SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the registrant /X/
Filed by a party other than the registrant
Check the appropriate box:
/X/ Preliminary proxy statement
/ / Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
ILX Incorporated
(Name of Registrant as Specified in Its Charter)
ILX Incorporated
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/ / $125 per Exchange Act Rule 0-11(c)(ii), 14a-6(i)(1), or
14a-6(j)(2) or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules
14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction
applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
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ILX INCORPORATED
2111 East Highland Ave., Suite 210
Phoenix, Arizona 85016
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 9, 1998
To the Stockholders of ILX Incorporated:
The 1998 Special Meeting of Stockholders of ILX Incorporated, an
Arizona corporation (the "Company"), will be held at the Los Abrigados Resort &
Spa, 160 Portal Lane, Sedona, Arizona 86336, on Friday, January 9, 1998 at 10:00
a.m., Mountain Standard Time, for the following purposes:
1. To consider and act upon a proposal to amend the Company's Articles
of Incorporation to effect a one-for-five reverse stock split of the Company's
presently issued and outstanding shares of Common Stock;
2. To consider and act upon a proposal to change the Company's name
from "ILX Incorporated" to "ILX Resorts Incorporated"; and
3. To transact such other business as may properly come before the
meeting.
Only Stockholders (as defined) of record at the close of business on
December 15, 1997 (the "Record Date") are entitled to notice of and to vote at
the Special Meeting. Holders of the Company's no par value Common Stock
("Stockholders") as of the Record Date are entitled to vote on all of the above
proposals. Shares can be voted at the meeting only if the holder is present or
represented by proxy. A list of Stockholders entitled to vote at the Special
Meeting will be available for inspection at the Special Meeting and will be
available for inspection at the offices of ILX Incorporated, 2111 East Highland
Ave., Suite 210, Phoenix, Arizona 85016 during ordinary business hours for ten
days prior to the meeting. Under Arizona law, there are no dissenters' rights
with respect to the two Proposals.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THIS MEETING. TO
ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
PROMPTLY MAIL THE ENCLOSED PROXY CARD IN THE ACCOMPANYING ENVELOPE, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
By Order of the Board of Directors,
/s/ Stephanie Castranova
--------------------------------------------
Stephanie Castranova
Secretary
Phoenix, Arizona
December 29, 1997
<PAGE>
PROXY STATEMENT
OF
ILX INCORPORATED
2111 East Highland Ave., Suite 210
Phoenix, Arizona 85016
-------------------------
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of ILX Incorporated, an Arizona corporation (the
"Company"), of proxies for use at a 1998 Special Meeting of Stockholders to be
held on January 9, 1998 at 10:00 a.m., Mountain Standard Time. The Special
Meeting will be held at the Los Abrigados Resort & Spa, 160 Portal Lane, Sedona,
Arizona 86336
This Proxy Statement and the accompanying form of proxy are being first
mailed to Stockholders on or about December 29, 1997. The Stockholder giving the
proxy may revoke it at any time before it is exercised at the meeting by: (i)
delivering to the Secretary of the Company a written instrument of revocation
bearing a date later than the date of the proxy; (ii) duly executing and
delivering to the Secretary a subsequent proxy relating to the same shares; or
(iii) attending the meeting and voting in person (attendance at the meeting will
not in and of itself constitute revocation of a proxy). Any proxy which is not
revoked will be voted at the Special Meeting in accordance with the
Stockholder's instructions. If a Stockholder returns a properly signed and dated
proxy card but does not mark any choices on one or more items, his or her shares
will be voted in accordance with the recommendations of the Board of Directors
as to such items. The proxy card gives authority to the proxies to vote shares
in their discretion on any other matter properly presented at the Special
Meeting.
Proxies will be solicited from the Company's Stockholders (as hereafter
defined) by mail. The Company will pay all expenses in connection with the
solicitation, including postage, printing and handling, and the expenses
incurred by brokers, custodians, nominees and fiduciaries in forwarding proxy
material to beneficial owners. It is possible that directors, officers and
regular employees of the Company may make further solicitation personally or by
telephone, telegraph or mail. Directors, officers and regular employees of the
Company will receive no additional compensation for any such further
solicitation.
Only holders (the "Stockholders") of the Company's Common Stock, no par
value (the "Common Stock"), at the close of business on December 15, 1997 (the
"Record Date"), are entitled to notice of, and to vote at, the Special Meeting.
On the Record Date, there were [_________] shares of Common Stock outstanding.
Each share of Common Stock is entitled to one vote on each matter to be
considered at the Special Meeting. A majority of the outstanding shares of
Common Stock present in person or represented by proxy at the Special Meeting,
will constitute a quorum for the transaction of business at the Special Meeting.
The affirmative vote of holders of a majority of the outstanding shares
of Common Stock entitled to vote and present in person or by proxy at the
Special Meeting are required for approval of each Proposal. It is expected that
shares held by officers and directors of the Company, which in the aggregate
represent approximately __% of the shares of Common Stock outstanding as of the
Record Date, will be voted in favor of each of the proposals. Votes that are
withheld will have the effect of a negative vote. Abstentions may be specified
on all Proposals. Abstentions are included in the determination of the number of
shares represented for a quorum. Abstentions will have the effect of a
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negative vote on a proposal. Broker non-votes are not counted for purposes of
determining whether a quorum is present or whether a proposal has been approved.
Proxies will be tabulated by the Company with the assistance of the Company's
transfer agent. The Company will, in advance of the Special Meeting, appoint one
or more Inspectors to count all votes and ballots at the Special Meeting and
make a written report thereof.
SECURITY OWNERSHIP OF CERTAIN PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth certain information, as of December 15,
1997, with respect to the number of shares of the Company's Common Stock
beneficially owned by (i) the Company's directors, (ii) certain of the Company's
executive officers, (iii) all directors and officers of the Company as a group
and (iv) persons known to the Company to own 5% or more of the Company's
outstanding Common Stock.
<TABLE>
<CAPTION>
Name and Address of Number of Shares Owned Number of Shares Owned
Beneficial Owner (+) Before Reverse Split after Reverse Split Percentage
-------------------- -------------------- ------------------- ----------
<S> <C> <C> <C>
Joseph P. Martori 4,779,616(1) 955,924 27.3%
Nancy J. Stone 377,086(2) 75,418 2.1%
Edward S. Zielinski 57,100(3) 11,420 *
George C. Wallach 101,000(4) 20,200 *
Eldon L. Hobbs -0- -0- 0%
John Brooks 24,000(5) 4,800 *
James W. Myers 49,000(6) 9,800 *
Steven R. Chanen 25,000(7) 5,000 *
Patrick J. McGroder III 85,074(8) 17,015 *
Thomas J. Hamel -0- -0- 0%
All Directors and Officers 5,497,876 1,099,577 30.1%
as a Group (10 persons)
</TABLE>
- ---------------
(*) Less than 1%
(+) Unless otherwise indicated, each holder has an address at c/o The
Company, 2111 E. Highland Ave., Suite 210, Phoenix, Arizona 85016.
(1) Including 4,671,547 shares owned by Martori Enterprises Incorporated,
23,010 shares owned by Christina Ann Martori, daughter of Joseph P.
Martori, under trust dated February 20, 1978, and 1,059 shares held by
Joseph P. Martori as trustee under Trust dated January 30, 1976.
(934,310; 4,602; and 212, respectively, after giving effect to the
Reverse Split)
(2) Including options to purchase 25,000 shares from the Company and 50,000
shares from Martori Enterprises Incorporated at $1.625 per share; and
including 10,000 shares and options to purchase 87,500 shares from the
Company at $1.625 per share held by her husband, Michael W. Stone.
(5,000; 10,000; 2,000 and 17,500, respectively after giving effect to
the Reverse Split)
(3) Including 1,000 shares held by Edward S. Zielinski as custodian for his
son, Stefan Edward Zielinski, options to purchase 30,000 shares from
the Company at $1.625 per share, and 500 shares held by his wife, Nancy
Zielinski. (200; 6,000; and 100, respectively, after giving effect to
the Reverse Split)
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(4) Including options to purchase 100,000 shares from Martori Enterprises
Incorporated at $1.625 per share. (20,000 after giving effect to the
Reverse Split)
(5) Including options to purchase 20,000 shares from the Company at $1.625
per share. (4,000 after giving effect to the Reverse Split)
(6) Including 24,000 shares owned by Myers Capital Management of which
James W. Myers has sole voting and dispositive power and options to
purchase 25,000 shares from the Company at $1.50 per share. (4,800 and
5,000, respectively, after giving effect to the Reverse Split)
(7) Including options to purchase 25,000 shares from the Company at $1.50
per share. (5,000 after giving effect to the Reverse Split)
(8) Including 7,500 shares held by the Patrick J. McGroder and Susan
McGroder Revocable Trust; 10,000 shares held by the McGroder Family
Limited Partnership in which Patrick J. McGroder and Susan McGroder
have a 99% interest; 11,400 shares held by Patrick J. McGroder III IRA;
25 shares held by Shamrock Consultants, which is wholly owned by
Patrick J. McGroder; 95 shares held by Patrick J. McGroder II, P.C., an
Arizona professional corporation, wholly owned by Patrick J. McGroder;
640 shares held by Patrick J. McGroder II, P.C. Profit Sharing Trust,
of which Patrick J. McGroder is the sole beneficiary; 50,000 shares
held by McMac, L.L.C., an Arizona limited liability company of which
Patrick J. McGroder is one-third owner; 750 shares held by Mr.
McGroder's children's irrevocable trusts as follows: 250 shares held by
the Caroline E. McGroder 1992 Trust, 250 shares held by the Elizabeth
McGroder 1992 Trust and 250 shares held by the Patrick J. McGroder IV
1992 Trust. (933; 1,500; 2,000; 2,280; 5; 19; 128; 10,000; 750; 50; 50;
and 50, respectively, after giving effect to the Reverse Split
4
<PAGE>
PROPOSAL ONE:
AMENDMENT OF ARTICLES OF INCORPORATION TO
EFFECT REVERSE STOCK SPLIT
The Board of Directors believes that the best interests of the Company
and its Stockholders will be served by amending the Company's Articles of
Incorporation, as amended (the "Articles of Incorporation") to effect a
one-for-five reverse stock split (the "Reverse Split") of the Company's
presently issued and outstanding shares of Common Stock. The Board of Directors
has unanimously approved and recommends a vote FOR Proposal One.
If the Stockholders approve Proposal One, the Company's Articles of
Incorporation will be amended to replace the existing provision relating to the
Company's authorized capital with the following provision relating thereto.
Accordingly, Section 4 of the Articles of Incorporation shall be further amended
to read as follows:
Authorized Capital. The authorized capital stock of this Corporation
shall be (i) forty million (40,000,000) shares of common stock having
no par value, and (ii) ten million (10,000,000) shares of preferred
stock having a par value of Ten Dollars ($10.00) per share. Each five
(5) shares of the Corporation's Common Stock issued as of the date and
time immediately following [insert Date which Articles of Amendment are
filed], the effective date of a reverse stock split (the "Split
Effective Date") shall be automatically changed and reclassified, as of
the Split Effective Date and without further action, into one (1) fully
paid and nonassessable share of the Corporation's Common Stock;
provided, however, that any fractional interest resulting from such
change and classification shall be rounded upward to the nearest whole
share.
If the Stockholders approve Proposal One, the above amendment to the
Company's Articles of Incorporation shall become effective upon the filing of
Articles of Amendment to the Articles of Incorporation with the Arizona
Corporation Commission. The Articles of Amendment will restate the Company's
Articles of Incorporation to give effect to the amendment made pursuant to
Proposal One and, to the extent such further amendment is approved by the
Stockholders, to give effect to the amendment made pursuant to Proposal Two. The
Company's Amended and Restated Articles of Incorporation (the "Restated
Articles"), as they will appear if both Proposals One and Two are approved by
the Stockholders, are attached as Exhibit 1. If either Proposal is not approved
by the Stockholders, the Articles of Incorporation will be restated to give
effect only to such of those proposals as are approved by the Stockholders.
The proposed Reverse Split will not affect any Stockholder's
proportionate equity interest in the Company or the rights, preferences,
privileges or priorities of any Stockholder, other than an adjustment which may
occur due to the rounding up of fractional shares. Likewise, the proposed
Reverse Split will not affect the total stockholders' equity of the Company or
any components of stockholders' equity as reflected on the financial statements
of the Company except (i) to change the numbers of the issued and outstanding
shares of capital stock and (ii) for an adjustment which will occur due to the
costs incurred by the Company in connection with this Proxy Statement, the
Special Meeting and the implementation of such of the Proposals as are approved
by the Stockholders. However, because the number of shares of capital stock that
the Company is authorized to issue will not be decreased in proportion to the
one-for-five decrease in the number of issued shares, the number of
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<PAGE>
shares which are authorized but unissued, and the percentage of ownership of the
Company represented by such shares if they are issued in the future in the
discretion of the Board of Directors, effectively will be increased.
The following table illustrates the principal effects on the Company's
capital stock of the Reverse Split:
NUMBER OF SHARES OF CAPITAL STOCK
Prior to After
Reverse Split (1) Reverse Split (1)
----------------- -----------------
Common
------
Authorized 30,000,000 30,000,000
Issued and outstanding (1) 17,527,865 3,505,573
Available for future issuance 12,472,135 26,494,427
Preferred
---------
Authorized 10,000,000 10,000,000
Issued and outstanding 380,458 380,458
Available for future issuance 885,000 885,000
- ---------------
(1) Excludes (i) 530,500 shares currently held in treasury (106,100 shares
after the Reverse Split), (ii) 377,000 shares issuable upon exercise of
outstanding options (75,400 shares after the Reverse Split), (iii)
50,000 shares issuable upon exercise of outstanding warrants (10,000
shares after the Reverse Split) and (iv) 522,705 shares issuable upon
conversion of outstanding shares of Preferred Stock (110,541 shares
after the Reverse Split), each as of December 15, 1997.
EXCHANGE OF SHARES; NO FRACTIONAL SHARES
Pursuant to the proposed amendment, every five shares of issued Common
Stock would be converted and reclassified into one share of post-split Common
Stock, and any fractional interests resulting from such reclassification would
be rounded upward to the nearest whole share. For example, a holder of 100
shares prior to the Split Effective Date would be the holder of 20 shares at the
Split Effective Date, and the holder of 123 shares prior to the Split Effective
Date would be the holder of 25 shares at the Split Effective Date. The proposed
Reverse Split would become effective immediately following the Split Effective
Date. Stockholders will be notified on or after the Split Effective Date that
the Reverse Split has been effected. The Company's transfer agent, Harris Bank,
will act as the Company's exchange agent (the "Exchange Agent") for Stockholders
in implementing the exchange of their certificates.
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As soon as practicable after the Split Effective Date, Stockholders
will be notified and provided the opportunity (but shall not be obligated) to
surrender their certificates to the Exchange Agent in exchange for certificates
representing post-split Common Stock. Stockholders will not receive certificates
for shares of post-split Common Stock unless and until the certificates
representing their shares of pre-split Common Stock are surrendered and they
provide such evidence of ownership of such shares as the Company or the Exchange
Agent may require. Stockholders should not forward their certificates to the
Exchange Agent until they have received notice from the Company that the Reverse
Split has become effective. Beginning on the Split Effective Date, each
certificate representing shares of the Company's pre-split Common Stock will be
deemed for all corporate purposes to evidence ownership of the appropriate
number of shares of post-split Common Stock.
No service charge will be payable by Stockholders in connection with
the exchange of certificates, all costs of which will be borne and paid by the
Company.
Stockholders have no right under Arizona law to dissent from the
Reverse Split or to dissent from the rounding up of fractional interests
resulting from the Reverse Split.
CHANGE OF CONVERSION RATIO FOR CONVERTIBLE PREFERRED STOCK AND NOTICE TO HOLDERS
OF SUCH STOCK
Pursuant to the authority conferred on it by the Articles of
Incorporation of the Company, the Board of Directors of the Company adopted
certain resolutions dated August 27, 1991 and March 11, 1993, respectively (the
"Board Resolutions"), pursuant to which the Company issued Series A Preferred
Stock, Series B Preferred Stock, and Series C Preferred Stock. Both Series B and
Series C Preferred Stock are convertible into Shares of the Company's Common
Stock at the following ratio: one share of Series B Preferred Stock can be
converted into two shares of Common Stock after July 1, 1996; three shares of
Series C Preferred Stock are convertible, before year 2003, into five shares of
the Company's Common Stock plus one share of Common Stock for every "Cumulation
Share" to which a holder is then entitled ("Cumulation Shares" arise to the
extent of the accumulated amount of unpaid annual dividends as of the fifth
anniversary of the Merger (as defined in the Articles of Incorporation) on
Series C Preferred Stock, divided by $6.00).
In accordance with the terms of those Board Resolutions, the conversion
ratios for Series B and Series C Preferred Stock will be adjusted immediately
before the Effective Split Date so that the record owner of Series B and Series
C Preferred Stock shall be entitled to receive upon exercise of such conversion
option the number of shares of Common Stock that he would have owned or be
entitled to receive after the Reverse Split had such holder exercised his or her
option to convert immediately prior to the Effective Split Date. The Company
will send by first class mail, postage prepaid, to each record owner of Series B
and Series C Preferred Stock, notice of such adjustments and shall prepare a
notice to be delivered to holders of the Series B and Series C Preferred Stock
setting forth the new conversion ratio for each such class, accompanied by a
brief statement of the facts requiring such adjustments and the computation by
which each adjustment is made. The Company will make the certificates available
for inspection to any person interested.
7
<PAGE>
PURPOSES OF THE REVERSE SPLIT AND EFFECTIVE INCREASE IN AUTHORIZED SHARES
The primary objectives of the Reverse Split are to increase the market
value per share of its Common Stock.
The Company's Common Stock is currently listed on the Nasdaq SmallCap
Market System under the symbol "ILEX." However, the Company may in the future
apply for listing of its Common Stock on the Nasdaq National Market System
("Nasdaq NMS") or the American Stock Exchange, which have certain per share
minimum bid price requirements for initial inclusion. The Company anticipates
that the Reverse Split will have the effect of increasing the minimum bid price
of its Common Stock sufficient to permit it to satisfy the applicable minimum
bid price criteria. Further, the Board of Directors has been advised that
certain securities firms limit the extension of margin credit for, and otherwise
discourage their registered representatives from recommending, the purchase of
corporate securities that have a market value of less than $5.00 per share.
Under the margin regulations of the Federal Reserve Board, brokers, financial
institutions and certain other lenders may extend credit for the purchase of
margin stock in an amount not to exceed 50% of the market value of such shares.
For purposes of these regulations, the market value of the Common Stock is the
closing price as reported by Nasdaq on the day preceding the extension of
credit. To increase the market value, satisfy the Nasdaq NMS or the American
Stock Exchange listing criteria and increase the likelihood of marginability of
the Common Stock, the Board of Directors has determined that the Reverse Split
would be in the best interests of the Company and its Stockholders.
Additionally, the Board of Directors believes that the current price
per share of the Company's Common Stock may reduce the effective marketability
of the Common Stock because of the reluctance of certain brokerage firms to
recommend the purchase of lower-priced stocks to their clients. Certain
institutional investors have internal policies preventing the purchase of
lower-priced stocks and many brokerage houses do not permit lower-priced stocks
to be used as collateral for margin accounts. Further, a number of brokerage
houses have polices and practices that tend to discourage individual brokers
within those firms from dealing in lower-priced stocks. Some of those policies
and practices pertain to the payment of brokers' commissions and to
time-consuming procedures that function to make the handling of lower-priced
stocks unattractive to brokers from an economic standpoint. In addition, the
structure of trading commissions tends to have an adverse impact upon holders of
lower-priced stocks because the brokerage commission on a sale of lower-priced
stocks generally represents a higher percentage of the sales price than the
commission on a relatively higher-priced stock.
The Board of Directors believes that the historically low, per share
market price of the Common Stock impairs the marketability of the Common Stock
to institutional investors and members of the investing public and creates a
negative impression with respect to the Company. Many investors and market
makers look upon lower priced stocks as unduly speculative in nature and, as a
matter of policy, avoid investment and trading in such stocks. The foregoing
factors adversely affect both the pricing and the liquidity of the Common Stock.
Thus, the potential increase in trading price is expected to be attractive to
the financial community and the investing public and in the best interests of
the Stockholders.
The Board of Directors is hopeful that the decrease in the number of
shares of Common Stock outstanding as a consequence of the proposed Reverse
Split, and the resulting anticipated increased price level, will stimulate
additional interest in the Company's Common Stock and possibly promote greater
liquidity for the Company's Stockholders. There can be no assurance, however,
that there will be any greater
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liquidity, and it is possible that the liquidity could even be adversely
affected by the reduced number of shares of Common Stock which would be
outstanding after the proposed Reverse Split is effected.
If the Reverse Split becomes effective, the quoted market price of the
Company's stock should increase as a result of decreasing the number of shares
outstanding without altering the aggregate economic interest in the Company
represented by such shares. The Board believes that the increased price would be
a more appropriate trading price for a company that is traded on the Nasdaq NMS
or the American Stock Exchange and is concerned with long-term development of
its business opportunities. In addition, the increase in the market price may
serve to mitigate the present reluctance, policies and practices on the part of
brokerage firms referred to above and diminish the adverse impact of trading
commissions on the potential market for the Company's shares of Common Stock.
There can be no assurance, however, that the Reverse Split will achieve these
desired results, that any such increase would be in proportion to the
one-for-five Reverse Split ratio or that the per share price level of the Common
Stock immediately after the proposed Reverse Split can be maintained for any
period of time.
The Reverse Split may result in some Stockholders owning "odd lots" of
less than 100 shares. The costs, including brokerage commissions, of
transactions in odd lots are generally higher than the costs in transactions in
"round lots" of even multiples of 100.
The primary objective of the effective increase in the number of shares
of Common Stock which are authorized but unissued, and in the percentage of
ownership of the Company represented by such shares if they are issued in the
future in the discretion of the Board of Directors, is for the Company to have
additional shares of Common Stock authorized and available for issuance as the
need arises for possible future financing transactions, stock acquisitions,
asset purchases, stock dividends or splits, issuances under any stock option
plan that may be adopted in the future, and other general corporate purposes.
The Board believes that the effective increase in the number and percentage of
authorized but unissued shares will provide the Company additional flexibility
to issue additional shares of Common Stock to meet the Company's future
financing needs. In order to avoid the delay and expense involved in obtaining
Stockholder approval, the Board believes it to be in the best interests of the
Company and its Stockholders to have shares of Common Stock authorized and
available for issuance without further action by the Stockholders. If Proposal
One is approved, Stockholders will have no preemptive rights with respect to the
additional authorized shares of Common Stock. Such shares of Common Stock may be
issued on such terms, at such times and on such conditions as the Board may
determine in its discretion.
Although the Reverse Split and the effective increase in the number and
percentage of authorized but unissued shares of Common Stock are not intended to
be anti-takeover devices, the effective increase in the authorized capital
together with a subsequent issuance of equity securities could impede a
potential takeover for various reasons including, but not limited to, diluting
the stock ownership of persons attempting to gain control of the Company and
issuing securities to individuals or entities favorable to management. Moreover,
the availability of such additional shares of Common Stock in and of itself
might have the effect of discouraging an attempt to acquire control of the
Company other than through negotiations with the Board of Directors. Except as
described in this paragraph and the provisions of Arizona law providing for
cumulative voting in the election of directors, there are no provisions of the
Company's Articles of Incorporation or Bylaws, either as currently in effect or
as proposed to be amended and restated in this Proxy Statement, which would act
to discourage a change in control of the Company. The Company has no plans to
adopt any measures, other than the Reverse Split, which may be deemed to be
anti-takeover devices.
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The Board of Directors is not aware of any present efforts by any
person to accumulate the Company's capital stock or to obtain control of the
Company through tender offer, merger or other business combination, proxy
contest or otherwise. The Board has not formulated any program, nor entered into
any agreement or understanding, and has no current intention, to issue any
unissued and unreserved shares of Common Stock for the purpose of impeding or
preventing any proposed takeover.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
A summary of the federal income tax consequences of the Reverse Split
as contemplated in Proposal One is set forth below. The discussion is based on
the present federal income tax law. The discussion is not intended to be, nor
should it be relied on as, a comprehensive analysis of the tax issues arising
from or relating to the proposed Reverse Split. Income tax consequences to
Stockholders may vary from the federal tax consequences described generally
below. STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE EFFECT OF
THE CONTEMPLATED REVERSE SPLIT UNDER APPLICABLE FEDERAL, STATE AND LOCAL INCOME
TAX LAWS.
The proposed Reverse Split constitutes a "recapitalization" to the
Company and its Stockholders to the extent that issued shares of Common Stock
are exchanged for a reduced number of shares of Common Stock. Therefore, neither
the Company nor its Stockholders will recognize any gain or loss for federal
income tax purposes as a result thereof.
The shares of Common Stock to be issued to each Stockholder will have
an aggregate basis, for computing gain or loss, equal to the aggregate basis of
the shares of such stock held by such Stockholder immediately prior to the Split
Effective Date. A Stockholder's holding period for the shares of Common Stock to
be issued will include the holding period for the shares of Common Stock held
thereby immediately prior to the Split Effective Date provided that such shares
of stock were held by the Stockholder as capital assets on the Split Effective
Date.
VOTING REQUIREMENTS
Each holder of Common Stock is entitled to one vote per share held. The
holders of a majority of the shares of the Common Stock issued and outstanding
constitutes a quorum. The affirmative vote of holders of a majority of the
outstanding shares of Common Stock of the Company entitled to vote and present
in person or by proxy at the Special Meeting is required for approval of
Proposal One, provided that the number of shares present in person or by proxy
constitutes a quorum. In the event that a quorum is not present or represented
at the Special Meeting, the shareholders entitled to vote at the meeting present
in person or by proxy shall have power to adjourn the Special Meeting until a
quorum shall be present or represented. Proxies solicited by the Board of
Directors will be voted for approval of the Proposal One. Stockholders are not
entitled to cumulate votes.
A Stockholder voting through a proxy who abstains with respect to
approval of Proposal One shall be considered to have casted a negative vote with
respect to Proposal One, but shall be treated as present and entitled to vote on
the approval of Proposal Two at the Special Meeting; provided, however, that a
Stockholder (including a broker) who does not give authority to a proxy to vote
on the approval of Proposal Two shall not be considered present and entitled to
vote on Proposal Two.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL ONE.
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PROPOSAL TWO:
AMENDMENT OF ARTICLES OF INCORPORATION TO CHANGE COMPANY NAME
The Company has for some time been conducting business under the
fictitious name "ILX Resorts Incorporated." The Board of Directors believes that
to better reflect the nature of the Company's business and serve the interests
of the Company and its Stockholders, the Company's Articles of Incorporation
should be amended to change the name of the Company.
Pursuant to Proposal Two, Section 1 of the Company's Articles of
Incorporation shall be further amended to read as follows: "Name: The name of
the corporation (hereinafter called "Corporation") shall be ILX RESORTS
INCORPORATED."
If the Stockholders approve this Proposal Two, the above amendment to
the Company's Articles of Incorporation will become effective upon the filing of
Articles of Amendment to the Articles of Incorporation with the Arizona
Corporation Commission. The Articles of Amendment will restate the Company's
Articles of Incorporation to give effect to the amendment made pursuant to this
Proposal Two and, to the extent such amendment is approved by the Stockholders,
to the amendment made pursuant to Proposal One. The Company's Amended and
Restated Articles of Incorporation, as they will appear if both Proposals One
and Two are approved by the Stockholders, are attached as Exhibit I. If either
Proposal is not approved by the Stockholders, the Articles of Incorporation will
be restated to give effect only to such of the Proposals as are approved by the
Stockholders.
VOTING REQUIREMENTS
Each holder of Common Stock is entitled to one vote per share held. The
holders of a majority of the shares of the Common Stock issued and outstanding
constitutes a quorum. The affirmative vote of holders of a majority of the
outstanding shares of Common Stock of the Company entitled to vote and present
in person or by proxy at the Special Meeting is required for approval of
Proposal Two, provided that the number of shares present in person or by proxy
constitutes a quorum. In the event that a quorum is not present or represented
at the Special Meeting, the shareholders entitled to vote at the meeting present
in person or by proxy shall power to adjourn the meeting until a quorum shall be
present or represented. Proxies solicited by the Board of Directors will be
voted for approval of the Proposal Two. Stockholders are not entitled to
cumulate votes.
A Stockholder voting through a proxy who abstains with respect to
approval of Proposal Two shall be considered to have casted a negative vote with
respect to Proposal Two and shall be considered present and entitled to vote on
the approval of Proposal One at the meeting; provided, however, that a
Stockholder (including a broker) who does not give authority to a proxy to vote
on the approval of Proposal One shall not be considered present and entitled to
vote on Proposal One.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL TWO.
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OTHER BUSINESS
The Company's Board of Directors is not aware of any other business to
be considered or acted upon at the Special Meeting of the Stockholders other
than those described above. If other business requiring a vote of Stockholders
is properly presented at the meeting, proxies will be voted in accordance with
the judgment on such matters of the person or persons acting as proxy. If any
matter not appropriate for action at the Special Meeting should be presented,
the holders of the proxies will vote against consideration thereof or action
thereon.
STOCKHOLDER PROPOSALS
The Company welcomes comments or suggestions from its Stockholders. If
a Stockholder desires to have a proposal formally considered at the 1998 Annual
Meeting of Stockholders, and evaluated by the Board for possible inclusion in
the Proxy Statement for that meeting, the proposal (which must comply with the
requirements of Rule 14a-8 promulgated under the Exchange Act) must be received
in writing by the Secretary of the Company at the address set forth on the first
page hereof on or before January 21, 1998.
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EXHIBIT I
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
ILX RESORTS INCORPORATED
1. Name: The name of the corporation (hereinafter called "Corporation")
shall be ILX RESORTS INCORPORATED.
2. Purpose: The purpose for which this Corporation is organized is the
transaction of any and all lawful business for which corporations may be
incorporated under the laws of the State of Arizona, as they may be amended from
time to time.
3. Initial Business: The Corporation initially intends to conduct the
business of resort development and management; provided, however, that such
initial intention shall in no manner whatever limit the character of the
business which the Corporation may ultimately conduct.
4. Authorized Capital:
Section 4.1
- -----------
Authorized Capital. The authorized capital stock of this Corporation
shall be (i) forty million (40,000,000) shares of common stock having no par
value, and (ii) ten million (10,000,000) shares of preferred stock having a par
value of Ten Dollars ($10.00) per share. Each five (5) shares of the
Corporation's Common Stock issued as of the date and time immediately following
[insert date which Articles of Amendment are filed] (the "Split Effective Date")
shall be automatically changed and reclassified, as of the Split Effective Date
and without further action, into one (1) fully paid and nonassessable share of
the Corporation's Common Stock; provided, however, that any fractional interest
resulting from such change and classification shall be rounded upward to the
nearest whole share.
Section 4.2
- -----------
No Preemptive Rights, Stock Options and Rights. No stockholder of this
Corporation shall have any preemptive or other similar right or option with
respect to shares of capital stock proposed to be offered or issued by this
Corporation. The Board of' Directors shall have the authority to create and
issue rights and options entitling the holders thereof to purchase from this
Corporation shares of its capital stock. Any such rights or options need not be
offered or issued generally to stockholders of this Corporation and may be
offered or issued to such persons (including directors, officers and/or
employees of this Corporation and/or any affiliate) as the Board of Directors
deems appropriate.
Section 4.3
- -----------
Preferred Stock. Of the shares of capital stock hereinbefore
authorized, ten million (10,000,000) shares having a par value of Ten Dollars
($10.00) per share shall constitute Preferred Stock. The Preferred Stock may be
issued, from time to time, in one or more series, each of such series to have
such designation and such relative voting, dividend, liquidation, conversion and
other rights, preferences and limitations as are fixed by the Board of Directors
from time to time. Authority is hereby expressly vested in and granted to the
Board of Directors of this Corporation from time to time, subject to the
provisions of this Paragraph, to adopt a resolution or resolutions dividing the
shares of Preferred Stock into one or more series and, with respect to each such
series, fixing the following:
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(a) The number of shares to constitute such series and the
distinctive designation thereof;
(b) The annual dividend rate on the shares of such series and
the date or dates from which dividends shall be accumulated as herein
provided;
(c) The times when and the price at which shares of such
series shall be redeemable, the limitations and restrictions with
respect to such redemptions and the amount, if any, in addition to any
accumulated dividends thereon which the holders of shares of such
series shall be entitled to receive upon the redemption thereof, which
amount may vary at different redemption dates and may differ in the
case of shares redeemed through the operation of any purchase,
retirement or sinking fund from the case of shares otherwise redeemed;
(d) The amount, if any, in addition to any accumulated
dividends thereon which the holders of shares of such series shall be
entitled to receive upon the liquidation, dissolution or winding-up of
this Corporation, which amount may vary depending on whether such
liquidation, dissolution or winding-up is voluntary or involuntary and,
if voluntary, may vary at different dates;
(e) Whether or not the shares of such series shall be subject
to the operation of a purchase, retirement or sinking fund and, if so,
the extent to and manner in which such purchase, retirement or sinking
fund shall be applied to the purchase or redemption of the shares of
such series for retirement or for other corporate purposes and the
terms and provisions relative to the operation of said fund or funds;
(f) Whether or not the shares of such series shall be
convertible into shares of stock of any other class or classes, or of
any other series of Preferred Stock or series of other class of shares,
and if so convertible, the price or prices, the rate or rates of
conversion and the method, if any, of adjusting the same;
(g) The limitations and restrictions, if any, to be effective
while any shares of such series are outstanding upon the payment of
dividends or making of other distributions on, and upon the purchase,
redemption or other acquisition by this Corporation or any subsidiary
of this Corporation, of the Common Stock or any other class or series
of stock of this Corporation ranking on a parity with or junior to the
shares of such series either as to dividends or upon liquidation;
(h) The conditions or restrictions, if any, upon the creation
of indebtedness of this Corporation or of any subsidiary, or upon the
issue of any additional stock (including additional shares of such
series or of any other series or of any other class) ranking on a
parity with or prior to the shares of such series either as to
dividends or upon liquidation;
(i) The regular and/or special voting powers, if any, of such
series; and
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(j) Such other preferences and relative, participating,
optional or other special rights, or qualifications, limitations or
restrictions, as shall not be inconsistent with these Articles or
applicable law.
The Board of Directors also have authority to change the designation of shares,
or the relative rights, preferences and limitations of the shares and further,
the Board shall have authority to increase or decrease the number of shares of
any series previously determined by it, provided, however, that the number of
shares of any series shall not be decreased to a number less than that of the
shares of that series then outstanding.
Section 4.4
- -----------
Series A. Preferred Stock. A series of Preferred Stock of the
Corporation is hereby given the distinctive designation of "Series A Preferred
Stock, $10.00 Par Value" hereinafter referred to as the Series A Preferred
Stock, said series to consist of 110,000 shares, with a par value of $10.00 per
share, of which the preferences and relative, participating, optional or other
special rates, and the qualifications, limitations or restrictions thereof shall
be as follows:
(a) Cash dividends on Series A Preferred Stock. Commencing
July 1, 1996, the Series A Preferred Stock shall be entitled to an
annual dividend of $.80 per share, to be declared by the Board of
Directors out of the funds of the Corporation, provided that the funds
are legally available therefore. Dividends on the Common Stock of the
Corporation in each year shall be expressly subordinated to the Series
A Preferred Stock dividends commencing in 1996.
(b) Priority of Series A Preferred Stock in the Event of
Liquidation. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, or any
reduction in its capital resulting in the distribution of assets to its
stockholders, after payment of provision for payment of the debts and
other liabilities of the Corporation, and the payment in full to the
holders of the shares of such other series of the Corporation's
Preferred Stock of such amounts as may be stated in the resolution or
resolutions providing for the issue of such series as being required to
be paid before payment be made to holders of the Corporation's Series A
Preferred Stock, (a) the holders of the Series A Preferred Stock shall
be entitled to receive, out of the remaining net assets of the
Corporation, the amount of $10.00 in cash for each share of Series A
Preferred Stock, (b) the holders of the Series B Preferred Stock shall
be entitled to receive, out of the remaining net assets of the
Corporation, the amount of $10.00 in cash for each share of Series B
Preferred Stock, and (c) the holders of the Common Stock of the
Corporation shall be entitled to receive, out of the remaining net
assets of the Corporation, the remaining amount of cash in the
Corporation, to be distributed pro rata. The purchase or redemption by
the Corporation of stock of any class, in any manner permitted by law,
shall not for the purpose of this paragraph be regarded as a reduction
of its capital. Neither the consolidation nor merger of the Corporation
with or into any other corporation or corporations, nor the sale or
transfer by the Corporation of all or
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any part of its assets, shall be deemed to be a liquidation,
dissolution or winding up of the Corporation for the purposes of this
paragraph. A dividend or distribution to stockholders from net profits
or surplus earned after the date of any reduction of capital shall not
be deemed to be a distribution resulting from such reduction in
capital. No holder of Preferred Stock shall be entitled to receive any
amounts with respect thereto upon any liquidation, dissolution or
winding up of the Corporation other than the amounts provided for in
this paragraph.
(c) Voting Rights. Except as expressly provided by law, the
Series A Preferred Stock shall have no right or power to vote on any
question or in any proceeding or to be represented at or to receive
notice of any meeting of the stockholders.
(d) Redemption. Prior to June 30, 1996, the Corporation has
the right at any time or from time to time to redeem the Series A
Preferred Stock for $10.00 per share, pro rata.
(e) Dividend Sinking Fund. Commencing on January 1, 1993, and
thereafter, the Corporation, through Los Abrigados Partners Limited
Partnership, an Arizona limited partnership, shall make or cause to be
made, within fifteen (15) days after the end of each calendar quarter,
payments to a mandatory dividend sinking fund equal to $100.00
multiplied by the number of unrescinded timeshare sales made in the
preceding calendar quarter. Dividends on the Common Stock of the
Corporation in each year shall be expressly subordinated to the sinking
fund requirements of the Series A Preferred Stock during such year.
(f) Lodging Certificates. Each holder of Series A Preferred
Stock may elect, on the Effective Date of the Plan and/or at any time
prior to the fifth anniversary of the Effective Date, to exchange at
par value all or any part of such holder's entitlement to, or ownership
of, Series A Preferred Stock, in an aggregate amount not to exceed
$35,000.00, for lodging certificates at the Los Abrigados Resort Hotel
("the Resort") in Sedona, Arizona, to be valued in the manner set forth
below. Each lodging certificate will be valued at $150.00 and will be
redeemable during such five (5) year period for one (1) weekday (Sunday
through Thursday) room night in a Jerome Suite at the Resort subject to
advance reservations, made not more than days prior to arrival and
otherwise in accordance with the Resort's then prevailing reservation
policy. Applicable taxes will be charged in connection with the use of
such lodging certificates. Subject to availability, lodging
certificates may be applied to weekend (Friday and Saturday) use of a
Jerome Suite at the Resort upon surrender of the lodging certificate
and, in addition, payment of $50.00 per room night. Lodging
certificates will have limitations on transferability, multiple use and
may not be sold, traded or bartered by the holder thereof.
4
<PAGE>
(g) Club Memberships. Each holder of more than 1,000 shares of
Series A Preferred Stock shall be entitled to exchange, at par value,
1,000 shares of such stock for a Jerome Suite Membership in the Sedona
Vacation Club upon payment of $2,100.00 cash per exchange.
Section 4.5
- -----------
Series B Preferred Stock. A series of Preferred Stock of the
Corporation is hereby given the distinctive designation of "Series B Preferred
Stock, $10.00 Par Value" hereinafter referred to as the Series B Preferred
Stock, said series to consist of 275,000 shares, with a par value of $10.00 per
share, of which the preferences and relative, participating, optional or other
special rights, and the qualifications, limitations or restrictions thereof
shall be as follows:
(a) Priority of Series B Preferred Stock in the Event of
Liquidation. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, or any
reduction in its capital resulting in the distribution of assets to its
stockholders, after payment or provision for payment of the debts or
other liabilities of the Corporation, and the payment in full to the
holders of shares of such other series of the Corporation's Preferred
Stock of such amounts as may be stated in the resolution or resolutions
providing for the issue of such series as being required to be paid
before payment be made to holders of the Corporation's Series A or
Series B Preferred Stock, and the payment in full to the holders of the
Corporation's Series A Preferred Stock of the amount of $10.00 per
share, (a) the holders of the Series B Preferred Stock shall be
entitled to receive, out of the remaining net assets of the
Corporation, the amount of $10.00 in cash for each share of Series B
Preferred Stock, (b) the holders of the Common Stock of the Corporation
shall be entitled to receive, out of the remaining assets of the
Corporation, the remaining amount of cash in the Corporation, to be
distributed pro rata. The purchase or redemption by the Corporation of
stock of any class, in any manner permitted by law, shall not for the
purpose of this paragraph be regarded as a liquidation, dissolution or
winding up of the Corporation or as a reduction of its capital. Neither
the consolidation nor merger of the Corporation with or into any other
corporation or corporations, nor the sale or transfer by the
Corporation of all or any part of its assets, shall be deemed to be a
liquidation, dissolution or winding up of the Corporation for the
purposes of this paragraph. A dividend or distribution to stockholders
from net profits or surplus earned after the date of any reduction of
capital shall not be deemed to be a distribution resulting from such
reduction in capital. Nol holder of Preferred Stock shall be entitled
to receive any amounts with respect thereto upon any liquidation,
dissolution or winding up of the Corporation other than the amounts
provided for in this paragraph.
(b) Voting Rights of Series B Preferred. Except as expressly
provided by law, the Series B Preferred Stock shall have no right or
power to vote on any question or in any proceeding or to be represented
at or to receive notice of any meeting of the stockholders.
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<PAGE>
(c) Redemption. Prior to June 30, 1996, the Corporation has
the right at any time or from time to time to redeem the Series B
Preferred Stock for $10.00 per share, pro rata.
(d) Conversion of Series B Preferred Stock Into Common Stock.
At any time subsequent to July 1, 1996, the holders of Series B
Preferred Stock shall have the right at their option to convert such
shares into shares of Common Stock of the Corporation on the basis of
one (1) share of Series B Preferred Stock for two-fifths of one share
of Common Stock.
(i) Any holder of a share or shares of Series B
Preferred Stock desiring to convert such a Series B Preferred Stock
into Common Stock shall surrender the certificate or certificates
representing the share or shares of Series B Preferred Stock so to be
converted, duly endorsed to the Corporation or in blank at the
principal office of the Corporation (or such other place as may be
designated by the Corporation), and shall give written notice to the
Corporation at said office that he elects to convert the same, and
setting forth the name or names (with the address or addresses) in
which the shares of Common Stock are to be issues.
(ii) As promptly as practicable after the surrender
for conversion of any Series B Preferred Stock, the Corporation shall
deliver or cause to be delivered at the principal office of the
Corporation (or such other place as may be designated by the
Corporation), to or upon the written order of the holder of such Series
B Preferred Stock, certificates representing the shares of Common Stock
issuable upon such conversion, issued in such name or names as such
holder may direct. Shares of the Series B Preferred Stock shall be
deemed to have been converted as of the close of business on the date
of the surrender of the Series B Preferred Stock for conversion, as
provided above, and the rights of the holders of such Series B
Preferred Stock shall cease at such time, and the person or persons in
whose name or names such certificates or such shares are to be issued
shall be treated for all purposes as having become the record holder or
holders of such Common Stock at such time; provided, however, that any
such surrender on any date when the stock transfer books of the
Corporation shall be closed shall constitute the person or persons in
whose name or names the certificates for such shares are to be issued
as the record holder or holders thereof for all purposes at the close
of business on the next succeeding day on which such stock transfer
books are open.
(iii) In case the Corporation shall at any time after
the date of this Certificate of Designation (i) pay a dividend in
shares of Common Stock or make a distribution to all holders of shares
of Common Stock in shares of Common Stock, (ii) subdivide its
outstanding shares of Common Stock into a greater number of shares of
Common Stock, (iii) combine its outstanding shares of Common Stock into
a smaller number of shares of Common Stock, or (iv) issue by
reclassification of its shares of Common Stock other securities of the
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<PAGE>
Corporation, then the number of shares of Common Stock purchasable upon
conversion of each share of Series B Preferred Stock immediately prior
thereto shall be adjusted so that the record owner of each share of
Series B Preferred Stock shall be entitled to receive upon exercise of
such conversion option the kind and number of shares of Common Stock or
other securities of the Corporation that he would have owned or would
have been entitled to receive after the happening of any of the events
described above had such share of Series B Preferred Stock been
exercised immediately prior to the happening of such event or any
record date with respect thereto. An adjustment made pursuant to this
paragraph (c) shall become effective immediately after the effective
date of such event retroactive to the record date, if any, for such
event.
(iv) Whenever the number of shares of Common Stock
purchasable upon the conversion of Series B Preferred Stock is
adjusted, as herein provided, the Corporation shall mail by first class
mail, postage prepaid, to each record owner of Series B Preferred
Stock, notice of such adjustment or adjustments and shall prepare a
certificate setting forth (i) the number of shares of Common Stock
purchasable upon the conversion of each share of Series B Preferred
Stock, (ii) a brief statement of the facts requiring such adjustment,
and (iii) the computation by which such adjustment was made. The
Corporation will exhibit the certificate, from time to time, to any
such person desiring an inspection thereof.
(e) Lodging Certificates. Each holder of Series B Preferred
Stock may elect, on the Effective Date of the Plan and/or at any time
prior to the fifth anniversary of the Effective Date, to exchange at
par value all or any part of such holder's entitlement to, or ownership
of, Series B Preferred Stock, an aggregate amount not to exceed
$100,000.00, for lodging certificates at the Los Abrigados Resort Hotel
("the Resort") in Sedona, Arizona, to be valued in the manner set forth
below. Each lodging certificate will be valued at $150.00 and will be
redeemable during such five (5) year period for one (1) weekday (Sunday
through Thursday) room night in a Jerome Suite at the Resort subject to
advance reservations made not more than 30 days prior to arrival and
otherwise in accordance with the Resort's then prevailing reservation
policy. Applicable taxes will be charged in connection with the use of
such lodging certificates. Subject to availability, lodging
certificates may be applied to weekend use in a Jerome Suite at the
Resort upon surrender of the lodging certificate and, in addition,
payment of $50 per room night. Lodging certificates will have
limitations on transferability, multiple use, and may not be sold,
traded or bartered by the holder thereof.
(f) Club Memberships. Each holder of more than 1,000 shares of
Series B Preferred Stock shall be entitled to exchange, at par value,
1,000 shares of such stock for a Jerome Suite Membership in the Sedona
Vacation Club upon payment of $2,100.00 cash per exchange. The Series B
Preferred Stock as a class will be limited to not more than 40
exchanges in any calendar year.
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Section 4.6
- -----------
Series C Preferred Stock. A series of Preferred Stock of the
Corporation is hereby given the distinctive designation "Series C Convertible
Preferred Stock, $10.00 Par Value" (the "Series C Preferred"), and shall consist
of 500,000 shares, with the following preferences and relative, participation,
optional or other special rights, and the qualification, limitations or
restrictions thereof shall be as follows:
(a) Dividend Preference. The Series C Preferred shall be
entitled to receive dividends, when and as declared by the Board of
Directors, out of any funds legally available therefor at the rate of
$.60 per share per annum (the "Dividend Preference"), payable in
preference and priority to any payment of any dividend on common shares
but subordinate, inferior and subject to the dividend rights of the
Corporation's Series A Preferred Stock. Except for Dividend Shares (as
herein defined) payable on conversion or liquidation of the Series C
Preferred, the right to the Dividend Preference shall not be
cumulative, and no right shall accrue to the holders of the Series C
Preferred by reason of the Board's failure to pay or declare and set
apart dividends thereon for any given period. If during any year prior
to the fifth anniversary of the merger between ILK Acquisition
Corporation and Genesis Investment Group, Inc. (the "Merger"), the
Dividend Preference is not paid in full, the unpaid portion thereof
shall accumulate through the fifth anniversary of the Merger (the total
amount of such cumulation expressed in dollars is referred to herein as
the "Dividend Arrearage"). For purposes hereof, "Cumulation Shares"
means the Dividend Arrearage (as of the date of calculation thereof)
owed to any holder of Series C Preferred with respect to all shares of
Series C Preferred owned of record by such holder divided by $6.00.
Partial fiscal years shall be equitably prorated.
(b) Liquidation Preference. On any voluntary or involuntary
liquidation, dissolution, or winding up of the Corporation, the holders
of the Series C Preferred shall receive the sum of $10.00 per share,
plus $6.00 per Cumulation Share to which the holder is then entitled
(by determining any Dividend Arrearage as of the date of such
liquidation), before any amount shall be paid to the holders of the
common shares. The liquidation preference of the Series C Preferred
shall be subordinate and inferior to the liquidation preferences on the
Corporation's Series A Preferred Stock and Series B Preferred Stock.
The assets of the Corporation remaining after payment of the
liquidation preference to the holders of the Series C Preferred shall
be distributed pro rata solely to the holders of common shares of the
Corporation. If the assets of the Corporation are insufficient to
permit payment to the holders of the Series C Preferred of their full
preferential amounts as herein provided, then such assets shall be
distributed ratably among the outstanding Series C Preferred. A merger
of the Corporation with or into any other corporation, or a sale of all
or substantially all of the assets of the Corporation, shall not deemed
a liquidation, dissolution, or winding up of the Corporation within the
meaning of this paragraph (c).
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Except with respect to In-Kind Fractional Redemptions (as
herein defined), the Corporation may spend up to $150,000 to redeem its
Series A Preferred Stock and up to $100,000 to redeem its Series B
Preferred Stock without offering to the holders of the Series C
Preferred a pro rata right of redemption (whether prior to or after the
Redemption Date) at the redemption price and on the redemption terms
described in Item (d) below. "In-Kind Fractional Redemptions" means the
redemption for cash of any Series A Preferred Stock which is occasioned
by the fact that the holder of such Series A Preferred Stock does not
hold a precise integral number of shares thereof necessary to convert
said series A Preferred Stock in-kind to a time-share unit or lodging
certificate pursuant to the terms of the Series A Preferred Stock and
therefore is required under the terms of said Series A Preferred Stock
to accept cash in redemption of the relevant portion of such holder's
shares in lieu of a fractional in-kind distribution.
The Corporation shall not hereafter authorize, issue, or sell
or distribute treasury shares of any series or shares of preferred
stock which is either senior to, or participates pari passu in,
liquidation preference to the Series C Preferred.
(c) Redemption. The Corporation, at the option of the Board of
Directors, may at any time on or after the third anniversary of the
Merger ("Redemption Data"), redeem the whole, or from time to time
redeem any part, of the Series C Preferred outstanding by paying in
cash therefor (the "redemption price") the sum of $10.00 per share,
plus all dividends declared but unpaid thereon to and including the
date of redemption and by giving to each Series C Preferred shareholder
of record at such holder's last known address, as shown on the records
of the Corporation, at least thirty (30) days' prior notice (the
"redemption notice") in writing, by first-class mail, postage prepaid,
stating the date and plan of redemption. If only a part of the
outstanding Series C Preferred is redeemed, such redemption shall be
effected by lot, as prescribed by the Board of Directors, or pro rata.
On or after the date fixed for redemption, each holder of Series C
Preferred called for redemption shall, unless such holder shall have
previously exercised such holder's option to convert his Series C
Preferred shares, surrender such holder's certificate for such shares
to the Corporation at the place designated in the redemption notice and
shall thereupon be entitled to receive payment of the redemption price.
If less than all the shares represented by any surrendered certificate
are redeemed, a new certificate for the unredeemed shares shall be
issued. If the redemption notice is duly given and if sufficient funds
are available therefor on the date fixed for redemption, then, whether
or not the certificates evidencing the shares to be redeemed are
surrendered, all rights with respect to such shares shall terminate on
the date fixed for redemption, except the right of the holders to
receive the redemption price, without interest, on surrender of their
certificate therefor.
If, on or after the Redemption Date and on or prior to any
date fixed for redemption of redeemable shares as herein provided, the
Corporation deposits with any bank or trust company in Arizona, as a
trust fund, a sum sufficient to
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redeem, on the date fixed for redemption thereof, the shares called for
redemption, with irrevocable instructions and authority to the bank or
trust company to publish the notice of redemption thereof, or to
complete such publication if theretofore commenced, and to pay, on and
after the date fixed for redemption or prior thereto, the redemption
price of the shares to their respective holders on surrender of their
share certificates, then from and after the date of the deposit, even
though such date may be prior to the date fixed for redemption, the
shares so called shall be redeemed and dividends on those shares shall
cease to accrue after the date fixed for redemption. The deposit shall
constitute full payment of the shares to their holders and from and
after the date of the deposit the shares shall no longer be
outstanding, and the holders thereof shall cease to be shareholders
with respect to such shares and shall have no rights with respect
thereto, except the right to receive from the bank or trust company
payment of the redemption price of the shares, without interest, on
surrender of their certificates therefor or the right to convert said
shares. Any money so deposited on account of the redemption price of
redeemable shares converted after the making of the deposit shall be
repaid to the corporation forthwith on the conversion of such Series C
Preferred.
Shares redeemed by the Corporation shall not be reissued and
shall cease to be a part of the authorized shares of the Corporation.
(d) Conversion. The Series C Preferred shall be exchangeable
for Corporation's common stock ("Common Stock") as follows:
(i) The holder of any Series C Preferred may, at such
holder's option at any time after the first anniversary of the
Merger, and prior to the tenth anniversary of the Merger, on
delivery to the Corporation of such holder's written notice
electing to convert said shares to Common Stock and on
surrender (at the office of the Corporation) of the
certificate or certificates for such Series C Preferred, duly
endorsed to the Corporation, receive one (1) share of Common
Stock for every three (3) shares of Series C Preferred so
converted plus one share of Common Stock for every Cumulation
Share to which such holder is then entitled, on payment of
transfer taxes, if any, on the Common Stock to be issued in
exchange therefor;
(ii) Provided, however, that the number of shares of
Common Stock to be issued as provided in subparagraph (e)(i)
shall be adjusted by appropriate amendment to take into
account any and all increases or reductions in the number of
outstanding shares of Common Stock that may have accrued since
the date of the first issuance of the Series C Preferred by
reason of a stock split, reverse stock split, share dividend,
or merger so as fairly and equitably to preserve so far as
reasonably possible the original
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conversion rights of the Series C Preferred;
(iii) Neither fractional shares, nor scrip or
warrants evidencing such shares, shall be issued by the
Corporation on conversion of the Series C Preferred as herein
provided, but the Corporation "hall pay in lieu thereof in
cash to the holders who would but for this provision be
entitled to receive such fractional shares the fair value
thereof as determined by the Board of Directors;
(iv) Series C Preferred so converted shall not be
reissued and shall cease to be a part of the authorized shares
of the Corporation;
(v) The Corporation shall at all times reserve and
keep available the full number of shares of Common Stock
deliverable on conversion of all Series C Preferred from time
to time outstanding;
(vi) On any merger or reorganization of the
Corporation, or reclassification of the Corporation's shares,
each share of Series C Preferred shall be convertible into the
number of shares or other securities or property to which the
number of shares of Common Stock deliverable on conversion of
such Series C Preferred immediately prior to such merger,
reorganization or reclassification would have been entitled.
Appropriate adjustment, as determined by the Board of
Directors, shall be made in the application of the provisions
herein set forth with respect to the rights and interests
thereafter of the holders of the Series C Preferred, so that
said provisions shall thereafter be applicable, as nearly as
reasonably may be, in relation to any shares of stock or other
property thereafter deliverable on conversion of the Series C
Preferred.
(vii) If the Corporation takes a record of the
holders of its Common Stock either for the purpose of
entitling them to receive a dividend or any other distribution
payable otherwise than in cash or for the purpose of entitling
them to subscribe for or purchase shares of any class or
receive any other rights, or if the Corporation conducts any
merger or reorganization of the Corporation, reclassification
of its shares (other than a subdivision or combination of its
outstanding common shares), conveys all or substantially all
of its assets to another corporation, or if the corporation
redeems any Series C Preferred in accordance with subparagraph
(d), or if the Corporation is voluntarily or involuntarily
dissolved, liquidated, or wound up, the Corporation
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shall cause to be mailed to the transfer agent or agents for
the Series C Preferred and to the holders of record of the
outstanding Series C Preferred, at least twenty (20) days
prior to the date hereinafter specified, a notice stating the
date on which a record is to be taken for the purpose of such
dividend, distribution, or rights, or the date such merger,
reorganization, reclassification, conveyance, dissolution,
liquidation, or winding up, as the case may be, is to take
place and the date, as of which holders of record of the
Series C Preferred shall be entitled to exchange their Series
C Preferred or their common shares, as the case may be, for
either common shares pursuant to the conversion rights herein
contained, in the case of Series C Preferred then held, or for
securities or other property deliverable on such merger,
reorganization, reclassification, conveyance, dissolution,
liquidation, or winding up; and
(viii) The terms "Common Stock" and "common shares"
as used herein includes all shares of any class that have no
preference over any other shares with respect to distribution
of assets on liquidation or with respect to payment of
dividends.
(e) Conversion Procedure upon Redemption. The holder of any
Series C Preferred called for redemption, at any time from and after
the giving of the redemption notice and prior to the close of business
on the fifteenth day prior to the date of redemption stated in the
redemption notice, shall, at his option on delivery to the Corporation
of such holder's written notice electing to convert said shares to
Common Stock and on surrender at the office of the Corporation or
office of the transfer agent for such shares of the certificate or
certificates for such Series C Preferred, duly endorsed to the
Corporation, be entitled to receive one (1) share of Common Stock for
every three (3) shares of Series C Preferred so converted plus one
share of Common Stock for every five (5) Cumulation Shares to which
such holder is then entitled on payment of transfer taxes, if any, on
the Common Stock to be issued in exchange for such Series C Preferred,
in accordance with subparagraph (e).
(f) Voting. The holders of the Series C Preferred shall have
and possess no voting rights, such rights being vested solely in the
Corporation's Common Stock.
(g) No Amendment. The provisions of the Corporation's Articles
of Incorporation, Bylaws and the Designation Certificate of which these
resolutions are a part shall not be amended in a manner adverse to the
rights of Series C Preferred holders without the consent of holders
owning a majority of the outstanding Series C Preferred, and the
Corporation shall take no action inconsistent with any of the terms or
provisions of such Certificate.
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5. Statutory Agent: The name and address of the initial statutory agent
of the Corporation is George C. Wallach, 2111 East Highland Avenue, Suite 210,
Phoenix, Arizona 85016.
6. Known Place of Business: The known place of business of the
Corporation shall be in Maricopa County, Arizona but a different and other
offices and places for conducting business, both within and without the State of
Arizona, may be established from time to time by the Board of Directors.
7. Board of Directors: The initial Board of Directors shall consist of
three (3) directors. The persons who are to serve as directors until the first
annual meeting of the shareholders or until their successors are elected and
qualified are:
Steven A. White
9080 Santa Monica Boulevard
Los Angeles, California 90069
Ronald D. Nitzberg
9740 W. Broadview Drive
Bay Harbor Island, Florida 33154
Joseph P. Martori
222 North Central Avenue
P. O. Box 400
Phoenix, Arizona 85001
Otherwise, the number of persons to serve on the Board of Directors shall be
fixed by the Bylaws of the Corporation.
8. Quorum: A quorum at any meeting of the Board of Directors shall
consist of a majority of the number of directors then serving, but not less than
two directors, provided that if and when a board of Directors comprised of one
member is authorized, or in the event that only one director is then serving,
then one director shall constitute a quorum.
9. Incorporators: The names and addresses of the incorporators of the
Corporation are:
Karina Munger
222 North Central Avenue
Phoenix, Arizona 85004
Diane Russell
10115 E. Mountain View Rd., #1009
Scottsdale, Arizona 85258
All powers, duties and responsibilities of the incorporators shall cease at the
time of filing of these Articles of Incorporation with the Arizona Corporation
Commission.
10. Distributions From Capital Surplus: The Board of Directors of the
Corporation may, from time to time, distribute on a pro rata basis to its
shareholders out of the capital surplus of the Corporation a portion of its
assets, in cash or in property.
11. Repurchase of Shares: The Board of Directors of the Corporation
may, from time to time, cause the Corporation to purchase its own shares to the
extent of the unreserved and unrestricted earned and capital surplus of the
Corporation.
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12. Dividends: The Board of Directors may authorize the payment of
dividends to the holders of shares of any class of stock payable in shares of
any other class.
13. Indemnification of Officers, Directors, Employees and Agents:
Scope of Indemnification.
(a) The Corporation shall indemnify directors and officers of
the Corporation to the fullest extent permitted by Arizona law, as
currently in effect, except for A.R.S. Section 10-005(F), against
any liability incurred in connection with any proceeding in which
the director and/or officer may be involved as a party or
otherwise, by reason of the fact that such person is or was acting
on behalf of the Corporation except where such indemnification is
expressly prohibited by applicable law.
(b) If a director or officer is entitled to indemnification
with respect to a portion, but not all, of any liabilities to which
such person may be subject, the Corporation shall indemnify such
person to the maximum extent for such portion of the liabilities.
(c) The termination of a proceeding by judgment, order,
settlement, conviction or plea of nolo contendere or its equivalent
shall not, of itself, create a presumption that the director or
officer is not entitled to indemnification.
(d) For purposes of this Article:
(1) "liability" means any damage, judgment, amount paid
in settlement, fine, penalty, punitive damages, excise tax
assessed with respect to an employee benefit plan, or cost or
expense of any nature (including, without limitation,
attorneys' fees and disbursements); and
(2) "proceeding" means any threatened, pending or
completed action, suit, appeal or the proceeding of any
nature, whether civil, criminal, administrative or
investigative, whether formal or informal, and whether brought
by or in the right of the Corporation, a class of its security
holders or otherwise.
Proceedings Initiated by officers or directors.
Notwithstanding any other provision of this Article, the
Corporation shall not indemnify a director or officer for any
liability incurred in a proceeding initiated (which shall not
be deemed to include counterclaims or affirmative defenses) or
participated in as an intervenor or amicus curiae by the
person seeking indemnification unless such initiation of or
participation in the proceeding is authorized, either before
or after its commencement, by the affirmative vote of a
majority of the directors in office.
Advancing Expenses. The Corporation shall pay the
expenses (including attorneys' fees and dispursements)
incurred in good faith by an officer or director in advance of
the final disposition of a proceeding upon receipt of an
undertaking by or on behalf of the officer or director to
repay such amount if it shall ultimately be determined that
such person is not entitled to be indemnified by the
Corporation pursuant ot this Article. The financial ability of
an officer or director to repay an advance shall not be a
prerequisite to the making of such advance.
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Payment of Indemnification. A director or officer shall
be entitled to indemnification within 30 days after a written
request for indemnification has been delivered to the
Secretary of the Corporation.
Contract Rights; Amendment or Repeal. All rights under
this Article shall be deemed a contract between the
Corporation and the officer or director pursuant to which the
Corporation and each officer or director intend to be legally
bound. Any repeal, amendment or modification hereof shall be
prospective only as to conduct of an officer or director
occurring thereafter, and shall not affect any rights or
obligations then exsisting.
Scope of Article. The indemnification and advancement of
expenses provided by or granted pursuant to this Article shall
continue as to a person who has ceased to be an officer or
director in respect of matters arising prior to such time, and
shall inure to the benefit of the heirs, executors,
administrators and personal representatives of such person.
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PROXY
[FRONT OF CARD]
ILX INCORPORATED
2111 East Highland Ave., Suite 210
Phoenix, Arizona 85016
-----------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned appoints Joseph P. Martori and Nancy J. Stone, and each
of them, as proxies, each with the power of substitution, and authorizes each of
them to represent and vote, as designated on the reverse side hereof, all shares
of Common Stock of ILX Incorporated held by the undersigned on December 26,
1997, at the Special Meeting of Stockholders to be held on January 9, 1998. In
their discretion, the proxies are authorized to vote such shares upon such other
business as may properly come before the Special Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR EACH OF THE LISTED PROPOSALS.
(Continued and to be SIGNED on the reverse side.)
----------------------------------------
<PAGE>
[REVERSE OF CARD]
Please mark boxes X in blue or black ink. The Board of Directors
recommends a vote FOR each of the proposals listed below.
1. Approval of the amendment to the Articles of Incorporation to
provide for a one-for-five reverse stock split of the Company's outstanding
Common Stock.
/ / FOR / / AGAINST / / ABSTAIN
2. Approval of the amendment to the Articles of Incorporation to change
the Company's name from "ILX Incorporated" to "ILX Resorts Incorporated."
/ / FOR / / AGAINST / / ABSTAIN
Please sign exactly as name appears at left. When
shares are held by joint tenants, both should sign.
When signing as an attorney, executor,
administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full
corporate name by president or other authorized
officer. If a partnership, please sign in
partnership name by authorized person.
Date _____________________ , 199__
Signature___________________________________________
Signature if held jointly___________________________
(Please mark, sign, date and return the Proxy Card promptly
using the enclosed envelope.)
