<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Vistana, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO OF VISTANA, INC.]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Notice is hereby given that the Annual Meeting of Shareholders of Vistana,
Inc., a Florida corporation (the "Company"), will be held at the Hyatt Regency
Grand Cypress, One Grand Cypress Boulevard, Orlando, Florida on Wednesday,
April 28, 1999 at 11:00 a.m., local time, for the following purposes:
(1) To elect two (2) directors to serve until the Annual Meeting of
Shareholders in 2002 and until their successors are elected and
qualified;
(2) To ratify the engagement of KPMG LLP as the Company's independent
auditors for 1999; and
(3) To transact such other business as may properly come before the
meeting.
Shareholders of record at the close of business on March 5, 1999 are
entitled to notice of and to vote at the meeting and any postponements or
adjournments thereof. A complete list of the shareholders entitled to vote at
the meeting will be subject to inspection by any shareholder at the Company's
principal executive offices located at 8801 Vistana Centre Drive, Orlando,
Florida 32821, during ordinary business hours, for a period of ten days prior
to the meeting. The Company's Board of Directors extends a cordial invitation
to all shareholders to attend the meeting.
By Order of the Board of Directors,
/s/ Susan Werth
Susan Werth
Secretary
Orlando, Florida
March 17, 1999
YOUR VOTE IS IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND RETURN IT AS PROMPTLY AS POSSIBLE IN THE ENCLOSED
REPLY ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE
IN PERSON.
<PAGE>
VISTANA, INC.
8801 Vistana Centre Drive
Orlando, Florida 32821
----------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
APRIL 28, 1999
----------------
INTRODUCTION
The accompanying proxy is solicited by the Board of Directors of Vistana,
Inc., a Florida corporation (the "Company"), for use at the Annual Meeting of
Shareholders of the Company to be held on the date, at the time and place and
for the purposes set forth in the accompanying Notice of Annual Meeting of
Shareholders and at any postponements or adjournments thereof (the "Annual
Meeting"). The Company's principal executive offices are located at 8801
Vistana Centre Drive, Orlando, Florida 32821, and its telephone number is
(407) 239-3000. Shareholders of record at the close of business on March 5,
1999 are entitled to notice of and to vote at the meeting. This Proxy
Statement and the accompanying proxy are first being mailed to shareholders on
or about March 17, 1999. Unless the context otherwise requires, the "Company"
includes the corporate and partnership predecessors of Vistana, Inc.
THE MEETING
VOTING AT THE MEETING
On March 5, 1999, there were 21,224,172 shares of common stock of the
Company, $.01 par value per share (the "Common Stock"), issued and
outstanding. Each share of Common Stock issued and outstanding on March 5,
1999 entitles the holder thereof to one vote on all matters submitted to a
vote of shareholders at the meeting.
The presence in person or by proxy of the holders of a majority of the
outstanding shares of Common Stock will constitute a quorum. The affirmative
vote of a plurality of the shares represented at the meeting, in person or by
proxy, will be necessary for the election of directors. The affirmative vote
of a majority of the shares represented at the meeting, in person or by proxy,
will be necessary for (i) the ratification of the engagement of KPMG LLP
("KPMG") as the Company's independent auditors for 1999, and (ii) the taking
of all other actions that may properly come before the meeting. Jeffrey A.
Adler and Raymond L. Gellein, Jr. (together with their affiliated limited
partnerships and certain trusts primarily for their benefit and the benefit of
their family members and Mr. Gellein's former spouse, the "Principal
Shareholders"), who beneficially own in the aggregate approximately 55% of the
issued and outstanding shares of Common Stock, have indicated their intent to
vote FOR all nominees proposed for election to the Company's Board of
Directors and FOR the proposal to ratify the engagement of KPMG. See "Certain
Relationships and Related Transactions."
PROXIES AND PROXY SOLICITATION
All shares of Common Stock represented by properly executed proxies will be
voted at the meeting in accordance with the directions marked on the proxies,
unless such proxies previously have been revoked. If no directions are
indicated on such proxies, they will be voted FOR the election of each nominee
named below under "Election of Directors" and FOR the proposal to ratify the
engagement of KPMG. If any other matters not described herein are properly
presented at the meeting for action, which is not presently anticipated, the
persons named in the enclosed proxy will vote all proxies (which confer
discretionary authority upon such holders to vote on such matters) in
accordance with their best judgment. Each shareholder who executes and returns
a proxy may revoke the proxy at any time before it is voted at the meeting by
timely submission, to the
<PAGE>
Secretary of the Company, of a written notice of revocation or a duly executed
proxy bearing a later date. In addition, if a shareholder is present at the
meeting, he or she may elect to revoke his or her proxy and vote his or her
shares personally.
For purposes of determining whether a proposal has received a majority vote,
proxies marked "Abstain" will be treated as shares present and entitled to
vote, which will have the same effect as a vote against any such proposal
submitted for a vote of the shareholders. Director nominees must receive the
affirmative vote of a plurality of the shares represented of the meeting,
which means that a vote "Withheld" from a particular nominee or nominees will
not affect the outcome of the election of directors. If a broker indicates on
a proxy that it does not have discretionary authority to vote on a particular
matter as to certain shares, those "non-voted" shares will be treated as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum. For purposes of determining the outcome of any matter as
to which the proxies reflect broker non-votes, shares represented by such
proxies will be treated as not present and not entitled to vote on that
subject matter and therefore would not be considered by the Company when
counting votes cast on the matter (even though those shares are considered
entitled to vote for quorum purposes and may be entitled to vote on other
matters).
The costs of soliciting proxies will be paid by the Company. Certain
directors, officers and other employees of the Company, not specially employed
for this purpose, may solicit proxies, without additional remuneration
therefor, by personal interview, mail, telephone or other means of
communication. The Company will request brokers and other fiduciaries to
forward proxy soliciting material to the beneficial owners of shares of Common
Stock that are held of record by such brokers and fiduciaries and will
reimburse such persons for their reasonable out-of-pocket expenses.
2
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth information as of March 1, 1999 regarding the
beneficial ownership of the Common Stock of the Company with respect to (i)
each person known by the Company to beneficially own 5% or more of the
outstanding Common Stock, (ii) each director and nominee for director to the
Company, (iii) each person named as an executive officer of the Company in the
Summary Compensation Table appearing elsewhere herein, and (iv) all directors
and named executive officers of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME(1) BENEFICIALLY OWNED(2) PERCENTAGE
- ------- --------------------- ----------
<S> <C> <C>
Warburg Pincus Asset Management, Inc......... 3,072,600 13.8%
466 Lexington Avenue
New York, New York 10017
NevEast Limited Partnership(3)............... 2,798,953 12.6%
5851 West Charleston Blvd., Suite 1000
Las Vegas, Nevada 89102
NevWest Limited Partnership(4)............... 2,778,728 12.5%
5851 West Charleston Blvd., Suite 1000
Las Vegas, Nevada 89102
Rija Limited Partnership(5).................. 5,989,710 27.0%
5851 West Charleston Blvd., Suite 1000
Las Vegas, Nevada 89102
Raymond L. Gellein, Jr.(6)................... 5,604,764 25.3%
Jeffrey A. Adler(7).......................... 6,111,333 27.6%
James G. Brocksmith, Jr.(8).................. 11,000 *
Laurence S. Geller(9)........................ 45,000 *
Charles E. Harris(10)........................ 265,517 1.2%
Steven J. Heyer(11).......................... 55,000 *
Matthew E. Avril(12)......................... 490,000 2.2%
Susan Werth(13).............................. 129,250 *
Mark E. Patten(14)........................... 6,400 *
All directors and named executive officers as 12,768,680 57.4%
a group (9 persons)(15).....................
</TABLE>
- --------
* Less than 1%.
(1) Except as indicated above, the address of each director, executive officer
and beneficial owner of more than 5% of the currently outstanding shares
of Common Stock is in care of the Company, 8801 Vistana Centre Drive,
Orlando, Florida 32821.
(2) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares of Common Stock which such person has
the right to acquire within 60 days after the date of this table. For
purposes of computing the percentage of outstanding shares of Common Stock
held by each person or group of persons named above, any security which
such person or persons has or have the right to acquire from the Company
within 60 days after the date of this table is deemed to be outstanding,
but is not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person.
3
<PAGE>
(3) All of the issued and outstanding capital stock of the two corporate
general partners of NevEast Limited Partnership, a Nevada limited
partnership ("NevEast"), is owned by trusts for which either Raymond L.
Gellein, Jr. or Mr. Gellein's former spouse act as trustee. See note (6)
below.
(4) All of the issued and outstanding capital stock of the corporate general
partner of NevWest Limited Partnership, a Nevada limited partnership
("NevWest"), is owned by a trust for which Raymond L. Gellein, Jr. acts as
trustee. See note (6) below.
(5) All of the issued and outstanding capital stock of the corporate general
partner of Rija Limited Partnership, a Nevada limited partnership
("Rija"), is owned by a trust for which Jeffrey A. Adler acts as trustee.
See note (7) below.
(6) Includes 2,798,953 shares of Common Stock held by NevEast and 2,778,728
shares of Common Stock held by NevWest. All of the issued and outstanding
capital stock of the two corporate general partners of NevEast is owned by
trusts for which either Mr. Gellein or Mr. Gellein's former spouse act as
trustee. See note (3) above. All of the issued and outstanding capital
stock of the corporate general partner of NevWest is owned by a trust for
which Mr. Gellein acts as trustee. See note (4) above. Of such shares of
Common Stock held by NevEast and NevWest, 913,500 shares of Common Stock
are subject to options granted to certain executive officers, consultants
to and other current and former employees of, the Company. See notes (10),
(12), (13) and (15) below. Also includes 27,083 shares of Common Stock
which may be acquired upon exercise of options granted under the Vistana
Stock Plan (the "Stock Plan"), which are exercisable within 60 days after
the date of this table, and excludes options to acquire 22,917 shares of
Common Stock granted by the Company pursuant to the Stock Plan which are
not exercisable within 60 days after the date of this table. Also excludes
an aggregate of 629,569 shares of Common Stock held by various trusts, of
which Mr. Gellein is not trustee, for the benefit of members of Mr.
Gellein's family and Mr. Gellein's former spouse and members of her
family.
(7) Includes 94,540 shares of Common Stock held by various trusts primarily
for the benefit of Mr. Adler and members of his family. Mr. Adler, who
serves as trustee of each of such trusts, has exclusive authority to vote
all shares of stock, including the Common Stock, held thereby. Also
includes 5,989,710 shares of Common Stock held by Rija. All of the issued
and outstanding capital stock of the corporate general partner of Rija is
owned by a trust for which Mr. Adler serves as trustee. Of such shares of
Common Stock held by Rija, 913,500 shares of Common Stock are subject to
options granted to certain executive officers, consultants to, and other
current and former employees of, the Company. See notes (10), (12), (13)
and (15) below. Also includes 27,083 shares of Common Stock which may be
acquired upon exercise of options granted under the Stock Plan, which are
exercisable within 60 days after the date of this table, and excludes
options to acquire 22,917 shares of Common Stock granted by the Company
pursuant to the Stock Plan which are not exercisable within 60 days after
the date of this table. Excludes an aggregate of 123,000 shares of Common
Stock held by various trusts, of which Mr. Adler is not trustee, for the
benefit of Mr. Adler's spouse and children.
(8) Includes 10,000 shares of Common Stock which may be acquired upon exercise
of options granted under the Stock Plan which are exercisable within 60
days after the date of this table.
(9) Includes 45,000 shares of Common Stock which may be acquired upon exercise
of options granted under the Stock Plan which are exercisable within 60
days after the date of this table. Excludes 15,000 shares of Common Stock
held by a trust for which Mr. Geller does not serve as a trustee and of
which he is not a beneficiary.
(10) Includes 108,750 shares of Common Stock which may be acquired upon
exercise of options granted under the Stock Plan which are exercisable
within 60 days after the date of this table, 141,667 shares of Common
Stock which may be acquired upon the exercise of options granted by the
Principal Shareholders which are exercisable within 60 days after the
date of this table and 600 shares of Common Stock owned by Mr. Harris'
children. Excludes 116,250 shares of Common Stock issuable pursuant to
options granted under the Stock Plan which are not exercisable within 60
days after the date of this table and 258,333 shares of Common Stock
which may be acquired upon the exercise of options granted by the
Principal Shareholders which are not exercisable within 60 days after the
date of this table.
4
<PAGE>
(11) Includes 45,000 shares of Common Stock which may be acquired upon
exercise of options granted under the Stock Plan which are exercisable
within 60 days after the date of this table.
(12) Includes (i) 400,000 shares of Common Stock which may be acquired upon
exercise of options granted by the Principal Shareholders which are
exercisable within 60 days after the date of this table and (ii) 90,000
shares of Common Stock which may be acquired upon exercise of options
granted under the Stock Plan which are exercisable within 60 days after
the date of this table. Mr. Avril resigned as an officer and employee of
the Company effective December 31, 1998 and effective January 1, 1999,
became a consultant to the Company. See "Executive Officers--Executive
Compensation."
(13) Includes (i) 85,000 shares of Common Stock which may be acquired upon
exercise of options granted by the Principal Shareholders which are
exercisable within 60 days after the date of this table and (ii) 43,750
shares of Common Stock which may be acquired upon exercise of options
granted under the Stock Plan which are exercisable within 60 days after
the date of this table. Excludes (i) an aggregate of 40,000 shares of
Common Stock which may be acquired upon exercise of options granted by
the Principal Shareholders held by various trusts, of which Ms. Werth is
not trustee, for the benefit of Ms. Werth's children, (ii) options to
acquire 31,250 shares of Common Stock granted by the Company pursuant to
the Stock Plan which are not exercisable within 60 days after the date of
this table, and (iii) 1,000 shares of Common Stock owned by Ms. Werth's
spouse, for which Ms. Werth disclaims beneficial ownership.
(14) Includes 6,250 shares of Common Stock which may be acquired upon exercise
of options granted under the Stock Plan which are exercisable within 60
days after the date of this table. Excludes options to acquire 18,750
shares of Common Stock granted by the Company pursuant to the Stock Plan
which are not exercisable within 60 days after the date of this table.
(15) Includes (i) 11,719,847 shares of Common Stock beneficially owned by the
Principal Shareholders; (ii) an aggregate of 626,667 shares of Common
Stock which may be acquired upon exercise of options granted by the
Principal Shareholders which are exercisable within 60 days after the
date of this table; and (iii) 395,416 shares of Common Stock which may be
acquired upon exercise of options granted under the Stock Plan which are
exercisable within 60 days after the date of this table. Excludes options
to acquire an aggregate of 166,250 shares of Common Stock granted by the
Company pursuant to the Stock Plan which are not exercisable within 60
days after the date of this table and options to acquire 258,333 shares
of Common Stock granted by the Principal Shareholders which are not
exercisable within 60 days after the date of this table.
5
<PAGE>
PROPOSAL 1: ELECTION OF DIRECTORS
The Company's Articles of Incorporation and Amended and Restated Bylaws
provide that the Board of Directors shall be divided into three classes, as
nearly equal in number as possible, with each class having a three-year term.
The Board of Directors is presently comprised of six members. Messrs. Gellein
and Brocksmith have been classified as the class of directors having a term
expiring at the Annual Meeting. Messrs. Adler and Harris have been classified
as the class of directors having a term expiring at the 2000 Annual Meeting of
Shareholders and Messrs. Geller and Heyer have been classified as the class of
directors having a term expiring at the 2001 Annual Meeting of Shareholders.
The classification of directors makes it more difficult for a significant
shareholder to change the composition of the Board of Directors in a
relatively short period of time and, accordingly, provides the Board of
Directors and shareholders time to review any proposal that a significant
shareholder may make and to pursue alternative courses of action which the
Board of Directors believes are fair to all shareholders of the Company.
If elected at the Annual Meeting, each of the two nominees for director,
Raymond L. Gellein, Jr. and James G. Brocksmith, Jr., would serve until the
Annual Meeting of Shareholders in the year 2002 and until their respective
successors have been elected and qualified. Each of the nominees are now
members of the Board of Directors. It is not contemplated that either of the
nominees will be unable or unwilling to serve; however, if either nominee is
unable or unwilling to serve, it is intended that the shares represented by
proxy, if given and unless otherwise specified therein, will be voted for a
substitute nominee or nominees designated by the Board of Directors.
The shares of Common Stock represented by the enclosed proxy, if given and
unless otherwise specified, will be voted by the persons named as proxies FOR
the election of the individuals nominated by the Board of Directors. The
Principal Shareholders, who beneficially own in the aggregate approximately
55% of the issued and outstanding shares of Common Stock, have indicated their
intent to vote FOR the election of the individuals nominated by the Board of
Directors. See "Certain Relationships and Related Transactions."
Set forth below is biographical information for each person nominated and
for each person whose term of office as a director will continue after the
Annual Meeting.
NOMINEES FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE ANNUAL MEETING OF
SHAREHOLDERS IN THE YEAR 2002
RAYMOND L. GELLEIN, JR., age 51, has served as Chairman of the Board, Co-
Chief Executive Officer and a Director of the Company since December 1996. Mr.
Gellein served as Chairman of the Board and a Director of the Company since
November 1991 and served as Chief Executive Officer of the Company from 1981
to November 1991.
JAMES G. BROCKSMITH, JR., age 58, has served as a director of the Company
since February 24, 1998. Mr. Brocksmith served as a partner of KPMG from 1971
to January 1997, and from 1990 to October 1996, Mr. Brocksmith served as the
Deputy Chairman of the Board and Chief Operating Officer of KPMG. Since
January 1997, Mr. Brocksmith has been a self-employed business consultant for
several companies including Best Buy Company, The Ohio Company and (during
1997 only) the Company. Mr. Brocksmith is a member of the board of directors
of Nationwide Financial Services, Inc., a publicly traded provider of life
insurance, mutual funds and pension products, and of CIBER, Inc., a publicly
traded information technology consulting company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE
NOMINEES.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2000 ANNUAL MEETING OF SHAREHOLDERS
JEFFREY A. ADLER, age 46, has served as President, Co-Chief Executive
Officer and a Director of the Company since December 1996. Mr. Adler served as
President and a Director of the Company since November 1991 and served as
Executive Vice President of the Company from 1983 to November 1991.
6
<PAGE>
CHARLES E. HARRIS, age 52, has served as Vice Chairman of the Board and
Chief Financial Officer of the Company since November 1997, as Treasurer since
June 1998 and as a Director since March 1997. Mr. Harris has served as
President and Chief Executive Officer of Synagen Capital Partners, Inc., a
private merchant banking firm ("Synagen"), since 1989. Mr. Harris has advised
the Company that Synagen does not intend to engage in active operations during
the period of his employment with the Company. He served as President and
Chief Executive Officer of Allen C. Ewing & Co. ("Ewing"), an investment
banking firm, from 1995 and 1994, respectively, until November 1997. He has
served as non-executive Chairman of Ewing since November 1997. Mr. Harris was
Vice President--Corporate Finance of Ewing from 1992 to 1994. Earlier
Mr. Harris was engaged in the private practice of law.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2001 ANNUAL MEETING OF SHAREHOLDERS
LAURENCE S. GELLER, age 51, has served as a Director of the Company since
March 1997. Mr. Geller has served as Chief Executive Officer of Strategic
Hotel Capital Incorporated, a lodging real estate ownership company, since its
inception in May 1997. Previously, he served as the Chairman of Geller & Co.,
a real estate, gaming, tourism and lodging industry consulting company, from
December 1989 to April 1997. From 1984 through December 1989, Mr. Geller
served as the Executive Vice President and Chief Operating Officer of Hyatt
Development Corporation, a developer of domestic and international hotels and
resorts. Mr. Geller is a director of Sunstone Hotel Investors, Inc., a
publicly traded lodging real estate investment trust, and Interactive
Entertainment Limited, a publicly traded gaming technology company.
STEVEN J. HEYER, age 46, has served as a Director of the Company since March
1997. Mr. Heyer has served as President and Chief Operating Officer of Turner
Broadcasting System, Inc., a subsidiary of Time Warner, Inc., since January
1998. Previously, he served as President, Worldwide Sales, Marketing,
Distribution and International Networks for Turner Broadcasting System, Inc.
from September 1996 to January 1998. Mr. Heyer joined Turner Broadcasting
System, Inc. in May 1994 as President of Turner Broadcasting Sales, Inc. From
September 1992 to May 1994, Mr. Heyer was President of Young & Rubicam
Advertising Worldwide and Executive Vice President, a Director and a member of
the Executive Committee of Young & Rubicam, Inc., an international advertising
agency.
BOARD COMMITTEES AND MEETINGS
The Board of Directors has designated an Audit Committee, a Compensation
Committee and a Nominating Committee. The members of the Audit Committee and
the Compensation Committee are Messrs. Geller and Heyer, each of whom is a
"non-employee director" of the Company as defined in the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). The members of the Nominating
Committee are Messrs. Gellein and Adler.
The Audit Committee makes recommendations concerning the engagement of
independent public accountants, reviews with the independent public
accountants the plans and results of the audit engagement, approves
professional services provided by the independent public accountants, reviews
the independence of the independent public accountants, considers the range of
audit and non-audit fees, and reviews the adequacy of the Company's internal
accounting controls.
The Compensation Committee determines compensation for the Company's senior
executive officers, determines awards under the Stock Plan, and administers
the Vistana, Inc. Employee Stock Purchase Plan.
The Nominating Committee recommends to the full Board of Directors nominees
for election as directors of the Company and the composition of committees of
the Board of Directors. The Nominating Committee will consider nominees for
directors recommended by the Company's shareholders. Recommendations should be
submitted in writing to Jeffrey A. Adler, Chairman of the Nominating
Committee, 8801 Vistana Centre Drive, Orlando, Florida 32821.
7
<PAGE>
During 1998, the Board of Directors held ten meetings, the Compensation
Committee held five meetings, the Audit Committee held four meetings, and the
Nominating Committee held one meeting. Each person who was a director of the
Company during 1998 attended or participated in at least 75% of the aggregate
number of meetings held by the Board of Directors and the committees, if any,
on which such director served during 1998.
COMPENSATION OF DIRECTORS
Each director of the Company who was not then an employee of the Company or
the beneficial owner of 5% or more of the outstanding Common Stock (an
"Eligible Director") and who was a director of the Company upon completion of
the Company's initial public offering in 1997 was granted options to purchase
45,000 shares of Common Stock at an exercise price equal to $12 per share. Of
such options, options to purchase 15,000 shares of Common Stock became
exercisable immediately upon grant, options to purchase 15,000 shares of
Common Stock became exercisable immediately following the date of the 1998
annual meeting, and options to purchase the remaining 15,000 shares of Common
Stock will be exercisable immediately following the date of the Annual Meeting
(provided that such initial director continues to be a director of the Company
following the Annual Meeting). Each initial director of the Company who
remains an Eligible Director will also be granted options to purchase 5,000
shares of Common Stock on the date of each scheduled annual meeting of the
Company's shareholders commencing on the date of the 2000 annual meeting of
the Company's shareholders. Subject to certain exceptions, each new director
of the Company who is an Eligible Director was granted options to purchase
5,000 shares of Common Stock on the date such individual was elected a
director and will also be granted options to purchase 5,000 shares of Common
Stock on the date of each scheduled annual meeting of the Company's
shareholders in the following year and each subsequent year while such
individual remains an Eligible Director.
Each director of the Company who is an Eligible Director is paid an annual
fee of $18,000, payable in equal quarterly installments.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and beneficial owners of more than 10% of the outstanding
Common Stock (collectively, "insiders"), to file reports with the Securities
and Exchange Commission (the "Commission") disclosing their ownership of
Common Stock and changes in such ownership. The rules of the Commission
require the insiders to provide the Company with copies of all Section 16(a)
reports filed with the Commission.
Based solely upon a review of copies of Section 16(a) reports received by
the Company, and written representations, in certain instances, that no such
reports were required to be filed with the Commission, the Company believes
that its insiders have complied with all Section 16(a) filing requirements
applicable to them during 1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There are no "interlocks" (as defined by the rules of the Commission) with
respect to any member of the Compensation Committee, and such Committee
consists entirely of independent, non-employee directors.
8
<PAGE>
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Raymond L. Gellein, Jr.. 51 Chairman of the Board, Co-Chief Executive Officer and Director
Jeffrey A. Adler........ 46 President, Co-Chief Executive Officer and Director
Charles E. Harris....... 52 Vice Chairman of the Board, Chief Financial Officer,
Treasurer and Director
Susan Werth............. 50 Senior Vice President, General Counsel and Secretary
Mark E. Patten.......... 35 Vice President and Chief Accounting Officer
</TABLE>
See "Proposal 1: Election of Directors" above for biographical information
concerning Messrs. Gellein, Adler and Harris. Information concerning the other
executive officers of the Company listed above, including their principal
occupations and employment, is set forth below:
SUSAN WERTH has served as Senior Vice President, General Counsel and
Secretary since December 1996. Ms. Werth served as Senior Vice President--Law
from May 1996 to December 1996. Prior thereto Ms. Werth represented the
Company as outside counsel for approximately 10 years. From January 1990 until
May 1996, Ms. Werth was a partner of the law firm of Weil, Gotshal & Manges,
LLP, in Miami, Florida.
MARK E. PATTEN has served as Vice President and Chief Accounting Officer
since January 1998. From June 1997 until January 1998, Mr. Patten was a
partner in the Information Risk Management practice of KPMG in Miami, Florida.
Mr. Patten served as a Senior Manager for KPMG in Miami from January 1995
through June 1997. Prior thereto, Mr. Patten was a Senior Manager in KPMG's
executive office in its Department of Professional Practice in New York City.
Officers are appointed by and serve at the discretion of the Board of
Directors.
9
<PAGE>
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation. The following table sets
forth information with respect to all compensation paid by the Company to the
Company's Co-Chief Executive Officers and each of the other four most highly
compensated executive officers for the year ended December 31, 1998 (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ------------------------
SECURITIES LTIP
UNDERLYING PAYOUTS OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS/SARS(2) (3) COMPENSATION(4)
- --------------------------- ---- --------- --------- --------------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Raymond L. Gellein, Jr. ... 1998 $ 400,000 $ 320,000 -- -- $10,725
Chairman of the Board and 1997 $ 399,278 $ 216,000 50,000 -- $10,725
Co-Chief Executive Officer 1996 $ 530,204 -- -- -- $13,125
Jeffrey A. Adler........... 1998 $ 400,000 $ 320,000 -- -- $10,725
President and Co-Chief 1997 $ 399,278 $ 216,000 50,000 -- $10,725
Executive Officer 1996 $ 530,204 -- -- -- $13,125
Charles E. Harris (5)...... 1998 $ 380,000 $ 328,000 -- -- --
Vice Chairman of the Board, 1997 $ 39,038 $ --
Chief Financial Officer
and Treasurer
Matthew E. Avril (6)....... 1998 $ 350,000 $ 105,000 -- $500,000 $ 6,698
Executive Vice President 1997 $ 249,808 $ 150,000 -- $500,000 $ 6,697
and Chief Operating 1996 $ 225,000 $ 128,750 180,000 $125,000 $ 8,840
Officer
Susan Werth (7)............ 1998 $ 230,000 $ 94,760 -- $100,000 --
Senior Vice President, 1997 $ 229,962 $ 92,000 -- $100,000 $ 8,801
General Counsel and 1996 $ 149,712 $ 78,750 75,000 -- $ 4,132
Secretary
Mark E. Patten (8)......... 1998 $ 145,231 $ 40,230 25,000 -- $ 8,602
Vice President and
Chief Accounting Officer
</TABLE>
- --------
(1) Reflects amounts paid in 1999, 1998 and 1997 in respect of the years ended
December 31, 1998, December 31, 1997 and December 31, 1996, respectively.
(2) Does not include options to acquire 400,000, 400,000 and 125,000 shares of
Common Stock granted by the Principal Shareholders to Mr. Harris, Mr.
Avril and Ms. Werth, respectively. See "Security Ownership of Certain
Beneficial Owners and Management."
(3) Consists of deferred executive incentive compensation under a previous
plan.
(4) In accordance with the rules of the Commission, other compensation in the
form of perquisites and other personal benefits has not been separately
itemized because such perquisites and other personal benefits constituted
less than the lesser of $50,000 or 20% of the annual salary and bonus for
the named executive officer for such year.
(5) Mr. Harris' employment by the Company commenced in November 1997.
Accordingly, salary and bonus amounts in fiscal 1997 reflect a partial
year of employment.
(6) Mr. Avril resigned as an officer and employee of the Company effective
December 31, 1998. He became a consultant to the Company effective January
1, 1999.
(7) Ms. Werth's employment by the Company commenced in May 1996. Accordingly,
salary and bonus amounts in fiscal 1996 reflect a partial year of
employment.
(8) Mr. Patten's employment by the Company commenced in late January 1998.
Accordingly, salary and bonus amounts in fiscal 1998 reflect a partial
year of employment.
10
<PAGE>
Stock Option Grants in Last Fiscal Year. The following table contains
information concerning the grant by the Company of stock options during the
fiscal year ended December 31, 1998 to the Named Executive Officers. The table
also lists potential realizable values of such options on the basis of assumed
annual compounded stock appreciation rates of 5% and 10% over the life of the
options which are set for a maximum of 10 years.
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUES AT ASSUMED
ANNUAL RATES OF
NUMBER OF PERCENT OF SHARE PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(2)
OPTIONS EMPLOYEES IN BASE PRICE ---------------------
NAME GRANTED(1) FISCAL YEAR PER SHARE EXPIRATION DATE 5% 10%
- ---- ---------- ------------- ----------- --------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Raymond L. Gellein, Jr.. -- -- -- -- -- --
Jeffrey A. Adler........ -- -- -- -- -- --
Charles E. Harris....... -- -- -- -- -- --
Matthew E. Avril........ -- -- -- -- -- --
Susan Werth............. -- -- -- -- -- --
Mark E. Patten.......... 25,000 15.9% $25.50 1/30/09 $ 401,000 $ 1,016,000
</TABLE>
- --------
(1) These options are nonqualified stock options, have a ten-year term and,
shall become vested at the rate of 25% per year on each of the first four
anniversaries of the date of grant.
(2) The potential realizable value is reported net of the exercise price, but
before income taxes associated with exercise. These amounts represent
assumed annual compounded rates of appreciation of the shares of Common
Stock underlying each option at 5% and 10% from the date of grant to the
expiration date of the option.
Option Holdings. The following table sets forth information with respect to
the aggregate number and value of shares underlying unexercised options held
as of December 31, 1998 by each of the Named Executive Officers.
FISCAL YEAR-END OPTIONS VALUES(1)(2)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-END
------------------------------ --------------------
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
- ---- ------------------------------ --------------------
<S> <C> <C>
Raymond L. Gellein, Jr...... 22,917 / 27,083 $ 45,834 / 54,166
Jeffrey A. Adler............ 22,917 / 27,083 $ 45,834 / 54,166
Charles E. Harris........... 78,750 / 146,250 $ 60,000 / 30,000
Matthew E. Avril............ 90,000 / 0 $270,000 / 0
Susan Werth................. 37,500 / 37,500 $112,500 / 112,500
Mark E. Patten.............. 0 / 25,000 $ 0 / 0
</TABLE>
- --------
(1) None of the Named Executive Officers of the Company exercised options
during the last completed fiscal year. Accordingly, columns in this table
pertaining to the exercise of options have been omitted.
(2) Does not include options to acquire 400,000, 400,000 and 125,000 shares of
Common Stock granted by the Principal Shareholders to Mr. Harris, Mr.
Avril and Ms. Werth, respectively. See "Security Ownership of Certain
Beneficial Owners and Management."
11
<PAGE>
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements with each of Messrs. Gellein
and Adler and Ms. Werth for a term commencing in March, 1997 and ending in
March, 2001. In addition, in November 1997, the Company entered into an
employment agreement with Mr. Harris for a term commencing in November 1997
and ending in November 2001. Additionally, in late January 1998, the Company
entered into an employment agreement with Mr. Patten for a term commencing in
late January 1998 and ending in late January 2002. Each employee's employment
by the Company is terminable at any time by either party, with or without
cause. Pursuant to these agreements, Messrs. Gellein, Adler, Harris and Patten
and Ms. Werth are entitled to receive an annual base salary in 1999 of
$430,000, $430,000, $408,500, $177,500 and $275,000, respectively, as adjusted
on January 1 of each year by the annual percentage increase in the Consumer
Price Index, All Urban Consumers for the Orlando, Florida area. Mr. Harris'
agreement provides that his annual base salary in each year shall not be less
than 95% of the annual base salary payable in such year to the Company's Chief
Executive Officer. Messrs. Gellein, Adler, Harris and Patten and Ms. Werth
also are eligible to receive an annual performance bonus not to exceed 100%,
100%, 80%, 30% and 45%, respectively, of such employee's annual base salary,
based upon the Company's achievement of certain predetermined performance
goals. Mr. Harris is entitled to receive a minimum base salary and bonus
aggregating not less than $500,000 in each of 1998 and 1999. Upon termination
of employment, the employee is entitled to unpaid compensation for services
rendered through the date of termination, together with employee benefits
accrued through the date of termination. In addition, if the employee's
employment by the Company is terminated, the employee is entitled to receive
certain severance payments depending on the reason for termination (except
with respect to Messrs. Gellein and Adler who will not be entitled to any
severance payments). Upon a Change of Control (as defined in Mr. Harris'
employment agreement), Mr. Harris is entitled to receive a payment equal to
three times the sum of his then current annual base salary and the higher of
(i) his annual bonus payment for the immediately preceding year or (ii) his
annual bonus payment for the year in which the Change of Control occurs, plus
an amount equal to certain taxes required to be paid by Mr. Harris in
connection with his receipt of the Change of Control payment and the
acceleration of any of the stock options granted to him by the Company or the
Principal Shareholders.
The Company has granted each of Messrs. Gellein and Adler options to
purchase 50,000 shares of Common Stock at an exercise price of $12.00 per
share pursuant to the Stock Plan. The Company has also granted Ms. Werth
options to purchase 75,000 shares of Common Stock at an exercise price of
$11.00 per share pursuant to the Stock Plan. See "--Executive Compensation."
In addition to the option granted to Mr. Harris in his prior capacity as an
Eligible Director, the Company has granted to Mr. Harris an option to purchase
180,000 shares of Common Stock at an exercise price of $24.62 per share
pursuant to the Stock Plan. The Company has also granted Mr. Patten an option
to purchase 25,000 shares of Common Stock at an exercise price of $25.50 per
share pursuant to the Stock Plan. See "--Executive Compensation."
Under the terms of the employment agreements, Messrs. Gellein, Adler, Harris
and Patten and Ms. Werth are prohibited from disclosing any confidential
information or trade secrets of the Company. Messrs. Gellein, Adler, Harris
and Patten and Ms. Werth are prohibited, during the term of their employment
by the Company and for a period of one to two years thereafter (depending on
the reason for termination but, in all events, two years for Messrs. Gellein
and Adler) from (i) engaging in any business or becoming employed or otherwise
rendering services to any company engaged in the timeshare or vacation
ownership business and (ii) soliciting the employment of any employees of the
Company.
As described elsewhere herein, Mr. Avril resigned as an officer and employee
of the Company effective December 31, 1998 and became a consultant to the
Company effective January 1, 1999. Pursuant to Mr. Avril's resignation
agreement, the Company and Mr. Avril terminated Mr. Avril's previous
employment agreement, pursuant to which Mr. Avril was employed as the
Company's Executive Vice President and Chief Operating Officer. In addition,
the Company, among other things, agreed to pay to Mr. Avril all compensation
earned by him through December 31, 1998 (an annual base salary and the
opportunity to receive an annual performance bonus not to exceed 60% of his
base salary). The Company also agreed to continue to pay all premiums and
continue in effect until June 30, 2000 insurance covering medical and dental
care for Mr. Avril, his spouse and
12
<PAGE>
dependents to the same extent as was provided to Mr. Avril by the Company as
of December 31, 1998. Of the options to purchase 180,000 shares of Common
Stock at an exercise price of $11.00 granted by the Company to Mr. Avril
pursuant to the Stock Plan, options to purchase 90,000 shares of Common Stock
continue to be held by Mr. Avril and options to purchase 90,000 shares of
Common Stock were forfeited. Under the terms of Mr. Avril's resignation
agreement, Mr. Avril is prohibited from disclosing confidential information or
trade secrets of the Company and is prohibited for a period generally ending
December 31, 2001 from (i) engaging in any business or becoming employed or
otherwise rendering services to any company engaged in the timeshare or
vacation ownership business and (ii) soliciting the employment of any
employees of the Company. Under the terms of Mr. Avril's consulting services
agreement with the Company, Mr. Avril agreed to provide consulting services at
the Company's request for approximately 800 hours per calendar year during
1999 and 2000. The Company agreed to pay Mr. Avril an annual consulting fee of
$125,000, payable monthly, and to reimburse Mr. Avril for expenses incurred by
him in the performance of consulting services to the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In addition to the transactions described under "Executive Compensation--
Employment Agreements," the Company engaged in during its last fiscal year, or
contemplates engaging in during the current fiscal year, the transactions
described below.
The Principal Shareholders, who beneficially own in the aggregate
approximately 55% of the issued and outstanding shares of Common Stock, are
currently parties to a Shareholders' Agreement (the "Shareholders'
Agreement"). Pursuant to the Shareholders' Agreement, the Principal
Shareholders have agreed to vote their shares of Common Stock in favor of
proxies solicited by the Board of Directors, unless each of Messrs. Gellein
and Adler disagree with the position taken by the Board of Directors. The
Shareholders' Agreement contains restrictions on the disposition of Common
Stock and provides for certain rights of refusal. The Shareholders' Agreement
will terminate and be of no further force and effect upon the earliest to
occur of (i) the agreement of the Principal Shareholders to terminate the
Shareholders' Agreement; (ii) March 5, 2007; and (iii) the date upon which one
of the Principal Shareholders (treating all shares of Common Stock
beneficially owned by Mr. Gellein as held by one Principal Shareholder and all
shares of Common Stock beneficially owned by Mr. Adler as held by one
Principal Shareholder) fails to own 5% of the Common Stock.
The Company has entered into a Registration Rights Agreement, as amended
(the "Registration Rights Agreement"), with the Principal Shareholders and
certain executive officers and other current and former employees of the
Company pursuant to which the Company is obligated to register the shares
owned by such persons under the Securities Act of 1933, as amended (the
"Securities Act"), at specified times and in specified amounts. Specifically,
the Company, subject to certain exceptions and limitations, will, upon
request, be required (i) at any time after March 5, 2000, to register all or a
portion of the Common Stock (not to exceed 15% of the then outstanding Common
Stock on any one occasion) owned by each of Messrs. Gellein and Adler on up to
two separate occasions each in connection with an underwritten offering of any
such Common Stock; (ii) on or about March 5, 1999 and March 5, 2000, to
register up to 50% of the Common Stock held, or acquirable pursuant to the
exercise of options granted by the Principal Shareholders, by each of the
parties to the Registration Rights Agreement, other than the Principal
Shareholders, on a delayed or continuous basis, but not as part of an
underwriting (a "Shelf Registration"); provided, however, that the number of
shares included in any such Shelf Registration may not exceed a maximum of 5%
of the then outstanding Common Stock; (iii) on or about March 5, 2001, to
register all of the Common Stock then held, or acquirable upon the exercise of
options granted by the Principal Shareholders, by each of the parties to the
Registration Rights Agreement, other than the Principal Shareholders, pursuant
to a Shelf Registration; and (iv) to register all of the shares of Common
Stock held, or acquirable pursuant to the exercise of options granted by the
Principal Shareholders, by each party to the Registration Rights Agreement,
other than the Principal Shareholders, pursuant to a Shelf Registration in the
event of such party's death or disability, such party's termination of
employment by the Company under certain circumstances or a change in control
(as defined in the Registration Rights Agreement). The Company is required to
use its best efforts to keep all registration statements relating to Shelf
Registrations effective until the earlier
13
<PAGE>
to occur of the expiration of certain specified periods or such date as all of
the Common Stock included therein has been sold.
Under the Registration Rights Agreement, subject to certain exceptions and
limitations, if the Company proposes to register any of its securities under
the Securities Act for its own account or the account of another person
pursuant to an underwriting, the parties to the Registration Rights Agreement
may require the Company to include in such registration all or part of the
shares of Common Stock held by such persons.
The Company is required to pay all expenses incident to the performance of
its obligations under the Registration Rights Agreement, other than any
underwriting discounts and commissions, or transfer taxes relating to shares
of Common Stock registered pursuant thereto.
Each party to the Registration Rights Agreement has agreed, if such holder
is so requested by an underwriter in an underwritten offering of the Company's
securities (whether for the account of the Company or otherwise), not to
effect any public sale or distribution of any shares of Common Stock or other
Company equity securities, including a sale pursuant to Rule 144 of the
Securities Act, during the 10-day period prior to, and during the 90-day
period beginning on, the closing date of such underwritten offering. In
addition, each of Messrs. Gellein and Adler have agreed not to exercise their
rights to require the Company to register all or a portion of the Common Stock
owned by them more than once during any 360-day period.
The Company believes that all transactions disclosed above have been, and
the Company's Board of Directors intends that any future transactions with its
officers, directors, affiliates or principal shareholders will be, effected on
terms that are no less favorable to the Company than those which would
otherwise have been obtainable in arm's length transactions with unaffiliated
third parties.
14
<PAGE>
THE MATERIAL IN THE FOLLOWING REPORT AND IN THE PERFORMANCE GRAPH IS NOT
SOLICITING MATERIAL, IS NOT DEEMED FILED WITH THE COMMISSION, AND IS NOT
INCORPORATED BY REFERENCE IN ANY FILING OF THE COMPANY UNDER THE SECURITIES
ACT OR THE EXCHANGE ACT, WHETHER MADE BEFORE OR AFTER THE DATE OF THIS PROXY
STATEMENT AND IRRESPECTIVE OF ANY GENERAL INCORPORATION LANGUAGE IN SUCH
FILING.
REPORT OF THE COMPENSATION
COMMITTEE ON EXECUTIVE COMPENSATION
INTRODUCTION
The Compensation Committee of the Company's Board of Directors (the
"Committee") reviews and makes recommendations to the Board of Directors for
the approval of salary and bonus arrangements for officers of the Company
holding the title of Vice President or above and for any other employees of
the Company or its subsidiaries having aggregate salary, bonus, and cash long-
term incentives exceeding $200,000 per year (other than certain sales and
marketing employees whose sales commissions, overrides and similar
performance-driven compensation programs have been approved by the Board of
Directors as part of the operating budget of the Company). The Committee also
renews and makes recommendations to the Board of Directors for the approval of
all material employee benefit plans, benefit and compensation structures for
directors, and the targets and business hurdles that drive the payment of
performance-based compensation. Additionally, the Committee serves as the
program administrator for, and approves all stock option grants and other
awards issued under, the Stock Plan. In acting upon these matters, the
Committee considers, among other information, recommendations from the Co-
Chief Executive Officers of the Company. The Board of Directors has final
approval authority over all matters considered by the Committee other than the
administration of, and the issuance of stock option grants and other awards
under, the Stock Plan.
During 1998, the members of the Committee were Steven J. Heyer (Chairman)
and Laurence S. Geller. No member of the Committee was, during his tenure as a
member, a then-current or former employee or officer of the Company or any of
its subsidiaries.
GENERAL COMPENSATION POLICIES
The Company's compensation program for executive officers is designed to
attract, motivate, and retain qualified individuals having the skill,
experience, and leadership necessary to manage the Company's present and
future business in a manner consistent with the interests of shareholders.
Accordingly, the policy strives to provide compensation opportunities,
including current compensation and short- and long-term incentive awards, that
are externally competitive and internally equitable. Because of the Company's
recent and anticipated growth and its need to attract executives having the
skills necessary to build and manage a larger business organization, the
Committee attempts to establish compensation opportunities at levels that are
competitive not only with those of other companies of the same size in the
Company's industry, but also with those of larger companies in the same and
related industries with whom the Company believes it must compete for
executive talent. The Committee also strives to establish short- and long-term
compensation opportunities that create compatibility between the interests of
the Company's executives and the interests of the Company's shareholders.
EXECUTIVE COMPENSATION COMPONENTS
The Company's compensation program for its executive officers consists of
three principal components: (i) a base annual salary; (ii) a performance-based
annual cash bonus; and (iii) stock options. The Committee believes that the
cash bonus and stock option components of the Company's executive compensation
provide short- and long-term incentives that align the interests of the
Company's executive officers with the interests of its shareholders.
15
<PAGE>
Base Salary and Bonus Compensation. The Committee strives to set base
salaries and bonus compensation at levels necessary to attract and retain
executive officers having the skill and experience needed by the Company in
light of its current and anticipated business activities. For the most recent
fiscal year, the base salary and maximum cash bonus opportunity for each of
the Company's executive officers (including the Named Executive Officers) were
documented in an employment agreement that was negotiated with each executive.
See "Executive Officers--Employment Agreements." The employment agreements for
each of the Named Executive Officers except Mr. Harris and Mr. Patten were
originally negotiated before the completion of the Company's initial public
offering and the formation of the Committee, based upon management's
discussions with the Company's underwriters and its review of compensation
information derived from public company disclosure documents. Each executive
employment agreement generally provides for a minimum annual salary adjustment
based on changes in the cost of living index for the Orlando, Florida area,
but the Committee may elect to approve and recommend a higher adjustment based
upon its assessment of the factors described above and the executive's
performance. Each employment agreement also provides a maximum annual cash
bonus opportunity equal to a percentage of the executive's salary. The
Committee considers and recommends to the full Board of Directors the cash
bonus amount payable to each executive under this provision, as well as any
discretionary bonuses, considering both individual and corporate performance.
Bonuses payable to sales and marketing executives are generally linked to the
achievement of specified sales goals.
Stock Options. Long-term incentive award opportunities are provided through
the Stock Plan, which is administered by the Committee. Although the Stock
Plan authorizes a number of stock-based incentive programs, including
incentive stock options, nonqualified stock options, stock appreciation
rights, and phantom stock, to date the Committee has only issued nonqualified
stock options under the Plan. In granting stock options, the Committee
considers, among other factors, the executive's potential ability to
positively influence the performance of the Company over the term of the
option award.
CHIEF EXECUTIVE OFFICER COMPENSATION
As Co-Chief Executive Officers, Messrs. Gellein and Adler were compensated
during 1998 in accordance with the terms of their employment agreements
described under "Executive Officers--Employment Agreements." These agreements
were originally negotiated prior to the completion of the Company's initial
public offering and the formation of the Committee. In February 1998, the
Committee increased the base compensation for each individual from $360,000 to
$400,000, and increased the maximum cash bonus opportunity for each individual
from 60% to 100%, effective January 1, 1998. In February 1999, the Committee
approved a cash bonus of $320,000 for each of Messrs. Gellein and Adler. In
approving these bonuses, the Committee considered a number of quantitative and
qualitative factors, including the increases in the Company's revenues,
vacation ownership sales, net income, and net income per share during the 1998
fiscal year, and the additions to the Company's management, progress in
developing proposed new resorts, and improvements in the Company's incremental
cost of borrowing accomplished during the year. The Committee also considered
the performance of the Company's stock price during 1998 and the relationship
of that performance to the Company's operating results during the year. In
February 1999, the Company increased the base compensation of each of Messrs.
Gellein and Adler from $400,000 to $430,000, effective January 1, 1999.
Messrs. Gellein and Adler are eligible to participate in the Stock Plan. The
Committee did not grant any new stock options to Messrs. Gellein or Adler
during 1998.
INTERNAL REVENUE CODE (S)162(M)
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally disallows a tax deduction to public corporations for
compensation over $1,000,000 for any fiscal year paid to the corporation's
chief executive officer and four other most highly compensated executive
officers in service at the end of any fiscal year. However, Section 162(m)
also provides that qualifying performance-based compensation will not be
subject to the deduction limit if certain requirements are met. The Committee
currently intends to structure compensation amounts and plans that meet the
requirements for deductibility, although the Committee also
16
<PAGE>
reserves the authority to award non-deductible compensation in such
circumstances as it deems appropriate. Because of ambiguities and
uncertainties as to the application and interpretation of Section 162(m) and
the regulations issued thereunder, no assurance can be given, notwithstanding
the efforts of the Company in this area, that compensation intended by the
Company to satisfy the requirements for deductibility under Section 162(m)
does in fact do so.
MEMBERS OF THE COMPENSATION COMMITTEE
Steven J. Heyer, Chairman
Laurence S. Geller
17
<PAGE>
PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return on the
Common Stock since initiation of trading of the Common Stock on February 28,
1997 through December 31, 1998 with (i) a group of peer issuers in the vacation
ownership resort industry; (ii) the Russell 2000 Index and (iii) the S & P 500
Index (assuming the investment on February 28, 1997 of $100 in each of the
Company's Common Stock, the peer group, the Russell 2000 Index and the S & P
500 Index and the reinvestment of dividends, if any). The Company believes that
the Russell 2000 Index more appropriately reflects the market movement of
publicly-traded companies such as the Company that have smaller market
capitalizations than the companies included in the S & P 500 Index. The Company
is included in the Russell 2000 Index but is not included in the S & P 500
Index. In accordance with the rules promulgated by the Commission, the Company
is required to include the S & P 500 Index for the current year. The Company
does not believe that the stock price performance shown on the graph below is
necessarily indicative of future price performance.
The common stocks of the following companies have been included in the peer
group index: Bluegreen Corporation, Fairfield Communities, Inc., Sunterra
Corporation, Silverleaf Resorts, Inc., and Trendwest Resorts, Inc. Each of
Silverleaf Resorts, Inc. and Trendwest Resorts, Inc. was added to the peer
group index as of the end of the month in which it completed its initial public
offering.
COMPARISON OF 22 MONTH CUMULATIVE TOTAL RETURN
AMONG VISTANA, INC., THE S & P 500 INDEX,
THE RUSSELL 2000 INDEX AND A PEER GROUP
[PERFORMANCE GRAPH APPEARS HERE]
Research Data Group Peer Group Total Return Worksheet
Vistana Inc (VSTN)
<TABLE>
<CAPTION>
Cumulative Total Return
---------------------------------------------------------------------------------------------------------------
2/97 3/97 4/97 5/97 6/97 7/97 8/97 9/97 10/97 11/97 12/97 1/98 2/98 3/98 4/98 5/98
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
VISTANA, INC. 100 94 80 99 129 143 151 179 191 184 192 213 215 221 210 177
PEER GROUP 100 83 81 105 116 135 142 174 166 171 158 163 156 154 156 133
S & P 500 100 96 102 108 113 122 115 121 117 122 125 126 135 142 143 141
RUSSELL 2000 100 95 96 106 111 116 119 127 122 121 123 121 130 135 136 131
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------
6/98 7/98 8/98 9/98 10/98 11/98 12/98
<S> <C> <C> <C> <C> <C> <C> <C>
VISTANA, INC. 153 120 107 107 93 118 117
PEER GROUP 126 87 76 67 77 88 93
S & P 500 147 145 124 132 143 151 160
RUSSELL 2000 132 121 97 105 109 115 122
</TABLE>
<PAGE>
PROPOSAL 2: RATIFICATION OF ENGAGEMENT OF INDEPENDENT AUDITORS
The Company has engaged KPMG to audit the Company's financial statements for
fiscal 1999. KPMG audited the Company's financial statements for fiscal 1998
and the decision to retain KPMG has been approved by the Audit Committee. The
Board of Directors is requesting that the shareholders ratify the engagement
of KPMG. A representative of KPMG is expected to attend the Annual Meeting and
will have the opportunity to make a statement, if he or she so desires, and
will be available to respond to appropriate questions from shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
ENGAGEMENT OF KPMG.
GENERAL INFORMATION
2000 ANNUAL MEETING OF SHAREHOLDERS
Notice of any shareholder proposal that is intended to be included in the
Company's proxy statement and form of proxy for its next Annual Meeting of
Shareholders must be received by the secretary of the Company no later than
November 17, 1999. Such notice must be in writing and must comply with the
other provisions of Rule 14a-8 under the Exchange Act. In addition, the
persons named in the proxy for the next Annual Meeting will have discretionary
authority to vote with respect to any matter that is brought by any
shareholder during the meeting and that is not described in the proxy
statement for such meeting if the Company does not receive written notice, on
or before January 31, 2000, that such matters would be raised at the meeting.
Any notices regarding shareholder proposals must be received by the Company at
its principal executive offices at 8801 Vistana Centre Drive, Orlando, Florida
32821, Attention: Corporate Secretary.
ANNUAL REPORTS
The Company's 1998 Annual Report to Shareholders is being mailed to
shareholders together with this Proxy Statement; however, the report is not
part of the proxy solicitation materials.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1998 (EXCLUDING EXHIBITS), AS FILED WITH THE COMMISSION, MAY BE
OBTAINED WITHOUT CHARGE UPON REQUEST MADE TO INVESTOR RELATIONS, VISTANA,
INC., 8801 VISTANA CENTRE DRIVE, ORLANDO, FLORIDA 32821, TELEPHONE (407) 239-
3568.
19
<PAGE>
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VISTANA, INC.
This Proxy is Solicited on Behalf of the Board of Directors of Vistana, Inc.
The undersigned, having received the Notice of Annual Meeting and Proxy
Statement, hereby appoints Raymond L. Gellein, Jr., Jeffrey A. Adler, Charles
E. Harris and Susan Werth, and each of them, proxies with full power of
substitution, for and in the name of the undersigned, to vote all shares of
Common Stock of Vistana, Inc. owned of record by the undersigned at the 1999
Annual Meeting of Shareholders to be held at the Hyatt Regency Grand Cypress,
One Grand Cypress Boulevard, Orlando, Florida on Wednesday, April 28, 1999 at
11:00 a.m., local time, and any adjournments or postponements thereof, in
accordance with the directions marked on the reverse side hereof.
ELECTION OF DIRECTORS
Nominees for Three-Year Term Expiring at 2002 Annual Meeting of Shareholders:
Raymond L. Gellein, Jr.
James G. Brocksmith, Jr.
(INSTRUCTION: To withhold authority to vote for any individual nominee, strike
a line through the nominee's name above.)
You are encouraged to specify your choices by marking the appropriate boxes
(see reverse side), but you need not mark any boxes if you wish to vote in
accordance with the Board of Directors recommendations. The proxies cannot vote
your shares unless you sign and return this card.
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[X] Please Mark Your Votes As in this Example.
This Proxy when properly executed will be voted in the manner directed
herein. If no direction is made, this Proxy will be voted FOR all of the Board
of Directors nominees, and FOR ratification of the engagement of KPMG LLP as
Vistana, Inc.'s independent auditors for 1999.
1. Election of Directors (see reverse)
[_] FOR ALL NOMINEES (except as [_] WITHHOLD AUTHORITY to vote for
indicated on reverse) all nominees.
2. Ratification of Engagement of KPMG
LLP................................... FOR [_] AGAINST [_] ABSTAIN [_]
The Board of Directors recommends a Do you plan to attend the Annual
vote FOR these proposals. Meeting [_] Yes [_] No
Dated: __________________ , 1999
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(Signature)
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(Signature)
Please sign exactly as name appears
on stock certificate(s). Joint
owners should each sign. When
signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such.
(SEE REVERSE SIDE)
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