As filed with the Securities and Exchange Commission on March 4, 2003
Registration No. 333-______
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ILX RESORTS INCORPORATED
(Exact name of Registrant as specified in its charter)
ARIZONA 86-0564171
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) Number)
2111 EAST HIGHLAND AVENUE, SUITE 210
PHOENIX, ARIZONA 85016
(602) 957-2777
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
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JOSEPH P. MARTORI
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
ILX RESORTS INCORPORATED
2111 EAST HIGHLAND AVENUE, SUITE 210
PHOENIX, ARIZONA 85016
(602) 957-2777
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
WITH COPIES TO:
ROBERT K. ROGERS, ESQ.
JERE M. FRIEDMAN, ESQ.
ROGERS & THEOBALD LLP
SUITE 850
2425 EAST CAMELBACK ROAD
PHOENIX, ARIZONA 85016
(602) 852-5550
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE 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. [X]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933,
other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the 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
Title of each Class Proposed Maximum Proposed Maximum
of Securities to be Amount to be Price Per Aggregate Offering Aggregate Amount
Registered Registered Security (1) Offering Price (1) of Registration Fee
---------- ---------- ------------ ------------------ -------------------
Common Stock 300,000 $8.255 $2,476,500.00 $200.35
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), based on the average of the high and low prices of
the common stock as reported on the American Stock Exchange on February 25,
2003.
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PROSPECTUS
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ILX RESORTS INCORPORATED
DIVIDEND REINVESTMENT PLAN
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300,000 SHARES OF COMMON STOCK
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This prospectus relates to 300,000 shares of our common stock that our
company may offer and sell under the ILX Resorts Incorporated Dividend
Reinvestment Plan, or "Plan." The Plan provides holders of our common stock with
a convenient and economical method of investing cash dividends to purchase
additional shares of common stock. Any record holder of our common stock is
eligible to participate in the Plan. A beneficial owner can participate in the
Plan only if his, her, or its broker, bank, or other nominee elects to
participate in the Plan.
You may:
1. Automatically reinvest cash dividends paid on all of your common
stock, or
2. Automatically reinvest cash dividends paid on a portion of your common
stock and continue to receive cash dividends on the remaining common
stock.
3. Deposit your ILX Resorts Incorporated stock certificates with the
Agent for safekeeping.
4. Sell or transfer shares of common stock credited to your Plan account.
You cannot invest in common stock through the Plan unless you already hold
shares of our common stock. Shareholders who do not participate in the Plan will
continue to receive cash dividends in the usual manner, when and as declared by
our Board of Directors.
OUR COMMON STOCK IS SUBJECT TO ALL OF THE RISKS OF AN INVESTMENT IN OUR
BUSINESS, ASSETS, AND LIABILITIES. SEE "RISK FACTORS" BEGINNING ON PAGE 6.
Computershare Trust Company, Inc. acts as "Agent" and administers the
Plan. Upon our instruction, the Agent will purchase shares of common stock for
the accounts of participants directly from our company or in privately
negotiated transactions. If the Agent purchases shares from our company, the
price of your shares will be the average of the high and low sales price of the
common stock on the American Stock Exchange on the record date for the dividend.
If the Agent purchases shares in privately negotiated transactions, the price of
your shares will be the Agent's average cost for all such purchases with respect
to that dividend. You will receive no discount on purchases under the Plan. We
will pay all fees and brokerage commissions related to administration of the
Plan and
reinvestment of dividends. You will be charged for commissions and fees
associated with sales of shares from your account in the Plan.
Our common stock is listed on the American Stock Exchange under the symbol
"ILX". The closing price of our common stock on the American Stock Exchange on
March 3, 2003, was $8.25 per share.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED
UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this prospectus is March 4, 2003.
TABLE OF CONTENTS
PAGE
Forward-Looking Statements....................................................2
Summary.......................................................................4
Risk Factors..................................................................6
The ILX Resorts Incorporated Dividend Reinvestment Plan.......................21
Use of Proceeds...............................................................39
Validity of the Common Stock..................................................39
Experts.......................................................................39
Indemnification for Securities Act Liabilities................................39
Where You Can Find More Information...........................................40
Incorporation of Certain Documents by Reference...............................40
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FORWARD-LOOKING STATEMENTS
This prospectus, including information incorporated by reference into this
prospectus, contains certain forward-looking statements with respect to our
growth strategy, industry and demographic trends, our ability to finance our
operations, and anticipated trends in our business. Forward-looking statements
give our current expectations or forecasts of future events. You can identify
such statements by the fact that they do not relate strictly to historical or
current facts. These statements may include words such as "anticipate,"
"likely," "expect," "intend," "believe," and other words and phrases of similar
meaning in connection with any discussion of future operating or financial
performance.
We believe that our forward-looking statements contained in or incorporated
by reference into this prospectus and in any other public statements we make are
true at the time they are made. Our actual results, however, could differ
materially from these forward-looking statements as a result of a number of
factors. These factors include, but are not limited to, the following:
* general economic conditions,
* our company's need for additional financing,
* intense competition in various aspects of our business,
* the risks of rapid growth,
* our dependence on key personnel, and
* other factors discussed under the heading "Risk Factors" in this
prospectus or discussed in our public filings with the SEC.
We do not undertake any obligation to publicly update or revise any of the
forward-looking statements contained in or incorporated by reference into this
prospectus or in any other public statements we make, whether as a result of new
information, future events or otherwise. Accordingly, we caution you not to
place undue reliance on such forward-looking statements.
3
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS OR IN THE OTHER DOCUMENTS
THAT ARE INCORPORATED BY REFERENCE INTO THIS PROSPECTUS. YOU SHOULD CAREFULLY
READ THE ENTIRE PROSPECTUS BEFORE DECIDING WHETHER YOU WISH TO PARTICIPATE IN
THE PLAN.
OUR COMPANY
ILX Resorts Incorporated is one of the leading developers, marketers, and
operators of timeshare resorts in the western United States. Our principal
operations consist of (a) acquiring, developing, and operating timeshare resorts
that we market as vacation ownership resorts, (b) marketing and selling vacation
ownership interests in our timeshare resorts, which typically entitle the buyers
thereof to ownership of a fully furnished unit for a one-week period on either
an annual or an alternate year (i.e., biennial) basis, and (c) providing
purchase money financing to the buyers of vacation ownership interests at our
resorts. We also derive revenue from (1) the rental of our unused or unsold
inventory of units at our vacation ownership resorts, and (2) the sale of food,
beverages, and other services at our resorts. Our current portfolio of resorts
consists of six resorts in Arizona, one in Indiana, one in Colorado, one in San
Carlos, Mexico, vacation ownership interests in a resort in Las Vegas, Nevada,
and land adjacent to an existing resort in Arizona for which we hold development
rights. One of the resorts in Arizona is not registered with the Arizona
Department of Real Estate at this time and as of the date of this prospectus we
are not marketing that property for sale as vacation ownership interests. We
currently are operating that resort under a long-term lease arrangement. We also
hold development rights to 44 acres in Las Vegas, Nevada, under a long-term
lease.
We were incorporated in 1986 under the laws of the State of Arizona. Our
principal executive offices are located at 2111 East Highland Avenue, Suite 210,
Phoenix, Arizona 85016, and our telephone number is (602) 957-2777.
Unless the context suggests otherwise, the terms "our company," "we," "our"
and "us" refer to ILX Resorts Incorporated and our subsidiaries, the terms
"common stock" and "shares" refer to our common stock, and the term "you" refers
to a prospective participant or a participant in the Plan.
THE PLAN
PURPOSE OF THE PLAN............ The purpose of the Plan is to provide our
existing shareholders with a simple,
cost-effective, and convenient method of
investing cash dividends paid on our common
stock in the form of additional shares of
shares of common stock.
SOURCE OF SHARES
TO BE PURCHASED.............. Upon our instruction, the Agent will purchase
shares for the Plan from our authorized but
unissued shares or in privately negotiated
transactions.
INVESTMENT OPTIONS............. Participants in the Plan may choose from the
following options:
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Full Dividend Reinvestment: You may have the
cash dividends paid on all of your shares
automatically reinvested in shares of common
stock.
Partial Dividend Reinvestment: You may have
the cash dividends paid on a portion of your
shares automatically reinvested in shares of
common stock, while continuing to receive the
cash dividends on your remaining shares.
Share Safekeeping: You may deposit your
common stock share certificates with the
Agent for safekeeping in book entry form.
DETERMINATION OF
PURCHASE PRICE............... The price of shares purchased from us
generally will be the average of the high and
low sale prices of the common stock on the
American Stock Exchange on the record date
for that dividend. The price of shares
purchased in privately negotiated
transactions will be the weighted average
purchase price per share of all shares so
purchased.
EXPENSES ...................... We will pay the fees associated with the
reinvestment of dividends and the annual
maintenance of your account. You will not pay
any fees on common stock purchases made with
reinvested dividends paid or for the annual
maintenance of your account. There is no
charge to you for depositing one or more
certificates in an account with the Agent for
safekeeping. You will pay a fee of $10.00
each time you sell shares of common stock
held in the Plan, plus a $0.10 commission for
each share sold. There is no charge to you
for the issuance of common stock share
certificates to you.
TERMINATION OF PARTICIPATION... You may terminate your participation in the
Plan at any time by notifying the Agent, in
writing, that you want to terminate.
AMOUNT OFFERED................. This prospectus relates to 300,000 shares of
our common stock that we may sell under the
Plan.
USE OF PROCEEDS................ When we sell shares under the Plan, we will
use the proceeds of such sales for general
corporate purposes.
RISK FACTORS................... An investment in our common stock involves a
substantial degree of risk. See "Risk
Factors" beginning on page 6.
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RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A SUBSTANTIAL DEGREE OF RISK.
PRIOR TO MAKING AN INVESTMENT DECISION, PROSPECTIVE PARTICIPANTS IN THE PLAN
SHOULD GIVE CAREFUL CONSIDERATION TO THE FOLLOWING RISK FACTORS IN ADDITION TO
THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS. THE FOLLOWING RISK FACTORS,
HOWEVER, MAY NOT REPRESENT ALL OF THE RISKS ASSOCIATED WITH OUR BUSINESS. YOU
SHOULD PARTICIPATE IN THE PLAN ONLY IF YOU CAN AFFORD TO LOSE YOUR REINVESTED
DIVIDENDS.
WE FACE A VARIETY OF RISKS RELATED TO THE RAPID GROWTH OF OUR BUSINESS.
WE MAY NOT SUCCESSFULLY EXECUTE OUR GROWTH STRATEGY. A principal component
of our growth strategy is to acquire additional improved and unimproved real
estate for the construction and development of new convenient access resorts and
Varsity Clubs. We also plan to develop a 44-acre parcel in Las Vegas, Nevada,
known as "Premiere Park," as a tourist venue. Our ability to execute our growth
strategy will depend upon a number of factors, including the following:
* the availability of attractive resort development opportunities;
* our ability to acquire properties for such development opportunities
on economically feasible terms;
* our ability to market and sell vacation ownership interests at newly
developed or acquired resorts; and
* our ability to manage newly developed or acquired resorts in a manner
that results in customer satisfaction.
In particular, the success of our Premiere Vacation Club will depend upon
our ability to continue to acquire and develop a sufficient number of
participating resorts to make membership interests attractive to consumers. In
addition, the success of our Varsity Clubs concept will be enhanced by our
ability to successfully negotiate with universities proximate to our Varsity
Clubs for access to the alumni, parents, and other persons affiliated with such
universities. We cannot provide assurance that we will be successful with
respect to any or all of these factors.
WE MAY NOT BE ABLE TO FINANCE OUR GROWTH. We intend to selectively acquire
and develop new vacation ownership resorts and to continue to expand our
existing resorts. Acquiring and developing new resorts and developing Premiere
Park will place substantial demands on our liquidity and capital resources, as
well as on our personnel and administrative capabilities. Risks associated with
our development and construction activities include, but are not limited to, the
following:
* construction costs or delays may exceed original estimates, which
could make the development or expansion uneconomical or unprofitable;
* sales of vacation ownership interests or other revenue from newly
completed facilities may not be sufficient to make the resort or
development profitable;
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* financing may not be available on terms favorable for development of a
project; and
* financing may not be available on terms favorable for the continued
sales of vacation ownership interests in a particular project.
We project that currently planned development and expansion at our resorts
and Premiere Park may cost in excess of $20.0 million. Although we have secured
adequate financing for the projects currently under development, we cannot
provide assurance that adequate additional financing for future development
projects will be available on terms and conditions favorable to our company. Our
ability to obtain needed financing and to repay any indebtedness at maturity may
depend on refinancing or future sales of debt or equity, which may not be
available on terms favorable to our company. Factors that could affect our
access to the capital markets, or the cost of such capital, include the
following
* changes in interest rates,
* general economic conditions,
* the threat of war or terrorist activities,
* the perception in the capital markets of the vacation ownership
industry, our business, and our business prospects,
* our results of operations, and
* the amount of debt we have outstanding and our financial condition.
WE FACE RISKS ASSOCIATED WITH OUR ABILITY TO ACQUIRE PROPERTIES THAT ARE
SUITABLE FOR DEVELOPMENT. Our ability to execute our growth strategy will depend
to a significant degree on the existence of attractive project acquisition
opportunities. Currently, there are numerous potential buyers for these
properties. Many of these potential buyers have a stronger capital structure and
greater resources with which to acquire attractive resort opportunities than we
have. We cannot provide assurance that we will be able to compete successfully
against such buyers. A variety of comprehensive federal, state, and local laws
regulate our development and construction activities, as well as our ownership,
sales, and management of real estate. These laws relate to many issues that
directly or indirectly affect our business, including the following:
* marketing and sales,
* building design and construction,
* zoning, land use, and development,
* water supplies,
* environmental and health concerns, and
* protection of endangered species.
Any difficulties in or delays in obtaining, or our inability to obtain, the
requisite licenses, permits, allocations, authorizations, and other entitlements
pursuant to such laws could adversely impact our ability to develop and operate
our projects. The enactment of "slow growth" or "no-
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growth" initiatives or changes in labor or other laws in any area where our
projects are located also could delay, affect the cost or feasibility of, or
preclude entirely the development or expansion of our resorts.
WE MAY FACE A VARIETY OF RISKS WHEN WE EXPAND OUR RESORTS. Our growth
strategy includes the expansion of a number of units at our resorts, when
appropriate. Risks associated with such expansion include, but are not limited
to, the following:
* construction costs may exceed original estimates, which could make the
expansion uneconomical;
* we may not complete construction or conversion as scheduled, which
could result in delayed recognition of revenue and increased interest
expense;
* we may be delayed in obtaining, or we may not be able to obtain,
applicable governmental permits and authorizations;
* we may not be able to obtain necessary financing on favorable terms;
and
* market demand may not be sufficient to make such expansion profitable.
Accordingly, we cannot provide assurance that we will complete all of our
planned expansion of our resorts or, if completed, that such expansion will be
profitable.
WE MAY FACE ADDITIONAL RISKS AS WE EXPAND INTO NEW MARKETS. Our growth
strategy consists of acquiring and developing additional convenient access
resorts and Varsity Clubs in the western United States and Mexico, including
markets in which we currently do not have an ILX resort or conduct any sales or
marketing activities. Our prior success in the geographic locations in which we
currently operate does not ensure our continued success as we acquire, develop
or operate future resorts or Varsity Clubs, nor does it ensure our success in
developing Premiere Park. Accordingly, in connection with expansion into new
markets, we may be exposed to a number of risks, including, but not limited to,
the following:
* our lack of familiarity and understanding of local consumer
preferences;
* our inability to attract, hire, train, and retain additional sales,
marketing, and resort staff at competitive costs;
* our inability to obtain, or to obtain in a timely manner, necessary
permits and approvals from state and local government agencies and
qualified construction services at acceptable costs;
* our inability to capitalize on new marketing relationships and
development agreements; and
* the uncertainty involved in, and additional costs associated with,
marketing vacation ownership interests prior to completion of marketed
units.
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OUR PRACTICE OF FINANCING CUSTOMER BORROWINGS EXPOSES US TO LIQUIDITY RISKS.
We typically finance 75% to 80% of our overall sales of vacation ownership
interests. Although we conduct substantial credit pre-approval due diligence
with respect to each financed sale, there are significant risks associated with
such transactions, including those set forth below.
WE COULD INCUR SUBSTANTIAL LOSSES IF PURCHASERS OF VACATION OWNERSHIP
INTERESTS DEFAULT ON THEIR OBLIGATIONS TO PAY THE BALANCE OF THE PURCHASE PRICE.
We require purchasers to make a down payment of at least 10% of the aggregate
purchase price of the vacation ownership interest and to deliver a promissory
note to us for the balance. Although we conduct credit pre-approval due
diligence with respect to each purchaser, we bear the risk of default associated
with customer notes that we retain and those that we sell with recourse to our
company. If a buyer of a vacation ownership interest defaults, we generally will
pursue collection remedies to the extent legally permitted. Although in many
cases we may have recourse against a buyer for the unpaid purchase price,
certain states, including Arizona and Indiana, have laws that limit our ability
to recover personal judgments against customers who have defaulted on their
loans. If we are unable to collect the defaulted amount or to obtain a voluntary
quitclaim to the mortgaged interest, we likely will foreclose on and then
remarket the recovered vacation ownership interest. Irrespective of our remedy
in the event of a default, we cannot recover the marketing, selling, and
administrative costs associated with the original sale and we must incur such
costs again to resell the vacation ownership interest. In addition, the costs
associated with exercising collection and foreclosure remedies can be high
relative to the value of the underlying asset. We generally do not carry private
mortgage insurance or its equivalent to cover defaults on customer notes.
We sell or hypothecate (that is, borrow against) the majority of our
customer notes. When we sell customer notes, the purchasers generally have
recourse to our company. As a result, we may be required to repurchase or
replace any such customer note that becomes delinquent. We take these contingent
obligations into account in establishing our allowance for uncollectible notes.
We cannot provide assurance that such allowances will be adequate to offset
actual defaults under customer notes, including notes that we have sold with
recourse to our company. Our financial condition and results of operations could
be materially adversely affected if our allowances are inadequate to cover
actual defaults.
OUR BORROWING BASE AND/OR OUR ABILITY TO SELL CUSTOMER NOTES MAY BE
ADVERSELY AFFECTED BY THE NATURE AND QUALITY OF THE CUSTOMER NOTES. We typically
finance our working capital needs either by selling or by hypothecating customer
notes that meet certain criteria established by third-party lenders. As of
September 30, 2002, we had agreements with one lender to borrow up to $30.0
million against conforming retained customer notes, of which approximately $11.6
million remained available for borrowing. In addition, as of September 30, 2002,
we had an agreement with one lender under which we can sell up to $40.0 million
of conforming customer notes, of which approximately $14.3 million remained
available. In December 2002, we renewed this agreement so that we can sell up to
$30.0 million of conforming customer notes, effective January 1, 2003.
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Once hypothecated or sold, our customers make payments on their notes
directly to the lender's collection center or agent. All of a customer's
payments on hypothecated notes are applied to our loan balance, both principal
and interest. Historically, our borrowings and sales of notes have not
approached the maximum amount available under our existing credit facilities. We
cannot provide assurance, however, that our future working capital needs will
not exceed amounts available under our credit facilities. To the extent that we
generate additional customer notes through our sales efforts, we may pledge or
sell the applicable customer notes, subject to applicable restrictions.
WE GENERALLY EXPERIENCE NEGATIVE CASH FLOW UPON THE SALE OF FINANCED
VACATION OWNERSHIP INTERESTS. On financed sales, we ordinarily receive only 10%
of the purchase price on the sale of a vacation ownership interest, but we must
pay in full the costs associated with the development, marketing, and sale of
the vacation ownership interest. These costs generally exceed the downpayment we
receive at the time of sale. Maximum borrowings and sales of notes available
under our existing credit facilities may not be sufficient to cover these costs,
which could limit our available capital resources, liquidity, and capacity to
grow. Our existing credit facilities expire at various dates from 2003 through
2005. We presently do not have binding agreements to extend the terms of our
existing credit facilities or for any replacement financing upon the expiration
of our existing credit facilities. Moreover, we cannot provide assurance that we
will be able to arrange alternative or additional credit facilities on terms
that are satisfactory to our company in the future. Accordingly, future sales of
vacation ownership interests may be limited by the availability of funds to
finance the initial negative cash flow that often results from sales that we
finance. Although we currently are selling customer notes at a premium, to the
extent that we finance our negative cash flow by selling customer notes to
lenders in the future we may be able to sell such notes only at a discount from
the face value of such notes. In addition, we cannot provide assurance that we
will be able to negotiate the sale of such customer notes at favorable rates, or
at all.
FLUCTUATIONS IN INTEREST RATES AND INTEREST RATE MISMATCHES COULD ADVERSELY
IMPACT OUR RESULTS OF OPERATIONS, LIQUIDITY, AND FINANCIAL POSITION. We
currently derive a portion of income from the spread between the interest rates
we charge our customers and the interest rates at which we borrow against
customer notes or at which we sell customer notes. We cannot provide assurance,
however, that the present interest rate spread will continue in the future. We
may not be able to maintain these spreads as a result of decreases in the rates
we are able to charge customers or increases in the prime lending rate, or upon
the expiration of our current credit facilities and our inability to replace
such facilities at existing terms. In addition, our indebtedness bears interest
at variable rates while the retained customer notes bear interest at fixed
rates. As a result, increases in interest rates could cause our interest expense
to exceed our interest income on our portfolio of retained customer notes.
Moreover, we currently do not engage in interest rate hedging transactions.
Therefore, any increase in interest rates, particularly if sustained, could have
a material adverse effect on our results of operations, liquidity, and financial
position. Further, to the extent interest rates generally decrease on
third-party financing available to our customers, we face an increased risk that
customers will pre-pay their customer notes and reduce our income, if any, from
financing activities. In addition, if a customer
10
prepays a note that we have sold, we may be required to repay the unearned
interest premium, if any, on the note.
THE MISMATCH BETWEEN CUSTOMER NOTES AND OUR CREDIT FACILITIES COULD CREATE
SIGNIFICANT LIQUIDITY RISKS. Customer notes typically have a seven-year term,
while our related revolving credit facilities mature or expire on different
dates over the next five years. Accordingly, a mismatch exists between our
anticipated cash receipts and cash disbursements. Although we historically have
been able to secure financing sufficient to fund our operations, we currently do
not have agreements with our lenders to extend the respective terms of our
existing credit facilities or to replace such credit facilities upon their
expiration. Our failure to obtain such refinancing or replacement credit
facilities could require us to sell our portfolio of retained customer notes,
potentially at a discount, or to seek other alternatives to enable us to
continue in business. While we have been successful in obtaining financing to
date, we cannot provide assurance that we will be able to do so in the future.
The failure to do so in the future could have a material adverse effect on our
results of operations and liquidity.
WE FACE STIFF COMPETITION IN THE VACATION OWNERSHIP INDUSTRY.
The vacation ownership industry consists of a large number of local and
regional resort developers and operators. In addition, we face competition from
some of the world's most recognized national and international lodging,
hospitality, and entertainment companies, such as Marriott Ownership Resorts,
The Walt Disney Company, Hilton Hotels Corporation, Hyatt Corporation, Four
Seasons Hotels & Resorts, and Promus Hotel Corporation. Many of these companies
have much greater access to capital and other resources than we do. As a result,
we may be at a competitive disadvantage with our competitors for access to
marketing, personnel, and other resources that we require to compete
successfully. In addition, competition from other vacation ownership resort
developers and operators may limit our ability to acquire additional resorts and
to obtain access to affinity groups. Our business and results of operations may
be materially adversely affected if we are unable to compete successfully
against such companies.
In addition to the competitors named above, our resorts and sales offices
may face direct competition from smaller, local vacation ownership companies
with resorts or sales offices within the vicinity of our resorts, as well as
from resales of vacation ownership interests. We also are subject to competition
from other entities engaged in the commercial lodging business, including
condominiums, hotels and motels, and others engaged in the leisure business. We
anticipate that we will continue to face substantial competition in all aspects
of our operations from organizations that are more experienced in the leisure
industry and that have greater access to financial, marketing, and other
resources. As a result, these competitors may have greater negotiating leverage
to acquire properties or other resources required to compete or may be able to
take advantage of greater gross sales and thereby reduce the retail price of
their vacation ownership interests. Our profit margins and operating results
could be adversely affected if we find it necessary to reduce our prices in
order to remain competitive. A reduction in our profit margins as a result of
competitive pressures, or an increase in
11
our costs relative to such competitors' costs, could have a material adverse
effect on our results of operations, liquidity, and financial position.
OUR SUCCESS WILL DEPEND UPON OUR KEY MANAGEMENT EMPLOYEES.
We rely upon certain key management employees. The loss of any of these key
employees could materially and adversely affect our business. We cannot provide
assurance that we will be able to retain key members of our current management
team or that we will be able to attract experienced personnel in the future. Our
success also will depend upon our ability to attract and maintain qualified
property acquisition, development, marketing, management, administrative, and
sales personnel. Our ability to attract, train, and retain such personnel will
become particularly important as we grow and develop additional resorts, and we
cannot provide assurance that we will be successful in attracting or retaining
such personnel. Our business and results of operations could be materially
adversely affected if we are not able to attract and retain such key personnel.
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY OUR GEOGRAPHIC CONCENTRATION WITHIN
THE WESTERN UNITED STATES, PARTICULARLY ARIZONA.
As of the date of this prospectus, a majority of our customers and resort
accommodations are located in Arizona. As a result, our financial condition and
results of operations may be materially adversely affected by local Arizona
economic downturns, changing demographics or regulatory changes. Further, our
growth strategy includes expansion of sales centers and vacation ownership
interests in the western United States and Mexico. Although expansion into
markets other than Arizona may reduce our susceptibility to downturns in the
Arizona market, we cannot provide assurance that we will be able to successfully
apply our current operating strategy to new markets beyond Arizona. In addition,
because we intend to execute our growth strategy primarily in the western United
States, we will continue to be particularly susceptible to adverse changes in
economic circumstances, demographic trends or regulatory changes affecting the
western United States in general and, in particular, the local markets that we
enter. We cannot provide assurance that we will be able to offset or minimize
the adverse effects of such circumstances upon our business, financial condition
or results of operations.
OUR ABILITY TO SUCCESSFULLY MARKET OUR PROPERTIES WILL DEPEND UPON CONTINUED
AVAILABILITY OF VIABLE EXCHANGE NETWORKS.
Our ability to successfully market and sell vacation ownership interests
will depend in part upon the availability of "exchange networks," which allow
owners of our vacation ownership interests to "trade" the time they have
purchased for time at another participating vacation ownership resort. All
vacation ownership interests that we currently offer are qualified for inclusion
in one or more exchange networks. We cannot provide assurances, however, that we
will be able to continue to qualify additional properties or that such exchange
networks will continue to be available for our existing portfolio of vacation
ownership interests. If such networks cease to function effectively or if
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we are unable to respond to consumer demand for greater choices of desirable
locations, we will be at a competitive disadvantage with respect to competitors
that can offer such choices. As a result of such disadvantages, we may be unable
to sell a sufficient number of vacation ownership interests or we may be unable
to make sales at prices that will enable us to remain profitable. Our results of
operations could be materially adversely affected as a result of such risks.
OUR COMPANY FACES SIGNIFICANT RISKS ASSOCIATED WITH LEVERAGE.
We anticipate that we will finance our future business activities, in whole
or in part, with indebtedness that we obtain pursuant to additional borrowings
under our existing credit facilities or under credit facilities that we will
obtain in the future. The definitive agreements with respect to these credit
facilities do and could contain restrictive covenants that limit our ability to,
among other things, make capital expenditures, incur additional indebtedness,
and dispose of assets or that require us to maintain certain financial ratios.
The indebtedness incurred under these credit facilities may be secured by
mortgages on all or a portion of our resorts, customer notes, and other assets.
If we default under one or more of these credit facilities, our lenders could
foreclose on the vacation ownership properties secured by a mortgage or deed of
trust or take possession of other assets pledged as collateral. In addition,
future credit facilities may not provide for the lender to release liens on our
vacation ownership interests when we sell such interests. Such restrictions
could impair the marketability of our vacation ownership interests.
The extent of our leverage and the terms of our indebtedness, such as
requirements that we maintain certain debt-to-equity ratios, also could impair
our ability to obtain additional financing in the future, to make acquisitions,
or to take advantage of significant business opportunities that may arise.
Furthermore, our indebtedness and related debt service obligations may increase
our vulnerability to adverse general economic and vacation ownership industry
conditions and to increased competitive pressures. We cannot provide assurance
that we will not require additional indebtedness in the foreseeable future to
execute our growth strategy.
EXTENSIVE FEDERAL, STATE, AND LOCAL LAWS AND REGULATIONS AFFECT THE WAY WE
CONDUCT OUR BUSINESS.
The federal government and the states and local jurisdictions in which we
conduct business have enacted extensive regulations that affect the manner in
which we market and sell vacation ownership interests and conduct our other
business operations. In addition, many states, including Arizona, have adopted
specific laws and regulations regarding the sale of vacation ownership
interests. These laws and regulations require us, among other things, to obtain
and file numerous documents and supporting information with the responsible
state agency, to obtain the agency's approval for an offering statement that
describes all material aspects of the sale of vacation ownership interests, and
to deliver an offering statement or public report, together with certain
additional information concerning the terms of the purchase, to all prospective
purchasers of a vacation ownership interest. Laws in each state where we
currently sell vacation ownership interests generally grant the purchaser of a
vacation ownership interest the right to cancel a contract of purchase at any
time within three to seven calendar
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days following the date the purchaser signs the contract. Most states also have
other laws that regulate our activities and protect purchasers, such as the
following:
* real estate licensure laws,
* travel sales licensure laws,
* anti-fraud laws,
* consumer protection laws,
* telemarketing laws, and
* prize, gift, and sweepstakes laws.
We currently are authorized to market and sell interests in all states in
which our resorts are located and all states in which we market and sell
vacation ownership interests. We may apply for the right to conduct sales
operations in additional states throughout the United States. We cannot provide
assurance, however, that any state will grant, or continue to grant, our company
the right to sell our vacation ownership 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 us. Further, if agents or employees of our company
violate such regulations or licensing requirements, such acts or omissions could
cause the states where the violations occurred to revoke or refuse to renew the
licenses required to permit us to sell vacation ownership interests in such
states.
We believe we are in material compliance with applicable federal, state,
and local laws and regulations relating to the sale and marketing of vacation
ownership interests to which we currently are subject. From time to time,
however, consumers file complaints against our company in the ordinary course of
our business. We could incur significant costs to resolve such complaints or to
qualify under applicable regulations in all jurisdictions in which we desire to
conduct sales. We cannot provide assurance, however, that we will remain in
material compliance with applicable federal, state and local laws and
regulations, or that violations of applicable laws will not have adverse
implications for our company, including, without limitation, negative public
relations, potential litigation, and regulatory sanctions. The expense, negative
publicity, and potential sanctions associated with our failure to comply with
applicable laws or regulations could have a material adverse effect on our
results of operations, liquidity or financial position.
Under certain conditions, vacation ownership interests may be considered
"securities" under state or federal law, in which case we would be subject to
the time-consuming and expensive requirements to register such interests,
license our salespeople, and comply with other regulations. Although our
vacation ownership interests are not considered to be securities in any
jurisdiction in which we operate as of the date of this prospectus, we cannot
guarantee that we can structure vacation ownership interests so as to avoid
regulation as "securities" under applicable federal or state laws that may be
adopted in the future or in any jurisdiction in which we may operate in the
future. If our vacation ownership interests are deemed to be securities, we
cannot provide assurance that we will be able to comply with the applicable
state and federal securities requirements or that the liabilities or
14
contingencies that result from such compliance will be immaterial. As a result,
such compliance may impact our ability to conduct our business and may undermine
the value of our common stock.
EXCESSIVE CLAIMS FOR CONSTRUCTION-RELATED DEFECTS COULD ADVERSELY AFFECT OUR
FINANCIAL CONDITION AND OPERATING RESULTS.
While we engage third-party contractors to construct or renovate our
resorts, our customers may assert construction claims against our company for
construction defects. In addition, certain state and local laws may impose
liability on property developers with respect to construction defects discovered
or repairs made by future owners of such property. An excessive number of claims
for construction-related defects could adversely affect our liquidity, financial
condition, and operating results
ENVIRONMENTAL LIABILITIES COULD HAVE A MATERIAL ADVERSE IMPACT ON OUR BUSINESS.
Under various federal, state and local laws, ordinances and regulations, as
well as common law, we may be liable for the costs of removal or remediation of
certain hazardous or toxic substances located on, in, or emanating from property
that we own, lease, or operate, as well as related costs of investigation and
property damage at such property. Such laws often impose liability without
regard to whether we knew of, or were responsible for, the presence of the
hazardous or toxic substances. The presence of such substances, or the failure
to properly remediate such substances, may adversely affect our ability to sell
or lease our property or to borrow money using such real property as collateral.
Noncompliance with environmental, health or safety requirements may require us
to cease or alter operations at one or more of our properties. Further, we may
be subject to common law claims by third parties based on damages and costs
resulting from violations of environmental regulations or from contamination
associated with one or more of our properties.
Although we typically conduct extensive due diligence prior to acquiring
real property, we may not obtain Phase I environmental reports with respect to
each of our properties. If we fail to obtain such reports, we may acquire or
develop property and later discover that we cannot operate the property as
planned, or we may assume environmental or other liabilities that we could have
avoided if we had the information typically revealed in a Phase I report. To
date, we have obtained environmental reports with respect to three of our
resorts. Even when we perform due diligence investigations, we cannot provide
assurance that our due diligence efforts or Phase I reports, when available,
will reveal all environmental liabilities or that we will identify every
material environmental condition.
Certain environmental laws impose liability on a previous owner of property
to the extent hazardous or toxic substances were present during the prior
ownership period. A transfer of the property may not relieve an owner of such
liability. Thus, we may have liability with respect to properties that we or our
predecessors sold in the past.
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ACCELERATION OF DEFERRED TAXES AND NET OPERATING LOSS CARRYFORWARD LIMITATIONS
COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND LIQUIDITY.
While we report sales of vacation ownership interests as income for
financial reporting purposes upon closing a sale, federal income tax regulations
allow us to report a portion of financed sales on the installment method, if we
so elect. When we elect the installment method, we recognize income on the sale
of a vacation ownership interest (a) when we receive cash in the form of a down
payment, and (b) incrementally as we receive payments on retained customer notes
or when we factor the customer note. As of December 31, 2001, we had deferred
taxes (i.e., taxes owed to taxing authorities in the future as a consequence of
income previously reported in our financial statements) in the amount of $6.3
million as a result of this method of reporting sales of vacation ownership
interests. If we should factor the customer notes, if a lender forecloses on the
retained customer notes, or if we otherwise collect or dispose of the retained
customer notes, the deferred gain would be reportable for tax purposes and the
deferred taxes, including interest on those taxes, if any, would become due.
Moreover, we would owe accrued interest on such deferred taxes that would be
payable when the taxes are due in the event the deferred taxes reverse in a year
when income taxes are payable by our company, the likelihood of which is not now
reasonably ascertainable. We cannot provide assurance that we will have
sufficient cash resources to pay those taxes and interest if and when they
become payable. Furthermore, if our sales of vacation ownership interests should
decrease in the future, our diminished operations may not generate either
sufficient tax losses to offset taxable income or funds to pay the deferred tax
liability from prior periods. Consequently, our liquidity and financial position
could be adversely affected.
At December 31, 2001, our company, excluding our wholly-owned subsidiary,
Genesis Investment Corp., had net operating loss, or "NOL," carryforwards of
$5.2 million. These NOL carryforwards expire in 2003 through 2020. At December
31, 2001, Genesis had federal NOL carryforwards of $2.0 million. These NOL
carryforwards are limited as to usage because they arise from built-in losses of
an acquired company. In addition, such losses can only be utilized through the
earnings of Genesis and are limited to a maximum of $189,000 per year. To the
extent the entire $189,000 is not utilized in a given year, the difference may
be carried forward to future years. Any unused Genesis NOLs will expire in 2008.
In addition, Section 382 of the Internal Revenue Code imposes additional
limitations on the utilization of NOLs by a corporation following various types
of ownership changes that result in more than a 50% change in ownership of the
corporation within a three-year period. Such changes may occur as a result of
new common stock issuances by our company or changes occurring as a result of
filings with the SEC on Schedules 13D and 13G by holders of more than 5% of our
common stock, whether involving the acquisition or disposition of common stock.
If such a subsequent change occurs, the limitations of Section 382 would apply
and may limit or deny our ability to use the NOLs in the future, which could
require us to pay substantial additional federal and state taxes.
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THE LIMITED RESALE MARKET FOR VACATION OWNERSHIP INTERESTS COULD ADVERSELY
AFFECT OUR BUSINESS.
Based on our experience with our resorts and ownership of vacation
ownership interests at destination resorts owned by third parties, we believe
that resales of vacation ownership interests generally are made at net sales
prices below their original customer purchase price. The relatively lower sales
price is partly attributable to the high marketing and sales costs associated
with initial sales of such vacation ownership interests. Accordingly, the
initial purchase of a vacation ownership interest may be less attractive to
prospective buyers. Also, buyers who seek to resell their vacation ownership
interests may compete with our efforts to sell our vacation ownership interests.
While vacation ownership interest resale clearing houses or brokers currently do
not have a material impact on our business, if a secondary market for vacation
ownership interests were to become more organized and liquid the availability of
resale vacation ownership interests at lower prices could adversely affect our
prices and the number of sales we can close. As a result, our business and
results of operations may be adversely affected.
DOWNTURNS IN GENERAL ECONOMIC CONDITIONS CAN SIGNIFICANTLY IMPACT OUR FINANCIAL
CONDITION AND OPERATING RESULTS.
Any adverse change in general economic conditions, significant price
increases, or adverse occurrences affecting the travel and tourism industry,
such as acts of terrorism, could have a material adverse effect on our company's
business and results of operations. Such conditions or occurrences also may have
an adverse effect upon the availability and cost of financing for our company
and our customers, which could preclude us from making loans to customers for
vacation ownership interest purchases or prevent our customers from paying off
outstanding customer notes.
WE COULD INCUR COSTS TO COMPLY WITH LAWS GOVERNING ACCESSIBILITY OF FACILITIES
BY DISABLED PERSONS.
A number of state and federal laws, including the Fair Housing Act and the
Americans with Disabilities Act, impose requirements related to access and use
by disabled persons of a variety of public accommodations and facilities.
Although we believe our resorts are substantially in compliance with laws
governing their accessibility by disabled persons, we may incur additional costs
to comply with such laws at our existing or subsequently acquired resorts.
Additional federal, state, and local legislation with respect to access by
disabled persons may impose further burdens or restrictions on our company. We
cannot forecast the ultimate cost of compliance with such legislation, but such
costs could be substantial and, as a result, could have a material adverse
effect on our results of operations, liquidity or capital resources.
WE COULD INCUR SIGNIFICANT COSTS AS A RESULT OF NATURAL DISASTERS AND OTHER
UNINSURED LOSSES.
Certain types of losses, such as losses arising from floods or acts of war,
generally are not insured because they are either uninsurable or not
economically insurable. Should an uninsured loss or a loss in excess of insured
limits occur, we could lose our invested capital in a resort, as well as the
17
anticipated future revenues from such resort. At the same time, we will remain
obligated to pay any debt service or other obligations related to the property.
Consequently, any such loss could have a material adverse effect on our results
of operations, liquidity or financial position.
INCREASED GASOLINE PRICES, AN OUTBREAK OF WAR, ACTS OF TERRORISM, OR SIMILAR
EVENTS COULD NEGATIVELY IMPACT OUR BUSINESS.
Increased gasoline prices, war, or acts of terrorism, or similar events
could reduce consumer travel. If consumer travel to our resorts and sales
centers declines as a result these or other factors, we could experience lower
income due to reduced room rentals and/or fewer opportunities for sales
presentations to prospective purchasers of vacation ownership interests.
OUR BUSINESS IS SUBJECT TO SEASONALITY AND VARIABILITY OF QUARTERLY RESULTS.
We historically have experienced quarterly fluctuations in our gross
revenue and net income from operations. Our sales of vacation ownership
interests typically have been lower during the first and fourth quarters of each
year and we expect this trend to continue in the future. In addition, our
earnings may be adversely affected by our ability to acquire or develop new
resorts in a timely manner, fluctuations in travel and vacation patterns, and
weather or other natural phenomena. As we enter new markets, we may experience
additional fluctuations in our quarterly results or an increased impact of
seasonality on our business and results of operations.
CERTAIN OF OUR EXISTING SHAREHOLDERS HAVE THE ABILITY TO EXERT A SIGNIFICANT
AMOUNT OF CONTROL OVER OUR COMPANY.
Under Arizona law, holders of our company's common stock are entitled to
cumulative voting rights with respect to the election of our directors.
Cumulative voting permits each holder of common stock to cast an aggregate
number of votes equal to the number of directorships to be filled, multiplied by
the number of shares of common stock as to which the holder is entitled to cast
votes. Each holder may cast all of such votes in favor of any individual nominee
or may allocate them among multiple nominees as the holder chooses. As a result,
a holder of less than a majority of the outstanding common stock may elect one
or more directors by casting all of his or her respective votes in favor of a
single candidate.
We currently have seven directors. Consequently, a holder of approximately
14.3% of our outstanding common stock will be able to independently elect one
director. Joseph P. Martori currently owns or has the power to vote
approximately 38% of our outstanding common stock. Because of his ability to
elect at least two of our directors, if the interests of Mr. Martori as a
shareholder differ from the interests of the other shareholders, such other
shareholders may be adversely affected. To the extent that Mr. Martori elects to
reinvest dividends paid on his shares of common stock and some of our other
shareholders do not reinvest their dividends, Mr. Martori's
18
percentage ownership of our outstanding common stock will increase, which could
further increase Mr. Martori's control over our company.
ARIZONA ANTI-TAKEOVER PROVISIONS AND OTHER PROVISIONS OF OUR ARTICLES OF
INCORPORATION COULD IMPEDE OR PREVENT A TAKEOVER OF OUR COMPANY.
Under certain circumstances, Arizona law restricts a person with
shareholdings above specified percentages from (1) entering into certain
transactions, (2) affecting a change in the control of our company, and (3)
exercising certain voting rights without shareholder approval. Such statutory
restrictions, as well as our ability to issue preferred stock with advantageous
voting rights, may delay or prevent future transactions involving a change in
control or potential change in control of our company or transactions with
persons with shareholdings over specified percentages, even though such a
transaction might be beneficial to shareholders generally.
YOU MAY LOSE PART OR ALL OF YOUR INVESTMENT AS A RESULT OF YOUR PARTICIPATION IN
THE PLAN.
There are a number of risks associated with participating in the Plan. If
you participate in the Plan and reinvest your dividends in additional shares of
common stock, you may lose part or all of your reinvested dividends. Neither we
nor the Agent can assure you of a profit or protect you against a loss on the
shares you purchase or sell under the Plan or otherwise. The following list sets
forth some, but not necessarily all, of the risks that you may experience if you
participate in the Plan:
* Neither we nor the Agent will pay interest on your dividend payments
pending investment in additional shares of common stock.
* The purchase price for shares purchased from our company will be the
average of the high and low sales price on the American Stock Exchange
on the record date for each dividend. Your dividends will be
reinvested in additional shares of common stock at that price on the
dividend payment date, even if the market price of our common stock
declines after the record date.
* If we instruct the Agent to make privately negotiated purchases, you
will not have authority to direct the time or price at which shares
may be purchased or the selection of the broker or dealer through or
from whom purchases are to be made.
* Unlike shares held in a brokerage account, you cannot place orders to
sell shares held under the Plan at specific price levels or on
specific dates. If you instruct the Agent to issue a certificate to
you or to sell some or all or your shares, the price of our common
stock may decline during the period between the date on which you send
your request to the Agent and the date on which you receive the
certificate or the date on which the sale takes place. Neither we nor
the Agent will be liable for any claim arising out of a failure to
issue or deliver a certificate on a certain date or a failure to sell
shares on a certain date or at a specific price.
19
* Plan accounts, the shares of common stock held in Plan accounts, and
the cash temporarily held for the purchase of shares are not deposits
of the Agent and are not insured by the Securities Investor Protection
Corporation or any other federal or state agency.
20
THE ILX RESORTS INCORPORATED DIVIDEND REINVESTMENT PLAN
The provisions of the Plan are summarized below in question and answer
format.
PURPOSE OF THE PLAN
1. WHAT IS THE PURPOSE OF THE PLAN?
The purpose of the Plan is to provide you with a simple, cost-effective,
and convenient method of investing cash dividends paid on your common stock in
additional shares of common stock. You cannot invest in common stock through the
Plan unless you already hold shares of common stock.
Under the Plan, the Agent will reinvest dividends paid on your shares of
common stock in additional shares of common stock. You will not pay any fees or
commissions, service charges, or other expenses for such purchases. We will
instruct the Agent to purchase shares for the Plan from our authorized but
unissued common stock or in privately negotiated transactions. To the extent the
Agent purchases shares from the company, we will use the proceeds for general
corporate purposes.
PARTICIPATION ALTERNATIVES
2. WHAT ALTERNATIVES ARE AVAILABLE TO PARTICIPANTS IN THE PLAN?
As a participant in the Plan:
A. FULL DIVIDEND REINVESTMENT: You may have the cash dividends paid on
all of your shares automatically reinvested in shares of common stock.
B. PARTIAL DIVIDEND REINVESTMENT: You may have the cash dividends paid on
a portion of your shares automatically reinvested in shares of common
stock, while continuing to receive the cash dividends on your
remaining shares.
C. DIRECT REGISTRATION SERVICES: You may deposit your common stock share
certificates with the Agent for safekeeping in book entry form,
whether or not you elect to have the cash dividends paid on those
shares automatically reinvested in additional shares of common stock.
21
ADVANTAGES OF THE PLAN
3. WHAT ARE THE ADVANTAGES OF THE PLAN?
* You may automatically reinvest the cash dividends paid on all or a
portion of your shares of common stock in additional shares of common
stock. The Agent will use the cash dividends paid on shares of common
stock purchased under the Plan to purchase additional shares of common
stock unless you sell or transfer the shares (see Questions 22 and
23), instruct the Agent to stop reinvestment of dividends on the
shares (see Question 9), or terminate your participation in the Plan
(see Question 25).
* The Plan permits fractions of shares, as well as full shares, to be
credited to your account. In addition, the Agent will credit to your
account dividends paid on fractional shares, as well as on full
shares, and the Agent will reinvest the dividends in shares of common
stock.
* You also may deposit your common stock share certificates with the
Agent for safekeeping and cause ownership of those shares of common
stock to be maintained on the Agent's records in book entry form (see
Question 10). Dividends on shares deposited for safekeeping will be
paid in cash and/or reinvested in common stock, according to your
instructions.
* You may sell or transfer some or all of the shares you hold under the
Plan to another person or persons at any time (see Questions 22 and
23).
* You will not pay any brokerage fees or commissions, service charges,
or other direct expenses in connection with purchases of common stock
under the Plan or for administration of the Plan.
* The Agent or your broker, bank, or other nominee acting on your behalf
will provide you with regular statements of your account for your
records.
ADMINISTRATION OF THE PLAN
4. WHO ADMINISTERS THE PLAN?
Computershare Trust Company, Inc. acts as your Agent and keeps a record of
your account, sends statements of account to you, and performs other duties
relating to the Plan. Should Computershare resign, another agent will be asked
to serve. You can view your account information
22
online at www.computershare.com. You should send all communications regarding
the Plan to the Agent addressed as follows:
By mail: By overnight delivery services:
Computershare Trust Company, Inc. Computershare Trust Company, Inc.
P.O. Box A3309 2 North LaSalle Street
Chicago, IL 60690 Chicago, IL 60602
Telephone: 312-588-4199 E-mail: web.queries@computershare.com
Fax: 312-601-4335 www.computershare.com
When communicating with the Agent, you should provide the company name and
your account number, taxpayer identification number, and a daytime telephone
number.
PARTICIPATION IN THE PLAN
5. WHO IS ELIGIBLE TO PARTICIPATE?
Only "record owners" and "beneficial owners" of our common stock may
participate in the Plan. A "record owner" of our common stock (which means a
shareholder who owns shares of common stock in his, her, or its own name) may
participate directly in the Plan. A "beneficial owner" of our common stock
(which means a shareholder who beneficially owns shares of common stock that are
registered in a name other than his, her, or its own name, for example, in the
name of a broker, bank, or other nominee) may participate in the Plan only if
his, her, or its broker, bank, or other nominee elects to participate in the
Plan. If the broker, bank, or other nominee elects to participate in the Plan,
the beneficial owner can participate indirectly by coordinating with his or her
broker, bank, or other nominee to participate in the Plan on his, her, or its
behalf. If a beneficial owner's broker, bank, or other nominee does not elect to
participate in the Plan, the beneficial owner can participate only if he, she,
or it has his, her, or its shares transferred (a) to a broker, bank, or other
nominee that does participate in the Plan, or (b) into his, her, or its own
name, thereby becoming a record owner.
6. HOW DO YOU PARTICIPATE?
Record owners may join the Plan by completing and signing an authorization
form and returning it to the Agent. You may obtain an authorization form at any
time by writing the Agent at the address set forth in Question 4.
Beneficial owners who wish to join the Plan must instruct their bank,
broker, or other nominee to arrange participation in the Plan on the beneficial
owner's behalf. The bank, broker, or other nominee should then make arrangements
with its securities depository and such securities depository will provide the
Agent with the information necessary to allow the beneficial owner to
participate in the Plan. Alternatively, a beneficial owner may simply request
that the number of shares
23
the beneficial owner wishes to be enrolled in the Plan be reclassified or
reregistered by the bank, broker, or other nominee in the beneficial owner's own
name as record owner to participate directly in the Plan.
Any participant who returns a properly executed authorization form to the
Agent without specifying the number of shares to be included in the Plan will be
enrolled as having selected the full dividend reinvestment option described
below.
7. WHEN CAN YOU JOIN THE PLAN?
You may join the Plan at any time. If the Agent receives your authorization
form on or before the record date for the next dividend, the Agent will invest
your dividend in additional shares of common stock. If the Agent receives your
authorization form after the record date for a dividend, the dividend
reinvestment will not commence until payment of the next dividend. For example,
to initially invest a quarterly dividend payable at the next dividend payment
date, the Agent must receive your authorization form on or before the record
date for that dividend. If the Agent receives your authorization form after the
record date, we will pay you the dividend in cash and you will commence
participation in the Plan with the next dividend.
As and when our Board of Directors declares dividends, the dividend record
dates normally will be the last day of March, June, September, and December in
each year, beginning March 31, 2003. Dividend payment dates normally will be the
tenth day of January, April, July, and October in each year (or the next
business day if the tenth of the month falls on a weekend or holiday), beginning
April 10, 2003.
8. WHAT DOES THE AUTHORIZATION FORM PROVIDE?
By checking the appropriate box on the authorization form, you can direct
us to pay the cash dividends on all or a portion of your shares of common stock
to the Agent and direct the Agent to reinvest those cash dividends, after
withholding any required income taxes (see Question 15), in additional shares of
common stock.
9. CAN YOU CHANGE OPTIONS UNDER THE PLAN?
You may change options under the Plan at any time by completing and signing
a new authorization form and returning it to the Agent. The answer to Question 4
tells you how to obtain an authorization form from the Agent. The Agent must
receive an authorization form for a change concerning the reinvestment of
dividends on or before the record date for a dividend (see Question 7) in order
for the change to become effective with the payment of that dividend.
24
10. HOW DOES SHARE SAFEKEEPING THROUGH DIRECT REGISTRATION SERVICES WORK?
At any time, you may use the Plan's direct registration services or "DRS,"
program to deposit any common stock certificates in your possession with the
Agent for safekeeping. To the extent that you elect to have dividends reinvested
on some or all of the shares deposited under the DRS program, dividends on those
shares will be reinvested until you sell or transfer those shares (see Questions
22 and 23), instruct the Agent to stop reinvestment of dividends on those shares
(see Question 9), or terminate your participation in the Plan (see Question 25).
There is no fee charged in connection with the deposit of certificates in your
account under the DRS program (see Question 12).
By using direct registration services, you no longer bear the risk
associated with loss, theft or destruction of your common stock share
certificates. In addition, you can sell or transfer shares deposited with the
Agent under the Plan (see Questions 22 and 23).
If you wish to deposit your common stock share certificates with the Agent,
you must forward those certificates to the Agent, along with a properly
completed Direct Registration Transaction Request Form or other written
instructions to deposit the shares under the DRS program. The Agent recommends
that you use an overnight delivery service. You should not endorse the
certificates. A medallion signature guaranty will not be required unless you are
depositing your shares to an account with a different name than the name that
appears on the share certificates. You can obtain a Direct Registration
Transaction Request Form from the Agent (see Question 4).
PARTICIPANTS WHO DEPOSIT COMMON STOCK SHARE CERTIFICATES WITH THE AGENT FOR
SAFEKEEPING ARE RESPONSIBLE FOR MAINTAINING RECORDS REFLECTING THE PURCHASE
PRICE AND COST BASIS FOR SUCH SHARES. NEITHER OUR COMPANY NOR THE AGENT IS
RESPONSIBLE FOR DETERMINING SUCH AMOUNTS.
11. CAN YOU HAVE CASH DIVIDENDS ELECTRONICALLY DEPOSITED?
If you choose partial dividend reinvestment or decide not to have any of
your cash dividends reinvested, you can have your cash dividends deposited
directly into your bank account instead of receiving a check by mail. We call
this "Electronic Direct Deposit." To have your cash dividends deposited
electronically, you must complete and return an Authorization for Electronic
Direct Deposit. You can find this form on your dividend check stub. You also may
obtain the form from the Agent (see Question 4). Please allow five business days
from the date of receipt of the completed form for the direct deposit
arrangement to be established. You also may change the bank account you
designate for Electronic Direct Deposit or discontinue this feature by notifying
the Agent in writing.
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COSTS ASSOCIATED WITH THE PLAN
12. DO YOU INCUR ANY EXPENSES IF YOU PARTICIPATE IN THE PLAN?
The following fees will be paid in connection with the Plan:
Dividend Reinvestment: We will pay the fees associated with the
reinvestment of dividends and the annual
maintenance of your account. As a result, you will
not pay any fees on common stock purchases made
with reinvested dividends or for the annual
maintenance of your account.
Direct Registration Services: There is no charge to you for depositing one or
more certificates with the Agent for safekeeping
under the DRS program.
Sales: You will pay a sales charge of $10.00 plus a
transaction fee of $0.10 per share each time you
sell shares of common stock held in the Plan,
including shares held under the DRS program. The
Agent will deduct these fees from the proceeds of
each sale.
Transfers: There is no charge to you if you transfer shares
held in the Plan to another person.
Certificate Issuance: There is no charge to you for the issuance of
common stock share certificates in your name.
Copies of Account Statements: There is no charge to you for copies of your
account statements for the current year. You will
be charged $10.00 per year for copies of your
account statements for earlier years.
We reserve the right to establish new service charges or to change service
charges in connection with the Plan. We will notify you if any such changes take
effect.
PURCHASES UNDER THE PLAN
13. WHAT IS THE SOURCE OF THE SHARES PURCHASED UNDER THE PLAN?
Upon instruction, the Agent will purchase shares for the Plan from our
authorized but unissued shares or in privately negotiated transactions. We will
elect whether to issue authorized but
26
previously unissued shares or to purchase shares in privately negotiated
transactions based on our current and expected capital needs, our equity
position, the market price of our common stock, general market conditions, and
other relevant factors. If we instruct the Agent to make privately negotiated
purchases, you will not have authority to direct the time or price at which
shares may be purchased or the selection of the broker or dealer through or from
whom purchases may be made. We currently expect that Plan purchases generally
will come from our authorized but unissued shares.
14. HOW MANY SHARES OF COMMON STOCK WILL YOU PURCHASE?
The Agent will reinvest dividends paid on all or only a portion of the
shares of common stock registered in your name, in accordance with your
directions given on the authorization form, as well as dividends on shares of
common stock credited to your account under the Plan. The Agent will apply such
dividends to the purchase of shares for your account. The number of shares you
purchase under the Plan will depend on the amount of your dividend paid (after
deducting any required income tax withholding) on the shares that you designate
to participate in the Plan and the price of the shares of common stock the Agent
purchases with that dividend (see Question 16). Your account will be credited
with that number of shares, including partial shares, equal to the sum of the
total amount of your reinvested dividend, divided by the purchase price of the
common stock.
15. WHAT HAPPENS IF YOUR DIVIDENDS ARE SUBJECT TO INCOME TAX WITHHOLDING?
If your dividends are subject to United States income tax withholding (for
example, back-up withholding and withholding on nonresident aliens), the Agent
will deduct the required taxes and will apply the net amount of your dividends
to the purchase of shares of common stock under the Plan.
16. WHAT WILL BE THE PURCHASE PRICE FOR THE SHARES OF COMMON STOCK PURCHASED BY
THE AGENT UNDER THE PLAN?
The Agent will purchase shares from us, to the extent that we make shares
available to the Agent. The price of shares purchased from us will be the
average of the high and low sale prices of the common stock on the American
Stock Exchange on the record date for that dividend or, if no trading in the
common stock occurs on such date, on the next preceding date on which trading
occurred.
The Agent will purchase any other shares required for the Plan in privately
negotiated transactions. The price of shares purchased in privately negotiated
transactions will be the weighted average purchase price per share (including
all brokerage commissions and other fees) of all shares so purchased with
respect to a particular dividend.
17. WHEN WILL THE AGENT PURCHASE SHARES?
The Agent will purchase shares acquired from us as of the close of business
on the investment date (see Question 18). The Agent will purchase shares
acquired in privately negotiated transactions
27
promptly on or after the investment date, but in no event later than five
business days after the investment date. Privately negotiated purchases will be
subject to whatever terms and conditions, including price and delivery, to which
the Agent agrees. Dividend and voting rights will begin on the settlement date,
which normally takes place three business days following the purchase of the
shares from us or any other source. For the purpose of making purchases, the
Agent will be entitled to commingle your funds with those of all other
participants.
18. WHEN IS THE INVESTMENT DATE?
The investment date will be the date on which we pay a cash dividend on our
common stock. As and when our board of directors declares cash dividends, the
dividend payment dates normally will occur on the tenth day of January, April,
July, and October in each year (or the next business day if the tenth of the
month falls on a weekend or holiday), beginning April 10, 2003.
REPORTS TO PARTICIPANTS
19. WHAT KIND OF REPORTS WILL YOU RECEIVE?
You can view your account information online at www.computershare.com. If
you elect to have cash dividends reinvested under the Plan, you will receive a
statement of your Plan account from the Agent or from your broker, bank, or
other nominee acting on your behalf. The statement will show all amounts
invested in your account under the Plan, the number of shares purchased and
their purchase price, and a summary of your total holdings under the Plan. If
you transfer shares into or out of the Plan under the DRS program but do not
authorize reinvestment of dividends on those shares, you will receive a
statement of that activity following each transaction. You will receive a
statement indicating the number of shares held for safekeeping under the DRS
program at least once each year, even if you did not have any activity with
respect to those shares during the year.
In addition, you will receive from us or the Agent or from your broker,
bank, or other nominee acting on your behalf copies of the same communications
sent to every other holder of common stock, including our Annual Report to
Shareholders, Notice of Annual Meeting and Proxy Statement, and IRS information
reporting dividends paid (Form 1099-DIV) or sales (Form 1099-B).
YOU SHOULD RETAIN YOUR STATEMENTS FOR INCOME TAX PURPOSES SINCE YOUR
STATEMENTS PROVIDE INFORMATION REGARDING THE COST BASIS OF THE SHARES YOU
PURCHASE THROUGH THE PLAN. YOU WILL NEED THIS INFORMATION FOR INCOME TAX
PURPOSES WHEN YOU SELL OR TRANSFER THE SHARES (SEE QUESTION 30). YOU WILL BE
CHARGED A FEE FOR COPIES OF PRIOR YEAR STATEMENTS THAT YOU REQUEST (SEE QUESTION
12).
28
FRACTIONAL SHARES
20. WILL YOU BE CREDITED WITH DIVIDENDS ON FRACTIONS OF SHARES UNDER THE PLAN?
You will be credited with the amount of dividends attributable to
fractional shares in your account. Those dividends will be reinvested in
additional shares of common stock.
CERTIFICATES FOR SHARES
21. WILL THE AGENT ISSUE CERTIFICATES FOR SHARES OF COMMON STOCK YOU HOLD IN
THE PLAN?
You will not receive certificates for shares of common stock the Agent
purchases for you under the Plan unless you request the Agent to issue you a
certificate, as described in the next paragraph. Your statement of account will
show the number of shares credited to your account under the Plan. This
convenience protects against loss, theft, or destruction of your stock
certificates.
If you make a written request that a share certificate be issued from
shares held under the Plan, the Agent will issue to you a certificate for any
number of whole shares credited to your account. If you request the Agent to
issue you a certificate for shares held for reinvestment under the Plan, your
participation in the Plan will not terminate and cash dividends on shares for
which you have authorized reinvestment will continue to be reinvested
automatically under the Plan unless you deliver a new authorization form to the
Agent to change your participation in the Plan. Any shares (including any
fractional share) not issued as a share certificate will continue to be credited
to your account and cash dividends on shares for which you have authorized
reinvestment will continue to be reinvested in common stock. The Agent will not
issue certificates for fractional shares held under the Plan under any
circumstances.
You will assume the risk that the price of our common stock may decline
between the time that you request the Agent to issue a share certificate and the
time that you receive the certificate. Neither our company nor the Agent will be
liable for any claim arising out of a failure to issue a certificate on a
certain date.
You may not pledge shares credited to your account under the Plan as
collateral. If you want to pledge your shares, you must terminate participation
in the Plan with respect to those shares (see Question 25) and either (a)
request that a certificate for the shares be issued to you in your name, or (b)
transfer the shares to a third party in connection with the pledge (see Question
23).
22. HOW DO YOU SELL SHARES HELD IN THE PLAN?
You can sell all or part of your shares of common stock held in your
account under the Plan in either of two ways, as follows:
29
If your account is in the name of more than one person, each individual
whose name is on the account must sign the request to sell shares. The Agent
generally will forward to you (and any co-owner) a check for the proceeds of the
sale, less any commissions and fees associated with the sale (see Question 12),
within five business days after the settlement date of the sale transaction.
All sale instructions will be final. Once the Agent has received your sale
instructions, you cannot stop or cancel the sale. If the Agent receives
instructions for the sale of ALL of your Plan shares for which you have
authorized reinvestment of dividends after a record date but before the related
dividend payment date, the Agent will sell the shares in your Plan account as
soon as practicable and, in its discretion, either (a) distribute the dividend
to you in cash or (b) reinvest the dividend in additional shares of common stock
and then sell those shares as soon as practicable after the dividend payment
date, but in no event later than five business days after the dividend payment
date.
If the Agent receives instructions to sell FEWER THAN ALL of your Plan
shares for which you have authorized reinvestment of dividends after a record
date but before the related dividend payment date, the Agent will process the
sale within five business days of receipt of your instructions. On the dividend
payment date, the Agent will reinvest the dividend paid on the shares that have
been sold, as well as the dividend paid on the unsold shares remaining in your
Plan account for which you have authorized dividend reinvestment, and will
credit the shares purchased to your Plan account.
The Agent generally will aggregate sale requests from you and the other
Plan participants and will sell shares only in "round lots." In that case, you
will receive proceeds from the sale of your shares based on the weighted average
sales price of all shares sold, less any commissions and fees associated with
the sale, as described in Question 12. The Agent may refrain from making sales
at any time that the Agent, in its discretion, believes that such sales could
disrupt the market for our common stock. As a result, there may be delays
between the date on which you send the Agent your request to sell your common
stock and the date on which the sale takes place. When you request the Agent to
sell your shares, you will have no ability to set the price at which your shares
will be sold. The price of our common stock may decline during the period
between the Agent's receipt of your request and the date of the sale. Neither we
nor the Agent will be liable for any claim arising out of a failure to sell
stock on a certain date or at a specific price. This is a risk that is borne
solely by the participant, and you should evaluate this risk accordingly.
PARTICIPANTS ARE RESPONSIBLE FOR DETERMINING THE TAX COST BASIS FOR SHARES SOLD
UNDER THE PLAN. NEITHER WE NOR THE AGENT ASSUME ANY RESPONSIBILITY FOR SUCH
DETERMINATIONS.
23. HOW DO YOU TRANSFER SHARES HELD IN THE PLAN?
If you wish to transfer the ownership of all or part of the shares held
under the Plan, including shares held under the DRS program, to another person,
whether by gift, private sale or otherwise, you may effect such a transfer by
mailing to the Agent (1) a written request for transfer indicating the name(s)
and address(es) of the transferee(s), (2) a properly completed and executed
stock assignment (stock power), with medallion signature guarantee, and (3) a
Form W-9 containing the tax
30
identification number of the transferee(s). Your signature on the assignment and
the signatures of any co-owners of the shares must correspond precisely with the
names on the account. There is no fee charged for such transfers. Unless the
transferees already participate in the Plan, the Agent will issue a stock
certificate for the shares transferred to the transferees and mail information
pertaining to the Plan to the transferees. If the transferees already
participate in the Plan, the transferred shares will be credited to the
transferees' respective accounts under the Plan.
You must transfer a whole number of shares, unless the transfer is to
another participant in the Plan, in which case you may transfer any number of
shares, including fractional shares. If you have elected to have dividends
reinvested under the Plan and you transfer all of the whole shares in your Plan
account, any remaining fractional share will remain in your account and
dividends on the fractional share will be invested in common stock unless you
instruct the Agent to sell the fractional share or otherwise indicate that you
wish to terminate participation in the Plan. If you instruct the Agent to sell
the fractional share, the Agent will sell the fractional share and mail the
proceeds from the sale (less any commissions and fees associated with the sale)
directly to you (see Question 26).
If the Agent receives instructions to transfer ALL of your Plan shares for
which you have authorized reinvestment of dividends after a record date but
before the related dividend payment date, the Agent will (1) process the
transfer of the shares in your account as promptly as practicable, and (2)
reinvest the dividends on those shares on the dividend payment date and promptly
transfer the shares purchased with the dividends.
If the Agent receives instructions to transfer FEWER THAN ALL of your Plan
shares for which you have authorized reinvestment of dividends after a record
date but before the related dividend payment date, the Agent will process the
transfer as soon as practicable. On the dividend payment date, the Agent will
reinvest the dividend paid on the shares that have been transferred, as well as
the dividend paid on the shares remaining in your account, and will credit all
of the purchased shares to your Plan account.
24. WHAT HAPPENS WHEN YOU SELL OR TRANSFER A PORTION OF YOUR SHARES IN THE PLAN?
If you are reinvesting the cash dividends on all of the shares registered
in your name under the Plan and you dispose of a portion of those shares, the
Agent will continue to reinvest the dividends on the remaining shares. If you
are reinvesting the cash dividends on a portion of the shares of common stock
registered in your name and you dispose of a portion of those shares, the Agent
will continue to reinvest the dividends on the remaining shares up to the number
of shares you originally authorized to be subject to reinvestment.
For example, if you authorized the Agent to reinvest the cash dividends on
50 shares of a total of 100 shares registered in your name, and then you dispose
of 25 shares, the Agent will continue to reinvest the cash dividends on 50 of
the remaining 75 shares. If, instead, you dispose of 75 shares, the Agent will
continue to reinvest the cash dividends on the remaining 25 shares. Under the
immediately
31
preceding example, if you subsequently acquire 50 shares of common stock, the
Agent will automatically reinvest dividends on 25 shares so that you will have
dividends reinvested on a total of 50 shares, as you originally authorized for
dividend reinvestment, unless you change your authorization.
The Agent will continue to reinvest dividends on shares credited to your
account under the Plan until you sell or transfer the shares, change your
authorization, or withdraw the shares from the Plan.
TERMINATION OF YOUR PARTICIPATION IN THE PLAN
25. HOW DO YOU TERMINATE YOUR PARTICIPATION IN THE PLAN?
You may terminate your participation in the Plan at any time by notifying
the Agent, in writing, that you wish to terminate. After termination, dividends
will be paid to you in cash unless and until you rejoin the Plan, which you may
do at any time pursuant to the provisions of the Plan. All account owners must
sign the termination request. Based upon the instructions you give to the Agent,
the Agent will either:
* issue to you a certificate for whole shares credited to your account
under the Plan and mail the certificate to you, along with a check for
the proceeds from the sale of any fractional share remaining in your
account, less any commissions and fees associated with the sale (see
Question 26); or
* sell the number of shares you specify to be sold, plus any fractional
share remaining in your account, and mail to you a certificate for the
number of whole shares remaining in your account, along with a check
for the proceeds from the sale, less any commissions and fees
associated with the sale (see Question 26); or
* sell all of the shares, both whole shares and fractional shares,
credited to your account in the Plan (see Question 22) and mail you a
check for the proceeds from the sale, less any commissions and fees
associated with the sale (see Question 12).
26. WHAT HAPPENS TO A FRACTIONAL SHARE WHEN YOU TERMINATE YOUR PARTICIPATION IN
THE PLAN OR WE TERMINATE THE PLAN?
If you terminate participation in the Plan or we terminate the Plan, the
Agent will mail to you a cash payment representing the proceeds from the sale of
any fractional share, less any commissions and fees associated with the sale
(see Question 12). This cash payment will be based on the then-current market
price of a share of common stock.
32
27. WHEN DOES YOUR NOTICE OF TERMINATION BECOME EFFECTIVE?
A notice of termination normally is effective when the Agent receives it.
However, if you have authorized dividend reinvestment and the Agent receives the
notice near a record date or after a record date and before the related dividend
payment date, the Agent, in its discretion, may either (a) distribute the
dividends to you in cash or (b) reinvest the dividends in additional shares of
common stock. If the Agent reinvests the dividend in additional shares of common
stock on your behalf, the Agent will process the termination as soon as
practicable, but in no event later than five business days after the investment
is completed. After termination of your participation in the Plan, (1) the Agent
will deliver a share certificate to you (see Question 25) and (2) we will pay
dividends in cash directly to you unless you elect to re-enroll in the Plan,
which you may do at any time (see Question 29).
28. CAN WE TERMINATE YOUR PARTICIPATION IN THE PLAN?
Because of the costs involved in administering the Plan, we reserve the
right to terminate your participation in the Plan, without advance notice to
you, if your account balance is less than one whole share of common stock. If we
terminate your participation under these circumstances, we will instruct the
Agent to sell your fractional share and deliver the proceeds to you, less any
commissions and fees associated with the sale, as described in Question 26. We
also reserve the right to terminate the Plan. See Question 39.
29. MAY A SHAREHOLDER REJOIN THE PLAN?
Generally, an eligible shareholder may rejoin the Plan and become a
participant at any time. In order to minimize administrative expenses and to
encourage use of the Plan as a long-term investment service, however, we reserve
the right to reject an authorization form submitted by a previous participant on
grounds of excessive joining and termination.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain United States federal income
tax consequences, under current law, that may result from your participation in
the Plan. It assumes that, as we currently anticipate, all dividend
distributions by our company will be from "earnings and profits" and therefore
will constitute dividends (rather than a return of capital) for federal income
tax purposes. This discussion does not address all potentially relevant federal
income tax matters, including consequences peculiar to persons subject to
special provisions of federal income tax law. It is based on various rulings of
the Internal Revenue Service regarding several types of dividend reinvestment
plans, but no ruling has been issued or requested regarding the Plan.
The following discussion is based upon United States federal income tax law
and interpretations in effect as of the date of this prospectus. Recent
proposals, if enacted, could significantly change the treatment of corporate
dividends under federal law. We can provide no
33
assurance, however, that any of those proposals will be enacted or, if enacted,
with respect to the effect that such new laws would have on the federal income
tax treatment of your participation in the Plan. We do not assume any obligation
to update this discussion following the date of this prospectus, even if
significant changes to the tax laws are enacted.
The following discussion is for general information only. We urge you to
consult your own tax advisors to determine the particular federal, as well as
foreign, state and local, tax consequences that may result from your
participation in the Plan and the disposition of any shares of common stock
purchased pursuant to the Plan. PARTICIPANTS ARE RESPONSIBLE FOR DETERMINING THE
TAX CONSEQUENCES RELATED TO ANY SHARES PURCHASED, SOLD, DEPOSITED, OR WITHDRAWN
UNDER THE PLAN. YOU SHOULD RETAIN AND REFER TO THE PERIODIC STATEMENTS AND
REPORTS SENT TO YOU BY THE AGENT REGARDING YOUR PLAN TRANSACTIONS TO ASSIST YOU
IN MAKING SUCH DETERMINATIONS.
30. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF PARTICIPATING IN THE PLAN?
(A) REINVESTED DIVIDENDS. For Federal income tax purposes, you must include
as taxable income the amount of the cash dividend (before deduction of any
required back-up withholding and fees) that you would have received if you had
not reinvested the dividend in common stock.
* For example, if dividends of $100 are reinvested under the Plan to
acquire shares of common stock with a fair market value of $100, the
amount of the taxable dividend will be $100.
In addition, when shares are acquired for you under the Plan through
privately negotiated purchases, you will be treated as having received a
dividend in the amount of your allocable portion of any brokerage commissions or
other acquisition fees paid by our company.
* For example, if $100 of your dividends are reinvested to purchase
shares of common stock with a fair market value of $100 in privately
negotiated purchases under the Plan, and if your portion of
acquisition fees paid by us is $1, the total amount of the taxable
dividend you will be treated as receiving will be $101. (The $1 figure
is for purposes of illustration only; it is not a representation or
estimate of the amount or percentage of brokerage commissions and
other acquisition fees that we may pay for such purchases.)
The information return (Form 1099-DIV) we send to you and the Internal
Revenue Service at year-end will report the total amount of the dividends paid
and deemed to have been paid to you during the year.
(B) TAX BASIS. The tax basis per share for shares of common stock you
acquire pursuant to the Plan will be equal to the purchase price per share paid
by the Agent as described in Question 16,
34
and, if the shares are acquired through a privately negotiated purchase, the
amount of any brokerage commissions and other acquisition fees allocable to the
shares.
(C) HOLDING PERIOD. Your holding period for shares of common stock acquired
pursuant to the Plan will begin on the day following the purchase of the shares.
A whole share consisting of fractional shares purchased on different dates will
have a split holding period, with the holding period for each fractional
component beginning the day after the investment date when the fractional share
was acquired.
(D) RECEIPT OF STOCK CERTIFICATES. You will not recognize any taxable
income when you request and receive certificates for whole shares credited to
your account.
(E) RECOGNITION OF GAIN OR LOSS. You will recognize gain or loss when you
sell or transfer shares in a taxable transaction and, in the case of a
fractional share, when you receive a cash payment for a fractional share
credited to your account upon termination of your participation in the Plan. The
amount of the gain or loss will be the difference between the amount you
receive, after any commissions or fees, for the whole shares or fractional share
and the tax basis of the whole shares or fractional share. Gain or loss
recognized on a sale of shares (including a fractional share) from your Plan
account generally will be capital gain or loss if you hold your shares in the
Plan as capital assets, and will be long-term gain or loss if the holding period
exceeds one year when the sale occurs.
(F) FOREIGN PARTICIPANTS. In the case of foreign participants who elect to
have their cash dividends reinvested under the Plan and whose dividends are
subject to United States income tax withholding, an amount equal to the cash
dividends payable to such participants, less the amount of tax required to be
withheld, will be applied to the purchase of shares of common stock through the
Plan. Foreign shareholder participants are urged to consult their legal advisers
with respect to any local exchange control, tax or other law or regulation which
may affect their participation in the Plan. Neither we nor the Agent assume any
responsibility regarding such laws or regulations and will not be liable for any
act or omission in respect thereof.
(G) WITHHOLDING AND INFORMATION REPORTING. In general, we are required to
report to the Internal Revenue Service all actual and constructive dividend
distributions to a shareholder. Additionally, dividends are subject to United
States federal backup withholding at applicable rates, unless the shareholder
provides its taxpayer identification number in the manner prescribed in
applicable Treasury Regulations, certifies that such number is correct,
certifies as to no loss of exemption from backup withholding, and meets certain
other conditions. Any amounts withheld from payments to a shareholder under the
backup withholding rules will be allowed as a refund or credit against the
shareholder's U.S. federal income tax liability, provided the required
information is furnished to the Internal Revenue Service. See also Question 31,
below.
35
31. WHAT PROVISION IS MADE FOR THOSE SHAREHOLDERS WHOSE DIVIDENDS ARE SUBJECT TO
INCOME TAX WITHHOLDINGS?
Dividends received by foreign corporations and nonresident aliens generally
are subject to United States withholding tax. The Agent will deduct the amount
of tax to be withheld at applicable rates (currently 30% of the dividend amount,
unless the participant establishes that some lower percentage or no withholding
is applicable by reason of treaty or other exemption for a foreign corporation
or nonresident alien). If withholding is not required to be imposed as provided
in the prior sentence, no withholding will apply on dividends received by a
foreign corporation or non-resident alien unless the dividend payment is subject
to backup withholding at applicable rates. See Question 30(G), above. Dividends
received by domestic corporations and U.S. citizens and residents are not
subject to U.S. withholding tax unless the dividends are subject to backup
withholding. In any case in which federal income taxes are required to be
withheld, the Agent will reinvest in our common stock an amount equal to the
dividends less the amount of tax withheld.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY. THE PRECEDING SUMMARY MAY BE RENDERED INACCURATE BY ANY FUTURE
AMENDMENT TO THE FEDERAL INCOME TAX LAWS OR ANY FUTURE INTERPRETATIONS OF SUCH
LAWS BY APPROPRIATE AUTHORITIES. YOU SHOULD CONSULT YOUR TAX ADVISOR WITH
RESPECT TO THE TAX CONSEQUENCES OF PARTICIPATION IN THE PLAN, THE SALE OR
TRANSFER OF SHARES PURCHASED UNDER THE PLAN, AND ANY PROPOSED OR ACTUAL CHANGES
IN APPLICABLE LAW OR INTERPRETATIONS OF APPLICABLE LAW.
OTHER INFORMATION REGARDING THE PLAN
32. WHAT IF I OWN SHARES THROUGH AN ACCOUNT IN THE ILX RESORTS INCORPORATED
EMPLOYEE STOCK OWNERSHIP PLAN?
The Trustees of our Employee Stock Ownership Plan, or "ESOP," will
determine whether or not the ESOP will participate in the Plan. Individual ESOP
participants will not have the right to decide whether or not dividends paid on
shares credited to their ESOP account will be reinvested in additional shares of
common stock. The Trustees of the ESOP have advised us that, as of the date of
this prospectus, the ESOP will participate in the Plan and all dividends paid on
shares held by the ESOP will be reinvested in additional shares of common stock.
33. DOES PARTICIPATION IN THE PLAN INVOLVE ANY RISK?
You should recognize that by purchasing or selling through the Plan, you
lose any advantage otherwise available from being able to select the timing of
your purchases or sales. Neither we nor the Agent can assure you of a profit or
protect you against a loss on the shares you purchase or sell under the Plan or
otherwise. For more information on risk factors relating to our company, our
business, participation in the Plan, and ownership of our common stock, see
"Risk Factors" beginning on page 6.
36
34. WHAT HAPPENS IF WE ISSUE A STOCK DIVIDEND, DECLARE A STOCK SPLIT OR HAVE A
RIGHTS OFFERING?
If you participate in the Plan, any shares distributed by us as a stock
dividend on shares credited to your account or as a result of a stock split with
respect to your shares will be credited to your account and held by the Agent in
book entry form. If you hold certificates for shares for which you have elected
to have dividends reinvested under the Plan, stock dividends distributed on
those shares, as well as shares distributed as a result of a stock split with
respect to your shares, will be deposited to your Plan account and held by the
Agent in book entry form. In the event of a rights offering, your entitlement
will be based upon your total holdings, including shares credited to your
account under the Plan.
35. HOW WILL YOUR SHARES BE VOTED AT STOCKHOLDER MEETINGS?
We or your broker, bank, or other nominee acting on your behalf will send
you a proxy to vote all of your shares held in the Plan. The shares will be
voted in the manner you direct in your proxy. If you do not return a proxy or
vote in person at the meeting, your shares will not be voted.
36. WHAT HAPPENS TO THE ACCOUNT IF A PARTICIPANT DIES?
Upon receipt by the Agent of proper notice of the death or incompetency of
a participant, together with any other forms by the Agent may require, the
participant's account will be terminated and shares will be delivered to the
appropriate person in the same manner as with a participant who terminates his,
her, or its participation in the Plan. See Questions 25 through 27.
37. MAY PARTICIPANTS SELL, PLEDGE OR OTHERWISE ASSIGN THEIR ACCOUNTS?
Except as described in Questions 22 and 23, you may not sell, pledge,
assign, or transfer your Plan account and the shares credited to your account
under the Plan. Any attempted pledge or assignment shall be void. If you wish to
sell, pledge, or otherwise assign or transfer any shares held under the Plan,
you must either request the Agent to issue certificates for such shares in your
name (see Question 21) or instruct the Agent to sell those shares on your behalf
(see Question 22).
38. WHAT ARE THE RESPONSIBILITIES OF OUR COMPANY AND THE AGENT UNDER THE PLAN?
The Agent, Computershare Trust Company, Inc., has no responsibility for the
preparation and content of this prospectus or of the registration statement of
which this prospectus is a part. Neither we nor the Agent will be liable for any
act we do or the Agent does in good faith, or for any good faith failure to act,
including, without limitation, any claims of liability arising out of failure to
terminate your account upon your death before the Agent receives notice in
writing of your death; the prices at which, or terms upon which, shares are
purchased or sold for your account; the times when purchases or sales are made;
or fluctuations in the market value of our common stock before, at, or after any
such purchases or sales can be made. Neither we, the Agent, nor any of our or
the Agent's respective agents shall have any responsibility beyond the exercise
of ordinary care for any action taken or omitted in
37
connection with the Plan, nor shall we or they have any duties, responsibilities
or liabilities except as expressly set forth in this prospectus.
The payment of dividends is at the discretion of our Board of Directors and
will depend upon a variety of factors, including our future earnings and
financial condition. Our Board of Directors may change the amount and timing of
dividends at any time and without notice.
Our Board of Directors, acting in good faith, will interpret and regulate
the Plan as deemed desirable or necessary in connection with the Plan's
operation, and will adopt such regulations as it deems necessary or appropriate
to facilitate the administration of the Plan. Our Board of Directors may adopt
rules and regulations with respect to the Plan without notice to the
participants in the Plan and such rules and regulations will be binding upon
each participant. The Board of Directors, in its discretion, may delegate all or
part of its authority to interpret and regulate the Plan and to adopt rules and
regulations to facilitate the administration of the Plan to one or more officers
of our company as the Board of Directors may authorize from time to time.
We have no obligation to offer, issue or sell common stock to participants
under the Plan if, at the time of the offer, issuance or sale, any registration
statement related to common stock offered, issued or sold under the Plan is for
any reason not effective or such action would not be in compliance with
applicable laws, rules and regulations. In addition, we may elect not to offer
or sell common stock under the Plan to individuals residing in any jurisdiction
or foreign country where, in our judgment, the burden or expense of compliance
with applicable blue sky or securities laws or other laws makes such offer or
sale impracticable or inadvisable. In any of these circumstances, dividends, if
and when declared, will be paid in cash in the usual manner to the shareholders.
NEITHER WE NOR THE AGENT CAN ASSURE YOU OF A PROFIT OR PROTECT YOU AGAINST
A LOSS ON THE SHARES PURCHASED OR HELD FOR YOUR ACCOUNT UNDER THE PLAN.
39. CAN WE CHANGE OR DISCONTINUE THE PLAN?
Our Board of Directors may, at any time or from time to time, and without
any action on the part of our shareholders, amend, suspend, modify or terminate
the Plan or terminate any participant's participation in the Plan, provided that
any such action shall not have any retroactive effect that would prejudice the
interests of a participant. We will provide notice to participants of any
material amendment, modification, suspension or termination of the Plan. Upon
termination of the Plan, the Agent will issue a certificate to you for the whole
shares credited to your account under the Plan and will forward to you a cash
payment for any fractional share credited to your account, less applicable
commission and fees.
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40. WHAT IS A "BUSINESS DAY"?
For purposes of the Plan, a "business day" is any day except Saturday,
Sunday, a Federal Reserve Bank holiday, or a New York Stock Exchange holiday.
41. WHAT INFORMATION IS AVAILABLE ABOUT THE PLAN THROUGH THE INTERNET?
You can obtain a variety of information about the Plan from the Agent at
www.computershare.com. We may from time to time post information about the Plan
on the Investor Relations section of our web site at www.ilxresorts.com.
42. HOW MAY SHAREHOLDERS OBTAIN ANSWERS TO OTHER QUESTIONS REGARDING THE PLAN?
You should address any questions about the Plan to the Agent at the address
set forth under Question 4.
USE OF PROCEEDS
We do not know either the number of shares that ultimately will be
purchased from our company under the Plan or the prices at which those shares
will be purchased. When we sell shares under the Plan, we will use the proceeds
of such sales for general corporate purposes.
VALIDITY OF THE COMMON STOCK
The validity of the shares to be purchased from our company under the Plan
has been passed upon by Rogers & Theobald LLP, Phoenix, Arizona.
EXPERTS
The consolidated financial statements of the company as of December 31,
2000 and December 31, 2001 and for each of the three years in the period ended
December 31, 2001, as incorporated by reference in this prospectus and in the
registration statement have been audited by Hansen, Barnett, and Maxwell,
independent public accountants, as indicated in their reports with respect
thereto, and are incorporated herein in reliance upon the authority of said firm
as experts in auditing and accounting.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Article 13 of our Articles of Incorporation, as amended, under certain
circumstances provides for the indemnification of our officers and directors
against liabilities they may incur in such capacities. In addition, Article X of
our Amended and Restated Bylaws requires us to indemnify our
39
officers, directors, employees, and agents against all expenses incurred by them
in connection with any legal action, including shareholder derivative suits,
based on any action or omission alleged to have been committed while acting
within the scope of such relationship to our company. Any such claim for
indemnification is subject to the good faith determination by the Board of
Directors that the person seeking indemnification did not act, fail to act, or
refused to act willfully or with gross negligence or with fraudulent or criminal
intent. Upon making such determination, indemnification is mandatory unless the
person seeking indemnification unreasonably refuses to permit our company, at
its own expense and through counsel of its choosing, to defend him or her in the
subject action.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling us
pursuant to the foregoing provisions, we have been informed that in the opinion
of the SEC such indemnification is against public policy as expressed in the Act
and is therefore unenforceable.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements, and other
information with the Securities and Exchange Commission, or "SEC." This
prospectus is part of a registration statement on Form S-3 that we have filed
with the SEC. To see more detail, you should read the exhibits, including the
full text of the Plan, as filed with our registration statement. You may inspect
and copy the registration statement of which this prospectus is a part, as well
as reports, proxy statements and other information filed by us, at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You can obtain copies of the documents from the Public
Reference Room of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. You can call the SEC at 1-800-732-0330 for information
regarding the operation of its Public Reference Room. The SEC also maintains a
site on the World Wide Web at http://www.sec.gov that contains the registration
statement of which this prospectus forms a part, as well as the reports, proxy
statements, and other information that we file electronically.
In addition, you can inspect reports, proxy statements, and other
information concerning our company at the offices of the American Stock
Exchange, 86 Trinity Place, New York, New York 10006. Our common stock is listed
on the American Stock Exchange. Our annual reports and other information
regarding our company also can be found on our website at www.ilxresorts.com.
This prospectus summarizes the Plan. You should read this prospectus
together with the additional information that is incorporated by reference as
described below.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows this prospectus to "incorporate by reference" certain other
information that we file with the SEC, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is an important part of this prospectus,
40
and information that we file later with the SEC will automatically update and
replace this information. We incorporate by reference the documents listed below
and any future filings made by us with the SEC under Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934 until we sell all of the
securities that we have registered:
* Annual Report on Form 10-K for the year ended December 31, 2001.
* Quarterly Reports on Form 10-Q for the quarters ended March 31, 2002,
June 30, 2002, and September 30, 2002.
* The description of our no par value common stock set forth under the
heading "Description of ILX Securities and Pertinent Arizona Statutes"
in the prospectus that forms a part of our Registration Statement on
Form S-1 (File No. 333-45403), as filed with the SEC on February 2,
1998.
Upon written or oral request, we will provide to each person, including any
beneficial owner, to whom this prospectus is delivered, at no cost, a copy of
any or all of the information incorporated by reference in this prospectus but
not delivered with this prospectus. Requests should be addressed to: ILX Resorts
Incorporated, 2111 East Highland Avenue, Suite 210, Phoenix, Arizona 85016,
Attention: Investor Relations (telephone number: (602) 957-2777).
41
======================================= =======================================
[ILX LOGO]
ILX RESORTS INCORPORATED
WE HAVE NOT AUTHORIZED ANY DEALER, DIVIDEND REINVESTMENT PLAN
SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING THAT
IS NOT CONTAINED IN THIS PROSPECTUS.
YOU MUST NOT RELY ON ANY UNAUTHORIZED
INFORMATION. THIS PROSPECTUS DOES NOT 300,000 SHARES
OFFER TO SELL AND IS NOT A SOLICITATION COMMON STOCK
OF AN OFFER TO BUY ANY SECURITIES IN
ANY JURISDICTION WHERE IT IS UNLAWFUL.
THE INFORMATION IN THIS PROSPECTUS IS ------------------
CURRENT ONLY AS OF MARCH 4, 2003.
PROSPECTUS
------------------
DATED MARCH 4, 2003
======================================= =======================================
PART II TO FORM S-3
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses incurred by the
Registrant in connection with the sale and distribution of the securities being
registered. All amounts shown are estimates except for the Securities and
Exchange Commission ("SEC") registration fee and the American Stock Exchange
("AMEX") filing fee.
SEC Registration Fee...............................$ 200.35
AMEX Listing Fee...................................$ 6,000.00
Accounting Fees and Expenses.......................$ 2,500.00
Legal Fees and Expenses............................$60,000.00
Printing, Engraving and Mailing Expenses...........$ 7,000.00
Miscellaneous......................................$ 1,299.65
----------
Total.........................................$77,000.00
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
INDEMNIFICATION REQUIRED BY THE REGISTRANTS' ARTICLES OF INCORPORATION
Article 13 of the Registrant's Articles of Incorporation, as amended (the
"Articles of Incorporation") provides, under certain circumstances, for the
indemnification of the Registrant's officers and directors against liabilities
they may incur in such capacities. In general, Article 13 requires the
Registrant to indemnify, to the fullest extent permitted by Arizona law, as
currently in effect, each director and officer of the Registrant against any
damage, judgment amount paid in settlement, fine, penalty, punitive damages,
excise tax, or cost or expense (including attorneys' fees and disbursements)
that were incurred in connection with a proceeding to which such director or
officer was a party by reason of the fact that such officer or director was
acting on behalf of the Registrant, unless indemnification is expressly
prohibited by applicable law. In addition, Article 13 prohibits the Registrant
from indemnifying 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.
Article 13 requires the Registrant to advance funds to pay the expenses of
any officer or director involved in a proceeding, provided that such expenses
are incurred in good faith and the Registrant 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 the
Registrant's officers and directors are deemed to be a legally binding contract
between the Registrant and each such officer and director. Any repeal, amendment
or modification of Article 13 of the Articles of Incorporation shall be
effective prospectively and shall not affect any prior rights or obligations
concerning the indemnification of the Registrant's officers and directors.
INDEMNIFICATION REQUIRED BY THE REGISTRANT'S BYLAWS
Article X of the Registrant's Amended and Restated Bylaws requires the
Registrant to indemnify its officers, directors, employees, and agents against
all expenses incurred by them in connection with any legal action, including
shareholder derivative suits, based on any action or omission alleged to have
been committed while acting within the scope of such relationship to the
Registrant. Any such claim for indemnification is subject to the good faith
determination by the Board of Directors that the person seeking indemnification
did not act, fail to act, or refused to act willfully or with gross negligence
or with fraudulent or criminal intent. Upon making such determination,
indemnification is mandatory unless the person seeking indemnification
unreasonably shall refuse to permit the Registrant, at its own expense and
through counsel of its choosing, to defend him or her in the subject action.
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INDEMNIFICATION REQUIRED BY ARIZONA LAW.
The Arizona Business Corporation Act was amended subsequent to the date on
which the Registrant adopted its Articles of Incorporation and Amended and
Restated Bylaws. The following paragraphs summarize the indemnification
provisions of the Business Corporation Act, as currently in effect.
REQUIRED INDEMNIFICATION
The Business Corporation Act requires the Registrant to indemnify all
"Outside Directors," as defined below, and officers of the Registrant who are
not directors against "liability," as defined below. The Business Corporation
Act also requires the Registrant to indemnify against reasonable "expenses," as
defined below, any director who is the prevailing party in the defense of any
proceeding to which the director is a party because such person is or was a
director of the Company. In addition, the Business Corporation Act requires the
Registrant to pay expenses to Outside Directors in advance of a final
disposition of the proceeding if (1) the director furnishes to the Registrant a
written affirmation (an "Affirmation") of his or her good faith belief that (i)
his or her conduct was in good faith, (ii) he or she reasonably believed that
the conduct was in the best interests of the Registrant or at least not opposed
to the Registrant's best interests, and (iii) in the case of any criminal
proceeding, he or she had no reasonable cause to believe the conduct was
unlawful (the "Standard of Conduct"), and (2) the director provides the
Registrant with a written undertaking (an "Undertaking") to repay the advance if
it ultimately is determined that the director did not meet the Standard of
Conduct. However, the Business Corporation Act prohibits the Registrant from
advancing expenses to an Outside Director if a court determines before payment
that the director failed to meet the Standard of Conduct and a court does not
otherwise authorize indemnification.
The Business Corporation Act also requires the Company to indemnify a
director who is not an Outside Director against liability, but only if the
Registrant is authorized in the specific case after a determination has been
made by either (a) a majority of the members of the Board of Directors who are
not at the time parties to the proceeding, or (b) special legal counsel, or (c)
the shareholders of the Registrant (excluding shares owned by or voted under the
control of directors who are at the time parties to the proceeding) that the
director has met the Standard of Conduct (a "Determination"). In addition, the
Business Corporation Act prohibits the Registrant from indemnifying a director
who is not an Outside Director in connection with a proceeding by or in the
right of the Registrant in which the director is adjudged liable to the
Registrant, or in connection with a proceeding in which the director was
adjudged liable on the basis that the director improperly received a personal
benefit.
OPTIONAL INDEMNIFICATION
Except for situations where the Registrant is required to indemnify its
officers who are not also directors against liability, as described above, the
Business Corporation Act permits the Registrant, in its sole discretion, to
indemnify against liability and advance expenses to any officer, employee, or
agent who is not a director to the same extent as to a director. However, the
Business Corporation Act prohibits the Registrant from indemnifying such persons
against liability unless a Determination is made that indemnification is
permissible because the person has met the Standard of Conduct. The Business
Corporation Act permits the Registrant to pay for or reimburse expenses to an
officer, employee, or agent who is not a director in advance of a final
disposition of the proceeding, but only if the person furnishes to the Company
an Affirmation and an Undertaking, and a Determination is made that the facts
then known to the persons making the Determination would not otherwise preclude
indemnification.
COURT ORDERED INDEMNIFICATION
The Business Corporation Act permits a director or officer of the
Registrant to apply to a court for indemnification, in which case the court may,
subject to certain conditions, order the Registrant to indemnify such person for
part or all of the person's liability and expenses.
DEFINITIONS
The Business Corporation Act defines "Outside Director" to mean a director
who, when serving as a director, was not an officer, employee or holder of more
than 5% of the outstanding shares of any class of stock of the Registrant.
"Liability" under the Business Corporation Act means the obligation to pay a
judgment, settlement,
II-2
penalty or fine, including an excise tax assessed with respect to an employee
benefit plan, or reasonable expenses incurred with respect to a proceeding and
includes obligations and expenses that have not yet been paid by the indemnified
person but that have been or may be incurred. The Business Corporation Act
defines "expenses" as attorney fees and all other costs and expenses reasonably
related to a proceeding.
SECURITIES AND EXCHANGE COMMISSION POSITION REGARDING INDEMNIFICATION FOR
LIABILITIES ARISING UNDER THE SECURITIES ACT.
Insofar as indemnification for liabilities arising under the Securities Act
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 Securities Act of 1933 and is
therefore unenforceable.
ITEM 16. EXHIBITS.
Exhibit No. Description of Document
----------- -----------------------
5 Opinion of Rogers & Theobald LLP
10.45 ILX Resorts Incorporated Dividend Reinvestment Plan
23.1 Consent of Independent Auditors
23.2 Consent of Rogers & Theobald LLP (contained in Exhibit 5)
24 Powers of Attorney (contained on the signature page)
99.1 Sample Authorization Form
99.2 Sample Direct Registration Transaction Request Form
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 the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) under the Securities
Act if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective Registration Statement.
(iii) To include any material information with respect to the plan of
distribution not previously
II-3
disclosed in the Registration Statement or any material change to
such information in the Registration Statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(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 the 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.
The undersigned Registrant hereby undertakes 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 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.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form 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 and State of Arizona on February 26, 2003.
ILX RESORTS INCORPORATED, an Arizona corporation
By: /s/ Joseph P. Martori
--------------------------------------------
Joseph P. Martori
Chairman of the Board and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints, jointly and severally, Joseph P. Martori
and Nancy J. Stone and each one of them, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including pre-effective and
post-effective amendments) to this registration statement, and to sign any
registration statement and amendments thereto for the same offering pursuant to
Rule 462(b) under the Securities Act of 1933, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all which said attorneys-in-fact and agents, or
any of them, or their or his or her substitute or substitutes, may lawfully do,
or cause to be done by virtue hereof.
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 of the Board February 26, 2003
- ------------------------------ and Chief Executive Officer
Joseph P. Martori (principal executive officer)
/s/ Nancy J. Stone President, Chief Operating February 26, 2003
- ------------------------------ Officer and Director
Nancy J. Stone
/s/ Margaret M. Eardley Executive Vice President and February 26, 2003
- ------------------------------ Chief Financial Officer
Margaret M. Eardley (principal financial officer)
/s/ Taryn L. Chmielewski Vice President and Chief February 26, 2003
- ------------------------------ Accounting Officer
Taryn L. Chmielewski (principal accounting officer)
/s/ Edward S. Zielinski Executive Vice President and February 26, 2003
- ------------------------------ Director
Edward S. Zielinski
/s/ Joseph P. Martori, II Executive Vice President and February 26, 2003
- ------------------------------ Director
Joseph P. Martori, II
/s/ Steven R. Chanen Director February 26, 2003
- ------------------------------
Steven R. Chanen
/s/ Patrick J. McGroder III Director February 26, 2003
- ------------------------------
Patrick J. McGroder III
/s/ Steven A. White Director February 26, 2003
- ------------------------------
Steven A. White
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