As filed with the Securities and Exchange Commission on March 13, 1997
Registration No. 333-22509
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
AMENDMENT NO.1
FORM S-3
Registration Statement
Under The
Securities Act of 1933
ILX INCORPORATED
(Exact name of registrant as specified in its charter)
ARIZONA 86-0564171
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2111 East Highland, Suite 210
Phoenix, Arizona 85016
(602) 957-2777
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
JOSEPH P. MARTORI
Chief Executive Officer
ILX Incorporated
2111 East Highland, Suite 210
Phoenix, Arizona 85016
(602) 957-2777
(Name, address, and telephone number, of agent for service)
Copy to:
HUGH L. HALLMAN, ESQ.
Colombo & Bonacci, P.C.
2525 East Camelback Rd., Ste. 840
Phoenix, Arizona 85016
(602) 956-5800
Approximate date of commencement of proposed sale to public: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
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 this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] _________________________.
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=============================================================================================================================
Title of Each Class Amount Average of Bid & Ask Price of Amount
of Securities to Be Registered to be Common Stock of
Registered as of March 11, 1997 Registration Fee
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock, no par value per share 8,399,488* shares $1.140625 $512.41*
=============================================================================================================================
</TABLE>
* Pursuant to Rule 429(a) of the Securities Act, this Registration Statement
relates to Registrations No. 33-75382 and No. 333-03151 filed on Form S-3 and
concerning 7,838,462 and an additional 2,058,046 shares, respectively, and with
respect to which a fee of $4,388.60 and $907.06 respectively already has been
paid. Of those shares that were registered under both Registrations No. 33-75382
and 333-03151, 1,730,000 have previously been disposed of, expired or are no
longer subject to registration and 7,004,488 continue to be held by the Selling
Shareholders. Accordingly, a registration fee of only $512.41 need
<PAGE>
be filed for the 1,395,000 shares newly registered hereunder. A fee of $498.12
already was paid with respect to the original filing of Registration No.
333-22509. Accordingly, this Amendment No. 1 is accompanied by an additional fee
of $30.24.
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 that specifically states that the Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determmine.
<PAGE>
ILX INCORPORATED
8,399,488 Shares of Common Stock, No Par Value
This Prospectus relates to 8,399,488 shares of common stock, no par
value per share (the "Selling Shareholders' Common Stock") of ILX Incorporated
("ILX") that are owned by Alan R. Mishkin, Joseph P. Martori, Edward J. Martori,
Martori Enterprises Incorporated, Nancy J. Stone, William G. Was, Jr., Investor
Resource Services, Inc., Douglas L. Newell and Texas Capital Securities
(collectively, the "Selling Shareholders"). The Selling Shareholders' Common
Stock is being offered for the accounts of the Selling Shareholders.
ILX will not receive any part of the proceeds from the offering of the
Selling Shareholders' Common Stock.
See "RISK FACTORS" for certain considerations relevant to an investment
in the Selling Shareholders' Common Stock.
ILX's Common Stock (the "ILX Common Stock") is quoted on the National
Association of Securities Dealers Automated Quotation Small Cap Market System
under the symbol "ILEX."
-----------------
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.
Proceeds to
Price to Public* Commissions* Selling Shareholders*
- --------------------------------------------------------------------------------
Per Unit $ 1.140625 $ 0.045625 $ 1.095
Total $9,580,666.00 $ 383,226.64 $ 9,197,439.36
- --------------------------------------------------------------------------------
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 State.
------------------
The date of this Prospectus is March__, 1997
- --------
*Estimated based on the average of the bid and ask price of ILX Common
Stock of $1.140625 as of March 11, 1997 and on an assumed average rate of
commissions (as defined in the Securities Act of 1933 and the rules and
regulations under it) of 4% applied to all sales. However, see "PLAN OF
DISTRIBUTION." The sales price received for, and the commissions paid on, the
sale of the Selling Shareholders' Common Stock may vary from the above assumed
sales price and commission rate. Further, ILX rather than the Selling
Shareholders will pay the following estimated expenses of issuance and
distribution (see "USE OF PROCEEDS," "SELLING SHAREHOLDERS" and "PLAN OF
DISTRIBUTION"):
Registration Fees $512.41; Legal Fees $7,500.00; Printing & Engraving $1,800.00;
Accounting Fees $5,000.00; Transfer Agent's Fees $1,000.00.
<PAGE>
2
AVAILABLE INFORMATION
ILX is subject to the information 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, and 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
at prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549.
The ILX Common Stock is listed 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, 1995 ("ILX's
10-K") and the exhibits attached thereto or incorporated therein; (ii) ILX's
Proxy Statement dated April 19, 1996, which was filed with the Commission on
April 26, 1996 ("ILX's Proxy Statement"); (iii) ILX's quarterly reports on Form
10-Q for the quarters ended March 31, 1996, June 30, 1996, and September 30,
1996 and the exhibits attached thereto or incorporated therein ("ILX's 10-Qs");
(iv) ILX's current reports on Form 8-K dated June 14, 1996, August 5, 1996,
January 1, 1997 and January 7, 1997 ("ILX's 8-Ks") and (v) the description of
the ILX Common Stock set forth in ILX's Registration Statement filed with the
Commission on July 29, 1987, and any and all amendments thereto filed for the
purpose of updating such description.
All documents filed by ILX pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
filing of a post-effective amendment (which indicates that all securities
offered hereby have been sold or which deregisters all securities then remaining
unsold) shall be deemed to be incorporated by reference into this Prospectus and
to be a part of it from the respective dates of filing of such documents. 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 (or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference 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.
This Prospectus incorporates documents by reference that 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: Samuel Ciatu, 2111 East Highland, Suite
210, Phoenix, Arizona 85016, telephone number (602) 957-2777.
RISK FACTORS
An investment in ILX Common Stock 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 ILX Common Stock.
Nature of Business; Business Plan. Resort development, operation and
sales to owner-users, through 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
<PAGE>
3
faced by purchasers in remarketing their timeshare interests. Negative
publicity might reduce sales and adversely affect the value of ILX's
securities, including ILX Common Stock.
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. All intervals currently offered
by ILX are qualified for inclusion in either the RCI or II exchange
network. Neither ILX's ability to qualify additional properties nor the
continued availability of such exchange networks to ILX intervals,
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, operation, 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 regulation by
the states in which properties are located and states in which
timeshare interests are marketed or sold. ILX or its subsidiary
companies presently are permitted to market and sell timeshare
interests in all states in which ILX properties are located and all
states in which it is marketing and selling timeshare interests. ILX
anticipates that ILX and its subsidiaries will apply for the right to
conduct additional sales operations 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 omissions 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
<PAGE>
4
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 contingencies that may impact ILX's ability to perform
its obligations and may undermine the value of ILX's securities,
including ILX Common Stock.
Failure to Achieve Business Plan. Although ILX intends to
expand its marketing of timeshare interests, no assurance can be given
that ILX will be able to achieve this objective or that, if this
objective is achieved, ILX will be profitable.
Potential Lack of Development Financing. ILX's ability to
expand its business to new resort projects will in large part depend
upon the availability of financing for the acquisition and development
of such projects. 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 and collection of accounts receivable. 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 an
installment sale is made, ILX is required to pay commissions and other costs
that typically exceed cash received from the installment purchaser's down
payment. 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 or
otherwise, ILX will have to rely upon other methods that could severely limit
ILX's ability to fund future operations. In that regard, an affiliate of one of
ILX's several primary lenders, Bennett Funding, filed for bankruptcy protection
in 1996. ILX has been informed that said proceedings do not involve Bennett
Funding with which ILX conducts business. ILX management is of the opinion that
such bankruptcy should have no material impact on ILX's ability to obtain
financing, either from Bennett Funding or alternate sources.
Debbie Reynolds Hotel & Casino. ILX currently is considering the
acquisition of the Debbie Reynolds Hotel & Casino in Las Vegas, Nevada (the
"Hotel") under the terms of an agreement dated as of October 30, 1996. (See "The
Company -- General.") ILX might do so if and when certain conditions are met by
the current owners. According to the terms of the definitive agreement, if ILX
elects to consummate the transaction (the likelihood of which is described
below, see "The Company -- General"), ILX would pay $4,200,000 in cash that ILX
intends to borrow from third party lenders and to whom ILX likely would be
required to provide recourse mortgages, issue to the Hotel's current owners
3,750,000 shares of ILX Common Stock that ILX would be obligated to register
federally, and assume $5,100,000 in mortgage indebtedness. The mortgage
indebtedness likely would be recourse to ILX's other assets and such
indebtedness, as well as the existence of the the $4,200,000 in debt described
above, may effect ILX's ability to borrow additional funds in the future.
Further, the issuance of the 3,750,000 shares of ILX Common Stock will dilute
the proportionate interest of current shareholders of ILX Common Stock and the
sale of such stock may adversely affect the market price
<PAGE>
5
for ILX Common Stock. Moreover, the obligation to pay the Hotel's current owners
$4,200,000 in cash may adversely affect ILX's cash flow and its business
operations generally as well as subject ILX's assets to further liens, thereby
hindering ILX's ability to borrow further funds, among other adverse results. In
addition, based on information provided by the Hotel's current owners regarding
the business performance of the Hotel to date, ILX can make no assurances that
ILX would be able to operate the Hotel at a profit if the transaction is
consummated.
Dividends. ILX has paid no cash dividends on ILX Common Stock and it
does not contemplate paying cash dividends on ILX Common Stock 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, subject to the Series A
Stock dividend requirement and the mandatory sinking fund requirement. 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 has no dividend preference.
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 10-2701 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 --
Arizona 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. Further, such restrictions
may adversely affect the ability of one or more holders of ILX securities,
including ILX Common Stock, to effect a change in control of ILX.
Reliance on Key Personnel. ILX relies upon certain key management
employees, including but not limited to its Chairman and Chief Executive
Officer, 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.
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 nine directorships (eight of which are filled
and one of which is vacant). Consequently, a purchaser must hold ten percent
(10%) 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 41.5% of the outstanding ILX Common Stock, and thereby have
the power to elect at least 4 members of the 9 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 other shareholders, such other shareholders 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 and Chief
Executive Officer of ILX. Joseph P. Martori and Edward J. Martori also are
controlling
<PAGE>
6
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 business and affairs. ILX's management believes that
Alan R. Mishkin owns an amount of ILX 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
under or subsequent to this offering could adversely affect the prevailing
market price of ILX Common Stock. 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 and supplemented it on August 19,
1994. That Registration Statement was amended under a Registration Statement
filed on May 3, 1996, which itself was amended by Amendment No. 1 to it filed on
May 16, 1996. Those statements further are amended by the Registration Statement
of which this Prospectus is a part. A total of 8,399,488 shares of ILX Common
Stock are registered federally pursuant to these Form S-3 Registration
Statements. The market price for the ILX Common Stock may be adversely affected
if all of the Selling Shareholders attempt to sell the Selling Shareholders'
Common Stock at the same time or over a short period of time.
Liquidation. ILX has non-voting Series A Preferred Stock, $10.00 par
value, ("Series A Stock") that is entitled to an annual dividend of $.80 per
share commencing July 1, 1996 provided that the funds are legally available
therefor. The Series A Stock has a liquidation preference that is superior to
the liquidation rights of all other classes of ILX securities. ILX has
non-voting Series B Convertible Preferred Stock, $10.00 par value, ("Series B
Stock") that has a liquidation preference of $10.00 that is junior to the
liquidation preference of the Series A Stock but senior to that of all other
classes of ILX securities. Further, commencing July 1, 1996, each share of the
Series B Stock may be converted into two shares of ILX Common Stock (and the
rate shall be adjusted for dividends paid in ILX Common Stock, stock splits,
reverse splits and stock reclassifications). The Series C Stock is entitled to
an annual dividend of $.60 per share when and as declared by ILX's Board of
Directors. (It can not and may not be paid unless the dividend and certain
sinking fund payments are made with respect to the Series A Stock.) If ILX does
not pay some or all of the annual dividend, any unpaid amount that accrues
before the fifth anniversary date of the Merger (defined below) is deemed the
"Dividend Arrearage" and a shareholder's Dividend Arrearage, when divided by
$6.00, is the shareholder's "Cumulation Shares." The Series C Stock has a
liquidation preference of $10.00 per share (plus $6.00 per Cumulation Share to
which a shareholder is entitled). The liquidation preference is junior to the
liquidation preference on the Series A Stock and Series B Stock but is senior to
the liquidation rights of the ILX Common Stock. This description of liquidation
provisions of the Series A, Series B and Series C Stock is qualified in its
entirety by the discussion of such provisions contained in "Description of ILX
Securities and Pertinent Arizona Statutes," below.
THE COMPANY
General.
ILX is an Arizona corporation formed in October, 1986. It is engaged
primarily in the business of developing, operating, financing and marketing
interval ownership interests, often referred to as "timeshare" interests, in
resort properties. ILX also operates certain of those resort properties as
hotels, including unused or unsold timeshare inventory. ILX's principal
executive offices are located at 2111 East Highland, Suite 210, Phoenix, Arizona
85016, telephone number (602) 957-2777.
<PAGE>
7
ILX sells timeshare interests in resorts located in Arizona, Colorado,
Florida, Indiana, Hawaii and Mexico. Generally, ILX either owns all or a
controlling 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 all or a controlling 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, Lomacasi Cottages in
Sedona, 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*
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2. Golden Eagle Resort 100% Fee Simple
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3. Kohl's Ranch Lodge 100% Fee Simple
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4. Lomacasi Cottages 75% Fee Simple
through Subsidiary**
- --------------------------------------------------------------------------------
5. Varsity Clubs of America -- South 100% Fee Simple
Bend Chapter through Subsidiary***
================================================================================
*The Los Abrigados Resort & Spa is owned by Los Abrigados
Partners Limited Partnership ("LAP"). ILE Sedona Incorporated,
a wholly owned subsidiary of ILX, is the general partner of
LAP and owns 71% thereof. ILX is the Class A Limited Partner
of LAP and owns 7.5% thereof. The remaining 21.5% of LAP, held
as Class B Limited Partnership interests, are owned by two of
the Selling Shareholders, MEI and Alan R. Mishkin.
**Lomacasi Cottages is owned by The Sedona Real Estate Limited
Partnership #1 ("SRELP"). Lomacasi Resort Incorporated, a
wholly owned subsidiary of Genesis Investment Group, Inc.,
which in turn is a wholly-owned subsidiary of ILX, is the
general partner of SRELP and owns 75% thereof.
***Varsity Clubs of America -- South Bend Chapter is owned by
VCASB Partners General Partnership, which is owned 50% by ILX
and 50% by VCA South Bend Incorporated, which is a wholly
owned subsidiary of Varsity Clubs of America Incorporated,
which in turn is a wholly owned subsidiary of ILX.
The properties owned or controlled by ILX or its subsidiaries are operated as
hotels, including 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.
<PAGE>
8
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RESORT LOCATION
- --------------------------------------------------------------------------------
1. Ventura Resort Boca Raton, Florida
- --------------------------------------------------------------------------------
2. Costa Vida Vallarta Resort Puerto Vallarta,
Mexico
================================================================================
ILX also has a marketing agreement with Pahio Resorts, which owns and
operates on the island of Kauai, Hawaii, the Pahio at Kauai Beach Villas, Pahio
at Bali Hai Villas, Pahio at The Shearwater and Pahio at Ka'Eo Kai. Under the
marketing agreement, ILX may market and sell, subject to regulatory approval,
timeshare interests in Pahio's four Hawaii resorts. ILX intends to begin
marketing the timeshare interests for Pahio at Kauai Beach Villas in Arizona,
which currently have been approved for sale in Arizona. Thereafter, ILX may then
expand its marketing effort to include the timeshare interests in other Pahio
resorts and to expand such marketing to other states.
Except for the Costa Vida Vallarta Resort, described below, purchasers
of timeshare interests from ILX acquire deed and title to an undivided
fractional interest in the entire resort or to a particular 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 obligations 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 owners (including ILX
and its subsidiaries) 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 and that retain
certain benefits for ILX and its subsidiaries.
With respect to certain of the resort properties owned by ILX or its
subsidiaries (Los Abrigados Resort & Spa; 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 title to his or her timeshare
interest free from monetary encumbrances of ILX or its subsidiaries.
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, 1996.
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
on the property. ILX also owns one unit in a residential duplex adjacent to the
property, which is not currently intended to be subject to timesharing.
<PAGE>
9
Marketing of timeshare interests in the Golden Eagle Resort began in
1987. 1,683 timeshare weeks presently exist at the Golden Eagle Resort and an
additional 102 timeshare weeks will be available upon renovation of currently
existing rooms. Arizona, Colorado and Indiana have authorized ILX to sell
timeshare interests in Golden Eagle Resort in those states. ILX had
approximately 596 weeks available for sale in completed suites at September 30,
1996. The Golden Eagle Resort is, as of September 30, 1996, encumbered by (i) a
note and deed of trust in the amount of $1,449,900, 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 $1,161,577 and
sales of consumer notes receivable sold with recourse in the approximate amount
of $773,000 at September 30, 1996.
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, registration area, executive offices, meeting
space, a health spa and athletic club, food and beverage facilities and support
areas) and 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 is being 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. 9,100 timeshare weeks exist at 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, 1996, ILX had approximately 2,915 weeks available
for sale, and options to purchase 432 weeks had been extended to owners of
Golden Eagle Resort. In addition, one to two year options have been extended to
certain owners of alternate year usage at Los Abrigados that allow the owners to
increase their ownership to every year usage. (Such options are at prices in
excess of the current prices for such usage.) Also, Genesis Investment Group,
Inc., a wholly owned subsidiary of ILX, is subject to a put and call option
requiring and allowing it to purchase 392 additional timeshare interests from
independent third parties, which timeshare weeks are intended to 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, 1996, encumbered by (i) a deed of trust, securing a
note in the amount of $1,738,167, which is payable in monthly installments of
$82,833 principal and interest at the rate of prime plus 1.25% and matures in
June, 1998, 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 $421,000 and sales of consumer notes receivable with
recourse in the amount of approximately $17 million.
On March 1, 1996, ILX indirectly became the 75% general partner of The
Sedona Real Estate Limited Partnership #1, an Arizona limited partnership,
("SRELP") that owns the Lomacasi Cottages in Sedona, Arizona, a 19 unit, 5.27
acre property approximately one mile from the Los Abrigados Resort & Spa. The
property is encumbered by deeds of trust totaling approximately $2,168,000 as of
September 30, 1996. ILX intends initially to use the resort to provide lodging
accommodations to prospective timeshare purchasers at ILX's Sedona sales office.
ILX may offer timeshare interests in the property in the future.
<PAGE>
10
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 was to 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 commenced on December 1, 1995 and was to continue for 5 years or such
longer time as may have been required to complete the sale of the subject 3,500
timeshare interests. Bennett Funding would 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. Pursuant to the
Management Agreement, Bennett Funding is to advance certain funds to the
Developer. At September 30, 1996, approximately $1.2 million had not yet been
advanced under this Management Agreement; however, an affiliate of Bennett
Funding filed for bankruptcy protection in 1996. While ILX has been informed
that said proceedings do not involve Bennett Funding, Bennett Funding has failed
to fund advances requested by ILX. (See " Risk Factors -- Potential Lack of
Consumer Receivable Financing.") It is ILX's position that the Management
Agreement, as previously amended, has been anticipatorily breached by Bennett
Funding and its affiliates. ILX is of the opinion that, while further advances
under the Management Agreement may not occur, the bankruptcy will have no
additional material impact on ILX's ability to obtain timeshare financing from
Bennett Funding or alternate sources. ILX intends to use any future payments
under the Management Agreement received by ILX to mitigate present and future
damages sustained by ILX by virtue of the breach by Bennett Funding and its
affiliates of the Management Agreement and other loan transactions between ILX,
its subsidiaries and affiliates, and Bennett Funding and its affiliates. The
balance outstanding under the Management Agreement is $2,185,519 as of September
30, 1996.
The Costa Vida Vallarta Resort is a beach front resort located in
Puerto Vallarta, Mexico. During 1993, 1994 and 1995, 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 49 timeshare interests available
for sale as of September 30, 1996.
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.
2,704 timeshare weeks currently exist at Kohl's Ranch. Kohl's Ranch
timeshare interests have been approved for sale in Arizona. Timeshare sales
commenced in July, 1995. As of September 30, 1996, ILX had approximately 2,221
timeshare weeks available for sale. ILX refurbished Kohl's Ranch, maintaining
its authentic ranch atmosphere and decor, and may add additional units in the
future. Kohl's Ranch is, as of September 30, 1996, encumbered by (i) a first
position note and deed of trust in the amount of $630,000, payable in equal
installments of principal and interest through December 1998, (ii) a second
position note and deed of trust in the amount of $246,250, 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, and (iii) a
third position note and deed of trust in the pricipal amount of $1,451,547,
which secures ILX's repurchase obligations relating to borrowings against
consumer notes receivable.
<PAGE>
11
In September, 1996, ILX acquired approximately one-half acre of
improved property adjacent to the Los Abrigados resort for a purchase price of
$750,000, consisting of a $185,862 cash down payment and a $564,138 first deed
of trust. ILX intends to make improvements to the property in the amount of
approximately $300,000 and to offer approximately 468 timeshare interests in the
property commencing in 1997. The first deed of trust bears interest at prime
plus 4% with interest payable monthly and principal payable through release fees
as intervals are sold.
On October 30, 1996, ILX entered into a definitive agreement with
Debbie Reynolds Hotel & Casino, Inc., a Nevada corporation ("DRHC")(OTC:DEBI)
and Debbie Reynolds Resorts, Inc., a Nevada corporation ("DRC"), whereby ILX can
acquire, among other assets, the physical assets constituting the Debbie
Reynolds Hotel & Casino in Las Vegas, Nevada (the "Hotel"). The purchase price
for the assets is $16,800,000 and is payable by issuance to DRC of $7,500,000
worth of federally registered shares of ILX's Common Stock valued for purposes
of the transaction at $2.00 per share (totalling 3,750,000 shares), as well as
payment of $4,200,000 in cash, which ILX intends to borrow from third-party
lenders to whom ILX believes it will be required to provide recourse mortgages
against ILX's assets, and ILX's assumption of $5,100,000 in mortgage
indebtedness, which ILX believes likely would be recourse to ILX's assets. The
Hotel consists of 193 rooms in a twelve story structure situated on over six
acres. Hotel amenities include the Debbie Reynolds Hollywood Movie Museum,
Debbie's Star Theater, food and beverage facilities, a pool and a spa, and space
for a full-service casino. Forty-three of the hotel rooms have recently been
renovated and established as timeshare units, providing the opportunity to
market up to 2,193 timeshare interests in the Hotel, of which approximately
one-half have been sold by the current owners. As part of the agreement, Debbie
Reynolds would continue to perform and make regularly scheduled appearances at
the Hotel. (See "Risk Factors -- Debbie Reynolds Hotel & Casino.") If the
transaction is consummated, ILX would offer timeshare interests, would conduct
hotel operations, and would lease to Debbie Reynolds or her nominee for 99 years
facilities that include the showroom, casino space, museum, gift shop, back bar
and certain joint use areas for an approximate lease fee of $150,000 per month,
which is at a rate that DRHC has indicated would not likely be profitable for
DRHC to undertake.
The agreement, entitled "Agreement for Purchase and Sale of Debbie
Reynolds Hotel & Casino," (the "Acquisition Agreement") is attached as Exhibit
10 to the Registration Statement of which this Prospectus is a part. The
description of the Acquisition Agreement is qualified in its entirety by
reference to the Acquisition Agreement. Consummation of the contemplated
transaction was and remains contingent upon approval by the shareholders of
DRHC, satisfaction of various conditions by the sellers, and a due diligence
investigation by ILX. To date, DRHC has not sought the approval of its
shareholders, only a small portion of the conditions have been satisfied by the
sellers, and ILX has not completed its due diligence investigation as a result
of the lack of information made available by the sellers, all of which places an
additional degree of substantial uncertainty upon the likelihood of closing the
transaction as originally anticipated. One condition recently satisfied is that
DRHC provided ILX with DRHC's delinquently filed financial statements for the
year ending December 31, 1995 and the first three quarters of 1996. ILX's
preliminary review of these financial statements revealed lower performance
levels than had previously been anticipated for DRHC, and greater debt owed by
DRHC, raising additional issues that ILX must now explore. Accordingly, ILX's
management has determined that, until further due diligence is performed and the
other seller contingencies are satisfied, ILX will not be able to determine
whether or not it will proceed to consummate the transaction.
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 the areas near its
properties and 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 and its subsidiaries employ
<PAGE>
12
approximately 600 people. ILX plans to continue exploring options for the
acquisition or 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.
Wholly Owned Subsidiaries of ILX
Los Abrigados Partners Limited Partnership. Los Abrigados Resort & Spa
is owned by Los Abrigados Partners Limited Partnership, an Arizona limited
partnership ("LAP"). ILX, directly and through ILE Sedona Incorporated ("ILES"),
owns a total of 78.5% of LAP. LAP's other partners are Alan Mishkin (11.5%) and
MEI (10%), both of whom are Selling Shareholders. ILES serves as LAP's 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 automatically will renew for consecutive five year terms, commencing March
31, 2001, 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.
Sedona Worldwide Incorporated and Red Rock Collection Incorporated. Red
Rock Collection Incorporated, an Arizona corporation ("Red Rock Collection"),
was a wholly and directly owned subsidiary of ILX. It 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 leased by Red Rock Collection from Edward J. Martori, a Selling
Shareholder, and houses the executive offices, customer service, accounting,
warehouse and shipping operations, as well as telemarketing offices for ILX's
timeshare sales operations. (A copy of the lease is attached to ILX's 10-K and
is incorporated herein by this reference.)
Effective January 1, 1997, ILX and Red Rock Collection entered into
personal service agreements (the "Personal Service Agreements") with celebrity
Debbie Reynolds and her son, Todd Fisher. The Personal Service Agreements
provide, among other things, that Ms. Reynolds will endorse the Red Rock
Collection line of face, body , bath and hair care products. Pursuant to the
Personal Service Agreements and related documents, each of Ms. Reynolds and Mr.
Fisher are to receive from ILX 70,000 shares of the 700,000 issued and
outstanding shares of Red Rock Collection common stock as partial consideration
thereunder.
Also under the Personal Service Agreements, ILX agreed that, within
sixty (60) days from the issuance of such stock to Ms. Reynolds and Mr. Fisher,
which issuance has not yet occurred. ILX would distribute to the existing ILX
shareholders the common stock of Red Rock Collection equal to thirty percent
(30%) of the then issued and oustanding Red Rock Collection common stock. The
Personal Service Agreements further provide that (i) ILX shall undertake
promptly to register the common stock of Red Rock Collection with the Securities
and Exchange Commision with a view to listing the stock on the National
Association of Securities Dealers Automatic Quotation System (NASDAQ) and (ii)
either concurrently with such registration or by separate registration, and upon
the advice of its underwriters, Red Rock Collection would undertake a public
offering of between $ 2 million and $5 million.
In November, 1996, ILX activated a wholly owned subsidiary, Sedona
Worldwide Incorporated ("SWW")(formerly "Red Rock Worldwide Incorporated").
Pursuant to a Contribution Agreement to
<PAGE>
13
be effective as of January 1, 1997, all of the issued and outstanding shares of
Red Rock Collection are to be exchanged for shares of SWW, at a rate of four
shares of SWW for each share of Red Rock Collection. As a part of that
agreement, SWW is to assume Red Rock Collection's obligations under the Personal
Service Agreements and ILX is to undertake the various Red Rock Collection stock
transfers and registrations using SWW stock rather than Red Rock Collection
stock.
Red Rock Collection products primarily have been 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. 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. Red Rock
Collection then markets by direct mail to the resort and tour customers who have
received and/or used the Red Rock Collection products. SWW is considering other
marketing opportunities, including promotional activities utilizing Ms. Reynolds
for Red Rock collection products. ILX and SWW intend to offer additional product
lines through SWW, including jewelry, artwork and apparel.
Varsity Clubs of America Incorporated. 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 -- Nature of Business;
Business Plan."
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 VCASB Partners General Partnership ("VCASB"), which is
owned 50% by ILX and 50% by VCA South Bend Incorporated, a wholly owned
subsidiary of VCA. VCASB is affiliated with Varsity Clubs of America -- South
Bend Chapter, a not-for-profit corporation whose members are the owners of
timeshare interests in the Indiana facility. Indiana, Arizona, Illinois, Florida
and Pennsylvania have authorized VCASB to sell timeshare interests in the
Indiana facility in those states. VCASB had approximately 2,430 timeshare weeks
available for sale as of September 30, 1996. The Indiana Varsity Clubs facility
is, as of September 30, 1996, encumbered by a first position mortgage and note
in the amount of $3,023,363 the principal of which is payable through release
fees, with interest payable monthly at the rate of 13%. The note matures in
November 1998.
<PAGE>
14
The mortgage further secures ILX's repurchase obligation with respect to the
sales of consumer notes receivable in the amount of approximately $4.1 million
at September 30, 1996.
The site for the second Varsity Clubs facility is located in Tucson,
Arizona, approximately 2.3 miles from the University of Arizona.VCA Tucson
Incorporated, a wholly owned subsidiary of VCA, is acquiring of the property
under a contract for sale with a remaining balance of $491,981 as of September
30, 1996. In July, 1995, VCA Tucson Incorporated received a written commitment
for construction financing for the Arizona facility in the amount of $6 million
at a 13% per annum interest rate, which is expected to be sufficient to build
and furnish the property. $300,000 has been borrowed against this commitment as
of September 30, 1996 for payment of land acquisition costs. 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. Construction of
the Arizona facility is expected to commence in 1998 following the acquisition,
if it takes place, of the Debbie Reynolds Hotel & Casino assets.
VCA is considering various other sites for development of Varsity Clubs
facilities in the next five to seven years, in addition to the Varsity Clubs
facility in Indiana and the proposed facility in Tucson, Arizona.
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. Lomacasi Resort Incorporated,
an Arizona corporation and the general partner of SRELP, is a wholly owned
subsidiary of Genesis.
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 contracted (on a
nonrecourse basis) to 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 that is to be acquired by the partnership. The Genesis subsidiary owns an
80% interest in the partnership. The status of this project is unclear due to
the ongoing bankruptcy of an affiliate of Hotel Syracuse, Inc. However, all
associated agreements are non-recourse to ILX.
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 is subject to a put and call option allowing and
requiring Genesis to purchase 667 timeshare interests at Los Abrigados Resort &
Spa. Pursuant to such option, Genesis has acquired 275 timeshare interests for
resale and Genesis has engaged LAP to market these timeshare interests. Genesis
is subject and has the right to purchase an additional 392 timeshare interests
pursuant to the put and call option.
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
<PAGE>
15
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 and Indiana.
Kohl's Ranch Water Company. Kohl's Ranch Water Company ("KRWC") was
acquired in January 1996. KRWC owns various assets associated with providing
water service to Kohl's Ranch Lodge and various other properties in the
vicinity.
In addition to the above mentioned wholly owned subsidiaries, ILX also
owns three corporations, AVC Development Incorporated, SHI Health Institute
Incorporated, and Golden Eagle Realty, Inc., none of which has any assets or
liabilities or is conducting any business at the present time.
Consulting Arrangements
Effective January 1, 1997, ILX entered into a new Consulting Agreement
with Investor Resource Services, Inc., a Florida corporation ("IRS") pursuant to
which IRS agreed to provide certain investor relations, broker relations and
public relations services. The Agreement suceeds a prior consulting agreement
and associated option agreement, as amended, under which IRS provided similar
services in exchange for 50,000 shares of ILX Common Stock and options to
acquire an additional 250,000 shares of ILX Common Stock, of which IRS exercised
options to purchase 100,000 shares of ILX Common Stock. Under the terms of the
new Agreement, IRS received from ILX options to purchase 350,000 shares of ILX
Common Stock at $1.25 per share and the right to exercise, under an extension of
their terms, options for 150,000 shares of ILX Common Stock previously granted
under the prior consulting agreement and associated option agreement. ILX has
agreed that it would register the Common Stock underlying the options pursuant
to the terms of the Consulting Agreement. The Consulting Agreement is attached
to ILX's 8-K dated January 1, 1997, and the above description is qualified in
its entirety by reference to the Consulting Agreement.
Effective January 7, 1997, ILX entered a Consulting Agreement and an
Option Agreement with Texas Capital Securities ("TCS"). In exchange for TCS's
financial and business advisory services under the Consulting Agreement, ILX
granted TCS options to acquire up to 500,000 shares of ILX Common Stock. TCS may
exercise options for 250,000 shares of ILX Common Stock at a price of $1.25 per
share on or before June 30, 1997. If those options are exercised prior to their
expiration date, TCS may exercise options for an additional 125,000 shares of
ILX Common Stock at a price of $1.75 per share on or before September 30, 1997.
If those additional options are exercised prior to their expiration date, TCS
may exercise options for an additional 125,000 shares of ILX Common Stock at a
price of $2.00 per share on or before December 15, 1997 or such later period as
is extended by ILX if and to the extent ILX extends the term of the Consulting
Agreement. TCS entered a similar consulting agreement with Martori Enterprises
Incorporated ("MEI"), under which MEI, the largest shareholder of ILX,
transferred 50,000 shares of ILX Common Stock then held by MEI to TCS. The TCS
Consulting Agreements with ILX and MEI and the Option Agreement between TCS and
ILX are attached to ILX's 8-K dated January 7, 1997, and the above description
is qualified in its entirety by reference to those Agreements.
<PAGE>
16
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 9 Months Ended
September 30
- --------------------------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges 2.40 3.48 3.08 1.05 1.92
- --------------------------------------------------------------------------------------------------------------
Coverage Deficiency (in thousands) ($307)
==============================================================================================================
</TABLE>
Fixed charges consist of interest, the amortization of debt issuance
costs and an estimated interest factor in rentals. Earnings for the nine months
ended September 30, 1996, and for the years ended December 31, 1995, December
31, 1994, December 31, 1993 and December 31, 1992 were sufficient to cover the
combined fixed charges. Earnings for the year ended December 31, 1991 were not
sufficient to do so. The coverage deficiency for the year ended December 31,
1991 represents the excess of fixed charges over earnings.
USE OF PROCEEDS
ILX will not receive any proceeds from the sale of the Selling
Shareholders' Common Stock pursuant to this Prospectus. The Selling
Shareholders' Common Stock offered hereby is offered by the Selling Shareholders
for their own accounts. See "SELLING SHAREHOLDERS." Pursuant to an agreement
among BIS-ILE, ILX, Arthur J. Martori and Alan R. Mishkin dated March 28, 1991
(the "Agreement"), Mr. Mishkin acquired 2,000,000 shares of ILX Common Stock
(the "Mishkin Shares"). Under that Agreement, ILX agreed to register the Mishkin
Shares within six months of the date of Mr. Mishkin's payment for the Mishkin
Shares, which occurred on September 9, 1991. Since the date of that purchase,
Mr. Mishkin contributed 1,166,655 shares of the Mishkin Shares to ILX pursuant
to a Contribution of Capital Agreement dated February 20, 1992 among ILX, Arthur
J. Martori, Wm. Robert Burns, MEI and Mr. Mishkin. In addition, since the date
of his original purchase and payment for the Mishkin Shares, Mr. Mishkin allowed
ILX to postpone the date of registration of those shares. At Mr. Mishkin's
request, ILX registered certain of Mr. Mishkin's shares, as well as the other
shares of ILX Common Stock held by the Selling Shareholders in May, 1994 and
revised that registration in May 1996 to include, among other shares, all of the
Mishkin Shares. The Registration Statement of which this Prospectus is a part
was prepared to update certain information in that original registration.
Pursuant to the Agreement with Mr. Mishkin, ILX bears all expenses associated
with the registration and the amendments.
SELLING SHAREHOLDERS
The Selling Shareholders' Common Stock is being offered for the account
of the Selling Shareholders. The table below sets forth certain information as
of March 10, 1997, including the name of each Selling Shareholder, his position,
office or material relationships to ILX or its affiliates within the past three
year period, the number of shares of the Selling Shareholders' Common Stock
owned by each Selling Shareholder prior to the initiation of the original
offering in May 1994, the number of shares of the Selling Shareholders' Common
Stock held by such Selling Shareholder as of March 10, 1997 and the number of
shares of the Selling Shareholders' Common Stock to be owned by each such
Selling Shareholder upon completion of this Offering, assuming all shares of the
Selling
<PAGE>
17
Shareholders' Common Stock offered hereby are sold pursuant to this Offering.
ILX has no knowledge that any Selling Shareholder plans to dispose of any shares
of the Selling Shareholders' Common Stock, except that Investor Resource
Services and Texas Capital Securities likely will offer at least a portion of
their shares for sale, and Mr. Mishkin may offer a portion of his shares for
sale, although ILX knows of no specific plans that he intends to do so.
<TABLE>
<CAPTION>
POSITION, OFFICE
OR COMMON COMMON COMMON
MATERIAL STOCK COMMON STOCK STOCK
RELATIONSHIP OWNED STOCK OFFERED BENEFICIALLY
WITH ILX OR AS OF OWNED AS HEREUNDER BY OWNED
SELLING AFFILIATES WITHIN MARCH OF MARCH SELLING AFTER
SHAREHOLDER THREE-YEAR PERIOD 31, 1996(1) 10, 1997 SHAREHOLDER OFFERING
----------- ----------------- --------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Joseph P. Martori(2) Chairman, Director, 22,069(3) 130,069(4) 130,069(4) 0
Chief Executive
Officer & Former
President
Edward J. Martori(5) Director 46,539(6) 326,539(6) 326,539(6) 0
Alan R. Mishkin(7) Former Director 2,012,045 1,585,045 1,585,045 0
Douglas L. Newell Former Director 11,702 11,702 11,702 0
Nancy J. Stone President, Chief 139,586(8) 214,586(8) 214,586(8) 0
Financial Officer,
Director & Former
Executive Vice
President
William G. Was, Jr. Former Director 44,000(10) 14,000 14,000 0
Martori Enterprises ** 5,658,547 4,956,547 4,956,547 0
Incorporated(11)
Investor Resource Consultant 400,000(9) 609,000(9) 609,000(9) 0
Services(12)
Texas Capital Consultant 0 550,000(9) 550,000(9) 0
Securities(13)
</TABLE>
1. This combined Prospectus relates to the Registration Statement filed on
Form S-3 at No. 333-03151 as well as the Registration Statement filed on
Form S-3 at No. 33-75382. Accordingly, for clarification, this column sets
forth the shares owned by the Selling Shareholders as of the date of the
offering of shares as of March 31, 1996 under Registration No. 333-03151.
2. Joseph P. Martori also is a controlling shareholder, officer and director
of Martori Enterprises Incorporated.
3. Includes 11,010 shares of ILX Common Stock held by Joseph P. Martori as
custodian and trustee under a trust dated February 20, 1978 for the benifit
of Christina Ann Martori and 10,000 shares of ILX Common Stock held by
Joseph P. Martori as custodian for his daughter, Arianne Terres Martori,
and 1,059 shares held by Joseph P. Martori as trustee under a trust dated
January 30, 1976. Shareholdings shown do not include Martori Enterprises
Incorporated's shares of ILX Common Stock.
4. Includes 17,010 shares of ILX Common Stock held by Joseph P. Martori as
custodian and trustee under a trust dated February 20, 1978 for the benefit
of Christina Ann Martori, 16,000 shares of ILX Common Stock held by Joseph
P. Martori as custodian for his daughter, Arianne Terres Martori, and 1,059
shares held by Joseph P. Martori as trustee under a trust dated January 30,
1976. Shareholdings shown do not include Martori Enterprises Incorporated's
shares of ILX Common Stock.
5. Edward J. Martori also is a controlling shareholder, officer and director
of Martori Enterprises Incorporated.
6. Includes 707 shares of ILX Common Stock owned by the Estate of Edward
Joseph Martori of which Edward J. Martori is beneficiary and Joseph P.
Martori is personal representative. Shareholdings shown do not include
Martori Enterprises Incorporated's shares of ILX Common Stock.
<PAGE>
18
7. Alan R. Mishkin is a limited partner in the Los Abrigados Partners Limited
Partnership.
8. Includes 10,000 shares owned by Michael Stone, husband to Nancy J. Stone.
9. The shareholder holding the options giving rise to these shares or the
shares owned directly may also trade in ILX stock for its own account. The
shares set forth on this table only relate to shares held by such
shareholder pursuant to consulting agreements described below.
10. Includes 37,000 shares held in the Was Family Trust.
11. Martori Enterprises Incorporated is a limited partner in the Los Abrigados
Partners Limited Partnership.
12. Effective January 1, 1997, ILX entered into a Consulting Agreement with
Investor Resource Services, Inc., a Florida corporation, ("IRS") under
which IRS agreed to provide certain investor relations, broker relations
and public relations services. Under the terms of the Agreement, IRS
received options to purchase up to 500,000 shares of ILX Common Stock at
$1.25 per share and ILX has agreed to register the Common Stock underlying
the options. (See "The Company -- Consulting Agreements" above.) 150,000 of
the shares of ILX Common Stock already were registered under Registration
No. 333-03151 in connection with a prior consulting agreement that expired
in September, 1996 after IRS had exercised options for 100,000 shares of
ILX Common Stock.
13. Effective January 7, 1997, ILX entered a Consulting Agreement with Texas
Capital Securities, Inc., a Texas corporation, ("TCS") under which TCS
agreed to provide certain financial and business advisory services. Under
the terms of the Agreement, TCS received options to purchase up to 500,000
shares of ILX Common Stock at a price ranging from $1.25 to $2.00 per share
(see "The Company -- Consulting Agreements," above). Concurrently, TCS
received 50,000 shares of ILX Common Stock from MEI in connection with a
consulting agreement with MEI. (See "The Company -- Consulting Agreements,"
above.) ILX has agreed that it would register the Common Stock underlying
the options pursuant to the Consulting Agreement.
PLAN OF DISTRIBUTION
ILX will not receive any proceeds from the sale of the Selling
Shareholders' Common Stock pursuant to this Prospectus. The shares of the
Selling Shareholders' Common Stock offered hereby may be sold from time to time
directly by or for the account of the Selling Shareholders. The Selling
Shareholders' Common Stock may be sold in one or more transactions (which may
include block transactions) on the NASDAQ Small Cap Market System, in negotiated
transactions, or in a combination of those and other methods of sale, at market
prices prevailing at the time of sale, at prices related to prevailing market
prices or at prices otherwise negotiated. The Selling Shareholders may effect
transactions by selling the Selling Shareholders' Common Stock to or through
broker-dealers, and those broker-dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling Shareholders
and/or the purchasers of the Selling Shareholders' Common Stock for whom such
broker-dealers may act as agent (which compensation may be less than or in
excess of customary commissions). The Selling Shareholders and any
broker-dealers that participate in the distribution of the Selling Shareholders'
Common Stock may be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act and any commissions received by them and any profit
on the resale of the Selling Shareholders' Common Stock sold by them may be
deemed to be underwriting discounts and commissions under the Securities Act.
Upon ILX being notified by the Selling Shareholders, or any of them,
that any material arrangement has been entered into with a broker-dealer for the
sale of the Selling Shareholders' Common Stock through a block trade, special
offering, exchange distribution or other secondary distribution, or a purchase
by a broker or a dealer, a supplemental prospectus will be filed, if required,
pursuant to Rule 424(b) of the Securities Act.
ILX has agreed to bear the expenses of the registration of the Selling
Shareholders' Common Stock, including legal and accounting fees.
<PAGE>
19
DESCRIPTION OF ILX SECURITIES AND PERTINENT ARIZONA STATUTES
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--Los
Abrigados Partners Limited Partnership), 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, 60,169 shares of which remain
issued and outstanding at September 30, 1996. Beginning July 1, 1996, the Series
A Stock is entitled to an annual dividend of $.80 per share 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. Beginning January 1,
1993, ILX, through LAP, is required quarterly to make provision for a dividend
sinking fund in an amount equal to $100 for each unrescinded timeshare sale at
Los Abrigados Resort & Spa made during the preceding calendar quarter. 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, 1996.
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. 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 re-classifications. 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.
<PAGE>
20
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 279,558 shares remain issued and outstanding at
September 30, 1996. 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 the 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 Investment Group, Inc."), 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. Upon conversion of a holder's 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 10-2701 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 10-2704 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 10-2705 limits the ability of the issuing public
corporation to enter into or amend any agreements containing provisions that
increase the current or
<PAGE>
21
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 10-2721 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 10-2741 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. See "Risk Factors -- Arizona
Anti-takeover Provisions."
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.
<PAGE>
22
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 OPINION
The validity, under Arizona corporate law, of the Selling Shareholders'
Common Stock being offered hereby may be passed upon by the law firm of Colombo
& Bonacci, P.C., 2525 East Camelback Road, Suite 840, Phoenix, Arizona.
<PAGE>
================================================================================
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.
-----------------------------------
TABLE OF CONTENTS
AVAILABLE INFORMATION ..................................................... 2
INCORPORATION BY REFERENCE ................................................ 2
RISK FACTORS .............................................................. 3
THE COMPANY ............................................................... 6
RATIO OF EARNINGS TO FIXED CHARGES ........................................ 16
USE OF PROCEEDS ........................................................... 16
SELLING SHAREHOLDERS ...................................................... 16
PLAN OF DISTRIBUTION ...................................................... 18
DESCRIPTION OF ILX SECURITIES AND PERTINENT
ARIZONA STATUTES ......................................................... 19
SEC POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES ............................................ 21
LEGAL OPINION ............................................................. 22
--------------------------------
8,399,488 Shares
__________
ILX INCORPORATED
Common Stock
__________
PROSPECTUS
__________
<PAGE>
24
PART II
INFORMATION NOT REQUIRED
IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following is an itemized statement of expenses incurred in
connection with this Registration Statement. All such expenses will be paid by
ILX.
Registration Fee........................................ $ 512.41
Public accountants' fees................................ $ 5,000.00
Legal fees and expenses................................. $ 7,500.00
Printing and engraving expenses......................... $ 1,800.00
Transfer agent's fees................................... $ 1,000.00
----------
TOTAL......................................... $15,812.41
==========
All of the above items, except the Registration Fee, are estimates.
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.
<PAGE>
25
Item 16. Exhibits.
The Exhibits required by Item 601 of Regulation S-K have been supplied
as follows:
Exhibit
Numbers Description of Exhibit Page No.
------- ---------------------- --------
05 Legal Opinion of Colombo & Bonacci, P.C. *
10 Aquisition Agreement *
12 Statement Regarding Computation of Ratios *
23.1 Consent of Colombo & Bonacci, P.C.
23.2 Consent of Deloitte & Touche LLP
* Previously filed
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) 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
this 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 this 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;
Provided, however, that the undertakings set forth in paragraphs 1(i) and 1(ii)
above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in this
Registration Statement.
(2) 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.
(3) 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.
<PAGE>
26
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report pursuant
to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement 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.
(5) To 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.
(6) That, for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of Prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of Prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4), or 497(h) under the Securities Act shall be deemed to be part
of this Registration Statement as of the time it was declared effective.
(7) That, for the purpose of determining any liability under
the Securities Act of 1933, each post-effective amendment that contains a form
of Prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of 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.
<PAGE>
27
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
hereby certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-3 and 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 March 12, 1997.
ILX INCORPORATED
By /s/ Joseph P. Martori
-------------------------------
Joseph P. Martori, Chairman and
Chief Executive Officer
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
- ------------------------ Chairman/Chief Executive March 12,1997
Joseph P. Martori Officer/Director --------------
/s/ Nancy J. Stone
- ------------------------ President/Chief Financial March 12,1997
Nancy J. Stone Officer/Director --------------
/s/ Denise Janda
- ------------------------ Vice-President/Controller March 12,1997
Denise Janda --------------
/s/ Ronald D. Nitzberg
- ------------------------ Director March 12,1997
Ronald D. Nitzberg --------------
/s/ Edward J. Martori
- ------------------------ Director March 12,1997
Edward J. Martori --------------
/s/ James W. Myers
- ------------------------ Director March 12,1997
James W. Myers --------------
- ------------------------ Director
Steven R. Chanen --------------
/s/ Michael W. Stone
- ------------------------ Director March 12,1997
Michael W. Stone --------------
/s/ Edward S. Zielinski
- ------------------------ Executive Vice-President/ March 12,1997
Edward S. Zielinski Director --------------
COLOMBO & BONACCI, P.C.
ATTORNEYS AT LAW
2525 EAST CAMELBACK ROAD MAIN OFFICE: (602) 956-5800
SUITE 840 FACSIMILE: (602) 956-3322
PHOENIX, ARIZONA 85016
March 12, 1997
ILX Incorporated: S-3 Registration Statement
--------------------------------------------
Gentlemen:
We have acted as counsel to ILX Incorporated, an Arizona
corporation, (the "Company") in connection with the registration by the Company
of Common Stock pursuant to a registration statement filed by the Company on
Form S-3 with respect to the above described securities (the "Registration
Statement").
We hereby consent to the filing of our opinion (in the form of
Exhibit 5 of the Registration Statement), or copies thereof, as an exhibit to
the Registration Statement and all amendments to it. In giving this consent, we
do not admit that we are within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 or the rules and
regulations of the SEC thereunder.
Very truly yours,
/s/ COLOMBO & BONACCI, P.C.
COLOMBO & BONACCI, P.C.
ILX Incorporated
2111 East Highland, Suite 210
Phoenix, Arizona 85016
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
ILX Incorporated on Form S-3 of our report dated March 27, 1996, appearing in
the Annual Report on Form 10-K of ILX Incorporated for the year ended December
31, 1995.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Phoenix, Arizona
March 12, 1997
Exhibit 23.2
