Ultimate Escapes Seeks To Become Member Owned

By: Destination Club News
Date: September 10, 2010

"We are in crisis."

Those calculated words led a webcast last night conducted by Ultimate Escapes CEO and President Jim Tousignant with club members as the world's second largest destination club looks to recover from a disastrous 2009 and 2010. The combination of slow sales and a weak real estate environment amongst other things have contributed to the club being in default of their loan agreement with lender CapitalSource. The luxury destination club has failed to make their interest payments since June and have been unable to maintain a minimum cash balance as outlined by CapitalSource, leading to the signing of a forbearance agreement last month.

With the forbearance agreement coming to an end today, Ultimate Escapes spoke to their club members about how they plan to navigate the club into the future by converting the club into a member-owned entity.

"When you look at Ultimate Escapes today, I think one way to describe it truly is a tale of two cities," Tousignant stated as he discussed how the club came to be in this predicament. "These are, from some perspectives, the best of times. We have successfully completed three major acquisitions in three years, we've navigated an extremely difficult economic recession, particularly the last 24 months. The business has grown from zero members to become the second largest club in the world with over 1,100 members, and most recently, went public in October of 2009 and stays the first and only public destination club. The business may now, after several years of working to reduce our operating costs and improve our revenue profile, be able to operate at a near break-even level, particularly as a result of more than $20 million in annual cost reductions over the past 24 months."

"However, these are also the worst of times. The worst global economic cycle in more than 75 years. The worst global real estate cycle in certainly decades. Overall hospitality and destination club industries, where sales are still relatively weak and there is not great visibility on that picture changing. We operate today with limited cash available to operate the club, growing accounts payable and accrued liabilities. We've recently just engaged this part of a forbearance agreement, we signed a Chief Restructuring Officer that was hired to help improve operations and explore strategic alternatives."

"The company has the potential need to file a bankruptcy filing as early as this Monday, September 13, 2010," Tousignant would add.

A group of several individuals, both inside and outside of the club, are actively working with CapitalSource to determine the amount of capital needed moving forward, with estimates ranging from between $15 million on the low end up to $30 million on the high side. With this in mind, Ultimate Escapes is considering five different options:

• Conversion to a member-owned club
• Permanent annual dues increase
• Merger with another club or hospitality firm
• Sale of the club
• File for bankruptcy

Tomorrow, we will outline each of these five in greater detail, but Tousignant stressed throughout the meeting their favoritism of the member-owned plan.

"We believe the conversion to a member-owned club makes a lot of sense. That by converting the club to a member-owned club, particularly outside of a bankruptcy proceeding, we believe makes the most sense as it aligns the shareholder interests, including members now, and it provides all members with a majority ownership of the club, and could provide future upside potential once the economy begins to recover."

In this design, approximately 750 members would need to pay a one-time assessment called the "Equity Club Conversion Fee" which would provide each member the right, but not the obligation, to convert their non-equity membership into equity.

Since estimates for the club's required funds range between $15 million and $30 million, Ultimate Escapes outlined two different options. At the $15 million target, Premiere Club members would pay a one-time fee of $15,000. Signature Club members would be responsible for a $20,000 one-time fee and Elite Club members would pay $25,000. At the $30 million target, all of these fees would double, meaning Premiere Club members would pay $30,000, Signature Club members would pay $40,000, and Elite Club members would pay $50,000.

"Obviously this plan would be subject to applicable securities law and members who participate would be able to convert both the Equity Club Conversion Fee they pay one time and convert their entire existing Redemption Assurance Program, otherwise known as RAP, amounts into common stock of the company Ultimate Escapes, Inc.," Tousignant described. "This gives members the opportunity to truly control the business including having the ability to elect a majority of the Board of Directors of the company."

Tousignant has asked that members vote in a preliminary poll to determine their interest levels and hopes to deliver the results to CapitalSource, believing that they will be more likely to continue to fund an operating plan if such a conversion is a viable option. Full details of the plan are scheduled to be provided to members next week, including "detailed operating budgets and other materials."

"We need your support," Tousignant concluded. "All members should actively support this program purely out of personal self interest, preserving your lifetime membership and continuing to enjoy great club vacations as I know many of you for many years have already enjoyed and we really do want you to continue to enjoy them for many years to come with your family and friends, as well as preserving all of your existing reservations and providing the ability to continue to book new reservations."

With or without the support of members, the fate of Ultimate Escapes resides with CapitalSource. Any plan created by the club needs approval from the lending giant and despite Ultimate Escapes dedication to the member-owned plan, CapitalSource will continue to evaluate all of their options.

We have our own take on this member-owned structure that we will discuss tomorrow, but we want to hear from members directly. If you would like to discuss this announcement, please contact us at contribute@destinationclubnews.com to voice your opinion.