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Comments from the 2004 AGM Meeting
by B.
Ryan and R. Sutton
CHAIRMAN'S REPORT (Bob Ryan) – DECEMBER 7, 2004
· A little refresher course in the history of Pelican Resort is needed. If we
don't learn from the past, we are doomed to repeat it.
· Mission Statement
- Protect our Collective investments - Return Pelican Resort to Five Star /
Gold Crown Status - · In 1995 we had the Gonzcy scam and the Ad Hoc Board.
· June 1996, Five (5) Board Members were elected and conference called the
first meeting.
· July 1996, the newly elected Board agreed to purchase Pelican Resort for
$7.8 million.
· August 1996, the Board took over the day-to-day management of Pelican
Resort.
· Billy Folly files for bankruptcy and the Trustees take over.
· On August 1, 1996, a letter was sent to owners asking for $9,700,000 for a
Supplemental Maintenance Fee that was needed to purchase and run Pelican Resort
and restore hurricane damaged property.
· October 1996, Letter of Intent with the Trustees is signed to take over
Pelican Resort.
· Over next several months the Board interviews management companies to run
Pelican.
· January 1, 1997, the Hollywood Store pulls the plug on Pelican creating a
fiasco.
· January 1997, Keith Trowbridge is hired as a consultant for three (3)
months. This did not work out.
· January 1997, Board approves of five (5) in-house managers to run the
Resort.
· January 31, 1997, a deal is made with the Receivers to purchase property -
$6.5 million mortgage. One (1) million down and one (1) million credit for
operating the Resort. The total cost being $8.5 million.
· February 1997, ISCO stepped in to help us collect maintenance fees and
supplemental fees.
For the next several months the Board members and the management team ran
Pelican Resort. The Board felt we needed an outside management group that had
experience in the timeshare business to take over the day-to-day running of the
Resort.
From July 7, 1997 – July 11, 1997, Shaun Thompson, Len Matsunaga, our New
York attorney, and I went to Cancun to perform due diligence on the Royal
Resorts Group and their operations.After a most favorable visit, on August 1,
1997, the Board initiated a 3 year contract with the Royal Resorts Group.
Subsequent to that date, a new management, marketing and member service
agreement was signed by your Board and the Royal Resorts Group for ten (10)
years, effective 11/01/2000.
If you check the dates on the contracts, you will see a lapse in the old
contract versus the new contract. Royal Resorts Group ran the operations on a
good faith basis until the new contract could be executed by both parties.
A lot has happened in this timeframe, but it is important to point out that
Royal Resorts Group has had a positive influence on the success of the Pelican
Resort. We have had 14 Board members serving you, the owners, since 1996, and
yet the two constants we have are the employees and the Royal Resorts Group. The
rest is history!
To those internet critics who are quick to judge and criticize and who create
confusion by disseminating incorrect information, I say, "verify your facts". We
are going to respond to those critics with the facts.As a final point here are
the amounts owners have spent on Board expenses:
- Legal expenses $113.14 per owner for eight years, or $14.14 a year.
- Board expenses $31.39 per owner for eight years, or $3.92 a year.
Robert Ryan, December 7, 2004
"What Everyone Wanted to Know About Pelican But No One Would Tell You!"
Richard Sutton, AGM Meeting December 2004
• Royal Resorts and Pelican began their association eight years ago (Jan
1997). Like a good wine, with time the relationship has matured.
• In November 1996 the Board employed Dr.Keith Throwbridge PhD., who was
considered the father of timeshare in the early eighties, as the resort manager.
Keith wrote the first book on timesharing in 1981. The book, Resort Timesharing,
was published by Simon and Schuster and remains an excellent primer on the
industry today.
• Keith assisted the Board in the decision to employ ISCO to provide
membership services to Pelican members in January 1997.
• The former company, The Vacation Store, asked for a large service fee
increase. Francine Zukerman ran the Vacation Store and closed the doors Dec 31,
1996
• The Vacation Store shredded many of the documents with information on
Pelican owners. They had not updated the resort records for six months prior to
their closing the office. Owners did not have a level playing field as the
Vacation Store gave perks to some owners (they got two bedroom units when they
had purchased one bedroom units).
• Not all units were reported in the Pelican inventory by the Vacation Store
• The Board immediately directed ISCO to bill all owners and if they could
not prove they had paid any outstanding balances due to the resort, they were to
be foreclosed. There were 2600 foreclosures.
• Within a short period of time there were a total of 3400 unsold weeks on
the books not paying maintenance fees.
• Keith Throwbridge looked for a company to manage the Pelican Resort (Jan
19-22, 1997) and requested a few timeshare developers to visit St.. Martin.
• Robert Snow, from the local newspaper, asked Richard Sutton what he
thought. Mr. Sutton's response was that it would be a challenge but the resort
would come back.
• Jan 24, 1997 - Maria Deligiorgis, the attorney for ARDA, called Richard
Sutton. Asked if Mr. Sutton has seen the news article announcing that Pelican
had signed with Signature Timeshare Company since she was aware that the Royal
Resorts had recently been in talks with the Pelican. Subsequently it was learned
that the Pelican Chairman did not have the authority to sign the agreement and
Signature never operated the resort.
• Shortly thereafter it was announced that Dr. Throwbridge was no longer
managing Pelican.
• Owners were calling the United States Department of State about the Pelican
situation
• The State Department referred the calls to ARDA (American Resort
Development Assoc). ARDA asked Richard Sutton if he would help.
• Since the Signature contract did not become a reality, the Board
established a management team of the then existing department heads to manage
the resort.
• The senior department head was Lex Boon who was also the resort
comptroller.
• May 1997, the head of the maintenance department and two Board members came
to see Richard Sutton at the Royal Resorts in Cancun Mexico and asked for an
evaluation report on the resort.
• Royal Resorts reported that the resort needed a $5.4M upgrade. Cost of this
report was $30,000. Royal Resorts did not charge for this report. There were 32
units out of service, a lot of work and money would be required to put the
resort back in an acceptable operating condition.
• July 31, 1997, Royal Resorts signed the first contract for three years with
Pelican Resort. Automatically renewable for five years if Five Star or Gold
Crown status was achieved
• Sept, 2, 1997 Angel Estrada started at Pelican as resort manager
• At this time the salaries at the resort amounted to $540,000 per month
• The interior decorator alone was paid $6,000 a month
• Accounting system was not up to professional standards
• All employees were paid in cash
• There was no inventory control
• Each department had large amounts of cash to spend, large sums of money
went unaccounted
• Departments heads went off island to purchase supplies
• Royal Resorts did two reports: January `98 and May `98 (Value Added)
• Royal Resorts set up
• - accounting systems
• - inventory control
• - phone system
• - computer system (for $1 a year lease)
• - there were no training programs
• - low productivity and low moral
• Royal Resorts submitted a report in Jan 1998 - "Findings and Actions
Taken". Expressed concerning about financial position. The resort was
experiencing a $1.5m annual shortage due to unsold units. Obviously the resort
was not receiving the maintenance fees on these units.
• It was pointed out by the auditors that if the accounting firm KPMG had
installed the new accounting system they would have charged $300,000.
• Royal resorts provided 70 hours of training for employees in Cancun. They
did not charge for training, food or lodging for these employees. This would
have amounted to a $50,000 expense.
• By this date, Jan 1998, Pelican resort was in debt to Royal Resorts for a
total of $950,000. For unpaid management fees, non reimbursement of expenses,
and funds advanced to pay the resort suppliers and operating expenses.
• PCIP program was started to raise funds for improvements at the resort.
This was a membership investment program. It was tested from Jan to Feb 1998.
Based upon its strong acceptance, the program officially began in May 1998. This
program was based upon a Royal Resort investment concept utilized in 1982.
• May 27, 1998 KPMG did an unaudited report for Pelican because reliable data
was not available to do an audited report. Their findings were that the resort
in the 14 month period from Nov 1, 1996 to Dec 31, 1997 had lost $2.4 M.
• At the AGM meeting on May 29, 1998 the first open public break between
Pelican and the Royal Resorts surfaced. Due to the deteriorating financial
situation the Royal Resorts, supported by the Board Treasurer, recommended an
increase in the annual maintenance fees. Instead the Board adopted the PCIP with
the understanding that the first one million would be used to place the 32 units
back in service.
• December 1998 the Board sent to Royal Resorts a letter stating their
dissatisfaction with the Royal Resorts performance.
• 1999 was a very difficult year
• Royal Resorts decided not to seek a renewal of the contract with Pelican.
It was decided to make this announcement at the AGM which had been moved to New
York City in December 1999
• At that time the debt to Royal Resorts exceeded $3M.
• The meeting in New York City, although within two or three hours driving
time of thousands of resort members, was attend on the first day by 124 people
and on the final day by 140. At the request of the Board, a video of the total
meeting was made and subsequently was offered to the members at $10 a copy. Only
two copies were ever ordered. The total cost for the New York Meeting exceeded
$32,000.
• Prior to the second day of the AGM the Board Chairman learned that Royal
Resorts was going to announce that they were not planning to seek a renewal of
the contract. The Chairman requested that Royal Resorts reconsider their
decision in return for his pledge "to gain control of the Board," Royal Resorts
agreed to postpone their decision.
• At the New York meeting it was announced the debt owed to Royal Resorts was
more than $3M. Royal Resorts also announced that they were writing off $350,00
in interest due from the resort.
• Jan 14, 2000 the Board requested confirmation in writing of Royal Resorts
decision.
• Royal Resorts agreed to enter into contract negotiations but expressed
serious reservations regarding
• 1) the annual financial short fall,
• 2) unsold inventory,
• 3) unresolved debt to the trustees in bankruptcy,
• 4) and lack of cooperation.
• The perception of the unsold inventory between Royal Resorts and the Board
differed greatly. The Board considered the unsold inventory as an asset and
Royal Resorts considered the inventory (now close to 4000 intervals) as a
liability due to the non collection of maintenance fees. In the opinion of Royal
Resorts it would have been better to go into the street and give the intervals
away if an individual would promise to pay the maintenance fees for the next
three years.
• Due to the lack of sales of these unsold units, in July 2002, Royal Resorts
negotiate to purchase the block of unsold inventory for 55% of the project
retail market value.
• Friendly Island Properties , the ultimate purchaser of the intervals(FIP),
retained the votes. The current number of votes that Royal Resorts controls is
now 4004
• The difficulty in selling these weeks was due to the appearance of the
resort at the time and the lack of confidence in the resort.
• Why did Royal Resorts want to retain the voting rights? To guarantee to
future lenders that the resort would be stable and have good professional
management. Lenders want their money returned with the rent thereon - interest.
They do not want to operate a resort and the resort did not have a record of
stable management.
• In addition, once the Royal Resorts sold these timeshare weeks to their
members, the Royal's 25 year record of trust and confidence was implicitly made
a part of the purchase. A large majority of these weeks were sold to Royal
Resorts members, their friends, relatives, and other referrals.
• Royal Resorts agreed to place in the contract a bonus clause. If the weeks
sold at a price higher than the estimated retail value the resort would receive
55% of the increase. As a result of this clause the resort receive an additional
$1,270,489.00. The total funds received by the resort was $3,073,050 which was
used to off-set the outstanding debt to the Royal Resorts. After the sale only
$80,000 was still due to Royal Resorts. The net income( profit) from the results
of the sales program was $167,000 to Royal Resorts. In effect Royal Resorts gave
up sales of its own timeshare products in the amount of $5M for less than
$200,000.00 in net profit. Additionally the resort gained $1.7M in maintenance
fees that was collected at the time of sale.
• A new ten year contract was signed in Nov of 2000. From Nov 2000 to date
the PCIP funds have been put to use and there has been increased service to the
members. On the negative side the financial condition has worsened with a
growing annual short fall of funds and also the case of the Trustees in
Bankruptcy had not been resolved. The dues were increased in 2004 to off-set the
operating short fall but the interest on the PCIP, of approximately $600,000
annually, have to be borrowed with guarantees from Royal Resorts on an annual
basis.
• Royal Resorts had formalized control of the resort instead of putting
Pelican into bankruptcy to protect its ever growing financial support.
• At any point in time after the first six months of the management contract,
the Royal Resorts could have forced the Pelican into bankruptcy. The Royal
Resorts or any other timeshare developer could have purchased the resort by
paying the creditors demands. After investing another 10-15 million, the new
owner could have walked away with $50 million in pretax profit within a six to
seven year period.
• If Royal Resorts had not provided the continuing financial support, 13,000
to 14,000 owners would have lost their timeshare investment in beautiful St.
Martin.
• The management fee charged by most companies is 15%, Royal Resorts charges
Pelican 10%, which is the lowest in the industry
• If Royal Resorts had not stayed involved, any another company could have
purchased the resort, charged more for maintenance fees, special assessments,
etc.
• Royal Resorts have developed the plans for the new building at the resort,
the cost would have been $50,000 but Royal Resorts did the work in-house without
charge.
• Royal Resorts has two key principles in its relationship with clients and
employees - fairness and character
• There is only one way to solve the current financial condition of the
resort, and that is to EARN YOUR WAY OUT. The resort property is now free of
debt and available as collateral to finance the construction of the new units.
Account receivable financing for the timeshare sales will be very difficult, but
the Royal Resorts can assist with this problem.
• Building the 80 new units is the long term solution to the resorts
financial problem.
Richard Sutton's personal contributions to the Resort
• A11 was being sold but the resort didn't have the money to refurbish the
unit. This was formerly the managers residence. In December 1998 Richard Sutton
purchased 12 weeks for $187,200 with personal money at approximately $15,000 per
week. The funds were used to finish construction of the unit and it was
available for the first scheduled users..
• Richard Sutton bought an additional 29 weeks for a total of 41 weeks, a
$400,000 investment. Most of these weeks have been sold and Mr. Sutton has 11
weeks left. Since purchasing the intervals, the maintenance fee has amounted to
over $121,000. The rental income has amounted to less that $32,000 for the same
period. Not a very good business investment.
Richard Sutton, AGM 2004
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