As filed with the Securities and Exchange Commission on November 28, 1995
Registration No. 33-61477
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
---------------------
AMENDMENT NO. 6
FORM S-2
Registration Statement Under The Securities Act of 1933
- -------------------------------------------------------------------------------
ILX INCORPORATED
(formerly International Leisure Enterprises Incorporated)
(Exact name of registrant as specified in its charter)
ARIZONA 6531 86-0564171
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.
incorporation or Code Number)
organization
2777 East Camelback Road
Phoenix, Arizona 85016
(602) 957-2777
(Address, and telephone number, of registrant's principal executive offices)
JOSEPH P. MARTORI
Chief Executive Officer
ILX Incorporated
2777 East Camelback Road
Phoenix, Arizona 85016
(602) 957-2777
(Name, address, and telephone number, of agent for service)
Copies to:
Carol A. Colombo, Esq. Ronald Warner, Esq.
Colombo & Bonacci, P.C. Thelen, Marrin, Johnson & Bridges
2525 East Camelback Rd., Ste. 840 333 South Grand Avenue, 34th Fl.
Phoenix, Arizona 85016 Los Angeles, California 90071
(602) 956-5800 (213) 229-2066
Approximate date of commencement of proposed sale to public:
As soon as practicable after the Registration Statement becomes effective
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box.[X] If the registrant elects to deliver its latest
annual report to its security holders, or a complete and legible facsimile
thereof, pursuant to Item 11(a)(1) of this form, check the following box. [ ] If
this Form is filed to register additional securities for an offering pursuant to
Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of earlier effective registration
statement for the same offering.___________ [ ] If delivery of the prospectus is
expected to be made pursuant to Rule 434, check the following box. []
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------------
Title of Each Class of Securities Amount to be Proposed Maximum Proposed Maximum Amount of
to be Registered Registered Offering Price Per Aggregate Offering Registration Fee
Unit(1) Price(1)
====================================================================================================================================
<S> <C> <C> <C> <C>
Convertible Adjustable Secured
Bonds due 2000 $5,000,000 100% $5,000,000 $3,965.51
====================================================================================================================================
Common Stock, no par value,
issuable upon Conversion of
Convertible Adjustable
Secured Bonds(2) -- -- -- --
====================================================================================================================================
Placement Agent's Warrants (3) 100,000 $3.60 $360,000 $413.79
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the registration fee.
(2) Such indeterminate number of shares of ILX common stock as may be issuable
upon conversion of the CAS Bonds being registered hereunder. Such shares of
common stock will, if issued, be issued for no additional consideration and
therefor no registration fee is required.
(3) Brookstreet Securities Corporation will receive warrants to purchase a
minimum of 40,000 shares and a maximum of 100,000 shares of ILX common
stock, determined in increments of 1,000 shares of common stock for every
$50,000 in aggregate principal amount of CAS Bonds sold.
</TABLE>
- --------------------------------------------------------------------------------
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 said Section 8(a),
may determine.
================================================================================
<TABLE>
ILX INCORPORATED
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
Showing Location in the Prospectus
of Information Required by Items of Form S-2
<CAPTION>
Form S-2 Item Number and Caption Prospectus
-------------------------------- ----------
<S> <C>
1. Forepart of Registration Statement and Facing Page of Registration Statement;
Outside Front Cover Page of Prospectus Outside Front Cover Page of the Prospectus
2. Inside Front and Outside Back Cover Pages Available Information; Incorporation of
of Prospectus Certain Documents by Reference; Table of
Contents
3. Summary Information, Risk Factors and Ratio Prospectus Summary; Risk Factors; Ratio of
of Earnings to Fixed Charges Earnings to Fixed Charges
4. Use of Proceeds Prospectus Summary; The Company -- The
Varsity Clubs Concept; Use of Proceeds
5. Determination of Offering Price Not Applicable
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Plan of Distribution
9. Description of Securities to be Registered Description of ILX Securities and Pertinent
Arizona Statutes
10. Interests of Named Experts and Counsel Not Applicable
11. Information with Respect to the Registrant Available Information; Prospectus Summary;
Incorporation of Certain Documents by
Reference; Risk Factors
12. Incorporation of Certain Information by Available Information; Incorporation of
Reference Certain Documents by Reference
13. Disclosure of Commission Position on Disclosure of Commission Position
Indemnification for Securities Act Liabilities
</TABLE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 28, 1995
ILX INCORPORATED
(formerly INTERNATIONAL LEISURE ENTERPRISES INCORPORATED)
MINIMUM: $2,000,000
MAXIMUM: $5,000,000
10% CONVERTIBLE ADJUSTABLE SECURED BONDS DUE 2000
(Denominated in $1,000 Increments)
ILX Incorporated, an Arizona corporation ("ILX"), is offering, on a
"best efforts" basis, a minimum of TWO MILLION DOLLARS ($2,000,000) and a
maximum of FIVE MILLION DOLLARS ($5,000,000) aggregate principal amount of
Convertible Adjustable Secured Bonds due December 15, 2000 ("CAS Bonds") for
sale at $1,000 per CAS Bond. See "Description of ILX Securities -- CAS Bonds."
The CAS Bonds will bear interest at the rate of 10% per annum. Interest on the
CAS Bonds will be payable on January 1 and July 1 in each year the CAS Bonds are
outstanding. The first interest payment on the CAS Bonds will be due and payable
on January 1, 1996. This offering shall terminate on December 15, 1995, unless
extended for up to an additional 30 day period by ILX. There is no minimum
amount of CAS Bonds required to be purchased by any purchaser of CAS Bonds.
ILX's officers, directors, employees and principal stockholders may purchase CAS
Bonds in the offering. Any such purchases may be used to satisfy the $2,000,000
minimum. (See "Plan of Distribution".) All offering proceeds will be deposited
into an escrow account with U.S. Trust Company of California, N.A., the escrow
agent for the offering (the "Escrow Agent"). (See "Plan of Distribution".) All
of the CAS Bonds will be offered on a best efforts basis. At ILX's discretion
but not later than 10 business days after ILX has sold at least $2,000,000
aggregate principal amount of CAS Bonds, ILX shall select a date on which the
CAS Bonds subscribed for prior to such date will be issued and funds paid
therefor will be released by the Escrow Agent (the "Initial Closing"). If the
minimum amount of CAS Bonds is not sold within the offering period, the offering
will terminate and all funds held in escrow will be returned promptly to
subscribers by the Escrow Agent without any deduction therefrom but with the pro
rata interest earned thereon while held in the Escrow Account. Unless previously
redeemed, the CAS Bonds will be convertible as described on the inside front
cover of this Prospectus and elsewhere herein.
The CAS Bonds are an outstanding debt obligation of ILX and, in terms
of preference, are junior to the Senior Indebtedness (as hereinafter defined).
Payment by the Company on the CAS Bonds is not permitted in the event of a
default on the Senior Indebtedness, regardless of the existence of the security
interest in the VCA Stock. In addition, the CAS Bonds are secured by all of the
issued and outstanding capital stock of Varsity Clubs of America Incorporated,
an Arizona corporation and a wholly owned subsidiary of ILX ("VCA"). ILX may
redeem the CAS Bonds, in whole or in part, at any time after ILX's common stock
has traded at a closing price (as herein defined) in excess of $4.00 per share
for a period of 20 consecutive trading days. The redemption price shall be 120%
of the outstanding principal amount of each CAS Bond.
As of September 30, 1995, the aggregate amount of outstanding Senior
Indebtedness was approximately $13.9 million. There is no limit on the amount of
Senior Indebtedness that ILX may incur. In addition, there is no restriction on
VCA's or its subsidiaries' ability to incur additional debt and to secure such
debt with a pledge or mortgage of all or a portion of VCA's or its subsidiaries'
assets. Incurrence of additional debts and/or encumbrance of the assets of VCA
or its subsidiaries may adversely affect the value of the VCA Stock offered as
security for the CAS Bonds. Further, any financial condition that might cause
ILX to default on the CAS Bonds might also result in a decrease in the value of
the VCA Stock securing the CAS Bonds thus reducing or eliminating any ability of
the VCA Stock to satisfy the obligations under the CAS Bonds. (See "Risk
Factors--Security for CAS Bonds May Not Be Adequate.") Recourse to other assets
of ILX is subject to the Senior Indebtedness and the terms of the Indenture.
(See "Description of ILX Securities and Pertinent Arizona Statutes --
Description of CAS Bonds -- Events of Default.")
SEE "RISK FACTORS" FOR CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT
IN ILX CAS BONDS INCLUDING UNLIMITED SENIOR INDEBTEDNESS, QUALIFIED SECURITY AND
DISCRETIONARY USE OF PROCEEDS. THESE ARE SPECULATIVE SECURITIES.
================================================================================
Price to Placement Agent Proceeds to Issuer or
Public Commissions(1) Other Persons(1)(2)
- --------------------------------------------------------------------------------
Per CAS Bond 100% 9% 91%
- --------------------------------------------------------------------------------
Total
Minimum (3) $2,000,000 $180,000 $1,820,000
- --------------------------------------------------------------------------------
Total
Maximum (3) $5,000,000 $450,000 $4,550,000
================================================================================
(1) Does not include additional compensation to Brookstreet Securities
Corporation in the form of a non- accountable expense allowance equal to 2% of
the gross proceeds of the offering. See "Plan of Distribution."
(2) Before deduction of estimated expenses payable by ILX of approximately
$262,584 if the minimum number of CAS Bonds are sold and approximately $312,584
if the maximum number of CAS Bonds are sold, including the 2% non-accountable
expense allowance, of which $50,000 has been paid to Brookstreet Securities
Corporation. ILX has also agreed to grant to Brookstreet Securities Corporation,
for nominal consideration, warrants to purchase a minimum of 40,000 shares and a
maximum of 100,000 shares of ILX common stock at $3.60 per share. See "Plan of
Distribution."
(3) The CAS Bonds are being offered on a "best efforts" $2,000,000 minimum,
$5,000,000 maximum basis. The offering will terminate on December 15, 1995,
unless extended for up to an additional 30 day period by ILX.
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.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
[BROOKSTREET LOGO]
THIS PROSPECTUS IS DATED NOVEMBER ___, 1995
CONVERSION
Unless previously redeemed, the CAS Bonds will be convertible at the
following rates: (i) Commencing 30 calendar days after the Initial Closing of
this offering and continuing until the 29th calendar day after the second
anniversary of the Initial Closing of this offering, the CAS Bonds will be
convertible into ILX common stock at $2.50 per share; (ii) On the 30th calendar
day after the second anniversary of the Initial Closing of this offering, the
conversion price will be adjusted so that from that date until the 29th calendar
day after the fourth anniversary of the Initial Closing of this offering the CAS
Bonds will be convertible into ILX common stock at a price equal to: (a) 75% of
the "Mark Price" of ILX's common stock, where the "Mark Price" is defined as a
price equal to the average of the sale price (as defined in the Indenture)
("closing price") of ILX common stock as of the close of business each day for
the 30 calendar day period beginning 30 calendar days before the second
anniversary of the Initial Closing and ending on and including the day before
the second anniversary of the Initial Closing, or (b) $2.50 per share, whichever
is higher; (iii) The conversion price will again be adjusted on the 30th
calendar day after the fourth anniversary of the Initial Closing of this
offering so that from that date until maturity, the CAS Bonds will be
convertible into ILX common stock at a price equal to: (a) 75% of the "Mark
Price" of ILX common stock, where the "Mark Price" is defined as a price equal
to the average of the closing price of ILX common stock as of the close of
business each day for the 30 calendar day period beginning 30 calendar days
before the fourth anniversary of the Initial Closing and ending on and including
the day before the fourth anniversary of the Initial Closing, or (b) $2.50 per
share, whichever is higher.
AVAILABLE INFORMATION
ILX is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance with
the Exchange Act files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed with the Commission by ILX can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at the regional
offices of the Commission located in Room 3190, Kluczynski Federal Building, 230
South Dearborn Street, Chicago, Illinois 60604, and at 7 World Trade Center, New
York, New York 10007. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
ILX's common stock is quoted on the National Association of Securities
Dealers Automated Quotation ("NASDAQ") Small Cap Market System under the symbol
"ILEX." Reports, proxy statements and other information concerning ILX can be
inspected at the National Association of Securities Dealers, Report Section,
1735 "K" Street, N.W., Washington, D.C. 20006.
INCORPORATION BY REFERENCE
The following documents are hereby incorporated by reference: (i) ILX's
annual report on Form 10-K for the fiscal year ended December 31, 1994 as
amended on October 2, 1995, October 27, 1995 and October 31, 1995 ("ILX's
10-K"); (ii) ILX's first quarter Form 10-Q report (dated March 31, 1995) and
ILX's second quarter Form 10-Q report (dated June 30, 1995), which were filed
with the Commission on May 12, 1995 and July 28, 1995 respectively, both as
amended on October 2, 1995 and the second Quarter Form 10-Q as amended on
November 28, 1995, and ILX's third quarter Form 10-Q report (dated September 30,
1995) which was filed with the Commission on November 13, 1995 and amended on
November 28, 1995. ("ILX's 10-Qs"); (iii) ILX's Proxy Statement dated April 21,
1995, which was filed with the Commission on April 28, 1995 as amended on
October 2, 1995 ("ILX's Proxy Statement"); and (iv) the Registration Statement
on form S-2 filed with the Commission on August 1, 1995 and all amendments and
exhibits thereto of which this Prospectus is a part ("ILX's S-2 Registration
Statement"). Copies of ILX's 10-K, and ILX's most recent 10-Q and accompany this
Prospectus.
This Prospectus incorporates documents by reference which are not
presented herein or delivered herewith. Documents relating to ILX (not including
the exhibits to such documents, unless such exhibits are specifically
incorporated by reference into such documents or into this Prospectus) are
available, and will be provided without charge, to each person, including any
beneficial owner, to whom this Prospectus is delivered upon a written or oral
request to ILX Incorporated, Attention: Nancy J. Stone, 2777 East Camelback
Road, Phoenix, Arizona 85016, telephone number (602) 957-2777.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
No person is authorized to give any information or to make any
representation not contained in this Prospectus and, if given or made, such
information or representation should not be relied upon as having been
authorized. This Prospectus does not constitute an offer to exchange or sell, or
a solicitation of an offer to exchange or purchase, the securities offered by
this Prospectus in any jurisdiction to or from any person to whom it is unlawful
to make such offer or solicitation in such jurisdiction. Neither the delivery of
this Prospectus nor any distribution of the securities to which this Prospectus
relates shall, under any circumstances, create any implication that there has
been no change in the affairs of ILX since the date of this Prospectus.
Until February 26, 1996, all dealers effecting transactions in the
registered securities, whether or not participating in this distribution, may be
required to deliver a prospectus. This is in addition to the obligation of
dealers to deliver a prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
PROSPECTUS SUMMARY
This summary is qualified in its entirety by the more detailed information
and financial statements appearing elsewhere in this Prospectus.
The Company
ILX is an Arizona corporation formed (as International Leisure Enterprises
Incorporated) in October, 1986 for the purpose of developing, operating,
financing and marketing interval ownership ("timeshare") interests in resort
properties, and engaging in other leisure-oriented business activities. ILX's
timeshare portfolio consists of interests in resorts located in Arizona,
Colorado, Florida, Indiana and Mexico.
ILX's wholly owned subsidiary, Varsity Clubs of America Incorporated
("VCA"), is an Arizona corporation formed to capitalize on a perceived market
niche in the hospitality industry: the potential demand for high quality
accommodations near prominent colleges and universities with nationally
recognized athletic programs. The first Varsity Clubs facility was completed in
August, 1995 and is located approximately 2.8 miles from the University of Notre
Dame in Indiana. The site for the second Varsity Clubs facility was acquired on
July 13, 1995 and is located in Tucson, Arizona, approximately 2.3 miles from
the University of Arizona. VCA initially has targeted a total of 15 sites for
development of Varsity Clubs facilities in the next five years, including the
Arizona and Indiana sites. All Varsity Clubs facilities will be operated as
hotels to the extent of their unused or unsold timeshare inventory. As of the
date of this offering, VCA or its wholly owned subsidiaries have obtained
options to acquire properties located in Auburn, Alabama (Auburn University);
Iowa City, Iowa (University of Iowa); Norman, Oklahoma (Oklahoma University);
and State College, Pennsylvania (Penn State University). Due to the existence of
larger and better financed competitors in the lodging industry, ILX's management
believes that VCA's ability to capitalize on this perceived market niche
depends, at least in part, upon the successful implementation of a reasonably
aggressive development strategy. Accordingly, ILX intends to advance all of the
net proceeds of this offering to VCA to finance a portion of the costs
associated with the acquisition and development of Varsity Clubs facilities in
strategic locations throughout the United States. ILX will require VCA to
reimburse from the proceeds of this offering advanced to VCA a portion of the
development costs incurred by ILX on behalf of VCA, which costs, as of September
30, 1995, totalled $4.4 million. The portion of the development costs that VCA
will pay ILX will be an amount equal to (i) $900,000 if the minimum amount of
CAS Bonds are sold pursuant to this "best efforts" offering; (ii) $1,000,000 if
more than $3,000,000 but less than $5,000,000 of CAS Bonds are sold pursuant to
this "best efforts" offering; or (iii) $1,500,000 if the maximum amount of CAS
Bonds are sold pursuant to this "best efforts" offering. See "Use of Proceeds,"
"The Company -- The Varsity Clubs Concept" and "Risk Factors -- VCA Repayment
for Development Costs."
ILX's principal executive office is located at 2777 East Camelback Road,
Phoenix, Arizona 85016, and its telephone number is (602) 957-2777.
The Offering
CAS Bonds A minimum of $2,000,000 aggregate principal amount of
Convertible Adjustable Secured Bonds due 2000 (the "CAS
Bonds") and a maximum of $5,000,000 aggregate principal amount
of CAS Bonds, on a "best efforts" basis. The offering will
terminate on December 15, 1995, unless extended for up to 30
additional days by ILX. See "Description of ILX Securities --
CAS Bonds."
Interest Rate 10% per annum, payable on January 1 and July 1 in each year
the CAS Bonds are outstanding, commencing on January 1, 1996.
Escrow All offering proceeds will be deposited into an escrow account
with U.S. Trust Company of California, N.A., the escrow agent
for the offering (the "Escrow Agent"). If the minimum of
$2,000,000 of CAS Bonds is not sold prior to termination of
the offering, all offering proceeds will be returned promptly
to subscribers by the Escrow Agent without any deduction
therefrom but with a pro rata share of any interest earned
thereon while on deposit. See "Plan of Distribution."
Conversion Unless previously redeemed, the CAS Bonds will be convertible
into ILX common stock at the following rates: (i) Commencing
30 calendar days after the Initial Closing of this offering
until the 29th calendar day after the second anniversary of
the Initial Closing of this offering, at the rate of $2.50 per
share; (ii) On the 30th calendar day after the second
anniversary of the Initial Closing of this offering the
conversion price will be adjusted so that from that date until
the 29th calendar day after the fourth anniversary of the
Initial Closing of this offering, the CAS Bonds will be
convertible into ILX common stock at a price equal to (a) 75%
of the "Mark Price" of ILX's common stock, where "Mark Price"
is defined as a price equal to an average of the closing price
of ILX common stock as of the close of business each day for
the 30 calendar day period beginning 30 calendar days before
the second anniversary of the Initial Closing and ending on
and including the day before the second anniversary of the
Initial Closing, or (b) $2.50 per share, whichever is higher;
and (iii) The conversion price will again be adjusted on the
30th calendar day after the fourth anniversary of the Initial
Closing of this offering, so that from that date until
maturity, the CAS Bonds will be convertible into ILX common
stock at a price equal to (a) 75% of the "Mark Price" of ILX's
common stock, where "Mark Price" is defined as a price equal
to an average of the closing price of ILX common stock as of
the close of business each day for the 30 calendar day period
beginning 30 calendar days before the fourth anniversary of
the Initial Closing and ending on and including the day before
the fourth anniversary of the Initial Closing, or (b) $2.50
per share, whichever is higher. See "Description of ILX
Securities -- CAS Bonds -- Conversion."
Redemption ILX may redeem the CAS Bonds, in whole or in part, any time
after ILX's common stock trades at a closing price in excess
of $4.00 per share for a period of 20 consecutive trading
days. The redemption price shall be 120% of the outstanding
principal amount of each CAS Bond, together with interest
accrued to the date fixed for redemption. ILX is not required
to make any sinking fund payments prior to maturity of the CAS
Bonds. See "Description of ILX Securities -- CAS Bonds --
Redemption" and "Risk Factor -- Lack of Sinking Fund;
Substantial Final Payment for the CAS Bonds." However, if ILX
receives proceeds from the key person life insurance policy
maintained under the Indenture, such proceeds must be used by
ILX for payment of the principal on the CAS Bonds, or used to
redeem or otherwise acquire the CAS Bonds at the discretion of
ILX's Board of Directors.
Security The CAS Bonds are an outstanding debt obligation of ILX and,
in terms of preference, are junior to the Senior Indebtedness.
In addition, the CAS Bonds are secured by a pledge of all of
the issued and outstanding capital stock of Varsity Clubs of
America Incorporated (the "VCA Stock"). As of September 30,
1995, the aggregate amount of outstanding Senior Indebtedness
was approximately $13.9 million. See "Description of ILX
Securities -- CAS Bonds -- Secured Interest," "Risk Factors --
Security for CAS Bonds May Not Be Adequate" and "Risk Factors
-- VCA Repayment for Development Costs."
Subordination The CAS Bonds are subordinated in right of payment to all
present and future "Senior Indebtedness" (as defined in this
Prospectus) incurred by ILX. The Indenture does not restrict
ILX or its subsidiaries from incurring additional Senior
Indebtedness. Incurrence of additional debts and/or
encumbrance of the assets of VCA or its subsidiaries may
adversely affect the value of the VCA Stock offered as
security for the CAS Bonds. See "Description of ILX Securities
-- CAS Bonds -- Senior Indebtedness," "Risk Factors --
Subordination" and "Risk Factors --No Limitation on Additional
Debt of VCA."
Use of Proceeds ILX intends to advance all of the proceeds from the sale of
the CAS Bonds to VCA primarily to finance the acquisition and
development of Varsity Clubs facilities throughout the United
States in sites located near prominent universities with
nationally recognized athletic programs. ILX will require VCA
to reimburse, from the proceeds of this offering advanced to
VCA, a portion of the development costs incurred by ILX on
behalf of VCA, which costs, as of September 30, 1995, totalled
$4.4 million. The portion of the development costs that VCA
will pay to ILX will be an amount equal to (i) $900,000 if the
minimum amount of CAS Bonds are sold pursuant to this "best
efforts" offering; (ii) $1,000,000 if more than $3,000,000 but
less than $5,000,000 of CAS Bonds are sold pursuant to this
"best efforts" offering; or (iii) $1,500,000 if the maximum
amount of CAS Bonds are sold pursuant to this "best efforts"
offering. See "Use of Proceeds," "The Company -- The Varsity
Clubs Concept" and "Risk Factors -- VCA Repayment for
Development Costs."
Trustee U.S. Trust Company of California, N.A. is the Trustee for the
CAS Bonds under the Indenture.
NASDAQ
Stock Symbol ILEX
<TABLE>
SELECTED FINANCIAL DATA
The following table presents selected historical financial data for ILX
derived from ILX's consolidated financial statements. The historical financial
data are qualified in their entirety by reference to, and should be read in
conjunction with, the financial statements and notes thereto of ILX, which are
incorporated by reference into this Prospectus.
<CAPTION>
9 Month 9 Month
Period Period
Year Ended December 31 Ended September 30 Ended September 30
- -----------------------------------------------------------------------------------------------------------------------------------
1990(1) 1991(1) 1992 1993(2) 1994 1994 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue $2,352,734 $6,095,859 $18,856,660 $20,459,379 $29,950,669 $22,557,272 $23,343,875
Net income (1,602,093) (307,051) 1,325,874 2,076,231 2,148,287 1,994,921 1,540,100
(loss)
Income (loss) (0.28) (.04) .12 .18 .17 .16 .12
per common
equivalent
share()
Pro-forma
income per
common
equivalent
share
(a) Assuming
$2,000,000
offering. .16 .15 .11
(b) Assuming
$5,000,000
offering. .15 .14 .10
Total Assets 5,528,943 15,026,975 15,748,315 24,906,969 28,403,404 25,274,966 36,993,861
Notes 2,550,758 5,557,229 4,865,107 5,408,898 6,882,445 4,504,579 13,060,457
Payable
Total 1,562,096 5,095,895 6,477,383 10,541,495 12,957,129 12,746,930 14,681,054
shareholders'
equity
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
1. ILX ceased consolidating the accounts of BIS-ILE on January 8, 1990, the
date BIS-ILE filed a petition for reorganization under Chapter 1 of the U.S.
Bankruptcy Code. ILX commenced consolidating the accounts of LAP, the
successor in interest to BIS-ILE, on September 11, 1991.
2. 1993 data includes the effects of the acquisition of Genesis effective
November 1, 1993.
3. Supplemental pro-forma income per common equivalent share has been presented
for the year ended December 31, 1994 and for the nine month periods ended
September 30, 1995 and September 30, 1994 to disclose the pro-forma per
share amounts as if $2,000,000 minimum principal amount and $5,000,000
maximum pricipal amount of the CAS Bonds offered herein had been outstanding
and had been converted to common stock at $2.50 per share on January 1,
1994. Although ILX will use approximately $900,000 of the net proceeds of
the offering to retire certain high interest indebtedness (see "Use of
Proceeds"), interest expense has not been reduced in such pro-forma amounts
for the periods to reflect such debt retirement nor other retirements that
could be made with the proceeds because ILX has not taken formal corporate
action to dedicate such proceeds to the retirement of such outstanding
indebtedness. Pro-forma income per common equivalent share excludes the
effect of ILX's and VCA's investment of the net proceeds.
</FN>
</TABLE>
CAPITALIZATION
The following table sets forth the capitalization of ILX at September 30, 1995,
and as adjusted to give effect to the sale of the minimum and the maximum amount
of CAS Bonds in this offering and use of the net proceeds from the sale of the
CAS Bonds. This table is qualified in its entirety by reference to, and should
be read in conjunction with, the financial statements and notes thereto of ILX,
which are incorporated by reference into this Prospectus.
September 30, As
1995 Adjusted
-------- ---------------------------
Minimum Maximum
----------- -----------
Genesis Funds Certificates $ 1,366,379 $ 1,366,379 $ 1,366,379
Notes Payable 10,621,700 10,621,700 10,621,700
Notes Payable to Affiliates 2,438,757 2,438,757 2,438,757
CAS Bonds 2,000,000 5,000,000
----------- ----------- -----------
Total Debt 14,426,836 16,426,836 19,426,836
----------- ----------- -----------
Minority Interests 2,876,855 2,876,855 2,876,855
----------- ----------- -----------
Shareholders' Equity
Preferred Stock 1,523,476 1,523,476 1,523,476
Common Stock 9,309,501 9,309,501 9,309,501
Treasury Stock (25,032) (25,032) (25,032)
Additional Paid-in Capital 30,160 30,160 30,160
Retained Earnings 3,842,949 3,842,949 3,842,949
----------- ----------- -----------
Total Shareholders' Equity 14,681,054 14,681,054 14,681,054
----------- ----------- -----------
TOTAL CAPITALIZATION $31,984,745 $33,984,745 $36,984,745
----------- ----------- -----------
(1) Adjusted to give effect to the sale of the minimum and maximum amount of CAS
Bonds in the offering.
RISK FACTORS
An investment in Convertible Adjustable Secured Bonds involves certain
risks. In addition to other information contained in or incorporated by
reference into this Prospectus, prospective purchasers carefully should consider
the following risk factors before purchasing CAS Bonds.
Development of Varsity Clubs Concept. ILX's management is aware of no
other timeshare concepts that are targeted toward VCA's identified market niche,
which is the development of high quality accommodations near prominent colleges
and universities with nationally recognized athletic programs. The hotel
industry is, however, quick to recognize and copy profitable lodging concepts.
There can be no assurance that VCA will be able to capitalize on this perceived
market niche, if and to the extent it exists, before other larger and better
financed competitors become aware of and exploit this opportunity.
New Concept; Uncertainty of Market Acceptance. ILX's management
believes that the Varsity Clubs concept is new and, as is typical in the case of
a new concept, the ultimate level of demand for and market acceptance of the
Varsity Clubs concept is uncertain. There can be no assurance that VCA will be
able to implement its business strategy or, if the strategy is implemented, that
it will be profitable. Failure of the Varsity Clubs concept could adversely
affect ILX's business and the value of ILX's securities, including the CAS
Bonds, the common stock into which the CAS Bonds are convertible and the VCA
Stock that is pledged as security for the CAS Bonds.
Allocation of Proceeds and Potential Acquisitions; Broad Management
Discretion. Not less than $667,000 of the offering proceeds will be allocated
for the acquisition, development and marketing of Varsity Clubs facilities. See
"Use of Proceeds." Investors in this offering will not be able to direct the use
of these funds (or any other offering proceeds) or have any opportunity to
review any acquisition. Investors must therefore rely on ILX's management for
directing the expenditure of the offering proceeds. Further, there can be no
assurance that any such acquisition, development or marketing will prove
successful.
VCA Repayment for Development Costs. ILX intends to advance all of the
net proceeds of this offering to VCA in the form of a capital contribution to
finance a portion of the costs associated with the acquisition and development
of Varsity Clubs facilities in strategic locations throughout the United States.
As of September 30, 1995, ILX had advanced $4.4 million to VCA to pay for VCA's
development costs. Upon making its contribution of the net proceeds of the
offering to VCA, ILX will require VCA to repay ILX an amount equal to (i)
$900,000 if the minimum amount of CAS Bonds are sold pursuant to this "best
efforts" offering; (ii) $1,000,000 if more than $3,000,000 but less than
$5,000,000 of CAS Bonds are sold pursuant to this "best efforts" offering; or
(iii) $1,500,000 if the maximum amount of CAS Bonds are sold pursuant to this
"best efforts" offering. By making the repayment, VCA will be reducing its
assets and thereby reducing the immediate value of the VCA Stock by a
commensurate amount. See "Use of Proceeds."
Subordination. The CAS Bonds are junior in right of payment to the
Senior Indebtedness. See "Description of ILX Securities -- CAS Bonds -- Senior
Indebtedness." There is no limit on the amount of Senior Indebtedness that ILX
or its subsidiaries may incur in the future, nor any limit on ILX's or its
subsidiaries' ability to grant security interests in any of its property, except
VCA's capital stock. Between January 1, and September 30, 1995, VCA incurred
debt totalling approximately $7.5 million. Of that debt, VCA borrowed
approximately $2.6 million from ILX in connection with VCA's development of the
Notre Dame facility. Approximately $3.4 million of that debt was incurred under
a loan taken to fund the construction of the Notre Dame facility and is secured
by a deed of trust on that facility and approximately $700,000 of that debt was
incurred under a loan taken to fund the development of the Tucson facility and
is secured by a purchase money deed of trust on the Tucson land.
No Limitation on Additional Debt of VCA. There is no restriction on
VCA's or its subsidiaries' ability to incur additional debt, and to secure such
debt or other obligation with a pledge, lien, mortgage or other encumbrance of
all or any portion of VCA's or its subsidiaries' assets. Incurrence of
additional debt and/or encumbrance of the assets of VCA or its subsidiaries may
adversely affect the value of the VCA Stock offered as security for the CAS
Bonds.
Security for CAS Bonds May Not be Adequate. The CAS Bonds are an
outstanding debt obligation of ILX and, in terms of preference, are junior to
the Senior Indebtedness. In addition, the CAS Bonds are secured by a first
priority lien against all of the issued and outstanding capital stock of VCA.
See "Description of ILX Securities and Pertinent Arizona Statutes -- Description
of CAS Bonds -- Secured Interest." If ILX fails to satisfy its obligations under
the CAS Bonds and it becomes necessary for the holders of the CAS Bonds ("CAS
Bondholders") to elect to foreclose their interest in the VCA Stock, there can
be no assurance that the proceeds received from such foreclosure will be
adequate to satisfy amounts due under CAS Bonds. If ILX encounters circumstances
that undermine its financial condition causing it to default on the CAS Bonds,
such a condition may likely be accompanied by circumstances that undermine VCA's
financial condition and, accordingly, the value of the VCA Stock. In addition,
the value of the VCA Stock may be reduced significantly if it is held other than
by ILX or if the then current value of the VCA Stock at the time of such
foreclosure has diminished.
Default on Senior Indebtedness Precludes Payment by the Company on CAS
Bonds. In the event of a default on any item of Senior Indebtedness, ILX is not
permitted to make payments on or in respect of the CAS Bonds. However, the
subordination (including upon the occurrence of an event of default on the
Senior Indebtedness) will not prevent the occurrence of an Event of Default
(defined below) under the CAS Bonds. Further, such subordination will not
interfere with the CAS Bondholders' first priority lien against the VCA Stock or
the rights of the CAS Bondholders to receive payment as a result of the exercise
of their rights as to the VCA Stock.
Appraisal; Assumptions in Excess of Historic Performance; VCA Stock May
be Inadequate Security. Under the terms of the Trust Indenture Act, ILX sought
an appraisal of the VCA stock. Accordingly, for that purpose only, ILX engaged
The Mentor Group, an independent appraiser, unaffiliated with and previously
unknown to ILX, to prepare such an appraisal (the "Appraisal"). At The Mentor
Group's request, ILX management provided its internal financial projections of
income and cash flow and development objectives with respect to VCA facilities.
Based on ILX's internal financial projections for VCA, the appraiser then
prepared its own projections (attached to the Appraisal) of cash flows through
1999, including an estimated terminal value, all of which were discounted to
present value using a capitalization factor determined by the appraiser. The
appraiser projected growth of VCA's business based on ILX management's growth
projections to assume the addition of three VCA facilities each year, which is
substantially in excess of VCA's historic growth rate during its start-up phase.
Resulting cash flow projections also are substantially in excess of VCA's
historic performance. No assurance can be given that ILX or VCA will achieve the
results set forth in ILX's financial projections or in the Appraisal. If VCA
does not achieve the projected growth rates and resulting cash flows, VCA's
financial condition would be undermined, thereby undermining the value of the
VCA Stock securing the CAS Bonds. In addition, in preparing the financial
projections, ILX faced a potential conflict of interest: Over-statement of such
projections might benefit ILX in attracting investors, although only to the
extent investors would be convinced to rely on them, which ILX has not sought to
do. The appraised value of VCA Stock exceeds VCA's book value by more than $26
million. The description of the Appraisal is qualified in its entirety by
reference to the Appraisal and the exhibits attached thereto. See "Description
of ILX Securities and Pertinent Arizona Statutes -- Description of CAS Bonds --
Appraisal."
Lack of Sinking Fund; Substantial Final Payment for the CAS Bonds.
ILX's management anticipates that the holders of the CAS Bonds will elect to
convert their CAS Bonds into ILX common stock. Assuming, however, that the
holders of the CAS Bonds do not so elect, ILX is under no obligation to make any
sinking fund payments with respect to the CAS Bonds and the CAS Bonds are
redeemable only at ILX's option prior to their stated maturity. Thus, ILX will
be required to repay on maturity a minimum of $2,000,000 principal amount of the
CAS Bonds up to a maximum of $5,000,000 principal amount of the CAS Bonds. If
ILX does not have sufficient funds to pay such amount at maturity, it will have
to refinance the CAS Bonds at that time. There can be no assurance that ILX will
be able to obtain such refinancing. See "Description of ILX Securities -- CAS
Bonds."
No Public Market for the CAS Bonds. There is no existing market for the
CAS Bonds, nor will a public market exist upon completion of this offering. The
CAS Bonds will not qualify for listing on the NASDAQ system. ILX is under no
obligation to develop a public market for the CAS Bonds. Accordingly, purchasers
of the CAS Bonds must invest with the intent to hold the CAS Bonds for an
extended period of time. It is not expected that the CAS Bonds will be assigned
a rating by any of the nationally recognized statistical rating agencies. The
absence of such a rating may also limit any potential market for the CAS Bonds.
Purchase of CAS Bonds by Related Parties to Satisfy Minimum
Requirements. ILX's officers, directors, employees and principal stockholders,
including but not limited to Joseph P. Martori (as a trustee for the Cynthia J.
Polich Irrevocable Trust), Edward J. Martori and Martori Enterprises
Incorporated, may purchase up to $850,000 aggregate principal amount of CAS
Bonds in the offering. All such purchases may by used to satisfy the $2,000,000
minimum requirement. See "Plan of Distribution."
Uncertainty as to Trading Price. Even if a market for the CAS Bonds is
established, there can be no assurance as to the prices at which the CAS Bonds
will trade. To the extent there is any market for the CAS Bonds, whether the CAS
Bonds will be traded at prices that are higher or lower than their initial sale
price will depend on many factors including, among other things, prevailing
interest rates in the market for similar securities and the underlying value of
the ILX common stock. The holders of the CAS Bonds will bear the risk that an
increase in market interest rates or a decrease in the value of ILX common stock
may adversely affect the prices at which the CAS Bonds will trade, if they trade
at all.
Nature of Business; Business Plan. Resort development and sales to
owner-users, whether through condominium creation or interval ownership,
including timesharing or vacation club membership, present certain financial and
operational risks that should be considered by each prospective purchaser. These
risks include, but are not limited to, the following:
Unfavorable Publicity; Remarketing Difficulty. The timeshare
or interval ownership industry has been the subject of unfavorable
publicity, particularly with respect to difficulties faced by
purchasers in remarketing their timeshare interests. Negative publicity
might reduce sales and adversely affect the value of the CAS Bonds and
ILX's common stock into which the CAS Bonds are convertible.
Marketing Expenses High Compared to Sales Prices. The cost of
marketing timeshare interests is a high percentage of the selling price
of the timeshare interests. Although ILX has set the sales prices of
timeshare interests at levels that are believed to be sufficiently high
to cover such costs, there can be no assurance that the timeshare
interests of the projects currently involved or other timeshare
interests of any other given project will continue to be saleable at
such prices. Higher costs could reduce or eliminate profit margins.
Buyer Defaults. Generally, buyers of vacation ownership
interests present a greater risk of default than home mortgagors, even
if they meet credit qualification standards. Private mortgage insurance
or its equivalent is not readily available to cover defaults with
respect to buyers' purchases of vacation ownership interests. If a
buyer defaults, the costs ILX expended to make the associated sale are
not recoverable and such costs must be incurred again after the
timeshare interest has been returned to ILX's inventory for resale.
Lack of Diverse Locations. The attractiveness of interval
ownership in resorts may be enhanced by the availability of exchange
networks allowing owners to "trade" the time they have purchased for
time at another resort. Several companies, including Resort
Condominiums International ("RCI") and Interval International ("II"),
provide broad-based exchange networks. ILX has qualified its Los
Abrigados Resort & Spa, Golden Eagle Resort, Kohl's Ranch Lodge and
Ventura Resort properties for participation in the RCI network, and has
qualified Varsity Clubs of America -- South Bend Chapter, Varsity Clubs
of America -- Tucson Chapter, and Costa Vida Vallarta Resort for
participation in the II network. Neither ILX's ability to qualify
additional properties nor the continued availability of such exchange
networks, however, can be assured. If ILX is unable to respond to
consumer demand for greater choices of locations, it may be at a
competitive disadvantage with companies that can offer such choices.
Potential Competition. Resort development and operation,
including condominiums and timesharing, is a highly competitive
industry. ILX anticipates that it will continue to face keen
competition in all aspects of its operations from organizations that
are larger, better financed and more experienced, such as the Walt
Disney Company, Hilton Hotels Corporation, Hyatt Hotels Corporation and
Marriott International Corporation. There can be no assurance that ILX
will be able to compete successfully with such companies.
Regulation. ILX's timeshare sales are subject to state
regulation by the states in which properties are located and states in which
timeshare interests are marketed or sold. ILX and its subsidiary companies
presently market and sell timeshare interests in Arizona, Colorado, Florida,
Illinois, Indiana, Iowa, Nevada and Pennsylvania. ILX anticipates that ILX and
its subsidiaries will apply for the right to conduct additional sales operations
in those states and in various other states throughout the United States. There
can be no assurance that each or any such state will grant, or continue to
grant, ILX the right to sell its timeshare interests in such states or that, if
such right to conduct sales operations is granted, it will be granted on terms
and conditions acceptable to ILX. Further, if agents or employees of ILX violate
such regulations or licensing requirements, such acts or ommissions might cause
the revocation or non-renewal of such licenses required for the sale by ILX and
its subsidiary companies of timeshare interests in such states. Under certain
conditions, timeshare interests may be considered "securities" under state or
federal law, with consequent time-consuming and expensive requirements for
registration of such interests, licensing of salespeople and compliance with
other regulations. There is no assurance that ILX's interval ownership plans can
be designed definitely to avoid regulation as "securities" under federal law or
the state law in the states where ILX desires to or does conduct sales or in
which its properties are located. If ILX's timeshare interests are deemed to be
securities, there can be no assurance that ILX will be able to comply with the
applicable state and federal securities requirements and if ILX's timeshare
interests are deemed to be securities, such a determination may create
liabilities or contigencies that may impact ILX's ability to perform its
obligations under the CAS Bonds.
Failure to Achieve Business Plan. Although ILX intends to expand its
marketing of timeshare interests and open additional sales offices, no assurance
can be given that ILX will be able to achieve these objectives or that, if these
objectives are achieved, ILX will be profitable.
Potential Lack of Development Financing. ILX's ability to expand its
business to new resort projects, including the development of additional Varsity
Clubs facilities, will in large part depend upon the availability of financing
for the acquisition and development of such projects. The proceeds of this
offering will be sufficient to cover only a small portion of the anticipated
costs of VCA's facility development plans. There can be no assurance that
adequate additional financing will continue to be available or that, if it is
available, it will be available on terms and conditions favorable to ILX.
Possibility of Downturn in General Economic Conditions. Any substantial
downturn in economic conditions or any significant increase in the cost of fuel
or transportation in general could significantly depress discretionary consumer
spending and, therefore, have a material adverse effect on ILX's sales of
vacation timeshare interests, including sales of timeshare interests in Varsity
Clubs facilities. In addition, the future unavailability of attractive financing
rates and favorable tax treatments (e.g. deductibility of interest payments for
"second homes," including interval ownership weeks) could adversely affect ILX's
business.
Potential Lack of Consumer Receivable Financing. A substantial majority
of ILX's timeshare sales are made on an installment basis. At such time as a
sale is made, ILX is required to pay commissions and other costs that exceed
ILX's cash-up-front receipts. Written arrangements presently exist for both the
sale and financing of consumer receivables created by such installment sales.
The financing is on a recourse basis and thus requires ILX to bear the risk of
consumer default. ILX's ability to sell interval ownership weeks will depend
upon the continued availability of consumer receivable financing. There can be
no assurance that such financing will continue to be available or that, if it is
available, it will be available on terms and conditions favorable to ILX. If
such financing becomes unavailable upon expiration of existing written
arrangements, ILX will have to rely upon other methods that could severely limit
ILX's ability to fund future operations.
Dividends. ILX has paid no cash dividends on its common or any series
of preferred stock and it does not contemplate paying cash dividends in the
foreseeable future. It is the present intention of ILX's management to retain
future earnings, if any, for use in ILX's business. Failure to pay dividends on
the Series C Stock will entitle the holders thereof to receive additional ILX
common stock upon conversion and the increased liquidation preference
attributable to the Cumulation Shares (see "Description of ILX Securities and
Pertinent Arizona Statutes -- Description of Series C Stock"); however,
dividends on the Series C Stock are not otherwise cumulative. Further, dividends
cannot be paid on Series C Stock unless mandatory sinking fund requirements are
met and dividends are paid with respect to ILX's Series A Stock. The Series B
Stock pays no dividends.
Arizona Anti-takeover Provisions. ILX does not have any provisions in
its Articles of Incorporation or Bylaws that directly prohibit the takeover or
change in control of ILX. However, Sections 10-1201 et seq. of the Arizona
Revised Statutes, as amended, restrict a security holder or acquiror from
affecting changes in control of corporations such as ILX or from exercising
voting rights without shareholder approval when shareholdings exceed certain
thresholds. See "Description of ILX Securities and Pertinent Arizona Statutes --
Anti-takeover Legislation and Anti-takeover Devices." Such statutory
restrictions may adversely hamper future transactions involving a change in
control or potential change in control of ILX or transactions with persons with
shareholdings over specified percentages, thereby depressing the price of ILX
common stock or the price of other ILX securities, including the CAS Bonds.
Further, such restrictions may adversely affect the ability of one or more
holders of ILX securities, including the CAS Bonds, to effect a change in
control of ILX.
Reliance on Key Personnel. ILX relies upon certain key management
employees, including its Chairman, Chief Executive Officer and President, Joseph
P. Martori, and the loss of any such individual could adversely affect ILX. ILX
believes that its future success will depend upon its ability to attract and
retain key personnel. There can be no assurance that ILX will be able to retain
key members of its current management team or that it will be able to attract
experienced personnel in the future. ILX currently does not have employment
agreements with such personnel. Pursuant to the Indenture and in order to reduce
the potential adverse affects on the value of the CAS Bonds in the event of the
death of Joseph P. Martori, ILX has purchased key man life insurance in the
amount of $5,000,000 on Joseph P. Martori for the benefit of the holders of the
CAS Bonds. See "Description of ILX Securities and Pertinent Arizona Statutes --
Description of CAS Bonds -- General."
Voting Control by Existing ILX Shareholders. ILX is required by Arizona
law to elect directors utilizing cumulative voting. By exercising his or her
right to vote cumulatively, a common shareholder would be able to elect a
percentage of directors corresponding to the percentage of the ILX common stock
held by such shareholder assuming the existence of a sufficient number of
directorships. ILX's Bylaws authorize a Board of no less than one nor more than
15 directors. ILX currently has eight directorships (seven of which are filled
and one of which is vacant). Consequently, a purchaser must hold 11.11% plus one
share of the ILX common stock to be able independently to elect a director.
Martori Enterprises Incorporated, an Arizona corporation ("MEI"), Joseph P.
Martori and Edward J. Martori, collectively, own or have the power to vote
approximately 49.3% of the outstanding ILX common stock, and thereby have the
power to elect at least 4 members of the 8 member Board of Directors and to
influence substantially ILX's business and affairs. If the interests of MEI,
Joseph P. Martori and Edward J. Martori, as shareholders, differ from the
interests of the holders of the CAS Bonds, the holders of the CAS Bonds may be
adversely affected by such control. Joseph P. Martori and Edward J. Martori also
are directors of ILX and Joseph P. Martori is Chairman of the Board, President
and Chief Executive Officer of ILX. Joseph P. Martori and Edward J. Martori also
are controlling shareholders of MEI. Accordingly, MEI, Joseph P. Martori and
Edward J. Martori are able to exert substantial influence over and in most cases
control essentially all of ILX's and VCA's business and affairs. In addition,
MEI, Edward J. Martori and Joseph P. Martori (as a trustee for the Cynthia J.
Polich Irrevocable Trust) may purchase up to $850,000 aggregate principal amount
of CAS Bonds in the offering, which CAS Bonds would be convertible (at a
conversion price of $2.50 per share of common stock) into 340,000 shares of ILX
common stock. (See "Plan of Distribution.") If MEI, Edward J. Martori and Joseph
P. Martori (as a trustee for the Cynthia J. Polich Irrevocable Trust) purchase
CAS Bonds in the offering, they may (depending on the total amount of CAS Bonds
purchased by such parties) be deemed to beneficially own more than fifty percent
(50%) of the outstanding ILX common stock and accordingly, may be required to
comply with the provisions of applicable Arizona anti-takeover legislation. See
"Arizona Anti-takeover Legistation and Anti-takeover Devices." ILX's management
believes that Alan R. Mishkin owns an amount of ILX's common stock sufficient to
elect at least one member of the Board of Directors.
Effect of Shares Eligible for Future Sale on Market Price of ILX
Securities. Certain ILX shareholders hold commercially significant amounts of
ILX common stock. Such stock is (i) freely tradeable, (ii) may become available
for resale in the open market pursuant to Rule 144 promulgated under the
Securities Act, or (iii) may become freely tradeable pursuant to a registration
of such shares. The sale of commercially significant amounts of ILX common stock
subsequent to this offering could adversely affect the prevailing market price
of the CAS Bonds, if any, and the ILX common stock into which the CAS Bonds are
convertible. Such sales also could impair ILX's ability to raise additional
capital through the sale of its securities. ILX filed a Form S-3 Registration
Statement on May 9, 1994 (supplemented on August 19, 1994), in order to register
on a "continuous basis" the stock of certain ILX shareholders. A total of
7,838,462 shares of ILX common stock were registered pursuant to the Form S-3
Registration Statement. Of these registered shares, ILX's management believes
that the selling shareholders are entitled, pursuant to the terms of the Form
S-3 Registration Statement, to sell publicly only 1,682,787 shares of ILX common
stock under the registration effected on that Form S-3 Registration Statement,
at least 700,000 shares of which have, to the best of ILX's management's
knowledge, already been sold by certain selling shareholders. ILX's management
believes that a sale of additional shares pursuant to such S-3 Registration
Statement would require an amendment to such S-3 Registration Statement.
THE COMPANY
General.
ILX is an Arizona corporation formed in October, 1986 for the purpose
of developing, operating, financing and marketing interval ownership interests,
often referred to as "timeshare" interests, in resort properties and engaging in
other leisure-oriented business activities. ILX's principal executive offices
are located at 2777 East Camelback Road, Phoenix, Arizona 85016, telephone
number (602) 957-2777.
ILX sells timeshare interests in resorts located in Arizona, Colorado,
Florida, Indiana and Mexico. Generally, ILX either owns an interest in the
resort itself, or it owns a designated number of timeshare interests in a resort
and has a corresponding right to sell those timeshare interests to third
parties. See "Risk Factors -- Nature of Business; Business Plan."
ILX owns an interest in the following resorts: Los Abrigados Resort &
Spa in Sedona, Arizona, Golden Eagle Resort in Estes Park, Colorado, Kohl's
Ranch Lodge in Gila County, Arizona, and Varsity Clubs of America -- South Bend
Chapter in Mishawaka, Indiana.
================================================================================
RESORT OWNERSHIP INTEREST
- --------------------------------------------------------------------------------
1. Los Abrigados Resort & Spa 78.5% Fee Simple
through Subsidiary*
- --------------------------------------------------------------------------------
2. Golden Eagle Resort 100% Fee Simple
- --------------------------------------------------------------------------------
3. Kohl's Ranch Lodge 100% Fee Simple
- --------------------------------------------------------------------------------
4. Varsity Clubs of America -- South 100% Fee Simple
Bend Chapter through Subsidiary
================================================================================
*The Los Abrigados Resort & Spa is owned by Los Abrigados
Limited Partnership ("LAP"). ILE Sedona Incorporated, a wholly
owned subsidiary of ILX, is the managing general partner of
LAP and owns 78.5% thereof.
The properties owned by ILX or its subsidiaries are operated as hotels to the
extent of unused or unsold timeshare inventory.
In addition, ILX owns a designated number of timeshare interests in the
following resorts and has a right to sell those timeshare interests to third
party purchasers: Ventura Resort in Boca Raton, Florida and Costa Vida Vallarta
Resort in Puerto Vallarta, Mexico.
================================================================================
RESORT LOCATION
- --------------------------------------------------------------------------------
1. Ventura Resort Boca Raton, Florida
- --------------------------------------------------------------------------------
2. Costa Vida Vallarta Resort Puerto Vallarta,
Mexico
================================================================================
Except for the Costa Vida Vallarta Resort, described below, timeshare
purchasers acquire deed and title to an undivided fractional interest in a unit
or type of unit, which entitles the purchaser to use a unit at the selected
resort and to use the resort's common areas during a designated time period. On
occasion, ILX reacquires a timeshare interest through a variety of circumstances
including, but not limited to, customers' defaults on their obligation to pay
for their timeshare interests. In those instances, the reacquired timeshare
interests are restored to ILX's inventory for resale.
Each of the above referenced resorts is affiliated with a
not-for-profit organization, the members of which are the purchasers of
timeshare interests in each such resort. These not-for-profit organizations have
certain recorded governing documents that contain restrictions concerning the
use of the resort property.
With respect to those resort properties owned by ILX or its
subsidiaries (Los Abrigados Resort & Spa; Golden Eagle Resort; Kohl's Ranch
Lodge; and Varsity Clubs of America -- South Bend Chapter), a portion of the
price paid to ILX by a purchaser of a timeshare interest in those resorts must
be paid by ILX to the holder(s) of the underlying mortgage(s) on the property in
order to release such timeshare interest from the lender's underlying
encumbrance. This "release fee" ensures that the timeshare purchaser can acquire
clear title to his or her timeshare interest.
ILX began marketing timeshare interests in the Ventura Resort in Boca
Raton, Florida in 1987. The Ventura Resort is located across from Boca Beach in
Boca Raton, Florida. ILX is authorized by the states of Arizona and Florida to
sell timeshare interests in Ventura Resort in those states. ILX had
approximately 20 weeks available for sale at September 30, 1995.
In 1986, ILX purchased, and in 1987 began operations at, the Golden
Eagle Resort, which is located in the town of Estes Park, Colorado, within three
miles of the Rocky Mountain National Park. The Golden Eagle Resort, including a
four-story wood-frame main lodge, is situated on approximately 4 acres of land
and is bounded generally by undeveloped forested mountainside land. The lodge
property contains 27 guest rooms, a restaurant, bar, library and outdoor
swimming pool, as well as two other free standing buildings containing 6 guest
rooms and support facilities. Space is available to construct additional suites
in the lodge and adjacent buildings. ILX also owns a residence in a duplex
adjacent to the property.
Marketing of timeshare interests in the Golden Eagle Resort began in
1987. ILX plans to offer a minimum of 1,785 timeshare weeks in the Golden Eagle
Resort. Arizona, Colorado and Indiana have authorized ILX to sell timeshare
interests in Golden Eagle Resort in those states. ILX had approximately 550
weeks available for sale in completed suites at September 30, 1995. The Golden
Eagle Resort is, as of September 30, 1995, encumbered by (i) a note and deed of
trust in the amount of $1,649,990, which is payable in monthly installments of
interest at the rate of 12% per annum and annual installments of principal in
the amount of $100,000, and matures in December, 1998, and (ii) a second deed of
trust securing repurchase obligations relating to borrowings against consumer
notes receivable in the principal amount of $861,335 and sales of consumer notes
receivable sold with recourse in the approximate amount of $940,000 at September
30, 1995.
In September, 1988 ILX acquired an ownership interest in the Los
Abrigados Resort & Spa in Sedona, Arizona through BIS-ILE Associates
("BIS-ILE"), a partnership that was formed to acquire and market the property
and in which ILX held an interest as a general partner. See "The Company --
Other Wholly Owned Subsidiaries -- ILE Sedona Incorporated." The Los Abrigados
Resort & Spa is located on the northwest bank of Oak Creek in Sedona, Arizona,
approximately 110 miles northwest of Phoenix. The resort consists of a main
building, which houses the lobby and registration area, executive offices,
meeting space, a health spa and athletic club, food and beverage facilities and
support areas. The hotel contains 174 suites in 22 one and two story
free-standing structures. In addition, a two bedroom historic homesite that has
been renovated to include a spa and other luxury features is also on the
property and has been marketed by ILX. The resort has an outdoor swimming pool,
tennis courts and other recreational amenities and is situated on approximately
19 acres of land.
Marketing of timeshare interests in the Los Abrigados Resort & Spa
began in February, 1989. ILX, directly and through its wholly owned subsidiary,
ILE Sedona Incorporated, has served as managing general partner of BIS-ILE and
its successor, Los Abrigados Partners Limited Partnership, an Arizona limited
partnership ("LAP"), since inception. A total of 9,100 timeshare weeks may be
sold in Los Abrigados Resort & Spa. Arizona, Colorado, Indiana, Iowa and Nevada
have authorized ILX to sell timeshare interests in Los Abrigados Resort & Spa in
those states. At September 30, 1995, ILX had approximately 3,597 weeks available
for sale, and options to purchase 457 weeks had been extended to potential
buyers. Also, Genesis Investment Group, Inc., a wholly owned subsidiary of ILX,
holds an option to purchase 517 additional timeshare weeks in the Sedona
Vacation Club at Los Abrigados Resort & Spa, which timeshare weeks will be made
available for sale upon exercise of the option. See "The Company -- Other Wholly
Owned Subsidiaries -- Genesis Investment Group, Inc." The Los Abrigados Resort &
Spa is, as of September 30, 1995, encumbered by (i) a deed of trust, securing a
note in the amount of $1,045,000, which is payable in monthly installments of
$80,000 principal and interest at the rate of prime plus 1.25% and matures in
September, 1996, and (ii) two subordinate deeds of trust of equal priority
securing repurchase obligations relating to borrowings against consumer notes
receivable in the principal amount of $289,142 and sales of consumer notes
receivable with recourse in the amount of approximately $17 million.
Effective as of November 21, 1995, ILX, ILES and LAP (collectively
"Developer") entered into a Management Agreement with Bennett Funding
International, Ltd. ("Bennett Funding"), a timeshare lender of ILX, with respect
to the Los Abrigados Resort & Spa. Bennett Funding will provide general
supervision, strategic planning and consultation with respect to LAP and Los
Abrigados Resort & Spa, and with respect to the marketing and sale of 3,500
timeshare intervals at Los Abrigados Resort & Spa. The term of the Management
Agreement will commence on December 1, 1995 and will continue for 5 years or
such longer time as may be required to complete the sale of the subject 3,500
timeshare interests. Bennett Funding will have the right to purchase timeshare
receivables of LAP on the same terms and conditions as have been historically
available from Bennett Funding to Developer, except that "holdback" requirements
would be adjusted to terms more favorable to Developer. Under the Management
Agreement, Bennett Funding will advance $3,500,000 to be used by Developer for
working capital needs associated with Los Abrigados Resort & Spa and/or LAP and
to reimburse Developer for sums previously expended for capital improvements and
other expenses of Developer. The advance, plus 12% cost of funds factor on the
outstanding balance of the advance, will be repaid in equal monthly installments
over 36 months from one-half of the monthly cash flows from the sale of the
subject 3,500 timeshare intervals. Payment of the advance will be guaranteed by
ILX, ILES and LAP. Bennett Funding will receive a management fee equal to one
half of the cash flow from the sale of the 3,500 timeshare intervals, determined
on a monthly basis, less the amount received in such month by Bennett Funding
toward repayment of the advance. LAP will execute and record a Declaration of
Trust with respect to the subject timeshare intervals in connection with its
obligations under the Management Agreement. A copy of the Management Agreement
is filed as an exhibit to the Registration Statement of which this Prospectus is
a part, and the foregoing description is qualified in its entirety by reference
to the actual Management Agreement.
The Costa Vida Vallarta Resort is a beach front resort located in
Puerto Vallarta, Mexico. During 1993 and 1994, ILX acquired timeshare weeks in
the resort that provide a right to occupy a specific week and unit in the resort
and to use the common areas of the resort (during the week of occupancy) through
and including the year 2009. Arizona, Colorado and Indiana have authorized ILX
to sell timeshare interests in the Costa Vida Vallarta Resort in those states.
ILX had approximately 50 timeshare interests available for sale as of September
30, 1995.
On June 1, 1995, ILX acquired ownership of Kohl's Ranch Lodge ("Kohl's
Ranch"). Kohl's Ranch is a 10.5 acre property located 17 miles northeast of
Payson, Arizona. It is bordered on the eastern side by Tonto Creek and is
surrounded by Tonto National Forest. The main lodge of Kohl's Ranch contains 41
guest rooms and a variety of common area amenities. Kohl's Ranch also includes
eight 1- and 2-bedroom cabins along Tonto Creek, a triplex cabin with two
1-bedroom units and one efficiency unit, and a free standing building that
contains sales offices and food and beverage facilities.
On June 14, 1995, the Arizona Department of Real Estate approved ILX's
application to sell timeshare interests in Kohl's Ranch. Timeshare sales
commenced in July, 1995. As of September 30, 1995, ILX had approximately 2,657
timeshare weeks available for sale. In addition to the sale of timeshare
interests, ILX intends to continue operating Kohl's Ranch as a lodge-hotel. ILX
has begun refurbishing Kohl's Ranch and intends to maintain its authentic ranch
atmosphere and decor. ILX anticipates commencing construction of six new duplex
cabins on the property in the spring of 1996, thus adding twelve 2- bedroom
cabins, for a total of 64 units and 3,328 timeshare weeks available for sale.
Kohl's Ranch is, as of September 30, 1995, encumbered by (i) a first position
note and deed of trust in the amount of $920,250, which is payable in monthly
installments of $3,000 principal plus accrued interest through December 1995. On
December 1, 1995, the then remaining principal balance will be amortized over a
thirty-six month period, payable in equal installments of principal and interest
through December 1998, and (ii) a second position note and mortgage in the
amount of $367,750, which is payable, commencing June 1, 1996, in monthly
installments of $7,500 principal plus interest at the rate of 8% per annum, and
matures on June 1, 2000.
ILX's interval ownership plans compete both with other interval
ownership plans as well as hotels, motels, condominium developments and second
homes. ILX considers its competitive environment to include not only the areas
near its properties but also other vacation destination alternatives. ILX's
competitive posture is based on the distinction of its products, the
desirability of the locations of its properties, the quality of the amenities
ancillary to the timeshare weeks, the value received for the price and the
availability of a variety of destination locations. ILX employs approximately
450 people. ILX plans to continue exploring options for the development and
marketing of new resort facilities.
ILX will comply with the requirements of Rules 13e-4 and 14e-1 under
the Securities Exchange Act of 1934 and any other applicable securities laws in
connection with such provisions and any related offers by ILX.
The Varsity Clubs Concept
In 1988, ILX formed VCA to participate in a joint venture with a wholly
owned subsidiary of Coachman Incorporated, a publicly traded corporation. In
March, 1992 VCA acquired all of Coachman Incorporated's subsidiary's interest in
the Varsity Clubs joint venture, giving VCA 100% ownership of the venture.
VCA was formed to capitalize on a perceived niche market: the potential
demand for high quality accommodations near prominent colleges and universities
with nationally recognized athletic programs. Large universities host a variety
of sporting, recreational, academic and cultural events that create a
substantial and relatively constant influx of participants, attendees and
spectators. The Varsity Clubs concept is a lodging alternative targeted to
appeal to university alumni, basketball or football season ticketholders,
parents of university students and corporate sponsors of university functions,
among others. The Varsity Clubs concept is designed to address the specific
needs of these individuals and entities by creating specialty timeshare hotels
that have a flexible ownership structure, enabling the purchase of anything from
a single day (such as the first home football game) to an entire football
season. Each Varsity Clubs facility will operate as a hotel to the extent of
unsold or unused timeshare inventory. See "Risk Factors -- Development of
Varsity Clubs Concept" and "Risk Factors -- New Concept; Uncertainty of Market
Acceptance."
The prototype Varsity Clubs facility is an all-suite, 62 unit lodging
facility that features amenities such as The Stadium (a sports-theme atrium
lounge), a private Member's Lounge, exercise facilities, a swimming pool and
whirlpool spa, complete business services and other facilities popular with the
target market of likely purchasers. The prototype Varsity Clubs facility is
expandable to approximately 90 units, without the need to acquire additional
real property, and can be built in smaller configurations if warranted by a
particular market.
The first Varsity Clubs facility was completed in August, 1995 and is
located in Mishawaka, Indiana, approximately 2.8 miles from the University of
Notre Dame. The Indiana facility is owned, to the full extent of unsold
timeshare interests, by VCA South Bend Incorporated, a wholly owned subsidiary
of VCA. VCA South Bend Incorporated is affiliated with Varsity Clubs of America
- -- South Bend Chapter, a not-for-profit corporation whose members are the
purchasers of timeshare interests in the Indiana facility. Indiana, Arizona,
Illinois, Florida and Pennsylvania have authorized VCA South Bend Incorporated
to sell timeshare interests in the Indiana facility in those states. The Indiana
Varsity Clubs facility is, as of September 30, 1995, encumbered by a first
position mortgage and note in the amount of $3,824,643 the principal of which is
payable through release fees and interest is payable monthly at the rate of 13%.
The note matures in November 1998. The property is further encumbered by sales
of consumer notes receivable with recourse in the amount of approximately $1.3
million at September 30, 1995. This encumbrance was repaid in September 1995
through proceeds from the sale of consumer notes receivable, which also are
secured by the property.
The site for the second Varsity Clubs facility was acquired in July,
1995 and is located in Tucson, Arizona, approximately 2.3 miles from the
University of Arizona. The Arizona property is owned by VCA Tucson Incorporated,
a wholly owned subsidiary of VCA. Construction of the Arizona facility is
expected to commence in the fall of 1995. In July, 1995, VCA Tucson Incorporated
received a written commitment for construction financing for the Arizona
facility in the amount of $6 million, which is expected to be sufficient to
build and furnish the property. In addition, the commitment includes up to $20
million in financing for eligible notes received from the sale of timeshare
interests in the Arizona facility. The associated agreements are incorporated
into the Registration Statement of which this Prospectus is a part, and the
foregoing description is qualified in its entirety by reference to those
agreements.
VCA initially has targeted a total of 15 sites for development of
Varsity Clubs facilities in the next five years, including the Varsity Clubs
facility in Indiana and the proposed facility in Tucson, Arizona. As of the date
of this offering, VCA or its wholly owned subsidiaries have obtained options to
acquire properties located in Auburn, Alabama (Auburn University); Iowa City,
Iowa (University of Iowa); Norman, Oklahoma (Oklahoma University); and State
College, Pennsylvania (Penn State University). Due to the existence of larger
and better financed competitors in the lodging industry, ILX's management
believes that VCA's ability to capitalize on this perceived market niche
depends, in part, on the successful implementation of a reasonably aggressive
development strategy. Accordingly, a minimum of approximately $657,000 and a
maximum of approximately $2,737,000 of the proceeds of this offering will be
used to finance a small portion of the expansion costs associated with the
acquisition and development of Varsity Clubs facilities in strategic locations
throughout the United States. See "Use of Proceeds."
As of September 30, 1995, VCA had incurred development expenses of
approximately $10.4 million, 4.4 million of which have been advanced by ILX.
Such expenses include costs associated with the research and development of the
Varsity Clubs concept, the design and creation of the prototype Varsity Clubs
facility, the development of advertising and marketing materials, the
acquisition of real property in Mishawaka, Indiana and Tucson, Arizona, the
construction of the Varsity Clubs facility in Indiana, and the acquisition of
options to acquire real property in Auburn, Alabama; Iowa City, Iowa; Norman,
Oklahoma; and State College, Pennsylvania. A substantial portion of the proceeds
of this offering will be used to reimburse all or a portion of the development
costs incurred by ILX on behalf of VCA. See "Use of Proceeds."
Other Wholly Owned Subsidiaries of ILX
ILE Sedona Incorporated. In September, 1988, ILX acquired, through its
wholly owned subsidiary, ILE Sedona Incorporated ("ILES"), a 40% interest in
BIS-ILE, the owner in fee simple of the Los Abrigados Resort & Spa. During 1989,
ILX acquired additional interests that increased its ownership in BIS-ILE. On
January 8, 1990, BIS-ILE filed a petition for relief with the United States
Bankruptcy Court for the District of Arizona, under Chapter 11 of the Bankruptcy
Code. At that time, ILX owned 55.875% of BIS-ILE. Sales of vacation ownership
interests in Los Abrigados Resort & Spa had ceased on January 8, 1990, pending
completion of the Chapter 11 filing. During 1990, while BIS-ILE prepared its
plan of reorganization, and in anticipation of that plan, ILX increased its
interest in BIS-ILE to 89.999%. On August 26, 1991, the Bankruptcy Court
approved BIS-ILE's amended plan of reorganization and sales of vacation
ownership interests in Los Abrigados Resort & Spa resumed on September 20, 1991,
following the successful reorganization. On September 10, 1991, Los Abrigados
Partners Limited Partnership, an Arizona limited partnership ("LAP") became the
successor in interest to BIS-ILE. ILX, directly and through ILES, owns a total
of 78.5% of LAP, which now owns the Los Abrigados Resort & Spa. LAP's other
partners are Alan Mishkin (11.5%) and MEI (10%). ILES serves as LAP's managing
general partner. LAP has contracted with ILX to manage the resort and to market
fee simple interval ownership interests in the resort through the sale of
membership interests in the Sedona Vacation Club. The management contract
between ILX and LAP will terminate in September, 1996, unless otherwise renewed
pursuant to the terms of the contract or unless sooner terminated by 90% of the
owners of timeshare interests in the Sedona Vacation Club. It is the opinion of
ILX's management that the management contract will be renewed on equal or more
favorable terms to ILX.
Red Rock Collection Incorporated. Red Rock Collection Incorporated, an
Arizona corporation ("Red Rock Collection"), has, since July, 1994, been engaged
in the manufacture and distribution of personal care products. The complete
product line consists of spa and salon formulated products for face, body, bath
and hair care. The Red Rock Collection corporate headquarters are located at
3840 North 16th Street, Phoenix, Arizona. This 8400 square foot building is
owned by Red Rock Collection and houses the executive offices, customer service,
accounting, warehouse and shipping operations.
Currently, Red Rock Collection products primarily are marketed through
resort properties owned and operated by ILX. This resort-based sales program
includes an upscale amenities line, an in-room gift basket promotion and retail
product sales at ILX resort venues. Based upon Red Rock Collection's initial
success with this method, it has begun promoting the sales program to other
hoteliers and resort properties. Red Rock Collection intends to distribute and
market its products through salons, retail stores and spas. This distribution
system will target well trafficked locations that have stylists, aestheticians
and salespeople capable of promoting the Red Rock Collection product line.
Red Rock Collection products are also used by ILX and its subsidiaries
as tour promotion incentives. The products are given as gifts to individuals who
attend timeshare tours and presentations.
On February 2, 1993, ILX acquired, through a stock subscription
offering, 71.4% of the issued and outstanding common stock of Red Rock
Collection. ILX agreed to contribute (at prices mutually acceptable to ILX and
Red Rock Collection) $700,000 in goods and services at Los Abrigados Resort &
Spa in exchange for its Red Rock Collection stock. Effective February 11, 1994,
ILX acquired the remaining 28.6% of Red Rock Collection's issued and outstanding
common stock from Alan R. & Carol Mishkin and from MEI. In exchange for the Red
Rock Collection stock, ILX issued to the Mishkins and MEI each 61,500 shares of
restricted ILX common stock and each a promissory note in the principal amount
of $150,000, requiring the payment of 10% interest annually and due and payable
in 36 equal monthly installments of $4,840.08 commencing March 11, 1994 and
ending with a final payment on February 11, 1997.
Genesis Investment Group, Inc. Genesis Investment Group, Inc. is an
Arizona corporation, ("Genesis") and, as of November 1, 1993, a wholly owned
subsidiary of ILX. Genesis' business is the holding and liquidating of ownership
interests in real estate (both fee and liens), most of which is unimproved, and
the developing and selling of timeshare interests. In August, 1995, Syracuse
Project Incorporated, a wholly owned subsidiary of Genesis, became the general
partner of Orangemen Club Limited Partnership, a New York limited partnership.
The partnership will acquire three floors of a hotel from Hotel Syracuse, Inc.
The hotel is located within 2 miles of Syracuse University. The purpose of the
partnership is to renovate and sell timeshare interests in the portion of the
hotel owned by the partnership. The Genesis subsidiary owns an 80% interest in
the partnership. The associated agreements are incorporated into the
Registration Statement of which this Prospectus is a part, and the foregoing
descrption is qualified in its entirety by reference to those agreements.
ILX acquired Genesis through the merger of Genesis into ILX's wholly
owned subsidiary, ILE Acquisition Corporation, an Arizona corporation ("ILEAC"),
that was effective on November 1, 1993 (the "Merger"). Pursuant to the Merger,
holders of Genesis common stock received the right to receive five shares of ILX
common stock and three shares of Series C Stock for every ten shares of Genesis
common stock. (At the time of the Merger, the Genesis shareholders were entitled
to receive a maximum of 305,964 shares of the Series C Stock and 509,940 shares
of ILX common stock.) Since the Merger, Genesis has continued to liquidate its
real estate holdings and has acquired an option to purchase 667 timeshare
intervals in the Sedona Vacation Club at Los Abrigados Resort & Spa. Pursuant to
such option, Genesis acquired for resale 50 timeshare weeks in the Sedona
Vacation Club at Los Abrigados Resort & Spa, and Genesis has engaged LAP to
market these timeshare interests.
Prior shareholders of Genesis, who held Genesis stock immediately
preceding the Merger (the "Genesis Shareholders") also received certain rights
(the "Recovery Rights") in certain proceeds of certain lawsuits (the "Lawsuits")
that had been filed by Genesis and two Genesis affiliates, (collectively, the
"Plaintiffs") prior to the Merger. The Lawsuits were filed to recover real
estate from four partnerships that had claimed that their interests in the real
estate were superior to the Plaintiffs' various interests in that real estate.
Genesis agreed that, following the Merger, it would act as agent for the Genesis
Shareholders solely to (i) pursue the Lawsuits in its reasonable discretion, and
(ii) collect and distribute the proceeds of the Recovery Rights, if any, to the
Genesis Shareholders.
Golden Eagle Resort, Inc. Golden Eagle Resort, Inc. was formed in 1987
to serve as the management company for the Golden Eagle Resort in Estes Park,
Colorado. The management contract between ILX and Golden Eagle Resort, Inc.
could terminate on May 31, 1997, unless otherwise renewed pursuant to the terms
of the contract or unless sooner terminated by 90% of the owners of timeshare
interests in the Golden Eagle Resort. It is the opinion of ILX's management that
the management contract will be renewed.
ILE Florida, Inc. ILE Florida, Inc. was formed in 1987 for the purpose
of holding 100% of the issued and outstanding stock of Southern Vacations, Inc.
Southern Vacations, Inc. owns timeshare interests in the Ventura Resort in Boca
Raton, Florida. At the present time, all timeshare interests in the Ventura
Resort are being marketed and sold by ILX in Arizona.
In addition to the above mentioned wholly owned subsidiaries, ILX also
owns three corporations, SHI Health Institute Incorporated, Golden Eagle Realty,
Inc., and Red Rock Worldwide Incorporated, none of which has any assets or
liabilities or is conducting any business at the present time.
Consulting Arrangements
Effective June, 1995, ILX entered into Consulting Agreements with
Investor Resource Services, Inc., a Florida corporation ("IRC"), and Universal
Solutions, Inc., a Colorado corporation ("Universal"), pursuant to which IRC and
Universal agreed to provide certain investor relations, broker relations and
public relations services. Concurrently, IRC and Universal entered into
Consulting Agreements with Martori Enterprises Incorporated ("MEI") under which
MEI, as the largest shareholder of ILX, agreed to make certain payments to IRC
and Universal for their services. Under the terms of the Agreements, each of IRC
and Universal receive from ILX a total of 50,000 shares of ILX common stock,
plus options to purchase an additional 200,000 shares of ILX common stock at
$1.25 per share and 50,000 shares at $1.625 per share. ILX has agreed that the
common stock received from ILX (including pursuant to the exercise of an option)
may be registered pursuant to the terms of the Consulting Agreements.
Additionally, MEI agreed to transfer to each of IRC and Universal 50,000 shares
of ILX common stock together with options to purchase 50,000 shares each at
$1.625 per share. The Consulting Agreements are attached to the Registration
Statement, of which this Prospectus is a part, and the above description is
qualified in its entirety by reference to the Consulting Agreements.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for ILX were as follows for the
respective periods indicated:
<TABLE>
<CAPTION>
======================================================================================================
Year Ended December 31 Nine Months
Ended
- ------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1994(1) 1995 1995(1)
Pro Forma Pro Forma
Min. Max. Min. Max.
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to
Fixed Charges 2.40 3.48 3.08 2.54 2.02 2.53 2.21 1.86
- ------------------------------------------------------------------------------------------------------
Coverage Deficiency
(in thousands) ($1,602) ($307)
======================================================================================================
(1) The pro forma ratios assume the minimum and the maximum principal
amount of CAS Bonds are outstanding during the applicable periods and
that the proceeds from issuance of the CAS Bonds are not invested and
do not earn a return.
</TABLE>
For the purpose of these ratios, earnings consist of income before
losses from joint ventures accounted for under the equity method. Fixed charges
consist of interest, the amortization of debt issuance costs and an estimated
interest factor in rentals. Earnings in the years ended December 31, 1994,
December 31, 1993 and December 31, 1992 were sufficient to cover the combined
fixed charges. Earnings for the years ended December 31, 1990 and December 31,
1991 were not sufficient to do so. The coverage deficiency for the years ended
December 31, 1990 and December 31, 1991 represents the excess of fixed charges
over earnings.
USE OF PROCEEDS
The net proceeds from the sale of the Convertible Adjustable Secured
Bonds offered hereby are estimated to be a minimum of approximately $1,557,000
and a maximum of approximately $4,237,000 after deduction of all estimated
offering expenses.
ILX intends to advance all of the net proceeds of this offering to VCA
in the form of a capital contribution to finance a portion of the costs
associated with the acquisition and development of Varsity Clubs facilities in
strategic locations throughout the United States. See "The Company -- The
Varsity Clubs Concept." See "Risk Factors -- Allocation of Proceeds and
Potential Acquisitions; Broad Management Discretion."
ILX will require VCA immediately to reimburse, from the offering
proceeds contributed to VCA, a portion of the development costs incurred by ILX
on behalf of VCA, which costs, as of September 30, 1995, totalled $4.4 million.
The development costs include, but are not limited to, costs associated with the
research and development of the Varsity Clubs concept, the design and creation
of the prototype Varsity Clubs facility, the development of advertising and
marketing materials, the acquisition of real property in Mishawaka, Indiana and
Tucson, Arizona, the construction of the Varsity Clubs facility in Indiana, and
the acquisition of options to acquire real property in Auburn, Alabama (Auburn
University); Iowa City, Iowa (University of Iowa); Norman, Oklahoma (Oklahoma
University); and State College, Pennsylvania (Penn State University). The
portion of the development costs that VCA will pay to ILX will be an amount
equal to (i) $900,000 if the minimum amount of CAS Bonds are sold pursuant to
this "best efforts" offering; (ii) $1,000,000 if more than $3,000,000 but less
than $5,000,000 of CAS Bonds are sold pursuant to this "best efforts" offering;
or (iii) $1,500,000 if the maximum amount of CAS Bonds are sold pursuant to this
"best efforts" offering. See "Risk Factors -- VCA Repayment for Development
Costs."
ILX intends to utilize the reimbursement payment to repay existing,
high interest bearing indebtedness that bears interest at a rate of 13.5% per
annum and has a stated maturity date of July 31, 1998 (approximately $900,000).
The indebtedness was used to finance a portion of certain improvements to the
Los Abrigados Resort & Spa and the lending group includes certain affiliates of
ILX. (See "Information About the Registrant.") Any remaining proceeds
(approximately $100,000 if more than $3,000,000 but less than $5,000,000
principal amount of CAS Bonds are sold, and approximately $600,000 if the
maximum amount of CAS Bonds are sold) will be used to provide working capital to
ILX. See "Risk Factors -- VCA Repayment for Development Costs."
VCA initially has targeted a total of 15 sites for development in the
next five years, including the six locations discussed above. VCA's management
estimates that the total development cost in present dollars for each Varsity
Clubs facility is approximately $6 million, including land acquisition, land
improvements, construction, and furniture, fixtures and equipment costs. VCA
also will incur additional costs associated with staffing each facility,
marketing the facilities to, and financing the purchase of timeshare interests
by, interested customers. The proceeds of this offering will be sufficient to
cover only a small portion of the anticipated costs of VCA's facility
development plans. Accordingly, significant amounts of additional capital will
be required to achieve VCA's facility development goal within the proposed
5-year period. Although VCA's management intends to seek traditional bank loans
and other financing to finance a majority of the above referenced costs, there
can be no assurance that such credit facilities will be available, or if
available, that VCA will qualify for such financing or that such financing will
be on terms acceptable to VCA. See "Risk Factors --Potential Lack of Development
Financing."
PLAN OF DISTRIBUTION
The following is a summary of the principal terms of the Placement
Agent Agreement among ILX and Brookstreet Securities Corporation (the "Placement
Agent"). The form of the Placement Agent Agreement is filed as an exhibit to the
Registration Statement, of which this Prospectus forms a part. This summary does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, all of the provisions of the Placement Agent Agreement, including
the definitions therein of certain terms, which provisions and definitions are
incorporated herein by reference.
Subject to the terms and conditions of the Placement Agent Agreement,
ILX has agreed to retain the Placement Agent, and the Placement Agent has agreed
to serve, as the exclusive selling agent (subject to the Placement Agent's
rights to appoint Soliciting Dealers, as defined below), in an offering of CAS
Bonds on a minimum $2,000,000 principal amount, maximum $5,000,000 principal
amount, "best efforts" basis, for a period ending of December 15, 1995, unless
extended for up to 30 additional days by ILX pursuant to the Placement Agent
Agreement. ILX's officers, directors, employees, principal stockholders, and
their respective family members and affiliates, may purchase CAS Bonds in the
offering. Of such individuals and entities, Edward J. Martori, Martori
Enterprises Incorporated and the Cynthia J. Polich Irrevocable Trust, of which
Joseph P. Martori is a trustee, have indicated an intent to purchase CAS Bonds
in principal amounts of $550,000, $100,000 and $200,000, respectively. Assuming
conversion of the CAS Bonds into shares of ILX common stock at a conversion
price of $2.50 per share, the purchasers referenced in the prededing sentence
would be entitled to convert their CAS Bonds into 220,000 shares, 40,000 shares
and 80,000 shares of ILX common stock, respectively. All purchases by ILX
officers, directors, employees, principal stockholders and their respective
family members and affiliates, including purchases by those specifically
referenced herein, may by used to satisfy the $2,000,000 principal amount
minimum.
All funds received by the Placement Agent with the subscriptions to
purchase CAS Bonds will be deposited in an escrow and impound account (the
"Escrow") with the Escrow Agent, pursuant to an Escrow and Impound Agreement
entered into by ILX, the Placement Agent and the Escrow Agent (the "Escrow and
Impound Agreement"). Payments shall be made by either check or wire transfer and
must be accompanied or preceded by a completed subscription agreement (the
"Subscription Agreement"). All checks for subscriptions of the CAS Bonds shall
be made payable to the Escrow Agent. If a least $2,000,000 principal amount of
CAS Bonds offered hereby are sold within the period ending December 15, 1995 (or
any extended period of up to 30 additional days as set forth in the Placement
Agent Agreement), and if the requirements set forth in the Escrow and Impound
Agreement are met (including that applicable state securities administrators
enter any required orders releasing the funds to ILX), all funds received, less
the Placement Agent's commissions (of nine percent (9%)) and expense
allowance (of two percent(2%)), will be delivered to ILX, and the CAS Bonds
purchased will be delivered to of for the account of subscribers. If the minimum
amount of CAS Bonds is not sold within the designated period, all funds held in
the Escrow will be returned to subscribers without any deduction therefrom, but
with a pro rata share of any interest earned thereon while on deposit in the
Escrow. Until such time as funds have been released from Escrow and the CAS
Bonds delivered to the purchasers therof, such purchasers will be deemed
subscribers and not CAS Bondholders and shall have only the rights and
obligations described in the Subscription Agreement. Such rights and obligations
include that the subscription for CAS Bonds shall be irrevocable by the
subscriber, but such subscription may be accepted or rejected in whole or in
part, in ILX's sole discretion. If a subscription is rejected in whole, then ILX
will return the entire amount and, if rejected in part, will return a pro rata
portion, paid by the subscriber, with interest at the rate provided by the
Escrow Agent. The above description of the Escrow and Impound Agreement and the
Subscription Agreement are qualified in their entirety by reference to the
actual agreements, which are attached to the Registation Statement of which this
Prospectus forms a part.
ILX and the Placement Agent shall have an Initial Closing at such time
designated by ILX after at least $2,000,000 principal amount (and up to the
maximum principal amount) of CAS Bonds have been sold and the subscriptions for
such sales have been accepted by ILX. After the Initial Closing, ILX may
continue the offering until the earlier to occur of the date on which: (a) ILX
and the Placement Agent agree to terminate the offering or (b) the maximum
$5,000,000 principal amount of CAS Bonds are sold or (c) the designated period
of the offering terminates. If any additional CAS Bonds are sold and the
subscriptions accepted by ILX after the Initial Closing, there shall be a
subsequent closing (the "Final Closing") at such time designated by ILX after
the termination of the offering.
The Placement Agent may offer the CAS Bonds to the public at $1,000.00
per CAS Bond and may pay to certain dealers ("Soliciting Dealers") who are
members of the National Association of Securities Dealers, Inc. (the "NASD"),
commissions (payable from, and not in addition to, commissions payable to the
Placement Agent) of not in excess of five percent (5%) for CAS Bonds sold by
them. All Soliciting Dealers shall take part in this offering pursuant to a
Soliciting Dealer Agreement. The form of the Soliciting Dealer Agreement is
filed as an exhibit to the Registration Statement, of which this Prospectus is a
part.
The Placement Agent is responsible for paying all fees and expenses it
incurs. ILX, however, has agreed to pay the Placement Agent a non-accountable
expense allowance equal to two percent (2%) of the gross proceeds received by
ILX from the sale of the CAS Bonds. ILX has advanced to the Placement Agent, on
a non-refundable basis, $50,000 to be applied against the non-accountable
expense allowance.
ILX has agreed to indemnify the Placement Agent, any controlling person of
the Placement Agent, and other persons related to the Placement Agent and
identified in the Placement Agent Agreement, against certain liabilities,
including liabilities arising (i) under the Securities Act, (ii) out of any
untrue statement of a material fact contained in the Registration Statement,
this Prospectus, any amendments thereto, and certain other documents, or (iii)
out of any omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, unless the statement or
omission is made in reliance upon and in conformity with written information
furnished to ILX by or on behalf of the Placement Agent for use in the document
in which it was used.
In connection with this offering and as additional, nominal
consideration for the Placement Agent's efforts in connection with the offering,
ILX has agreed to sell to the Placement Agent, for nominal consideration,
warrants ("Placement Agent's Warrants") to purchase a minimum of 40,000 shares
and a maximum of 100,000 shares of ILX common stock (determined in increments of
1,000 shares of ILX common stock for each $50,000 principal amount of CAS Bonds
sold in the offering) at $3.60 per share, subject to adjustment upon the
occurrence of certain events, including stock splits and combinations,
reclassifications, exchanges and substitutions relating to ILX common stock. The
Placement Agent's Warrants will be granted at the Final Closing. The Placement
Agent's Warrants are exercisable for a period of four years commencing one year
from the date of the Initial Closing. The Placement Agent's Warrants grant to
the holders thereof certain rights with respect to the registration under the
Securities Act of the securities issuable upon exercise of the Placement Agent's
Warrants.
DESCRIPTION OF ILX SECURITIES AND PERTINENT ARIZONA STATUTES
Description of CAS Bonds
General. The Convertible Adjustable Secured Bonds are to be issued
under an Indenture (the "Indenture"), dated as of the Initial Closing between
ILX and U.S. Trust Company of California, N.A., as trustee (the "Trustee"). The
form of the Indenture and form of the CAS Bonds are filed as exhibits to the
Registration Statement of which this Prospectus is a part. The following
statements summarize certain provisions of the CAS Bonds and the Indenture. The
summary statements do not purport to be complete, and are subject and qualified
in their entirety by reference to all of the provisions of the Indenture and the
CAS Bonds, including the definitions therein of certain terms (generally
capitalized when used herein), which provisions and definitions are incorporated
herein by reference.
The CAS Bonds to be issued under the Indenture will be limited to a
minimum of $2,000,000 and a maximum of $5,000,000 aggregate principal amount.
The CAS Bonds are an outstanding debt obligation of ILX and, in terms of
preference, are junior to the Senior Indebtedness. In addition, the CAS Bonds
are secured by a first priority lien against all the issued and outstanding VCA
Stock. See "The Company -- The Varsity Clubs Concept." ILX is not required to
establish a sinking fund for the retirement of principal (see "Risk Factors --
Lack of Sinking Fund; Substantial Final Payment for the CAS Bonds"); however, if
ILX receives proceeds from the "key person" life insurance policy maintained
under the Indenture, such proceeds must be held by ILX in trust, to the full
extent of the principal amount of the CAS Bonds outstanding plus any accrued and
unpaid interest, for the payment of the principal on the CAS Bonds or used to
redeem or otherwise acquire the CAS Bonds at the discretion of the Board of
Directors. ILX may incur Senior Indebtedness (as defined in the Indenture and
described below) to which the CAS Bonds will be subordinated. There is no limit
on the amount of Senior Indebtedness that ILX or its subsidiaries may incur. See
"Risk Factors -- Subordination" and "Risk Factors -- No Limit on Additional Debt
of VCA." The CAS Bonds will mature on December 15, 2000. Each CAS Bond will bear
interest from the Initial Closing or the Final Closing, as appropriate, at a
rate of 10% per annum payable on January 1 and July 1 in each year ("Interest
Payment Dates") commencing January 1, 1996. Such interest installments will be
paid to the person in whose name the CAS Bond is registered on the Bond Register
maintained under the Indenture at the close of business on the Regular Record
Date for such interest, which shall be December 15 and June 15 (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date.
Principal and interest will be payable at the office or agency to be maintained
by the Trustee.
ILX will issue the CAS Bonds only in fully registered form, without
coupons, in denominations of $1,000. ILX will not assess a service charge for
any transfer or exchange of the CAS Bonds, but it may require payment of a sum
sufficient to cover the tax or governmental charge payable in connection
therewith. Holders may transfer the CAS Bonds by surrendering them for transfer
at the office of the Registrar, together with such written instrument of
transfer and evidence of compliance with applicable laws as ILX and the
Registrar may require. ILX has appointed the Trustee as the Registrar.
Conversion. Unless previously redeemed, each CAS Bond will be
convertible at any time after thirty (30) calendar days from the close of this
offering, at the option of the CAS Bondholder, into shares of ILX common stock
at the following conversion prices:
(i) Commencing 30 calendar days after the Initial Closing of this
offering and continuing until the 29th calendar day after the second
anniversary of the Initial Closing of this offering, the CAS Bonds will
be convertible into ILX common stock at the price of $2.50 per share;
(ii) On the 30th calendar day after the second anniversary of the
Initial Closing of this offering, the conversion price shall be
adjusted so that from that date until the 29th calendar day after the
fourth anniversary of the Initial Closing of this offering, the CAS
Bonds will be convertible into ILX common stock at a price equal to:
(a) seventy-five percent (75%) of the "Mark Price" of ILX common stock,
where the "Mark Price" is defined as a price equal to an average of the
closing price of ILX common stock as of the close of business each day
for the 30 calendar day period beginning 30 calendar days before the
second anniversary of the Initial Closing and ending on and including
the day before the second anniversary of the Initial Closing, or (b)
$2.50 per share, whichever is higher;
(iii) On the 30th calendar day after the fourth anniversary of the
Initial Closing of this offering, the conversion price shall be
adjusted so that from that date until maturity, the CAS Bonds will be
convertible into ILX common stock at a price equal to: (a) seventy-five
percent (75%) of the "Mark Price" of ILX common stock, where the "Mark
Price" is defined as a price equal to an average of the closing price
of ILX common stock as of the close of business each day for the 30
calendar day period beginning 30 calendar days before the fourth
anniversary of the Initial Closing and ending on and including the day
before the fourth anniversary of the Initial Closing, or (b) $2.50 per
share, whichever is higher.
On conversion, no adjustment for interest accrued on the CAS Bonds or
distributions on the ILX common stock will be made. ILX currently has reserved
1,380,000 shares of common stock for issuance upon conversion of the maximum
amount of CAS Bonds. The number of shares of ILX common stock reserved for
issuance may be adjusted upon termination of the offering if less than the
maximum amount of CAS Bonds are issued, and upon any adjustment in the
conversion price.
The conversion price is further subject to adjustment in certain events
including: (i) the payment of dividends on common stock in shares of common
stock; and (ii) the subdivision or combination of common stock. With respect to
CAS Bonds called for redemption, conversion rights expire at the close of
business on the last business day prior to the Redemption Date. No fractional
shares will be issued upon conversion, but ILX will pay cash in lieu thereof at
the fraction of the conversion price that corresponds to the fractional share.
Redemption. The CAS Bonds will be subject to redemption at the option
of ILX, in whole or in part, from time to time, at any time after ILX's common
stock has traded at a closing price in excess of $4.00 per share (subject to
adjustment for subdivision, combination and other events) for a period of 20
consecutive trading days, upon not less than 30 nor more than 60 days' notice
mailed to the holders thereof, at the Redemption Price of 120% of the
outstanding principal amount of each CAS Bond, together, in each case, with
interest accrued to the date fixed for redemption (subject to the right of a
holder on the Regular Record Date for an interest payment to receive such
interest).
ILX may elect to redeem less than all of the CAS Bonds. If ILX elects
to redeem less than all of the CAS Bonds, the Trustee will select which CAS
Bonds to redeem, using such method as it shall deem fair and appropriate. Such
method may include the selection for redemption of portions (equal to $1,000 or
any multiple thereof) of the principal amount of any CAS Bond of a denomination
larger than $1,000.
Senior Indebtedness. The CAS Bonds are subordinated and junior in right
of payment to the Senior Indebtedness of ILX to the full extent set forth in the
Indenture. As of September 30, 1995, the aggregate amount of outstanding Senior
Indebtedness was approximately $13.9 million. There is no limit on the amount of
Senior Indebtedness that ILX may incur. See "Risk Factors -- Subordination."
During the continuance of any default in payment of Senior Indebtedness, no
payment may be made by ILX on or in respect of the CAS Bonds. In the event of
any dissolution, winding-up, liquidation, or reorganization of ILX (whether in
bankruptcy, insolvency, or receivership proceedings or upon an assignment for
the benefit of creditors or otherwise), and except to the extent of the rights
of the CAS Bondholders to exercise their rights in respect of the VCA Stock, the
holders of Senior Indebtedness then outstanding will be entitled to receive
payment in full of all such Senior Indebtedness before the holders of CAS Bonds
are entitled to receive any payment on account of the principal of, premium, if
any, or interest on the CAS Bonds. Such subordination will not prevent the
occurrence of an Event of Default under the Indenture or the CAS Bonds, and will
not, of itself, affect the rights of the CAS Bondholders to enforce their rights
with respect to the VCA Stock.
In the event of a default on the Senior Indebtedness, no payment may be
made by ILX on or in respect of the CAS Bonds. However, the existence of a
default in payment of Senior Indebtedness shall not prevent the existence of an
Event of Default on or in respect of the CAS Bonds. In addition, the
subordination of the CAS Bonds does not affect the rights of the CAS Bondholders
(including upon the occurrence of an event of default on the Senior
Indebtedness) to enforce their first priority rights with respect to the VCA
Stock, including the rights to foreclose or take other action against the VCA
Stock upon the occurrence of an Event of Default. If the CAS Bondholders
successfully foreclose upon and aquire the VCA Stock, then the CAS Bondholders
as a group would have the rights of shareholders of VCA to control VCA's assets,
subject to VCA's organizational documents and the rights of VCA's creditors. See
"Risk Factors -- Effect of Default on Payments."
"Senior Indebtedness" is defined in the Indenture as "the principal of,
premium (if any) and interest on any and all Indebtedness of the Company (other
than the [CAS] Bonds) incurred in connection with (i) the borrowing of money
from or guaranteed to banks, trust companies, leasing companies, insurance
companies and other financial institutions, including all Indebtedness to such
institutions and other specialized industry lenders to the extent it is secured
by real estate and/or assets of the Company, evidenced by bonds, debentures,
mortgages, notes or other securities or other instruments, (ii) purchase money
Indebtedness incurred to or assumed from or on behalf of a seller in connection
with the acquisition of assets by the Company, (iii) the borrowing of money from
any source (including from Affiliates of the Company) for the purpose of
financing timeshare arrangements and secured by receivables or timeshare
interests generated from the sales of interval ownership interests by the
Company or any Subsidiary, or (iv) notes payable arising from the acquisition of
stock in [Red Rock Collection] and the acquisition of partnership interests in
[LAP], in each instance under (i), (ii) and (iii), to the extent such
Indebtedness is incurred, assumed or guaranteed by the Company before, at or
after the date of execution of this Indenture, and all renewals, extensions and
refundings thereof, unless in the instrument creating or evidencing any such
Indebtedness or pursuant to which such Indebtedness is outstanding, it is
provided that such Indebtedness, or such renewal, extension or refunding
thereof, is junior or is not superior in right of payment to the [CAS] Bonds."
Events of Default. The Indenture defines the following as "Events of
Default": (1) default in the payment of interest and the continuance of such
default for 30 days after becoming due; (2) failure to pay principal (or
premium, if any) when due at maturity or upon redemption; (3) failure to
perform any other covenants for 60 days after written notice specifying the
default and allowing ILX to remedy such default; or (4) certain events of
bankruptcy, insolvency, or reorganization.
The Indenture provides that the Trustee shall, within 90 days after the
occurrence of an Event of Default, give the CAS Bondholders written notice of
all uncured defaults known to it. The term "default" means the above specified
events without grace periods; provided that, except in the case of default in
the payment of principal of (or premium, if any) or interest on any of the CAS
Bonds, the Trustee shall be protected in withholding such notice if and so long
as it in good faith, determines that the withholding of such notice is in the
interest of the CAS Bondholders.
If an Event of Default shall occur, and be continuing, either the
Trustee or the holders of at least a majority in aggregate principal amount of
outstanding CAS Bonds may accelerate the maturity of all such outstanding CAS
Bonds. Prior to acceleration of maturity of such CAS Bonds, the CAS Bondholders
of at least a majority in principal amount of outstanding CAS Bonds may waive
any past defaults under the Indenture, except for default in certain covenants
as provided in the Indenture, which require unanimous consent. The CAS
Bondholders of at least a majority in principal amount of outstanding CAS Bonds
may waive an Event of Default resulting in acceleration, and annul the
acceleration, of such CAS Bonds, but only if all the Events of Default have been
remedied and all payments (other than those due as a result of acceleration)
have been made.
Upon an Event of Default, and following the passage of any applicable
grace periods, the Trustee under the Indenture or the holders of a majority in
principal amount of the CAS Bonds outstanding, on behalf of all the holders of
the CAS Bonds, may institute proceedings and collect monies adjudged payable out
of the property of ILX, subject to the rights of holders of Senior Indebtedness.
Such proceedings may include (1) enforcing the rights of the CAS Bondholders as
against the VCA Stock (by the Trustee acting at the direction of a majority in
principal amount of the CAS Bonds), or (2) an action against other assets of
ILX, provided that the ability of the CAS Bondholders to recover directly from
ILX (including in the event the value of the security is insufficient to satisfy
the CAS Bonds) is subject to the rights of the holders of Senior Indebtedness.
Absent a security interest or interests granted by VCA as to specific assets of
VCA, holders of Senior Indebtedness of ILX may not reach the assets of VCA.
However, there is no limitation on VCA's ability to incur debt or encumber its
assets, including encumbrances of VCA's assets to secure Senior Indebtedness.
There does not currently exist any encumbrance on the VCA Stock that is
senior to the security interest of the CAS Bondholders. Without the consent of
the CAS Bondholders, ILX may not grant any security interest in the VCA Stock
senior to the security interest of the CAS Bondholders.
Upon an application by ILX to the Trustee to take any action under the
Indenture, ILX must deliver an officer's certificate and an opinion of counsel
regarding ILX's compliance with conditions precedent to the taking of the
requested action. In addition, annually ILX must deliver a certificate of
certain officers of ILX concerning their knowledge, if any, of any default, and
of ILX's compliance with the Indenture.
Modification, Waiver of Certain Covenants and Satisfaction of
Indenture. With certain exceptions that permit modifications of the Indenture by
ILX and the Trustee only, the Indenture, the rights and obligations of ILX and
the rights of CAS Bondholders may be modified by ILX with the consent of holders
of not less than a majority in aggregate principal amount of outstanding CAS
Bonds affected thereby; provided that ILX may make no such modification without
the consent of the holder of each CAS Bond affected thereby if such modification
would (1) impair or affect the rights of the CAS Bondholders to receive
principal (or premium, if any) and interest at the Stated Maturity, (2) impair
or affect the right to institute suit for the enforcement of any such payment on
or with respect to any such CAS Bond (except as to postponement of an interest
payment as provided below), or (3) modify the foregoing requirements. The
holders of not less than seventy-five percent (75%) in aggregate principal
amount of outstanding CAS Bonds may consent to a postponement of any interest
payment for a period not exceeding three years from its due date. No
supplemental indenture shall affect adversely the rights of the holders of
Senior Indebtedness without the consent of such holders.
The holders of a majority in aggregate principal amount of outstanding
CAS Bonds may waive ILX's compliance with certain restrictive provisions of the
Indenture.
The Indenture shall be satisfied and discharged when (i) either (a) all
authenticated and delivered CAS Bonds have been delivered to the Trustee for
cancellation; or (b) all CAS Bonds not delivered for cancellation are or will be
due and payable, or are to be called for redemption, within one year, and ILX
has deposited sufficient amounts with Trustee to pay the amounts due on the CAS
Bonds; (ii) ILX has paid all other sums payable by ILX under the Indenture; and
(iii) ILX has delivered a certificate of an officer of ILX and a opinion of
counsel stating that all conditions precedent to discharge have been completed.
Secured Interest. The CAS Bonds are an outstanding debt obligation of
ILX and, in terms of preference, are junior to the Senior Indebtedness. In
addition, the VCA Stock has been pledged to secure the obligations evidenced by
the CAS Bonds. The stock pledge represents a first priority lien against the VCA
Stock. If ILX fails to satisfy its obligations under the CAS Bonds and it
becomes necessary for the CAS Bondholders to elect to foreclose their interest
in the VCA Stock, there can be no assurance that the proceeds received from such
foreclosure will be adequate to satisfy amounts due under CAS Bonds. In
addition, the value of the VCA Stock may be reduced significantly if it is held
other than by ILX or if the then current value of the VCA Stock at the time of
such foreclosure has diminished. See "Risk Factors -- Security for CAS Bonds May
Not Be Adequate."
Appraisal. An appraisal concerning the value of the VCA Stock was
prepared by The Mentor Group, Inc., an independent appraisal and valuation firm
that is not affiliated with and was previously unknown to ILX. The Mentor Group
established a valuation for VCA of $26,300,000 (the "Appraisal"), an amount that
is substantially in excess of VCA's current book deficit as of September 30,
1995 totaling ($158,000). The Appraisal was prepared to comply with the terms of
the Trust Indenture Act of 1939, which may require the Company to provide the
Trustee under the CAS Bonds with an appraisal setting forth the value of VCA to
ILX. The appraiser requested and was provided with ILX's internal financial
projections prepared for VCA for use in raising funds from third party
investors. The financial projections prepared by ILX's management were based on
assumptions regarding VCA that are believed by ILX's management to be
reasonable. Those assumptions were made based on management's combined
experience in the timeshare and hotel industries and assume availability of
financing necessary for growth. The assumptions include assessments of VCA's
future success rates in marketing timeshare interests in its facilities
(including that VCA would achieve sales of approximately 70% of the combined
timeshare inventory by the end of 1997 from the first three facilities
constructed on a timely basis), the likely prices at which such intervals would
be sold, room night rental prices (assuming occupancy rates of 73% to 78%)
averaging $78.00 to $80.00 per night, maintenance subsidies for timeshare
intervals of approximately $18.00 per day, cash flows from timeshare sales
payments based on downpayments of 30% and notes receivable of 70% of sales
prices, that the notes receivable may be financed to generate immediate cash
equal to 85% of their face values with receipt of the balance upon customers'
payment of their notes, and construction costs for the standard facility
averaging $6.0 million (with approximate amounts of $700,000 paid for land,
$300,000 for land improvements, $3.9 million for direct construction costs and
$1.1 million for furniture, fixtures and equipment). Based on ILX's internal
financial projections for VCA, the appraiser then prepared its own projections
(attached to the Appraisal) of cash flows through 1999, including an estimated
terminal value, all of which were discounted to present value using a
capitalization factor determined by the appraiser. The appraiser projected
growth of VCA's business based on ILX management's growth projections to assume
the addition of three VCA facilities each year, which is substantially in excess
of VCA's historic growth rate during its start-up phase. Resulting cash flow
projections also are substantially in excess of VCA's historic performance.
ILX's management believes such growth is reasonable assuming sale of the CAS
Bonds and ILX's continuing ability to secure construction and timeshare
financing for new facilities commensurate with its recent acquisition of
financing for VCA's Notre Dame facility and Tucson facility. See "Risk Factors
- -- Appraisal;" Assumptions in Excess of Historic Performance; VCA Stock May be
Inadequate Security." However, no assurance can be given that ILX or VCA will
achieve such projections or that ILX or VCA will achieve the projected results
even if such projections are met. If VCA does not achieve the projected growth
or cash flows, VCA's financial condition would be undermined, thereby underming
the value of the VCA Stock securing the CAS Bonds. The description of the
Appraisal is qualified in its entirety by reference to the Appraisal and the
exhibits attached thereto. A Statement of the Assumptions and Limiting
Conditions is set forth in the Appraisal. In particular, the Statement discloses
that, in preparing its analysis, The Mentor Group relied on certain of ILX's
financial statements, projections for VCA and related assumptions, and other
pertinent data. The Mentor Group accepted the information it received from ILX
without further verification (except as otherwise noted in the Appraisal) as a
reflection of ILX's and VCA's overall business operations and conditions. A
potential investor in the CAS Bonds should refer to the Statement attached to
the Appraisal, which is incorporated herein by reference.
The Trustee. U.S. Trust Company of California, N.A. will be the Trustee
under the Indenture. The Trustee need not take any action in the enforcement of
any remedy available to the Trustee if the Trustee does not have sufficient
indemnification against loss or expense.
Certain Covenants
Restrictions on Dividends. For such time as at least 50% of the
principal amount of the CAS Bonds remain outstanding ILX will not declare or pay
any cash dividends or dividends in kind on its shares of common stock other than
dividends payable solely in shares of ILX common stock.
Limitation on Liquidation. Neither the board of directors nor the
holders of common stock of ILX shall adopt a plan of liquidation that provides
for (i) the sale, lease, conveyance or other disposition of all of the assets of
ILX, other than substantially as an entirety, and (ii) the distribution of all
or substantially all of the proceeds of such transaction, and of the remaining
assets of ILX, to the holders of common stock or preferred stock unless ILX,
prior to making any liquidating distribution pursuant to such plan, makes
provision for the satisfaction of its obligations as to the payment of principal
and interest on the CAS Bonds.
Overhead Allocation Limitation. ILX shall maintain its annual
expenditures for general and administrative costs at an amount not to exceed 16%
of ILX's gross revenue.
Limitation on Change of Control. ILX shall not experience a change in
control, where "change in control" means (a) when any person, or any persons
acting together that would constitute a "group" for purposes of Section 13(d) of
the Securities Exchange Act of 1934 (other than a person or group including or
comprised of ILX, an entity in which Joseph P. Martori, Edward J. Martori or
Martori Enterprises Incorporated owns an interest (or any of them individually),
any subsidiary, any employee stock purchase plan, stock option plan or other
incentive plan or program, retirement plan or automatic dividend reinvestment
plan or any substantially similar plan of ILX or any subsidiary or any person
holding securities of ILX for or pursuant to the terms of any such plan,
together with any affiliates thereof), acquires beneficial ownership (as defined
in Rule 13d-3 under the Exchange Act) of at least a majority of all classes of
capital stock of ILX, or (b) all or substantially all of ILX's assets (defined
as greater than 75% of the fair market value of ILX's assets) are sold as an
entirety to any person or related group of persons in any one transaction or
series of related transactions.
A "change in control" does not violate the covenant if (i) the market
price of the common stock on the date of the change in control occurred is at
least 105% of the conversion price of the CAS Bonds in effect immediately
preceding the time of the change in control, or (ii) all of the consideration
(excluding cash payments for fractional shares) in the transaction giving rise
to the change in control to the holders of common stock consists of securities
that are, or are immediately upon issuance will be, listed on a national
exchange or quoted on a quotation system, and as a result of such transaction
the CAS Bonds become convertible into such security, or (iii) the consideration
in the transaction giving rise to the change in control to the holders of the
common stock consists of cash, securities that are, or immediately upon issuance
will be, listed on a national securities exchange or quoted on a quotation
system, or a combination of cash and such securities and the aggregate fair
value of such consideration is at least 105% of the conversion price of the CAS
Bonds in effect on the date immediately preceding such transaction, or (iv) the
CAS Bonds or the shares of common stock into which the CAS Bonds are convertible
are freely tradeable without restriction in time or quantity with respect to
sales of CAS Bonds or shares of common stock.
The Indenture offers limited or no protection to the CAS Bondholders in
the event of a leveraged buyout initiated by ILX, certain management of ILX, or
any of their affiliates, or by an entity in which they have an interest.
Limitation on Merger. ILX may not merge into or consolidate with any
other corporation in a transaction in which ILX is not the surviving corporation
unless: (i) the successor is a corporation organized under the laws of any
domestic jurisdiction; (ii) the successor corporation assumes ILX's obligations
on the CAS Bonds and under the Indenture; (iii) after giving effect to the
transaction, no default, and no event that, after notice of lapse of time, would
become a default, shall have occurred and be continuing; (iv) the successor
corporation must have a class of equity securities listed on a national exchange
or quotation system, and the CAS Bonds must be convertible into such securities;
and (v) ILX delivers to the Trustee appropriate opinions and certifications as
to compliance with conditions precedent under the Indenture.
Description of ILX Common Stock
Each share of ILX common stock entitles the holder thereof to one vote
in all matters submitted to a vote of ILX's shareholders, except that election
of directors shall be by cumulative voting to the extent and in the manner
provided by Arizona law. Cumulative voting requires that in any election for
board members, each share of stock is entitled to a total number of votes equal
to the total number of board members to be elected. Such votes may be cast for
one or more directors as the shareholder desires. No holder of ILX common stock
has any preemptive right to subscribe for or purchase additional shares of ILX's
stock. Holders of ILX common stock are entitled to share ratably in all
dividends not attributable to the Series A or Series C Stock that are declared
by the Board of Directors and in all assets available for distribution upon
liquidation after giving effect to the liquidation preferences of the Series A,
Series B and Series C Stock.
Description of Series A Stock
Pursuant to the plan of reorganization of BIS-ILE Associates dated
September 10, 1991 (see "The Company--Other Wholly Owned Subsidiaries--ILE
Sedona Incorporated), the unsecured trade creditors of BIS-ILE Associates agreed
to accept 82,540 shares of ILX's non-voting Series A Preferred Stock, $10.00 par
value ("Series A Stock"), in full satisfaction of a debt to such trade creditors
in the amount of $825,400. Accordingly, ILX authorized 110,000 shares of Series
A Stock, 66,769 shares of which remain issued and outstanding at September 30,
1995. Beginning July 1, 1996, the Series A Stock is entitled to an annual
dividend of $.80 per share when and as declared by ILX's Board of Directors out
of funds legally available therefor. Dividends may not be paid on ILX common,
Series B or Series C Stock until the Series A Stock sinking fund requirements
and dividends payments are satisfied.
The Series A Stock has a liquidation preference of $10.00 per share
that is superior to the liquidation preferences of the Series B Stock and Series
C Stock and the liquidation rights on the ILX common stock. Prior to June 30,
1996, ILX may redeem the Series A Stock at a price of $10.00 per share.
Beginning January 1, 1993, ILX, through one of its affiliates, is required
quarterly to make provision for a dividend sinking fund in an amount equal to
$100 for each unrescinded timeshare sale in the Sedona Vacation Club at Los
Abrigados Resort & Spa made during the preceding calendar quarter, adjusted for
certain conversions of Series A Stock into Lodging Certificates, as described
below.
Before June 30, 1996, each holder of Series A Stock may exchange up to
$35,000 par value of Series A Stock for "Lodging Certificates" at the rate of
one Lodging Certificate for every fifteen shares of Series A Stock so exchanged.
Subject to certain conditions, a Lodging Certificate may be exchanged for one
night's stay at Los Abrigados Resort & Spa. Additionally, a holder of more than
one thousand shares of Series A Stock may exchange one thousand shares of Series
A Stock plus $2,100 for a timeshare membership in the Sedona Vacation Club at
Los Abrigados Resort & Spa in Sedona, Arizona. The foregoing discussion of the
Series A Stock is qualified in its entirety by reference to the Certificate of
Designation of the Series A Stock, a copy of which may be obtained from ILX.
Description of Series B Stock
Pursuant to the plan of reorganization of BIS-ILE Associates, ILX
authorized and issued 275,000 shares of non-voting Series B Convertible
Preferred Stock, $10.00 par value ("Series B Stock"), in full satisfaction of a
debt to B.I. Sedona, Inc., in the amount of $2,750,000, 55,000 shares of which
remain issued and outstanding at September 30, 1995.
The Series B Stock has a liquidation preference of $10.00 per share
that is junior to the liquidation preference of the Series A Stock but senior to
the liquidation preference of the Series C Stock and the liquidation rights on
the ILX common stock. Prior to June 30, 1996, ILX may redeem the Series B Stock
at a price of $10.00 per share. From and after July 1, 1996, each share of
Series B Stock may be converted into two shares of ILX common stock. The
conversion rate shall be adjusted for dividends paid in ILX common stock, stock
splits, reverse stock splits and stock reclassifications.
Prior to June 30, 1996, a holder of Series B Stock may exchange up to
$100,000 par value of Series B Stock for Lodging Certificates at the rate of one
Lodging Certificate for every fifteen shares of Series B Stock so exchanged.
Additionally, a holder of more than one thousand shares of Series B Stock may
exchange one thousand shares of Series B Stock plus $2,100 for a timeshare
membership in the Sedona Vacation Club at Los Abrigados Resort & Spa in Sedona,
Arizona. The foregoing discussion of the Series B Stock is qualified in its
entirety by reference to the Certificate of Designation for the Series B Stock,
a copy of which may be obtained from ILX.
Description of Series C Stock
In connection with the Merger of Genesis into ILX's wholly-owned
subsidiary, ILX authorized 309,000 shares of non-voting Series C Convertible
Preferred Stock, $10.00 par value ("Series C Stock"). ILX issued 305,652 shares
of Series C Stock, of which 290,748 shares remain issued and outstanding at
September 30, 1995. The Series C Stock has been issued, along with certain
shares of ILX common stock, to former Genesis Shareholders in exchange for their
Genesis common stock.
The Series C Stock is entitled to receive dividends, when and as
declared by ILX's Board of Directors, out of any funds legally available
therefore at the rate of $.60 per share per annum (the "Dividend Preference"),
payable in preference and priority to any payment of any dividend on ILX common
stock but subordinate and subject to the dividend rights of the Series A Stock.
Except for Cumulation Shares (as hereafter defined) issuable on conversion or
liquidation of the Series C Stock, the right to Dividend Preference is not
cumulative. If, during any year prior to the fifth anniversary (November 1,
1998) of the effective date of the Merger between ILX's wholly owned subsidiary,
ILEAC, and Genesis (see "The Company - Other Wholly Owned Subsidiaries --
Genesis"), the Dividend Preference is not paid in full, the unpaid portion
thereof will accumulate through November 1, 1998 (the total amount of such
cumulation expressed in dollars is referred to herein as the "Dividend
Arrearage"). ILX is not required to pay the Dividend Preference in cash except
upon liquidation. "Cumulation Shares" means the total Dividend Arrearage (as of
the date of calculation thereof) owed to any holder of Series C Stock with
respect to all shares of Series C Stock owned of record by such holder divided
by $6.00. Partial fiscal years are to be equitably prorated. The Series C Stock
has a liquidation preference of $10.00 per share plus any Dividend Arrearage
allocable to such shares. Such liquidation preference is subordinate to the
liquidation preferences of ILX's Series A Stock and Series B Stock. The Series C
Stock may be redeemed by ILX at any time on or after November 1, 1996 at a price
of $10.00 per share plus payment of all declared but unpaid dividends. At the
option of the holder, shares of Series C Stock may be converted into shares of
ILX common stock after November 1, 1994 but prior to November 1, 2003 at a rate
of five shares of ILX common stock for every three shares of Series C Stock. A
holder of Series C Stock also shall convert the applicable Dividend Arrearage
with respect to such shares into ILX common stock at the rate of one share of
ILX common stock for every $6.00 of Dividend Arrearage. This summary of the
terms of the Series C Stock is qualified in its entirety by the Certificate of
Designation of the Series C Stock, a copy of which may be obtained from ILX.
Arizona Anti-takeover Legislation and Anti-takeover Devices
Arizona Revised Statutes Sections 10-1201 et seq. were adopted by the
Arizona legislature in an attempt to prevent corporate "greenmail" and to
restrict the ability to acquire domestic corporations. These statutes generally
apply to business combinations or control share acquisitions of "issuing public
corporations," which are defined as corporations having a class of equity
securities registered pursuant to Section 12 of the Exchange Act or subject to
Section 15(d) of the Exchange Act and either (i) incorporated under the laws of
Arizona or (ii) having a principal place of business or principal executive
office in Arizona, owning or controlling assets in Arizona that have a fair
market value of at least $1,000,000 and having more than 500 employees residing
in Arizona. ILX has securities registered pursuant to Section 12 of the Exchange
Act and is subject to Section 15(d) of the Exchange Act, and therefore is
subject to these statutes. These statutes could impede an acquisition of ILX and
its affiliates.
Arizona Revised Statutes Section 10-1204 limits the ability of a
corporation to repurchase stock from a beneficial owner of more than 5% of the
voting power of an issuing public corporation unless certain conditions are
satisfied. ARS Section 10-1205 limits the ability of the issuing public
corporation to enter into or amend any agreements containing provisions that
increase the current or future compensation of any officer or director of the
issuing public corporation during any tender offer or request or invitation for
tenders of any class or series of shares of the issuing public corporation
(other than an offer, request or invitation by the issuing public corporation).
ARS Section 10-1211 regulates control share acquisitions, defined as a direct or
indirect acquisition of beneficial ownership of shares of an issuing public
corporation that would, when added to all other shares of the issuing public
corporation beneficially owned by the acquiring person, entitle the acquiring
person immediately after the acquisition to exercise either (a) more than 20%
but less than 33-1/3% or (b) at least 33- 1/3% but less than 50% or (c) more
than 50% of the voting power. Among other things, control share acquisitions
exclude statutory mergers and acquisitions, and acquisitions pursuant to
security agreements. Within ten days after engaging in a control share
acquisition, the acquiring person must deliver to the issuing public corporation
an information statement setting forth the identity of the acquiring person and
all of its affiliates, the number and class of securities of the issuing public
corporation beneficially owned before, and to be acquired in, the control share
acquisition, and the terms of the control share acquisition. The shares acquired
in a control share acquisition have all the same voting rights as other shares
in elections for directors, but do not have the right to vote on other matters
unless approved by a resolution of shareholders of the issuing public
corporation other than the acquiring person and any officer or director. If the
shareholders vote not to accord voting rights to the shares acquired by the
acquiring person, the issuing public corporation may redeem the control shares
at their then current market price. Finally, in certain circumstances, ARS
Section 10-1221 prohibits an issuing public corporation or a subsidiary thereof
from engaging in a business combination with any interested shareholder of the
issuing public corporation or any affiliate or associate of the interested
shareholder for three years after the interested shareholder's share acquisition
date.
The constitutionality of these provisions of Arizona law has not been
tested under Arizona or federal law. No assurance can be given that such
statutes would withstand any such constitutional challenge. The existence of
these statutes may make ILX a less attractive merger or acquisition candidate.
Except as described above with respect to the statutory provisions of
the Arizona anti-takeover laws, ILX has not adopted any anti-takeover devices
with respect to its equity or debt securities, including the CAS Bonds. See
"Risk Factors -- Arizona Anti-takeover Provisions."
INFORMATION ABOUT THE REGISTRANT
Information regarding ILX is incorporated by reference from ILX's 10-K,
ILX's 10-Qs, ILX's Proxy Statement and ILX's S-2 Registration Statement. Copies
of ILX's 10-K, ILX's most recent 10-Q and ILX's Proxy Statement accompany this
Prospectus.
In late July, 1995, ILX borrowed $900,000 from Edward J. Martori and
the Cynthia J. Polich Irrevocable Trust, of which Joseph P. Martori is a
trustee. The note bears interest at 13.5% and is secured by 320 timeshare weeks
in the Sedona Vacation Club at Los Abrigados Resort & Spa. This debt will be
repaid from the proceeds of this offering. The associated agreements are
incorporated into the Registration Statement of which this Prospectus is a part,
and the foregoing description is qualified in its entirety by reference to those
agreements. See "Use of Proceeds."
Effective as of November 21, 1995, after the filing with the Securities
and Exchange Commission of ILX's third quarter Form 10-Q, ILX, ILES and LAP
entered into a Management Agreement with Bennett Funding International, Ltd., a
copy of which is attached to the Registration Statement of which this Prospectus
is a part. (See "The Company -- General.")
SEC POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Articles 13 and 14 of ILX's Articles of Incorporation, under certain
circumstances, provide for the indemnification of ILX's officers and directors
against liabilities they may incur in such capacities. A summary of the
circumstances in which such indemnification is provided is contained herein, but
that description is qualified in its entirety by reference to Articles 13 and 14
of ILX's Articles of Incorporation.
In general, any director or officer of ILX is eligible to be
indemnified against all expenses, including attorneys' fees, judgments, fines,
punitive damages and amounts paid in settlement, that were incurred in
connection with a proceeding to which the director or officer was a party as a
result of his or her relationship with ILX, unless (1) the individual breached
his or her duty of loyalty to ILX, (2) the individual's acts or omissions are
not in good faith, (3) the individual engaged in intentional misconduct or
knowing violation of law, or (4) indemnification is expressly prohibited by
applicable law. In addition, ILX will not indemnify a director or officer for
any liability incurred in a proceeding initiated (or participated in as an
intervenor or amicus curiae) by the officer or director seeking indemnification
unless such initiation or participation is authorized by the affirmative vote of
a majority of the directors in office.
ILX shall advance funds to pay the expenses of any officer or director
involved in a proceeding provided ILX receives an undertaking that the
individual will repay the funds if it is ultimately determined that he or she is
not entitled to indemnification. The indemnification rights granted to ILX's
officers and directors are deemed to be a legally binding contract between ILX
and each such officer and director. Any repeal, amendment or modification of
Articles 13 or 14 of ILX's Articles of Incorporation shall be effective
prospectively and shall not affect any prior rights or obligations concerning
the indemnification of ILX's officers and directors.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, the Registrant has been
informed 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.
LEGAL MATTERS
Certain legal matters in connection with the authorization and issuance
of the CAS Bonds and the shares of ILX common stock issuable upon conversion
thereof will be passed upon for ILX by Colombo & Bonacci, P.C., Phoenix,
Arizona. Thelen, Marrin, Johnson & Bridges, Los Angeles, California, is acting
as counsel to the Placement Agent in connection with certain legal matters
relating to the CAS Bonds offered hereby.
UNDERTAKINGS
Beginning after the closing of the offering, all investors will be
provided annually with financial statements of the issuing entity and its
subsidiaries, including a balance sheet and the related statements of income and
retained earnings and changes in financial position, accompanied by a report of
an independent public accountant stating that an audit of such financial
statements has been made in accordance with generally accepted accounting
principles, stating the opinion of the accountant with respect to the financial
statements and the accounting principles and practices reflected therein and
with respect to the consistency of the application of the accounting principles,
and identifying any matters to which the accountant takes exception and stating,
to the extent practicable, the effect of each such exception on such financial
statements.
ILX does not currently make loans to its affiliates. Further, all
future material affiliated transactions and loans with affiliates of ILX will be
made or entered into on terms that are no less favorable to ILX than those that
can be obtained from an unaffiliated third party, and any such transaction,
including any forgiveness of loans, shall be approved by a majority of the
directors who do not have an interest in the transaction.
INDEX TO FINANCIAL STATEMENTS
The VCA Financial Statements are attached to this Prospectus as an
exhibit and made a part hereof.
VARSITY CLUBS OF AMERICA
Independent Auditors' Report........................................F-1
Consolidated Balance Sheets as of September 30, 1995
and December 31, 1994 and 1993......................................F-2
Consolidated Statements of Operations for the nine months ended
September 30, 1995 and for the year ended December 31, 1994.........F-3
Consolidated Statements of Shareholder Equity for the years
ended December 31, 1991, 1992, 1993 and 1994........................F-4
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1995 and for the year ended December 31, 1994.........F-5
Notes to Consolidated Financial Statements..........................F-6
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Varsity Clubs of America Incorporated
Phoenix, Arizona
We have audited the accompanying balance sheets of Varsity Clubs of America
Incorporated (the "Company") as of December 31, 1994 and 1993, the statements of
operations and of cash flows for the year ended December 31, 1994, and the
statements of shareholders' equity for each of the three years in the period
ended December 31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1994 and
1993, and the results of their operations and their cash flows for the year
ended December 31, 1994 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
July 26, 1995
<TABLE>
VARSITY CLUBS OF AMERICA INCORPORATED
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, December 31, December 31,
1995 1994 1993
------ ------- --------
(Unaudited)
<S> <C> <C> <C>
Assets
Cash and cash equivalents (Note 6) $ 317,554 $ 97,502 $ 15
Notes receivable, net (Note 2) 991,537 251,679 26
Resort property held for timeshare sales 7,076,351 -- --
Resort property under development
(Note 3) 1,045,515 1,735,592 --
Deferred assets (Note 4) 361,062 204,383 221,336
Property and equipment, net (Note 5) 134,979 60,266 --
Other assets 132,752 7,670 --
----------- ---------- --------
$10,059,750 $2,357,092 $221,377
=========== ========== ========
Liabilities and Shareholder Equity
Accounts payable $ 247,967 $ 67,817 $3,623
Accrued and other liabilities 1,076,857 92,161 --
Due to affiliates (Note 6) 4,366,405 1,788,294 203,866
Deferred income (Note 3) -- 365,195 --
Notes payable (Note 7) 4,526,044 400,784 --
----------- ---------- --------
10,217,273 2,714,251 207,489
----------- ---------- --------
Shareholder Equity
Common stock, no par value; 1,000,000
shares authorized; 1,000 issued
and outstanding 126,095 126,095 126,095
Retained Deficit (283,618) (483,254) (112,207)
----------- ---------- --------
(157,523) (357,159) 13,888
----------- ---------- --------
$10,059,750 $2,357,092 $221,377
=========== ========== ========
See notes to consolidated financial statements
</TABLE>
<TABLE>
VARSITY CLUBS OF AMERICA INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Nine months Year ended
ended September 30, December 31,
1995 1994
---- ----
(unaudited)
<S> <C> <C>
Revenues
Sales of timeshare interests $4,329,074 $ --
Resort operating revenue 60,175 --
Commissions on timeshare interests sold 98,831 149,446
---------- -------
4,488,080 149,446
---------- -------
Cost of sales and operating expenses
Cost of timeshare interests sold 1,913,849 98,022
Cost of resort operations 219,512 --
Advertising and promotion 1,248,005 525,184
General and administrative 128,738 29,205
Provision for doubtful accounts 259,825 --
--------- --------
3,769,929 652,411
--------- --------
Operating income (loss) 718,151 (502,965)
Other income (expense)
Interest expense (444,959) (115,447)
Interest income 59,535 --.
Income (loss) before income taxes 332,727 (618,412)
Income taxes (133,091) 247,365
---------- --------
Net income (loss) $ 199,636 $(371,047)
========== =========
See notes to consolidated financial statements
</TABLE>
<TABLE>
VARSITY CLUBS OF AMERICA INCORPORATED
CONSOLIDATED STATEMENTS OF SHAREHOLDER EQUITY
<CAPTION>
Common Stock
--------------------
Accumulated
Shares Amount Deficit Total
------- ------- ------------ -------
<S> <C> <C> <C> <C>
Balances, December 31, 1991 1,000 $ 98,866 $(112,207) $(13,341)
Additional capital contribution --- 27,229 --- 27,229
-------- -------- --------- ---------
Balances, December 31, 1992 and 1993 1,000 126,095 (112,207) 13,888
Net loss --- --- (371,047) (371,047)
--------- -------- -------- ---------
Balances, December 31, 1994 1,000 126,095 (483,254) (357,159)
Net income (unaudited) --- --- 199,636 199,636
--------- -------- --------- ---------
Balances, September 30, 1995 (unaudited) 1,000 $126,095 $(283,618) $(157,523)
========= ======== ========= =========
See notes to consolidated financial statements
</TABLE>
<TABLE>
VARSITY CLUBS OF AMERICA INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Nine months ended Year ended
September 30, December 31,
1995 1994
---- ----
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 199,636 $ (371,047)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Additions to notes receivable (2,358,607) (251,653)
Proceeds from sale of notes receivable 1,358,924 --
Provision for doubtful accounts 259,825 --
Depreciation and amortization 23,222 1,035
Change in assets and liabilities:
Increase in resort property held for
timeshare sales (5,352,745) --
Increase in resort property under development (344,115) (1,735,592)
Increase in other assets (125,082) (7,670)
Increase in accounts payable 180,150 64,194
Increase in accrued and other liabilities 984,696 92,161
Increase (decrease) in deferred income (365,195) 365,195
----------- ----------
Net cash used in operating activities (5,539,291) (1,843,377)
----------- ----------
Cash flows from investing activities:
(Increase) decrease in deferred assets (156,679) 16,953
Purchases of plant and equipment (85,949) (61,301)
----------- ----------
Net cash used in investing activities (242,628) (44,348)
----------- ----------
Cash flows from financing activities:
Proceeds from notes payable 5,211,148 400,784
Principal payments on notes payable (1,787,288) --
Increase in due to affiliates 2,578,111 1,584,428
----------- ----------
Net cash provided by financing activities 6,001,971 1,985,212
----------- ----------
Net increase in cash and cash equivalents 220,052 97,487
Cash and cash equivalents at beginning of period 97,502 15
----------- ----------
Cash and cash equivalents at end of period $ 317,554 $ 97,502
=========== ==========
See notes to consolidated financial statements
</TABLE>
VARSITY CLUBS OF AMERICA INCORPORATED
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
Principles of Consolidation and Business Activities
The consolidated financial statements include the accounts of Varsity Clubs of
America Incorporated and its wholly-owned subsidiaries ("VCA" or the "Company").
All significant intercompany transactions and balances have been eliminated in
consolidation. VCA is a wholly owned subsidiary of ILX Incorporated ("ILX").
The Company's significant business activities include developing, operating,
marketing and financing ownership interests in quality lodging accommodations
near prominent colleges and universities.
There was no income statement activity in 1992 and 1993.
Revenue Recognition
- -------------------
Revenue from sales of timeshare interests is recognized in accordance with
Statement of Financial Accounting Standard No. 66, Accounting for Sales of Real
Estate ("SFAS No. 66"). No sales are recognized until such time as a minimum of
10% of the purchase price has been received in cash, the buyer is committed to
continued payments of the remaining purchase price and the Company has been
either released of, or has provided for, the delivery of all future obligations
for the timeshare interest. Revenue will be recognized by the percentage of
completion method as development and construction proceeds and as the costs of
development and profit can be reasonably estimated.
Income Taxes
- ------------
VCA has an informal tax sharing agreement with ILX under which it receives a tax
benefit from ILX for tax losses included in the ILX tax return if such losses
can be utilized by ILX. Amounts will be payable by VCA to ILX when VCA taxable
income is included in the ILX tax return. This payable will be calculated based
upon taxes that VCA would owe on a stand alone basis. Deferred tax assets and
liabilities are recorded when there is a difference between the tax basis of
such accounts in the ILX consolidated tax returns and the financial statement
basis. At December 31, 1994, due to affiliates included a current tax receivable
of $165,969 and a deferred tax asset of $90,290.
Statements of Cash Flows
- ------------------------
Cash equivalents are highly liquid investments with an original maturity of
three months or less. During the year ended December 31, 1994, the Company paid
interest of approximately $30,748, which was capitalized to resort property
under development.
Note 2 - Notes Receivable
Notes receivable consist of the following:
December 31,
1994
----
Timeshare receivables $282,483
Allowance for possible credit losses (30,804)
--------
$251,679
========
Notes generated from the sale of timeshare interests bear interest at annual
rates ranging from 9% to 13.5% and have terms of five to seven years. In
addition, the Company offers 0% interest and below market interest, and one and
two year financing, to certain timeshare purchasers. These notes are discounted
to yield a consumer market rate. The notes are collateralized by deeds of trust
on the timeshare interests sold.
The Company has a $10 million financing commitment whereby the Company may sell
eligible notes received from sales of timeshare interests on a recourse basis
through February 1996. The commitment may be extended for an additional eighteen
month period and an additional $10 million at the option of the financing
company. This commitment was unused at December 31, 1994.
Note 3 - Resort Property Under Development
The Company intends to develop lodging accommodations in areas located near
major university campuses, and to market those lodging accommodations, including
interval ownership interests, to alumni and other sports enthusiasts. During
1994, the Company acquired its first site near the University of Notre Dame for
$690,655 and commenced construction. Acquisition and construction costs totaling
$1,735,592 are included in resort property under development at December 31,
1994. Revenues of $513,400, net of related selling costs of $148,205, have been
deferred at December 31, 1994, until construction is substantially complete.
The Company has a construction financing commitment for $5 million to complete
the Notre Dame facility, of which $400,784 has been drawn at December 31, 1994.
(Note 7)
Note 4 - Deferred Assets
Deferred assets consist of loan fees and land deposits on potential future
sites.
Note 5 - Property and Equipment
Property and equipment consists of the following:
December 31,
1994
----
Office equipment $15,564
Computer equipment 45,737
-------
61,301
Accumulated depreciation (1,035)
------
$60,266
=======
Note 6 - Due to Affiliates
The balances in due to affiliates represent advances from ILX and cash
overdrafts that will be covered by ILX. The advances bear interest at 13.5% and
are payable on demand, although no demand is anticipated until VCA has
sufficient working capital to commence repayment.
Note 7 - Notes Payable
Notes payable consists of a construction note payable, collateralized by a deed
of trust on the Varsity Clubs of America - Notre Dame facility in Mishawaka,
Indiana. The note bears interest at 13%, with interest payable monthly, release
fees of $2,180 per interval applied to the principal balance of the note, with
the balance due in full 36 months from the date of the final loan draw. This
note was issued pursuant to a commitment for $5 million. Under certain
circumstances the lender has the option to convert the repayment terms to a 60
month amortization.
Note 8 - Commitments
Future minimum lease payments on noncancelable operating leases are as follows:
Year ending
December 31,
------------
1995 $51,000
1996 26,000
1997 13,000
-------
$90,000
=======
Total rent expense for the year ended December 31, 1994, was approximately
$63,000.
Note 9 - Subsequent Events
In July 1995, the Company acquired a two acre site in Tucson, Arizona, near the
University of Arizona, to be the site of its second Varsity Clubs of America.
The land was acquired for $1,002,000, consisting of a $300,600 down payment and
a note payable to the seller of $701,400. The Company has a commitment for
construction financing for the facility in the amount of $6 million, which is
expected to be sufficient to build and furnish the property.
Note 10 - Unaudited Interim Period
Summary of Significant Accounting Policies
- ------------------------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10Q and Rule 10-01 of
Registration S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments and
reclassifications considered necessary for a fair and comparable presentation
have been included and are of a normal recurring nature. Operating results for
the nine month period ended September 30, 1995, are not necessarily indicative
of the results that may be expected for the year ending December 31, 1995. The
accompanying financial statements should be read in conjunction with the
Company's most recent audited financial statements.
Notes Payable
- -------------
During the first nine months of 1995, the Company borrowed $4,068,049 on its $5
million construction financing commitment for the Varsity Clubs of America -
Notre Dame facility and following completion of the property in August, 1995,
paid $644,190 in release payments bringing the balance outstanding on the loan
to $3,824,643 at September 30, 1995.
During the second and third quarters of 1995, the Company borrowed $1,143,099
against consumer notes receivable. The borrowing was repaid in September, 1995
upon the sale of the consumer notes under the $10,000,000 financing commitment.
<PAGE>
================================================================================
No dealer, salesperson or any other Minimum $2,000,000
person has been authorized to give any Maximum $5,000,000
information or to make any
representation not contained in this
Prospectus in connection with the offer -----------
made hereby. If given or made, such
information or representation must not
be relied upon as having been authorized ILX INCORPORATED
by the Company. This Prospectus does not
constitute an offer to sell or
solicitation of an offer to purchase by 10% Convertible
any person in any jurisdiction in which Adjustable
such offer would be unlawful. Neither Secured Bonds
the delivery of this Prospectus nor any
sale made hereunder shall under any
circumstances create any implication Due 2000
that the information contained herein is
correct as of any time subsequent to the
date hereof. However, in the event of
any material change during the period
when this Prospectus must be delivered,
this Prospectus will be amended or
supplemented accordingly.
----------------------------------
TABLE OF CONTENTS
AVAILABLE INFORMATION...............Cover
CORPORATION BY REFERENCE............Cover
PROSPECTUS SUMMARY......................1
---------------
RISK FACTORS............................5
PROSPECTUS
THE COMPANY............... ............11
---------------
RATIO OF EARNINGS TO FIXED CHARGES ....18
USE OF PROCEEDS....................... 18
PLAN OF DISTRIBUTION.................. 19
DESCRIPTION OF ILX SECURITIES AND
PERTINENT ARIZONA STATUTES........... 21
BROOKSTREET SECURITIES
INFORMATION ABOUT THE REGISTRANT..... 30 2361 Campus Drive
Suite 210
SEC POSITION ON INDEMNIFICATION Irvine, California 92715
FOR SECURITIES ACT LIABILITIES....... 30 (714) 852-7905
LEGAL MATTERS........................ 31
UNDERTAKINGS......................... 31
INDEX TO FINANCIAL STATEMENTS ....... 31
--------------------------------
================================================================================
PART II
INFORMATION NOT REQUIRED
IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Minimum Maximum
SEC Registration Fee................$ 4,379.30 $ 4,379.30
NASD Fees...........................$ 2,770.00 $ 2,770.00
Representative Non-Accountable
Expense Allowance ..................$ 50,000.00 $ 100,000.00
Accounting Fees and Expenses........$ 50,000.00 $ 50,000.00
Legal Fees and Expenses.............$ 65,000.00 $ 65,000.00
Printing Expenses...................$ 20,000.00 $ 20,000.00
Blue Sky Fees and Expenses..........$ 41,235.00 $ 41,235.00
Appraiser Fees......................$ 8,700.00 $ 8,700.00
Trustee Fees........................$ 10,500.00 $ 10,500.00
Miscellaneous.......................$ 10,000.00 $ 10,000.00
------------ ------------
Total................ $ 262,584.30 $ 312,584.30
Item 15. Indemnity of the Officers and Directors and Commission Position on Such
Indemnity.
Articles 13 and 14 of ILX's Articles of Incorporation, under certain
circumstances, provide for the indemnification of ILX's officers and directors
against liabilities they may incur in such capacities. A summary of the
circumstances in which such indemnification is provided for is contained herein,
but that description is qualified in its entirety by reference to Articles 13
and 14 of ILX's Articles of Incorporation.
In general, any director or officer of ILX is eligible to be
indemnified against all expenses, including attorneys' fees, judgments, fines,
punitive damages and amounts paid in settlement, that were incurred in
connection with a proceeding to which the director or officer was a party as a
result of his or her relationship with ILX, unless (1) the individual breached
his or her duty of loyalty to ILX, (2) the individual's acts or omissions are
not in good faith, (3) the individual engaged in intentional misconduct or
knowing violation of law, or (4) indemnification is expressly prohibited by
applicable law. In addition, ILX will not indemnify a director or officer for
any liability incurred in a proceeding initiated (or participated in as an
intervenor or amicus curiae) by the officer or director seeking indemnification
unless such initiation or participation is authorized by the affirmative vote of
a majority of the directors in office.
ILX shall advance funds to pay the expenses of any officer or director
involved in a proceeding provided ILX receives an undertaking that the
individual will repay the funds if it is ultimately determined that he or she is
not entitled to indemnification. The indemnification rights granted to ILX's
officers and directors are deemed to be a legally binding contract between ILX
and each such officer and director. Any repeal, amendment or modification of
Articles 13 or 14 of ILX's Articles of Incorporation shall be effective
prospectively and shall not affect any prior rights or obligations concerning
the indemnification of ILX's officers and directors.
Item 16. Exhibits.
The Exhibits required by Item 601 of Regulation S-K have been supplied
as follows:
Exhibit Page
------- ----
(1) Form of Placement Agent Agreement, *
(including the Form of Subscription
Agreement and Escrow and Impound Agreement)
and Soliciting Dealer Agreement
(4) Form of Indenture between ILX and *
U.S. Trust Company of California, N.A., as
Trustee (including the Form of CAS Bonds)
(5) Opinion of Colombo & Bonacci, P.C. *
(10) Material Contracts *
(a) Consulting Agreement between ILX Incorporated
and Investor Resources Services, Inc. *
(b) Consulting Agreement between ILX Incorporated
and Universal Solutions, Inc. *
(c) Management Agreement between ILX Incorporated
and Bennett Funding International, Ltd. *
(d) Articles of Amendment to the Articles of Incorporation of
International Leisure Enterprises Incorporated, filed
October 19, 1987, incorporated by reference to Exhibit
3(i)-3 of ILX's 10-K/A-3
(e) Articles of Amendment to the Articles of Incorporation of
International Leisure Enterprises Incorporated filed May
3, 1990, incorporated by reference to Exhibit 3(i)-4 of
ILX's 10-K/A-3
(f) Certificate of Amendment of Limited Partnership for Los
Abrigados Partners Limited Partnership, dated November
11, 1993, incorporated by reference to Exhibit 10-6 of
ILX's 10-K/A-3
(g) Certificate of Amendment of Limited Partnership for Los
Abrigados Partners Limited Partnership, dated July 1,
1994, incorporated by reference to Exhibit 10-7 of ILX's
10-K/A-3
(h) Purchase and Sale Agreement between Edward J. Martori,
Martori Enterprises Incorporated, Jerome M. White,
Guadalupe Iniguez (as Trustee), Wedbush Morgan Securities
(IRA), and Joseph P. Martori (as Trustee) and ILX
Incorporated, dated July 1, 1994, incorporated by
reference to Exhibit 10-8 of ILX's 10-K/A-3
(i) Installment Promissory Note ($1,000,000) to Edward J.
Martori by ILX Incorporated, dated July 1, 1994,
incorporated by reference to Exhibit 10-9 of ILX's 10-
K/A-3
(j) Installment Promissory Note ($100,000) to Martori
Enterprises Incorporated by ILX Incorporated, dated July
1, 1994, incorporated by reference to Exhibit 10- 10 of
ILX's 10-K/A-3
(k) Amendment to Purchase and Sale Agreement between Edward
J. Martori, Martori Enterprises Incorporated, Wedbush
Morgan Securities (IRA), and Joseph P. Martori (as
Trustee) and ILX Incorporated, dated January 3, 1995,
incorporated by reference to Exhibit 10-11 of ILX's
10-K/A-3
(l) Installment Promissory Note ($57,875) to Wedbush Morgan
Securities (IRA) by ILX Incorporated, dated January 1,
1995, incorporated by reference to Exhibit 10-12 of ILX's
10-K/A-3
(m) Installment Promissory Note ($57,875) to Joseph P.
Martori (as Trustee) by ILX Incorporated, dated January
1, 1995, incorporated by reference to Exhibit 10-13 of
ILX's 10-K/A-3
(n) Installment Promissory Note ($150,000) to Martori
Enterprises Incorporated by ILX Incorporated, dated
February 11, 1994, incorporated by reference to Exhibit
10-15 of ILX's 10-K/A-3
(o) Installment Promissory Note ($150,000) to Alan R. Mishkin
and Carol Mishkin by ILX Incorporated, dated February 11,
1994, incorporated by reference to Exhibit 10-17 of ILX's
10-K/A-3
(p) Option Agreement between Indian Wells Partners, Ltd. and
Martori Enterprises Incorporated, dated March 31, 1994,
incorporated by reference to Exhibit 10-29 of ILX's
10-K/A-3
(q) Assignment of Option by Martori Enterprises Incorporated
to Genesis Investment Group, Inc., dated September 15,
1994, incorporated by reference to Exhibit 10-30 of ILX's
10-K/A-3
(r) Second Amendment to Lease Agreement between Indian Wells
Partners, Ltd. and Los Abrigados Partners Limited
Partnership, dated March 31, 1994, incorporated by
reference to Exhibit 10-32 of ILX's 10-K/A-3
(s) Warrant Agreement (50,000 Shares of Common Stock) between
Lawrence S. Held and ILX Incorporated, dated March 31,
1994, incorporated by reference to Exhibit 10-33 of ILX's
10-K/A-3
(t) Warrant Agreement (50,000 Shares of Common Stock) between
Jerome M. White and ILX Incorporated, dated March 31,
1994, incorporated by reference to Exhibit 10-34 of ILX's
10-K/A-3
(u) Second Modification Agreement between ILX Incorporated,
Los Abrigados Partners Limited Partnership, ILE Sedona
Incorporated, and The Steele Foundation, Inc., dated
December 20, 1994, incorporated by reference to Exhibit
10-36 of ILX's 10-K/A-3
(v) Assignment of Beneficial Interest under Promissory Note,
Deed of trust and Title Policy to Daniel Cracchiolo as
Personal Representative of the Estate of Ethel Steele by
Genesis Investment Group, Inc., dated June 17, 1994,
incorporated by reference to Exhibit 10- 37 of ILX's
10-K/A-3
(w) Continuing Guaranty to Daniel Cracchiolo as Personal
Representative of the Estate of Ethel Steele by ILX
Incorporated, dated June 17, 1994, incorporated by
reference to Exhibit 10-38 of ILX's 10-K/A-3
(x) Modification Agreement ($5,000,000) between Bank One,
Arizona, NA and Los Abrigados Partners Limited
Partnership, dated June 28, 1994, incorporated by
reference to Exhibit 10-42 of ILX's 10-K/A-3
(y) Second Modification Agreement ($5,000,000) between Bank
One, Arizona, NA and Los Abrigados Partners Limited
Partnership, dated October 4, 1994 (additional advance
including repayment of $750,000 loan), incorporated by
reference to Exhibit 10-43 of ILX's 10- K/A-3
(z) Secured Promissory Note ($2,000,000) to Bank One,
Arizona, NA by Los Abrigados Partners Limited
Partnership, dated October 4, 1994, incorporated by
reference to Exhibit 10-44 of ILX's 10-K/A-3
(aa) Repayment Guaranty ($2,000,000) to Bank One, Arizona, NA
by ILX Incorporated, dated October 4, 1994, incorporated
by reference to Exhibit 10-45 of ILX's 10- K/A-3
(bb) Loan Agreement ($500,000) between Bank One, Arizona, NA
and ILX Incorporated, dated October 4, 1994, incorporated
by reference to Exhibit 10-46 of ILX's 10-K/A-3
(cc) Promissory Note ($500,000) to Bank One, Arizona, NA by
ILX Incorporated, dated October 4, 1994, incorporated by
reference to Exhibit 10-47 of ILX's 10- K/A-3
(dd) Change in Terms Agreement ($400,000) between Los
Abrigados Partners Limited Partnership and Firstar
Metropolitan Bank and Trust, dated November 8, 1994,
incorporated by reference to Exhibit 10-49 of ILX's 10-
K/A-3
(ee) Letter of Commitment between Tammac Financial Corp. and
Los Abrigados Partners Limited Partnership, dated July
20, 1994, incorporated by reference to Exhibit 10-52 of
ILX's 10-K/A-3
(ff) Loan and Security Agreement between Tammac Financial
Corp. and Los Abrigados Partners Limited Partnership,
dated September 7, 1994, incorporated by reference to
Exhibit 10-53 of ILX's 10-K/A-3
(gg) Promissory Note ($499,859.15) to Tammac Financial Corp.
by Los Abrigados Partners Limited Partnership, dated
September 7, 1994, incorporated by reference to Exhibit
10-54 of ILX's 10-K/A-3
(hh) Third Amendment to Financing Agreement between Tammac
Financial Corp. and Los Abrigados Partners Limited
Partnership, dated September 7, 1994, incorporated by
reference to Exhibit 10-55 of ILX's 10- K/A-3
(ii) Amended and Restated Continuing Guaranty to Tammac
Financial Corporation by ILX Incorporated, dated
September 7, 1994, incorporated by reference to Exhibit
10-56 of ILX's 10-K/A-3
(jj) Letter of Commitment between Tammac Financial Corp. and
ILX Incorporated, dated July 20, 1994 (Golden Eagle
Resort), incorporated by reference to Exhibit 10- 57 of
ILX's 10-K/A-3
(kk) Loan and Security Agreement between Tammac Financial
Corp. and ILX Incorporated, dated September 7, 1994
(Golden Eagle Resort), incorporated by reference to
Exhibit 10-58 of ILX's 10-K/A-3
(ll) Promissory Note ($2,000,000) to Tammac Financial Corp. by
ILX Incorporated, dated September 7, 1994 (Golden Eagle
Resort), incorporated by reference to Exhibit 10-59 of
ILX's 10-K/A-3
(mm) Amended and Restated Financing Agreement between Tammac
Financial Corp. and ILX Incorporated, dated September 7,
1994 (Golden Eagle Resort), incorporated by reference to
Exhibit 10-60 of ILX's 10-K/A-3
(nn) Letter of Commitment between Bennett Funding
International, Ltd. and VCA South Bend Incorporated,
dated August 18, 1994, incorporated by reference to
Exhibit 10-62 of ILX's 10-K/A-3
(oo) Construction Loan Agreement between Bennett Funding
International, Ltd. and VCA South Bend Incorporated,
dated October 4, 1994, incorporated by reference to
Exhibit 10-63 of ILX's 10-K/A-3
(pp) Construction Promissory Note ($5,000,000) to Bennett
Funding International, Ltd. by VCA South Bend
Incorporated, dated October 4, 1994, incorporated by
reference to Exhibit 10-64 of ILX's 10-K/A-3
(qq) Guaranty and Subordination Agreement (Construction Loan)
to Bennett Funding international, Ltd. by ILX
Incorporated, dated August 18, 1994, incorporated by
reference to Exhibit 10-65 of ILX's 10- K/A-3
(rr) Contract of Sale of Timeshare Receivables with Recourse
between Bennett Funding International, Ltd. and VCA South
Bend Incorporated, dated August 18, 1994, incorporated by
reference to Exhibit 10-66 of ILX's 10- K/A-3
(ss) Guaranty of Subordination Agreement (Receivables
Financing) to Bennett Funding International, Ltd. by ILX
Incorporated, dated August 18, 1994, incorporated by
reference to Exhibit 10-67 of ILX's 10-K/A-3
(tt) All Inclusive Purchase Money Promissory Note Secured by
All-Inclusive Purchase Money Deed of Trust to GPH
Properties, Inc. from Red Rock Collection Incorporated,
dated January 18, 1994, incorporated by reference to
Exhibit 10-70 of ILX's 10-K/A-3
(uu) Option Agreement between Imperial Properties and ILX
Incorporated, dated July 25, 1994, incorporated by
reference to Exhibit 10-71 of ILX's 10-K/A-3
(vv) Joint Venture Agreement between Chanen Development
Company, Inc. and ILE Sedona Incorporated, dated
September 28, 1994, incorporated by reference to Exhibit
10-72 of ILX's 10-K/A-3
(ww) Standard Form of Agreement between Owner and Contractor
between Walton Construction Company, Inc. and VCA South
Bend Incorporated, dated October 10, 1994, incorporated
by reference to Exhibit 10-73 of ILX's 10-K/A-3
(xx) Agreement for Purchase and Sale of Kohl's Ranch between
Kohl's Ranch Associates and ILX Incorporated, dated March
10, 1995, incorporated by reference to Exhibit 10-74 of
ILX's 10-K/A-3
(yy) Membership Plan for Sedona Vacation Club at Los
Abrigados, dated January 11, 1995, incorporated by
reference to Exhibit 10-76 of ILX's 10-K/A-3
(zz) Contract for Sale between City of Tucson and ILX
Incorporated, incorporated by reference to ILX's Second
Quarter 1995 10-Q/A-2
(aaa)Assignment of Contract for Sale between VCA Tucson
Incorporated and ILX Incorporated dated July 17, 1995,
incorporated by reference to ILX's Second Quarter 1995
10-Q/A-2
(bbb)Promissory Note ($900,000) from Los Abrigados Partners
Limited Partnership and ILX Incorporated to Cynthia J.
Polich Irrevocable Trust and Edward J. Martori,
incorporated by reference to ILX's Third Quarter 1995
10-Q/A
(ccc)Deed of Trust and Assignment of Rents between Los
Abrigados Partners Limited Partnership and the Cynthia J.
Polich Irrevocable Trust and Edward J. Martori, dated
July 27, 1995, incorporated by reference to ILX's Third
Quarter 1995 10-Q/A
(ddd)Agreement of Purchase and Sale of Real Property,
Improvements and Associated Personality between Hotel
Syracuse, Inc. and Orangemen Club Limited partnership,
dated September 12, 1995, incorporated by reference to
ILX's Third Quarter 1995 10-Q/A
(eee)Commitment Letter between Resort Service Company, Inc.
and Orangemen Club Limited Partnership, dated August 9,
1995, incorporated by reference to ILX's Third Quarter
1995 10-Q/A
(fff)Articles of Limited Partnership between Syracuse Project
Incorporated and Hotel Syracuse Timeshare Corporation,
dated August 15, 1995, incorporated by reference to ILX's
Third Quarter 1995 10-Q/A
(ggg)Service Agreement between Orangemen Club Limited
Partnership and Hotel Syracuse, Inc., dated September 12,
1995, incorporated by reference to ILX's Third Quarter
1995 10-Q/A
(hhh)Agreement for Purchase and Sale of Kohl's Ranch between
Kohl's Ranch Associates and ILX Incorporated, dated March
10, 1995, incorporated by reference to ILX's Second
Quarter 1995 10-Q/A-2
(iii)Promissory Note ($367,750.00) between ILX and Kohl's
Ranch Associates, dated June 1, 1995, incorporated by
reference to ILX's Second Quarter 1995 10-Q/A-2
(jjj)Junior Deed of Trust, Assignment of Rents, and Security
Agreement between ILX Incorporated and Kohl's Ranch
Associates, dated June 1, 1995, incorporated by reference
to ILX's Second Quarter 1995 10-Q/A-2
(kkk)Fourth Modification Agreement and Assumption Agreement
between Kohl's Ranch Associates, ILX Incorporated and
Bank One, Arizona, NA, dated June 1, 1995, incorporated
by reference to ILX's Second Quarter 1995 10-Q/A-2
(lll)Letter of Commitment between Tammac Financial Corp. and
ILX Incorporated, dated June 19, 1995, incorporated by
reference to ILX's Second Quarter 1995 10-Q/A-2
(mmm)Promissory Note ($10,000,000) to Tammac Financial Corp.
by ILX Incorporated, dated August 25, 1995, incorporated
by reference to ILX's Third Quarter 1995 10-Q/A
(nnn)Loan and Security Agreement between Tammac Financial
Corp. and ILX Incorporated, dated Aug 25, 1995,
incorporated by reference to ILX's Third Quarter 1995
10-Q/A
(11) Statement re Computation of Per Share Earnings *
(12) Statement re Computation of Ratios *
(13) Annual Report to Security-Holders on Form 10-K/A-3, First
Quarter Form 10-Q/A dated March 31, 1995, Second Quarter Form
10-Q/A-2 dated June 30, 1995, Third Quarter Form 10-Q/A dated
September 30, 1995, all of which are incorporated by
reference.
(23) Consents of Experts and Counsel
(a) Consent of Colombo & Bonacci, P.C. *
(b) Consent of Deloitte & Touche LLP
(c) Consent of The Mentor Group, Incorporated *
(25) Statement of Eligibility of Trustee *
(99) Additional Exhibits *
(a) Appraisal prepared by The Mentor Group, Inc.
concerning Valuation of VCA Stock
* Previously Filed
UNDERTAKINGS
The undersigned registrant hereby undertakes to:
(1) deliver or cause to be delivered with the Prospectus, to each
person to whom the Prospectus is sent or given, the latest annual
report to security holders that is incorporated by reference in the
Prospectus and furnished pursuant to and meeting the requirements of
Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934;
and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the Prospectus, to
deliver, or cause to be delivered to each person to whom the Prospectus
is sent or given, the latest quarterly report that is specifically
incorporated by reference in the Prospectus to provide such interim
financial information.
(2) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or
persons controlling the Registrant pursuant to the foregoing
provisions, 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.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted form 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) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offered range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(3) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(4) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Phoenix,
State of Arizona, on November 27, 1995.
ILX INCORPORATED
By /s/ Joseph P. Martori
--------------------------------
Joseph P. Martori, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Joseph P. Martori President/Director 11-27-1995
- -------------------------
Joseph P. Martori
/s/ Nancy J. Stone Chief Financial Officer/ 11-27-1995
- -------------------------
Nancy J. Stone Director
/s/ Denise Janda Controller 11-27-1995
- -------------------------
Denise Janda
/s/ Ronald D. Nitzberg Director 11-27-1995
- -------------------------
Ronald D. Nitzberg
/s/ Edward J. Martori Director 11-27-1995
- -------------------------
Edward J. Martori
/s/ James W. Myers Director 11-27-1995
- -------------------------
James W. Myers
/s/ Steven R. Chanen Director 11-27-1995
- -------------------------
Steven R. Chanen
/s/ Luis C. Acosta Director 11-27-1995
- -------------------------
Luis C. Acosta
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 6 to
Registration Statement No. 33-61477 of ILX Incorporated on Form S-2 of our
report dated March 10, 1995, included in the Annual Report on Form 10-K/A-3 of
ILX Incorporated for the year ended December 31, 1994. We also consent to the
use of our report dated July 26, 1995, on the financial statements of Varsity
Clubs of America Incorporated as of December 31, 1994 and 1993, and for the year
ended December 31, 1994, appearing in the Prospectus, which is part of such
Registration Statement.
DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Phoenix, Arizona
November 27, 1995
