As filed with the Securities and Exchange Commission on May 19, 1998
Registration No. 333-33019
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM SB-2/A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ROYAL ALOHA DEVELOPMENT COMPANY
(Exact name of small business issuer in its charter)
Nevada 6552 86-0858827
(State or other (Primary Standard (I.R.S. Employer
--------------- ----------------- ----------------
jurisdiction of Industrial Classification Identification No.)
incorporation or Code Number)
organization)
ROYAL ALOHA DEVELOPMENT COMPANY
1505 Dillingham Blvd., Suite 212
Honolulu, Hawaii 96817
(808) 848-0322
(888) 847-8801
(Address and telephone number of principal executive offices)
360 East Desert Inn Road
Las Vegas, Nevada 89109
(Address of principal place of business or intended principal
place of business.)
JACK R. CORTEWAY, PRESIDENT AND CEO
ROYAL ALOHA DEVELOPMENT COMPANY
1505 Dillingham Blvd. Suite 212
Honolulu, Hawaii 96817
(808) 847-8050
(800) 367-5212
(Name, address and telephone number of agent for service)
Copies of communications to:
HARRY E. McCOY II, ESQ.
C. PARKINSON LLOYD, ESQ.
Ballard Spahr Andrews & Ingersoll
201 South Main Street, Suite 1200
Salt Lake City, UT 84111
Approximate date of commencement of proposed sale to the public: As soon as
possible after the effective date of this Registration Statement.
CALCULATION OF REGISTRATION FEE
Title of Proposed
Each Class Dollar Maximum Proposed
of Securities Amount Offering Maximum Amount of
to be to be Price Per Aggregate Registration
Registered Registered Note (1) Offering Price Fee(1)
- ---------- ---------- -------- -------------- ------------
13% Eight $9,200,000 100% $9,200,000 $2,714
Year Deferred
Interest
Subordinated
Notes
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(1) The Company already paid $2,576 with the original filing, based on the
proposed offering amount of $8,500,000. In light of the increase to
$9,200,000, the Company has wire transferred the remaining $138.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
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SUBJECT TO COMPLETION, DATED MAY 19, 1998
PROSPECTUS
$9,200,000
ROYAL ALOHA DEVELOPMENT COMPANY
13% Eight Year Deferred Interest Subordinated Notes
Royal Aloha Development Company, a Nevada corporation (the "Company"), is
hereby offering (the "Offering") for sale its 13% Eight Year Deferred Interest
Subordinated Notes (the "Notes") up to an aggregate of $9,200,000 in a minimum
principal amount of $1,000. The proceeds from the Notes will be used to fund in
part the construction and development of a time-share resort in Las Vegas,
Nevada (the "Resort") located on property formerly owned by Royal Aloha Vacation
Club, a Hawaii not-for-profit corporation ("RAVC") and the parent of the
Company. The initial Offering period will remain open for 90 days, which period
may be extended by the Board of Directors for up to two additional successive
90-day periods.
Interest on the Notes will accrue from the Issuance Date, as defined
herein, and will be compounded semi-annually. After repayment of the borrowings
under a Construction Loan Agreement (together with any take-out loan, the
"Construction Loan") which the Company will obtain from a construction lender
(the "Construction Lender"), interest which accrues during each semi-annual
period at the rate of 13% per annum will be paid semi-annually. The Company
estimates, assuming the complete offering is sold, construction begins as
planned and up to 3,880 vacation ownership interests ("VOIs") in the Resort are
sold within the first three years after the commencement of construction, that
it will begin paying interest accrued on the Notes within three years after the
commencement of construction. There can be no assurance that interest payments
will commence at that time and the Company may make no interest payments prior
to maturity.
The Notes may be redeemed, at the option of the Company, in whole or in
part, at any time on or after the third anniversary of the Issuance Date at 103%
of their principal amount, plus accrued interest, and declining to 100% of such
principal amount, plus accrued interest, on the sixth anniversary of the
Issuance Date and thereafter. Mandatory annual sinking fund payments of 25% of
the original amount of Notes issued commencing on the sixth anniversary of the
issuance of the Notes are calculated to retire 50% of the issue prior to
maturity.
The Notes are unsecured and subordinated to all existing and future Senior
Indebtedness of the Company, including the Construction Loan. See "Description
of Securities."
THESE ARE SPECULATIVE SECURITIES.
AN INVESTMENT IN THESE SECURITIES MAY RESULT IN A LOSS OF THE ENTIRE INVESTMENT.
SEE "RISK FACTORS" COMMENCING ON PAGE OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES
OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
--------------------
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================================================================================
Price to Proceeds to
Public(1) Commission Company (3)
- --------------------------------------------------------------------------------
Per Note............ 100% (2) 100%
- --------------------------------------------------------------------------------
Total Offering $ 9,200,000 (2) $ 9,200,000
Amount(4)
================================================================================
(1) The Notes will be sold on a "best efforts" basis. See "Plan of
Distribution."
(2) The Notes will be sold directly by the Company through officers and
employees of the Company or its parent who will receive no commission or other
remuneration therefor, except that the Company will use brokers, dealers,
placement agents, or finders in Arizona and Texas. The Company may also offer
the Notes through brokers and dealers in other states. The Company will pay a
commission to any broker or dealer of up to six percent (6%) of the principal
amount of the Notes sold.
(3) Before deducting expenses of the Offering payable by the Company estimated
at $380,000.
(4) All proceeds received under this Offering will be mailed within three
business days following receipt to U.S. Bank Trust National Association,
(formerly First Trust of California N.A.), until $9,200,000 has been deposited
therein. In the event that less than $9,200,000 in gross proceeds is deposited
within 90 days from the date hereof, or such later date as shall be determined
by the Board of Directors, or if the Construction Loan as hereinafter defined is
not obtained within 120 days after the end of the Offering period, all proceeds
received will be returned to the investor, with interest accrued at a rate
established by the escrow agent. Investors will have no right to withdraw funds
deposited in the escrow account.
---------------------------
The date of this Prospectus is ____________, 1998.
---------------------------
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 (which term shall include
all amendments, exhibits, and schedules thereto) under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Notes. This
prospectus does not contain all the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission, and to which reference is hereby made. Statements
made in this prospectus as to the contents of any contract, agreement, or other
document referred to are not necessarily complete. With respect to each such
contract, agreement, or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. The Registration Statement, including exhibits and
schedules filed therewith, and the reports, proxy statements, and other
information filed by the Company with the Commission may be inspected without
charge at the public reference facilities maintained by the Commission at its
principal office at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at regional offices of the Commission located at
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661, and Seven
World Trade Center, 13th Floor, New York, New York 10048. Copies of such
materials may be obtained from the Public Reference Section of the Commission,
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
its public reference facilities in Chicago, Illinois, and New York, New York, at
prescribed rates. The Commission also maintains a Web site that contains
reports, proxy and information statements, and other information regarding
issuers that file electronically with the Commission. The Commission's Web site
address is http://www.sec.gov. The Company has electronically filed the
Registration Statement, including exhibits and schedules filed therewith, with
the Commission, and such information is available at the Commission's Web site.
As a result of the filing of the Registration Statement with the
Commission, the Company will become subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will be required to file reports and other information with
the Commission. The Company's obligation to file periodic reports with the
Commission will be suspended if the Notes are held of record by fewer than 300
holders at the beginning of any fiscal year of the Company other than the fiscal
year in which the Registration Statement becomes effective. Accordingly, if
there are fewer than 300 holders of the Notes as of the beginning of any such
fiscal year, the Company may cease to file reports with the Commission in
respect of such fiscal year. However, the Company would nevertheless be required
to continue to file reports with the Commission if the Notes are listed on a
national securities exchange. There is no current intent to seek a listing of
the Notes on an exchange.
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ARIZONA INVESTOR QUALIFICATIONS
IF YOU ARE A RESIDENT OF THE STATE OF ARIZONA AND A MEMBER OF ROYAL ALOHA
VACATION CLUB, YOU MUST MEET CERTAIN REQUIREMENTS TO BE ELIGIBLE TO PURCHASE THE
NOTES OFFERED IN THIS OFFERING. SPECIFICALLY, YOU MUST COME WITHIN ONE OF THE
FOLLOWING CATEGORIES:
(i) ANY PERSON WHO HAS $75,000 IN GROSS INCOME DURING THE PRIOR YEAR AND
A REASONABLE EXPECTATION THAT SUCH PERSON WILL HAVE SUCH INCOME IN THE CURRENT
YEAR; OR
(ii) ANY PERSON WHO HAS $50,000 IN GROSS INCOME DURING THE PRIOR YEAR AND A
REASONABLE EXPECTATION THAT SUCH PERSON WILL HAVE SUCH INCOME IN THE CURRENT
YEAR, AND A NET WORTH OF $150,000 (EXCLUSIVE OF HOME, HOME FURNISHINGS AND
PERSONAL AUTOMOBILES), WITH THE INVESTMENT NOT EXCEEDING 20% OF THE NET WORTH OF
SUCH PERSON; OR
(iii) ANY PERSON WHO HAS A NET WORTH OF $250,000 (EXCLUSIVE OF HOME, HOME
FURNISHINGS AND PERSONAL AUTOMOBILES), WITH THE INVESTMENT NOT EXCEEDING 10% OF
THE NET WORTH OF SUCH PERSON.
IF YOU ARE A RESIDENT OF THE STATE OF ARIZONA AND NOT A MEMBER OF ROYAL
ALOHA VACATION CLUB, YOU MUST MEET CERTAIN REQUIREMENTS TO BE ELIGIBLE TO
PURCHASE THE NOTES OFFERED IN THIS OFFERING. SPECIFICALLY, YOU MUST COME WITHIN
ONE OF THE FOLLOWING CATEGORIES:
(i) ANY PERSON WHO HAS $100,000 IN GROSS INCOME DURING THE PRIOR YEAR
AND A REASONABLE EXPECTATION THAT SUCH PERSON WILL HAVE SUCH INCOME IN THE
CURRENT YEAR; OR
(ii) ANY PERSON WHO HAS $50,000 IN GROSS INCOME DURING THE PRIOR YEAR AND A
REASONABLE EXPECTATION THAT SUCH PERSON WILL HAVE SUCH INCOME IN THE CURRENT
YEAR, AND A NET WORTH OF $250,000 (EXCLUSIVE OF HOME, HOME FURNISHINGS AND
PERSONAL AUTOMOBILES), WITH THE INVESTMENT NOT EXCEEDING 15% OF THE NET WORTH OF
SUCH PERSON; OR
(iii) ANY PERSON WHO HAS A NET WORTH OF $350,000 EXCLUSIVE OF HOME, HOME
FURNISHINGS AND PERSONAL AUTOMOBILES), WITH THE INVESTMENT NOT EXCEEDING 7.5% OF
THE NET WORTH OF SUCH PERSON.
CALIFORNIA INVESTOR QUALIFICATIONS
IF YOU ARE A RESIDENT OF THE STATE OF CALIFORNIA, YOU MUST MEET CERTAIN
REQUIREMENTS TO BE ELIGIBLE TO PURCHASE THE NOTES OFFERED IN THIS OFFERING.
SPECIFICALLY, YOU MUST COME WITHIN ONE OF THE FOLLOWING CATEGORIES:
(i) "ACCREDITED INVESTORS" WITHIN THE MEANING OF REGULATION D UNDER THE
SECURITIES ACT OF 1993; OR
(ii) BANKS, SAVINGS AND LOAN ASSOCIATIONS, TRUST COMPANIES, INVESTMENT
COMPANIES, PENSION AND PROFIT-SHARING TRUSTS, CORPORATIONS OR OTHER ENTITIES
WHICH, TOGETHER WITH THE CORPORATION'S OR OTHER ENTITY'S AFFILIATES, HAVE A NET
WORTH ON A CONSOLIDATED BASIS ACCORDING TO THEIR MOST RECENT REGULARLY PREPARED
FINANCIAL STATEMENTS (WHICH SHALL HAVE BEEN REVIEWED, BUT NOT NECESSARILY
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AUDITED, BY OUTSIDE ACCOUNTANTS) OF NOT LESS THAN $14,000,000 AND SUBSIDIARIES
OF THE FOREGOING; OR
(iii) ANY PERSONS (OTHER THAN A PERSON FORMED FOR THE SOLE PURPOSE OF
PURCHASING THE NOTES BEING OFFERED HEREBY) WHO PURCHASES AT LEAST A $1,000,000
AGGREGATE AMOUNT OF THE NOTES OFFERED HEREBY; OR
(iv) ANY PERSON WHO (A) HAS AN INCOME OF $50,000 AND A NET WORTH OF
$75,000, OR (B) HAS A NET WORTH OF $150,000 (IN EACH CASE, EXCLUDING HOME, HOME
FURNISHINGS AND PERSONAL AUTOMOBILES).
MASSACHUSETTS INVESTOR QUALIFICATIONS
IF YOU ARE A RESIDENT OF THE STATE OF MASSACHUSETTS AND A MEMBER OF ROYAL
ALOHA VACATION CLUB, YOU MUST MEET CERTAIN REQUIREMENTS TO BE ELIGIBLE TO
PURCHASE THE NOTES OFFERED IN THIS OFFERING. SPECIFICALLY, YOU MUST COME WITHIN
ONE OF THE FOLLOWING CATEGORIES:
(i) ANY PERSON WHO HAS $75,000 IN GROSS INCOME DURING THE PRIOR YEAR AND A
REASONABLE EXPECTATION SUCH PERSON WILL HAVE SUCH INCOME IN THE CURRENT YEAR,
WITH THE INVESTMENT NOT EXCEEDING 10% OF SUCH PERSON'S ANNUAL GROSS INCOME; OR
(ii) ANY PERSON WHO HAS $50,000 IN GROSS INCOME DURING THE PRIOR YEAR AND A
REASONABLE EXPECTATION OF SUCH INCOME IN THE CURRENT YEAR, AND A NET WORTH OF
$150,000 (EXCLUSIVE OF HOME, HOME FURNISHINGS AND PERSONAL AUTOMOBILES), WITH
THE INVESTMENT NOT EXCEEDING 10% OF SUCH PERSON'S NET WORTH; OR
(iii) ANY PERSON WHO HAS A NET WORTH OF $250,000 (EXCLUSIVE OF HOME, HOME
FURNISHINGS AND PERSONAL AUTOMOBILES), WITH THE INVESTMENT NOT EXCEEDING 10% OF
SUCH PERSON'S NET WORTH.
IF YOU ARE A RESIDENT OF THE STATE OF MASSACHUSETTS AND NOT A MEMBER OF
ROYAL ALOHA VACATION CLUB, YOU MUST BE AN "ACCREDITED INVESTOR" WITHIN THE
MEANING OF REGULATION D UNDER THE SECURITIES ACT OF 1933 TO BE ELIGIBLE TO
PURCHASE THE NOTES OFFERED IN THIS OFFERING.
OREGON INVESTOR QUALIFICATIONS
IF YOU ARE A RESIDENT OF THE STATE OF OREGON AND A MEMBER OF ROYAL ALOHA
VACATION CLUB, YOU MUST MEET CERTAIN REQUIREMENTS TO BE ELIGIBLE TO PURCHASE THE
NOTES OFFERED IN THIS OFFERING. SPECIFICALLY, YOU MUST COME WITHIN ONE OF THE
FOLLOWING CATEGORIES:
(i) ANY PERSON WHO HAS $75,000 IN GROSS INCOME DURING THE PRIOR YEAR AND
A REASONABLE EXPECTATION SUCH PERSON WILL HAVE SUCH INCOME IN THE CURRENT YEAR;
OR
(ii) ANY PERSON WHO HAS $50,000 IN GROSS INCOME DURING THE PRIOR YEAR AND A
REASONABLE EXPECTATION OF SUCH INCOME IN THE CURRENT YEAR, AND A NET WORTH OF
$150,000 (EXCLUSIVE OF HOME, HOME FURNISHINGS AND PERSONAL AUTOMOBILES), WITH
THE INVESTMENT NOT EXCEEDING 10% OF SUCH PERSON'S NET WORTH; OR
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(iii) ANY PERSON WHO HAS A NET WORTH OF $250,000 (EXCLUSIVE OF HOME, HOME
FURNISHINGS AND PERSONAL AUTOMOBILES), WITH THE INVESTMENT NOT EXCEEDING 10% OF
SUCH PERSON'S NET WORTH.
IF YOU ARE A RESIDENT OF THE STATE OF OREGON AND NOT A MEMBER OF ROYAL
ALOHA VACATION CLUB, YOU MUST BE AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF
REGULATION D UNDER THE SECURITIES ACT OF 1933 TO BE ELIGIBLE TO PURCHASE THE
NOTES OFFERED IN THIS OFFERING.
PENNSYLVANIA INVESTOR QUALIFICATIONS
IF YOU ARE A RESIDENT OF THE STATE OF PENNSYLVANIA AND A MEMBER OF ROYAL
ALOHA VACATION CLUB, YOU MUST MEET CERTAIN REQUIREMENTS TO BE ELIGIBLE TO
PURCHASE THE NOTES OFFERED IN THIS OFFERING. SPECIFICALLY, YOU MUST COME WITHIN
ONE OF THE FOLLOWING CATEGORIES:
(i) ANY PERSON WHO HAS $75,000 IN GROSS INCOME DURING THE PRIOR YEAR AND A
REASONABLE EXPECTATION SUCH PERSON WILL HAVE SUCH INCOME IN THE CURRENT YEAR,
WITH THE INVESTMENT NOT EXCEEDING 10% OF SUCH PERSON'S ANNUAL GROSS INCOME; OR
(ii) ANY PERSON WHO HAS $50,000 IN GROSS INCOME DURING THE PRIOR YEAR AND A
REASONABLE EXPECTATION OF SUCH INCOME IN THE CURRENT YEAR, AND A NET WORTH OF
$150,000 (EXCLUSIVE OF HOME, HOME FURNISHINGS AND PERSONAL AUTOMOBILES), WITH
THE INVESTMENT NOT EXCEEDING 10% OF SUCH PERSON'S NET WORTH; OR
(iii) ANY PERSON WHO HAS A NET WORTH OF $250,000 (EXCLUSIVE OF HOME, HOME
FURNISHINGS AND PERSONAL AUTOMOBILES), WITH THE INVESTMENT NOT EXCEEDING 10% OF
SUCH PERSON'S NET WORTH.
IF YOU ARE A RESIDENT OF THE STATE OF PENNSYLVANIA AND NOT A MEMBER OF
ROYAL ALOHA VACATION CLUB, YOU MUST BE AN "ACCREDITED INVESTOR" WITHIN THE
MEANING OF REGULATION D UNDER THE SECURITIES ACT OF 1933 TO BE ELIGIBLE TO
PURCHASE THE NOTES OFFERED IN THIS OFFERING.
TEXAS INVESTOR QUALIFICATIONS
IF YOU ARE A RESIDENT OF THE STATE OF TEXAS AND A MEMBER OF ROYAL ALOHA
VACATION CLUB, YOU MUST MEET CERTAIN REQUIREMENTS TO BE ELIGIBLE TO PURCHASE THE
NOTES OFFERED IN THIS OFFERING. SPECIFICALLY, YOU MUST COME WITHIN ONE OF THE
FOLLOWING CATEGORIES:
(i) ANY PERSON WHO HAS $75,000 IN GROSS INCOME DURING THE PRIOR YEAR AND
A REASONABLE EXPECTATION SUCH PERSON WILL HAVE SUCH INCOME IN THE CURRENT YEAR;
OR
(ii) ANY PERSON WHO HAS $50,000 IN GROSS INCOME DURING THE PRIOR YEAR AND A
REASONABLE EXPECTATION OF SUCH INCOME IN THE CURRENT YEAR, AND A NET WORTH OF
$150,000 (EXCLUSIVE OF HOME, HOME FURNISHINGS AND PERSONAL AUTOMOBILES), WITH
THE INVESTMENT NOT EXCEEDING 10% OF SUCH PERSON'S NET WORTH; OR
(iii) ANY PERSON WHO HAS A NET WORTH OF $250,000 (EXCLUSIVE OF HOME, HOME
FURNISHINGS AND PERSONAL AUTOMOBILES), WITH THE INVESTMENT NOT EXCEEDING 10% OF
SUCH PERSON'S NET WORTH.
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IF YOU ARE A RESIDENT OF THE STATE OF TEXAS AND NOT A MEMBER OF ROYAL ALOHA
VACATION CLUB, YOU MUST BE AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF
REGULATION D UNDER THE SECURITIES ACT OF 1933 TO BE ELIGIBLE TO PURCHASE THE
NOTES OFFERED IN THIS OFFERING.
WASHINGTON INVESTOR QUALIFICATIONS
IF YOU ARE A RESIDENT OF THE STATE OF WASHINGTON AND A MEMBER OF ROYAL
ALOHA VACATION CLUB, YOU MUST MEET CERTAIN REQUIREMENTS TO BE ELIGIBLE TO
PURCHASE THE NOTES OFFERED IN THIS OFFERING. SPECIFICALLY, YOU MUST COME WITHIN
ONE OF THE FOLLOWING CATEGORIES:
(i) ANY PERSON WHO HAS $75,000 IN GROSS INCOME DURING THE PRIOR YEAR AND
A REASONABLE EXPECTATION SUCH PERSON WILL HAVE SUCH INCOME IN THE CURRENT YEAR;
OR
(ii) ANY PERSON WHO HAS $50,000 IN GROSS INCOME DURING THE PRIOR YEAR AND A
REASONABLE EXPECTATION OF SUCH INCOME IN THE CURRENT YEAR, AND A NET WORTH OF
$150,000 (EXCLUSIVE OF HOME, HOME FURNISHINGS AND PERSONAL AUTOMOBILES), WITH
THE INVESTMENT NOT EXCEEDING 10% OF SUCH PERSON'S NET WORTH; OR
(iii) ANY PERSON WHO HAS A NET WORTH OF $250,000 (EXCLUSIVE OF HOME, HOME
FURNISHINGS AND PERSONAL AUTOMOBILES), WITH THE INVESTMENT NOT EXCEEDING 10% OF
SUCH PERSON'S NET WORTH.
IF YOU ARE A RESIDENT OF THE STATE OF WASHINGTON AND NOT A MEMBER OF ROYAL
ALOHA VACATION CLUB, YOU MUST BE AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF
REGULATION D UNDER THE SECURITIES ACT OF 1933 TO BE ELIGIBLE TO PURCHASE THE
NOTES OFFERED IN THIS OFFERING.
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PROSPECTUS SUMMARY
This summary is qualified in its entirety by the more detailed information
and financial statements and related notes appearing elsewhere in this
prospectus. See "Risk Factors" for a discussion of certain factors to be
considered in evaluating the Company and its business.
The Company
The Company was incorporated on February 27, 1997, by Royal Aloha Vacation
Club ("RAVC"), a Hawaii not-for-profit corporation, to develop timeshare
resorts. The Company will develop and construct a resort in Las Vegas, Nevada
(the "Resort"), located on property formerly owned by RAVC. The Resort will
consist of 119 units built upon .86 acres of land (the "Property") located
approximately one-quarter mile from Las Vegas Boulevard, also known as the
"Strip." The Company is seeking to acquire a contiguous parcel of land upon
which the Company could build an additional 40 units; however, there can be no
assurance such parcel can be purchased. Until the Notes are repaid, the Company
will restrict its activities to the development, construction, operation and
sale of the Resort and any additions thereto.
The Las Vegas Resort
The Property is currently improved with a timeshare project consisting of
20 units. The current project is below the standard the Company believes is
necessary for a timeshare resort in Las Vegas. This project will be razed and
replaced with upgraded facilities. RAVC contributed the Property and cash to the
Company in exchange for 100% of the outstanding capital stock of the Company.
The Resort will consist of 119 units, and will include such amenities as a
lobby, an owner's lounge, a fitness room, a swimming pool, a sun area, various
meeting rooms, a "kids room," offices, a delicatessen/convenience store and
covered and open parking. The residential floors will include one and two
bedroom units on three different floor plans in addition to units designed to
accommodate the physically challenged.
The Company will oversee construction of the Resort and sale of the VOIs in
the Resort through a non-affiliated marketing company. RAVC will provide total
resort management through a management agreement between RAVC and the
association of owners of VOIs in the Resort. See "Business--The Las Vegas
Resort" and "Certain Relationships and Related Transactions--Resort Management."
RAVC
RAVC was founded in 1977 in Hawaii as a timesharing organization with one
property in Waikiki. RAVC now owns, directly or through subsidiaries, and
manages seven additional properties in Kona and Maui, Hawaii; Las Vegas and Lake
Tahoe, Nevada; Chandler, Arizona; Acapulco, Mexico; and Marbella, Spain.
Currently, RAVC has approximately 8,500 members residing in all 50 states as
well as approximately 23 foreign countries.
The Offering
Securities Offered:
Offering Amount................. $9,200,000 principal amount of 13% Eight Year
Deferred Interest Subordinated Notes.
Interest Payment Dates.......... Interest will accrue
from the Issuance Date and will compound
semi-annually (on the sixth month and annual
anniversary of the Issuance Date). On each
semi-annual interest payment date that occurs
after the repayment of the Construction Loan,
interest which has accrued during the
semi-annual period will be paid.
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Interest that has accrued from the Issuance
Date until six months prior to the initial
interest payment date (the "Development Period
Interest") will be paid as the Company's cash
flow allows, but in any event no later than the
maturity date of the Notes.
The Company estimates, assuming construction
begins as planned and up to 3,880 VOIs in the
Resort are sold within the first three years
after the commencement of construction, that
currently accruing interest will begin to be
paid on the Notes within three years after the
commencement of construction. There can be no
assurance that interest payments will commence
at that time.
Optional Redemption............. The Notes will be redeemable at the option of
the Company, at any time on or after the third
anniversary after the Issuance Date, at 103% of
their principal amount and declining to 100% of
such principal amount, plus accrued interest,
on the sixth anniversary after the Issuance
Date and thereafter.
Mandatory Redemption............ Annual payments of 25% of the aggregate
principal amount of the Notes originally
issued, commencing on the sixth anniversary of
the Issuance Date, are calculated to retire 50%
of the issue prior to maturity.
Subordination................... The Notes will be subordinated to all existing
and future Senior Indebtedness (as defined
herein) of the Company, including the
Construction Loan (which is estimated to be
approximately $17 million). The Notes will not
restrict the incurrence of any Senior
Indebtedness or other indebtedness ranking pari
passu (equally) with or subordinate to the
Notes. The Notes are unsecured obligations of
the Company and are not guaranteed by RAVC.
Certain Restrictions............ The Company is restricted from incurring Senior
Indebtedness (other than the Construction Loan
and Senior Indebtedness not to exceed 20% of
the principal amount of Notes issued under the
Indenture) and from paying cash dividends or
purchasing, redeeming or retiring for value any
of its common stock while the Notes are
outstanding.
Use of Proceeds................. The net proceeds from the sale of the Notes
will be used to partially fund the construction
and development of the Resort.
Use of Brokers and Dealers...... The Offering may
be made directly by the Company or through one
or more brokers and dealers. The Company has
agreed to pay a commission to any broker or
dealer of up to six percent (6%) of the
principal amount of the Notes sold.
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RISK FACTORS
In addition to the other information contained in this prospectus, the
following risk factors should be carefully considered in evaluating the Company
and its business before purchasing the Notes offered hereby. The Company
cautions the reader that this list of risk factors may not be exhaustive.
Subordination; Unsecured Nature of Notes
The Notes are subordinate to the Construction Loan and all other future
indebtedness incurred by the Company designated as senior debt ("Senior
Indebtedness"). No payments can be made on the Notes until the Construction Loan
has been paid. Payment also cannot be made if any other Senior Indebtedness is
in default, or if payment is restricted by the terms of the Senior Indebtedness.
The Notes are not guaranteed by RAVC. There can be no assurance that the Company
will generate sufficient revenue to pay the Construction Loan, other future
Senior Indebtedness, and the Notes. If sufficient funds are not available, the
Construction Loan and other Senior Indebtedness will be repaid first. Remaining
funds, if any, will be used to repay the Notes on a pro rata basis. Noteholders
cannot look to RAVC for repayment of their Notes.
In addition, the Construction Loan will be secured by the Resort and
Property and other collateral. The Company intends to pledge receivables from
the sale of vacation ownership interests (together with the Resort and Property,
the "Collateral") as security for additional Senior Indebtedness from the
Construction Lender or another lender. Future indebtedness may also be secured,
whether or not it is senior to the Notes. Therefore, if the Company fails to
repay the Construction Loan or other indebtedness and the Notes, the
Construction Lender and other creditors would be able to benefit from the sale
of the Collateral and be paid in full before the holders of the Notes.
Indenture Covenants
The Notes are governed by the terms of the Indenture. See "Description
of Securities." The Indenture sets forth, among other things, the conditions
under which the Notes may be accelerated upon a default by the Company and the
rights of the Trustee to enforce the Notes against the Company. While the
Indenture imposes certain restrictions on the Company's ability to take actions
which may be detrimental to its ability to make payments on the Notes, the terms
of the Notes and the Indenture were established by the Company without arms
length negotiation. Due to the terms of the Indenture and the subordinated
nature of the Notes, the holders of the Notes will have fewer legal safeguards
against defaults than would typically be available to holders of long term debt
securities.
Inapplicability of Trust Indenture Act of 1939
Because the aggregate total dollar amount of Notes offered is less than
ten million dollars, the Indenture is not required to be qualified pursuant to
the Trust Indenture Act of 1939 (the "Trust Indenture Act"). Accordingly,
certain requirements of the Trust Indenture Act do not apply to the Indenture,
including those provisions relating to eligibility and qualification of the
Trustee; preferential collection of claims of the Trustee against the Company;
certain reporting obligations of the Trustee and the Company; prohibitions
against impairment of the Noteholders' right to payment; and certain powers
granted to the Trustee by the Trust Indenture Act.
Risks of Obtaining Construction Loan and Customer Financing
The Construction Loan has not yet been obtained by the Company.
However, the Company has received letters from several Construction Lenders
regarding their interest, subject to certain conditions, including the
completion of this Offering, to enter into a Construction Loan. There can be no
assurance that all conditions will be met and the Construction Loan will be
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provided by the prospective Construction Lenders or from other lenders. There
can be no assurance that the interest rate on the Construction Loan or other
terms and conditions will be satisfactory to the Company. The proceeds from the
Offering will be placed in escrow pending the closing of the Construction Loan.
If the Construction Loan is not obtained with the Construction Lender or other
lender and on terms acceptable to the Company, all funds will be returned to the
purchasers and the Notes will not be issued.
With respect to sales of VOIs at the Resort, the Company will offer
financing to the buyers who make a down payment generally of at least 10% of the
purchase price. This financing will be evidenced by a note that generally will
bear interest at fixed rates and will be collateralized by a first deed of trust
on the underlying VOI. The Company intends to enter into an agreement with a
lender (who may be the Construction Lender) for the financing of these customer
receivables. The Company expects this agreement to provide an aggregate of up to
approximately $65 million of available financing to the Company (based on the
construction of 119 units) bearing interest at variable rates tied to either the
prime rate or the London Interbank Offer Rate ("LIBOR"). Under these
arrangements, the Company will pledge the promissory notes and deeds of trust as
security to the lender, who typically will lend the Company 75% to 90% of the
principal amount of such notes. Payments under these promissory notes will be
made by the purchaser borrowers directly to a payment processing center and such
payments will be credited against the Company's outstanding balance with the
lender. Although RAVC has such financing arrangements, the Company presently
does not have a binding agreement for this financing, and there can be no
assurance that arrangements can be made on terms that are satisfactory to the
Company. However, if the Company obtains the Construction Loan, it expects to be
able to obtain receivables financing arrangements. Sales of VOIs will be
substantially limited if the Company is unable to provide financing to buyers of
VOIs.
No Firm Underwriting
No one has guaranteed the purchase or sale of any of the Notes offered
hereby. There is no assurance that all or any of the Notes will be sold or that
any proceeds will be available to accomplish the Company's proposed activities.
Thus, the Company cannot obtain the Construction Loan or begin construction of
the Resort prior to completion of this Offering. See "Plan of Distribution."
No Independent Underwriting
Underwriters of public offerings generally conduct a due diligence
review of the terms of the offering and the disclosure given to the investors.
Initially, the Offering will be made by officers of the Company, except for the
limited use of brokers and dealers in Arizona and Texas. However, because there
is no managing underwriter, there will be no such independent review of this
Offering. Potential investors should therefore recognize that it is their duty
to make their own determination of the fairness and suitability of the Offering,
including the consideration to be paid for the Notes.
Lack of Liquidity; Absence of Market Maker
There is no existing trading market for the Notes and there can be no
assurance regarding the future development of a market for the Notes, or the
ability of holders of the Notes to sell their Notes or the price at which such
holders may be able to sell their Notes. If such a market were to develop, the
Notes could trade at prices that may be higher or lower than the initial
offering price depending on many factors, including prevailing interest rates,
the successful completion of the Resort, the rate and amount of VOIs sold and
the market for similar securities. The Company does not intend to apply for
listing or quotation of the Notes on any securities exchange or stock market and
there is no market maker for the Notes. The liquidity of the Notes will also be
affected by several factors, including the fact that the Noteholders will not
receive interest on their Notes for several years, and the Notes are unsecured.
Risks of Development and Construction Activities
The Company's success depends upon the development and construction of
the Resort. There can be no assurance that the Company will complete development
and construction of the Resort. The Company will restrict its activities to the
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development of the Resort and any additions thereto until repayment of Notes.
Risks associated with the Company's development and construction activities may
include the risks that construction costs of the Resort may exceed original
estimates, possibly making the Resort uneconomical or unprofitable; sales of
VOIs at the Resort may not be sufficient to make the Resort profitable;
financing may not be available on favorable terms for development of, or the
continued sales of VOIs at, the Property; and construction may not be completed
on schedule, resulting in decreased revenues and increased interest expense. In
addition, third party contractors will perform the Company's construction
activities, the timing, quality, and completion of which cannot be controlled by
the Company. Even though construction work is done by third party contractors,
construction claims may be asserted against the Company for construction
defects, and such claims may give rise to liabilities. New development
activities, regardless of whether or not they are ultimately successful,
typically require a substantial portion of management's time and attention.
Management is only available on a part-time, as-needed basis. Management will
retain architects, construction supervisors and other professionals to provide
substantial services in connection with the construction of the Resort. The
Company will be dependent on these third parties to complete the Resort at the
agreed upon cost. The cost of constructing the Resort depends on many factors,
including cost of material and labor, performance of subcontractors, labor
relations and weather, all of which are beyond control of the Company.
Substantial cost overruns could delay or impair construction of the Resort.
Development activities are also subject to risks relating to the inability to
obtain, or delays in obtaining, all necessary zoning, land-use, building,
occupancy, and other required governmental permits and authorizations, and the
ability of the Company to coordinate construction activities with the process of
obtaining such permits and authorizations.
Use of Invested Funds During Offering Period
The company will be offering the Notes during a 90-day period
commencing on the effective date of the Prospectus, and may extend the offering
period for a maximum of two (2) additional 90-day periods. All funds invested
will be held in escrow until the complete amount of $9,200,000 contemplated by
the Offering is raised and the Construction Loan has been obtained. Funds held
in escrow will be invested in short-term, investment-grade securities or money
market accounts. If the company sells the entire $9,200,000 of Notes and obtains
a binding commitment for the Construction Loan and the proceeds of the sale of
the Notes are released from the escrow, the escrow agent will disbursed to each
investor the interest accrued during the escrow period on such investor's
investment at a rate established by the escrow agent. However, no disbursement
of interest will be made during the offering period or any extensions thereof
until escrow closes. In the event that the Company does not raise the complete
Offering amount, all funds will be returned, with interest accrued at a rate
established by the escrow agent.
Limited Operating History
The Company was recently formed by RAVC in order to develop the Resort
and to conduct the Offering. RAVC will not guarantee or have any responsibility
for payment on the Notes. Although RAVC and management of the Company have
experience managing and operating timeshare resorts, the Company and its
management have no operating history as developers of resorts. There can be no
assurance that the Company will be able to complete the Resort.
RAVC, the Company's parent, was improperly managed by its original
developer and by a former director of RAVC. RAVC submitted itself to a "solvent
corporation receivership" in 1989. It has been reorganized since that time and
returned to a solvent position. In 1990, the board of directors was restructured
to include members of RAVC and outside professionals, and a new president and
chief executive officer was appointed. See "Business of the Company--RAVC
Operations." There can be no assurance that RAVC may not have financial
difficulties sometime in the future. Such difficulties may have a negative
impact on the Company.
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Lack of Appraisals; No Assurance as to Value
Although management has discussed valuations with various industry
consultants, no independent valuations or appraisals were obtained in connection
with the anticipated pricing of the VOIs in the Resort. Accordingly, there can
be no assurance that the Company will be able to generate sufficient revenue
from the sale of VOIs to repay the Notes.
General Economic Conditions
Any downturn in economic conditions or any price increases (e.g.,
airfares) related to the travel and tourism industry could depress discretionary
consumer spending and have a material adverse effect on the Company's ability to
sell the VOIs and repay the Notes. Any such economic conditions, including
recession, may also adversely affect the future availability of attractive
financing rates for the Company or its customers and may materially adversely
affect the Company's ability to sell the VOIs and repay the Notes. Additionally,
the projected purchase price for the Company's VOIs will be slightly higher than
the current average price of a VOI in the Las Vegas, Nevada, area. Furthermore,
adverse changes in general economic conditions may adversely affect the
collectibility of the Company's loans to VOI buyers, described above under
"--Risks of Obtaining Construction Loan and Customer Financing."
Limitation of Activities to Timeshare Industry
As a result of certain activities by some participants in the timeshare
industry, including marketing problems, the timeshare industry has in the past
experienced negative public perceptions. In the past, the timeshare industry was
not as closely regulated as it is today, and various marketing activities were
employed by some in the industry, such as using high-pressure sales tactics and
overselling VOIs. States have since instituted extensive regulations of the
timeshare industry to prevent such abuses. Although the image of the timeshare
industry may have improved, some reputation problems continue. Because the
Company's operations are conducted solely within the timeshare industry, any
adverse changes affecting the timeshare industry such as an oversupply of
timeshare units, a reduction in demand for timeshare units, changes in travel
and vacation patterns, changes in governmental regulations of the timeshare
industry, and increases in construction costs or taxes, as well as negative
publicity for the timeshare industry, could have a material adverse effect on
the Company's ability to sell the VOIs and repay the Notes.
Risks of Hedging Activities
To manage risks associated with the Company's borrowings bearing
interest at variable rates, the Company may from time to time purchase interest
rate caps, interest rate swaps, or similar instruments. The nature and quantity
of the hedging transactions for the variable rate debt will be determined by the
management of the Company based on various factors, including market conditions,
and there have been no limitations placed on management's use of certain
instruments in such hedging transactions. The Company will place no more than 5%
of its assets into hedge funds. No assurance can be given that any such hedging
transactions will offset the risks of changes in interest rates, or that the
costs associated with hedging activities will not increase the Company's
operating costs.
Risks Associated With Customer Default
The Company bears the risk of defaults by buyers who financed the
purchase of their VOIs. If a buyer of a VOI defaults on the loan made by the
Company, the Company generally must either pay in cash the net value of the
promissory note and deed of trust or replace it with a performing note and deed
of trust. To offset Company losses in connection with such defaulting loans, the
Company will take back any such VOI and attempt to resell it. However, the
associated marketing costs may not have been recovered by the Company and must
be incurred again after their VOI has been returned to the Company's inventory
for resale. Commissions paid in connection with the sale of VOIs may be
recoverable from the Company's sales personnel and from independent contractors
upon default in accordance with contractual arrangements with the Company,
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depending upon the amount of time that has elapsed between the sale and the
default (not to exceed one year) and the number of payments made prior to such
default. Private mortgage insurance or its equivalent is generally not available
to cover VOIs, and the Company has never purchased such insurance. In addition,
although the Company will have recourse against VOI buyers for the purchase
price paid, the practice of the industry is not to proceed against defaulting
purchasers but rather to take back the VOI. Consequently, no assurance can be
given that the VOI purchase price or any commissions will be fully or partially
recovered in the event of buyer defaults under such financing arrangements. See
"Business--Customer Financing."
Competition
Las Vegas has a timeshare history dating back to the mid 1970s. Of the
12 existing timeshare resorts in Las Vegas (including the current RAVC
property), five are still actively selling VOIs and one is inactive. The
remaining six are sold out or no longer selling VOIs. Four of the five active
projects, Hilton Grand Vacations Club at the Flamingo, Polo Towers, Jockey Club
(each of which is located on the Strip), and the Grand Flamingo Club are the
primary competitors of the Resort. Hilton Grand Vacations Company ("Hilton"),
which developed the Hilton Grand Vacations Club at the Flamingo, has plans to
build and develop a second timeshare project to be located on the existing Las
Vegas Hilton property. The Company believes that although none of these resorts
has units superior to those planned for the Resort, Hilton, Polo Towers, Jockey
Club, and Grand Flamingo Club, which is owned by Mego Financial Corp. (aka
Ramada Vacation Suites) ("Ramada"), have experienced marketing and management
teams and may have other competitive advantages. Mirage and Circus-Circus have
tentative plans to build timeshare projects that would be in direct competition
with the Company.
Additionally, Consolidated Resorts, Inc., has plans to build an 86-unit
resort which the Company believes will not be directly competitive with the
resort, and Silverleaf Resorts, Inc., has purchased property in Las Vegas but
any timeshare-related project is still in the planning phases. Marriott
International Inc., which owns Marriott Vacation Club International
("Marriott"), announced in 1997 that it will be managing a 1,500 room Marriott
Marquis Hotel and a 500 room Ritz Carlton Hotel to be built in Las Vegas.
Marriott projects in Las Vegas may include a timeshare component. The Marriott
Marquis Hotel is projected to be completed by the fall of 1998 and work on the
Ritz Carlton is planned to commence by the year 2000. A 500-room project by
Hyatt Hotel, which owns Hyatt Vacation Ownerships, Inc. ("Hyatt"), at Lake Las
Vegas is also in the planning stage and could contain a timeshare component.
Other timeshare resorts are also in the planning stage in Las Vegas, and if any
of these are developed, they would compete with the Resort. Moreover, if any of
the existing Las Vegas resorts currently not selling VOIs expands to develop a
timeshare component, such developments would compete with the Resort.
Major companies that now operate or are developing or planning to
develop VOI resorts in the United States such as Disney Vacation Development,
Inc. ("Disney"), Four Seasons Hotels & Resorts ("Four Seasons"),
Inter-Continental Hotels and Resorts ("Inter-Continental"), Westin Hotels &
Resorts ("Westin"), and Promus Hotel Corporation (aka Embassy Suites) ("Promus")
have not yet entered the Las Vegas market but may do so in the future. These
entities possess significantly greater financial, marketing, personnel, and
other resources than those of the Company and may be able to grow at a more
rapid rate or more profitability as a result. Moreover, Las Vegas, Nevada has
many hotel resort destinations with a large number of low cost rooms. These
hotel resorts, although not timeshares, will compete with the Resort. See
"Business--Competition."
Recent studies indicate that the Company's projections call for annual
sales of approximately 20% of the current market sales volume for VOIs in Las
Vegas. There can be no assurance that the Company will be able to capture such a
substantial portion of the Las Vegas market.
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VOI Exchange Networks
The attractiveness of interval ownership is enhanced significantly by
the availability of exchange networks allowing owners to exchange in a
particular year the occupancy rights in their VOIs for an occupancy right in
another participating network resort. Several companies, including Interval
International, Inc. ("Interval"), provide broad-based VOI exchange networks, and
the Company plans to qualify the Resort for participation in the Interval
network. Although the Company has received preliminary approval from Interval
stating that based on a review of the plans for the proposed Resort, the Resort
would qualify for participation in Interval with a five star rating, no
assurance can be given that the Company will be able to qualify the Resort for
participation in the Interval network or any other exchange network or that it
will be able to obtain such rating. Moreover, if such exchange networks cease to
function effectively, or if the Resort is not accepted as an exchange for other
desirable resorts, sales of VOIs in the Resort could be materially adversely
affected.
The parent companies of the two major exchanges, Resort Condominiums
International, Inc. ("RCI") and Interval, merged in 1997. In response to
concerns raised by the Federal Trade Commission (the "FTC") regarding the impact
of the merger on the timeshare industry, and in relation to a consent decree
entered into between the FTC and the merging parties, Interval was purchased by
Willis Stein & Partners, L.C. ("Willis Stein"), a Chicago-based investment
partnership. Although Interval's management group remained the same through the
acquisition by Willis Stein, and Interval continues to offer exchange network
services to its approximately 1,600 resorts and 858,500 members, there can be no
assurance that either Interval or RCI will continue to remain competitive in the
VOI exchange market. If only one major exchange network were to exist and the
Resort did not qualify for membership, the ability of the Company to sell the
VOIs in the Resort would be significantly affected.
In addition, RAVC intends to allow purchasers of VOIs in the Resort,
for a minimal fee, the opportunity to exchange their occupancy rights in a given
year for an occupancy right in another RAVC Resort. Such rights may be
discontinued by RAVC at any time. See "Business--Participation in VOI Exchange
Networks."
Dependence on Key Personnel
The Company has no full-time personnel. The Company's success depends
to a large extent upon the experience and abilities of the key management. RAVC
pays the salary of the Company's management, who are also paid officers of RAVC.
Accordingly, the Company's management spends a significant portion of its time
working for RAVC. Conflicts of interest may arise between RAVC and the Company.
In the event of a conflict of interest, management may have an obligation to
resign from the Company. The loss of the services of any one of these
individuals could have a material adverse effect on the Company, its operations
and its business prospects.
Regulation of Marketing and Sales of VOIs; Other Laws
The Company's marketing and sales of VOIs and other operations are
subject to extensive regulation by the federal government, the State of Nevada,
and the states in which VOIs are marketed and sold, which are expected to be
Arizona, California, Hawaii, Nevada and Utah. On a federal level, the Federal
Trade Commission has taken the most active regulatory role through the Federal
Trade Commission Act, which prohibits unfair or deceptive acts of competition in
interstate commerce. Other federal legislation to which the Company is or may be
subject appears in the Truth-in-Lending Act and Regulation Z, the Equal Credit
Opportunity Act and Regulation B, the Interstate Land Sales Full Disclosure Act,
the Real Estate Standards Practices Act, the Telephone Consumer Protection Act,
the Telemarketing and Consumer Fraud and Abuse Prevention Act, the Fair Housing
Act, and the Civil Rights Acts of 1964 and 1968. In addition, many states have
adopted specific laws and regulations regarding the sale of interval ownership
programs. The laws of most states require the Company to file with a designated
state authority for its approval a detailed offering statement describing the
Company and all material aspects of the project and sale of VOIs. Certain
states, including California, have extensive regulatory requirements which may
delay the sale of VOIs in such states. Sales in California will be unable to
commence until construction is completed. In other states, application may be
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made to sell VOIs once construction has commenced. The Company is required to
deliver an offering statement or public report to all prospective purchasers of
a VOI, together with certain additional information concerning the terms of the
purchase. Laws in each state where the Company plans to sell VOIs generally
grant the purchaser of a VOI the right to cancel a contract of purchase at any
time within a period ranging from three to fifteen calendar days following the
earlier of the date the contract was signed or the date the purchaser has
received the last of the documents required to be provided by the Company. Most
states have other laws that regulate the Company's activities, such as real
estate licensure, sellers of travel licensure, anti-fraud laws, telemarketing
laws, price, gift and sweepstakes laws, and labor laws. The Company believes
that it is in material compliance with all federal, state, local, and foreign
laws and regulations to which it is currently subject. However, no assurance can
be given that the cost of qualifying under VOI ownership regulations in all
jurisdictions in which the Company desires to conduct sales will not be
significant or that the Company is in fact in compliance with all applicable
federal, state, local, and foreign laws and regulations. In addition, the
Company may experience delays in registration. Any failure to comply with
applicable laws or regulations or delays in registration could have a material
adverse effect on the Company and its ability to sell VOIs in sufficient
quantifies to enable it to repay the Notes. See "Business--Governmental
Regulation."
Year 2000 Computer Problem
The Company will enter into a management agreement with RAVC that
includes reservation, accounting, member records and other functions that are
computerized. The use of certain computer programs and automated equipment that
rely on two-digit date programs may cause such systems or equipment to
malfunction in the Year 2000. Although RAVC modified its custom computer
programs in 1996 to address this problem, the Year 2000 problem is pervasive and
complex and there can be no assurance that the 1996 modifications correct every
instance of the potential problem. In addition, there can be no assurance that
the systems or equipment of other companies upon which RAVC's systems rely also
will be converted correctly and in a timely manner. The failure of RAVC's and
other companies' systems or equipment to address the problem correctly and in a
timely manner would have an adverse effect on the Company's operations and its
ability to repay the Notes. Additionally, if Year 2000 problems are experienced
in the hospitality or travel industries generally, the cumulative effect of such
problems could have a material adverse effect on the Company's operations and
its ability to repay the Notes. See "Certain Relationships and Related
Transactions--Year 2000 Computer Problem."
Possible Environmental Liabilities
Under various federal, state, and local laws, ordinances, and
regulations, the owner of real property generally is liable for the costs of
removal or remediation of certain hazardous or toxic substances located on or
in, or emanating from, such property, as well as related costs of investigation
and property damages. Such laws often impose such liability without regard to
whether the owner knew of, or was responsible for, the presence of such
hazardous or toxic substances. The presence of such substances, or the failure
to properly remediate such substances, may adversely affect the owner's ability
to sell or lease a property or to borrow using such real property as collateral.
Other federal and state laws require the removal or encapsulation of
asbestos-containing material when such material is in poor condition or in the
event of construction, demolition, remodeling or renovation. Other statutes may
require the removal of underground storage tanks. Noncompliance with these and
other environmental, health or safety requirements may result in the need to
cease or alter operations at a property.
An environmental report commissioned by the Company has disclosed the
existence of some asbestos in the current structure on the Resort property which
will require proper removal during demolition. The Company is not aware of any
other environmental liability that would have a material adverse effect on the
Company's business, assets, or results of operations. No assurance, however, can
be given that current reports reveal all environmental liabilities or that a
prior owner has not created any material environmental condition not known to
the Company.
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The Company believes that it is in compliance in all material respects
with all federal, state, and local ordinances and regulations regarding
hazardous or toxic substances and, except as described above, the Company has
not been notified by any governmental authority or third party of any
non-compliance, liability, or other claim in connection with the Resort.
Limited Resale Market for VOIs
The Company will sell the VOIs to buyers for leisure and not investment
purposes. The market for resale of VOIs by the buyers is presently limited, and
any resales of VOIs are typically at prices substantially less than the original
purchase price. These factors may make ownership of VOIs less attractive to
prospective buyers, and attempts by buyers to resell their VOIs will compete
with sales of VOIs by the Company. In addition, the market price of VOIs sold by
the Company at the Resort or by its competitors in Las Vegas could be depressed
by a substantial number of VOIs offered for resale.
Forward-looking Statements
Statements regarding the Company's expectations as to demand for the
VOIs in the Resort, its ability to pay its obligations under the Notes, and
certain other information presented in this Registration Statement constitute
forward-looking statements, which are subject to a number of uncertainties. The
Company cautions readers not to place undue reliance on any forward-looking
statements, which speak only as of the date made. The Company does not
undertake, and specifically disclaims any obligation, to update any
forward-looking statements to reflect occurrences or unanticipated events or
circumstances after the date of this Registration Statement. "See Plan of
Operation--Forward-looking Statements."
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USE OF PROCEEDS
The Notes will be sold on a "best efforts" basis. See "Plan of
Distribution." Unless the total $9,200,000 principal amount of Notes are sold
within 90 days of the date hereof, or such later date as shall be determined by
the Board of Directors, and the Construction Loan is obtained within 120 days
after the end of the Offering period, all proceeds received will be returned to
the purchaser, with interest accrued at a rate established by the escrow agent,
and no Notes will be sold.
The table below sets forth the estimated application of the proceeds
from the sale of the Notes to construct the Resort. Pending use of such funds,
such proceeds will be invested in short-term, investment-grade securities or
money market accounts.
Sources of Funds
Capital Contribution by RAVC $ 250,000
Gross Proceeds from Note Offering 9,200,000
Less Cost of Offering (380,000)
Construction Loan 17,000,000
------------
Total Proceeds $ 26,070,000
============
Uses of Funds
Design & Professional Fees $ 1,160,000
Building Construction Cost 17,700,000
Furniture, Fixtures & Equipment Package 2,560,000
Site Work 1,800,000
Member Lounge & Public FF&E(1) 980,000
Pre-sale Legal & Accounting 380,000
Construction Loan Points 260,000
Project Acquisition Cost 600,000
Marketing Setup/Miscellaneous 630,000
------------
Total Uses $ 26,070,000
============
- -----------------------------
(1) Furnishings, Fixtures, and Equipment.
See "Business of the Company--The Las Vegas Resort" for a description
of the proposed Resort improvements.
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SELECTED FINANCIAL DATA
The following selected financial data of the Company should be read in
conjunction with the financial statements and related notes thereto. The
selected financial data set forth below as of November 30, 1997, and February
28, 1998, and from inception of the Company, February 27, 1997, to November 30,
1997, and for the three months ended February 28, 1998 have been derived from
financial statements of the Company which have been audited by Ernst & Young
LLP, independent auditors. Operations of the Company reflect ownership and
operations of its assets only for the period from June 24, 1997, and in
management's opinion are not representative of future operations.
From Inception,
February 27, 1997, to Fiscal Quarter Ended
Statement of Operations Data November 30, 1997 February 28, 1998
- ---------------------------- ----------------- -----------------
Rental income $ 56,392 $ 35,300
Expenses 136,272 53,328
Net (loss) (79,880) (18,802)
Balance Sheet Data: November 30, 1997 February 28, 1998
- ------------------ ----------------- -----------------
Cash $ 28,500 $ 35,613
Property and equipment 797,971 790,179
Total assets 1,097,692 1,108,548
Total liabilities 84,087 57,981
Total shareholder's equity 1,013,605 1,050,567
PLAN OF OPERATION
The Company was established on February 27, 1997, as a wholly owned
subsidiary of RAVC for the purpose of developing timeshare resorts. The Company
will develop and construct the Resort on the Las Vegas Property and market VOIs
in the Resort. Until the Notes are repaid, the Company will restrict its
activities to the Resort and any additions thereto. The Company will sell new
VOIs in the Resort that will not be memberships in RAVC. See "Business--The Las
Vegas Resort."
RAVC has transferred the Property and the current 20-unit timeshare
project and $250,000 to the Company as of February 28, 1998. Transactions
between RAVC and the Company are determined using the cost incurred by RAVC. The
values assigned to the assets transferred to the Company were the historical
cost of RAVC, less accumulated depreciation in the case of depreciable property.
See "Selected Financial Data." As of February 28, 1998, the book value of the
Property and the 20-unit timeshare project is $683,794. The most recent
appraisal, dated May 14, 1997 (a copy of the report relating thereto is filed as
an exhibit to the Registration Statement of which this Prospectus is part),
values the land at $2,800,000. Copies of the appraisal can be obtained from the
Company without charge, upon request, by each person to whom a copy of this
Prospectus has been delivered. No income statement with respect to the Property
for the two years ended February 28, 1998, has been provided because the
improvements on the Property will be razed upon commencement of construction of
the new resort, and in management's opinion such information would not be
meaningful.
The cash contributed to the Company by RAVC plus the proceeds of the
sale of the Notes will allow the Company to borrow sufficient construction and
takeout funds to undertake the development of the Resort on the Property. See
"Use of Proceeds." Once the funds are raised and the Construction Loan obtained,
the Company will contract with an architectural firm, a structural engineering
firm, an environmental consulting and geo-technical consulting firm, a
mechanical and electrical engineering firm, and a construction company who will
be the contractors of the building. There are no current contracts in place for
such services.
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The Company will contract with a non-affiliated marketing company to
undertake the sales and marketing of the new memberships. See "Business--Sales
and Marketing." It is expected that sales and marketing will begin at the time
construction begins or within 6 months thereafter.
During the first 24 months of operation of the Company, the Company
will market the Notes, secure the Construction Loan, takeout loan and
receivables loan commitments, and contract for all of the vendors listed above
who, as soon as the Construction Loan is obtained, will begin to undertake their
various assignments. It is expected that all of the architectural and
engineering work will take six to nine months prior to the beginning of
construction. Depending on the length of time to market the Notes, it is
expected that construction may begin in the spring of 1999.
During the first 24 months of operation, the Company will be run by the
officers and employees of RAVC. It is not anticipated that any employees will be
transferred to the Company until construction is undertaken. The Company plans
to hire a construction manager to oversee the project prior to undertaking
construction. Once construction is underway and marketing begins, additional
employees will be hired by the Company as needed, and some employees of RAVC may
be transferred to the Company.
The Company is also seeking to acquire a contiguous parcel of land
from a non-affiliated landowner upon which the Company could build an additional
40 units. Additional funds have been budgeted to acquire and develop the
property as part of the Resort. There can be no assurance that this parcel will
be acquired by the Company. See "Business--The Las Vegas Resort."
The Company does not have any present business plans other than the
construction and the marketing of the Resort but may undertake the development
of other resorts in the future after the Notes have been repaid.
Forward-looking Statements
Statements regarding the Company's expectations as to demand for the
VOIs in the Resort, its ability to pay its obligations under the Notes, and
certain other information presented in this Registration Statement constitute
forward-looking statements which are subject to a number of uncertainties.
Although the Company believes that its expectations are based on reasonable
assumptions within the bounds of its knowledge of its business and operations,
there can be no assurance that actual results will not differ materially from
its expectations. In addition to matters affecting the economy and the Company's
industry generally, factors that could cause actual results to differ from
expectations include, but are not limited to, the following: (i) the Company's
ability to procure financing for the construction of the resort; (ii) the timely
development and construction of the resort; (iii) the growing concentration and
competition in the timeshare industry; (iv) the Company's provision of customer
financing and risks of customer default; (v) the existence of and ongoing
relationships with exchange networks; and (vi) regulation by governmental
authorities. The Company cautions readers not to place undue reliance on any
forward-looking statements, which speak only as of the date made. The Company
does not undertake, and specifically disclaims any obligation, to update any
forward-looking statements to reflect occurrences or unanticipated events or
circumstances after the date of this Prospectus.
BUSINESS OF THE COMPANY
Overview
The Company was incorporated by RAVC in 1997 in order to develop
timeshare resorts. The Company will initially develop and construct the Resort
and market VOIs in the Resort. Until the Notes are repaid, the Company will
restrict its activities to the Resort and any additions thereto.
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The Timeshare Industry
The Market. The resort component of the leisure industry for overnight
facilities consists of (i) commercial lodging establishments and (ii) timeshare
or vacation ownership resorts. Commercial lodging establishments consist of
hotels and motels where a room is rented on a nightly, weekly, or monthly basis,
in addition to privately owned condominiums and homes that are rented. The rooms
at hotels and motels typically are relatively small and usually do not have
kitchen facilities. Condominiums and homes available for short term rentals tend
to be more costly than hotels. For many vacationers, especially those with
families, a lengthy stay at a quality commercial lodging establishment can be
expensive. Room rates and availability are also subject to change periodically
by commercial establishments. Timeshare resorts provide vacationers with an
alternative to commercial lodging establishments providing such amenities as
larger suites, kitchen facilities, and predictable availability.
Ownership of accommodations is available through a variety of different
products, including ownership of an entire home or condominium, interval
ownership plans, which include fractional ownership of weekly or other periodic
intervals, condominium hotels, campgrounds, and ranch acreage land. Unlike
renting a room in a commercial lodging establishment, the vacationer purchasing
one of the foregoing products acquires an ownership interest in the underlying
property or in the entity that owns the property.
According to the American Resort Development Association ("ARDA"),
approximately 218,000 VOIs were sold in 1996 in the United States with a sales
volume of $2.18 billion, a 65% increase over 1992, when approximately 170,000
VOIs were sold with a sales volume of $1.32 billion. First introduced in the
United States in the early 1970s, ownership of VOIs has been a fast growing
segment of the hospitality industry over the past two decades. According to
ARDA, the worldwide timeshare industry has expanded significantly during the
last 15 years both in VOI sales volume and number of VOIs sold. ARDA estimates
that, from 1980 to 1994, the most recent year for which worldwide information is
available, sales of VOIs increased from $.49 billion to $4.76 billion and the
number of VOIs sold increased from 100,000 to 560,000 per year during the same
period.
The Company believes that the following factors have contributed to the
increased acceptance of the timeshare concept among the general public and the
growth of the timeshare industry over the past 15 years:
* Increased consumer confidence resulting from extensive
consumer protection regulation of the timeshare industry;
* The addition of brand name national lodging companies and
their increasingly flexible use programs to the industry;
* Increased flexibility of time share ownership as a result of
the growth of exchange organizations such as Interval and RCI;
* Improvement in the quality of both the timeshare facilities
and the management of timeshare resorts;
* Increased consumer awareness of the value and benefits of
timeshare ownership, including the cost savings relative to
other lodging alternatives; and
* Improved availability of financing for purchasers of VOIs.
The timeshare industry traditionally 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. The
Company believes that one of the most significant factors contributing to the
current success of the timeshare industry is the entry into the market of some
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of the world's major lodging, hospitality, and entertainment companies. Major
companies that now operate or are developing timeshare resorts include Marriott,
Disney, Hilton, Hyatt, Four Seasons, Inter-Continental, Promus, and Westin.
The Consumer. According to information compiled by ARDA for 1996, the
median age of a VOI buyer in the United States at the time of purchase is 50.
The median annual household income of current VOI owners in the United States is
approximately $71,000. The Company expects the timeshare industry to continue to
grow as more members of the baby boom generation enter the 45-54 year age
bracket, the age group that historically purchased the most VOIs, according to
the 1997 ARDA study.
According to the 1995 ARDA study, the three primary reasons cited by
consumers in the United States for purchasing a VOI are (i) the ability to
exchange the VOI for accommodations at other resorts through exchange networks
such as Interval and RCI (cited by 82% of VOI purchasers), (ii) the money
savings over traditional resort vacations (cited by 65% of purchasers), and
(iii) the quality and appeal of the resort at which they purchased a VOI (cited
by 49% of purchasers).
Despite the growth in the timeshare industry, as of December 31, 1996,
vacation interval ownership has achieved only an approximate 2.0% market
penetration among United States consumers. In light of the quality of the Resort
and the Company's planned qualification of the Resort for participation in the
Interval network, the Company believes it will be positioned to take advantage
of these trends in demographics. The Company has received preliminary approval
from Interval stating that based on a review of the plans for proposed Resort,
the Resort would qualify for participation in Interval with a five star rating.
See "Business of the Company--Participation in VOI Exchange Networks."
The Las Vegas Resort
The proceeds from this Offering and the Construction Loan will be used
to develop and construct the Resort. The Resort will consist of 119 units (the
"Units") built upon .86 acres of land (the "Property") located approximately
one-quarter mile from Las Vegas Boulevard, also known as the "Strip." The
Property is located at 360 East Desert Inn Road, close to several major casinos
and the Las Vegas Convention Center. The Company is seeking to acquire a
contiguous parcel of land from a non-affiliated party upon which the Company
could build an additional 40 Units. The value of this contiguous parcel has been
appraised by Clark County, Nevada, at approximately $265,000. The Board of
Directors of the Company has decided to put in a bid on the contiguous property
at an upcoming auction to the held by Clark County. However, the Company does
not have any agreement to purchase this parcel. Because no assurance can be
given that this parcel will be acquired, the prospectus, unless otherwise
stated, assumes that 119 Units will be constructed.
The main floor of the Resort will primarily be devoted to common areas
and will include such amenities as a lobby, an owner's lounge, a fitness room,
various meeting rooms, a "kids room," offices and a delicatessen/convenience
store. Some residential units designed to accommodate the physically challenged
will also be included on the main floor. The upper four to ten floors, depending
on the number of units built, will house the Units, of which there are three
floor plans: (i) a one bedroom with 904 square feet; (ii) a two bedroom with
1,318 square feet; and (iii) a two bedroom with 1,370 square feet. The Resort
will also have amenities such as a pool and sun area. Underground and surface
level parking will be provided.
Various aspects of the development, sale, and ultimate operation of the
Resort will be undertaken by three companies -- RAVC, the Company, and the
homeowners association of VOI owners (the "Owners Association"). RAVC, which
owns all of the issued and outstanding stock of the Company, has transferred the
Property to the Company. The Property is currently improved with a timeshare
project consisting of 20 units. The existing improvements will be razed and
replaced by the Resort. RAVC contributed the Property to the Company in exchange
for 100% of the outstanding capital stock of the Company.
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The Company is a newly formed corporation that was organized for the
purpose of developing and constructing the Resort. The Company will oversee
construction and, through a non-affiliated marketing company, sale of the VOIs.
See "Business of the Company--Sales and Marketing." As a timeshare Resort, each
of the 119 condominium Units has 51 VOIs which results in a total of 6,069 VOIs
available for sale. The Company, as developer, owns the Resort and will enter
into an agreement with a third-party marketing company for the sale of the VOIs.
The Company intends that the net proceeds from the sale of the VOIs will be used
first to pay the Construction Loan and then to pay principal and interest on the
Notes.
The Company will initially own all of the condominium Units in the
Resort. As Units are divided into VOIs, the Company will continue to own the
undivided condominium Units and unsold VOIs. Members who purchase VOIs in the
Resort will receive an undivided fee simple interest as tenants in common to a
condominium Unit in the Resort. They will also become members of the Owners
Association, to be formed in connection with the development of the Resort. The
Owners Association will have the primary responsibility to operate the Resort
and the use program associated with the Resort, and will contract with RAVC for
the actual day-to-day operational responsibility for the Resort. See "Certain
Relationships and Related Transactions--Resort Management." At the later to
occur of the retirement of all of the indebtedness secured by the Resort or the
sale of 80% of the VOIs in the Resort, the operation of the Resort will be
turned over to the Owners Association. Personal property needed for the
operation of the Resort and not previously transferred to the VOI owners as
tenants in common will be transferred to the Owners Association. The Company
will retain all unsold VOIs and continue to offer them for sale to the public.
The states in which VOIs are sold will require the Company to agree to subsidize
the Owners Association during the period that the Company is in control of the
Project for any shortfall in its operating costs (including reserves) and the
budgeted maintenance fees received from unaffiliated owners. This subsidy may be
more or less than the maintenance fees the Company would otherwise be paying on
the unsold VOIs. The Company will also be required to bond or otherwise
collateralize its obligation to subsidize the Owners Association.
RAVC Operations
RAVC was founded in 1977 in Hawaii as a "floating-time, floating-space"
timesharing organization with condominium apartments located in Waikiki, Hawaii.
RAVC now manages eight resorts in Waikiki, Kona, and Maui, Hawaii; Las Vegas and
Lake Tahoe, Nevada; Chandler, Arizona; Acapulco, Mexico; and Marbella, Spain.
The members of RAVC do not own a real estate interest in any properties owned by
RAVC but have a right in perpetuity to use the properties based on their
memberships. Currently, RAVC has approximately 8,500 members representing over
10,500 membership weeks (a member may own and have the right to use more than
one week). RAVC members reside in all 50 states as well as 23 foreign countries.
All of RAVC's resorts have an affiliation with Interval and RCI, allowing RAVC's
members who are members of such exchange networks to exchange their RAVC VOI for
time in other resorts in the exchange network.
In 1989, RAVC submitted itself to a "solvent corporation receivership"
under the First Circuit Court of the State of Hawaii. This resulted from past
improper management by the original developer of the RAVC resorts which was
discovered in 1983 and resulted in over $6 million in unpaid mortgage debt, and
from a questionable investment scheme by a former director of RAVC which
resulted in a loss of $1.4 million in 1989. The president and entire board of
directors resigned in 1989 at the time of the receivership. In 1990, RAVC's
business plan for reorganization was approved by the court that enabled RAVC to
repay past mortgage debts, redecorate all vacation units, and return to positive
cash flow. A new board of directors was appointed by the Court, consisting of
five RAVC members and two outside professionals, and Mr. Corteway was appointed
as President and Chief Executive Officer of RAVC.
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Sales and Marketing
The Company intends to enter into a marketing and selling agreement
with an independent marketing agent that will be compensated based on sales of
VOIs in the Las Vegas Resort. The marketing agent's intended activities are
described below:
On-Site/In-House Programs. On-site resort programs at RAVC's existing
resorts in the United States will solicit existing RAVC members. RAVC members
will also be requested to provide referrals. All exchange guests and rental
guests will also be solicited through a concierge, activities desk, and parties.
Las Vegas Off-Premise Contacts. The marketing agent will institute
off-premise contact ("OPC") programs. OPC locations include area events,
shopping centers, strip retail locations, casino hotels, and attractions such as
water parks and theme restaurants.
Las Vegas Locals. The marketing agent will utilize telemarketing
capabilities to contact prospects in the Las Vegas area with an offer to tour
the Las Vegas Resort.
Travel Alliances. The marketing agent will use strategic alliances
with Las Vegas travel wholesalers to arrange access to visitors.
Registration and Multi-State Marketing. The Company intends to register
the project in Arizona, California, Hawaii, Nevada, and Utah and possibly other
western states. The marketing agent may contact prospects with a mini-vacation
offer in Las Vegas that includes promotion of the Resort.
The Company believes that this diversified mix of marketing programs
will maximize potential sales without relying too heavily on any one program.
Customer Financing
The Company will offer financing to the purchasers of VOIs in the
Resort who make a down payment generally of at least 10% of the purchase price.
This financing generally will bear interest at fixed rates and will be
collateralized by a first deed of trust on the underlying VOI. A portion of the
proceeds of such financing will be used to obtain releases of the VOI from any
underlying debt. The Company intends to enter into an agreement with a
receivables lender (which may be the Construction Lender) for the financing of
customer receivables. The Company expects this agreement will provide an
aggregate of up to approximately $65 million of available financing to the
Company (based on the construction of 119 Units) bearing interest at variable
rates tied to either the prime rate or LIBOR. Under these arrangements, the
Company will pledge as security qualified purchaser promissory notes to the
lender, who typically will lend the Company 75% to 90% of the principal amount
of such notes. Payments under these promissory notes will be made by the
purchaser borrowers directly to a payment processing center and such payments
will be credited against the Company's outstanding balance with the lender. The
Company does not presently have a binding agreement for this financing, and
there can be no assurance that arrangements can be made on terms that are
satisfactory to the Company. However, if the Company obtains the Construction
Loan, it expects to obtain receivables financing arrangements. Sales of VOIs
will be substantially limited if the Company is unable to provide financing to
purchasers of VOIs.
Because the Company's borrowings will bear interest at variable rates
and the Company's loans to purchasers of VOIs will bear interest at fixed rates,
the Company bears the risk of increases in interest rates with respect to the
loans it will have from lenders. The Company intends to engage in interest rate
hedging activities from time to time in order to reduce the risk and impact of
increases in interest rates with respect to such loans, but there can be no
assurance that any such hedging activity will be adequate at any time to fully
protect the Company from any adverse changes in interest rates. The Company will
place no more than 5% of its assets in hedge funds. See "Risk Factors--Risk of
Hedging Activities."
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The Company will also bear the risk of purchaser default. The Company
will continue to accrue interest on its loans to purchasers of VOIs until such
loans are deemed to be uncollectible, at which point it will expense the
interest accrued on such loan, commence foreclosure proceedings and, upon
obtaining title, return the VOI to the Company's inventory for resale. The
Company will monitor its loan accounts and determine whether to foreclose on a
case-by-case basis. See "Risk Factors--Risks of Obtaining Construction Loan and
Customer Financing" and "--Risks Associated with Customer Default."
Participation in VOI Exchange Networks
The Company has applied for membership in Interval. The Company has
received preliminary approval but cannot receive final approval from Interval
until, among other things, construction on the Resort has commenced. The Company
believes that sales of its VOIs are made more attractive by the Company's
planned participation in an exchange program operated by Interval, a leading
exchange network. In the 1995 ARDA study, the exchange opportunity was cited by
purchasers as one of the most significant factors in determining whether to
purchase a VOI. Membership in Interval allows the members 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 an exchange fee described
below. A member may exchange his VOI for an occupancy right in another
participating resort by listing his VOI as available with the exchange
organization 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, the quality of the resort and the period during
which the VOI is available. The exchange organization attempts to satisfy the
exchange request by providing an occupancy right in another VOI with a similar
rating. If Interval is unable to meet the member's initial request, it suggests
alternative resorts based on availability.
Founded in mid 1970s, Interval has a total of more than 1,100
participating resort facilities and approximately 750,000 member owners
worldwide. During 1996, Interval processed approximately 400,000 exchanges. The
current cost of the annual membership fee in Interval, which typically is at the
option and expense of the owner of the VOI, is $68 per year. In addition,
members pay an additional fee that is currently $98 for properties in the United
States and $119 for those outside the United States when a reservation is made
in another project in the Interval exchange program.
Competition
Las Vegas has a timeshare history dating back to the mid 1970s. Of the
12 existing timeshare resorts in Las Vegas (including the current RAVC
property), five are still actively selling VOIs and one is inactive. The
remaining six are sold out or no longer selling. Four of these five, Hilton
Grand Vacations Club at the Flamingo, Polo Towers, the Jockey Club (each of
which is located on the Strip), and the Grand Flamingo Club are the primary
competitors of the Resort. Hilton Grand Vacations Company ("Hilton"), which
developed the Hilton Grand Vacations Club at the Flamingo, has plans to build
and develop a second timeshare project to be located on the existing Las Vegas
Hilton property. The Company believes that although none of these resorts has
units superior to those planned at the Resort, Hilton, Polo Towers, Jockey Club,
and Grand Flamingo Club have experienced marketing and management teams and may
have other competitive advantages. Mirage and Circus-Circus have tentative plans
to build timeshare projects that would be in direct competition with the
Company. Marriott recently announced that it will be managing a 1,500-room
Marriott Marquis Hotel and a 500-room Ritz Carlton Hotel to be built in Las
Vegas. Marriott projects in Las Vegas may include a timeshare component. The
Marriott Marquis Hotel is projected to be completed by the fall of 1998 and work
on the Ritz Carlton is planned to commence by 2000. A project by Hyatt at Lake
Las Vegas is also in the planning stage and could contain a timeshare component.
Consolidated Resorts, Inc., has plans to build an 86-unit resort which the
Company believes will not be directly competitive with the resort, and
Silverleaf Resorts, Inc., has purchased property in Las Vegas, but any
timeshare-related project is still in the planning stages. Other timeshare
resorts are also in the planning stage in Las Vegas and, if developed, would
compete with the Resort. Other major companies operating and developing
timeshare resorts in the United States, such as Disney, Four Seasons,
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Inter-Continental, Promus, and Westin have not yet entered the Las Vegas market
but may do so in the future.
In Las Vegas, the Resort will also compete with approximately 270
existing hotels and motels with approximately 100,000 rooms. Some of such hotels
and resorts provide a large number of rooms at low nightly rates Sunday through
Thursday and constitute strong competition for the Resort. According to the Las
Vegas Convention and Visitors Authority, the 1996 occupancy rate during midweek
was 88.7% and on weekends was 94.4%.
Governmental Regulation
General. The Company's marketing and sales are subject to extensive
regulation by the federal government, the State of Nevada, and the states in
which the VOIs are marketed and sold. On a federal level, the Federal Trade
Commission has taken the most active regulatory role through the Federal Trade
Commission Act, which prohibits unfair or deceptive acts or competition in
Interstate commerce. Other federal legislation to which the Company is or may be
subject includes the Truth in Lending Act and Regulation Z, the Equal Credit
Opportunity Act and Regulation B, the Interstate Land Sales Full Disclosure Act,
the Real Estate Standards Practices Act, the Telephone Consumer Protection Act,
the Telemarketing and Consumer Fraud and Abuse Prevention Act, the Fair Housing
Act, and the Civil Rights Acts of 1964 and 1968. In addition, many states have
adopted specific laws and regulations regarding the sale of interval ownerships
programs. The Company currently plans to register the Resort in Arizona,
California, Hawaii, Nevada, and Utah, and possibly other western states. The
laws of these states require the Company to file with a designated state
authority for its approval a detailed offering statement describing the Company
and all material aspects of the project and sale of VOIs before it can promote
or sell VOIs in that state. These laws require the Company to file numerous
documents and supporting information with the agency responsible for the
regulation of VOIs. When the agency determines that a project has complied with
state law, it will issue a public report for the project. The Company is
required to deliver an offering statement or public report to all prospective
purchasers of a VOI, together with certain additional information concerning the
terms of the purchase. Laws in each state where the Company plans to sell VOIs
generally grant the purchaser of a VOI the right to cancel a contract of
purchase at any time within a period ranging from three to fifteen calendar days
following the earlier of the date the contract was signed or the date the
purchaser has received the last of the documents required to be provided by the
Company. Most states have other laws that regulate the Company's activities such
as real estate licensure, sellers of travel licensure, anti-fraud laws,
telemarketing laws, price gift and sweepstakes laws, and labor laws. The Company
believes that it is in material compliance with all federal, state, local, and
foreign laws and regulations to which it is currently or may be subject.
However, no assurance can be given that the cost of qualifying under interval
ownership regulations in all jurisdictions in which the Company desires to
conduct sales will not be significant. In addition, the Company may experience
delays in registration. Any failure to comply with applicable laws or
regulations or delays in registration could have a material adverse effect on
the Company. See "Risk Factors--Regulation of Marketing and Sales of VOIs; Other
Laws."
A number of state and federal laws, including the Fair Housing Act and
the Americans with Disabilities Act (the "ADA"), impose requirements related to
access and use by disabled persons on a variety of public accommodations and
facilities. The architectural plans for the Resort will comply with these laws
as currently in effect.
Environmental Matters. Certain Federal, state, and local laws,
regulations, and ordinances govern the removal, encapsulation, or disturbance of
asbestos-containing materials ("ACMs") when such materials are in poor condition
or in the event of construction, remodeling, renovation, or demolition of a
building. Nevada and the local governments have certain laws, rules and
regulations concerning the emission of airborne asbestos fibers, air pollution,
airborne substances and contamination of land, surface and subsurface hazardous
substances. The Company has sought and is continuing to seek advice on the
methods to properly follow such environmental laws, rules, regulations and
ordinances. Such laws may impose liability for release of ACMs and may provide
for third parties to seek recovery from owners or operators of real properties
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for personal injury associated with ACMs. In connection with demolition of the
previous resort in Las Vegas, the Company may be potentially liable for such
costs.
A Phase I assessment has been conducted at the Resort in order to
identify potential environmental concerns. The Phase I assessment was carried
out in accordance with accepted industry practices and consisted of non-invasive
investigations of environmental conditions at the property, including a
preliminary investigation of the site and identification of publicly known
conditions concerning properties in the vicinity of the site, a physical site
inspection, 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 site, a visual inspection of suspect friable and non-friable ACMs,
collection and laboratory analysis of ACMs, and the preparation and issuance of
written reports. Recommendations have been made regarding the abatement of ACMs.
Except for the presence of asbestos described more fully above, the Company's
assessments of the property have not revealed any environmental liability that
the Company believes would have a material adverse effect on the Resort, nor is
the Company aware of any such material environmental liability. Nevertheless, it
is possible that the Company's assessments do not reveal all environmental
liabilities or that there are material environmental liabilities of which the
Company is unaware. The Company does not believe that compliance with applicable
environmental laws or regulations will have a material adverse effect on the
Resort.
The Company believes that the Property is 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 the Property.
Employees
As of March 31, 1998, the Company employed no full-time employees. RAVC
pays the salary of the Company's management and such management works on a
part-time, as-needed basis for the Company.
Legal Proceedings
As of the date of this prospectus, the Company is not aware of any
pending legal proceedings involving the Company or the Property.
DIRECTORS AND EXECUTIVE OFFICERS
OF THE COMPANY
The following table sets forth the names and ages of the members of the
Company's Board of Directors and its executive officers, and sets forth the
position with the Company held by each:
Name Age Position
---- --- --------
Jack R. Corteway 63 Director, Chief Executive Officer,
President and Treasurer
Bernard J. McKenna 64 Director
Theodore A. Rohde 68 Director
Stephen C. W. Lin 42 Vice President, Controller and
Secretary
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Directors of the corporation hold office for one year or until their
successors are elected and qualified. The current directors were elected on May
9, 1997.
Jack R. Corteway. Mr. Corteway has been a director of the Company and its
President since its incorporation in 1997. He has been Treasurer of the Company
since May 9, 1997. From February 27, 1997, until May 9, 1997, he also served as
Secretary of the Company and has served as Chief Executive Officer since July
15, 1997. Mr. Corteway has been President and Chief Executive Officer of RAVC
since 1990. Mr. Corteway formerly served as President, Chief Executive Officer,
and Director of Bank of Honolulu for 14 years. Prior to coming to Hawaii, he
held various positions in corporate finance and banking.
Bernard J. McKenna. Mr. McKenna has been a director of the Company since its
incorporation in 1997. Mr. McKenna has also been a director of RAVC since 1990.
Mr. McKenna has been self employed since 1993 and has served as a director of
Sanwa Business Credit Corp. ("Sanwa"), a finance company, since 1985. From 1980
until his retirement in 1993, Mr. McKenna was President and Chief Executive
Officer of Sanwa.
A bankruptcy petition was filed on February 28, 1997 by McKenna
Inc. under Chapter 11 of the United States Bankruptcy Code. Bernard J. McKenna
is a 90% stockholder and the uncompensated President, Secretary, and Treasurer
of McKenna Inc., a retail party supply store. Reorganization of McKenna, Inc.,
is pending. McKenna, Inc., has no relationship with the Company, and its
reorganization will have no effect on the Company or its operations.
Theodore A. Rohde. Mr. Rohde has been a director of the Company since its
incorporation in 1997. Mr. Rohde has been a director of RAVC since 1994. For the
past 10 years, Mr. Rohde has been a consultant for troubled companies. Since
1995, Mr. Rohde has been president and a director of Tar Enterprises, Inc., a
consulting business for troubled companies, which is owned by Mr. Rohde. From
1979 to 1981, Mr. Rohde was vice president of finance and operations, and from
1981 to 1986 he was president, of Armstrong Containers Inc. Prior to his
association with Armstrong Containers, Inc., Mr. Rohde was employed as a vice
president of Wilbert, Inc. and a consultant to C. J. Wood Company, and was
employed by Wheelabrator-Frye Group and Arthur Andersen & Company.
Stephen C. W. Lin. Mr. Lin has been Vice President, Controller and
Secretary of the Company since May 9, 1997. Mr. Lin has been employed by RAVC
since 1981. He was a Vice President of RAVC between August 1990 and January 1995
and has been a Senior Vice President since January 1995. Mr. Lin has been
Treasurer of RAVC since August 1990 and Secretary since October 1994. Prior to
his employment by RAVC, Mr. Lin was employed by Ernst & Whinney and other
accounting firms. Mr. Lin is a Certified Public Accountant.
EXECUTIVE COMPENSATION
Mr. Corteway and Mr. Lin receive no compensation from the Company for
services rendered to the Company. Any and all compensation earned by them is
paid by RAVC. However, the portion of their compensation related to the time
they devoted to the affairs of the Company has been included in the paid-in
capital contributed by RAVC and recorded as expense in the Company's financial
statements. An allocated portion of RAVC officers' compensation will continue to
be charged to the Company's financial statements in the future. The allocation
is computed by multiplying the current salaries of the RAVC officers by an
estimated percentage of their time spent devoted to the affairs of the Company.
Members of the Company's Board of Directors who are not employees of the Company
receive directors' fees of $500 per diem, along with travel expenses. Members of
the Board of Directors who are employees of RAVC or may be employees of the
Company do not receive directors' fees.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding capital stock of the Company, consisting of one
share of common stock, is owned by RAVC, a nonprofit corporation. The RAVC Board
of Directors, elected from among the members of RAVC, consists of Walter Cloyd,
Harry Cummings, Bernard McKenna, G.A. Morris, Ben Phillips, Theodore Rohde, and
Edward Swofford. Jack R. Corteway is President of RAVC, and Stephen Lin is
Senior Vice President, Controller, Secretary, and Treasurer of RAVC.
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
Resort Management
Upon completion of the Resort, and upon formation of the Owners
Association, it is intended that RAVC will enter into a management agreement
(the "Management Agreement") with the Owners Association to provide for
management and maintenance of the Resort. Pursuant to the Management Agreement,
it is anticipated that RAVC will be paid a monthly management fee equal to 7% of
the total expenses incurred by the Owners Association, excluding expenses
incurred for capital repair and replacements, based on the annual budget of the
Owners Association. Additionally, pursuant to the Management Agreement, it is
anticipated that RAVC will have sole responsibility and exclusive authority for
all activities necessary for the day-to-day operation of the Resort, including
administrative services; procurement of inventories and supplies; maintaining
the units, the furnishings, and the common areas; contracting for furnishing
cleaning, maintenance, laundry, housekeeping, and other services; making or
contracting for all repairs, decorations, renewals, replacements, and
improvements; obtaining all required licenses and permits; and promotion and
publicity. RAVC also will obtain comprehensive and general public liability
insurance, all-risk property insurance, business interruption insurance, and
such other insurance as is customarily obtained for similar properties. RAVC
also will provide all managerial and other employees necessary for the Resort,
including review of the operation and maintenance of the Resort; preparation of
reports, budgets, and projections; collection of assessments; and employee
training.
Potential Distributions and Use of VOIs
The Notes and the Indenture restrict the Company's ability to pay
dividends and make other distributions to RAVC. In addition, Nevada corporate
law prohibits the Company from making any distribution to its stockholder that
would render it insolvent at the time the distribution is made, but
circumstances could render the Company insolvent subsequent to the time that a
distribution allowable by Nevada law was made. RAVC has informed its members of
its intent to obtain up to 1020 VOIs in Las Vegas to replace the 20 condominium
Units RAVC previously owned on the Company's property. The Company currently
intends to distribute such VOIs to RAVC, if available, after the Notes have been
paid. The Company's current intent is to refrain from selling such VOIs to third
parties in order to keep them available for distribution, but the Company may
attempt to sell the VOIs if necessary to meet its cash flow requirements. The
Company may allow RAVC to utilize unsold VOIs in consideration of the related
maintenance fees, which may be less than the fair market rental value of the
VOIs. The Company does not have a current intent to make other distributions to
RAVC.
Operating Agreement; Tax Sharing Agreement
Pursuant to an Operating Agreement dated June 24, 1997, RAVC is
entitled to utilize the existing 20 condominium units on the Property until such
time as the Company has obtained the Construction Loan and demolition of the
existing structure is scheduled to begin. RAVC will pay the Company the costs of
operating and maintaining these units, which may be less than the fair rental
value of the units. Pursuant to a Tax Sharing Agreement dated June 24, 1997,
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RAVC and the Company have agreed that, although the two companies will file
consolidated federal income tax returns, the Company will reimburse RAVC for
federal income taxes which would have been payable if the Company were a
separate company and will share the cost of preparing the consolidated returns
with RAVC.
Year 2000 Computer Problem
The widespread use of computer programs and automated equipment that
rely on two-digit date programs to manage and manipulate may cause computer
systems or embedded controls to malfunction in the Year 2000. The Year 2000
problem is pervasive and complex because virtually every computer operation or
automated function will be affected in some way by the rollover of the two digit
year value to 00. Computer systems and embedded controls may not recognize this
date as 2000 but as 1900 or not at all. Systems and embedded controls that do
not recognize such information could generate erroneous data or fail.
The Company will be dependent on RAVC to supply reservation,
accounting, member records, and other functions that are computerized. The
ability of RAVC to address the Year 2000 problem will have a direct impact on
the Company and its operations. In addition, there can be no assurance that the
systems and automated equipment of other companies upon which RAVC's systems
rely, or throughout the hospitality or travel industries in general, will also
be converted in a timely manner, and the resulting problems could have an
adverse effect on the Company's operations.
Future Transactions
Except as disclosed, no further related transactions are currently
contemplated. However, such transactions could arise in the future. The Company
will not enter into any transaction with a related person unless it has
determined that such transaction is on terms that are no less favorable to the
Company than those that might be obtained at the time of such transaction for an
unrelated person. The Company may not have the terms of any such transaction
independently reviewed.
DESCRIPTION OF SECURITIES
The Notes will be issued under an Indenture (the "Indenture"), between
the Company and First Trust of New York, N.A., trustee under the Indenture
("Trustee"). A form of the Indenture is being filed as an exhibit to the
Registration Statement of which this prospectus is a part. The Indenture is not
subject to and governed by the Trust Indenture Act of 1939, as amended. The
following summary of the material provisions of the Indenture does not purport
to be complete, and where reference is made to particular provisions of the
Indenture, such summary or terms, including definitions of certain terms, are
incorporated by reference as part of such summaries or terms, which are
qualified in their entirety by such reference.
General
The Notes will be unsecured subordinated obligations of the Company
limited to $9,200,000 principal amount, and will be junior in right of payment
to the Construction Loan and other Senior Indebtedness. The Notes will not be
guaranteed by RAVC. Principal of (and premium, if any) and interest on the Notes
will be payable, and the Notes will be exchangeable and transferable, at the
office or agency of the Company in the City of New York maintained for such
purposes (which initially is the corporate trust office of the Trustee in the
City of New York maintained at 100 Wall Street, New York, New York 10005);
provided, however, that payment of interest may be made at the option of the
Company by check mailed to the person entitled thereto as shown on the security
register. The Notes will be issued only in fully registered form without coupons
and in denominations of $1,000 or any integral multiple thereof. No service
charge will be made for any registration of transfer or exchange of Notes,
except for any tax or other governmental charge that may be imposed in
connection therewith.
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Interest on the Notes will accrue from the Issuance Date (defined
below) but will not be paid until the Construction Loan has been repaid. The
Company estimates, assuming construction begins as planned, the complete
offering is sold and 3,880 VOIs in the Resort are sold within the first three
years after the commencement of construction, that accrued interest will begin
to be paid on the Notes within three years after the commencement of
construction. There can be no assurance that interest payments will commence at
that time. In the event there are insufficient sales of VOIs, payment of
principal and interest on the Notes may be delayed or the Company may be unable
to repay the Notes.
All funds invested will be held in escrow until the complete amount of
$9,200,000 contemplated by this Offering is raised and the Construction Loan has
been obtained. Funds held in escrow will be invested in short-term,
investment-grade securities or money market accounts. In the event the Company
does not raise the complete Offering amount, all funds will be returned, with
interest accrued at a rate established by the escrow agent. The Notes will be
unsecured obligations of the Company.
Payment on the Notes
The Notes will become due and payable eight years from the date of
issuance (the "Issuance Date") of the Notes. The Issuance Date will be the date
on which the Company obtains a binding commitment for the Construction Loan and
the proceeds from the sale of the Notes are released from the escrow. The
Company presently anticipates that the Issuance Date will be no later than
October 31, 1998, unless the offering period is extended.
Interest at 13% per annum will be compounded semi-annually on the sixth
month after the Issuance Date and on the anniversary of the Issuance Date (a
"semi-annual interest payment date"). As set forth above, interest will not be
paid until the Construction Loan is paid. Interest at the prescribed rate shall
accrue from the Issuance Date. On the first semi-annual interest payment date
that occurs after repayment of the Construction Loan, and on each semi-annual
interest payment date thereafter, the Company will pay interest that has accrued
since the preceding semi-annual interest payment date. Such payments will be
made to holders of record at the close of business 15 days before such interest
payment date. Development Period Interest which accrues prior to repayment of
the Construction Loan will be paid on semi-annual interest payment dates as the
Company's cash flow permits. If it has not previously been paid, the Development
Period Interest will be paid on maturity or redemption of the Notes.
Optional Redemption
The Notes are subject to redemption at the option of the Company, in
whole or in part, at any time on or after the third anniversary of the Issuance
Date upon not less than 30 nor more than 60 days' notice to each holder of the
Notes, at the following redemption prices (expressed as percentages of the
principal amount) if redeemed during the 12-month period beginning on the
anniversary of the Issuance Date of the years indicated below, in each case
together with accrued interest thereon to the redemption date:
Year Percentage
- ---- ----------
Year 3.................................................... 103.00%
Year 4.................................................... 102.00
Year 5.................................................... 101.00
Year 6 and thereafter..................................... 100.00
Mandatory Redemption
The Indenture will require the Company to provide for the retirement,
by redemption of 25% of the principal amount of Notes originally issued, on the
sixth and seventh anniversary of the Issuance Date, at a redemption price of
100% of principal amount plus accrued interest to the redemption date. Such
redemptions are calculated to retire 50% of the issue prior to maturity. The
Company may, at its option, receive credit against sinking fund payments for the
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principal amount of Notes acquired by the Company and surrendered for
cancellation or redeemed otherwise than through operation of the sinking fund.
Subordination
The indebtedness represented by the Notes and the payment of the
principal of (and premium, if any) and interest on, and any other amounts
payable with respect to, such Notes are subordinated in right of payment to the
prior payment in full of the Construction Loan and any refinancing thereof and
any other Senior Indebtedness in cash or cash equivalents.
In the event of any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding in
connection therewith, relative to the Company, as such, or to its assets, or any
liquidation, dissolution or other winding up of the Company, whether voluntary
or involuntary and whether or not involving insolvency or bankruptcy, or any
assignment for the benefit of creditors or other marshalling of assets or
liabilities of the Company, the holders of the Construction Loan and Senior
Indebtedness will be entitled to receive payment in full of all amounts due on
or in respect of the Construction Loan and Senior Indebtedness in cash of cash
equivalents, or provision must be made for such payment in cash or cash
equivalents, before the holders of the Notes are entitled to receive any payment
or distribution of any assets of the Company of any kind or character on account
of principal of (or premium, if any) or interest on, or other amounts payable
with respect to, the Notes. In the event that, notwithstanding the foregoing,
the Company or any holder of such Notes receives any payment or distribution of
assets of the Company of any kind or character before the Construction Loan or
Senior Indebtedness is paid or provided for in full in cash or cash equivalents,
then such payment or distribution will be received and held in trust for the
holders of the Construction Loan or Senior Indebtedness and paid over or
delivered to the trustee, receiver, custodian, assignee, agent or other person
making payment or distribution of assets of the Company, in trust for the
holders of, and for application to the payment of, the Construction Loan and
Senior Indebtedness remaining unpaid, to the extent necessary to pay the
Construction Loan and Senior Indebtedness in full. By reason of such
subordination, in the event of liquidation or insolvency, creditors of the
Company who are holders of the Construction Loan and Senior Indebtedness may
recover more, ratably, than the holders of the Notes.
No payment or distribution of any assets of the Company of any kind or
character shall be made by the Company on account of the principal of (or
premium, if any) or interest on, or any other amounts payable with respect to,
the Notes, or on account of the purchase, redemption or other acquisition of the
Notes, upon the occurrence of an event of default on Senior Indebtedness and
receipt by the Company of written notice thereof, until such event of default
shall have been cured or waived.
"Senior Indebtedness" with respect to the Notes means the principal of,
premium, if any, and interest on, and any fees, costs, expenses, and any other
amounts (including indemnity payments) related to the following, whether
outstanding on the date of the Indenture or thereafter incurred or created: (i)
indebtedness, matured or unmatured, whether or not contingent, of the Company
for money borrowed evidenced by notes or other written obligations, including
the Construction Loan, (ii) any interest rate contract, interest rate swap
agreement, or other similar agreement or arrangement designed to protect the
Company or any of its subsidiaries against fluctuations in interest rates, (iii)
indebtedness, matured or unmatured, whether or not contingent, of the Company
evidenced by notes, debentures, bonds, or similar instruments or letters of
credit (or reimbursement agreements in respect thereof), (iv) obligations of the
Company as lessee under capitalized leases and under leases of property made as
part of any sale and leaseback transactions, (v) indebtedness of others of any
of the kinds described in the preceding clauses (i) through (iv) assumed or
guaranteed by the Company and (vi) renewals, extensions, modifications,
amendments, and refundings of, and indebtedness and obligations of a successor
person issued in exchange for or in replacement of, indebtedness obligations of
the kinds described in the preceding clauses (i) through (iv), unless the
agreement pursuant to which any such indebtedness described in clauses (ii)
through (vi) is created, issued, assumed or guaranteed expressly provides that
such indebtedness is not senior or superior in right of payment to the Notes;
provided, however, that the following shall not constitute Senior Indebtedness;
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(i) any indebtedness or obligation of the Company in respect of the Notes; (ii)
any indebtedness of the Company to any of its subsidiaries or other affiliates;
(iii) any indebtedness that is subordinated or junior in any respect to any
other indebtedness of the Company other than Senior Indebtedness; (iv) any
indebtedness incurred for the purchase of goods or materials in the ordinary
course of business; and (v) any liability for federal, state, local or other
taxes owed or owing by the Company.
In the event that the Trustee (or paying agent if other than the
Trustee) or any Noteholder receives any payment of principal, or interest with
respect to the Notes at a time when such payment is prohibited under the
Indenture, such payment shall be held in trust for the benefit of, and
immediately shall be paid over and delivered to, the holders of Senior
Indebtedness or their representative as their respective interests may appear.
After all Senior Indebtedness is paid in full and until the Notes are paid in
full, Holders shall be subrogated (equally and ratably with all other
Indebtedness pari passu with the Notes) to the rights of holders of Senior
Indebtedness to receive distributions applicable to Senior Indebtedness to the
extent that distributions otherwise payable to the Holders have been applied to
the payment of Senior Indebtedness.
Events of Default and Remedies
An "Event of Default," as defined in the Notes, is (i) the failure of
the Company to pay principal of or premium on the Notes when due; (ii) the
failure of the Company to pay interest on the Notes for a period of 30 days when
due; (iii) default by the Company for 90 days after notice in the observance or
performance of any other covenants in the Indenture; (iv) an event of default
occurs under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any indebtedness for money
borrowed by the Company or any of its subsidiaries (or the payment of which is
guaranteed by the Company or any of its subsidiaries), whether such indebtedness
or guarantee now exists or shall be created after the date hereof, which default
(a) is caused by a failure to pay principal or interest on such indebtedness
prior to the expiration of the grace period provided in such indebtedness (a
"Payment Default") or (b) results in the acceleration of such indebtedness prior
to its expressed maturity and, in each case, the principal amount of such
indebtedness, together with the principal amount of such indebtedness, together
with the principal amount of any other such indebtedness under which there has
been a Payment Default or the maturity of which has been so accelerated,
aggregates $1 million, or (v) certain events involving bankruptcy, insolvency,
or reorganization of the Company. The Indenture provides that the Trustee may
withhold notice to the holders of Notes of any default (except in payment of
principal, premium, if any, or interest with respect to the Notes) if the
Trustee, in good faith, considers it in the interest of the Noteholders of the
Notes to do so.
The Indenture provides that if an Event of Default (other than an Event
of Default with respect to certain events, including bankruptcy, insolvency, or
reorganization of the Company) shall have occurred and be continuing, the
Trustee or the holders of not less than 25% in principal amount of the Notes
then outstanding may declare the principal of and premium, if any, on the Notes
to be due and payable immediately, but if the Company shall pay or deposit with
the Trustee a sum sufficient to pay all matured installments of interest on all
Notes and the principal and premiums, if any, on all Notes that have become due
other than by acceleration and certain expenses and fees of the Trustee, and if
all defaults (except the nonpayment of interest on, premium, if any, and
principal of any Notes which shall have become due by acceleration) shall have
been cured or waived and certain other conditions are met, such declaration may
be canceled and past defaults may be waived by the holders of a majority in
principal amount of the Notes then outstanding.
The holders of a majority in principal amount of the Notes then
outstanding shall have the right to direct the time, method and place of
conducting any proceedings for any remedy available to the Trustee, subject to
certain limitations specified in the Indenture. The Indenture provides that,
subject to the duty of the Trustee following an Event of Default to act with the
required standard of care, the Trustee will not be under an obligation to
exercise any of its rights or powers under the Indenture at the request or
direction of any of the holders, unless the Trustee receives satisfactory
indemnity against any associated costs, liability, or expense.
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Certain Covenants
The Indenture contains, among others, the following covenants:
Restricted Payments. The Company will not, directly or indirectly, as
long as any Notes are outstanding, (i) declare or pay any dividends or make any
distributions (other than dividends or distributions payable solely in shares of
common stock of the Company) on or in respect of any shares of common stock of
the Company or (ii) purchase, redeem or otherwise acquire or retire for value
(other than solely with shares of common stock of the Company) any of the common
stock of the Company or warrants, rights or options to acquire common stock of
the Stock.
Limitation on Additional Senior Indebtedness. The Company will not,
directly or indirectly, create, incur, issue, assume, guarantee, suffer to exist
or otherwise become directly or indirectly liable with respect to any Senior
Indebtedness (collectively, an "incurrence"), other than the following:
(i) Senior Indebtedness incurred pursuant to the
Construction Loan;
(ii) Senior Indebtedness of the Company not to exceed an
amount equal to 20% of the principal amount of indebtedness evidenced
by the Notes issued under the Indenture; and
(iii) Senior Indebtedness issued in exchange for, or the
proceeds of which are used to repay or refund or refinance or discharge
or otherwise retire for value, Senior Indebtedness of the Company
permitted under this provision ("Refinancing Indebtedness") in a
principal amount not to exceed the principal amount of the Senior
Indebtedness so refinanced, plus customary fees, expenses and costs
related to the incurrence of such Refinancing Indebtedness.
Successor Corporation
The Notes provide that the Company may not consolidate or merge with or
into or transfer all or substantially all of its assets to any other person
unless the corporation or entity formed by or surviving such consolidation or
merger (if other than the Company), or to which such sale or conveyance shall
have been made, expressly assumes all the obligations of the Notes and
immediately after giving effect to such transaction no Event of Default shall
occur or be continuing.
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of Notes,
as expressly provided for in the Indenture) as to all outstanding Notes issued
under the Indenture when either (i) all such Notes theretofore authenticated and
delivered (except lost, stolen or destroyed Notes which have been replaced or
paid) have been delivered to the Trustee for cancellation and the Company has
paid all sums payable by it under the Indenture or (ii) all such Notes not
theretofore delivered to the Trustee for cancellation have become due and
payable, or will become due and payable or are to be called for redemption
within one year, the Company has irrevocably deposited or caused to be deposited
with the Trustee money or U.S. government obligations, or a combination thereof,
in such amounts as will be sufficient to pay the entire indebtedness on such
Notes and the Company has paid all sums payable by it under the Indenture. In
addition, the Company must deliver an opinion of counsel stating that all
conditions precedent to satisfaction and discharge have been complied.
Modification and Waiver
Modifications and amendments of the Indenture may be made by the
Company and the Trustee with the consent of the holders of not less than a
majority in aggregate principal amount of the outstanding Notes issued under the
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Indenture; provided, however, that no such modification or amendment may,
without the consent of the holder of each outstanding Note affected thereby, (i)
change the stated maturity of the principal of, or any installment of interest
on, any Note, (ii) reduce the principal amount of, or the premium or interest
on, the Notes (iii) change the coin or currency in which any Notes or any
premium or the interest thereon is payable, (iv) impair the right to institute
suit for the enforcement of any payment on or with respect to the Notes, (v)
reduce the percentage in principal amount of outstanding Notes necessary to
waive compliance with certain provisions of the Indenture or to waive certain
defaults, (vi) modify any of the provisions relating to supplemental indentures
requiring the consent of holders or relating to the waiver of past defaults,
except to increase the percentage of outstanding Notes required for such actions
or to provide that certain other provisions of the Indenture cannot be modified
or waived without the consent of the holder of each Note affected thereby, or
(vii) modify any of the provisions of the Indenture relating to the
subordination of the Notes in a manner adverse to the holders.
The Company and the Trustee may amend or supplement the Indenture
without notice to or consent of any Noteholder, in certain events, such as to
correct or supplement any inconsistent or deficient provision in the Indenture,
to comply with the provisions of the Trust Indenture Act of 1939 if the
Indenture becomes qualified under such Act, or to appoint a successor Trustee.
Trustee and Escrow Agent
First Trust of New York, N.A. of New York, New York, will serve as
Trustee under the Indenture and U.S. Bank Trust National Association, formerly
First Trust of California, N.A., will act as Escrow Agent for the funds.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of certain federal income tax
consequences applicable to purchasers of Notes in the offering. The tax
consequences to certain purchasers, such as dealers in securities, foreign
persons, mutual funds, insurance companies and tax-exempt entities, that are
subject to special treatment under the Internal Revenue Code of 1986, as amended
(the "Code") or under the laws of other jurisdictions may differ materially from
those outlined below. The following discussion is also not intended to describe
the tax consequences to persons subject to alternative minimum tax or to persons
acquiring the Notes subsequent to the Offering, which are affected by other
statutory provisions. All prospective investors are accordingly urged to consult
their own tax advisors as to the specific consequences to them of acquisition of
the Notes, including the applicability and effect of federal, state, local,
foreign and other tax laws.
For federal income tax purposes, all holders of the Notes will be
required to include accrued interest in their taxable income under the "original
issue discount" ("OID") rules of the Code, regardless of whether such interest
has been paid or whether such holders generally employ a cash or accrual method
of accounting. The amount of any OID included in income for each year would be
calculated under a constant yield to maturity formula that would result in the
allocation of less taxable income to the early years of the term of the Notes
and more taxable income to the later years. Holders will increase their tax
basis for the Notes by the amount of accrued OID and decrease such tax basis by
the amount of principal and interest actually paid.
Upon a sale or exchange of the Notes, holders will recognize gain or
loss measured by the difference between the amount realized from the sale or
exchange and their adjusted tax basis for the Notes at the time of such
transaction. Provided that the Notes are held as capital assets as of the date
of their disposition, any gain or loss recognized by a holder will be capital
gain or loss and will be long-term capital gain or loss if the Notes have been
held for more than one year. A long-term capital gain will be taxable at maximum
rate of 20% if the Notes have been held for more than 18 months and otherwise
will be taxable at a maximum rate of 28%. A short-term capital gain is taxable
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at the same rates applicable to ordinary income. A short-term or long-term
capital loss is only allowable as a current deduction to the extent of capital
gains plus, in the case only of a non-corporate taxpayer, $3,000 of ordinary
income ($1,500 in the case of a married individual filing a separate return).
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT VIOLATIONS
Under Section 78.751 of the Nevada Revised Statutes and the Company's
Articles of Incorporation and Bylaws, the Company's directors and officers may
be indemnified against certain liabilities which they may incur in their
capacities as such.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Company pursuant to the foregoing provisions or otherwise, it is the position of
the Commission that such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
TRANSFER RESTRICTIONS FOR TEXAS RESIDENTS
The Securities Commissioner of Texas has required, as a condition of
registration of the Notes with the Securities Commissioner for sale to Texas
residents, that the Company and the investors who are Texas residents agree that
the Notes will not be sold or transferred (i) except by gift, devise, or
descent, or (ii) unless sold or transferred in reliance upon an exemption from
the registration provisions of the Texas Securities Act, Tex. Rev. Civ. Stat.
Ann. article 581 (the "Texas Act"), provided in Sections 5.A., 5.B., or 5.H. of
the Texas Act, or (iii) to transferees who meet the suitability standards
contained in subparagraphs d. and e. below. The Company will refuse to transfer
the Notes purchased pursuant to this Agreement unless the proposed transferee
furnished proof of compliance with the terms of this Agreement, including, at
the request of the Company, an opinion of counsel acceptable to the Company that
such proposed transfer complies with the terms of this Agreement.
a. Section 5.A. of the Texas Act provides an exemption from the
registration provisions of the Texas Act for a sale or transfer at any
judicial, executor's, administrator's, guardian's, or conservator's
sale, or any sale by a receiver or trustee in insolvency or bankruptcy.
b. Section 5.B. of the Texas Act provides an exemption from the
registration provisions of the Texas Act for a sale by or for the
account of a pledge holder or mortgagee, selling or offering for sale
or delivery in the ordinary course of business to liquidate a bona fide
debt, of a security pledged in good faith as security for such debt.
c. Section 5.H. of the Texas Act and Texas Securities Board Rule 109.3
provide an exemption for sales to any bank, trust company, building and
loan association, insurance company, savings institution, investment
company as defined in the Investment Company Act of 1940, small
business investment company as defined in the Small Business Investment
Company Act of 1958, or to any registered securities dealer actually
engaged in buying and selling securities.
d. Investors who are residents of the State of Texas and who are
members of Royal Aloha Vacation Club must meet the following investor
suitability standards to be eligible to purchase the Notes pursuant to
35
<PAGE>
the offer made by the Prospectus. Specifically, the investor must come
within one of the following categories: (i) any person who has $75,000
in gross income during the prior year and a reasonable expectation such
person will have such income in the current year; or (ii) any person
who has $50,000 in gross income during the prior year and a reasonable
expectation of such income in the current year, and a net worth of
$150,000 (exclusive of home, home furnishings and personal
automobiles), with the investment not exceeding 10% of such person's
net worth; or (iii) any person who has a net worth of $250,000
(exclusive of home, home furnishings and personal automobiles), with
the investment not exceeding 10% of such person's net worth.
e. Investors who are residents of the State of Texas and who are not
members of Royal Aloha Vacation Club must be an "Accredited Investor"
within the meaning of Regulation D under the Securities Act of 1933 to
be eligible to purchase the Notes offered in this Offering.
PLAN OF DISTRIBUTION
The Notes offered hereby are being offered to the public by the Company
on a "best efforts" basis. There can be no assurance that any of the Notes will
be sold. Unless $9,200,000 principal amount of Notes are sold within 90 days of
the date hereof, or such later date as shall be determined by the Board of
Directors (but not to exceed two extension periods of 90 days each), all
proceeds received will be returned to the investor, with interest accrued at the
rate established by the escrow agent, and no sale of Notes will be made. All
payments will be mailed within three business days following receipt to an
escrow account maintained by U.S. Bank Trust National Association (formerly
First Trust of California N.A.), as escrow agent, and held pending the sale of
such minimum principal amount of Notes within the specified period and
satisfaction of other closing conditions. Such payments will only be withdrawn
from the escrow account for the purpose of (i) paying the Company for the Notes
hereunder if the full $9,200,000 principal amount of Notes are sold within the
Offering period, as extended, and the Construction Loan is received within 120
days following the end of the Offering period, or (ii) returning payments to
purchasers. If the Offering amount is sold within the Offering period and the
other closing conditions are satisfied, subscribers will receive, in addition to
their Notes, the interest earned on their deposit in the escrow account if such
interest is more than $5.00 per subscriber.
U.S. Bank Trust National Association (formerly First Trust of
California), is acting only as an escrow agent in connection with the offering
of the Notes described herein, and has not endorsed; recommended or guaranteed
the purchase, value or repayment of such Notes.
Initially, the Company plans to employ brokers, dealers, placement
agents, or finders in connection with the Offering only in the states of Arizona
and Texas, due to state statutory restrictions. The Company has contracted with
First Financial Equity Corporation ("First Financial") to act as its agent in
offering the Notes in Arizona and Texas. First Financial will receive a
commission or fees of up to 6% of the amount sold by First Financial. In states
other than Arizona and Texas, certain employees of the Company or RAVC may
solicit responses to the Offering, but such employees will not receive any
commissions or compensation for such services other than their normal employment
compensation. However, the Company may offer the Notes in other states through
brokers or dealers who may receive a commission or fees of up to 6% of the
amount sold by such person. No such fees shall be paid in states that prohibit
such fees.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the
Company by Ballard Spahr Andrews & Ingersoll, LLP, Salt Lake City, Utah.
36
<PAGE>
EXPERTS
The financial statements of Royal Aloha Development Company at November
30, 1997, and February 28, 1998, and from inception of the Company, February 27,
1997, to November 30, 1997, and for the three months ended February 28, 1998,
appearing in this prospectus and Registration Statement, have been audited by
Ernst & Young LLP, independent auditors, and the information under caption
"Selected Financial Data" at November 30, 1997, and February 28, 1998, and from
inception of the Company, February 27, 1997, to November 30, 1997, and for the
three months ended February 28, 1998, appearing in this Prospectus and
Registration Statement, have been derived from financial statements audited by
Ernst & Young LLP, as set forth in their report appearing elsewhere herein. Such
financial statements and selected financial data are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The references to Donald R. Beach, Appraiser-Consultant, and the
appraisal given by him in the Prospectus and the appraisal made by him and filed
as an exhibit to the Registration Statement have been included in reliance upon
his authority as an expert with respect to the matters contained therein. In the
opinion of Donald R. Beach, the appraisal was prepared in accordance with the
standards and reporting requirements of the Uniform Standards of Professional
Appraisal Practice as outlined in Chapter 645C of the Nevada Administrative
Code.
37
<PAGE>
Financial Statements
Royal Aloha Development Company
For the three months ended February 28, 1998 and from
inception, February 27,1997 to November 30, 1997
with Report of Independent Auditors
<PAGE>
Royal Aloha Development Company
Financial Statements
For the three months ended February 28, 1998 and from inception
February 27, 1997 to November 30, 1997
Contents
Report of Independent Auditors ..................................... F-3
Balance Sheets ..................................................... F-4
Statements of Operations and Accumulated Deficit ................... F-5
Statements of Cash Flows ........................................... F-6
Notes to Financial Statements ...................................... F-7
<PAGE>
[LETTERHEAD]
ERNST & YOUNG LLP 2400 Pauahi Tower Phone: 808 531 2037
1001 Bishop Street
Honolulu, Hawaii 96813-3429
Report of Independent Auditors
Board of Directors
Royal Aloha Development Company
We have audited the accompanying balance sheets of Royal Aloha Development
Company as of February 28, 1998 and November 30, 1997, and the related
statements of operations and accumulated deficit, and cash flows for the three
months ended February 28, 1998 and from inception, February 27, 1997 to November
30, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
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 financial statements referred to above present fairly, in
all material respects, the financial position of Royal Aloha Development Company
at February 28, 1998 and November 30, 1997, and the results of its operations
and its cash flows for the three months ended February 28, 1998 and from
inception, February 27, 1997, to November 30, 1997, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
April 6, 1998
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
F-3
<PAGE>
<TABLE>
<CAPTION>
Royal Aloha Development Company
Balance Sheets
February 28, 1998 and November 30, 1997
February 28, November 30,
1998 1997
--------------------------------------
Assets
Current assets:
<S> <C> <C>
Cash $ 35,613 $ 28,500
--------------------------------------
Total current assets 35,613 28,500
Property and equipment:
Land $ 304,762 $ 304,762
Improvements and fixtures 965,459 965,459
Project development costs (Note 3 and 6) 106,385 106,395
--------------------------------------
1,376,606 1,376,606
Less accumulated depreciation 586,427 578,635
--------------------------------------
790,179 797,971
Deferred financing costs (Note 4) 282,756 271,221
--------------------------------------
Total assets $ 1,108,548 $ 1,097,692
======================================
Liabilities and shareholder's equity Current liabilities:
Accounts payable $ 57,981 $ 84,087
--------------------------------------
Total current liabilities 57,981 84,087
Shareholder's equity (Note 6):
Common stock, non-par value; authorized 2,500
shares, issued and outstanding 1 share 1 1
Additional paid-in capital 1,148,474 1,093,484
Accumulated deficit (97,908) (79,880)
--------------------------------------
Total shareholder's equity 1,050,567 1,013,605
--------------------------------------
Total liabilities and shareholder's equity $ 1,108,548 $ 1,097,692
======================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
<TABLE>
<CAPTION>
Royal Aloha Development Company
Statements of Operations and Accumulated Deficit
From inception,
For the three February 27,
months ended 1997 to
February 28, November 30,
1998 1997
--------------------------------------
<S> <C> <C>
Rental income (Note 2) $ 35,300 $ 56,392
Expenses
Maintenance and operating expenses (Note 2) 35,300 56,392
Depreciation 7,792 13,593
Salaries and wages 4,540 13,612
Directors fees and expenses 3,000 24,154
Legal fees and expenses 1,525 11,022
Other 721 730
Supplies 450 8,645
Travel - 4,472
Postage and freight - 3,652
--------------------------------------
53,328 136,272
--------------------------------------
Net loss before income taxes (18,028) (79,880)
Income taxes - -
--------------------------------------
Net loss (18,028) (79,880)
Accumulated deficit, beginning (79,880) -
--------------------------------------
Accumulated deficit, ending $ (97,908) $ (79,880)
======================================
</TABLE>
See accompanying notes
F-5
<PAGE>
<TABLE>
<CAPTION>
Royal Aloha Development Company
Statements of Cash Flows
From inception,
For the three February 27,
months ended 1997 to
February 28, November 30,
1998 1997
--------------------------------------
Operating activities
<S> <C> <C>
Net loss $ (18,028) $ (79,880)
Adjustments to reconcile excess of expenses over income to net cash provided by
operating activities:
Depreciation 7,792 13,593
Expenses paid by parent 4,990 61,035
Deferred financing costs (11,535) (242,835)
Accounts payable (26,106) 84,087
--------------------------------------
Net cash provided by operating activities (42,887) (164,000)
Financing activities
Sale of common stock - 1
Additional cash contribution by shareholder 50,000 192,499
--------------------------------------
Net cash provided by investing activities 50,000 192,500
Increase in cash 7,113 28,500
Cash at beginning of period 28,500 -
--------------------------------------
Cash at ending of period $ 35,613 $ 28,500
======================================
Supplemental disclosure of non-cash activity
Capital contribution - property and equipment $ - $ 811,564
Capital contribution - project costs - 106,385
Capital contribution - deferred financing costs - 28,386
Capital contribution - general and administrative
expenses 4,990 61,035
</TABLE>
See accompanying notes.
F-6
<PAGE>
Royal Aloha Development Company
Notes to Financial Statements
February 28, 1998
1. Formation and Purpose of the Company
Royal Aloha Development Company (the Company), is a wholly-owned subsidiary of
Royal Aloha Vacation Club (RAVC). It was incorporated, in Nevada, on February
27, 1997 and commenced operations on June 24, 1997 upon the transfer of cash and
land and improvements in Las Vegas, Nevada comprising a 20 unit timeshare
resort. Such assets are recorded at RAVC's historical cost basis on the date of
the transfer.
The Company intends to construct a new timeshare resort of up to 119 Units on
the property resulting in the creation of 6,069 vacation ownership interests
(VOI). Currently, it is the intent of the Company to retain up to 1,020 VOIs for
use by RAVC members who have been previously informed by RAVC to this effect.
However, the ultimate number of VOIs retained will depend on the success of the
project, market conditions at the time of completion of the project, and other
factors.
2. Operations
The Company's existing timeshare units are leased to RAVC for an amount equal to
the cost of operating and maintaining them. Thus, the Company will not realize
any cash flow from the operations thereof Administrative expenses incurred by
RAVC on behalf of the Company have been to allocated the Company.
3. Accounting Policies
Property and Equipment
Property and equipment are recorded at the historical cost incurred by RAVC.
Depreciation is recorded for the improvements and fixtures using the
straight-line method over the estimated useful lives of 30 to 40 years.
The carrying value of improvements and fixtures at the time the existing
property is razed and construction of the new resort commences will be written
off; the cost of the land will be assigned to the new resort.
F-7
<PAGE>
Royal Aloha Development Company
Notes to Financial Statements (continued)
3. Accounting Policies (continued)
Construction Costs of New Resort
All costs incurred in connection with planning, design, and construction of the
planned resort are capitalized as project development costs.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Income Taxes
The Company is included in the consolidated federal income tax return of RAVC.
Federal income taxes are allocated to the Company on a separate company basis
pursuant to an intercompany federal income tax sharing agreement At February 28,
1998, the Company has a net operating loss carryforward of approximately $97,000
for income tax purposes that will expire in 2012. For financial reporting
purposes, a deferred tax asset of approximately $18,000 has been fully offset by
a valuation allowance because of the uncertainty of its realization.
4. Deferred Financing Costs
Costs incurred through February 28, 1998 consist principally of legal fees
related to the Company's planned public offering of subordinated notes. Such
costs, together with all other costs incurred in connection with registering and
selling the notes will be deferred and amortized over the life of the notes
using the interest method.
5. Related Party Transactions
As sole shareholder, RAVC controls the Company and provides administrative and
operating support to it. Two of the three directors of the Company are also
directors of RAVC, and the other one is an officer of RAVC. The officers; of the
Company are also officers of RAVC.
F-8
<PAGE>
Royal Aloha Development Company
Notes to Financial Statements (continued)
5. Related Party Transactions (continued)
As discussed in Note 6, RAVC incurred and paid $195,806 in costs and expenses on
behalf of the Company through November 30, 1997. An additional $4,990 was
incurred and paid during the three months ended February 28, 1998.
6. Changes in Shareholder's Equity
On June 24, 1997 the Company issued one share of its non-par common stock to
RAVC in exchange for cash, property and equipment with a carrying value of
$897,679. $1 was recorded as common stock and $897,678 was recorded as
additional paid-in capital. RAVC subsequently contributed an additional $200,796
to paid-in capital of the Company, which consists of costs to organize the
Company and for preliminary planning and design of the new resort, allocated
officers expenses and deferred financing costs. In January 1998, RADC received a
$50,000 cash contribution from RAVC which was recorded as additional paid in
capital.
F-9
<PAGE>
ROYAL ALOHA DEVELOPMENT COMPANY
13% EIGHT YEAR DEFERRED INTEREST SUBORDINATED NOTES
SUBSCRIPTION AGREEMENT
1. The undersigned hereby tenders this Subscription Agreement
("Subscription") to Royal Aloha Development Company, a Nevada corporation (the
"Company"), to purchase the Company's 13% Eight Year Deferred Interest
Subordinated Notes (the "Notes") in the principal amount indicated on the
signature page hereof. The undersigned acknowledges that this Subscription shall
not become effective until it has been properly executed by the undersigned and
accepted by the Company. The Company may reject Subscriptions, in whole or in
part, for any reason.
2. The undersigned acknowledges receipt of a Prospectus dated
_____________, 1998, (the "Prospectus"), describing the Company and the terms of
the Company's offer to sell the Notes. The Notes are unsecured, subordinated
obligations of the Company, no payments will be made on the Notes until the
Company has fully paid the Construction Loan, and there is no guaranty that the
Company will be able to pay the Notes when due.
3. There are various substantial risks attendant to the Company's
business and an investment in the Notes, including the loss of the entire amount
of such investment.
4. No market is expected to develop in the Notes. Therefore, the
undersigned does not expect to be able to transfer his Notes.
5. The undersigned is not entitled to cancel, terminate, or revoke this
Subscription or any agreements of the undersigned hereunder, and such
Subscription shall survive the death or disability of the undersigned. As
described in the Prospectus, the original ninety (90) day Offering period may be
extended for up to two additional ninety (90) day periods, and subscription
funds may remain in escrow for up to one hundred twenty (120) days following the
Offering period while the Construction Loan is being obtained.
6. If this Subscription is executed and delivered on behalf of a
partnership, corporation, trust or estate, or retirement plan: (i) such
partnership, corporation, trust or estate or retirement plan has been duly
authorized and is duly qualified (a) to execute and deliver this Subscription
and all other instruments executed and delivered on behalf of such partnership,
corporation, trust or estate or retirement plan in connection with the purchase
of the Notes, and (b) to purchase and hold such Note; and (ii) the signature of
the party signing on behalf of such partnership, corporation, trust or estate or
retirement plan is binding upon such partnership, corporation, trust or estate
or retirement plan.
7. If the undersigned is a resident of the State of Arizona and is a
member of Royal Aloha Vacation Club, the undersigned must meet the following
investor suitability standards to be eligible to purchase the Notes pursuant to
the offer made by the Prospectus. Specifically, the undersigned must come within
one of the following categories: (i) any person who has $75,000 in gross income
during the prior year and a reasonable expectation that such person will have
such income in the current year; or (ii) any person who has $50,000 in gross
income during the prior year and a reasonable expectation that such person will
have such income in the current year, and a net worth of $150,000 (exclusive of
home, home furnishings and personal automobiles), with the investment not
exceeding 20% of the net worth of such person; or (iii) any person who has a net
worth of $250,000 (exclusive of home, home furnishings and personal
automobiles), with the investment not exceeding 10% of the net worth of such
person.
If the undersigned is a resident of the State of Arizona and is not a
member of Royal Aloha Vacation Club, the undersigned must meet certain
requirements to be eligible to purchase the Notes offered in this Offering.
Specifically, the undersigned must come within one of the following categories:
(i) any person who has $100,000 in gross income during the prior year and a
reasonable expectation that such person will have such income in the current
year; or (ii) any person who has $50,000 in gross income during the prior year
<PAGE>
and a reasonable expectation that such person will have such income in the
current year, and a net worth of $250,000 (exclusive of home, home furnishings
and personal automobiles), with the investment not exceeding 15% of the net
worth of such person; or (iii) any person who has a net worth of $350,000
exclusive of home, home furnishings and personal automobiles), with the
investment not exceeding 7.5% of the net worth of such person.
By signing below, the undersigned, if a resident of the State of
Arizona, is representing and warranting to the Company that he or she meets all
of the investor suitability standards outlined in this paragraph.
8. If the undersigned is a resident of the State of California, the
undersigned must meet the following investor suitability standards to be
eligible to purchase the Notes pursuant to the offer made by the Prospectus.
Specifically, the undersigned must come within one of the following categories:
(i) "Accredited Investors" within the meaning of Regulation D under the
Securities Act of 1993; or (ii) banks, savings and loan associations, trust
companies, investment companies, pension and profit-sharing trusts, corporations
or other entities which, together with the corporation's or other entity's
affiliates, have a net worth on a consolidated basis according to their most
recent regularly prepared financial statements (which shall have been reviewed,
but not necessarily audited, by outside accountants) of not less than
$14,000,000 and subsidiaries of the foregoing; or (iii) any persons (other than
a person formed for the sole purpose of purchasing the Notes being offered
hereby) who purchases at least a $1,000,000 aggregate amount of the Notes
offered hereby; or (iv) any person who (A) has an income of $50,000 and a net
worth of $75,000, or (B) has a net worth of $150,000 (in each case, excluding
home, home furnishings and personal automobiles).
By signing below, the undersigned, if a resident of the State of
California, is representing and warranting to the Company that he or she meets
all of the investor suitability standards outlined in this paragraph.
9. If the undersigned is a resident of the State of Massachusetts and
is a member of Royal Aloha Vacation Club, the undersigned must meet the
following investor suitability standards to be eligible to purchase the Notes
pursuant to the offer made by the Prospectus. Specifically, the undersigned must
come within one of the following categories: (i) any person who has $75,000 in
gross income during the prior year and a reasonable expectation such person will
have such income in the current year, with the investment not exceeding 10% of
such person's annual gross income; (ii) any person who has $50,000 in gross
income during the prior year and a reasonable expectation of such income in the
current year, and a net worth of $150,000 (exclusive of home, home furnishings
and personal automobiles), with the investment not exceeding 10% of such
person's net worth; or (iii) any person who has a net worth of $250,000
(exclusive of home, home furnishings and personal automobiles), with the
investment not exceeding 10% of such person's net worth.
If the undersigned is a resident of the State of Massachusetts and is
not a member of Royal Aloha Vacation Club, the undersigned must be an
"Accredited Investor" within the meaning of Regulation D under the Securities
Act of 1933 to be eligible to purchase the Notes offered in this Offering.
By signing below, the undersigned, if a resident of the State of
Massachusetts, is representing and warranting to the Company that he or she
meets all of the investor suitability standards outlined in this paragraph.
10. If the undersigned is a resident of the State of Oregon and is a
member of Royal Aloha Vacation Club, the undersigned must meet the following
investor suitability standards to be eligible to purchase the Notes pursuant to
the offer made by the Prospectus. Specifically, the undersigned must come within
one of the following categories: (i) any person who has $75,000 in gross income
during the prior year and a reasonable expectation such person will have such
income in the current year; or (ii) any person who has $50,000 in gross income
during the prior year and a reasonable expectation of such income in the current
year, and a net worth of $150,000 (exclusive of home, home furnishings and
personal automobiles), with the investment not exceeding 10% of such person's
net worth; or (iii) any person who has a net worth of $250,000 (exclusive of
home, home furnishings and personal automobiles), with the investment not
exceeding 10% of such person's net worth.
If the undersigned is a resident of the State of Oregon and is not a
member of Royal Aloha Vacation Club, the undersigned must be an "Accredited
Investor" within the meaning of Regulation D under the Securities Act of 1933 to
be eligible to purchase the Notes offered in this Offering.
S-2
<PAGE>
By signing below, the undersigned, if a resident of the State of
Oregon, is representing and warranting to the Company that he or she meets all
of the investor suitability standards outlined in this paragraph.
11. If the undersigned is a resident of the State of Pennsylvania and
is a member of Royal Aloha Vacation Club, the undersigned must meet the
following investor suitability standards to be eligible to purchase the Notes
pursuant to the offer made by the Prospectus. Specifically, the undersigned must
come within one of the following categories: (i) any person who has $75,000 in
gross income during the prior year and a reasonable expectation such person will
have such income in the current year, with the investment not exceeding 10% of
such person's annual gross income; (ii) any person who has $50,000 in gross
income during the prior year and a reasonable expectation of such income in the
current year, and a net worth of $150,000 (exclusive of home, home furnishings
and personal automobiles), with the investment not exceeding 10% of such
person's net worth; or (iii) any person who has a net worth of $250,000
(exclusive of home, home furnishings and personal automobiles), with the
investment not exceeding 10% of such person's net worth.
If the undersigned is a resident of the State of Pennsylvania and is
not a member of Royal Aloha Vacation Club, the undersigned must be an
"Accredited Investor" within the meaning of Regulation D under the Securities
Act of 1933 to be eligible to purchase the Notes offered in this Offering.
By signing below, the undersigned, if a resident of the State of
Pennsylvania, is representing and warranting to the Company that he or she meets
all of the investor suitability standards outlined in this paragraph.
12. FOR TEXAS RESIDENTS ONLY: The Securities Commissioner of Texas has
required, as a condition of registration of the Notes with the Securities
Commissioner for sale to Texas residents, that the Company and the undersigned
Texas resident(s) agree that the Notes will not be sold or transferred (i)
except by gift, devise, or descent, or (ii) unless sold or transferred in
reliance upon an exemption from the registration provisions of the Texas
Securities Act, Tex. Rev. Civ. Stat. Ann. article 581 (the "Texas Act"),
provided in Sections 5.A., 5.B., or 5.H. of the Texas Act, or (iii) to
transferees who meet the suitability standards contained in subparagraphs d. and
e. below. The Company will refuse to transfer the Notes purchased pursuant to
this Agreement unless the proposed transferee furnished proof of compliance with
the terms of this Agreement, including, at the request of the Company, an
opinion of counsel acceptable to the Company that such proposed transfer
complies with the terms of this Agreement.
a. Section 5.A. of the Texas Act provides an exemption from the
registration provisions of the Texas Act for a sale or transfer at any
judicial, executor's, administrator's, guardian's, or conservator's
sale, or any sale by a receiver or trustee in insolvency or bankruptcy.
b. Section 5.B. of the Texas Act provides an exemption from the
registration provisions of the Texas Act for a sale by or for the
account of a pledge holder or mortgagee, selling or offering for sale
or delivery in the ordinary course of business to liquidate a bona fide
debt, of a security pledged in good faith as security for such debt.
c. Section 5.H. of the Texas Act and Texas Securities Board Rule 109.3
provide an exemption for sales to any bank, trust company, building and
loan association, insurance company, savings institution, investment
company as defined in the Investment Company Act of 1940, small
business investment company as defined in the Small Business Investment
Company Act of 1958, or to any registered securities dealer actually
engaged in buying and selling securities.
d. If the undersigned is a resident of the State of Texas and is a
member of Royal Aloha Vacation Club, the undersigned must meet the
following investor suitability standards to be eligible to purchase the
Notes pursuant to the offer made by the Prospectus. Specifically, the
undersigned must come within one of the following categories: (i) any
person who has $75,000 in gross income during the prior year and a
reasonable expectation such person will have such income in the current
year; or (ii) any person who has $50,000 in gross income during the
prior year and a reasonable expectation of such income in the current
year, and a net worth of $150,000 (exclusive of home, home furnishings
S-3
<PAGE>
and personal automobiles), with the investment not exceeding 10% of
such person's net worth; or (iii) any person who has a net worth of
$250,000 (exclusive of home, home furnishings and personal
automobiles), with the investment not exceeding 10% of such person's
net worth.
e. If the undersigned is a resident of the State of Texas and is not a
member of Royal Aloha Vacation Club, the undersigned must be an
"Accredited Investor" within the meaning of Regulation D under the
Securities Act of 1933 to be eligible to purchase the Notes offered in
this Offering.
By signing below, the undersigned, if a resident of the State of Texas,
is representing and warranting to the Company that he or she meets all of the
investor suitability standards outlined in this paragraph.
13. If the undersigned is a resident of the State of Washington and is
a member of Royal Aloha Vacation Club, the undersigned must meet the following
investor suitability standards to be eligible to purchase the Notes pursuant to
the offer made by the Prospectus. Specifically, the undersigned must come within
one of the following categories: (i) any person who has $75,000 in gross income
during the prior year and a reasonable expectation such person will have such
income in the current year; or (ii) any person who has $50,000 in gross income
during the prior year and a reasonable expectation of such income in the current
year, and a net worth of $150,000 (exclusive of home, home furnishings and
personal automobiles), with the investment not exceeding 10% of such person's
net worth; or (iii) any person who has a net worth of $250,000 (exclusive of
home, home furnishings and personal automobiles), with the investment not
exceeding 10% of such person's net worth.
If the undersigned is a resident of the State of Washington and is not
a member of Royal Aloha Vacation Club, the undersigned must be an "Accredited
Investor" within the meaning of Regulation D under the Securities Act of 1933 to
be eligible to purchase the Notes offered in this Offering.
By signing below, the undersigned, if a resident of the State of
Washington, is representing and warranting to the Company that he or she meets
all of the investor suitability standards outlined in this paragraph.
14. The undersigned acknowledges that U.S. Bank Trust National
Association (formerly First Trust of California) is acting only as an escrow
agent in connection with the offering of the Notes described herein, and has not
endorsed, recommended or guaranteed the purchase, value or repayment of such
Notes.
15. The undersigned has completed and signed the attached Substitute
Form W-9 or a Form W-8, as applicable.
Principal amount of Notes subscribed for: $________________.
(minimum $1,000)
DATED this ___ day of __________, 199__.
------------------------------------------------
(Signature)
------------------------------------------------
(Name - Please Print)
------------------------------------------------
(Signature of Spouse if Natural Persons Purchasing
Jointly or if Community Property State)
------------------------------------------------
(Name of Spouse if Natural Persons Purchasing
Jointly or if Community Property State)
S-4
<PAGE>
------------------------------------------------
(Primary Place of Residence)
------------------------------------------------
(City, State and ZIP Code)
------------------------------------------------
(Telephone Number - Business)
------------------------------------------------
(Social Security or Taxpayer I.D. No.)
ACCEPTED this ___ day of __________, 199___.
ROYAL ALOHA DEVELOPMENT COMPANY
By: __________________________________________
Print Name:
Title:
S-5
<PAGE>
INSTRUCTIONS
The instructions below should be followed in purchasing the Notes
described in the Subscription Agreement.
1. Your Subscription Agreement, your completed Substitute Form W-9, and
a check for the principal amount of Note purchased, in a minimum amount of
$1,000, made payable to U.S. Bank Trust National Association as Escrow Agent for
Royal Aloha Development Company (collectively, the "Subscription Documents"),
must be properly filled in, signed, dated, and sent or delivered to the Company
at the address shown in the Prospectus. If you are not a United States citizen
or resident, you should file a Form W-8 instead of a Substitute Form W-9. Please
contact the Company for a copy of Form W-8.
2. Substitute Form W-9. Under the Federal Income Tax Law, a non-exempt
Subscriber is required to provide the Company with a correct Taxpayer
Identification Number ("TIN") on the Substitute Form W-9, which is provided
under "Important Tax Information" below. Failure to provide the information on
the Substitute Form W-9 may subject the Subscriber to 31% Federal income tax
backup withholding on the payment of any interest on the Notes. The box in Part
2 of Substitute Form W-9 may be checked if the Subscriber has not been issued a
TIN and has applied for a number or intends to apply for a number in the near
future. If the box in Part 2 is checked and the Escrow Agent or the Trustee is
not provided with a TIN by the time of payment, the Escrow Agent or Trustee will
withhold 31% on all payments to such Subscriber of any interest accrued on the
Subscriber's Note. Please review the section "Important Tax Information" for
additional details on what TIN to give the Company.
IMPORTANT TAX INFORMATION
Under Federal income tax law, a Subscriber who purchases Notes from the
Company is required to provide the Company with such Subscriber's correct TIN on
Substitute Form W-9 below. If such Subscriber is an individual, the TIN is his
or her social security number. For businesses and other entities, the TIN is the
employer identification number. If the Company is not provided with the correct
TIN, the Subscriber may be subject to a $50 penalty imposed by the Internal
Revenue Service. In addition, payments that are made to such Subscriber with
respect to interest on the Notes may be subject to backup withholding.
If Federal income tax backup withholding applies, the Company is
required to withhold 31% of any payments made to the Subscriber. Backup
withholding is not an additional tax. Rather, the Federal income tax liability
of persons subject to backup withholding will be reduced by the amount of the
tax withheld. If withholding results in an overpayment of taxes, a refund may be
obtained.
Purpose of Substitute Form W-9
To avoid backup withholding on payments that are made to a Subscriber
with respect to Notes purchased, the Subscriber is required to notify the
Company of his or her correct TIN by completing the Substitute Form W-9 attached
hereto certifying that the TIN provided on Substitute Form W-9 is correct and
that (a) the Subscriber has not been notified by the Internal Revenue Service
that he or she is subject to Federal income tax backup withholding as a result
of failure to report all interest or dividends or (b) the Internal Revenue
Service has notified the Subscriber that he or she is no longer subject to
Federal income tax backup withholding.
S-6
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <S>
Part 1--PLEASE PROVIDE YOUR TIN IN THE Social security number OR
BOX AT RIGHT AND CERTIFY BY SIGNING AND Employee Identification Number
DATING BELOW:
SUBSTITUTE TIN
--------------------------------------------------------------------------------------------------
Form W-9 Name (Please Print) Part 2
Department of the Address Awaiting TIN [ ]
Treasury --------------------------------------------------------------
Internal Revenue Service
City State Zip Code
Payer's Request for ------------------------ ------------ -------------
Taxpayer --------------------------------------------------------------------------------------------------
Identification Number Part 3--CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I
(TIN) and CERTIFY THAT:
Certification (1) The number shown on this form is my correct taxpayer identification number
(or a TIN has not been issued to me but I have mailed or delivered an
application to receive a TIN or intend to do so in the near future).
(2) I am not subject to backup withholding either
because I have not been notified by the
Internal Revenue Service (the "IRS") that I am
subject to backup withholding as a result of a
failure to report all interest or dividends or
the IRS has notified me that I am no longer
subject to backup withholding.
(3) All other information provided on this form is
true, correct and complete.
--------------------------------------------------------------------------------------------------
SIGNATURE: DATE:
----------------------------------------------------- ---------------------------
You must cross out item (2) above if you have been notified by the IRS that you are
currently subject to backup withholding because of
under reporting interest or dividends on your tax
return.
- -----------------------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS OF INTEREST
ACCRUED ON YOUR INVESTMENT. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECKED THE BOX IN PART 2 OF THE SUBSTITUTE FORM W-9.
- ----------------------------------------------------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me and either (1) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (2) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of all
payments of the purchase price of the Shares made to me will be withheld until I
provide a number.
SIGNATURE:_____________________________________
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
S-7
<PAGE>
============================ ============================
NO PERSON IS AUTHORIZED TO GIVE ANY
OFFERING INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE
CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON ROYAL ALOHA DEVELOPMENT COMPANY
AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE NOTES
OFFERED BY THIS PROSPECTUS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY NOTES IN ANY CIRCUMSTANCES IN $9,200,000
WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS 13% EIGHT YEAR DEFERRED INTEREST
PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE SUBORDINATED NOTES
ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED BY REFERENCE
HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE. -------------------
PROSPECTUS
------------------- -------------------
TABLE OF CONTENTS
AVAILABLE INFORMATION............... 2 , 1998
PROSPECTUS SUMMARY.................. 7
RISK FACTORS........................ 9
USE OF PROCEEDS..................... 17
SELECTED FINANCIAL DATA............. 18
PLAN OF OPERATION................... 18
BUSINESS OF THE COMPANY............. 19
DIRECTORS AND EXECUTIVE OFFICERS
OF THE COMPANY................... 26
EXECUTIVE COMPENSATION.............. 27
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.. 28
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS.............. 28
DESCRIPTION OF SECURITIES........... 29
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES...................... 34
DISCLOSURE OF COMMISSION POSITION
ON INDEMNIFICATION FOR
SECURITIES ACT VIOLATIONS......... 35
TRANSFER RESTRICTIONS FOR TEXAS
RESIDENTS......................... 35
PLAN OF DISTRIBUTION................ 36
LEGAL MATTERS....................... 36
EXPERTS ........................... 37
FINANCIAL STATEMENTS.............. F-1
SUBSCRIPTION AGREEMENT............. S-1
========================= ========================
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. Indemnification of Directors and Officers
Section 78.751 of the Nevada Revised Statutes provides that a
corporation may indemnify its officers, directors, employees, and agents (or
persons who have served, at the corporation's request, as officers, directors,
employees, or agents of another corporation) against certain expenses, including
attorneys' fees, actually and reasonably incurred by them in connection with the
defense of any action by reason of being or having been directors, officers,
employees or agents.
The Company's Articles of Incorporation and Bylaws provide that the
Company shall indemnify its officers and directors to the fullest extent
permitted by the Nevada Law.
Insofar as indemnification for liabilities under the Securities Act of
1933 may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Act and is therefore unenforceable.
ITEM 25. Other Expenses of Issuance and Distribution
The estimated expenses in connection with this Offering are set forth
below:
Securities and Exchange Commission filing fee...............$3,000
Blue Sky fees and expenses..................................50,000
Accounting fees and expenses................................30,000
Legal fees and expenses....................................150,000
Trustee and Escrow Agent Fees...............................40,000
Printing and electronic transmission expenses...............50,000
Postage ....................................................20,000
Travel and General Administrative......................... 37,000
------------
Total........................................$ 380,000
============
ITEM 26. Recent Sales of Unregistered Securities
On or about June 24, 1997, the Company issued all of its currently
issued and outstanding common stock to its parent corporation RAVC in exchange
for the Property and cash. No commissions or similar remuneration were paid with
respect to such issuance. The issuance was a limited offering to a single entity
which completely controlled the issuer before and after the issuance. The
offering is believed exempt from registration pursuant to Section 4(2) of the
Securities Act.
II-1
<PAGE>
ITEM 27(a). Index of Exhibits
Exhibit Number
1 Underwriting Agreement between Royal Aloha Development Company and
First Financial Equity Corporation, dated March 20, 1998.*
3.1 Articles of Incorporation of Royal Aloha Development Company, filed
February 27, 1997.*
3.2 Bylaws of Royal Aloha Development Company adopted by the Board of
Directors on March 5, 1997.*
4 Form of Indenture, dated __________, between Royal Aloha Development
Company and First Trust of New York, N.A., as Trustee, including Form
of Note.*
5 Opinion of Ballard Spahr Andrews & Ingersoll.*
10.1 Escrow Agreement, dated April 1, 1998 between Royal Aloha Development
Company and U.S. Bank Trust National Association, as Escrow Agent.*
10.4 Operating Agreement between Royal Aloha Vacation Club and Royal Aloha
Development Company.*
10.5 Tax Sharing Agreement between Royal Aloha Vacation Club and Royal Aloha
Development Company.*
10.6 Interval International, Inc. Preliminary Qualification letter dated
July 30, 1997.*
23.1 Consent of Ernst & Young LLP.*
23.2 Consent of Ballard Spahr Andrews & Ingersoll (included in its opinion
filed as Exhibit 5).*
23.3 Consent of Donald R. Beach.*
24 Power of Attorney (included on signature pages to this Registration
Statement).*
27 Financial Data Schedule.*
99 Appraisal of Property by Donald R. Beach, C.A.E.S.P.A.*
- ------------------
* Previously filed.
ITEM 28. Undertakings
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers, and
controlling persons of the registrant pursuant to its Certificate of
Incorporation, as amended, its Bylaws, as amended or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, the registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and authorized this
amendment to the registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Honolulu, State of
Hawaii, on May 19, 1998.
ROYAL ALOHA DEVELOPMENT COMPANY
By: /s/ Jack R. Corteway
-------------------------------------
Jack R. Corteway
President and Chief Executive Officer
In accordance with the requirements of the Securities Act of
1933, this amendment to the registration statement has been signed by the
following persons in the capacities and on the date stated.
Signature Title Date
- --------- ----- ----
/s/ Jack R. Corteway
- --------------------------- President, Chief Executive May 19, 1998
Jack R. Corteway Officer, Treasurer and
Director (Principal
Executive Officer)
*
- --------------------------- Vice President, Controller ______, 1998
Stephen C. W. Lin and Secretary (Principal
Financial Officer and
Principal Accounting
Officer)
*
- --------------------------- Director ______, 1998
Bernard J. McKenna
*
- --------------------------- Director ______, 1998
Theodore A. Rohde
*By: /s/ Jack R. Corteway
-----------------------
Jack R. Corteway
Attorney-in-Fact
<PAGE>
INDEX OF EXHIBITS
Exhibit Number
1 Underwriting Agreement between Royal Aloha Development Company and
First Financial Equity Corporation, dated March 20, 1998.*
3.1 Articles of Incorporation of Royal Aloha Development Company, filed
February 27, 1997.*
3.2 Bylaws of Royal Aloha Development Company adopted by the Board of
Directors on March 5, 1997.*
4 Form of Indenture, dated __________, 1998, between Royal Aloha
Development Company and First Trust of New York, N.A., as Trustee,
including Form of Note.*
5 Opinion of Ballard Spahr Andrews & Ingersoll.*
10.1 Escrow Agreement, dated April 1, 1998, between Royal Aloha Development
Company and U.S. Bank Trust National Association, as Escrow Agent.*
10.4 Operating Agreement between Royal Aloha Vacation Club and Royal Aloha
Development Company.*
10.5 Tax Sharing Agreement between Royal Aloha Vacation Club and Royal Aloha
Development Company.*
10.6 Interval International, Inc. Preliminary Qualification letter dated
July 30, 1997.*
23.1 Consent of Ernst & Young LLP.*
23.2 Consent of Ballard Spahr Andrews & Ingersoll (included in its opinion
filed as Exhibit 5).*
23.3 Consent of Donald R. Beach.*
24 Power of Attorney (included on signature pages to this Registration
Statement).*
27 Financial Data Schedule.*
99 Appraisal of Property by Donald R. Beach, C.A.E.S.P.A.*
- ------------------
* Previously filed.
