that forms meet state and federal requirements Borrower
- --------------------------------------------------------------------------------------------------------------------------
z. Sales/marketing contracts for Intervals and/or Club memberships Borrower
- --------------------------------------------------------------------------------------------------------------------------
aa. All Affiliate contracts with respect to Resort (except as listed Borrower/
above) Guarantor
- --------------------------------------------------------------------------------------------------------------------------
4. RESORT ACQUISITION AND OTHER INFORMATION
- --------------------------------------------------------------------------------------------------------------------------
a. Schedule of Acquisition Closing Costs and Expenses (if applicable) Borrower's counsel
- --------------------------------------------------------------------------------------------------------------------------
b. Conveyance Documents (if applicable) Borrower's counsel
- --------------------------------------------------------------------------------------------------------------------------
c. Resort Loan Request under Master Vistana Resort Loan Facility Guarantor
- --------------------------------------------------------------------------------------------------------------------------
d. Perimeter ALTA Survey for Resort Borrower
i. Surveyor's Certificate Borrower
ii. Flood zone classification (if applicable) Borrower
- --------------------------------------------------------------------------------------------------------------------------
e. Phase I Environmental Survey for Resort Borrower
i. Heller Reliance Letter Borrower
- --------------------------------------------------------------------------------------------------------------------------
f. Certificates of Insurance (including flood and builder's risk) and Borrower
proof of payment of premiums
Borrower
i. Lender named as mortgagee loss payee/co-insured
- --------------------------------------------------------------------------------------------------------------------------
g. Other Resort information:
i. Receipts evidencing payment of property taxes
ii. Copies of utility contracts (if any) Borrower
iii. Certificates of occupancy (if any)
iv. Lender Inspection Results Borrower
Borrower
Borrower
- --------------------------------------------------------------------------------------------------------------------------
h. Appraisal Borrower
- --------------------------------------------------------------------------------------------------------------------------
i. Mechanic's, materialmen's and supplier's lien partial waivers and Borrower
reconciliation of all payments to date of closing (if applicable)
- --------------------------------------------------------------------------------------------------------------------------
j. Licensing Borrower
i. Real estate broker licensing for sales of Intervals
ii. Amenities Borrower
Borrower
- --------------------------------------------------------------------------------------------------------------------------
k. Zoning compliance Borrower
</TABLE>
16
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
l. ADA/HUD accessibility compliance (if applicable) Borrower
- ---------------------------------------------------------------------------------------------------------------------------
m. Financial statements of Borrower and Guarantor Borrower
- ---------------------------------------------------------------------------------------------------------------------------
n. Certificate or other evidence of satisfaction of net worth Guarantor
requirement
- ---------------------------------------------------------------------------------------------------------------------------
5. RESORT LOAN DOCUMENTS
- ---------------------------------------------------------------------------------------------------------------------------
a. Promissory note Lender's counsel
- ---------------------------------------------------------------------------------------------------------------------------
b. Acquisition and Construction Loan Agreement Lender's counsel
- ---------------------------------------------------------------------------------------------------------------------------
c. Guarantee (Payment and Completion) Lender's counsel
- ---------------------------------------------------------------------------------------------------------------------------
d. Mortgage, Assignment of Rents and Security Agreement Lender's counsel
- ---------------------------------------------------------------------------------------------------------------------------
i. Mortgagee's title insurance Commitment/Pro forma mortgagee's title
insurance policy Borrower's
ii. Endorsements: future advance, usury, condominium/pud, mechanic's counsel/title
lien, zoning, elimination of survey/easement exceptions company
iii. Copies of all listed Schedule B exceptions Borrower's
counsel/title
company
Borrower's
counsel/title
company
- ---------------------------------------------------------------------------------------------------------------------------
e. UCC-1's - Borrower Lender's counsel
i. Central/Local: _________
ii. Central/Local: _________
- ---------------------------------------------------------------------------------------------------------------------------
f. Hazardous Materials Indemnity Agreement Lender's counsel
- ---------------------------------------------------------------------------------------------------------------------------
g. Collateral Assignment of Declarant's Rights (or Form) Lender's counsel
- ---------------------------------------------------------------------------------------------------------------------------
h. Collateral Assignment of Resort-related contracts Lender's counsel
i. Collateral Assignment of Resort Construction Contract
ii. Collateral Assignment of Resort Architectural Contract
iii. [Other]
- ---------------------------------------------------------------------------------------------------------------------------
i. [Escrow Arrangement Lender's counsel
i. insured closing agent's letter]
- ---------------------------------------------------------------------------------------------------------------------------
j. Corporate authorization for the Borrower and the Guarantor Borrower
i. Good Standing Certificate for the Borrower
ii. Good Standing Certificate for the Guarantor
iii. Foreign Authorization Certificates for the Borrower from [state Borrower
in which Resort is located]
iv. Foreign Authorization Certificates for the Guarantor from [state
in which Resort is located] Guarantor
v. Certificates of Incorporation for Borrower
vi. Articles of Incorporation for Guarantor
vii. Bylaws of Borrower Borrower
viii. Bylaws of Guarantor
Guarantor
Borrower
Guarantor
Borrower
Guarantor
- ---------------------------------------------------------------------------------------------------------------------------
l. Opinion of counsel for Borrower and Guarantor Borrower counsel
- ---------------------------------------------------------------------------------------------------------------------------
m. Subordination agreement for subordinate affiliate debt Lender's counsel
i. Copies of all documentation for subordinate affiliate debt
- ---------------------------------------------------------------------------------------------------------------------------
n. Custodial Agreement (if applicable) Lender's counsel
</TABLE>
17
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
o. Borrower's officer's and secretary's Certificates Lender's counsel
- --------------------------------------------------------------------------------------------------------------------
i. Resolutions attached
- --------------------------------------------------------------------------------------------------------------------
p. Guarantor's officer's and secretary's certificates Lender's counsel
i. Resolutions attached
- --------------------------------------------------------------------------------------------------------------------
q. Form of Architect's Certificate for disbursements Lender's counsel
- --------------------------------------------------------------------------------------------------------------------
r. Form of General Contractor's Certificate for disbursements Lender's counsel
- --------------------------------------------------------------------------------------------------------------------
s. Payment of Funding Fee installment Borrower
- --------------------------------------------------------------------------------------------------------------------
t. Reimbursement of Lender's costs and expenses Borrower
- --------------------------------------------------------------------------------------------------------------------
u. Payment of Legal Fees of Lender Borrower
====================================================================================================================
</TABLE>
18
<PAGE>
MASTER VISTANA RESORT RECEIVABLES LOAN FACILITY
<PAGE>
<TABLE>
<S> <C>
SECTION 1. EXTENSION OF FINANCING 1
1.1 Financing Generally. 1
-------------------
1.2 Requests for Receivables Financing 2
----------------------------------
1.3 Closing of Receivables Loans 3
----------------------------
1.4 Payment of Receivables Loans 4
----------------------------
1.5 Commitment Fee 4
--------------
1.6 Maximum Loan Amount 4
-------------------
1.7 Vistana Guaranty 4
----------------
1.8 Prepayment 4
----------
SECTION 2. FINANCING CLOSING CONDITIONS 4
2.1 Receivables Loan Documents 5
--------------------------
2.2 Deliveries Prior to Each Receivables Loan 5
-----------------------------------------
2.3 Intentionally Omitted 7
---------------------
2.4 Receivables Loan Security Documents 7
-----------------------------------
2.5 Representations and Warranties 8
------------------------------
2.6 No Termination Events 8
---------------------
2.7 Performance of Agreements 8
-------------------------
2.8 Opinions of Counsel 8
-------------------
2.9 Eligible Vistana Subsidiary 8
---------------------------
2.10 Vistana Guaranties 8
------------------
2.11 Cross Collateralization 9
-----------------------
2.12 Intentionally Omitted. 9
---------------------
2.13 Intentionally Omitted 9
---------------------
2.14 Expenses 9
--------
2.15 Proceedings Satisfactory 9
------------------------
SECTION 3. COVENANTS 9
SECTION 4. REPRESENTATIONS AND WARRANTIES 10
4.1 Existence 10
---------
4.2 Authorization and Enforceability 10
--------------------------------
4.3 Financial Statements and Business Condition 10
-------------------------------------------
4.4 Litigation and Proceedings 11
--------------------------
4.5 No Breach or Default 11
--------------------
4.6 Licenses and Permits 11
--------------------
4.7 Disclosure 11
----------
4.8 Employee Benefit Plans 11
----------------------
4.9 Year 2000. 12
---------
SECTION 5. REPORTING REQUIREMENTS 12
5.1 Monthly Reports 12
---------------
5.2 Sales and Inventory Reports 12
---------------------------
5.3 Quarterly Financial Reports 13
---------------------------
5.4 Year-End Financial Reports 13
--------------------------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
5.5 Audit Reports 13
-------------
5.6 Other Reports 14
-------------
5.7 SEC Reports 14
-----------
5.8 Notice of Litigation, Claims, and Financial Change 14
--------------------------------------------------
SECTION 6. TERMINATION EVENTS 14
6.1 Termination Events 14
------------------
SECTION 7. RIGHTS AND REMEDIES OF LENDER 16
7.1 Rights of Lender 16
----------------
7.2 No Waiver or Exhaustion 16
-----------------------
7.3 Marshalling Waiver 17
------------------
SECTION 8. MISCELLANEOUS 17
8.1 Notices 17
-------
8.2 Entire Agreement and Modifications 18
----------------------------------
8.3 Severability 18
------------
8.4 Election of Remedies 18
--------------------
8.5 Form and Substance 18
------------------
8.6 No Third Party Beneficiary 18
--------------------------
8.7 Vistana in Control 18
------------------
8.8 Number and Gender 19
-----------------
8.9 Captions 19
--------
8.10 Applicable Law 19
--------------
8.11 Venue 19
-----
8.12 Jury Trial Waiver 19
-----------------
8.13 Attorneys' Fees 19
---------------
8.14 Counterparts 19
------------
8.15 Participating Lenders 20
---------------------
8.16 Consent to Advertising and Publicity 20
------------------------------------
</TABLE>
iii
<PAGE>
MASTER VISTANA RESORT RECEIVABLES LOAN FACILITY
-----------------------------------------------
This MASTER VISTANA RESORT RECEIVABLES LOAN FACILITY (this "Agreement")
dated as of December 30, 1998 is made by and between HELLER FINANCIAL, INC., a
Delaware corporation ("Lender"), and VISTANA, INC., a Florida corporation
("Vistana").
R E C I T A L S:
- - - - - - - -
A. All capitalized terms used herein shall have the meanings ascribed
thereto in the Appendix attached hereto and made a part hereof by this
reference.
B. Vistana, directly or through one or more of its subsidiaries, is in
the business of owning and developing timeshare resorts, and selling Intervals
at such resorts.
C. Upon satisfaction of the terms and conditions set forth herein, Lender
may extend receivables financing from time to time to certain Eligible Vistana
Subsidiaries, the proceeds of which will be used in connection with certain
Eligible Resorts, the first of which shall be Embassy Vacation Resort at
Scottsdale, located in Scottsdale, Arizona and the form of such receivables loan
documents shall be the basis for execution of Receivables Loan Documents for
future Eligible Resorts hereunder, subject to modifications as required on a
Resort by Resort basis.
D. Vistana has agreed to guarantee all of the obligations of such
Eligible Vistana Subsidiaries under this Agreement and the other Receivable Loan
Documents, including, without limitation, all of the obligations of the Eligible
Vistana Subsidiaries with respect to any financing provided from time to time by
Lender hereunder.
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements, provisions and covenants herein contained, Vistana and Lender agree
as follows:
SECTION 1. EXTENSION OF FINANCING
1.1 Financing Generally.
-------------------
(a) Extension of Receivables Loans. During the Revolving Period but
-------------------------------
subject to the requirements of this Section 1.1 and the requirements of Sections
1.2, 1.3 and 2 hereof, Lender shall extend Receivables Loans to Eligible Vistana
Subsidiaries identified from time to time by Vistana to Lender as being the
owners and developers of particular Eligible Resorts. Each such Receivables Loan
shall
(i) be made to an Eligible Vistana Subsidiary that is the
owner and developer of an Eligible Resort and shall be secured by Eligible Notes
Receivable and/or
<PAGE>
Eligible Pre-Sale Notes Receivable arising from the sale of Intervals by the
Eligible Vistana Subsidiary at such Eligible Resort;
(ii) be disbursed in a series of Receivables Advances during
the then remaining unexpired portion of the Revolving Period; during the
Revolving Period Lender shall make Receivables Advances to the Eligible Vistana
Subsidiary, not in excess of the lesser of (A) $20,000,000 principal balance
outstanding at any one time for all Receivables Loans for all Eligible Resorts
pursuant to the terms hereof, or (B) 90% of the aggregate outstanding principal
balance of all Financed Notes Receivable and Financed Pre-Sale Notes Receivable,
in each case, then assigned or to be assigned to Lender in connection with the
pending Receivables Advance under the applicable Receivables Loan provided that
the Eligible Vistana Subsidiary satisfies all conditions set forth in the
Receivables Loan Documents in connection with each such Receivables Advance.
(iii) shall have a final maturity date of ten (10) years from
the Facility Closing Date inclusive of a three (3) year Revolving Period;
(iv) bear interest at the Interest Rate in effect from time to
time;
(v) be guaranteed in full by Vistana and be secured by all
right, title and interest of such Eligible Vistana Subsidiary in and to the
Financed Notes Receivables and Financed Pre-Sale Notes Receivables arising from
the sale of Intervals at each such Eligible Resort related to such Receivables
Loan, and in and to all proceeds in respect thereof in accordance with the terms
and description of collateral set forth in the Receivables Loan Documents; and
(vi) be otherwise governed by the Receivables Loan Documents
for such Receivables Loan; it is the intention of Lender and Vistana that this
Master Vistana Resort Receivables Loan Facility and each Receivables Loan
hereunder is a revolving credit facility pursuant to which Vistana or the
Eligible Vistana Subsidiary for such Receivables Loan may borrow, repay and
reborrow principal in an amount not to exceed the maximum loan amount set forth
in Section 1.6 below.
(b) Receivables Loan Documents. On or prior to the Receivables Loan
--------------------------
Closing Date for each Receivables Loan, Lender and the Eligible Vistana
Subsidiary for such Receivables Loan shall enter into the Receivables Loan
Documents for such Receivables Loan.
1.2 Requests for Receivables Financing. During the Revolving Period,
----------------------------------
Vistana shall have the right to request Lender to make one or more Receivables
Loans with respect to an Eligible Resort. Each such request shall be made not
less than thirty (30) days and not more than one hundred and twenty (120) days
prior to the Receivables Loan Closing Date requested by Vistana for such
Receivables Loan, shall identify the Eligible Vistana Subsidiary and the
applicable Phase or Phases of the Eligible Resort in respect of such
2
<PAGE>
requested Receivables Loan and shall be substantially in the form of SCHEDULE
--------
1.2 attached hereto and made a part hereof. Upon receipt of all items set forth
- ---
or referenced on SCHEDULE 1.2, Lender shall have no more than fifteen (15)
------------
Business Days to complete its review and approval process with respect to the
requested Receivables Loan. Anything contained in this Agreement to the
contrary notwithstanding, Vistana acknowledges that Lender has reserved its
right to approve each request for a Receivables Loan on a case-by-case, loan-by-
loan and a Phase-by-Phase basis in its sole discretion and that Lender must
apply its credit approval standards and processes to each such request and each
such Receivables Loan and each Phase of an Eligible Resort that is the subject
thereof. The parties acknowledge that the receivables loan pursuant to the
terms of the Receivables Loan Agreement dated as of July 31, 1997, by and
between Lender and Vistana MB, Inc., as amended and restated as of the date
hereof, shall be converted to and constitute a Receivables Loan hereunder, the
loan agreement executed in connection with such receivables loan, as amended and
restated as of the date hereof, shall hereinafter be referred to as the Myrtle
Beach Receivables Loan Agreement, the loan documents executed in connection with
such existing receivables loan, as amended and restated, as of the date hereof,
shall be hereinafter referred to as the Myrtle Beach Receivables Loan Documents
and Phases I and II of Embassy Vacation Resort at Myrtle Beach (as defined in
the Myrtle Beach Receivables Loan Agreement) shall be approved Phases of an
Eligible Resort pursuant to the terms of this Agreement. The parties agree that
from and after the date hereof the Eligible Vistana Subsidiary with respect to
the Myrtle Beach Receivables Loan Agreement is no longer prohibited from
assigning, pledging, transferring or conveying any Financed Notes Receivable or
other Notes Receivable to a third party. The parties further acknowledge that
Lender and Vistana Scottsdale, Inc. have entered into a Receivable Loan
Agreement of even date herewith (the "Scottsdale Receivables Loan Agreement")
with respect to Financed Pre-Sale Notes Receivable and Financed Notes Receivable
arising from the sale of Intervals in Phase I at the Embassy Vacation Resort at
Scottsdale (as defined in the Scottsdale Receivables Loan Agreement) which shall
be an approved Phase of Eligible Resort pursuant to the terms of this
Agreement. Lender agrees that in the event a Receivables Loan Agreement
pursuant to the terms hereof is entered into with respect to Financed Pre-Sale
Notes Receivable and Financed Notes Receivable arising from the sale of
Intervals at any phase which is part of the Vistana Resort located in Orlando,
Florida, then such Receivables Loan Agreement shall permit the vacation club
approved pursuant to the Receivables Loan Agreement between Lender and Vistana
Development, Ltd. dated as of August 18, 1997, as amended by the Loan
Modification Agreement between Lender and Vistana Development, Inc. dated as of
January 1, 1998 (collectively, the "VDI Receivables Loan Agreement") upon the
terms and conditions set forth in the VDI Receivables Loan Agreement.
1.3 Closing of Receivables Loans. Resort Advances under each
----------------------------
Receivables Loan shall be advanced upon the satisfaction of the conditions
precedent set forth herein and in the Receivables Loan Documents in respect
thereof; to the extent of any inconsistency between this Agreement and the
applicable Receivables Loan Documents as to the conditions precedent for a
Resort Advance, the Receivables Loan
3
<PAGE>
Documents shall control. The first Receivables Advance under each Receivables
Loan shall be subject to such conditions precedent and the conditions set forth
in the Receivables Loan Documents. All Receivables Advances under each
Receivables Loan shall be disbursed by Lender pursuant to the funding procedures
set forth in the Receivables Loan Documents which shall include, among other
things, minimum Receivables Advance amounts, maximum number of fundings per
month, document and funds escrow procedures with respect to Financed Pre-Sale
Notes Receivable prior to the conclusion of the Pre-Sale Credit Period for the
approved Phase of an Eligible Resort (or portion thereof) and mortgagee title
policy requirements, each as more particularly set forth in the applicable
Receivables Loan Documents.
1.4 Payment of Receivables Loans. Each Receivables Loan shall be due and
----------------------------
payable in accordance with the Receivables Loan Documents for such Receivables
Loan. Such Receivables Loan Documents shall provide procedures for both Financed
Notes Receivable and Financed Pre-Sale Notes Receivable, the funds from which
shall be paid by Purchasers directly to a lockbox agent which shall disburse
such proceeds directly to Lender or, in the event of Financed Pre-Sale Notes
Receivable, to Funds Escrow Agent, as more particularly set forth in the
Receivables Loan Documents.
1.5 Commitment Fee. Vistana acknowledges and agrees that the Commitment
--------------
Fee to be paid by Vistana or one or more Eligible Vistana Subsidiaries pursuant
hereto shall be $150,000, 50% of which shall be earned and payable on the date
of this Agreement with the balance earned and payable on the first anniversary
date of this Agreement.
1.6 Maximum Loan Amount. Notwithstanding any provision to the contrary
-------------------
in this Agreement or the Receivables Loan Documents, the outstanding principal
balance under this Master Vistana Resort Receivables Loan Facility shall never
exceed in the aggregate $20,000,000.
1.7 Vistana Guaranty. In connection with this Master Vistana Resort
----------------
Receivables Loan Facility, Vistana shall execute the Vistana Guaranty which
shall guaranty the payment by Vistana of all amounts outstanding under this
Master Vistana Resort Receivables Loan Facility upon the occurrence of a
Termination Event of the type described in Section 6.1(a) or 6.1(b) hereto.
1.8 Prepayment. Each Receivables Loan is prepayable in whole or in part
----------
without premium or penalty.
SECTION 2. FINANCING CLOSING CONDITIONS
The obligation of Lender to extend any Receivables Loan hereunder to an
Eligible Vistana Subsidiary in respect of an approved Phase of an Eligible
Resort is subject to the satisfaction, in Lender's sole discretion, of all of
the conditions set forth below.
4
<PAGE>
2.1 Receivables Loan Documents. Lender shall have received, in form and
--------------------------
substance satisfactory to Lender, counterparts of the Receivables Loan Documents
for such Receivables Loan executed by the Eligible Vistana Subsidiary and
Vistana, as the case may be, and each of such Receivables Loan Documents shall
be in form and substance acceptable to Lender in Lender's reasonable discretion
and based upon the form Receivables Loan Documents for the Embassy Vacation
Resort at Scottsdale, located in Scottsdale, Arizona, which are executed between
Lender and Vistana Scottsdale, Inc. as of the date hereof, with modifications
which reflect differences in each Eligible Resort subject to this Agreement;
provided, however the parties acknowledge that Sections 4.12, 5.20, 6.7 and 7.11
of the Scottsdale Receivables Loan Agreement apply solely to such Resort and
shall not be included as part of the form Receivables Loan Agreement for other
Receivables Loans with the exception of another Receivables Loan for the Embassy
Vacation Resort at Scottsdale.
2.2 Deliveries Prior to Each Receivables Loan.
-----------------------------------------
(a) All Loans. Prior to the extension of each Receivables Loan,
---------
Lender shall have received copies (certified to be true and correct) of the
required Purchase Documents signed by Purchasers of Intervals, the timeshare
registration and approval letter from the applicable Governmental Authority, all
other deliveries required to be delivered in order for Vistana to demonstrate to
Lender that the subject Phase of an Eligible Resort satisfies the requirements
of the applicable Receivables Loan Documents and this Agreement with respect
thereto, and such other instruments and information applicable to such
Receivables Loan as are identified on the form of closing checklist set forth on
SCHEDULE 2.2 attached hereto and made a part hereof.
- ------------
(b) Loans with Pre-Sale Notes Receivable. (x) If all or any portion
------------------------------------
of the proposed Receivables Loan will be used to finance Eligible Pre-Sale Notes
Receivable in a Unit, building or applicable Phase of an Eligible Resort for
which Completion of construction has not yet occurred or will not occur prior to
the proposed Receivables Loan Closing Date, Lender shall also have received, in
addition to the items on Schedule 2.2, copies of documents and other
information applicable to such Receivables Loan as are identified on the form of
Closing Checklist set forth on SCHEDULE 2.2(A) attached hereto and made a part
---------------
hereof with respect to the Uncompleted Phase (defined below); provided, however,
that Vistana shall not be obligated to deliver any item in said checklist
previously delivered to Lender; and (y) if Lender does not have outstanding a
construction loan which provides financing for, and is secured by a mortgage
lien on, the subject Phase of the Eligible Resort giving rise to such Eligible
Pre-Sales Notes Receivable (the "Uncompleted Phase"), Lender shall have also
received, in addition to the items on Schedule 2.2 and Schedule 2.2(A), all of
the following:
(i) a guaranty by Vistana of Completion of
construction of the Unit buildings and any Committed
Facilities promised to Purchasers of Intervals in the
Uncompleted Phase in accordance with a Completion
5
<PAGE>
schedule to be agreed upon between Lender and Vistana
("Vistana Completion Guaranty") in a form reasonably
acceptable to Vistana and Lender. The Vistana Completion
Guaranty or the applicable Receivables Loan Agreement or
related Receivables Loan Documents shall provide for (A)
Completion of the Unit, buildings or the applicable Phase
and any uncompleted Committed Facilities within the time
frame required by the applicable Purchase Documents, or
applicable sales prospectus or public offering statement,
(B) interim dates by which such Unit, building or applicable
Phase and any uncompleted Committed Facilities shall achieve
25%, 50%, and 75% Completion and the date on which 100%
Completion is scheduled to be achieved, (C) certification as
to status of Completion as of such interim and final
Completion dates made by an independent inspector reasonably
acceptable to Lender, the costs of which shall be shared
equally by the applicable Eligible Vistana Subsidiary and
Lender (which requirement may be satisfied by copies of
inspection reports provided to Vistana, the Eligible Vistana
Subsidiary or to a third party construction lender by such
inspector), and (D) remedial provisions in the event of a
material uncured devation from the agreed upon Completion
schedule consisting of (x) one or more step-downs in
Availability (as such term is defined in the applicable
Receivables Loan Agreement) to be determined in Lender's
reasonable discretion) relating to the affected Pre-Sales
Notes Receivable, (y) reduction or reductions of the advance
rate with respect to the affected Pre-Sales Notes
Receivable, and/or (z) a loss of eligibility with respect to
the affected Pre-Sales Notes Receivable which could require
a mandatory prepayment or substitution under Section
1.5(b)(ii) of the applicable Receivables Loan Agreement.
(ii) a performance or completion bond from a surety
reasonably acceptable to Lender with a dual obligee rider in
favor of Lender which assures Completion of the Uncompleted
Phase in the event Vistana or the applicable Eligible
Vistana Subsidiary fails to achieve Completion of the Unit,
building or applicable Phase and Committed Facilities that
make up such Phase as required; or if such bond or rider is
not available, other acceptable financial assurance of
Completion of the Uncompleted Phase;
(iii) if construction of the Unit, building or any
Committed Facilities relating to Intervals in the
6
<PAGE>
Uncompleted Phase is being financed by a third party lender
having a mortgage lien thereon, then Lender shall find such
construction lender reasonably acceptable and shall have
also received a Recognition and Intercreditor Agreement
acceptable to Lender in its reasonable discretion among
Lender, the Eligible Vistana Subsidiary and such other
lender acknowledging Lender's first priority security
interest in the Financed Pre-Sale Notes Receivable,
acknowledging that such third party construction lender has
no rights, claims or security interest in such Financed Pre-
Sale Notes Receivables and providing assurances to Lender's
satisfaction of its ability to obtain all necessary partial
releases from such third party Lender upon the closing of
sales of Intervals to Purchasers; and
(iv) a quarterly certification from Vistana or the
Eligible Vistana Subsidiary that title to the Uncompleted
Phase remains free and clear of any liens and encumbrances
except those, if any, approved by Lender in the applicable
Receivables Loan Documents.
2.3 Intentionally Omitted.
---------------------
2.4 Receivables Loan Security Documents. In addition to, but without
-----------------------------------
duplication of, the Receivables Loan Documents in respect of such Receivables
Loan, Vistana and/or such Eligible Vistana Subsidiary shall have executed and
delivered to Lender (or to the applicable Document Escrow Agent and Funds Escrow
Agent in the event the collateral consists of Financed Pre-Sale Notes
Receivable) such other instruments as may be necessary or required by Lender in
order to create, maintain, perfect or protect a lien or security interest in any
collateral relating to any Financed Note Receivable or Financed Pre-Sale Notes
Receivable as described in the Receivables Loan Documents, including, without
limitation, the original of the Financed Notes Receivable and Financed Pre-Sale
Notes Receivable endorsed over to Lender, an absolute and unconditional
assignment of Interval Mortgage for each Interval for which a Financed Note
Receivable or Financed Pre-Sale Notes Receivable has been endorsed to Lender,
together with all deposits, accounts, accounts receivables, loan accounts, and
general intangibles and the proceeds of all of the foregoing related to any
Financed Note Receivable or Financed Pre-Sale Notes Receivable and UCC-1
Financing Statements executed in connection with the foregoing.
2.5 Representations and Warranties. The representations and warranties
------------------------------
and covenants contained herein and in the Receivables Loan Documents for such
Receivables Loan shall be true, correct and complete in all material respects on
and as of the Receivables Loan Closing Date for such Receivables Loan.
7
<PAGE>
2.6 No Termination Events. No Termination Event as defined hereunder
---------------------
shall be in existence as of the Receivables Loan Closing Date for such
Receivables Loan.
2.7 Performance of Agreements. Vistana and the Eligible Vistana
-------------------------
Subsidiary shall have performed all agreements, paid all fees, costs and
expenses and satisfied all conditions which this Agreement or any Receivables
Loan Document for such Receivables Loan provides shall be paid, performed or
satisfied as of the Receivables Loan Closing Date for such Receivables Loan.
2.8 Opinions of Counsel. Lender shall have received from independent
-------------------
counsel for Vistana and such Eligible Vistana Subsidiary, one or more closing
opinions, each dated as of the Receivables Loan Closing Date for such
Receivables Loan as to such matters in respect of Vistana, such Eligible
Vistana Subsidiary, such Receivables Loan, the Receivables Loan Documents for
such Receivables Loan, and such Eligible Resort as Lender may request in its
reasonable discretion.
2.9 Eligible Vistana Subsidiary. Such Eligible Vistana Subsidiary shall
---------------------------
be acceptable to Lender in Lender's reasonable discretion, and Lender shall have
received such financial statements, credit reports, UCC searches and other
similar background information relating to such Eligible Vistana Subsidiary as
Lender shall require in Lender's discretion. Such Eligible Vistana Subsidiary
shall have provided Lender with copies of its organizational documents, and the
same shall be acceptable to Lender in Lender's reasonable discretion. Lender
acknowledges that an Eligible Vistana Subsidiary may be a newly formed entity
with no credit history.
2.10 Vistana Guaranties. Vistana shall have executed and delivered to
------------------
Lender: (a) a guaranty of such Receivables Loan and all obligations of such
Eligible Vistana Subsidiary under the Receivables Loan Documents for such
Receivables Loan; (b) the Vistana Guaranty as set forth in Section 1.7 above;
and (c) if (x) all or any portion of the proposed Receivables Loan will be used
to finance Eligible Pre-Sale Notes Receivable in a Unit, building or applicable
Phase of an Eligible Resort for which Completion of construction has not yet
occurred or will not occur prior to the proposed Receivables Loan Closing Date,
and (y) Lender does not have outstanding a construction loan which provides
financing for, and is secured by a mortgage lien on, the Uncompleted Phase, the
Vistana Completion Guaranty described in Section 2.2(b)(i) of this Agreement.
2.11 Cross Collateralization. The Receivables Loan Documents for each
-----------------------
Receivables Loan shall provide that the collateral securing such Receivables
Loan and the guaranties of Vistana for such Receivables Loan shall secure such
Receivables Loan and any other Receivables Loans for the same Eligible Resort
but not for any other Eligible Resort. The collateral securing each such
Receivables Loan shall not secure any acquisition or construction loans by
Lender to an Eligible Vistana Subsidiary for the subject Eligible Resort or for
any other Eligible Resort. Notwithstanding the foregoing, Vistana acknowledges
and hereby ratifies and affirms that the Receivables Loan extended pursuant to
the Receivable Loan Agreement dated as of July 31, 1997, by and between Lender
and Vistana MB, Inc., as amended and restated as of the date hereof, which is
included as part of the Master Vistana Resort Receivables Loan Facility
8
<PAGE>
subsequent to the Facility Closing Date pursuant to the terms hereof, which
Receivables Loan is secured by Financed Notes Receivable or Financed Pre-Sale
Notes Receivable originated by Vistana MB, Inc. at the Embassy Vacation Resort
at Myrtle Beach, continues to be cross collateralized and cross-defaulted with
the construction loan pursuant to the terms of the Construction Loan Agreement
between Lender and Vistana MB, Inc. dated as of July 31, 1997, which
construction loan is secured by a first priority Mortgage Assignment of Rents
and Security Agreement dated as of July 31, 1997, as amended, encumbering the
Embassy Vacation Resort at Myrtle Beach.
2.12 Intentionally Omitted.
---------------------
2.13 Intentionally Omitted.
---------------------
2.14 Expenses. Vistana and the Eligible Vistana Subsidiary for such
--------
Receivables Loan shall have paid all Costs incurred by or on behalf of Lender in
connection with such Receivables Loan.
2.15 Proceedings Satisfactory. Such Receivables Loan and such Eligible
------------------------
Resort, all Receivables Loan Documents in respect thereof, and all due diligence
information in respect thereof shall be satisfactory to Lender in Lender's
reasonable discretion. Lender and its counsel shall have received copies of
such documents, instruments and information as Lender or its counsel may request
in connection therewith, and all such documents, instruments and information
shall be in form and substance satisfactory to Lender and its counsel.
SECTION 3. COVENANTS
Vistana hereby covenants to Lender that:
3.1 Financial Covenants. On and after the Facility Closing Date and so
-------------------
long as any Receivables Loan shall be outstanding or there are any outstanding
obligations of Vistana under any guarantee of any such Receivables Loan, Vistana
will comply with the applicable covenants set forth in the Receivables Loan
Documents for each Receivables Loan and maintain Vistana's Minimum Net Worth
from and after the Facility Closing Date.
3.2 Compliance with Laws. As of the date hereof and as of the date on
--------------------
which any Receivables Loan is extended to an Eligible Vistana Subsidiary
hereunder, Vistana shall comply with, conform to and obey each and every
judgment, law, statute, rule and governmental regulation applicable to it and
each indenture, order, instrument, agreement or document to which it is a party
or by which it is bound except where the failure to comply would not have a
Material Adverse Effect.
SECTION 4. REPRESENTATIONS AND WARRANTIES
9
<PAGE>
Vistana hereby represents and warrants to Lender as of the date hereof and
as of the date on which any Receivables Loan is extended to an Eligible Vistana
Subsidiary hereunder:
4.1 Existence. Vistana is a Florida corporation duly formed, validly
---------
existing and in good standing under the laws of the State of Florida with its
principal place of business at Orlando, Florida. Vistana is authorized to
transact business in the State of Florida and in each other state where the
failure to so comply would have a Material Adverse Effect.
4.2 Authorization and Enforceability.
--------------------------------
(a) Execution. This Agreement has been duly authorized, executed and
---------
delivered and constitutes the duly authorized, valid and legally binding
obligations of Vistana, enforceable against Vistana in accordance with its
terms.
(b) Other Agreements. The execution, delivery and compliance with
----------------
the terms and provisions of this Agreement, will not (i) to the best of
Vistana's knowledge, violate any applicable law or regulation, order or other
decree of any court or governmental entity, or (ii) conflict or be inconsistent
with, or result in any default under, any contract, agreement or commitment to
which Vistana is bound.
4.3 Financial Statements and Business Condition. The most recent annual
-------------------------------------------
consolidated and consolidating and quarterly consolidated financial statements
of Vistana and its consolidated subsidiaries have been delivered to Lender and
fairly present the financial condition and (if applicable) results of operations
of such Persons as of the date or dates thereof and for the periods covered
thereby. Lender acknowledges that Vistana's Form 10-Q and 10-K quarterly and
annual financial statements are acceptable to Lender to satisfy the annual and
quarterly consolidated financial statements requirements for Vistana, Inc.
Except for any such changes heretofore expressly disclosed in writing to Lender,
there has been no material adverse change in the financial condition of Vistana
or its consolidated subsidiaries from the financial condition shown in such
consolidated financial statements. Vistana is able to pay all of its debts as
they become due, and Vistana shall maintain such solvent financial condition,
giving effect to all obligations, absolute and contingent, of Vistana.
Vistana's obligations under this Agreement will not render it unable to pay its
debts as they become due.
4.4 Litigation and Proceedings. Except as previously disclosed to Lender
--------------------------
in writing (which disclosures shall be satisfactory to Lender in its reasonable
determination), there are no actions, suits, proceedings, orders or injunctions
pending or, to the best of Vistana's knowledge, threatened against or affecting
Vistana or any Affiliate, at law or in equity, or before or by any Governmental
Authority which if adversely determined would have a Material Adverse Effect.
Neither Vistana nor any Affiliate has received any notice from any court or
Governmental Authority alleging that such Person or any Affiliate has violated
any applicable Governmental Regulation, any
10
<PAGE>
of the rules or regulations thereunder, or any other applicable laws, the result
of which, if adversely determined, would have a Material Adverse Effect. Vistana
shall promptly inform Lender of (a) any litigation against Vistana or affecting
any Eligible Resort, which, if determined adversely, is reasonably likely to
have a Material Adverse Effect or might cause an Event of Default under a
Receivables Loan or a Termination Event hereunder, (b) any claim or controversy
which is reasonably likely to become the subject of such litigation, and (c) any
material adverse change in the financial condition of Vistana.
4.5 No Breach or Default. The consummation of the transactions
--------------------
contemplated hereby, and the performance of any of the terms and conditions
hereof, will not result in a breach of, or constitute a default in, Vistana's
organizational documents or in any mortgage, deed of trust, lease, promissory
note, loan agreement, credit agreement, partnership agreement or other agreement
to which Vistana is a party or by which Vistana may be bound or affected where
such breach or default would have a Material Adverse Effect. Vistana is not in
default of any order of any court or any applicable requirement of any
Governmental Authority which default would have a Material Adverse Effect.
4.6 Licenses and Permits. Vistana possesses all requisite franchises,
--------------------
certificates of convenience and necessity, operating rights, licenses, permits,
consents, authorizations, exemptions and orders as are necessary to carry on its
business as now being conducted.
4.7 Disclosure. There is no fact of which Vistana is aware that Vistana
----------
has not disclosed to Lender in writing that could have a Material Adverse Effect
on the property, business or financial condition of Vistana.
4.8 Employee Benefit Plans. Vistana is in compliance in all material
----------------------
respects with all applicable provisions of the Employee Retirement Income
Security Act, the Internal Revenue Code and all other applicable laws and the
regulations and interpretations thereof with respect to all employee benefit
plans adopted by Vistana for the benefit of its employees. No material
liability has been incurred by Vistana which remains unsatisfied for any funding
obligation, taxes or penalties with respect to any such employee benefit plan.
4.9 Year 2000. Vistana has made an assessment of the microchip and
---------
computer-based systems and the software used in its business and based upon such
assessment believes that it will be "Year 2000 Compliant" by January 1, 2000.
For purposes of this paragraph, "Year 2000 Compliant" means that all software,
embedded microchips and other processing capabilities utilized by, and material
to the business operations or financial condition of Vistana are able to
interpret, store, transmit receive and manipulate data on and involving all
calendar dates correctly and without causing any abnormal ending scenarios in
relation to dates in and after the Year 2000. From time to time, at the request
of Lender, Vistana shall provide to Lender such updated
11
<PAGE>
information as is requested regarding the status of its efforts to become Year
2000 Compliant.
SECTION 5. REPORTING REQUIREMENTS
So long as any Receivables Loan is outstanding or there are any outstanding
obligations of Vistana under any guarantee in respect of a Receivables Loan,
Vistana shall or shall cause the applicable Eligible Vistana Subsidiary to
deliver to Lender the following:
5.1 Monthly Reports. Within fifteen (15) days after the end of each
---------------
calendar month, reports (on a Resort by Resort basis) showing through the end of
the preceding month, (i) the following information with respect to each Financed
Pre-Sale Note Receivable and each Financed Note Receivable: (A) the opening and
closing balances, (B) all payments received allocated to interest, principal,
late charges, taxes or the like, (C) the rate of interest, (D) an itemization of
delinquencies, extensions, refinances, prepayments, upgrades, payoffs,
cancellations and other adjustments, (E) the remaining term, (F) the nature and
status of any claims asserted or legal action pending with respect thereto, (G)
identification of the Resort at which the Interval related to the Financed Pre-
Sale Note Receivable or Financed Note Receivable is located, and (H) the
aggregate principal balances of Financed Notes Receivable and Financed Pre-Sale
Notes Receivable executed by Purchasers not residing in the U.S. or Canada; and
(ii) the weighted average interest rate and the average remaining term of all
Financed Pre-Sale Notes Receivable and Financed Notes Receivable.
5.2 Sales and Inventory Reports. Within twenty-five (25) days after the
---------------------------
end of each calendar month and quarter, a monthly or quarterly report (on a
Resort by Resort basis) showing all sales and cancellations of sales of
Intervals for each Eligible Resort as to which a Receivables Loan is outstanding
hereunder, in form and content satisfactory to Lender; and within thirty (30)
days after the end of each Fiscal Year, an annual sales and inventory report for
each Eligible Resort detailing the sales of all Intervals during such Fiscal
Year and the available inventory of Units and Intervals, certified by Vistana or
the applicable Eligible Vistana Subsidiary to be true, correct and complete and
otherwise in the form approved by Lender.
5.3 Quarterly Financial Reports. Within forty-five (45) days after the
---------------------------
end of each fiscal quarterly period, unaudited financial statements of Vistana
and each Eligible Vistana Subsidiary that is an obligor under a Receivables
Loan, certified by the chief financial officer, chief operating officer or chief
accounting officer of Vistana or the applicable eligible Vistana Subsidiary to
be true and correct, as Lender acknowledges that Vistana's Form 10-Q quarterly
financial statements are acceptable to Lender in satisfaction of the
requirements of this Sectiion 5.3 with respect to Vistana.
5.4 Year-End Financial Reports. As soon as available and in any event
--------------------------
within one hundred and twenty (120) days after the end of each Fiscal Year of
Vistana and each Eligible Vistana Subsidiary that is an obligor under a
Receivables Loan: (i) the
12
<PAGE>
consolidated and consolidating balance sheets of Vistana and, to the extent
provided to Lender in connection with Lender's initial approval of this
facility, its consolidated subsidiaries and the balance sheets of each such
Eligible Vistana Subsidiary as of the end of such year and the related
consolidated and consolidating statements of income and cash flow for such
fiscal year for Vistana and to the extent provided to Lender in connection with
Lender's initial approval of this facility, its consolidated subsidiaries and
the related statements of income and cash flow for such Fiscal Year for each
such Eligible Vistana Subsidiary; (ii) a schedule of all outstanding
Indebtedness of Vistana and such Eligible Vistana Subsidiary describing in
reasonable detail each such debt or loan outstanding and the principal amount
and amount of accrued and unpaid interest with respect to each such debt or loan
which separate schedule may be part of the balance sheet; (iii) in the case of
Vistana, copies of reports from a firm of independent certified public
accountants, selected by Vistana, which reports shall be unqualified as to going
concern and scope of audit and shall state that such financial statements
present fairly the financial position of Vistana and its consolidated
subsidiaries, as of the dates indicated and the results of Vistana's operations
and cash flow for the periods indicated in conformity with GAAP; and (iv) in the
case of each such Eligible Subsidiary, a certificate from the chief financial
officer or chief operating officer of Vistana certifying that such financial
statements present fairly the financial position of such Eligible Vistana
Subsidiary, as of the dates indicated and the results of such Eligible Vistana
Subsidiary's operations for the periods indicated in conformity with such
Eligible Vistana Subsidiary's current preparation of these reports. Lender
acknowledges that Vistana's Form 10-Q and 10-K quarterly and annual financial
statements are acceptable to Lender for Vistana's financial statements required
by this Section 5.4.
5.5 Audit Reports. Promptly upon receipt thereof, one (1) copy of each
-------------
other report submitted to Vistana or each Eligible Vistana Subsidiary that is an
obligor under a Receivables Loan by independent public accountants in connection
with any annual audit made by them of the books of Vistana or such Eligible
Vistana Subsidiary.
5.6 Other Reports. Such other reports, statements, notices or written
-------------
communications relating to Vistana or such Eligible Vistana Subsidiary, as
Lender may require, in its reasonable discretion.
5.7 SEC Reports. Promptly upon their becoming available one (1) copy of
-----------
each financial statement, report, notice or proxy statement sent by Vistana to
security holders generally, and of each regular or periodic report and any
registration statement, prospectus or written communication (other than
transmittal letters) in respect thereof filed by Vistana with, or received by
Vistana in connection therewith from, any securities exchange or the Securities
and Exchange Commission or any successor agency.
5.8 Notice of Litigation, Claims, and Financial Change. Notice of (i)
--------------------------------------------------
any litigation against Vistana or any Eligible Vistana Subsidiary affecting any
Eligible Resort, which, if determined adversely, is reasonably likely to have a
Material Adverse Effect or is reasonably likely to cause an Event of Default
under a Receivables Loan or a Termination Event hereunder, (ii) any claim or
controversy which is reasonably likely to become the subject of such litigation,
and (iii) any material adverse change in the
13
<PAGE>
financial condition of Vistana or any Eligible Vistana Subsidiary that is an
obligor under a Receivables Loan.
SECTION 6. TERMINATION EVENTS
6.1 Termination Events. A "Termination Event" shall exist hereunder upon
------------------
the occurrence and during the continuance of any one or more of the following:
(a) Events:
------
(i) Vistana does not pay its debts as they become due or
admits in writing its inability to pay its debts or makes a general assignment
for the benefit of creditors; or
(ii) Vistana commences any case, proceeding or other action
seeking reorganization, arrangement, adjustment, liquidation, dissolution or
composition of it or its debts under any Debtor Relief Laws; or
(iii) Vistana in any involuntary case, proceeding or other
action commenced against it which seeks to have an order for relief entered
against it, as debtor, or seeks reorganization, arrangement, liquidation,
dissolution or composition of it or its debts under any Debtor Relief Laws, (i)
fails to obtain a dismissal of such case, proceeding or other action within
sixty (60) days of its commencement, or (ii) converts the case from one chapter
of the Federal Bankruptcy Code to another chapter, or (iii) is the subject of an
order for relief; or
(iv) Vistana conceals, removes, or permits to be concealed or
removed any part of its property, with intent to hinder, delay or defraud its
creditors or any of them, or makes or suffers a transfer of any of its property
which may be fraudulent under any bankruptcy, fraudulent conveyance or similar
law; or makes any transfer of its property to or for the benefit of a creditor
at a time when other creditors similarly situated have not been paid; or suffers
or permits, while insolvent, any creditor to obtain a lien upon any of its
property through legal proceedings which is not vacated within sixty (60) days
from the date thereof; or
(v) Vistana has a trustee, receiver, custodian or other
similar official appointed for, or take possession of, all or any part of its
property or has any court take jurisdiction of any other of its property which
continues for a period of sixty (60) days (except where a shorter period is
specified in the immediately following subparagraph (vi)); or
(vi) Vistana fails to have discharged within a period of sixty
(60) days any attachment, sequestration, or similar writ levied upon any
property of such owner; or
14
<PAGE>
(vii) Vistana fails to pay within sixty (60) days of issuance or
entry any final money judgment, after appeal, any tax, lien, or attachment in
the amount of One Hundred Thousand Dollars and 00/100 ($100,000) or greater; or
(viii) a Declared Default by Vistana, any Eligible Vistana
Subsidiary or a wholly-owned Affiliate of Vistana or of any Eligible Vistana
Subsidiary under the terms of any Indebtedness in an aggregate principal amount
in excess of $5,000,000 in one or a series of related or unrelated transactions;
or
(ix) Vistana fails to maintain Vistana's Minimum Net Worth; or
(x) any statements, representations, warranties or covenants
of Vistana in this Agreement or any financial statement or any other writing
delivered by Vistana to Lender in connection with this Agreement is false,
misleading or incorrect in any material respect as of the date made; provided,
however, that such occurrence shall not constitute a Termination Event unless
the actual conditions have a reasonable likelihood of adversely and materially
affecting any of the collateral for any Receivables Loan, or business or
financial condition of Vistana or the ability of Vistana to perform its
obligations under this Agreement or any Receivables Loan Documents.
(b) A Declared Default by Vistana, any Eligible Vistana Subsidiary or
a wholly-owned Affiliate of Vistana or of any Eligible Vistana Subsidiary in the
payment of any Indebtedness owed to Lender shall constitute a Termination Event
hereunder without regard to any dollar threshold or any notice and cure
provisions granted to Vistana pursuant to the terms hereof.
Notwithstanding the foregoing provisions of this 6.1(b) to the contrary, a
Termination Event hereunder shall not be deemed to exist if within thirty (30)
days following a Declared Default by Vistana, by any Eligible Vistana Subsidiary
or by a wholly-owned Affiliate of Vistana or of any Eligible Vistana Subsidiary
in the payment of any Indebtedness owed to Lender, Vistana, the Eligible Vistana
Subsidiary or the wholly-owned Affiliate of Vistana or of the Eligible Vistana
Subsidiary which is the borrower with respect to the Indebtedness the failure to
pay which has given rise to the Declared Default pays Lender the total amount of
the Indebtedness as to which such occurrences pertained, together with any
accrued but unpaid interest thereon and any other amounts advanced by or
otherwise owed to Lender in connection with such Indebtedness.
SECTION 7. RIGHTS AND REMEDIES OF LENDER
7.1 Rights of Lender.
----------------
Upon the occurrence of a Termination Event of the type described in Section
6.1(a) or 6.1(b) hereof, Lender shall have the right (i) to declare all of the
Receivables Loans for all Eligible Resorts and any Indebtedness owed to Lender
with respect to this Master Vistana Resort Receivables Loan Facility immediately
due and
15
<PAGE>
payable, together with interest accrued thereon, and any costs, fees and charges
in connection therewith, without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived, (ii) to terminate Lender's
obligation to extend future Receivables Loans, Lender's obligations to make
Receivables Advances under existing Receivables Loans and all other obligations
of Lender under this Agreement and under the Receivables Loan Documents for any
Phase (or portion thereof) of any Eligible Resort, and (iii) to exercise such
remedies under or in respect of the Receivables Loan Documents for any Phase (or
portion thereof) of any Eligible Resort, this Agreement and the Vistana Guaranty
as may be permitted thereunder or under applicable law, all as more particularly
set forth in the Receivables Loan Documents for any Eligible Resort, this
Agreement and the Vistana Guaranty.
7.2 No Waiver or Exhaustion. No waiver by Lender of any of its rights
-----------------------
or remedies hereunder, in the Receivables Loan Documents, under any Indebtedness
owed to Lender by Vistana, any Eligible Vistana Subsidiary or by a wholly-owned
Affiliate of Vistana or of any Eligible Vistana Subsidiary, or otherwise, shall
be considered a waiver of any other or subsequent right or remedy of Lender; no
delay or omission in the exercise or enforcement by Lender of any rights or
remedies shall ever be construed as a waiver of any right or remedy of Lender;
and no exercise or enforcement of any such rights or remedies shall ever be held
to exhaust any right or remedy of Lender.
7.3 Marshalling Waiver. Vistana waives any and all rights to require the
------------------
marshalling of assets in connection with the exercise of any of the remedies
hereunder.
SECTION 8. MISCELLANEOUS
8.1 Notices. Any notice or other communication required or permitted to
-------
be given shall be in writing addressed to the respective party as set forth
below and may be personally served, telecopied, or sent by overnight courier, or
sent by registered or certified U.S. Mail return receipt requested, and shall be
deemed given: (a) if served in person, when served; (b) if telecopied, on the
date of transmission if before 3:00 p.m. (Chicago time) on a Business Day
otherwise, on the next Business Day; provided that a confirmation of the receipt
--------
of any such telecopy is obtained and retained by the sending party and that a
hard copy of such notice is also sent pursuant to (c) or (d) below; (c) if by
overnight courier, on the first Business Day after delivery to the courier; or
(d) if by certified or registered U.S. Mail, return receipt requested, on the
fourth (4th) day after deposit in the mail postage prepaid.
Notices to Vistana: Vistana, Inc.
Attn: Chief Financial Officer
8801 Vistana Centre Drive
Orlando, Florida 32821-6353
Telecopy: (407) 239-3198
With a Copy to: Vistana, Inc.
16
<PAGE>
Attn: Susan Werth, Esq.
701 Brickell Avenue
Suite 2100
Miami, Florida 33131
Telecopy: (305) 374-7159
Notices to Lender: Heller Financial, Inc.
Attn: Portfolio Manager, Vacation Ownership Finance
Loan No. 98-151
500 West Monroe Street
Chicago, Illinois 60661
Telecopy: (312) 441-7924
With a copy to: Heller Financial, Inc.
Attn: Vacation Ownership Legal Representative
Loan No. 98-151
500 West Monroe Street
Chicago, Illinois 60661
Telecopy: (312) 441-7872
8.2 Entire Agreement and Modifications. This Agreement and the
----------------------------------
Receivables Loan Documents constitute the entire understanding and agreement
between the undersigned with respect to the transactions arising in connection
with the Receivables Loans and supersede all prior written or oral
understandings and agreements between the undersigned in connection therewith.
No provision of this Agreement or the Receivables Loan Documents may be
modified, waived, terminated, supplemented, changed or amended except by a
written instrument executed by all parties hereto or thereto. Notwithstanding
the foregoing, in the event there is a conflict between this Agreement and the
Receivables Loan Documents with respect to a certain Receivables Loan, the terms
of the Receivables Loan Documents for such Receivables Loan shall govern.
8.3 Severability. In case any of the provisions of this Agreement shall
------------
for any reason be held to be invalid, illegal, or unenforceable, such
invalidity, illegality, or unenforceability shall not affect any other provision
hereof, and this Agreement shall be construed as if such invalid, illegal, or
unenforceable provision had never been contained herein.
8.4 Election of Remedies. Lender shall have all of the rights and
--------------------
remedies granted herein and in the Receivables Loan Documents and available at
law or in equity, and these same rights and remedies shall be cumulative and may
be pursued separately, successively, or concurrently against Vistana, any
Eligible Vistana Subsidiary, or any property or other collateral subject to the
Receivables Loan Documents, at the sole discretion of Lender. The exercise or
failure to exercise any of
17
<PAGE>
the same shall not constitute a waiver or release thereof or of any other right
or remedy, and the same shall be nonexclusive.
8.5 Form and Substance. All documents, certificates, insurance
------------------
policies, evidence, and other items required under this Agreement to be executed
and/or delivered to Lender shall be in form and substance satisfactory to Lender
in Lender's reasonable discretion.
8.6 No Third Party Beneficiary. This Agreement is for the sole benefit
--------------------------
of Lender and Vistana and is not for the benefit of any third party.
8.7 Vistana in Control. In no event shall Lender's rights and interests
------------------
under the Receivables Loan Documents be construed to give Lender the right to,
or be deemed to indicate that Lender is in control of the business, management
or properties of Vistana or any Eligible Vistana Subsidiary or has power over
the daily management functions and operating decisions made by Vistana.
8.8 Number and Gender. Whenever used herein, the singular number shall
-----------------
include the plural and the plural the singular, and the use of any gender shall
be applicable to all genders.
8.9 Captions. The captions, headings, and arrangements used in this
--------
Agreement are for convenience only and do not in any way affect, limit, amplify,
or modify the terms and provisions hereof.
8.10 Applicable Law. This Agreement shall be governed by and construed
--------------
in accordance with the laws of the State of Illinois (without regard to
conflicts of law principles) and the laws of the United States applicable to
transactions within such state.
8.11 Venue. VISTANA HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR
-----
FEDERAL COURT LOCATED WITHIN THE COUNTY OF COOK STATE OF ILLINOIS AND
IRREVOCABLY AGREES THAT, SUBJECT TO LENDER'S ELECTION, ALL ACTIONS OR
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE LITIGATED IN
SUCH COURTS. VISTANA EXPRESSLY SUBMITS AND CONSENTS TO THE JURISDICTION OF THE
AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS. VISTANA HEREBY
WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE
OF PROCESS MAY BE MADE UPON VISTANA BY CERTIFIED OR REGISTERED MAIL, RETURN
RECEIPT REQUESTED, ADDRESSED TO VISTANA, AT THE ADDRESS SET FORTH IN THIS
AGREEMENT AND SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS
BEEN POSTED.
8.12 Jury Trial Waiver. VISTANA AND LENDER HEREBY WAIVE THEIR
-----------------
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
18
<PAGE>
BASED UPON OR ARISING OUT OF THIS AGREEMENT. VISTANA AND LENDER ACKNOWLEDGE THAT
THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT
EACH HAS RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL
CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. VISTANA AND
LENDER WARRANT AND REPRESENT THAT EACH HAS HAD THE OPPORTUNITY OF REVIEWING THIS
JURY WAIVER WITH LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES
ITS JURY TRIAL RIGHTS.
8.13 Attorneys' Fees. In any action hereunder between the parties
---------------
hereto, the prevailing party shall be entitled to reasonable attorneys' fees and
costs including those for pretrial, trial and appellate proceedings.
8.14 Counterparts. This Agreement may be signed in multiple
------------
counterparts which taken together shall constitute the entire agreement between
the parties.
8.15 Participating Lenders. Lender shall have the right to designate up
---------------------
to three participating lenders and to grant to such participating lenders
undivided participation interests in this Master Vistana Resort Receivables Loan
Facility or in any one or more of the Receivables Loans, on terms and conditions
satisfactory to Lender. Lender shall provide Vistana with the name of each such
proposed participating lender and Vistana shall have the right to approve each
such participating lender (such approval not to be unreasonably withheld) for a
period of four (4) Business Days after written notice is provided by Lender to
Vistana. It would be reasonable for Vistana to withhold its consent in the
event the potential participating lender is a timeshare developer (not including
a lender that has taken back timeshare assets as a result of a defaulted
timeshare related loan or credit facility), a timeshare exchange company or
hospitality industry company. Such participating lenders shall communicate and
deal only with Lender with respect to such participating lenders' participation
interests in this Master Vistana Resort Receivables Loan Facility, and neither
Vistana nor any Eligible Vistana Subsidiary shall be required to deal with any
participating lender unless such participating lender accompanies Lender on any
inspection or site visit. Neither Vistana nor any Eligible Vistana Subsidiary
shall be liable hereunder to make any payment to any participating lender or
incur any related expenses as a result of such participation arrangement. The
Lender may furnish any information concerning Vistana or the transactions
contemplated herein in the possession of Lender from time to time to such
participating lenders (including prospective participating lenders which are not
a timeshare developer, timeshare exchange company or hospitality industry
company), provided that such participating lenders shall treat any such
--------
information as "confidential."
8.16 Consent to Advertising and Publicity. Lender may issue and
------------------------------------
disseminate to the public press releases and other information describing the
credit accommodations entered into pursuant to this Agreement and/or pursuant to
any Receivables Loan, provided that Vistana shall approve the description of
--------
such credit
19
<PAGE>
accommodation and the timing of such announcement, which approval shall not be
unreasonably withheld.
20
<PAGE>
IN WITNESS WHEREOF, the parties set their hands as of the date above first
written.
LENDER:
HELLER FINANCIAL, INC.
/s/ Lisa J. Hansen
By: _________________________________
Lisa J. Hansen
Name: _________________________________
Assistant Vice President
Its: _________________________________
VISTANA:
VISTANA, INC., a Florida corporation
/s/ Susan Werth
By: __________________________________
Name: Susan Werth
Its: Senior Vice President and General Counsel
21
<PAGE>
APPENDIX
--------
DEFINED TERMS
-------------
For purposes of this Agreement, the following terms shall have the
respective meanings assigned to them:
AFFILIATE. Any individual, trust, estate, partnership, limited liability
company, corporation or any other incorporated or unincorporated organization
that directly or indirectly, through one or more intermediaries, Controls or is
Controlled by or is under common Control with Vistana, any officer, director,
partner or shareholder of Vistana, or any relative of any of the foregoing. The
term "Control" means possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.
AGREEMENT. First paragraph of this Agreement.
BUSINESS DAY. The term "business day" shall mean a day which is not a
Saturday or Sunday on which banks are open for business in Illinois and Florida.
CLOSE OF PRE-SALE ESCROW DATE. With respect to any Receivables Loan, the
date on which the close of the pre-sale escrow for a particular Phase of an
Eligible Resort (or portion thereof) occurs as more particularly described in
the applicable Document Escrow Agreement and on which the Pre-Sale Credit Period
for such particular Phase (or portion thereof) terminates.
COMMITTED FACILITIES. Amenities promised to Purchasers pursuant to the
Purchase Documents, sales materials or the applicable public offering statement
approved by the applicable Governmental Authority.
COMMITMENT FEE. A commitment fee which is payable in accordance with
Section 1.5 hereof.
COMPLETION. The substantial completion of the referenced improvements, in
accordance with the requirements of the applicable Purchase Documents as
evidenced by (i) a temporary certificate of occupancy (or its equivalent), if
applicable, or otherwise a certificate of occupancy permitting legal occupancy
thereof in the respective completed improvements, issued by the local
Governmental Authority with jurisdiction over construction of such improvements,
(ii) a certificate of the Eligible Vistana Subsidiary regarding completion of
such improvements, (iii) a certificate of an independent inspector if
applicable, pursuant to the terms of Section 2.2(b)(i) above, and (iv) such
other documents or certifications as may be required pursuant to the applicable
Purchase Documents.
CONTROL. As defined in the definition of "Affiliate."
<PAGE>
COSTS. All actual and reasonable expenditures and expenses which may be
paid or incurred by or on behalf of Lender in connection with the documentation,
modification, workout, collection or enforcement of any Receivables Loan or any
of the Receivables Loan Documents. Notwithstanding the foregoing, Costs payable
on the date of the initial Receivables Advance shall be limited to (i) the
reasonable fees and costs of Lender's attorneys (including Lender's inside
counsel) in connection with the documentation of the Receivables Loan and the
due diligence review of Borrower's deliveries; (ii) Lender's reasonable due
diligence and related travel expenses; and (iii) all applicable title, filing
and recording fees and other closing costs. The cost of obtaining an appraisal
shall be paid by Lender and the cost of any inspector, if applicable, shall be
shared equally by Lender and Vistana or the Eligible Vistana Subsidiary.
DEBTOR RELIEF LAWS. Any applicable liquidation, conservatorship,
bankruptcy, moratorium, rearrangement, insolvency, reorganization, or similar
laws affecting the rights or remedies of creditors generally, as in effect from
time to time.
DECLARATION. With respect to any Eligible Resort, that certain condominium
or other Lender approved project related declaration to be recorded in the
appropriate land records office of the applicable Governmental Authority in
which such Eligible Resort is located, pursuant to which a condominium or other
Lender approved project related regime will be created in and for such Eligible
Resort.
DECLARED DEFAULT. With respect to any Person at any date, a default under
any instrument evidencing any Indebtedness for which (i) such Person has
received written notice of default by the holder of such Indebtedness and (ii)
said default has not been cured by such Person or waived in writing by the
holder of such Indebtedness, and the period for cure, if any, has expired.
DOCUMENT ESCROW. An escrow arrangement pursuant to the Document Escrow
Agreement for each Eligible Resort as set forth pursuant to the Receivables Loan
Documents which contains certain instruments related to the sale of Intervals at
such Eligible Resort during the Pre-Sale Credit Period in accordance with the
terms of the Receivables Loan Documents for such Eligible Resort.
DOCUMENT ESCROW AGENT. An independent third party approved by Lender,
pursuant to the terms of the Document Escrow Agreement for each Eligible Resort
for which there are Financed Pre-Sale Notes Receivable.
DOCUMENT ESCROW AGREEMENT. An agreement among the applicable Eligible
Vistana Subsidiary and the applicable Document Escrow Agent or an independent
third party, approved by Lender for each Eligible Resort for which there are
Financed Pre-Sale Notes Receivable, which provides for the escrow of certain
instruments arising from the sale of Intervals at such Eligible Resort by the
applicable Eligible Vistana Subsidiary during the Pre-Sale Credit Period in
accordance with the terms of the Receivables Loan Agreement for such Eligible
Resort.
2
<PAGE>
ELIGIBLE NOTE RECEIVABLE. Each Note Receivable satisfying all of the
requirements set forth in this Agreement, and all of the following criteria:
(A) Payments due under the Note Receivable shall be self-amortizing and
payable in monthly installments; and the Note Receivable shall have an
original term of no more than eighty-four (84) months; provided, however,
up to fifteen percent (15%) of the aggregate principal balance of all
Financed Notes Receivable for any Receivables Loans may at any time be
comprised of Notes Receivable having an original term of not greater than
one hundred and twenty (120) months;
(B) Purchaser has made a cash down payment of at least ten percent (10%)
of the actual purchase price of the Interval and no part of such payment
has been made or loaned to Purchaser by Vistana, an Eligible Vistana
Subsidiary or an Affiliate;
(C) No installment is more than thirty (30) days past due on a contractual
basis at the time of assignment to Lender, nor becomes more than sixty (60)
days past due on a contractual basis thereafter as measured on the last day
of each month;
(D) The weighted average interest rate of all Financed Notes Receivable
for the applicable Receivables Loan is no less than 3% per annum above the
Interest Rate;
(E) The Unit with respect to the Interval purchased has been completed in
accordance with the Purchase Documents therefor;
(F) All Committed Facilities, as represented, in the applicable
Declaration, sales prospectus, applicable public offering statement or
Purchase Documents for the applicable Phase of the applicable Eligible
Resort have been completed and such Committed Facilities are available for
use by all Purchasers;
(G) The Note Receivable arises from the bona fide sale by the Eligible
Vistana Subsidiary of a fee simple interest timeshare Interval at the
Eligible Resort;
(H) The Interval Mortgage which encumbers the Interval related to the Note
Receivable is insured under an Interval Mortgagee Title Insurance Policy
acceptable to Lender subject only to those exceptions to title as Lender
approves;
(I) The Intervals in the approved Phase of the applicable Eligible Resort
shall not have been made a part of, or been contributed as inventory to, a
vacation club or multisite timeshare plan of any type (a "Club") other than
a Club (A) operated and controlled by Vistana or an Eligible Vistana
Subsidiary, a Club operated
3
<PAGE>
under a "Promus" brand name, or another Club of similar quality; and (B)
the legal structure and other aspects of which have been approved in
writing by Lender, in its sole and absolute discretion. The term Club shall
not include customers who voluntarily exchange Intervals through an
external timeshare exchange program;
(J) The Note Receivable is secured by a first priority Interval Mortgage
encumbering the related Interval, and such sale is evidenced by Purchase
Documents;
(K) The Purchaser is not an Affiliate of, related to or employed by the
Eligible Vistana Subsidiary or Vistana;
(L) The Note Receivable is free and clear of adverse claims, liens and
encumbrances and is not currently, nor shall it be potentially in the
future, subject to any claims of rescission, invalidity, unenforceability,
illegality, defense, offset or counterclaim;
(M) The Purchaser of the Interval shall not have purchased, nor contracted
to purchase, more than four (4) Intervals located at the same applicable
Eligible Resort which are the subject of any Receivables Advances made
under the subject Receivables Loan;
(N) Payments are to be in legal tender of the United States;
(O) The Note Receivable and the Purchase Documents are valid, genuine and
enforceable against the obligor thereunder, and such obligor has not
assigned his or her interest thereunder;
(P) At least 80% of the outstanding principal amount of all Notes
Receivable from all Eligible Resorts arises from Purchasers who are U.S. or
Canadian residents; provided, however, that no more than 10% of the
outstanding principal balance of all Notes Receivable shall arise from any
single foreign country; and further provided that with respect to any
Vistana Resort located in Orlando which may become the subject of a
Receivables Loan at least 70% of the outstanding principal amount of all
Notes Receivable arising from an approved Phase at any such Vistana Resort
must arise from Purchasers who are U.S. or Canadian residents;
(Q) Payments have been made by the obligor under the Note Receivable and
not by Vistana, an Eligible Vistana Subsidiary or any Affiliate of Vistana
or an Eligible Vistana Subsidiary on the obligor's behalf; and
(R) The terms of the Note Receivable and Purchase Documents comply with
all applicable federal and state laws and regulations.
4
<PAGE>
ELIGIBLE PRE-SALE NOTE RECEIVABLE. Each Pre-Sale Note Receivable
satisfying all of the criteria listed in subparagraphs (a) through (d), and (i)
through (r) in the above-referenced definition of Eligible Note Receivable, as
well as any other requirements set forth in the applicable Receivables Loan
Agreement. In addition, each Pre-Sale Note Receivable shall satisfy the
following additional criteria:
(A) The Unit or building with respect to the Interval purchased will be
completed in accordance with the related Purchase Documents therefor, but
in no event later than eighteen (18) months after the date of such related
Purchase Documents;
(B) All Committed Facilities in the applicable Phase of the subject
Eligible Resort, will be completed and such Committed Facilities will be
available for use by such Purchasers prior to occupancy of the first Unit
or building in such Phase;
(C) During the applicable Pre-Sale Credit Periods with respect to any
Receivables Loan, the Interval Mortgage and the assignment of Interval
Mortgage related to the subject Pre-Sale Note Receivable as well as the
related warranty deed to the Purchaser shall all be properly executed and
held in the Document Escrow by Document Escrow Agent pursuant to the terms
of the Document Escrow Agreement in effect with respect to the applicable
Receivables Loan Documents and recorded in the official records of the
county in which the Eligible Resort is located within sixty (60) days after
the Close of Pre-Sale Escrow Date for the subject Phase, subject to
extension if Document Escrow Agent is proceeding diligently and in good
faith to record the documents and the delay is beyond the Eligible Vistana
Subsidiary's or Vistana's control at the recording office, but in no event
shall such period be extended for more than one hundred twenty (120) days
after the termination of the Pre-Sale Credit Period for the subject Phase;
(D) During the applicable Pre-Sale Credit Period for the subject
Receivables Loan, a mortgagee's title insurance commitment or a pro-forma
mortgagee's title insurance policy acceptable to Lender indicating (that
upon recording the appropriate documents after the Pre-Sale Credit Period
for the subject Phase terminates) the first mortgage-lien priority of each
of the Interval Mortgages assigned to Lender each which Interval Mortgage
shall be related to the Pre-Sale Note Receivable, shall be properly
executed and held in the Document Escrow by the Document Escrow Agent
pursuant to the terms of the Document Escrow Agreement in effect with
respect to the applicable Receivables Loan and each such mortgagee's title
insurance commitment or pro-forma mortgagee's title insurance policy shall
be delivered to Lender within sixty (60) days after the Close of Pre-Sale
Escrow Date for the subject Receivables Loan, subject to extension if
Document Escrow Agent is proceeding diligently and in good faith to record
the documents and the delay is beyond the Eligible Vistana Subsidiary's or
Vistana's control at the recording office, but in no event shall such
period be extended for more than one hundred twenty (120) days after the
termination of
5
<PAGE>
the Pre-Sale Credit Period for the subject Phase. Within a reasonable time
thereafter an Interval Mortgagee Title Insurance Policy shall be provided
to Lender for each Interval Mortgage assigned to Lender in connection with
any Receivables Loan; and
(E) The obligor under such Pre-Sale Note Receivable has no presently
exerciseable statutory, contractual, or other right to cancel or rescind
his or her purchase of the related Interval for any reason.
ELIGIBLE RESORT. (a) With respect to a proposed Receivables Loan to
finance Eligible Pre-Sale Notes Receivable, any of (i) Phases 1 and 2 of the
Embassy Vacation Resort at Myrtle Beach (Myrtle Beach, SC), Phase 1 of the
Embassy Vacation Resort at Scottsdale (Scottsdale, Arizona), Phase 1 of Lakeside
Terrace Condominiums (Vail, Colorado), and (ii) any Phase of a Resort for which
particular Phase Lender has made a Resort Loan (as that term is defined in the
Master Construction Loan Facility), and such Resort Loan is or will be
outstanding as of the Receivables Loan Closing Date and any other specific Phase
or Phases of a Resort or Resorts for which specific Phase or Phases Vistana from
time to time requests and Lender thereafter approves in its sole discretion
based on its review of the due diligence information required to be provided by
Vistana or the Eligible Vistana Subsidiary as a condition precedent for such
specific Phase or Phases to qualify as an approved Phase or Phases of an
Eligible Resort for purposes of this Agreement; (b) With respect to a proposed
Receivables Loan to finance Eligible Notes Receivable, any of (i) any Phase of a
Resort for which Lender has made a Resort Loan (as that term is defined in the
Master Construction Loan Facility) and such Resort Loan is or will be
outstanding as of the Receivables Loan Closing Date, and (ii) the Resorts for
which Lender has previously granted Vistana or an Eligible Vistana Subsidiary a
receivables loan (subject to updated due diligence requirements to be satisfied
by Vistana or the Eligible Vistana Subsidiary in Lender's reasonable discretion
and an agreed upon minimum aggregate principal balance of Eligible Notes
Receivable for any particular Phase of such a Resort to be assigned to Lender as
collateral for such Receivables Loan) including the following: Embassy Vacation
Resort at Myrtle Beach (Myrtle Beach, SC), Vistana Lakes Condominiums (Orlando,
Florida), Vistana Cascades Condominium (Orlando, Florida), Vistana Springs
(Orlando, Florida), Vistana Fountains (Orlando, Florida), Vistana Spa (Orlando,
Florida), Vistana Condominium (Orlando, Florida), Vistana Fountains II (Orlando,
Florida) and Vistana Beach Club (Hutchinson Island, Florida) and any other
specific Phase or Phases of a Resort or Resorts for which specific Phase or
Phases Vistana from time to time requests and Lender thereafter approves in its
sole discretion based on its review of the due diligence information required to
be provided by Vistana or an Eligible Vistana Subsidiary as a condition
precedent for such specific Phase or Phases to qualify as an approved Phase or
Phases of an Eligible Resort for purposes of this Agreement.
ELIGIBLE VISTANA SUBSIDIARY. With respect to any Eligible Resort, a
subsidiary of Vistana (which may be a corporation, limited liability company or
limited partnership), (a) all of whose capital stock and other equity interests
are wholly owned directly or
6
<PAGE>
indirectly by Vistana, and (b) whose sole business is the ownership,
construction, development, operation and management of one or more resorts
(including at least one (1) Eligible Resort) and the sale and financing of
Intervals in respect thereof.
EVENT OF DEFAULT. Has the meaning set forth in each applicable Receivables
Loan Agreement.
FACILITY CLOSING DATE. December 30, 1998.
FINANCED NOTE RECEIVABLE. Any Eligible Note Receivable as to which a
Receivables Advance has been made and which has been assigned and delivered to
Lender as security for the subject Receivables Loan.
FINANCED PRE-SALE NOTE RECEIVABLE. Any Eligible Pre-Sale Note Receivable
as to which a Receivables Advance has been made and which has been assigned to
Lender, delivered to the applicable Document Escrow Agent in accordance with the
applicable Document Escrow Agreement, and which shall be delivered to Lender as
security for the subject Receivables Loan promptly after the Close of Pre-Sale
Escrow Date.
FUNDS ESCROW ACCOUNT. A deposit account in First Union National Bank or a
financial institution acceptable to Lender pursuant to the applicable Funds
Escrow Agreement which contains all deposits and payments related to the sale of
Intervals at the subject Eligible Resort arising from each such sale or from
payments pursuant to the related Pre-Sale Notes Receivable.
FUNDS ESCROW AGENT. An independent third party, approved by Lender,
pursuant to the terms of the applicable Funds Escrow Agreement for each Eligible
Resort.
FUNDS ESCROW AGREEMENT. An agreement among applicable the Eligible Vistana
Subsidiary and applicable Funds Escrow Agent or an independent third party
approved by Lender, for each Eligible Resort, including the applicable
Direction-Pay-Letter from such Eligible Vistana Subsidiary to the applicable
Funds Escrow Agent for the benefit of Lender, which provides for the escrow and
disbursement of all deposits and payments made by Purchasers of Pre-Sale Notes
Receivable in accordance with the terms of the Receivables Loan Agreement for
such Eligible Resort.
GAAP. Generally accepted accounting principles, applied on a consistent
basis, set forth in Opinions of the Accounting Principles Board of the American
Institute of Certified Public Accountants and/or in statements of the Financial
Accounting Standards Board which are applicable in the circumstances as of the
date in question; and the requisite that such principles be applied on a
consistent basis means that the accounting principles in a current period are
comparable in all material respects to those applied in a preceding period, with
any exceptions thereto noted.
7
<PAGE>
GOVERNMENTAL AUTHORITY. The United States of America, the states and
counties in which any of the Eligible Resorts are located, the Bahamas and any
other governmental authorities (including other foreign countries if approved by
Lender as the location of an Eligible Resort) having jurisdiction over Vistana
or any Eligible Vistana Subsidiary, any of the Eligible Resorts or any other
property of either Vistana or any Eligible Vistana Subsidiary, or the sale of
Intervals in any of the Eligible Resorts.
GOVERNMENTAL REGULATIONS. All rules, regulations, ordinances, laws and
statutes of any Governmental Authority which affect any one or more of the
Eligible Resorts or the right of Vistana or any Eligible Vistana Subsidiary to
sell Intervals.
INDEBTEDNESS. With respect to any Person at any date, (a) all indebtedness
of such Person for borrowed money or for the deferred purchase price of property
or services, including, without limitation, any Receivables Loans and any pre-
sale or other receivables financing, other than: (i) current liabilities
incurred in the ordinary course of business and payable in accordance with
customary trade practices; or (ii) liabilities incurred or to be incurred among,
from, under or through one or a series of related or unrelated transactions each
of which qualify for treatment as a "true sale" in accordance with FAS-125
issued by the Financial Accounting Standards Board of the American Institute of
Certified Public Accountants; (b) all obligations of such Person under capital
leases; (c) all obligations of such Person in respect of acceptances issued or
created for the account of such Person; and (d) all liabilities secured by any
lien on any property owned by such Person even though such Person has not
assumed or otherwise become liable for the payment thereof.
INTEREST RATE. A floating rate per annum equal to the Base Rate plus two
hundred and sixty-five basis points, (2.65%) (the aggregate rate referred to as
the "Interest Rate"). "Base Rate" shall mean the rate published each Business
Day in The Wall Street Journal for notes maturing three (3) months after
-----------------------
issuance under the caption "Money Rates, London Interbank Offered Rates
(LIBOR)". The Interest Rate for each calendar month shall be fixed based upon
the Interest Rate published prior to and in effect on the first (1st) Business
Day of such month. Interest shall be calculated based on a 360 day year and
charged for the actual number of days elapsed.
INTERVAL. An undivided fee simple ownership interest as tenants in common
with all other Purchasers with respect to any Unit, with a right to use a Unit
at an Eligible Resort for one week annually, or on an every other year basis,
together with all appurtenant rights and interests as more particularly
described in the applicable Timeshare Declaration or such other ownership
interest as set forth in the applicable Receivables Loan Documents for an
Eligible Resort.
INTERVAL MORTGAGE. With respect to any Receivables Loan, a first-lien
mortgage from a Purchaser to an Eligible Vistana Subsidiary securing payment
under a Note Receivable or a Pre-Sale Note Receivable in respect to, and in
connection with, the acquisition by such Purchaser of an Interval, encumbering
title to such Interval.
8
<PAGE>
LENDER. First paragraph of this Agreement.
MATERIAL ADVERSE EFFECT. With respect to any event or circumstance, a
material adverse effect on:
(a) the business, assets, financial condition or operations of Vistana and
its subsidiaries, taken as a whole;
(b) the ability of Vistana or any Eligible Vistana Subsidiary to perform
its respective obligations under this Agreement or any Receivables Loan Document
to which it is a party;
(c) the validity, enforceability or collectibility against Vistana or any
Eligible Vistana Subsidiary of this Agreement or any Receivables Loan Document
to which it is a party; or
(d) the status, existence, perfection or priority of (i) Lender's security
interest and lien in the collateral securing any Receivables Loan or (ii) any
Eligible Vistana Subsidiary's ownership interest in any Eligible Resort.
NOTE RECEIVABLE. A purchase money promissory note executed by a Purchaser
of an Interval at an Eligible Resort, subsequent to the Pre-Sale Credit Period
for such Eligible Resort, evidencing Purchaser's outstanding indebtedness and
obligation to pay the applicable Eligible Vistana Subsidiary the balance of the
purchase price due in connection with the purchase of such Interval.
PERSON. Natural persons, corporations, limited partnerships, general
partnerships, limited liability companies, limited liability partnerships, joint
stock companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and governments and agencies and political subdivisions thereof.
PHASE. Any phase of an Eligible Resort.
PRE-SALE CREDIT PERIOD. With respect to any Receivables Loan, the period
for a particular Phase (or portion thereof) of an Eligible Resort commencing on
the later date to occur of the (a) Receivables Loan Closing Date for Intervals
in such Phase (or portion thereof) or (b) the date the timeshare registration
with the applicable Governmental Authority for the applicable Phase (or portion
thereof) of an Eligible Resort is approved, and ending on the applicable Close
of Pre-Sale Escrow Date.
PRE-SALE NOTE RECEIVABLE. A purchase money promissory note executed by a
Purchaser of an Interval at an Eligible Resort, during the Pre-Sale Credit
Period for such Interval, evidencing Purchaser's outstanding indebtedness and
obligation to pay the applicable Eligible Vistana Subsidiary the balance of the
purchase price due in connection with the purchase of such Interval.
9
<PAGE>
PURCHASE DOCUMENTS. Any purchase contract and related sale and escrow
documents executed and delivered by a Purchaser to an Eligible Vistana
Subsidiary or Vistana with respect to the purchase of an Interval, including
without limitation a Note Receivable or a Pre-Sale Note Receivable and an
Interval Mortgage.
PURCHASER. Any Person who purchases one or more Intervals.
RECEIVABLES ADVANCE. Proceeds of a Receivables Loan advanced from time to
time by Lender to an Eligible Vistana Subsidiary or Vistana in accordance with
the terms of this Agreement and the applicable Receivables Loan Documents.
RECEIVABLES LOAN. With respect to any Eligible Resort, a loan from Lender
to the Eligible Vistana Subsidiary made pursuant to Section 1.1 hereof.
RECEIVABLES LOAN CLOSING DATE. With respect to any Receivables Loan, the
date on which the Receivables Loan Documents for such Receivables Loan are
signed and delivered and all conditions precedent in respect of the extension of
such Receivables Loan to the applicable Eligible Vistana Subsidiary are
satisfied or otherwise waived by Lender.
RECEIVABLES LOAN DOCUMENTS. With respect to any Eligible Resort and the
Receivables Loan in respect thereof, each of the following: (a) the receivables
loan agreement for such Receivables Loan, (b) the receivables promissory note or
notes for such Receivables Loan, (c) the guarantee of Vistana in respect of such
Receivables Loan, (d) the assignment of Interval Mortgages, (e) the UCC-1
Financing Statements, (f) the respective Funds and Document Escrow Agreements
and direction to pay letter, if any, (g) the hazardous material indemnity
agreement in respect of such Eligible Resort and (h) such other collateral
security documents as are customarily obtained by prudent receivables lenders.
RESORT. Any property and the improvements and Committed Facilities
existing or to be constructed thereon that (a) is owned or will be owned on the
applicable Receivables Loan Closing Date by Vistana or an Eligible Vistana
Subsidiary pursuant to the terms of a purchase agreement, (b) is or will be
developed by Vistana or an Eligible Vistana Subsidiary, (c) is to be made
subject to a condominium and timeshare regime under applicable Governmental
Regulations, (d) pursuant to such condominium and timeshare regime is to be
divided into Intervals and (e) is to be directly marketed and sold as a
timeshare resort.
RESORT ASSOCIATION. A condominium, timeshare or owners' association in
which owners of Intervals in an Eligible Resort are members.
REVOLVING PERIOD. The period commencing on the Facility Closing Date and
ending on the earlier of (a) December 30, 2001 or (b) the date on which this
Agreement is terminated under Section 7.1 as a result of the existence of a
Termination Event.
10
<PAGE>
TERMINATION EVENT. As defined in Section 6 hereof.
TIMESHARE DECLARATION. With respect to any Eligible Resort, that certain
timeshare declaration to be recorded in the appropriate land records office for
the applicable Governmental Authority in the jurisdiction in which such Eligible
Resort is located, pursuant to which a timeshare regimen based on Intervals will
be created in and to such Eligible Resort. The Timeshare Declaration may be
combined with, and made a part of, a Declaration.
UNIT. With respect to any Eligible Resort, an individual residential unit
within an approved Phase of such Eligible Resort, together with all furniture,
fixtures and furnishings therein, and together with any and all interest in
common elements appurtenant thereto, as provided in the Declaration or Timeshare
Declaration of such Eligible Resort and as specifically identified in the
Purchase Documents.
VISTANA. First paragraph of this Agreement.
VISTANA GUARANTY. The guaranty agreement executed by Vistana of even date
herewith which guarantees all amounts outstanding pursuant to the terms of this
Agreement.
VISTANA'S MINIMUM NET WORTH. Vistana agrees to (i) maintain a consolidated
minimum net worth of One Hundred Million and 00/100 Dollars ($100,000,000.00) as
determined in accordance with Vistana's Form 10-Q and Form 10-K quarterly and
annual financial statements from and after the date hereof; and (ii) such
Vistana minimum net worth shall increase over time by an amount equal to fifty
percent (50%) of Vistana's after-tax net income over time as determined in
accordance with Vistana's Form 10-Q and Form 10-K quarterly and annual financial
statements; and (iii) maintain a minimum tangible net worth of Eighty Million
and 00/100 Dollars ($80,000,000.00), defined as total shareholders equity plus
subordinated indebtedness less any intangible assets and inter-company
receivables not eliminated in consolidated financial statements as determined in
accordance with Vistana's Form 10-Q and 10-K quarterly and annual financial
statements from and after the date hereof.
11
<PAGE>
SCHEDULE 1.2
------------
[REQUEST FOR RECEIVABLES LOAN]
DATE:___________________________
Heller Financial, Inc.
Attn: Portfolio Manager, Vacation Ownership
500 West Monroe Street
Chicago, Illinois 60661
RE: Loan No.
$_____ Master Vistana Resort Receivables Loan Facility (the
"AGREEMENT") between Heller Financial, Inc. ("LENDER") and Vistana,
Inc. ("VISTANA")
Dear Sir or Madam:
Capitalized terms used herein shall have the meanings assigned thereto in
the Agreement.
1. In accordance with the terms of the Agreement, Vistana hereby notifies
Lender that it desires to obtain a new Receivables Loan from Lender in a maximum
principal amount not to exceed $_______________________. The following
information is true and correct with respect to such Receivables Loan:
(a) Borrower: [Name of Eligible Vistana Subsidiary].
(b) All of the equity of Borrower is wholly owned directly or indirectly by
Vistana.
(c) The Borrower satisfies all of the eligibility requirements of an
"Eligible Vistana Subsidiary."
(d) The Resort is described on Exhibit A hereto and is located at
_____________.
(e) Attached hereto are the documents required from Vistana or Borrower in
Schedule 2.2, Schedule 2.2(A) (if applicable) and/or Section 2.2(b)
(i)-(iv) (if applicable) of or to the Agreement (other than Loan
Documents and legal opinion letters).
(f) No Termination Event has occurred and is continuing. The Master
Vistana Resort Receivables Loan Facility is in full force and effect.
12
<PAGE>
2. The representations and warranties contained in the Agreement are true,
correct and complete in all material respects to the same extent as though made
on the date of this request except for any representation or warranty limited by
its terms to a specific date and taking into account any amendments to the
schedules or exhibits as a result of any subsequent disclosures made by Vistana
in writing to and approved by Lender.
3. Vistana is in compliance in all material respects with each and every
one of its covenants, agreements and obligations under the Agreement.
4. To the best of Vistana's knowledge, Vistana has no defenses or offsets
with respect to the payment of any amounts due Lender pursuant to the Agreement.
5. Vistana acknowledges that this request is subject to approval by
Lender.
VISTANA, INC.
By: ________________________________
Name: ________________________________
Its: ________________________________
13
<PAGE>
Financial Section
Forward-Looking Statements
This Annual Report contains "forward-looking statements" within the meaning of
the federal securities laws, including statements concerning the Company's
future prospects and financial performance, expansion plans, business strategies
and their intended results, and similar statements about anticipated future
events and expectations that are not historical facts. Such statements are
subject to numerous risks and uncertainties, including the effects of economic
conditions, interest rates, consumer demand, payment and default risks on
customer mortgages receivable, competitive conditions, the impact of government
regulations and approval requirements, the availability and cost of capital to
finance future growth, the ability to acquire, develop and sell vacation
ownership inventory cost-effectively, the availability of qualified personnel,
the ability to transfer the experience and historical operating results of the
Company's mature resorts to its new properties, the ability to avoid disruption
from year 2000 technology problems, the satisfactory completion of proposed
joint venture, licensing, financing and other agreements, and the satisfaction
of various conditions and compliance with various covenants contained in the
Company's existing agreements. Such risks could cause actual results to differ
materially from those expressed or implied by the forward-looking statements
contained in this Annual Report.
Financial Contents
Selected Financial Data...............................................18
Management's Discussion and Analysis..................................19
Report of Management..................................................28
Report of KPMG LLP....................................................29
Consolidated Balance Sheets...........................................30
Consolidated Statements of Income.....................................31
Consolidated Statements of Shareholders' Equity.......................32
Consolidated Statements of Cash Flows.................................33
Notes to Consolidated Financial Statements............................34
Common Stock Data......................................Inside Back Cover
<PAGE>
Selected Financial Data
The following table sets forth selected financial data of the Company for the
years ended December 31, 1998, 1997, 1996, 1995, and 1994. The selected
financial data of the Company for the three years ended December 31, 1998, was
derived from the Company's consolidated financial statements which were audited
by KPMG LLP, independent auditors, whose report with respect to the three-year
period ended December 31, 1998, together with such consolidated financial
statements, appears elsewhere herein.
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 consolidated financial statements of the Company and Notes
thereto appearing elsewhere in this Annual Report.
<TABLE>
<CAPTION>
(in thousands except per share amounts) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Results for the Years Ended December 31:
Vacation Ownership Interest sales $172,872 $100,887 $ 60,063 $ 50,156 $ 54,186
Interest income 26,538 19,296 15,546 12,886 7,654
Total revenues 233,722 145,352 96,936 81,109 77,636
Vacation Ownership Interest cost of sales 38,622 22,898 14,595 12,053 11,391
Sales and marketing expense 83,138 45,616 27,877 22,318 22,872
Total interest expense 12,909 8,945 11,019 9,684 5,711
Provision for doubtful accounts 12,792 6,971 4,271 3,522 3,803
General and administrative expense 17,869 11,988 7,873 6,979 7,988
Total costs and operating expenses 202,840 122,906 86,447 75,478 67,287
Operating income 30,882 22,446 10,489 5,631 10,349
Income before income taxes and extraordinary item 33,303 23,025 10,594 5,850 10,714
Provision for taxes 12,655 8,101 -- -- --
Non-recurring charge associated
with the change of tax status -- 13,201 -- -- --
Income before extraordinary item 20,648 1,723 10,594 5,850 10,714
Extraordinary item-early
extinguishment of debt (net of tax) -- (1,425) -- -- --
Net income $ 20,648 $ 298 $ 10,594 $ 5,850 $ 10,714
Net income per share--diluted .96 $ .02 $ -- $ -- $ --
Pro forma income before income taxes $ -- $ 23,025 $ 10,594 $ 5,850 $ --
Pro forma net income -- 12,874 6,568 3,627 --
Pro forma net income per share--diluted $ -- $ .69 $ .46 $ .26 $ --
- ----------------------------------------------------------------------------------------------------------
Balance Sheet Data as of December 31:
Total assets $471,420 $287,209 $173,922 $140,651 $117,989
Notes and mortgages payable $242,644 $109,547 $118,557 $101,504 $ 64,769
Shareholder's equity $144,216 $119,405 $ 26,648 $ 17,904 $ 33,658
</TABLE>
18 SELECTED FINANCIAL DATA
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The Company was organized in December 1996 to combine 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 ("VOI's") 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, in perpetuity. For purposes of the following
discussion, unless otherwise noted, sales of VOI's reflect sales of both annual
VOI's and alternate-year VOI's, each as a sale of a single VOI. 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.
The Company recognizes revenues attributable to sales of VOI's on an accrual
basis after the execution of a binding sales contract between the Company and
the purchaser and receipt by the Company of a down payment of at least 10% of
the sales price. In connection with the Embassy Vacation Resort at Myrtle Beach,
South Carolina, the Embassy Vacation Resort at Scottsdale, Arizona, and Lakeside
Terrace Condominiums at Avon, Colorado, the Company has sold or is selling, and
may in the future sell at other resorts, VOI's prior to completion of
construction. To the extent the Company sells VOI's prior to completion of
construction, the Company recognizes such sales in accordance with the
percentage of completion method. Under this method, costs associated with the
acquisition and development of vacation ownership resorts, including carrying
costs such as interest and taxes, and sales and marketing costs, are generally
capitalized and subsequently recorded as the related revenues are recognized.
The Company, through its predecessor corporations and partnerships, has operated
in the vacation ownership industry since 1980. In November 1991, Messrs. Gellein
and Adler, together with a third individual, acquired the Company from a
corporate entity that had purchased the Company in 1986. In May 1995, the
Company purchased the entire interest in the Company held by the third
individual, who was a shareholder/executive of the Company (the "Executive
Repurchase"). Also in 1995, the Company redeemed options (the "Option
Redemption") to purchase interests in the partnerships which operate Vistana
Resort Orlando and Vistana's Beach Club, which were held by two institutions
that 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.
In February 1997, the Company completed its initial public offering (the
"Initial Offering") of common stock, using the majority of the $49.5 million net
proceeds to repay outstanding indebtedness. In September 1997, the Company
acquired the Success Companies and Points of Colorado ("Success and Points") in
a business combination accounted for as a purchase. Also, in December 1997, the
Company completed a secondary offering of common stock (the "Secondary
Offering") using all of the $41.5 million net proceeds to repay outstanding
indebtedness.
Results of Operations
The following discussion of results of operations relates to entities comprising
the Company on a consolidated basis. Results of operations only reflect
operations of entities in existence for each respective reporting year. The
following table sets forth certain consolidated operating information for the
entities comprising the Company for the three years ended December 31, 1998,
1997, and 1996.
<TABLE>
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Statement of Operations:
As a percentage of Total Revenues
VOI sales 74.0% 69.4% 62.0%
Interest income 11.4% 13.3% 16.0%
Resort revenue 8.9% 11.6% 14.0%
Telecommunications revenue 3.9% 5.2% 7.3%
Other revenue 1.8% 0.5% 0.7%
---------------------------
Total revenues 100.0% 100.0% 100.0%
===========================
As a percentage of VOI Sales
VOI cost of sales (product cost) 22.3% 22.7% 24.3%
Sales and marketing expense 48.1% 45.2% 46.4%
Provision for doubtful accounts 7.4% 6.9% 7.1%
As a percentage of Interest Income
Interest expense--treasury 33.4% 37.5% 44.2%
As a percentage of Total Revenues
General and administrative expense 7.7% 8.2% 8.1%
Depreciation and amortization expense 2.7% 2.4% 2.6%
Interest expense--other 1.7% 1.2% 4.3%
Other expense 2.5% 2.1% 0.5%
Total costs and operating expenses 86.8% 84.6% 89.2%
As a percentage of Resort Revenues
Resort expenses/(1)/ 85.9% 82.2% 81.6%
As a percentage of Telecommunications Revenues
Telecommunications expenses/(1)/ 81.2% 81.5% 79.6%
Selected Operating Data:
Number of resorts at year-end 8 6 3
Number of VOI's sold - actual/(2)/ 18,137 10,260 5,794
Average price of VOI's sold - actual/(2)/ $ 9,734 $ 9,833 $10,366
Number of VOI's sold - annualized/(3)/ 14,769 8,747 4,877
Average sales price per VOI - annualized/(3)/ $11,954 $11,534 $12,316
Percentage of alternate unit week sales 37.1% 29.5% 31.7%
Number of VOI's in inventory at end of period/(4)/ 21,334 14,405 14,774
</TABLE>
(1) Does not include interest and depreciation expenses.
(2) Includes sales of both annual and alternate-year VOI's.
(3) Includes sales of annual intervals plus sales of alternate year intervals
adjusted on an annualized basis.
(4) Inventory classified as annual VOI's.
MANAGEMENT'S DISCUSSION AND ANALYSIS 19
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Comparison of the Year Ended
December 31, 1998 to the Year
Ended December 31, 1997
For the year ended December 31, 1998, the Company recognized total revenues of
$233.7 million compared to $145.4 million for 1997, an increase of $88.3 million
or 60.7%. This increase is primarily due to a $72.0 million, or 71.4%, increase
in sales of VOI's from $100.9 million during 1997 to $172.9 million during 1998.
VOI sales increased due to a 76.8% increase in the number of VOI's sold from
10,260 in 1997 to 18,137 in 1998, offset slightly by a 1.0% decrease in the
average sales price. Annualizing alternate year VOI sales, the number of VOI's
sold during the year ended December 31, 1998, increased 68.8%, to 14,769 from
8,747, and the average sales price per interval increased 3.6%, to $11,954 from
$11,534. The increase in VOI sales resulted from the contributions made by
Success and Points which were included in sales for all of 1998 and for
essentially only the fourth quarter in 1997, increased VOI sales at the
Company's Orlando area resorts and its resort at Myrtle Beach, and VOI sales at
the World Golf Village, Lakeside Terrace and Scottsdale resorts which are
included in revenues in 1998 but not in 1997. The decrease in average sales
price primarily resulted from an increasing product mix of resorts with lower
price points including Hampton Vacation Resort--Oak Plantation and certain of
the Success and Points resorts and sales of alternate year VOI's. The increase
in the number of VOI's sold was also the product of expanded sales and marketing
programs in Central Florida.
Interest income increased $7.2 million or 37.3% to $26.5 million from $19.3
million due to a 44.1% increase in the principal amount of net customer
mortgages receivable from $155.0 million to $223.3 million, and an increase in
the weighted average stated yield on customer mortgages receivable from 14.2% to
14.7%. Interest income includes discount amortization on customer mortgages
receivable of $1.6 million and $3.1 million recognized during the twelve month
periods ended December 31, 1998 and December 31, 1997, respectively, relating to
the repurchase of customer mortgages receivable. 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, 1998, $0.8 million of total
unamortized discount remained and is expected to be amortized through 1999.
Resort revenue increased $3.8 million or 22.5% from $16.9 million to $20.7
million, primarily as a result of increased room rentals due to the increase in
rooms available and occupancy levels. Telecommunication revenues (guest
telephone charges relating to existing resorts and revenues from contracting
services provided to third parties) increased $1.6 million or 21.3% from $7.5
million in 1997 to $9.1 million in 1998 due to an increase in contract revenues
and higher resort occupancies.
Total costs and operating expenses increased $79.9 million or 65.0% from $122.9
million in 1997 to $202.8 million in 1998, an increase as a percentage of total
revenues from 84.6% in 1997 to 86.8% in 1998. VOI cost of sales (product cost),
as a percentage of VOI revenues, decreased from 22.7% in 1997 to 22.3% in 1998,
as a result of increased sales volumes, a broader product mix and increased
sales of alternate year VOI's. VOI cost of sales is expected to increase in
future periods as new resorts having higher land and construction costs comprise
a larger part of the Company's VOI sales. In 1998, this anticipated trend was
largely offset by an increase in the relative percentage of alternate year VOI
sales which carry a higher product margin. Alternate year unit week prices are
typically set at 60% to 65% of annual unit week prices. Sales and marketing
expenses increased 82.2% from $45.6 million in 1997 to $83.1 million in 1998,
principally due to the 71.4% increase in related VOI sales as well as costs
associated with the expansion of the Company's off-site international operations
and operating inefficiencies at newer resorts and adverse effects of seasonality
at the Company's Myrtle Beach resort (which opened in May 1998). As a percentage
of VOI sales, selling and marketing expenses increased from 45.2% in 1997 to
48.1% in 1998 primarily as a result of increased marketing costs and lower than
anticipated sales from the off-site operations of the Company's international
subsidiary, which was adversely affected by economic and weather conditions in
South and Central America and hurricane damage in the Caribbean basin. The
Company has closed several of its off-site offices in South and Central America
and is evaluating other action intended to reduce the sales and marketing costs
of its off-site international business. Certain of these remedial actions may
increase costs in the short term. Sales and marketing costs at the Company's
newer resorts are generally higher than at its mature properties, primarily as a
result of start-up costs and sales inefficiencies currently anticipated during
at least the first 12 to 24 months of new resort operations, as well as the
lower percentage of in-house VOI sales (which typically carry higher margins)
available at newer resorts.
The Company is currently developing or planning three proposed new resorts and
is evaluating other resort opportunities. Many of these proposed resorts are
located in areas where the Company has not previously conducted business. As
these new resorts move into sales and
20 MANAGEMENT'S DISCUSSION AND ANALYSIS
<PAGE>
constitute a greater proportion of the Company's total revenues and expenses,
they will have an increasing impact on the Company's results of operations. If
the Company is unable to achieve the revenues, cost of sales, and sales and
marketing expenses targeted for these new resorts, the resulting differences
could have a material adverse effect on the Company's results of operations.
Loan portfolio expenses consist of interest expense-treasury and the provision
for doubtful accounts. Interest expense-treasury increased 23.6% to $8.9 million
in 1998 from $7.2 million in 1997, primarily as a result of increased levels of
debt secured by customer mortgages receivable offset by a lower average cost of
funds. Because a significant majority of the Company's indebtedness bears
interest at variable rates and the Company's customer mortgages receivable earn
interest at fixed rates, increases in short-term interest rates could have an
adverse effect on the net interest margin earned by the Company on its customer
mortgages receivable. Provision for doubtful accounts increased to 7.4% of VOI
sales in 1998 compared to 6.9% in 1997. The Company periodically monitors its
allowance for doubtful accounts to provide for future losses associated with any
defaults on customer mortgages receivable. Management believes that the
allowance is adequate for such future losses.
Resort and telecommunication expenses increased at a rate commensurate with that
of related revenues. General and administrative expenses increased $5.9 million
or 49.2% from $12.0 million for 1997 to $17.9 million for 1998, decreasing as a
percent of total revenues from 8.2% in 1997 to 7.7% in 1998. The decrease in
general and administrative expenses as a percentage of total revenues was
primarily the result of economies of scale relating to increased revenue levels.
Depreciation and amortization increased to 2.7% of total revenues in 1998
compared to 2.4% in 1997, primarily due to capital additions during the current
year for resort and sales facilities and information technology assets. Interest
expense-other increased as a percentage of total revenue from 1.2% in 1997 to
1.7% in 1998 due to increased borrowings secured by real estate and unsecured
borrowings. Interest expense-other excludes amounts capitalized of $3.2 million
in 1998 and $1.9 million in 1997.
Other income increased $3.8 million or 542.9% from $0.7 million in 1997 to $4.5
million in 1998 primarily as a result of the net sales of premium ticket
inventory from a marketing company in Central Florida acquired in the fourth
quarter of 1997. The increase in other expenses of $2.9 million or 96.7% from
$3.0 million to $5.9 million primarily reflects the costs associated with
operating the acquired company. Minority interest increased $1.8 million from
$0.5 million in 1997 to $2.3 million in 1998 reflecting an increased loss from
operations from consolidated ventures which are not wholly owned.
Operating income, excluding amounts for excess value recognized and minority
interest, increased $8.5 million or 37.9% to $30.9 million, or 13.2% of total
revenues, during 1998 from $22.4 million, or 15.4% of total revenues, during
1997.
Comparison of the Year Ended
December 31, 1997 to the Year
Ended December 31, 1996
For the year ended December 31, 1997, the Company recognized total revenues of
$145.4 million compared to $96.9 million for 1996, an increase of $48.5 million
or 50.1%. This increase is primarily due to a $40.8 million, or 67.9%, increase
in sales of VOI's from $60.1 million during 1996 to $100.9 million during 1997.
VOI sales increased due to a 77.1% increase in the number of VOI's sold from
5,794 in 1996 to 10,260 in 1997, reduced by a 5.1% decrease in the average sales
price. Annualizing alternate year VOI sales, the number of VOI's sold during the
year ended December 31, 1997, increased 79.4% to 8,747 from 4,877, and the
average sales price per interval decreased 6.4%, to $11,534 from $12,316. The
increase in VOI sales resulted from record sales levels at the Company's
flagship Vistana Resort in Orlando, Florida, and the addition of Success and
Points beginning September 16, 1997. The decrease in average sales price
primarily resulted from an increasing product mix of resorts with lower price
points including Hampton Vacation Resort--Oak Plantation and certain resorts
acquired in the Success and Points transaction. The increase in VOI's sold was
also the product of expanded sales and marketing programs, both in Central
Florida and internationally, and sales of VOI's at the Hampton Vacation Resort--
Oak Plantation which were included in sales for all of 1997 and for a limited
period in 1996.
Interest income increased $3.8 million or 24.5% to $19.3 million from $15.5
million due to a 54.7% increase in the principal amount of net customer
mortgages receivable from $100.2 million to $155.0 million, offset by a decline
in the weighted average stated yield on customer mortgages receivable from 14.4%
to 14.2%. Interest income includes discount amortization on customer mortages
receivable of $3.1 million and $2.8 million recognized during the twelve month
periods ended Decemeber 31, 1997 and December 31, 1996, respectively, relating
to the repurchase of customer mortgages receivable. 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
MANAGEMENT'S DISCUSSION AND ANALYSIS 21
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
pertaining to the original transaction) from an investment partnership. As of
December 31, 1997, $2.5 million of total unamortized discount remained and is
expected to be amortized through 1999.
Resort revenue increased $3.3 million or 24.3% from $13.6 million to $16.9
million, primarily as a result of increased room rentals including the impact of
Hampton Vacation Resort--Oak Plantation, which is included for all of 1997 and
for a limited period in 1996. Telecommunication revenues (guest telephone
charges relating to the existing resorts and revenues from contracting services
provided to third parties) increased $0.4 million or 5.6% from $7.1 million in
1996 to $7.5 million in 1997.
Total costs and operating expenses increased $36.4 million or 42.1% from $86.5
million in 1996 to $122.9 million in 1997, but declined as a percentage of total
revenue from 89.2% in 1996 to 84.6% in 1997. VOI cost of sales, as a percentage
of VOI sales, decreased from 24.3% in 1996 to 22.7% in 1997, as a result of
current period sales at Vistana Resort of phases with relatively lower per unit
costs and at Hampton Vacation Resort--Oak Plantation of units having a lower
product cost. Sales and marketing expenses increased 63.4% from $27.9 million in
1996 to $45.6 million in 1997, principally due to the 67.9% increase in related
VOI sales. As a percentage of VOI sales, selling and marketing expenses
decreased from 46.4% in 1996 to 45.2% in 1997 primarily as a result of lower
sales and marketing costs at Vistana Resort due primarily to increased operating
efficiencies.
Loan portfolio expenses consist of interest expense-treasury and the provision
for doubtful accounts. Interest expense-treasury increased 4.4% to $7.2 million
in 1997 from $6.9 million in 1996 primarily as a result of increased borrowing
levels in the second half of 1997. Interest expense-treasury increased at a
lower rate than the increase in customer mortgages receivable, net, primarily
due to the repayment of debt during 1997 with proceeds from the Initial Offering
and Secondary Offering. Provision for doubtful accounts decreased to 6.9% of VOI
sales in 1997 compared to 7.1% in 1996 due primarily to the impact of Success
and Points which had a lower provision and loss rate than the Company's
historical levels. The Company periodically monitors its allowance for doubtful
accounts to provide for future losses associated with any defaults on customer
mortgages receivable and provides for additions to the allowance for loss on
receivables through its provision for doubtful accounts on an annual basis.
Management believes that the allowance is adequate for such future losses.
Because substantially all of the Company's indebtedness bears interest at
variable rates and the Company's customer mortgages receivable earn interest at
fixed rates, increases in short-term interest rates could have an adverse effect
on the net interest margin earned by the Company on its customer mortgages
receivable.
Resort and telecommunication expenses increased at a rate commensurate with that
of related revenues. General and administrative expenses increased $4.1 million
or 51.9% from $7.9 million for 1996 to $12.0 million for 1997, increasing as a
percent of total revenues from 8.1% in 1996 to 8.2% in 1997. The increase in
general and administrative expenses was primarily the result of (i) increased
revenue levels and commensurate business activities; (ii) the addition of a
number of senior managers and executives to build the management and
organizational infrastructure necessary to efficiently manage the Company's
future growth; (iii) the Company's expenses as a public company, including the
filing of periodic public reports; and (iv) added salary, travel and office
expenses attributable to the current and planned growth in the size of the
Company. Depreciation and amortization decreased to 2.4% of total revenues in
1997 compared to 2.6% in 1996, reflecting the added costs of depreciation from
capital additions being spread over a larger revenue base. Interest expense-
other decreased as a percentage of total revenue from 4.3% in 1996 to 1.2% in
1997 due to the early extinguishment of debt from funds provided by the Initial
Offering and the Secondary Offering. Interest expense-other excludes amounts
capitalized of $1.9 million in 1997 and $0.4 million in 1996.
Other income remained essentially flat at $0.7 million in 1997 and 1996. Other
expenses increased $2.6 million from $0.4 million in 1996 to $3.0 million in
1997 due to the addition of new resort operations and costs affiliated with the
transition as a public company. Minority interest was $0.5 million in 1997
reflecting a loss from consolidated ventures not wholly owned, including the
commencement of Vistana Resort at World Golf Village.
Operating income increased $12.0 million or 114.3% to $22.5 million, or 15.4% of
total revenues, during 1997 from $10.5 million, or 10.8% of total revenues,
during 1996.
During 1997, in connection with the Initial Offering and Secondary Offering, the
Company repaid approximately $81.2 million of debt. As a result of the early
extinguishment of debt, the Company recorded an extraordinary charge relating to
the write-off of previously capitalized fees and incurrence of prepayment
penalties totaling $1.4 million, net of related tax benefits of $0.8 million.
22 MANAGEMENT'S DISCUSSION AND ANALYSIS
<PAGE>
Income Taxes
As the result of the transactions which occurred simultaneously with the Initial
Offering, the Company became subject to federal, state and foreign income taxes
during 1997 and was required to record a nonrecurring deferred tax liability of
$13.2 million for cumulative temporary differences between financial reporting
and tax reporting. In 1997, the Company also recorded an income tax expense
provision of $8.1 million, excluding the $0.8 million benefit relating to the
extraordinary item that was recorded net of tax. The provision for income taxes
for the year ended December 31, 1997 reflects the income tax expense from the
date of the Initial Offering through December 31, 1997.
The Company reports most of its sales of VOI's on the installment method for
federal income tax purposes. As a result, the Company does not recognize taxable
income on these sales until the installment payments have been received from the
Company's customers. In the quarter ended June 30, 1997, the Company became
subject to the federal alternative minimum tax ("AMT") as a result of the
deferred income, which results from the installment sales method. The Company
also began paying State of Florida AMT during that period. The Company currently
anticipates that it will continue to be subject to the federal AMT and will
continue to pay Florida AMT during future periods.
Under Section 453(l) of the Internal Revenue Code, interest may be imposed on
the amount of tax attributable to the installment payments on customer mortgages
receivable for the period beginning on the date of sale and ending on the date
the related tax is paid. If the Company is otherwise not subject to pay tax in a
particular year, no interest is imposed since the interest is based on the
amount of tax paid in that year. The Company has not included a provision for
any of this interest since it is not currently subject to tax; however, in the
future it may become so. The Company continues to monitor its tax provision and
may adjust it to provide for this interest in the future.
Liquidity and Capital Resources
The Company generates cash from operations from the sales and financing of
VOI's, resort operations, management activities and telecommunication services.
With respect to the sale of VOI's, the Company generates cash for operations
from (i) customer down payments and (ii) 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
VOI's equal to the difference between the interest received on the customer
mortgages receivable and the interest paid on the notes payable secured by the
Company's pledge of such customer mortgages receivable (which averaged 8.4% at
December 31, 1998). As of December 31, 1998 the customer mortgages receivable
portfolio averaged a 14.7% stated rate of interest. Net cash provided by
operations decreased to $3.4 million for the twelve months ended December 31,
1998 from $9.5 million for the prior year due primarily to increased
construction activities relative to resort development. In addition, the
decrease was affected by increases in deferred financing fees incurred in
connection with increased borrowings, including the securitization transaction
described below, and increased levels of capitalized sales and marketing
materials. The impact of construction activities was principally offset by
increased levels of customer deposits and the allowance for doubtful accounts
which both reflect increased VOI sales and the growing customer mortgages
receivable portfolio. Land acquisitions and construction and development
activities for new and existing resorts are expected to require increased
amounts of cash during future periods.
Net cash used in investing activities for the twelve months ended December 31,
1998 and 1997 was $127.8 million and $75.0 million, respectively, principally
due to increased sales of VOI's, and the related increase in origination of
customer mortgages receivable and restricted cash levels associated with the
escrow of customer deposits. Additions to restricted cash also reflect the
accumulation of the reserve fund in connection with the securitization
transaction described below. Increased expenditures for land, property and
equipment, and resort and sales facilities also impacted the change.
Net cash provided by financing activities increased to $134.5 million during
1998 from $69.3 million in 1997, as a result of increased net borrowings
primarily from the financing of customer mortgages receivable, the
securitization, the financing of construction activities, and the acquisition of
land intended for development. Net cash provided by financing activities in 1997
was primarily due to the Initial Offering and Secondary Offering. In the Initial
Offering, which was completed in the first quarter of 1997, the Company issued
4.6 million shares of common stock resulting in approximately $49.5 million of
net proceeds. In the Secondary Offering, which was completed in the fourth
quarter of 1997, the Company issued 2 million shares of common stock resulting
in approximately $41.5 million of net proceeds. The net proceeds of the
Offerings were used by the Company to repay $81.2 million in outstanding debt
and related interest and prepayment penalties.
The Company requires funds to finance the acquisition and development of
vacation ownership resorts and related inventory, to finance customer mortgages
receivable
MANAGEMENT'S DISCUSSION AND ANALYSIS 23
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
originated from financing customer purchases of VOI's, and to fund working
capital. Historically, these funds have been principally provided by
indebtedness secured by a portion of the Company's land, construction in
progress and inventory of unsold VOI's, customer mortgages receivable and other
assets. As of December 31, 1998, the Company had $91.5 million outstanding under
its notes payable secured by its land, construction in progress and VOI
inventory, $133.3 million outstanding under its notes payable secured by
customer mortgages receivable and $17.8 million of other secured and unsecured
notes payable.
The Company's credit facilities (the "Credit Facilities'') provide for term
loans, of which $96.5 million were outstanding as of December 31, 1998, and
revolving lines of credit, of which $57.5 million were outstanding related to
notes secured by land, construction in progress and VOI inventory, and $73.6
million related to notes payable secured by customer mortgages receivable as of
December 31, 1998. At that date, total committed but unused available capacity
under the revolving lines of credit (assuming the availability of sufficient
receivables or other qualified assets) and term loans was $194.3 million and
$1.1 million, respectively. In addition, the Company has a $20.0 million
revolving unsecured line of credit which had a remaining capacity of $5.0
million as of December 31, 1998. As of December 31, 1998, the Company's term
loans and revolving lines of credit accrued interest at various rates between
6.06% and 9.75%, per annum. Approximately $75.0 million of the Company's
outstanding indebtedness at December 31, 1998 bears interest at variable rates
based on fixed spreads over specified reference rates. The Company bears the
risk of increases in interest rates with respect to this indebtedness.
As of December 31, 1998, the Company's scheduled principal payments on its long-
term indebtedness through 2003 (excluding payments on Credit Facilities secured
primarily by customer mortgages receivable, discussed below) were $43.7 million
in 1999, $29.5 million in 2000, $13.4 million in 2001, $17.4 million in 2002,
and $5.3 million in 2003 and thereafter.
The foregoing principal repayment obligations exclude amounts due on notes
payable secured by customer mortgages receivable including the Notes issued in
connection with the securitization transaction described below, as such notes do
not have fixed principal amortization dates. Rather, all collections of
principal and interest on the receivables serving as collateral for these notes
are paid to the lender on a monthly basis. Payments are first applied to
outstanding interest and then to principal. The total amount of customer
mortgages receivable pledged was $160.9 million and $125.1 million at December
31, 1998 and 1997, respectively.
The terms of some 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 the Company or certain of its
operating subsidiaries; (ii) maintenance of certain financial ratios, including
the ratio of selling expenses to net VOI sales; (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); (iv) subordination of certain
intercompany obligations; and (v) limitations on certain indebtedness. The
Company's Credit Facilities are generally established for fixed terms and are
also subject to early termination under certain events.
During the year ended December 31, 1998, the Company entered into (i) a $60.0
million revolving project finance facility that accrues interest at LIBOR plus
2.85%, (ii) a $40.0 million revolving project finance facility that accrues
interest at LIBOR plus 2.65%, and (iii) a $20.0 million receivables based
revolving credit facility that accrues interest at LIBOR plus 2.25%. The project
finance facilities provide 100% financing for land acquisition and construction
and development of approved resorts. During 1998, the Company also increased its
principal pre-securitization receivables warehouse facility from $70.0 million
to $100.0 million. This facility bears interest at LIBOR plus 1.0%.
In September 1998, the Company completed a private placement of $66.2 million in
principal amount of timeshare mortgage-backed notes (the "Notes"). The
outstanding balance of the Notes of $58.6 million as of December 31, 1998 is
included in the Credit Facilities referenced above and shown on the Company's
balance sheet at that date. The securitization was structured as two classes of
fixed-rate notes, with approximately $32.0 million of 5.89% notes being rated
`AAA,' and $34.2 million of 6.28% notes being rated `A,' by Duff & Phelps Credit
Rating Co. ("DCR"). The Notes are secured by approximately $71.1 million in
first mortgage liens on VOI's sold by Vistana subsidiaries in Florida and
Colorado. The weighted average cost of the Notes, including the yield on the
Notes and the cost of a letter of credit used to provide credit enhancement, is
approximately 6.30% per annum. The Notes were issued through a bankruptcy-remote
Vistana subsidiary, with no recourse back to Vistana for defaults experienced on
the underlying portfolio of receivables or for draws on the letter of credit.
The net proceeds of the securitization were used primarily to repay $60.2
million of outstanding debt secured by customer mortgages receivable and bearing
interest at LIBOR plus
24 MANAGEMENT'S DISCUSSION AND ANALYSIS
<PAGE>
2.5% and LIBOR plus 1.0%.
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, additional land upon which vacation ownership resorts may be
expanded or developed and companies operating resorts or having vacation
ownership assets, management, or sales or marketing expertise commensurate with
the Company's operations in the vacation ownership industry. The Company is
currently considering the acquisition of several land parcels for development of
additional VOI inventory. The Company from time to time evaluates additional
acquisitions of operating companies and related assets, but presently has no
contracts or capital commitments relating to any such potential acquisitions.
In the future, the Company may negotiate additional or renewed credit
facilities, issue debt, or execute additional securitizations of its customer
mortgages receivable. 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 the Company will continue to be able to borrow
in this manner. However, adverse conditions in the capital or other financial
markets, adverse financial performance by the Company or its subsidiaries, or
the need for additional equity capital, could curtail or increase the cost of
the Company's access to debt.
The Company believes that the cash generated from operations and future
borrowings, including possible securitizations of customer mortgages receivable,
will be sufficient to meet its working capital and capital expenditure needs for
its current operations for the next 12 months. However, depending upon the
Company's growth opportunities, conditions in the capital and other financial
markets and other factors, the Company may from time to time consider the
issuance of debt, equity or other securities, the proceeds of which may be used
to finance acquisitions, to refinance debt or for general corporate purposes.
During future periods, continued access to external funding will be necessary
for the Company to acquire, develop, and sell additional VOI inventory and to
finance customer purchases of its VOI's and may be necessary to provide or
supplement general working capital. If the Company were unable to obtain credit
facilities or debt or equity financing in amounts, and on terms and conditions,
satisfactory for such purposes, such event would have a material adverse effect
on the Company's business and results of operations.
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's 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 seasonal. Owner and guest activity at the Company's
resorts in the eastern United States are currently the greatest from February
through April and June through August. Owner and guest activity at the Company's
resorts in the western United States are currently the greatest from June 15 to
Labor Day and Christmas to Easter. As a result of this seasonality, the Company
currently anticipates its weakest operating results during the first quarter,
and its strongest operating results during the third quarter, of each calendar
year. However, as the Company opens new resorts and expands into new markets and
geographic locations it may experience increased or different seasonality
dynamics creating fluctuations in operating results that are different from
those experienced in the past.
Year 2000
The Company is devoting resources to minimize the risk of potential disruption
from the "year 2000 (`Y2K') problem." This problem results from computer
programs having been written using two digits (rather than four) to store date
information. Information technology ("IT") systems that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000, which could result in miscalculations and system failures. The problem
also extends to "non-IT" (operation and control) systems that rely on embedded
microchips that may be date sensitive. In addition, like other business
enterprises, the Company has a risk from Y2K failures on the part of its major
business counterparts, including financial institutions, suppliers,
distributors, licensees and manufacturers, as well as potential failures in
public and private infrastructure services, including electricity, water, gas,
transportation and communications. For example, disruptions in air travel could
adversely affect tour flow, vacation
MANAGEMENT'S DISCUSSION AND ANALYSIS 25
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
ownership sales, and resort occupancy and profitability.
In addressing the Y2K problem, the Company has classified its systems as
"critical," "important," or "non-critical." A "critical" system is one that, if
not operational, would cause the shutdown of all or a portion of a critical
business unit. These critical systems have been identified as sales and
marketing, mortgage servicing and processing, and payroll and employee benefits.
An "important" system is one that would cause an interruption to customer
service, such as the reservation system.
In 1989, through a conversion from one hardware platform to another, the Company
expanded the date field from two to four digits on all of the critical sales and
marketing software applications. This conversion and a subsequent rewrite of the
sales and marketing processes took into consideration all invalid date
processing functions including Y2K. These modules, totaling more than 400
software applications, included tour activity, sales and contract processing,
commissions, and statistical reporting.
In 1990, the Company rewrote the mortgage servicing and lender reporting
processes to improve functionality. In connection with this rewrite, the Company
took into consideration Y2K in conjunction with the overall data processing
conversion. This rewrite, totaling some 200 programs used in processing and
servicing mortgages, mortgage payment coupon processing, ACH systems, and credit
card systems, resulted in these system processes becoming Y2K compliant by the
end of 1991.
During 1997, in conjunction with its transition to a public company and to meet
the demands of its growing business, the Company began migrating to a Personal
Computer ("PC") environment. As part of the migration plan, the Company
developed minimum required standards for all IT solutions, including Y2K
compliance, and replaced all PC hardware and software that did not meet the new
Company-wide standard. During the summer of 1998, as a result of the Company's
significant growth, the major mainframe hardware, software, and operating
systems were replaced with larger systems to meet the increasing demands of the
business. In accordance with the Company's established standards, the new
systems were required to meet the standards of Y2K compliance. The migration
plan and major systems replacement were not implemented specifically to address
the Y2K issue but, rather, were the result of the Company's evolution in
enhanced automation during a period of significant growth.
During March of 1997, the Company formed a Y2K task force. Since this time,
policies and procedures have been created to review all new software and
hardware purchases and any new internal software development for Y2K compliance.
In the latter part of 1998, the payroll and employee benefit systems were
upgraded to accommodate the growing employee base and to incorporate hardware
and software applications that were Y2K compliant. The total costs associated
with this upgrade approximated $0.6 million, including the costs of software and
hardware as well as third-party costs affiliated with the implementation.
The Company has developed a seven-phase approach to resolving and monitoring Y2K
issues. All of these efforts are being coordinated through a task force chaired
by the Company's Vice President of Information Services, with individual members
from major business units.
The seven phases of the approach are as follows:
1. Inventory: inventory relevant items as to IT and non-IT items.
2. Assessment: classify items into critical, important, and non-critical.
3. Strategy: test, certify, replace or abandon relevant items.
4. Remediation: execute the strategy chosen for each item.
5. Testing and Certification: establish the test environment; test and
certify.
6. Contingency Planning: address any open issues expected in 1999.
7. Oversight Committee: complete final review of all items in the first six
phases.
Phase 1 - Inventory.
This is an ongoing process and has been in existence since 1997. This phase
entails maintaining an inventory of all hardware and software (including
business and operational applications, operating systems and third-party
products) that may be at Y2K risk, and identifying key third-party businesses
whose Y2K failures would most significantly impact the Company. The IT system
inventory process has been completed, including the inventories of key third-
party businesses and internal non-IT systems.
Phase 2 -Assessment.
Once each at-risk system has been identified, the Y2K task force assesses how
critical the system is to business operations and the potential impact of
failure, in order to establish priorities for repair or replacement. This
assessment has been completed for all IT systems and is ongoing as inventory
changes. This assessment process for internal non-IT systems and for key third-
party items is expected to be completed by March 1999.
Phase 3 - Strategy.
This is an ongoing process that involves the development
26 MANAGEMENT'S DISCUSSION AND ANALYSIS
<PAGE>
of appropriate remedial strategies for both IT and non-IT systems. These
strategies may include repairing, testing and certifying, replacing or
abandoning particular systems. Selection of appropriate strategies is based upon
such factors as the assessments made in Phase 2, the type of system, the
availability of the Y2K-compliant replacement and cost. This phase has been
completed for all IT systems. For some non-IT embedded systems, strategy
development is continuing. At the Company's Orlando resort, the majority of
critical systems have been tested and certified. All ongoing development work
and enhancements to systems are tested and documented before being placed in
production.
Phase 4 - Remediation.
The remediation phase involves creating detailed project plans, marshalling
necessary resources and executing the strategies chosen. For IT systems, this
phase is approximately 90% complete for critical and important systems, and is
expected to be completed (including certification) by June 1999. For non-
critical systems, most corrections are expected to be completed by third quarter
1999. For those systems that are not expected to be reliably functional after
January 1, 2000, detailed manual workaround plans are expected to be completed
in advance of year end 1999.
Phase 5 - Testing and Certification.
This phase includes establishing a test environment, performing systems testing
(with third parties if necessary), and certifying the results. The certification
process entails having functional experts review the results, computer screens
and printouts against pre-established criteria to evaluate system compliance.
The Company expects all critical and important IT systems to be certified by
June 1999. Testing for non-IT systems has been initiated. The Company's target
for all critical and important non-IT systems is June 1999.
The Company has initiated written and telephonic communications with key third-
party businesses, as well as public and private providers of infrastructure
services, to ascertain and evaluate their efforts in addressing Y2K compliance.
It is anticipated that the majority of testing and certification with these
entities will occur in 1999.
Phase 6 - Contingency Planning.
This phase involves addressing any remaining open issues expected in 1999 and
early 2000. As a precautionary measure, the Company is currently developing
contingency plans for systems that are not expected to be Y2K compliant by the
Year 2000. A variety of automated as well as manual fallback plans are under
consideration.
Phase 7 - Oversight Committee.
This committee will review the work and progress of the Y2K task force before
year-end 1999, to determine any omissions or reclassifications that may have
changed due to the growth of the Company.
The conversion processes and rewriting of systems in the late 1980's and early
1990's, and the evolution toward greater automation in a PC environment, were
not performed specifically to address issues of Y2K compliance. Modifications
implemented in these processes which facilitated compliance with the Y2K issue
were a process step in the overall implementation plan and were performed to
accommodate business functionality, not solely Y2K compliance. Consequently, the
Company did not track, nor is it currently practicable to accumulate, specific
costs pertaining to adjustments for Y2K compliance. For the Company's activities
specifically targeting Y2K compliance, as of December 31, 1998, costs incurred
approximated $0.4 million, of which the majority was capitalized as newly
acquired software and the related implementation costs. Given the Company's
prior preparation and the status of overall Y2K compliance, the remaining Y2K
preparations are not expected to require the allocation of full-time resources
internally or externally. As a result, the estimated additional costs to address
Y2K compliance, including testing and certification, are not expected to require
significant incremental costs of internal resources or incurrence of third-party
expense. The Company intends to continue to use operating cash flow to fund all
of the costs remaining for Y2K preparedness.
Based on its efforts to date, the Company believes that the majority of both its
IT and non-IT systems, including all critical and important systems, will remain
fully operational after January 1, 2000. Accordingly, the Company does not
currently anticipate that internal systems failures will result in any material
adverse effect on its results of operations or financial condition. At this
time, the Company believes that its most likely "worst-case" scenario involves
potential disruptions in the areas in which the Company must rely on third
parties whose systems may not work properly after January 1, 2000. Although such
failures could affect important operations of the Company, either directly or
indirectly, in a significant manner, and have a material adverse effect on its
results of operations and financial condition, the Company cannot presently
estimate either the likelihood or the potential costs of such failures.
The nature and focus of the Company's efforts to address the Y2K issues may be
revised periodically as interim goals are achieved and new issues identified. In
addition, it is important to note that the description of the Company's efforts
involves estimates and projections with respect to activities required in the
future. These estimates and projections are subject to change as work continues,
and additional information is made available and such changes may be
substantial.
MANAGEMENT'S DISCUSSION AND ANALYSIS 27
<PAGE>
Report of Management
The consolidated financial statements of Vistana, Inc. and subsidiaries have
been prepared by management and have been audited by independent accountants.
Management of the Company is responsible for the financial information and
representations contained in the consolidated financial statements and other
sections of this report. Management believes that the consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles appropriate under the circumstances to reflect, in all material
respects, the substance of the events and transactions that should be included.
In preparing the consolidated financial statements, management necessarily made
informed estimates and judgments based on currently available information of the
effects of certain events and transactions.
In meeting its responsibility for the reliability of the consolidated financial
statements, management depends on the Company's internal control structure. This
internal control structure is designed to provide reasonable assurance that
assets are safeguarded and transactions are executed in accordance with
management's authorization and are properly recorded. In designing control
procedures, management recognizes that errors or irregularities may occur and
that estimates and judgments are required to assess and balance the relative
costs and expected benefits of the controls. Management believes that the
Company's internal control structure provides reasonable assurance that errors
or irregularities that could be material to the consolidated financial
statements are prevented or would be detected within a timely period by
employees in the normal course of performing their assigned functions.
The Board of Directors fulfills its oversight role for the accompanying
consolidated financial statements through its Audit Committee, which is composed
solely of directors who are not officers or employees of the Company. The
Committee meets with management and the independent accountants to review the
work of each, and to monitor the discharge by each of its responsibilities.
Management is responsible for the conduct of the Company's business in an
ethical, moral manner. Our commitment to ethics and integrity is a fundamental
part of the vision and values that are stressed at all levels of the Company.
/s/ Raymond L. Gellein
Raymond L. Gellein, Jr.
Chairman of the Board and Co-Chief Executive Officer
/s/ Jeffrey A. Adler
Jeffrey A. Adler
President and Co-Chief Executive Officer
/s/ Charles E. Harris
Charles E. Harris
Vice Chairman and Chief Financial Officer
28 REPORT OF MANAGEMENT
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders Vistana, Inc. and Subsidiaries:
We have audited the consolidated balance sheets of Vistana, Inc. and
subsidiaries (the "Company") as of December 31, 1998 and 1997 and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Vistana, Inc. and
subsidiaries as of December 31, 1998 and 1997 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
Orlando, Florida
February 10, 1999
INDEPENDENT AUDITORS' REPORT 29
<PAGE>
Consolidated Balance Sheets
As of December 31, 1998 and 1997
(in thousands except share amounts)
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 20,001 $ 9,878
Restricted cash 29,054 9,196
Customer mortgages receivable, net 223,275 155,048
Other receivables, net 8,053 4,953
Inventory of Vacation Ownership Interests 50,019 27,271
Construction in progress 30,922 17,026
---------------------
Total Vacation Ownership Interests 80,941 44,297
=====================
Prepaid expenses and other assets 24,408 15,021
Land held for development 23,874 13,840
Intangible assets, net 19,743 17,275
Property and equipment, net 42,071 17,701
---------------------
Total Assets $471,420 $287,209
=====================
Liabilities and Shareholders' Equity
Accounts payable and accrued liabilities $ 17,502 $ 9,276
Income taxes payable 424 1,927
Accrued compensation and benefits 10,883 9,847
Customer deposits 22,610 9,423
Deferred income taxes 25,753 17,535
Other liabilities 5,723 6,265
Notes and mortgages payable 242,644 109,547
----------------------
Total Liabilities 325,539 163,820
Minority interest 1,665 3,984
Shareholders' Equity
Common stock, $.01 par value: Authorized 100,000,000 shares
Issued and outstanding 21,224,172 and 21,007,630 shares at
December 31, 1998 and 1997, respectively 212 210
Additional paid-in capital 111,502 107,341
Retained earnings 32,502 11,854
----------------------
Total Shareholders' Equity 144,216 119,405
Total Liabilities and Shareholders' Equity $471,420 $287,209
=====================
</TABLE>
See accompanying notes to consolidated financial statements.
30 CONSOLIDATED BALANCE SHEETS
<PAGE>
Consolidated Statements of Income
<TABLE>
<CAPTION>
For the Years Ended December 31, 1998, 1997, and 1996
(in thousands except per share data and share amounts) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Vacation Ownership Interest sales $ 172,872 $ 100,887 $ 60,063
Interest 26,538 19,296 15,546
Resort 20,735 16,921 13,587
Telecommunications 9,078 7,499 7,054
Other 4,499 749 686
------------------------------------------
Total revenues 233,722 145,352 96,936
------------------------------------------
Costs and operating expenses:
Vacation Ownership Interest cost of sales 38,622 22,898 14,595
Sales and marketing 83,138 45,616 27,877
Interest expense--treasury 8,852 7,240 6,865
Provision for doubtful accounts 12,792 6,971 4,271
Resort 17,821 13,913 11,089
Telecommunications 7,369 6,111 5,613
General and administrative 17,869 11,988 7,873
Depreciation and amortization 6,424 3,455 2,553
Interest expense--other 4,057 1,705 4,154
Other 5,896 3,009 443
Deferred executive incentive compensation -- -- 1,114
------------------------------------------
Total costs and operating expenses 202,840 122,906 86,447
------------------------------------------
Operating income 30,882 22,446 10,489
Excess value recognized 102 111 105
Minority interest 2,319 468 --
------------------------------------------
Income before income taxes and extraordinary item 33,303 23,025 10,594
Provision for income taxes 12,655 8,101 --
Non-recurring charge associated with the change of tax status -- 13,201 --
------------------------------------------
Income before extraordinary item 20,648 1,723 $ 10,594
Extraordinary item--early extinguishment of debt, net of tax -- (1,425) --
------------------------------------------
Net Income $ 20,648 $ 298 $ 10,594
==========================================
Per share data:
Basic
Income per share before extraordinary item $ 0.98 $ 0.09 --
Extraordinary item -- (0.07) --
------------------------------------------
Income per share $ 0.98 $ 0.02 --
------------------------------------------
Weighted average number of shares outstanding 21,120,472 18,344,545 --
==========================================
Diluted
Income per share before extraordinary item $ 0.96 $ 0.09 --
Extraordinary item -- (0.07) --
------------------------------------------
Income per share $ 0.96 $ 0.02 --
------------------------------------------
Weighted average number of shares outstanding 21,474,662 18,649,180 --
==========================================
Pro-forma share data (unaudited):
Income before income taxes -- $ 23,025 $ 10,594
Provision for income taxes -- 8,726 4,026
------------------------------------------
Pro-forma net income -- $ 12,874 $ 6,568
------------------------------------------
Pro-forma net income per share--basic -- $ 0.70 $ 0.46
------------------------------------------
Pro-forma weighted average number of shares outstanding--basic -- 18,344,545 14,175,000
------------------------------------------
Pro-forma net income per share--diluted -- $ 0.69 $ 0.46
------------------------------------------
Pro-forma weighted average number of shares outstanding--diluted -- 18,649,180 14,175,000
------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Additional Equity of Total
For the Years Ended December 31, 1998, Common Stock Paid-In Retained Predecessor Shareholders'
1997 and 1996 (in thousands) Shares Amount Capital Earnings Entities Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 -- $ -- $ -- $ -- $ 17,904 $ 17,904
Distributions -- -- -- -- (1,850) (1,850)
Net income -- -- -- -- 10,594 10,594
----------------------------------------------------------------------------------------
Balance at December 31, 1996 -- $ -- $ -- $ -- $ 26,648 $ 26,648
Distributions -- -- -- -- (2,245) (2,245)
Net income from January 1, 1997
through the Formation Transactions -- -- -- -- 1,645 1,645
Deferred taxes recorded in connection
with Formation Transactions -- -- -- -- (13,201) (13,201)
Exchange of predecessor equity for stock in
connection with Formation Transactions 14,175 142 12,705 -- (12,847) --
Proceeds from Initial Offering
(net of offering costs) 4,625 46 49,419 -- -- 49,465
Acquisition of Success Companies and
Points of Colorado 207 2 3,772 -- -- 3,774
Proceeds from sale of common stock in
Secondary Offering (net of offering costs) 2,000 20 41,445 -- -- 41,465
Net income subsequent to
Formation Transactions -- -- -- 11,854 -- 11,854
----------------------------------------------------------------------------------------
Balance at December 31, 1997 21,007 $ 210 $ 107,341 $ 11,854 $ -- $ 119,405
Net Income -- -- -- 20,648 -- 20,648
Exercise of stock options 70 1 835 -- -- 836
Tax benefit of stock options exercised -- -- 209 -- -- 209
Stock issued pursuant to employee
stock purchase plan 39 -- 537 -- -- 537
Stock recorded as contingent consideration
in conjunction with a business acquisition 143 1 2,580 -- -- 2,581
----------------------------------------------------------------------------------------
Balance at December 31, 1998 21,259 $ 212 $ 111,502 $ 32,502 $ -- $ 144,216
----------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended December 31, 1998, 1997 and 1996
(in thousands) 1998 1997 1996
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Operating activities:
Net Income $ 20,648 $ 298 $ 10,594
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization expense 6,424 3,455 2,553
Amortization of discount on customer mortgages receivable (1,648) (3,061) (2,757)
Provision for doubtful accounts 12,792 6,971 4,271
Minority interest (2,319) (468) --
Deferred income taxes 8,218 16,072 --
Changes in operating assets and liabilities, net of effect of acquisitions
Other receivables, net (3,100) 971 (1,306)
Construction in progress (46,678) (20,725) (359)
Prepaid expenses and other assets (11,307) (3,174) (7,508)
Accounts payable and accrued liabilities 8,226 4,805 (1,077)
Income taxes payable (1,503) 1,927 --
Accrued compensation and benefits 1,036 (30) 738
Customer deposits 13,187 4,331 2,645
Repurchase obligation -- -- (1,408)
Other liabilities (542) (1,861) 3,729
------------------------------------
Net cash provided by operating activities 3,434 9,511 10,115
------------------------------------
Investing activities:
Expenditures for property and equipment (27,411) (6,517) (2,513)
Business acquisition, net of cash acquired (1,141) (25,383) --
Customer mortgages receivable, net (79,371) (38,405) (16,550)
Repurchase of customer mortgages receivable -- -- (1,171)
Additions to restricted cash (19,858) (4,731) (603)
------------------------------------
Net cash used in investing activities (127,781) (75,036) (20,837)
------------------------------------
Financing activities:
Proceeds from notes and mortgages payable 325,114 116,601 53,628
Principal payments on notes and mortgages payable (192,017) (136,017) (46,908)
Net proceeds from public offerings -- 90,930 --
Proceeds from exercised stock options 836 -- --
Equity distributions/redemption -- (2,245) (1,850)
Proceeds from employee stock purchase plan 537 -- --
Minority interest -- -- 4,443
------------------------------------
Net cash provided by financing activities 134,470 69,269 9,313
------------------------------------
Net increase in cash and cash equivalents 10,123 3,744 (1,409)
Cash and cash equivalents, beginning of period 9,878 6,134 7,543
------------------------------------
Cash and cash equivalents, end of period $ 20,001 $ 9,878 $ 6,134
------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 11,689 $ 9,446 $ 10,732
------------------------------------
Cash paid during the period for taxes $ 5,730 $ 3,526 $ --
------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(1) Nature of Business
Vistana, Inc. and its consolidated subsidiaries (the "Company") generate
revenues from the sale and financing of Vacation Ownership Interests ("VOI's")
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, selling and financing the sale of VOI's, and (2) managing
the operations of its resorts and related amenities. The Company sells VOI's to
both domestic and foreign purchasers. All contracts relating to the sale of
VOI's are denominated in U.S. dollars.
- --------------------------------------------------------------------------------
(2) Capital Transactions and Basis of Presentation
The Company became the parent for all of the operations of its predecessors in
connection with its initial public offering (the "Initial Offering") completed
on February 28, 1997. At the time of the Initial Offering each of the owners of
the predecessor entities (the "Principal Shareholders") transferred to the
Company all of the existing common stock and partnership interests owned by them
in exchange for 14.2 million shares (20 shares of the common stock of Vistana,
Inc. were outstanding at the time of the Initial Offering) of the Company (the
"Formation Transactions"). A total of 5.6 million shares of the common stock of
the Company were offered (4.6 million shares by the Company and 0.9 million
shares by the Principal Shareholders) to the public in the Initial Offering. In
addition, in connection with the Initial Offering and the Formation
Transactions, former equity holders of the Company's predecessor corporations
and limited partnerships received a distribution of approximately $2.6 million,
$0.3 million of which represented the balance of such holders' federal and state
income tax liability attributable to their ownership of such entities through
the date of the Initial Offering, and $2.3 million of which represented the
retained earnings of the Company's predecessor corporations and limited
partnerships for which such holders had previously paid income tax. The
Formation Transactions were accounted for as a reorganization of entities under
common control in a manner similar to a pooling of interests. Accordingly, the
net assets of the predecessor corporations and limited partnerships were
recorded at the predecessor entities' basis. The majority of the consolidated
subsidiaries were formed in 1991 by the principal shareholders to acquire and
own, either directly or indirectly, the assets and certain liabilities of the
predecessor operating entities from the previous owner. The consolidated
financial statements shown herein for the Company and its consolidated
subsidiaries for 1997 include the operations of its predecessors in interest.
On September 16, 1997, the Company completed the acquisition of entities
comprising The Success Companies, Success Developments, L.L.C. and Points of
Colorado, Inc. (the "Business Acquisition"). The purchase method of accounting
was followed in accounting for this transaction and, therefore, operating
results of the acquired entities are included in the Company's results from the
acquisition date.
Pro forma (unaudited) financial data presented on the face of the consolidated
statement of income for the year ended December 31, 1997 reflects the
elimination of the non-recurring charge for deferred taxes pertaining to the
predecessor entities relative to all years prior to 1997. Pro forma (unaudited)
financial data presented on the face of the consolidated statements of income
reflect results of the year ended 1996 as if the conversion of tax status to a C
corporation had occurred at the beginning of the period.
- --------------------------------------------------------------------------------
(3) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
certain wholly owned subsidiaries (both corporations and limited partnerships)
under common control. The consolidated financial statements also include the
accounts of two partnerships between one or more subsidiary companies and
unaffiliated third party partners wherein the Company exercises operational and
financial control over such partnerships. Interests of unaffiliated third party
partners in these partnerships are reflected as minority interests.
(b) Revenue Recognition
Greater than 90% of the VOI's sold by the Company generate installment
receivables secured by a mortgage on the related VOI. 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 (at least 10%) 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 VOI sale are recognized
at the time the sale is recognized. Product costs (also referred to as VOI cost
of sales) include the cost of land, professional fees, improvements to the
property, capitalized interest, and for certain projects, the cost of amenities
owned by the VOI owners. Product costs are allocated to each VOI based on the
total number and type of VOI's in the particular phase.
In 1997, the Company began pre-construction sales at its Embassy Vacation Resort
at Myrtle Beach and in 1998 at its Embassy Vacation Resort at Scottsdale, and
Lakeside
34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
Terrace Condominiums at Avon, Colorado. The Company recognized revenue related
to VOI sales at these resorts during the period of construction using the
percentage of completion method. Under this method, the portion of revenues
related to applicable costs (including construction and sales and marketing
costs) incurred, as compared to the total estimate of such costs, is recognized
as revenue in the period of sale. The remaining revenue is deferred and
recognized as the remaining costs are incurred. During 1998, construction was
completed at Myrtle Beach and Lakeside Terrace. As of December 31, 1998, only
Embassy Vacation Resort at Scottsdale was subject to percentage of completion
accounting.
Resort revenues are recognized on an accrual basis. Telecommunications revenues
are recognized when earned.
(c) Allowance for Losses on Customer Mortgages Receivable
The Company provides for estimated future losses to be incurred related to
uncollectible customer mortgages receivable. The Company evaluates such
receivables collectively for impairment due to their relative balances and
homogenous nature. The allowance is based on the collection history of the
receivables and is net of anticipated cost recoveries of the underlying VOI's.
Management believes that all such allowances are adequate.
(d) Inventory of VOI's and Land Held for Development
Inventory of VOI's and related construction in progress are carried at cost,
which is lower than fair value less cost to sell. The recoverability of
inventory is determined on an individual project basis, which is based on each
resort location. Land held for development is carried at the lower of cost or
fair value less cost to sell.
(e) Resort and Sales Facilities
In connection with the development of a resort property, the Company constructs
guest registration facilities and on-site sales and marketing facilities
("Resort and Sales Facilities"). The Company retains ownership and control over
these facilities. The facilities are capitalized as fixed assets and depreciated
on a straight-line basis over a period consistent with the useful life applied
to similar assets, typically 30 years.
The Company does not retain ownership or unilateral control over certain
recreational assets developed in connection with the construction of a resort
property, including the swimming pool and exercise facilities. These assets are
included in cost of sales over the period of project sell-out.
(f) Customer Deposits
Until a VOI 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.
(g) Intangible Assets
The Company reevaluates the recoverability of intangible assets as well as the
amortization periods to determine whether an adjustment to carrying value or a
revision to estimated useful lives is appropriate. The primary indicators of
recoverability are a significant event or change in the environment in which the
business operates, and current and forecasted undiscounted operating cash flows.
(h) Fair Market Value of Financial Instruments
The carrying amount reported in the consolidated 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. Interest
rates on variable rate notes and mortgages payable reprice frequently.
(i) Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statements carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax-credit carry forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
(j) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make a number of estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates and assumptions.
(k) Cash and Cash Equivalents, and Restricted Cash
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.
<PAGE>
Notes to Consolidated Financial Statements
Restricted cash consists of: (1) deposits received on sales of VOI's that are
held in escrow until the applicable statutory rescission period has expired and
the related customer mortgage has been recorded, (2) worker's compensation
funds, and (3) funds associated with the securitization including the reserve
funds (see Note 11).
(l) 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. As of December 31, 1998 and 1997, the Company had
no derivative financial instruments outstanding.
(m) Reclassifications
Certain prior year amounts have been reclassified to conform with the 1998
presentation.
(n) Effect of New Accounting Pronouncements
In April 1998, the Accounting Standards Executive Committee ("AcSEC") of the
American Institute of Certified Public Accountants ("AICPA") issued Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities" (SOP 98-5). SOP
98-5 is applicable for all nongovernmental entities and requires that costs of
start-up activities, including organization costs, be expensed as incurred.
Except for certain specified investment companies, SOP 98-5 is effective for
financial statements for fiscal years beginning after December 15, 1998, with
earlier application permitted. The Company's current accounting policy is to
capitalize pre-opening costs and amortize them generally over a one-year period.
The effect of initially applying the provisions of SOP 98-5 will be reported as
a change in accounting principle at the beginning of the period of adoption and
thereafter all such costs will be expensed as incurred. Amounts capitalized as
pre-opening costs as of December 31, 1998, were approximately $980,000. The
Company will adopt SOP 98-5 in the first quarter of 1999.
In 1997, the AICPA began a project addressing the accounting for all real estate
timeshare transactions. The proposed guidance is currently in the drafting
stage of the promulgation process. The Company is unable to assess the possible
impact, if any, this proposed guidance may have on financial results.
(o) Concentrations of Risk
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 and air travel, 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 and financial
results. In addition, adverse changes in general economic conditions may
adversely affect the Company's ability to collect on its customer mortgages
receivable. Adverse changes in the Company's collection history could result in
increased provisions for loss and curtail or increase the cost of the Company's
financing, any of which could have a material adverse effect on the Company's
business and financial results.
- --------------------------------------------------------------------------------
(4) Customer Mortgages Receivable, Net
As of December 31, customer mortgages receivable, net consisted of:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
- ------------------------------------------------------------
<S> <C> <C>
Customer mortgages receivable, gross $243,263 $170,147
Less:
Unamortized discount on customer
mortgages receivable purchased (830) (2,478)
Unamortized excess value
over consideration -- (27)
Allowance for doubtful accounts (19,158) (12,594)
--------------------
Customer mortgages receivable, net $223,275 $155,048
--------------------
</TABLE>
As of December 31, 1998 and 1997, customer mortgages receivable, gross, from
buyers not residing in the United States or Canada were approximately $42.2
million and $34.5 million, respectively, with buyers within no foreign country
aggregating more than 5% of gross outstanding customer mortgages receivable.
Stated interest rates on customer mortgages receivable outstanding at December
31, 1998 range from 00.0% to 17.9% per annum (averaging approximately 14.7% per
annum). 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>
(in thousands) 1998 1997 1996
- -----------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $12,594 $10,191 $ 9,009
Provision for doubtful accounts 12,792 6,971 4,271
Allowance relating to customer
mortgages receivable purchased -- -- 588
Allowance relating to customer
mortgages receivable for
businesses acquired -- 1,076 --
Customer mortgages
receivable charged off (6,228) (5,644) (3,677)
-----------------------------
Balance, end of year $19,158 $12,594 $10,191
-----------------------------
</TABLE>
During 1996 and 1995, under the clean-up call provisions of the related
transactions, the Company repurchased the remaining amount of customer mortgages
receivable
36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
previously sold and effectively liquidated the entities. The Company
repurchased gross customer mortgages receivable of $20.3 million and recorded
discounts, which amounted to $10.4 million. These discounts are being amortized
over the estimated remaining collection period of the purchased customer
mortgages receivable. Amortization of the discount during 1998, 1997, and 1996
was $1.6 million, $3.1 million and $2.8 million, respectively, and is included
in interest income.
- -------------------------------------------------------------------------------
(5) Property and Equipment, Net
<TABLE>
<CAPTION>
As of December 31, property and equipment, net consisted of:
(in thousands) 1998 1997
- -----------------------------------------------------------------
<S> <C> <C>
Land and land improvements $ 4,900 $ 2,753
Buildings and building improvements 24,880 11,595
Furniture, fixtures and equipment 18,699 9,510
-------------------
Subtotal 48,479 23,858
-------------------
Less accumulated depreciation (10,710) (7,508)
-------------------
Subtotal 37,769 16,350
Construction in progress 4,302 1,351
-------------------
Property and equipment, net $ 42,071 $17,701
===================
</TABLE>
Property and equipment are recorded at cost. Resort and Sales Facilities as of
December 31, 1998 totalled $13.3 million. 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.
- --------------------------------------------------------------------------------
(6) Prepaid Expenses and Other Assets
As of December 31, prepaid expenses and other assets consisted of:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
- -------------------------------------------------------------
<S> <C> <C>
Prepaid licensing fee $ 4,605 $ 5,075
Deferred financing fees 4,823 1,981
Other prepaid expenses 5,280 4,067
Prepaid business registration costs 1,819 1,453
Ticket inventory and sales and
marketing materials 7,881 2,445
-----------------
Total prepaid expenses and other assets $24,408 $15,021
=================
</TABLE>
The licensing fee pertains to the partnership involving Vistana WGV, Ltd. and is
being amortized over ten years and is included in depreciation and amortization
in the consolidated statement of income. Deferred 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
deferred financing fees was $2.0 million, $1.0 million, and $0.7 million in
1998, 1997, and 1996, respectively, and is included in amortization and
depreciation expense in the consolidated statements of income.
- --------------------------------------------------------------------------------
(7) Joint Ventures and Other Agreements
Vistana WGV, Ltd. ("WGV")
In June of 1996, the Company entered into a partnership agreement providing for
the Company to serve as general partner with operating and financial control
over the WGV partnership as well as own a 37.5% interest therein. WGV is
developing the first phase of a 408-unit resort near St. Augustine, Florida. WGV
has entered into various licensing, servicing fee and royalty arrangements based
upon stipulated percentages of sales of VOI's or gross rental revenue from
operations of unoccupied units at the resort. In 1996 a $5.1 million licensing
fee was paid by WGV to an unaffiliated partner for the use of names and logos.
This fee has been capitalized and will be amortized over the projected sales
period currently estimated at ten 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. WGV has been included in the consolidated financial
statements.
Oak Plantation Joint Venture ("OPJV")
In June 1996, the Company acquired a 66.7% ownership interest and became
managing joint venturer for OPJV. Subsequently, OPJV converted a 242 unit multi-
family property in Kissimmee, Florida into a VOI resort, Hampton Vacation
Resort-Oak Plantation. The Company acquired its ownership interest in OPJV
without payment of cash in a purchase transaction. The fair value of the assets
acquired and the liabilities assumed each aggregated approximately $12.2
million, which included a liability of $1.9 million which was paid in January
1997 to an unaffiliated partner for the early termination of a consulting
service arrangement. 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. OPJV has been included in the consolidated financial
statements.
Promus Agreement
In December 1996, the Company and Promus Hotels, Inc. entered into a 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. As
of December 31, 1998, the Company was Promus'
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 37
<PAGE>
Notes to Consolidated Financial Statements
exclusive joint venture partner for the acquisition, development and operation
of vacation ownership resorts in North America and also had the option of
operating vacation ownership resorts on a franchise basis. At such date, the
Promus Agreement precluded the Company from acquiring or developing vacation
ownership resorts with any other multi-hotel brand, but preserved 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. As of
December 31, 1998, the Company and Promus had not entered into any development
or project for which the joint venture component of the Promus Agreement would
be initiated. As of December 31, 1998, the Company was operating the Hampton
Vacation Resort - Oak Plantation and the Embassy Vacation Resort at Myrtle Beach
as franchised resorts pursuant to the Promus Agreement. At the same date, the
Company was constructing and conducting pre-opening sales at Embassy Vacation
Resort at Scottsdale, a franchised resort pursuant to the Promus Agreement.
Proposed Sun International Joint Venture
In November 1997, the Company entered into an agreement to form a 50/50 joint
venture with a subsidiary of Sun International Hotels, Limited ("Sun") to
design, develop, sell and manage a vacation ownership resort adjacent to Sun's
Atlantis Resort and Casino on Paradise Island in The Bahamas. In connection with
the proposed joint venture, the Company would be required to make an initial
cash equity investment of approximately $7.8 million for the initial phase of
the project. As of December 31, 1998, the Company and Sun had not yet entered
into the definitive joint venture agreement relating to the resort, and no
material activity had occurred for which amounts have been included in the
consolidated financial statements.
- -------------------------------------------------------------------------------
(8) Acquisition Transactions
On September 16, 1997, the Company completed the acquisition of entities
comprising The Success Companies, Success Developments, L.L.C. and Points of
Colorado, Inc. ("Success and Points"). The Company acquired the entire equity
interest in the acquisition for a purchase price of approximately $24.0 million
in cash, 0.2 million shares of Company common stock and contingent consideration
of 0.4 million shares of Company common stock. The net assets acquired totalled
$11.6 million. The purchase method of accounting was followed in accounting for
this transaction. Delivery of the contingent shares is dependent upon Success
and Points achieving certain operating results for calendar years 1998 through
2000. Management of the Company has determined that the contingent consideration
is an additional cost of the acquisition. During the year ended December 31,
1998, approximately 0.14 million shares were recorded and/or issued relative to
the achievement of the required results. The goodwill associated with the
acquisition, incurred to date, is being amortized on a straight-line basis over
20 years. During the year ended December 31, 1998, approximately $3.0 million of
non-cash additions to goodwill were recorded, the majority of which was related
to the issuance of contingent shares of Company common stock to the selling
parties based on the achievement of certain quarterly operating results. For the
year ended December 31, 1997, only the results of operations of Success and
Points from September 16, 1997 through year-end 1997 are included in the
accompanying consolidated statements of income.
The following unaudited pro forma summary presents the combined results of
operations of the Company and Success and Points, as if the acquisition had
occurred at the beginning of 1997 and 1996, respectively. The pro forma amounts
also give effect to certain adjustments which reflect: (1) the Company's Initial
Offering and the conversion of tax status as if each event had occurred at the
beginning of each period, and (2) in 1997 the exclusion of non-recurring charges
related to deferred taxes pertaining to the predecessor entities and
extraordinary items pertaining to extinguishments of debt. This pro forma
summary does not necessarily reflect the results of operations as they would
have been if the businesses had constituted a single entity during such periods
and is not necessarily indicative of results which may be obtained in the
future. The pro forma presentation of the Success and Points acquisition without
effect for the aforementioned adjustments would reflect net income of $1.4
million and $6.9 million or $0.07 and $0.48 per share for the years ended
December 31, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
(Pro forma unaudited)
Years ended December 31,
(in thousands except per share amounts) 1997 1996
- ----------------------------------------------------------------
<S> <C> <C>
VOI sales $117,420 $ 74,125
Interest income 21,144 16,629
Total revenue 164,655 112,885
Cost of VOI sales 27,213 17,946
Sales and marketing 52,727 33,844
Provision for doubtful accounts 7,249 4,456
Interest expense--treasury 9,032 8,066
Operating income 24,866 16,019
Net income 15,776 9,997
Earnings per share--diluted $0.81 $0.53
</TABLE>
On November 3, 1997, the Company entered into and completed an agreement to
purchase the assets of two
<PAGE>
related guest service and marketing companies (the "Acquired Companies") for
$1.8 million in cash and approximately $3.2 million in contingent cash payments.
Payment of the contingent consideration is conditioned on the Acquired Companies
achieving certain operating results in each of the calendar years 1998 through
2000. Management of the Company has determined that the contingent consideration
is an additional cost of the acquisition. No amounts were paid or recognized in
1998 relative to the contingent consideration. The purchase method of accounting
was followed in accounting for this transaction. The goodwill associated with
the acquisition is being amortized on a straight-line basis over 10 years. For
the year ended December 31, 1997, only the results of operations of the Acquired
Companies from November 3, 1997 through year-end 1997 are included in the
accompanying consolidated statements of income.
- --------------------------------------------------------------------------------
(9) Intangibles
Intangible assets consist of goodwill and a covenant not to compete, totaling
$19.7 million and $17.3 million as of December 31, 1998 and 1997, respectively.
In connection with the Success and Points acquisition and the acquisition of the
Acquired Companies completed during 1997, consideration paid exceeded the
estimated value of the assets acquired (including estimated liabilities assumed
as part of the transaction) by approximately $16.7 million. As of December 31,
1998, an additional $3.0 million of goodwill had been recorded relating
primarily to the recognition of contingent consideration. The excess of
investment over net asset values at acquisition is being amortized on a
straight-line basis over 20 years for Success and Points and 10 years for the
Acquired Companies. The amount of excess consideration paid over net asset value
amortized was $0.8 million and $0.2 million in 1998 and 1997, respectively. The
covenant not to compete with a former shareholder/executive of the Company is
being amortized over the five-year term of the agreement. Amortization expense
related to the covenant not to compete was $0.4 million in 1998, 1997, and 1996.
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 $3.4
million. Accordingly, the excess value over consideration paid 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 paid is being amortized into income over
the life of those assets. The amount of excess value over consideration paid
amortized into income was $0.1 million in 1998, 1997 and 1996, with a remaining
unamortized balance as of December 31, 1998 and 1997 of $0.6 million and $0.7
million, respectively.
- --------------------------------------------------------------------------------
(10) Repurchase Obligations
Changes in repurchase obligations during the year ended December 31, 1996 were
as follows:
(in thousands)
Balances, beginning of year $ 3,003
Loss on customer mortgages receivable
repurchased under recourse provisions (1,408)
Remaining balance of estimated losses on
repurchase obligations relating to customer
mortgages receivable repurchased (1,595)
---------
Balances, end of year --
=========
As of December 31, 1998 and 1997, there were no outstanding customer mortgages
receivable sold for which the Company had a recourse obligation.
- --------------------------------------------------------------------------------
(11) Receivable Securitization
In September 1998, the Company completed the private placement of $66.2 million
in principal amount of timeshare mortgage-backed notes (the "Notes"). The
securitization was structured as two classes of fixed-rate notes, with
approximately $32.0 million of 5.89% notes being rated `AAA,' and $34.2 million
of 6.28% notes being rated `A,' by Duff & Phelps Credit Rating Co. ("DCR"). The
Notes are secured by approximately $71.1 million in first mortgage liens on
VOI's sold by Vistana subsidiaries in Florida and Colorado. Credit enhancement
for the `AAA' rated notes is provided by subordination of the `A' rated notes,
7% overcollaterization, a letter of credit (approximately $8.5 million at
execution) from Dresdner Bank AG (rated `AA' by DCR), and a reserve account that
grows from 0% to 5% of the pool balance derived from the excess interest spread
earned. The `A' rated notes are credit enhanced by the overcollaterization,
letter of credit, and reserve account. The weighted average cost of the Notes,
including the yield on the Notes and the cost of the letter of credit, is
approximately 6.30% per annum. The Notes were issued through a bankruptcy-remote
Vistana subsidiary. The securitization was treated as an on balance sheet
financing for accounting purposes. Consequently, the principal balance of the
Notes is included in notes and mortgages payable and the customer mortgages
receivable securing the Notes are included in the customer mortgages receivable.
The buildup of the reserve account is being treated as restricted cash. The
balance in the reserve account, once fully funded, and the letter of credit
level (subject to certain restrictions) will decrease at a rate commensurate
with the amortization of the receivable pool. The balance in the reserve account
totalled $2.4 million as of December 31, 1998. No gain on sale will be
recognized as a result of the transaction. The net proceeds of the
securitization were used primarily to repay $60.2 million of outstanding debt
secured by customer mortgages receivable and bearing interest at LIBOR plus 2.5%
and LIBOR plus 1.0%.
<PAGE>
Notes to Consolidated Financial Statements
(12) Notes and Mortgages Payable
As of December 31, notes and mortgages payable and remaining availability under
related loan facilities and lines of credit (assuming the availability of
sufficient receivables or other qualified assets) consisted of:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Notes Payable Secured by Customer Mortgages Receivable
Notes payable bearing interest at prime plus 2.0% per annum (9.75% at December 31, 1998).
Remaining availability under these lines of credit was $35.2 million at December 31, 1998. $ 25,080 $ 34,791
Notes payable bearing interest at LIBOR plus 2.5% (7.65% at December 31, 1998).
Remaining availability under these lines of credit was $17.6 million at December 31, 1998. 7,354 39,942
Note payable bearing fixed interest at 11.34% per annum. -- 4,191
Note payable bearing interest at prime plus 1.5% (10.0% per annum at December 31, 1997). -- 278
Note payable bearing interest at LIBOR plus 2.65% (7.71% at December 31, 1998).
Remaining availability under this line of credit was $3.8 million at December 31, 1998. 16,220 --
Note payable bearing interest at LIBOR plus 1% (6.06% at December 31, 1998).
Remaining availability under this line of credit was $73.9 million at December 31, 1998. 26,051 --
Notes payable bearing fixed interest at 6.1% per annum (see Note 11). 58,560 --
--------------------
Subtotal of notes secured by customer mortgages receivable $133,265 $ 79,202
====================
Notes Payable and Mortgage Obligations Secured by Real Estate
Term note payable bearing interest at prime plus 2.0%.
Remaining availability at December 31, 1998 was $4.4 million. Matures on June 25, 2001. $ 13,851 $ 17,167
Construction mortgage note payable bearing interest at prime plus 2.0%.
Remaining availability at December 31, 1998 was $1.1 million. Matures on July 24, 2001. 22,098 6,591
Notes payable bearing interest at LIBOR plus 3.25% (8.13% per annum at December 31, 1998).
Remaining availability at December 31, 1998 was $0.3 million. Matures on July 31, 2002. 12,353 1,930
Mortgage loan bearing fixed interest at 8.2% per annum at December 31, 1998.
Matures on June 15, 2001. 1,998 1,839
Construction mortgage notes payable bearing interest at LIBOR plus 2.85%
(7.91% at December 31, 1998).
Remaining availability at December 31, 1998 was $32.2 million. Matures on July 9, 2006. 27,848 --
Construction mortgage notes payable bearing interest at LIBOR plus 2.65%.
Remaining availability at December 31, 1998 was $26.6 million. Matures on October 9, 2005. 13,384 --
--------------------
Subtotal of notes and mortgages secured by real estate $ 91,532 $ 27,527
====================
Other Notes and Mortgage Loan Payable
Note payable (working capital loan) bearing interest at prime plus 2%.
Remaining availability at December 31, 1998 was $0.3 million. Matures on June 25, 2001. $ 2,240 $ 2,228
Unsecured note payable bearing interest at LIBOR plus 2.25% (7.31% at December 31, 1998).
Remaining availability at December 31, 1998 was $5.0 million. Matures on November 30, 2000. 15,000 --
Capital lease obligations 607 590
--------------------
Total notes and mortgages payable $242,644 $109,547
====================
</TABLE>
During the year ended December 31, 1998, the Company entered into two revolving
project finance facilities: (i) a $60.0 million facility that provides a three-
year borrowing term followed by a five-year provision for repayment and bears
interest at LIBOR plus 2.85% per annum, and (ii) a $40.0 million facility that
provides a three-year borrowing term followed by a maximum repayment term of
four years and bears interest at LIBOR plus 2.65%. Both project finance
facilities provide 100% financing for land acquisition and construction and
development of approved resorts. The Company also entered into a $20.0 million
receivables based revolving credit facility that provides a three-year borrowing
term followed by a seven-year provision for repayment and bears interest at
LIBOR plus 2.25%. During 1998, the Company also increased its principal pre-
securitization receivables warehouse facility from $70.0 million to $100.0
million. This facility bears interest at LIBOR plus 1.0%.
As of December 31, 1998, the Company had loan facilities secured by customer
mortgages receivable with available but unused capacity (assuming the
availability of
40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
sufficient receivables) of up to $130.5 million. These various facilities bear
interest at rates which include prime plus 2%, as well as LIBOR plus 1.0%, 2.5%
and 2.65%, and fixed interest of 6.1%.
In addition, as of December 31, 1998, the Company had remaining availability of
up to $64.6 million for facilities secured by real estate. These facilities
bear interest at variable rates which include Prime plus 2%, LIBOR plus 2.65%,
2.85% and 3.25% and fixed interest of 8.2%.
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 are being recognized over the term of the
respective debt as an adjustment to interest expense using the effective
interest method. The debt associated with the incentive fees had outstanding
balances of $13.9 million, $22.1 million, and $2.2 million at December 31, 1998.
In addition, upon formation, WGV entered into an agreement with one of the
limited partners whereby WGV could borrow up to $1.6 million. No amounts were
outstanding under this agreement as of December 31, 1998.
Scheduled principal payments on notes and mortgages where there are agreed upon
scheduled repayments subsequent to December 31, 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
Year ended December 31:
- --------------------------------------------------
<S> <C>
1999 43,747
2000 29,520
2001 13,418
2002 17,378
2003 and thereafter 5,316
</TABLE>
The foregoing principal repayment obligations exclude amounts due on notes
payable secured by customer mortgages receivable including the Notes issued in
connection with the securitization transaction, as such notes do not have fixed
principal amortization dates. Rather, all collections of principal and interest
on the receivables serving as collateral for these notes are paid to the lender
on a monthly basis. Payments are first applied to outstanding interest and then
to principal. The total amount of customer mortgages receivable pledged was
$160.9 million and $125.1 million at December 31, 1998 and 1997, respectively.
(13) Extraordinary Items
During the first and fourth quarters of 1997, in connection with the Initial
Offering and Secondary Offering, the Company repaid certain indebtedness early
and, as a result, recognized extraordinary after-tax charges of $0.8 million and
$0.6 million, or $0.05 per share and $0.03 per share, respectively. The interest
rates on the indebtedness extinguished ranged between 10.3% and 11.9% per annum,
and 8.2% and 11.0% per annum, respectively. The extraordinary charges consisted
of the following amounts:
<TABLE>
<CAPTION>
1997
First Fourth
(in thousands) Quarter Quarter
- -------------------------------------------------------------
<S> <C> <C>
Write-off of related unamortized
financing costs $ 863 $ 696
Prepayment penalties 455 272
Extraordinary charge before tax benefit 1,318 968
Income tax benefit (493) (368)
Net extraordinary charge $ 825 $ 600
- -------------------------------------------------------------
</TABLE>
(14) Income Taxes
Upon completion of the Initial Offering, the Company became subject to federal
and state income taxes from the effective date of the sale of the common stock.
In addition, the Company was required to provide a deferred tax liability for
cumulative temporary differences between financial reporting and tax reporting
in its consolidated statements of income for the period following the effective
date of the Initial Offering. Such deferred taxes are based on the cumulative
temporary differences at the date of the Initial Offering and totalled $13.2
million.
Prior to February 28, 1997, the predecessor entities were taxed either as a C
corporation taxable at the corporate level, as an S corporation taxable at the
shareholder level, or as a partnership taxable at the partner level.
Accordingly, the table below summarizes the unaudited pro forma provision for
income taxes that would have been reported had the Company been treated as a C
corporation rather than as individual partnerships and limited liability
companies for federal income tax purposes for the year ended December 31, 1996.
For the year ended December 31, 1997, the Company's actual income tax provision
is presented for the period subsequent to February 28, 1997.
<TABLE>
<CAPTION>
Year ended December 31,
(in thousands) 1998 1997 1996
Pro forma
(unaudited)
- ----------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 3,774 $3,426 $2,500
State 663 584 220
--------------------------
4,437 4,010 2,720
==========================
Deferred:
Federal 7,457 3,495 1,071
State 761 596 235
--------------------------
8,218 4,091 1,306
--------------------------
Provision for income taxes 12,655 $8,101 $4,026
==========================
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 41
<PAGE>
Notes to Consolidated Financial Statements
A reconciliation between the statutory provision for income taxes and the
provision for income taxes is shown as follows for the year ended December 31:
<TABLE>
<CAPTION>
Year ended December 31,
(in thousands) 1998 1997 1996
Pro forma
(unaudited)
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Income tax at federal statutory rate $11,660 $7,456 $3,905
State tax, net of federal benefit 926 762 300
Amortization of goodwill 128 26 --
Other (59) (143) (179)
------------------------------
Provision for income taxes $12,655 $8,101 $4,026
==============================
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the net deferred tax liabilities were as follows for the year
ended December 31:
<TABLE>
<CAPTION>
Year ended December 31,
(in thousands) 1998 1997
- -----------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 9,193 $ 5,211
Purchase discounts 519 1,217
Alternative minimum tax credit 9,786 5,453
Fixed assets and intangibles 698 967
Net operating loss carryforward 12,264 5,093
Accrued compensation and benefits 88 1,666
Other accruals 300 1,714
Other 393 826
-------------------
Total deferred tax assets $ 33,241 $ 22,147
Deferred tax liabilities:
Deferred revenue (installment sales) $ 58,097 $ 38,764
VOI and other inventory 302 338
Other 595 580
-------------------
Total deferred tax liabilities 58,994 39,682
-------------------
Net deferred tax liabilities $(25,753) $(17,535)
===================
</TABLE>
At December 31, 1998, the Company had net operating loss carryforwards of
approximately $32.0 million for federal tax purposes, which expire between 2008
and 2013. In addition, the Company had approximately $9.8 million in alternative
minimum tax credit carryforwards.
Under Section 453(l) of the Internal Revenue Code, interest may be imposed on
the amount of tax attributable to the installment payments on customer mortgages
receivable for the period beginning on the date of sale and ending on the date
the related tax is paid. If the Company is otherwise not subject to pay tax in a
particular year, no interest is imposed since the interest is based on the
amount of tax paid in that year. The Company has not included a provision for
this interest, as it is not currently subject to the tax; however, in the future
it may become so. The Company continues to monitor its tax provision and may
adjust it to provide for this interest in the future.
(15) Shareholders' Equity
The Company is authorized to issue 100 million shares of common stock, par value
of $.01 per share. At the time of the Initial Offering the Company issued a
total of 4.6 million shares of common stock at a price of $12 per share. The
majority of the approximately $49.5 million net proceeds from the Initial
Offering were used to repay approximately $39.7 million of outstanding
indebtedness, including $0.6 million of accrued interest and prepayment
penalties.
On December 4, 1997, the Company completed a Secondary Offering of 2.0 million
shares of common stock at a price of $22 per share. The Company used all of the
$41.5 million net proceeds to repay outstanding indebtedness, including $0.3
million of accrued interest and prepayment penalties.
The Company is authorized to issue 5.0 million shares of preferred stock, par
value $.01 per share. As of December 31, 1998 and 1997, none of the authorized
shares had been issued.
(16) Stock Option and Employee Stock Purchase Plans
The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation" in
1997 by accounting for employee stock-based compensation under APB Opinion No.
25 and providing pro forma equivalent information in a footnote disclosure.
Stock Option Plan
The Vistana, Inc. Stock Plan (the "Stock Plan") was adopted by the Company's
shareholders in December 1996, prior to the Initial Offering, and amended by the
Company's shareholders in April 1998. As amended, the Stock Plan covers up to
2.5 million shares of common stock and permits the Company to grant to
employees, directors, officers, and consultants of the Company and its
subsidiaries and affiliates: (i) incentive stock options ("ISOs"); (ii) non-
qualified stock options ("NSOs"); (iii) stock appreciation rights; (iv) phantom
stock awards; and (v) restricted stock. The Stock Plan is administered by the
Compensation Committee of the Board of Directors, which also selects the
individuals who receive grants under the plan. As of December 31, 1998, the only
grants that had been made under the Stock Plan were NSOs.
The exercise price, term, and vesting schedule for options granted under the
Stock Plan are set by the Compensation Committee, subject to certain
limitations. Under the Stock
42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
Plan, the exercise price of an ISO may not be less than the fair market value of
the shares of common stock at the date of grant (110% if the ISO is granted to a
greater than 10% shareholder), and the term of an option may not exceed 10 years
(5 years if an ISO is granted to a greater than 10% shareholder). Unless
otherwise specified by the Compensation Committee (which from time to time has
approved vesting schedules for employees ranging from 24 to 48 months), options
become 25% vested after 12 months from the date of grant and thereafter vest pro
rata in arrears over 36 months. Vesting is accelerated in the event of a change
in control of the Company. Options generally terminate at, or shortly after, the
termination of the option holder's employment. Each of the Company's non-
employee directors received NSOs under the Stock Plan upon joining the Board of
Directors. The Stock Plan provides for the automatic grant of 5,000 additional
NSOs per year to certain non-employee directors after the options previously
granted to the director have vested.
<TABLE>
<CAPTION>
The following table summarizes the status of the Company's Stock Plan:
December 31, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------------------------------------------
Weighted Average Weighted Average
Fixed Option Shares Exercise Price Shares Exercise Price
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding options beginning of year 2,080,750 $14.08 535,000 $11.00
Granted: 157,000 $19.52 1,654,000 $14.94
Exercised: 73,875 $12.00 -- --
Forfeited: 75,750 $12.25 108,250 $12.00
Outstanding at year end: 2,088,125 $14.63 2,080,750 $14.08
Exercisable at year end: 802,479 $13.47 178,750 $11.25
Weighted average fair value of options granted during the year $ 8.42 $ 6.44
</TABLE>
<TABLE>
<CAPTION>
The following table summarizes the status of the Stock Plan
for options outstanding and exercisable at December 31, 1998:
Options Outstanding Options Exercisable
------------------------------------------------------------------------------------------------------------
Weighted
Average
Outstanding at Remaining Weighted Options Weighted
Range of December 31, Contractual Average Exercisable at Average
Exercise Prices 1998 Life Exercise Price December 31, 1998 Exercise Price
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$11.00 535,000 8 $11.00 267,500 $11.00
$11.88 - $13.13 861,125 9 12.04 359,457 12.00
$17.50 - $17.75 375,000 9 17.56 106,564 17.56
$20.25 - $25.50 317,000 9 24.34 68,958 24.34
------------------------------------------------------------------------------------------------------------
Total 2,088,125 $14.63 802,479 $13.47
------------------------------------------------------------------------------------------------------------
</TABLE>
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Therefore, no compensation expense has been recognized for the Stock Plan. Had
compensation cost for the Stock Plan been accounted for based on the fair value
at the grant date, consistent with provisions of SFAS No. 123, the Company's net
income and net income per share would have been reduced to the pro forma amounts
below:
<TABLE>
<CAPTION>
December 31,
(in thousands except per share amounts) 1998 1997
- --------------------------------------------------------------
<S> <C> <C>
Net income--as reported $20,648 $ 298
Net income--pro forma $19,828 $ (983)
Net income per diluted share--as reported $ .96 $ 0.02
Net income per diluted share--pro forma $ .92 $(0.05)
</TABLE>
The effects of applying SFAS No. 123 for the presentation of pro forma
disclosures are not necessarily indicative of the effects on reported net income
for future years.
The fair value of options granted in both 1998 and 1997 were estimated using the
Black-Scholes option pricing model as of the date of grant with the following
assumptions: expected lives of 6 years; expected volatility of 35%; expected
dividend yield of 0%; and a range of risk-free interest rates between 4.80% and
5.02% for 1998 and 5.81% and 6.88% for 1997.
In connection with the Initial Offering, the Principal Shareholders granted
certain executive officers and other employees of and a consultant to the
Company (i) immediately exercisable options to purchase an aggregate
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 43
<PAGE>
Notes to Consolidated Financial Statements
of 1.4 million shares of common stock at an exercise price equal to $12 per
share, and (ii) an option, which vests on February 10, 2001, to purchase an
aggregate of 0.04 million shares of common stock at an exercise price equal to
$12 per share. Subsequent to the Initial Offering, the Principal Shareholders
granted certain executive officers (i) an option, which vests over a period of
four years, to purchase 0.4 million shares of common stock at an exercise price
equal to $24.62 per share, and (ii) an option, which vests over a period of four
years, to purchase an aggregate of 0.04 million shares of common stock at an
exercise price equal to $24.25 per share. All of these options will terminate
ten years after the date of grant, subject to certain exceptions. The shares
covered by these options were outstanding as of December 31, 1998.
Employee Stock Purchase Plan
Effective October 1, 1997, the Company adopted the Vistana, Inc. Employee Stock
Purchase Plan (the "Purchase Plan") to assist employees in acquiring a stock
ownership interest in the Company and to encourage employees to remain in the
employ of the Company. The Purchase Plan meets the requirements of an "employee
stock purchase plan" pursuant to section 423 of the Internal Revenue Code. A
maximum of 1.0 million shares of common stock is reserved for issuance under the
Purchase Plan. As of December 31, 1998, approximately 39,000 shares had been
issued under the Purchase Plan.
(17) Earnings Per Share
Basic earnings per share ("EPS") excludes dilution and is computed by dividing
income available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue Common Stock were
exercised and shared in the earnings of the Company. For the year ended December
31, 1998 and 1997, approximately 0.4 million and 0.3 million net shares,
respectively, relative to options granted were considered dilutive after giving
effect for taxes and the application of the treasury stock method and were
included in the respective diluted EPS calculations. An additional 0.1 million
and 0.08 million net shares, respectively, were considered anti-dilutive and
therefore excluded from the respective diluted EPS calculations. Contingent
shares recorded but not issued were considered outstanding for purposes of
computing diluted EPS.
(18) 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 was $0.3 million in 1998, and $0.2 million in each of 1997 and 1996.
(19) Stay-On Agreements
In 1992, the Company entered into stay-on 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.
The expense associated with these agreements was recognized in amounts totaling
$1.1 million for the year ended December 31, 1996. No expense was recognized in
1997 or 1998. Amounts payable under these agreements totalled $1.7 million and
$3.1 million as of December 31, 1998 and 1997, respectively, and are included in
accrued compensation and benefits in the accompanying consolidated balance
sheets. Payment of this obligation is being made in annual installments over a
three-year period beginning in 1997. In 1998, approximately $1.4 million, of
installment payments were made. As the senior executives subject to the stay-on
agreements entered into employment agreements with the Company in 1997, no
future expense amounts will be incurred in connection with the stay-on
provisions.
(20) 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
such litigation is not expected to have a material impact on the financial
position or results of operations of the Company.
44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
(21) Quarterly Financial Information
(Unaudited)
Summarized quarterly financial information for the years ended December 31, 1998
and 1997 is presented below (in thousands except share amounts):
Net income for the first quarter of 1997 includes a non-recurring charge of
$13.2 million related to the recognition of deferred taxes in connection with
the Company's change in tax status. In addition, financial results in 1997
include the results of Success and Points from the September 16, 1997
acquisition date.
<TABLE>
<CAPTION>
Three months ended in 1998 March June September December
31 30 30 31
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
VOI sales $ 33,535 $ 42,596 $ 51,354 $ 45,387
Interest Income 6,085 6,154 6,943 7,356
Total revenue 47,186 57,551 67,439 61,546
VOI cost of sales 7,048 9,372 11,942 10,260
Sales and marketing 16,945 20,192 23,430 22,571
Interest expense-treasury 2,188 2,083 2,352 2,229
Provision for doubtful accounts 2,482 3,144 3,807 3,359
Interest expense-other 373 442 1,487 1,755
--------------------------------------------------------------
Net Income $ 3,479 $ 5,190 $ 6,409 $ 5,570
==============================================================
Per share data:
Net Income-diluted .16 .24 .30 .26
==============================================================
Weighted average shares
outstanding-diluted 21,630 21,630 21,384 21,297
==============================================================
Three months ended in 1997 March June September December
31 30 30 31
- ----------------------------------------------------------------------------------------------------------------------
VOI sales $ 18,246 $ 21,837 $ 28,632 $ 32,172
Interest Income 4,445 4,480 4,617 5,754
Total revenue 28,302 32,193 39,712 45,143
VOI cost of sales 4,217 5,060 6,326 7,295
Sales and marketing 8,581 9,705 12,229 15,100
Interest expense-treasury 1,774 1,355 1,729 2,382
Provision for doubtful accounts 1,282 1,526 1,909 2,254
Interest expense-other 760 310 283 352
--------------------------------------------------------------
Net Income (loss) before extraordinary item (10,405) 3,431 4,543 4,154
Extraordinaary item, net of tax (825) -- -- (600)
==============================================================
Net Income (loss) $(11,230) $ 3,430 $ 4,543 $ 3,554
==============================================================
Per share data:
Income (loss) before extraordinary item $ (0.66) $ 0.18 $ 0.23 $ 0.20
==============================================================
Extraordinary item, net of tax (0.05) -- -- (.03)
==============================================================
Net (loss) income-diluted (0.71) 0.18 0.23 0.17
==============================================================
Weighted average shares
outstanding-diluted 15,819 18,800 19,592 20,418
==============================================================
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
(22) 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 $14.5 million.
These interest rate swap agreements effectively fixed the Company's interest
rates on its $9.8 million floating rate note due June 30, 2000 and on its $4.7
million floating rate note due December 29, 2000, to 9.69% per annum and 11.69%
per annum, respectively. In 1997, in connection with the Initial Offering, the
remaining swap agreements were terminated.
<TABLE>
<CAPTION>
(23) Supplemental Disclosures of Non-cash Operating and Investing Activities
(in thousands) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental schedule of
non-cash operating activities:
Transfers from construction in
progress to inventory of VOI's $51,485 $14,512 $9,397
========================
Transfers from land held for
development to inventory of VOI's $ 2,462 $ 866 $ 986
========================
Interest capitalized $ 3,186 $ 1,874 $ 434
========================
Transfers from construction in
progress to fixed assets $12,794 $ 1,701 $ 53
========================
</TABLE>
During 1996, pursuant to clean-up call provisions, the Company purchased certain
customer mortgages receivables previously sold. A summary of the impact of these
transactions on non-cash investing activities is as follows:
<TABLE>
<CAPTION>
(in thousands) 1996
- ---------------------------------------------------------
<S> <C>
Contractual balance of customer mortgages
receivable acquired $ 9,804
Allowance for doubtful accounts assigned to
customer mortgages receivable acquired (588)
Remaining balance of estimated losses on
repurchase obligations relating to customer
mortgages receivable repurchased 1,595
Investment in limited partnership (5,059)
Cash paid upon repurchase (1,170)
-------
Discount on purchase of
customer mortgages receivable $ 4,582
-------
</TABLE>
46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
(24) Business Segment Information
Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 establishes
new standards for reporting information about business segments and related
disclosures about products and services, geographic areas and major customers.
The Company is engaged in two operating segments, timeshare development and
resort operations. The Company's reportable segments offer different products
or services and are managed separately because each requires different operating
strategies and management expertise. The operations of the timeshare
development segment consist of constructing, furnishing, marketing, selling, and
financing the sale of VOI's. The resort operations segment manages the
operations of the resorts and related amenities. The accounting policies of the
segments are as described in Note 3.
The table below presents information related to the Company's business segments
for 1998, 1997, and 1996
<TABLE>
<CAPTION>
(in thousands) Revenue from Additions to Depreciation
External Operating Total Long-Lived and
Customers Income (1) Assets Assets Amortization
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
Timeshare Development $203,909 $27,813 $446,041 $18,266 $5,110
Resort Operations 20,735 1,823 21,273 7,912 945
- ---------------------------------------------------------------------------------------------------------------------
Total Segments 224,644 29,636 467,314 26,178 6,055
Other 9,078 1,246 4,106 1,233 369
- ---------------------------------------------------------------------------------------------------------------------
Total Company $233,722 $30,882 $471,420 $27,411 $6,424
1997
Timeshare Development $120,932 $19,129 $275,089 $ 6,229 $2,484
Resort Operations 16,921 1,834 9,545 165 675
- ---------------------------------------------------------------------------------------------------------------------
Total Segments 137,853 20,963 284,634 6,394 3,159
Other 7,499 1,483 2,575 123 296
- ---------------------------------------------------------------------------------------------------------------------
Total Company $145,352 $22,446 $287,209 6,517 3,455
1996
Timeshare Development $ 76,295 $7,712 $162,089 $ 768 $2,105
Resort Operations 13,587 1,400 8,165 1,435 243
- ---------------------------------------------------------------------------------------------------------------------
Total Segments 89,882 9,112 170,254 2,203 2,348
Other 7,054 1,377 3,668 310 205
- ---------------------------------------------------------------------------------------------------------------------
Total Company $ 96,936 $10,489 $173,922 $ 2,513 $2,553
</TABLE>
(1) Total Company operating income equals income before taxes and extraordinary
item as shown on the Company's consolidated statements of income.
The table below presents information related to geographic areas in which the
Company operated in 1998, 1997, and 1996.
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------
<S> <C> <C> <C>
Revenue(1)
United States $206,898 $108,435 $ 76,503
Foreign 26,824 36,917 20,433
- ---------------------------------------------------
Total Revenue $233,722 $145,352 $ 96,936
Total Assets
United States $467,228 $285,048 $172,992
Foreign 4,192 2,161 930
- ---------------------------------------------------
Total Assets $471,420 $287,209 $173,922
</TABLE>
(1) Revenues attributed to geographic area are based on residence of customer.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 47
<PAGE>
Directors and Officers
- --------------------------------------------------------------------------------
Board of Directors
Jeffrey A. Adler /1/
President and
Co-Chief Executive Officer
Vistana, Inc.
James G. Brocksmith, Jr.
Consultant
Naples, Florida
Raymond L. Gellein, Jr./1/
Chairman of the Board and
Co-Chief Executive Officer
Vistana, Inc.
Laurence S. Geller /2,3/
Chief Executive Officer
Strategic Hotel Capital
Incorporated
Chicago, Illinois
Charles E. Harris
Vice Chairman and
Chief Financial Officer
Vistana, Inc.
Steven J. Heyer /2,3/
President and Chief Operating
Officer
Turner Broadcasting System, Inc.
Atlanta, Georgia
1 Member of Nominating Committee
2 Member of Audit Committee
3 Member of Compensation Committee
- --------------------------------------------------------------------------------
Corporate Officers
Raymond L. Gellein, Jr.
Chairman of the Board and
Co-Chief Executive Officer
Jeffrey A. Adler
President and
Co-Chief Executive Officer
Charles E. Harris
Vice Chairman and
Chief Financial Officer
Carol Lytle
Senior Vice President
James A. McKnight
Senior Vice President,
Construction and Development
Susan Werth
Senior Vice President,
General Counsel and Secretary
Alvin White, Jr.
Senior Vice President, Human
Resources
David N. Matheson
Vice President, Public Relations
Mark E. Patten
Vice President and
Chief Accounting Officer
- --------------------------------------------------------------------------------
Additional Vice Presidents
Lisa M. Cassin
Treasury Operations
Rex Davidson
VCH Communications, Inc.
William J. Newcome
Information Systems
Joel J. Pope
Resort Operations
Sergio D. Rivera
Administration
William F. Schabot
Facilities Management and
Purchasing
Julie R. Smith
VCH Portfolio Services Inc.
Paulette J. Temple
Vistana Resort Orlando
Joy D. Theiss
Human Resources
Thorp S. Thomas
Property Management Services
- --------------------------------------------------------------------------------
Vistana East, Inc.
Carol Lytle
President and Co-Chief Executive
Officer
William J. McLaughlin
President and Co-Chief Executive
Officer
Jeff L. Carter
Vice President, Sales
Karen S. Friend
Vice President
Sharon McLaughlin
Vice President
Robyn Ryan
Vice President
Brian F. Tolan
Vice President, Marketing
Martin J. Tolan
Vice President, Marketing
- --------------------------------------------------------------------------------
Vistana West, Inc. and Affiliates
Donald J. Dubin
Co-President
Larry D. Doll
Co-President
David E. Bruce
Exec. Vice President
James Danz
Vice President
Gary DuFresne
Vice President
Anne Kingsley
Vice President
Paula S. Matson
Vice President
Ronald R. Sharp
Treasurer
Marc B. Preston
Controller
Vistana International, Inc.
Alain J. A. Grange
President and Chief Executive
Officer
48 DIRECTORS AND OFFICERS
<PAGE>
VISTANA, INC.
LIST OF SUBSIDIARIES
December 31, 1998
1. DATA MARKETING ASSOCIATES, INC. [NV]
2. DATA MARKETING ASSOCIATES EAST, INC. [FL]
3. FIESTA VACATIONS, L.L.C. [AZ]
4. P.O.C. REALTY, INC. [CO]
5. POINTS OF COLORADO, INC. [CO]
6. THE SUCCESS COMPANIES, INC. [NV]
7. SUCCESS DEVELOPMENTS, L.L.C. [AZ]
8. SUCCESS OF ARIZONA, L.L.C. [AZ]
9. SUCCESS OF COLORADO, L.L.C. [NV]
10. SUCCESS OF COLORADO REALTY, L.L.C. [NV]
11. SUCCESS WEST COMMUNICATIONS, INC. [NV]
12. VACATION MARKETING SERVICES, INC. [FL]
13. VACATION TITLE SERVICES, INC. [FL]
14. VACATIONWORKS, INC. [FL]
15. VCH COMMUNICATIONS, INC. [FL]
16. VCH CONSULTING, INC. [FL]
17. VCH CONTRACTING, INC. [FL]
18. VCH OAKS, INC. [FL]
19. VCH PORTFOLIO SERVICES, INC. [FL]
20. VCH SALES, INC. [FL]
21. VCH SYSTEMS, INC. [FL]
22. VCH TRADEMARK, INC. [FL]
23. VCM OAKS, INC. [FL]
24. VDI2, INC. [FL]
25. VISTANA 1998-A TIMESHARE MORTGAGE CORP. [DE]
26. VISTANA ACCEPTANCE CORP. [FL]
27. VISTANA ADMINISTRATION, INC. [FL]
28. VISTANA CAVE CREEK, INC. [AZ]
29. VISTANA DEVELOPMENT, INC. (d/b/a Vistana Development, Ltd.) [FL]
30. VISTANA EAST, INC. [FL]
31. VISTANA INTERNATIONAL, INC. [FL]
32. VISTANA MANAGEMENT, INC. (d/b/a Vistana Management, Ltd.) [FL]
33. VISTANA MB, INC. [SC] (IL, OH)
34. VISTANA MB MANAGEMENT, INC. [SC]
35. VISTANA NJ, INC. [NJ]
36. VISTANA NJ MARKETING, INC. [NJ]
37. VISTANA NJ SERVICES, INC. [NJ]
38. VISTANA OP INVESTMENT, INC. [FL]
39. VISTANA PSL, INC. [FL]
40. VISTANA SCOTTSDALE DEVELOPMENT, INC. [AZ]
<PAGE>
41. VISTANA SCOTTSDALE, INC. [AZ]
42. VISTANA SCOTTSDALE MANAGEMENT, INC. [AZ]
43. VISTANA TIMESHARE MORTGAGE CORP. [DE]
44. VISTANA WEST, INC. [FL]
45. VISTANA WGV HOLDINGS, INC. [FL]
46. VISTANA WGV INVESTMENT, INC. [FL]
47. VISTANA WGV MANAGEMENT, INC. [FL]
48. VTM CORP. [DE]
LIMITED PARTNERSHIPS
--------------------
49. VCH OAKS, LTD. [FL]
50. VISTANA WGV, LTD. [FL]
51. VISTANA WGV MANAGEMENT, LTD. [FL]
GENERAL PARTNERSHIP
-------------------
52. OAK PLANTATION JOINT VENTURE [FL]
FOREIGN ENTITIES
----------------
53. VISTANA INTERNATIONAL CHILE, LIMITADA [CHILE]
54. OVERSEAS PROMOTIONS, INC. [Cayman Islands]
55. PROMOCIONES INTERNACIONALES TURISTICAS (HONDURAS), S.A.
56. OVERSEAS PROMOTIONS (EL SALVADOR), S.A.
57. OVERSEAS PROMOTIONS (PUERTO RICO), S.A.
58. PROMOCIONES DEL EXTRANJERO, S.A. [Ecuador]
59. VISTANA INTERNATIONAL ARGENTINA, S.R.L.
60. PROMOCIONES INTERNACIONALES REPUBLICA DOMINICANA, S.A.
61. PROMOCIONES INTERNACIONALES COLOMBIA, S.A.
62. PROMOCIONES INTERNACIONALES PANAMA, S.A.
63. OVERSEAS PROMOTIONS VENEZUELA, S.A.
64. REPRESENTACIONES Y SERVICIOS DE CENTROAMERICA, S.A. [Guatemala]
65. BRENDSLAND, S.A. [Uruguay]
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF OPERATIONS AND
CONSOLIDATED STATEMENT OF CASH FLOWS INCLUDED IN THE COMPANY'S FORM 10-K FOR THE
PERIOD ENDING DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 49,055
<SECURITIES> 0
<RECEIVABLES> 243,263
<ALLOWANCES> (19,158)
<INVENTORY> 80,941
<CURRENT-ASSETS> 0
<PP&E> 48,479
<DEPRECIATION> (10,710)
<TOTAL-ASSETS> 471,420
<CURRENT-LIABILITIES> 0
<BONDS> 242,644
0
0
<COMMON> 212
<OTHER-SE> 144,004
<TOTAL-LIABILITY-AND-EQUITY> 471,420
<SALES> 172,872
<TOTAL-REVENUES> 233,722
<CGS> 38,622
<TOTAL-COSTS> 202,840
<OTHER-EXPENSES> 5,896
<LOSS-PROVISION> 12,792
<INTEREST-EXPENSE> 12,909
<INCOME-PRETAX> 33,303
<INCOME-TAX> 12,655
<INCOME-CONTINUING> 20,648
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,648
<EPS-PRIMARY> .98
<EPS-DILUTED> .96
</TABLE>
