EFTA01122423.pdf

I SLAND GLOBAL YACHTING INVESTMENT COMMITTEE MEMORANDUM ACQUISITION OF SUN RESORTS INTERNATIONAL, INC., SUN RESORTS MANAGEMENT, INC. AND INVESTMENT INTERESTS IN MARINA PROPERTIES September 14, 2006 Island Global Yachting Ltd. • • Fort Lauderdale. FL 33301 Tel: • Fax: • www.islecap.com EFTA01122423  I SLAND eLOBAL -YACHTING TABLE OF CONTENTS I. EXECUTIVE SUMMARY 1 II. DESCRIPTION OF SRI A ND ITS OPERATIONS 4 HI. SUMMARY TRANSACTION TERMS 11 IV. VALUATION ANALYSIS V. RISKS ATTACHMENTS Attachment A — Summary Financial Analysis; Independent Property Reviews Attachment B — Pictures and Descriptions of Properties Island Global Yachting Ltd. • • Fort Lauderdale, FL 33301 Tel: • Fax: • www.islecap.com EFTA01122424  I SLAND aLOBAL - YACHTING I. EXECUTIVE SUMMARY Island Global Yachting Ltd. ("IGY") is seeking investment committee approval and ratification of a proposed transaction (the "Transaction") with Sun Resorts International, Inc. ("SRI"), Sun Resorts Management, Inc. ("SRM") and their principal controlling stockholders, John D. Powers ("Powers"), Ronald W. Rhoades ("Rhoades") and Michael S. Olszewski ("Olszewski" and, together with Powers and Rhoades, the "Principals"). SRI seeks to make strategic investments in marina properties that provide stable initial returns with the opportunity to enhance yields through diligent and efficient management and comprehensive operational strategies. SRI, through its investment entities, currently has a portfolio of 1 I marinas located in Texas and the Caribbean (the "SRI Asset Portfolio"). All of the properties owned or controlled by SRI or its investment entities are operationally managed by SRM. As part of the Transaction, IGY would intend to purchase investment interests in 8 of the 11 marinas comprising the SRI Asset Portfolio. These 8 assets (the 'Target Assets") are comprised of one marina property in St. Maarten (Simpson Bay Marina), two marina properties in the British Virgin Islands (Virgin Gorda Yacht Harbour and Village Cay Marina), three marina properties located on Lake Travis, Texas (Yacht Harbor Marina, Hurst Harbor Marina and Lakeway Marina) and two marinas located next to each other on Canyon Lake, Texas (Canyon Lake Marina and Crane's Mill Marina). IGY has elected not to purchase VIP Marina in Lake Travis, Texas due to its potential cash flow problems and smaller market. IGY has not yet evaluated Endeavor Marina located in %abrook, Texas, which was recently acquired by SRI, but will do so during the pre-closing period. IGY is separately contracting to purchase American Yacht Harbor located in St. Thomas, USVI as a stand-alone asset. This asset is 90% owned and basically controlled by the Steere Group, one of the largest investors in SRI partnerships. We believe a direct purchase of this asset is a more effective way to gain control given the Steere Group's initial resistance to the structure of the Transaction that had been negotiated between IGY and the Principals. Instead of negotiating to acquire the Principals' partnership interests and then the Steere Group's interests at a later date (as described below), IGY will negotiate directly with the Steere Group to buy 100% of this asset. Execution of a purchase agreement for American Yacht Harbor is a condition to IGY's obligation to close this Transaction. IGY will enter into a Purchase, Sale and Contribution Agreement (the "Purchase Agreement") with the Principals that would provide for the Transaction to occur in two stages, as follows: In the first stage (the "First Closing"), • Island Global Yachting Services Ltd. ("IGY Services") would acquire 100% of the outstanding capital stock of SRM for a purchase price equal to $3,000,000 (the `SRM Consideration"). Island Global Yachting Ltd. • • Fort Lauderdale. FL 33301 Tel: • Fax: • www.islecap.com EFTA01122425  I SLAND 2 NIIflGLOBAL YACHTING • Island Global Yachting Facilities Ltd. ("IGY Facilities") would acquire 100% of the outstanding capital stock of SRI for a purchase price equal to $3,000,000 (the 'SRI Consideration"). • IGY Facilities would acquire all of the direct and indirect general and limited partner interests in the entities that own the Target Assets (collectively, the "Sun Partnerships") held by the Principals (collectively, the "Principal Interests") for a purchase price that is derived from an agreed upon valuation for the Target Assets (the Principal Interest Consideration"). These valuations are set forth at the end of this Executive Summary and discussed in more detail in Sections III and IV of this Memorandum and in Attachment A hereto. The Principal Interest Consideration would be payable 20% in cash and 80% in Class B non-voting shares of IGY ("IGY Shares") valued at $15 per share. • Each of the Principals would be employed by IGY Services for a one-year term following the First Stage Closing, subject to continued employment thereafter on an at- will basis. In the second stage (the "Second Closing"), • Within 180 days of the First Closing, IGY Facilities would agree to commence a series of tender offers (the 'Tender Offers") to acquire the limited partner interests in the Sun Partnerships (the 'Third Party Interests") for a purchase price that is based on the same property valuation as used in computing the Principal Interest Consideration (the "Tender Offer Consideration"). • The Tender Offer Consideration would be payable 30% in cash and 70% in Class B non- voting shares of IGY valued at $15 per share. However, the per share valuation would be increased if IGY completes an equity financing at a higher per share valuation prior to the Second Closing, in which case the limited partners would have the option to receive 100% cash. • Holders of Third Party Interests in three of the assets — Yacht Harbor, Hurst Harbor and Lakeway Marina — would have the option of receiving 100% cash. This was agreed to accommodate the Steere Group, which owns significant stakes in each of these assets. The First Closing would be conditioned upon (1) IGY completing its due diligence investigation of the Target Assets and (2) SRI and the Principals obtaining all third party consents required to effect the First Closing, including from the limited partners in and lenders to each of the Partnerships. If IGY is not satisfied with its due diligence of any asset, or consent is not obtained, then IGY would not acquire any Principal Interests or Third Party Interests in such asset. IGY may terminate the Purchase Agreement and Island Global Yachting Ltd. • • Fort Lauderdale. FL 33301 Tel: • Fax: • www.islecap.com EFTA01122426  SI SLAND 3 aLOBAL YACHTING abandon the Transaction if it is unwilling (following due diligence) or unable (due to failure of consents being obtained) to acquire any of SRI's Caribbean assets. This does not include American Yacht Harbor, which will be purchased separately; however, execution of a definitive purchase agreement for this asset is a condition to IGY's obligations to close the Transaction. IGY will undertake its due diligence review of the Target Assets immediately following execution of the Purchase Agreement. A table containing the list of Target Assets, locations, agreed upon valuations for the Transaction and ownership stakes held by the Sun Partnerships are listed below: Target Assets Third Party Asset Location Valuation Owner Control Yacht Harbor Lake Travis, TX $ 8.500,000 MOF Yacht Harbor. LP Steere Group - 40% Hurst Harbor Lake Travis, TX $18,000,000 MOF Hurst Harbor. LP Steere Group - 80% Simpson Bay Sint Maarten $10,000.000 MOF Simpson Bay, LP None Canyon Lake & Canyon Lake, TX $10,625.000 MOF Canyon Lake LP None Cranes Mill Virgin Gorda Virgin Gorda. BVI $16.000.000 Virgin Gorda YH (MOF III) LP (1) None Village Cay Tortola. BVI $14,000,000 Village Cay_(MOF III ) LP (2) None Lakeway Lake Travis. TX $ 8.000,000 LW Marina Partners LP Steere Group - 4095 Notes (I) Owns 25% of Virgin Yacht Harbour Holdings Limited, a BVI company that owns the asset. (2) Owns 33.3% of Village Cay Marina Enterprise Limited, a BVI company that owns the asset. Island Global Yachting Ltd. • • Fort Lauderdale. FL 33301 Tel: • Fax: • www.islecap.com EFTA01122427  I SLAND 4 G LOBAL YACHTING II. DESCRIPTION OF SRI AND ITS OPERATIONS SRI Overview SRI is a marina investment company founded in 1996 that makes strategic investments in quality marina properties throughout the world that satisfy a particular market niche. The primary investment strategy is to make investments that provide stable initial returns with the opportunity to enhance yields through diligent and efficient management and comprehensive operational strategies. SRI, through its investment entities, currently has a portfolio of 11 marinas located in Texas and the Caribbean. These marinas have over 3,000 boat slips that include wet slips, dry slips, covered slips, and uncovered slips. SRI marinas can accommodate boats ranging from small ten foot boats to mega yachts over 200 feet in length. According to its website, SRI marina investments exhibit the following characteristics: • Location - Acquisition candidates for the SRI portfolio are situated in superior waterfront locations on dynamic water recreation locales. SRI properties are typically surrounded by established resorts or affluent residential communities. SRI's market focus is on existing marina facilities around the world, with a primary regional focus on the Southem United States and the Caribbean SRI's portfolio has capitalized on in-depth market research covering retirement and leisure trends and favorable economic climates in target areas. SRI marina investments are thoroughly researched for long term viability in a variety of economic conditions. • Barriers to Entry - The current environmentally-conscious legislative climate and well-documented over-utilization of the United States' most popular inland lakes and coastlines have created an atmosphere where new development is strictly limited by regulation and a lack of developable waterfront sites. Various moratoriums have been enacted to prevent the development of additional waterfront boating facilities. • Demand for Boat Slips - Over 68 million Americans continue to participate in recreational boating each year. Between 1999 and 2002, total retail sales on boating increased 39% to $30.3 billion. Demand for recreational boating has created a capital growth environment within the marina industry that was unseen in previous decades. As more luxury boats are introduced to the water, the availability of boat slips is quickly diminishing and new marina development is closely controlled. According to Boat US the country's largest recreational boat-owners' association, the number of boats have grown by 300,000 since 2001, while supply of boat slips has remained steady. In select markets, the demand for recreational boating and the short supply of slips should sustain the long term economic strength for marina slip rentals and various other ancillary profit centers. • Operational Excellence - All SRI portfolio assets are professionally managed by SRM, an SRI company with a proven track record for successful hands-on marina operation. Superior marketing plans for increased consumer/boat traffic, inventory controls for ship store retail and service department profit centers, overhead and Island Global Yachting Ltd. • • Fort Lauderdale. FL 33301 Tel: • Fax: • www.islecap.com EFTA01122428  SLAND 5 eLOBAL YACHTING labor streamlining, and automated accounting systems are integral to SRM's bottom- line approach to operations management. • Benefit of Experience - While the management of each marina investment presents its own unique set of challenges, SRI brings years of experience with successful operations from the existing portfolio and a staff of seasoned operators. SRI Management belongs to numerous industry associations including the Marina Recreation Association, National Marine Manufacturers Association, Marina Operators Association of America, and the International Marine Institute. • Superior Returns - Compared with the returns offered by traditional multi-family, office, or retail investments, the returns of the real estate-related marina business are more compelling, and in many aspects offer less risk than comparable sized real estate investments. SRI mitigates risk through experience, management expertise, and scrutinized underwriting. SRI marina investments have consistently provided higher returns than typical real estate investments. • Unexploited Marketplace / Inefficient Market - While marina portfolio growth is hampered by inherent market inefficiencies, it is also slowed by the lack of institutionalized sellers and long-entrenched brokerage service firms. This factor presents an opportunity for SRI to capitalize upon one of its competitive advantages: institutional acquisition techniques coupled with entrepreneurial speed. Garnered from the acquisition of a variety of marina types, long-held lender relationships, and advanced financing options, SRI pursues marina investments with unparalleled effectiveness in an inefficient market. Key Personnel IGY has agreed to purchase SRI and its affiliated companies from its founders and key principals. The three Principals are Johnny Powers, Ron Rhoades and Michael Olszewski. John D. Powers, JD Managing Director Mr. Powers currently serves as Managing Director of SRI and President of SRM. Johnny Powers was also one of three founding members of Harvard Property Trust Inc., which was a Texas-based private real estate investment trust. From 1996 through 1998, Harvard acquired over $200,000,000 of suburban office buildings located in Texas and Minnesota. Mr. Powers has been responsible for over $300,000,000 of acquisitions for Harvard Property Trust, SRI and related entities. Mr. Powers and his partners have also been responsible for raising over $100,000,000 of equity capital for Harvard Property Trust, SRI and related entities. Mr. Powers has developed and maintained outstanding relationships with numerous accredited individual investors, who have invested in various ventures in which he is a principal. Mr. Powers also has strong relationships with institutional equity investors and lenders. Island Global Yachting Ltd. • • Fort Lauderdale. FL 33301 Tel: • Fax: • www.islecap.com EFTA01122429  'SSLAND 6 eLOBAL YACHTING Mr. Powers received his luns Doctor in 1992 from the University of Texas. Prior to attending law school, he graduated magna cum laude from Southern Methodist University obtaining a Bachelor of Business Administration degree in Real Estate and Urban Land Economics and Finance. Mr. Powers has also completed 30 hours towards his Masters of Business Administration degree from Southern Methodist University. Mr. Powers is a member of the Texas State Bar Association, National Marine Manufacturers Association, Marina Operators Association of America, and the International Marine Institute. Mr. Powers is also a member of the Young Entrepreneur's Organization and the Bent Tree Bible Church. He is also a graduate of the Transformational Leadership Program. Ron W. Rhoades, CPA Managing Director Ron Rhoades is a managing director and was one of the founders of SRI. He currently is primarily responsible for all financial and operational activities for the Companies and its subsidiaries, providing strategic financial and structural analysis for the Companies as they grow. Since the formation of SRI, he has been responsible for placing over S50,000,000 in loans for acquisitions and refinancings. He has also developed an investment structure for the various acquisitions that utilizes preferred and common equity at the individual entity level and investor lines of credit at parent company level. Previously, Mr. Rhoades was one of the founders of Harvard Property Trust, a private Real Estate Investment Trust formed in 1996 where he served as CFO/COO and on the Board of Directors. He directed all the financial activities for the Company and its sponsored investments and had primary responsibility for the placement of $125,000,000 in loans, including bank debt, syndicated lines of credit, and securitized loans. Additionally he had primary responsibility for the placement of $55,000,000 in private and institutional equity into the Company. From 1987 until joining Harvard Property Trust, L.P., he operated his own independent accounting and financial consulting firm. This firm specialized in providing CFO functions for various companies including the numerous Harvard Property Trust, L.P. sponsored investments and Linx Data Terminals, Inc. (LINX) a company engaged in various facets of the computer industry. Prior to this, he served as Vice President Operations of three restaurant companies where he was responsible for initial opening and all day-to-day operations of multiple restaurants in three states. Prior to this time, Mr. Rhoades was a loan officer for Continental Mortgage Investors (CMI), a mortgage REIT, where he was one of the leading loan producers for CMI for the Southwestern region. Mr. Rhoades has a master's degree from the University of Texas where he graduated with honors; Mr. Rhoades was in the top 10 of his graduating class. He is a Certified Public Accountant and currently holds a Texas Insurance License and a Texas Real Estate License. He previously held both a Certified Financial Planner license and a Registered Investment Advisor license. He is married to Connie and has two children, Bill and Stephanie. Island Global Yachting Ltd. • • Fort Lauderdale. FL 33301 Tel: • Fax: • www.islecap.com EFTA01122430  I SLAND 7 'IlflGLOBAL YACHTING Michael S. Olszewski, CMC Managing Director Mr. Olszewski currently serves as one of the Managing Directors of SRI and President & Chief Operating Officer of SRM. He currently is responsible for the overall leadership of the company, including overseeing marina operations; research, development and quality assurance; marketing, sales and member services; and administrative activities performed by SRM. He also participates in the strategic planning regarding the growth of the company and expanding its base of operations through the exploration of new ventures and acquisitions for investment by SRI. Prior to joining SRI in January, 2005, Mr. Olszewski spent twenty-four years in the practice of management consulting for Price Waterhouse, PricewaterhouseCoopers, and IBM Business Consulting. He was a partner at Price Waterhouse for over sixteen years practicing business process improvement and information technology consulting in a wide variety of industries including government travel and leisure, transportation, consumer products, and energy. He served as Managing Partner of the firm's North America Energy practice for over 6 years and has been responsible for leading substantial growth in a number of practices over the course of his career. He has participated in numerous business and technology improvement implementation projects resulting in substantial efficiencies for large complex organizations. Prior to joining Price Waterhouse, Mr. Olszewski held Assistant City Manager and Community Development specialist positions in St. Louis County, Missouri. Mr. Olszewski retired from IBM Business Consulting Services in December 2004 in order to contribute his substantial business management expertise to Sun Resorts International's growth. Mr. Olszewski received his bachelor and masters' degrees in Business and Public Administration from the University of Missouri; and, holds past accreditation from the Institute of Management Consulting (Certified Management Consultant - CMC) and the Association for Systems Management. He is a member of St. Cecilia Catholic Community in Houston, where he is active as a member of the parish's Stewardship Committee, as well as various other parish and community activities along with his wife. He and his wife Cindy currently reside in Houston with their two daughters, Pamela and Katherine. He is a long time recreational and charter boater and has taken a variety of U.S. Power Squadron, U.S. Coast Guard Auxiliary, and American Sailing Association training courses. Financial Results and Asset Evaluation SRI conducts its operations primarily through SRM, which functions as the entity that performs all day-to-day operations for the SRI Asset Portfolio. SRI acts as the general partner of some of the asset-level partnerships, and in other cases owns a controlling interest in the "Marina Opportunity Funds" ("MOF Entities"). The MOF Entities own limited Island Global Yachting Ltd. • • Fort Lauderdale. FL 33301 Tel: • Fax: • www.islecap.com EFTA01122431  'SSLAND 8 eLOBAL YACHTING partner interests and general partner interests in the asset-level partnerships. There are three primary MOF Entities - MOF I, MOF II and MOF III. The MOF Entities raised equity from friends and partners. These funds sponsor partnerships that own property and pay a promoted interest to the Principals in the form of Class B partner interests (typically 60-70% after a 12% return). The MOF Entities typically would contribute 10%-20% of the equity toward an asset and the substantial investors would put up the balance. Typical promote structures are provided in the property partnerships (30% after a 10% return is common). The MOF Entities receive a promoted interest in addition to their direct investment interest in the asset-level partnership. Since virtually all of the underlying partnerships under MOF I and MOF II have achieved return of capital and preference returns through mostly refinancings, the MOF funds and the Principals are very much in the money. The SRI Asset Fbrtfolio is located primarily in the northeast Caribbean and Lake Travis, Texas. The two concentrated areas allows for economies of management. Personnel in the two major areas are charged to the properties, and travel by home office personnel to the properties are allocated to the properties. The Principals own SRI, SRM and equity interests approximating $6 million in the MOF Entities. Without American Yacht Harbor, as contemplated by the Transaction, the equity interests would be approximately $3.2 million. SRM is difficult to value. In 2005, it generated approximately $100,000 after bonuses of about $350,000. It is a "C" corporation in which the Principals try to keep $100,000 working capital and pay out the balance in bonuses. However, it does more than management — about $600,000 in revenues in 2005 consisted of acquisition fees and refinance fees. SRM pays the salary and bonuses of the Principals and also functions as profit vehicle from the fees it generates in new acquisitions. The Principals control the MOF Entities and typically direct the operation of the assets. However, the Steere Group, which represents Crown family money, owns approximately 90% of American Yacht Harbor (St. Thomas, USVI), 80% of Hurst Harbor, 40% of Yacht Harbor and 40% of Lakeway (all 3 are on Lake Travis). The relationship with Steere is characterized as good, considering that Steere really controls its partnerships. IGY determined early in the transaction that it was more beneficial to buy American Yacht Harbor directly as an asset, rather than through its existing partnership. Accordingly, IGY has entered into a separate term sheet to acquire that asset for $25,312,500 and has conditioned the First Closing upon reaching a binding agreement to acquire this asset. The Steere Group controls budgets, tax returns any changes in interest held by the MOF funds, Principals or managers affecting their properties. The Principals do not control the two British Virgin Island entities — Virgin Gorda and Village Cay. These are controlled by Sage (a BVI Investment Company), and SRI and the MOF Entities hold a collective 25% or 33% minority interest in these entities. For various reasons, these properties must remain majority owned by BVI nationals. Island Global Yachting Ltd. • • Fort Lauderdale. FL 33301 Tel: • Fax: • www.islecap.com EFTA01122432  I SLAND 9 aLOBAL YACHTING MOF I controls American Yacht Harbor, which is controlled by the Steere Group. As mentioned above, IGY Facilities has entered into a letter of intent to acquire this asset directly for $25,312,500 and is currently negotiating a purchase agreement for this property. MOF I also holds a note receivable of $1.5 million from the sale of a marina, which IGY Facilities would not acquire. MOF II also involves the Steere Group and controls Yacht Harbor and Hurst Harbor, two assets located on Lake Travis, Texas. IGY Facilities would only acquire both assets if it could acquire Yacht Harbor. In connection with the deal for American Yacht Harbor, the Steere Group has indicated it would consent to IGY's acquisition of the two Texas assets at the agreed upon values of $18 million for Hurst Harbor and $8.5 million for Yacht Harbor. MOF III has the minority interests in the BVI properties, the controlling interest in Simpson Bay located in St Maarten, and the Canyon Lake and VIP properties on Lake Travis. IGY has determined not to acquire VIP because of its limited cash flow potential. SRM is the primary operating entity for the SRI Asset Portfolio. This is a low-cost operation that handles all day-to-day operations of the enterprise. While the operation is profitable, the Principals must generate acquisition and refinance fees to generate meaningful profits and bonuses. Subtracting each Principal's salaries of $300,000 per year (the same amount payable by IGY in the Transaction) from 2006 budget, historical results of operations for 2003, 2004 and 2005, and budgeted results for 2006 are as follows: Island Global Yachting Ltd. • • Fort Lauderdale, FL 33301 Tel: • Fax: • www.islecap.com EFTA01122433  SLA ND 10 aLOBAL 1.111 l YACHTING Actual/Budget* Actual Actual Actual 2006 2005 2004 2003 Revenue Mgt Fees $ 756,573 $693,688 $528.850 $522,132 Asset Mgt Fees $ 137,861 $113,903 $96,106 $81,396 Admin Fees $ 220,000 $240,000 $240,000 $230580 Accounting $24,000 $78,250 $52350 Acquisition Fees $ 91.250 $497.055 $50.000 Construction Mgt Fees Finance Fees $ 63350 $107.000 $30.000 Other $ 9.821 $188319 Set up Fees $25,000 Interest Income $2,340 $1.485 Total Revenue $ 1,279,255 $1,891,305 $993,206 $918,343 Payroll $ 628,033 $ 815,052 $ 664,943 Operating Expenses $ 234,242 $ 1,793,505 321,223 $ 180,319 Depreciation $ 14,808 $ 14,802 $ 14,802 Federal Taxes $ 11,000 $ 194 10,763 Total Operating Expenses $ 888.083 $ 1,793,505 $ 1.151,271 $ 870,827 Net Income $ 391.172 $ 97,800 $ (158,065) $ 47,516 * Actual January through June and Budget July through December. Principal salaries of $900.000 have been deducted from 2006 payroll. Island Global Yachting Ltd. • • Fort Lauderdale, FL 33301 Tel: • Fax: • www.islecap.com EFTA01122434  I SLAND 11 aSGLOBAL YACHTING III. SUMMARY TRANSACTION TERMS Acquirers: Island Global Yachting Facilities Ltd. ("IGY Facilities") and Island Global Yachting Services Ltd. ("IGY Services") Sellers: John D. Powers, Jr. ("Powers"), Ronald W. Rhoades ("Rhoades") and Michael S. Olszewski ("Olszewski") Transaction: Acquisition of: (I) All of the issued and outstanding capital stock of Sun Resorts International, Inc. ("SRI"), a Texas corporation; (2) All of the issued and outstanding capital stock of Sun Resorts Management, Inc. ("SRM") a Texas corporation; (3) All of the general partner interests in the partnerships (the `Sun Partnerships") that own the targeted assets (the "Target Assets"); (4) All of the limited partner interests in the Sun Partnerships that own the Target Assets which are owned by the Principals (together with the general partner interests in number (3), the "Principal Interests")• and (5) Subject to acceptance of the terms offered by IGY pursuant to tender offers, the limited partner interests in the Sun Partnerships that owns the Target Assets which are owned by third parties (the "Third Party Interests"). Staged The Transaction would be closed in two stages. In the first stage, (1) Closings: IGY Facilities would acquire SRI, (2) IGY Services would acquire SRM and (3) IGY Facilities would acquire the Principal Interests (the "First Closing"). In the second stage, IGY Facilities would seek to acquire the Third Party Interests (the 'Second Closing"). IGY Facilities would be obligated to commence the second stage within 180 days following the first stage closing. Consideration: SRI and SRM would be acquired for an aggregate cash payment of $6.0 million. This cash payment would be decreased by the net current liabilities on the SRI and SRM balance sheet at the closing date, or increased by the net current assets of each company as of such date. It is contemplated that both companies would be transferred with zero net working capital. For tax allocation purposes, the parties have Island Global Yachting Ltd. • • Fort Lauderdale. FL 33301 Tel: • Fax: • www.islecap.com EFTA01122435  I SLAND 12 aLOBAL YACHTING agreed to allocate the purchase price $3.0 million to SRI (the `SRI Consideration") and $3.0 million to SRM (the `SRM Consideration"). The Principals would be responsible for delivering all of the outstanding capital stock of each of SRI and SRM that is held by third party shareholders. The sale of SRM and SRI would each be on a "net zero" balance sheet basis. Prior to the First Closing, the Principals would prepare a Working Capital Statement showing net working capital of zero. An amount equal to any net negative working capital balance would be paid to IGY Services at the First Closing from the proceeds deposited into the escrow account described below, and the balance would be paid to the Principals in equal one-third portions. The Working Capital Statement would be subject to further adjustment at or prior to March 31, 2007 to correct for any deficiencies not known at the First Closing. Any adjustments in IGY's favor would be subject to an indemnity claim and funded from the Seller Indemnity Escrow (as described below). The consideration for the Principal Interests would be determined by the net equity interests derived from the valuation for each property that IGY elects to acquire following due diligence. The valuation for each of the Target Assets has been agreed as follows: Property Debt at Property Valuation Sept.30. 2006 Yacht Harbor 8.500.000 (4.060.000) Hurst Harbor 18.000.000 (6,523.000) Simpson Bay 10.000.000 (3,377,000) Village Cay 14.000.000 (6,925,000) Virgin Gorda 16.000.000 (9,400,000) Canyon Lake/Crane Mills 10,625,000 (7,131,400) Lakeway LOOn 000 (3 743 000) Totals $ 85.125,000 (41.159.400) Net Equity $ 43,965,600 For example purposes only: Assuming IGY elects to acquire all of the Target Assets, the total net equity value in the assets is $43,965,600 based upon property-level debt through September 30, 2006 (i.e., including scheduled payments made in the beginning of Sept.) and waterfall provisions in each of the partnership agreements. At the First Closing, the total consideration in respect to the Principal Interests (the "Principal Interest Consideration") would be approximately $3,260,901, of which approximately $652,180 would be paid in cash (20%) and the Island Global Yachting Ltd. • • Fort Lauderdale, FL 33301 Tel: • Fax: • www.islecap.com EFTA01122436  I SLAND 13 eLOBAL YACHTING balance in IGY Class B non-voting shares ($15/sh) ("IGY Shares"), or approximately 173,915 shares. Using the same assumptions, the total consideration payable at the Second Closing in respect to the Third Party Interests (the "Tender Offer Consideration") would be approximately $40,704,699, of which approximately $12,211,410 would be paid in cash (30%) and the balance in IGY Shares, or approximately 1,899,553 shares. 77w Tender Offer Consideration may be further adjusted if (a) IGY conducts an equity financing at a price that is higher than $15/sh, entitling the offerees to accept such higher valued stock or elect 100% cash or (b) the Steen Group elects to receive 100% cash on behalf of all offerees for Hurst Harbor, Yacht Harbor and Lakeway. Prior to the First Closing, the Principals would also prepare a closing statement for each of the underlying partnerships relating to the Principal Interests to be acquired by IGY Facilities. These closing statements would show all current assets (including cash, collectible A/R not more than 90 days past due, prepaid expenses and useable inventory) ("Credits") and current liabilities (including A/P, accrued expenses and prorated bonuses and known contingent liabilities). In addition to current liabilities, the closing statements would show the remaining unexpended portion of budgeted 2006 capital expenditures, any known capital expenditures in excess of budget for the year and any principal debt incurred after signing (together with the current liabilities, "Debits"). If Credits exceed Debits at the First Closing, as agreed by IGY, then SRI or the Sun Partnership will be permitted to distribute excess cash to the limited partners. Each closing statement would be subject to further adjustment and correction on or prior to March 31, 2007, and any discrepancy in favor of IGY would be subject to an indemnity claim and funded from the Seller Indemnity Escrow and Tender Escrow (as defined below). The amounts distributable in respect to the Principal Interests will be estimated based upon the property valuations and placed on a schedule attached to the Purchase Agreement. If there are any permitted distributions to equity holders or scheduled or unscheduled principal payments on outstanding debt between signing and the First Closing (in each case, as approved by IGY), then amounts distributable to the Principals would be adjusted based on the waterfall distribution provisions of each applicable organization document. Escrow: IGY and each of the Principals would deposit certain items into an escrow account until IGY has completed its due diligence investigation of the Target Assets, the requisite third party consents are obtained and certain other conditions to closing have been satisfied. Island Global Yachting Ltd. • • Fort Lauderdale, FL 33301 Tel: • Fax: • www.islecap.com EFTA01122437  I SLAND 14 aLOBAL YACHTING Immediately upon signing the Purchase Agreement, the Principals would enter into binding agreements with the minority shareholders of SRI and SRM to redeem the shares held by them at the First Closing. The Principals would have 10 business days to secure these agreements, with the right to extend for an additional 10 business days. Upon obtaining these agreements, the following would be deposited with IGY's counsel to be held in escrow until the First Closing: The Principals would deposit: (i) stock certificates for all SRM shares; (ii) redemption agreements signed by the minority shareholders of SRM, to be effective at the First Closing; (iii) stock certificates for all SRI shares; and (iv) a redemption agreement from the one minority shareholder of SRI, to be effective at the First Closing. IGY Services would deposit $3.0 million in the escrow account. All interest earned on these funds would be for IGY's account. The date upon which the items above are deposited with the escrow agent is referred to as the `Escrow Deposit Date". Representations Each Principal would severally and not jointly make certain and Warranties representations as to the shares of SRM and SRI and Principal Interests of Principals: (the "Equity Interests") held by him: (a) Unencumbered and lien-free ownership of the Equity Interests; and (b) Full legal right, power and authority to enter into the Rirchase Agreement and perform the obligations. The Principals would collectively make the following representations and warranties, on a joint and several basis, as to each of SRI, SRM and each partnership and real property asset underlying the Principal Interests to be acquired by IGY: (a) Organization, good standing and qualification to do business in each applicable jurisdiction; (b) Record ownership of the Equity Interests and the absence of any options, rights or other agreements to acquire the interests in any of the subject companies; (c) List of all subsidiaries and valid issuance of securities held in any subsidiary; (d) True, accurate and complete copies of financial statements for each company for 2003, 2004, 2005 and the six-month period ended June 30, 2006; Island Global Yachting Ltd. • • Fort Lauderdale. FL 33301 Tel: • Fax: • www.islecap.com EFTA01122438  I SLAND 15 GLOBAL -YACHTING (e) True, accurate and complete list of all outstanding debt for each company; (f) True, accurate and complete list of all accrued fees payable to each company; (g) No material changes to the business or liabilities since the date of the June 30 financial statements; (h) Filing of tax returns, timely payment of taxes and absence of audits; (i) Lien-free title to personal property; (j) List of any owned and leased properties (in addition to marinas); (k) No knowledge of material maintenance or repairs not fully budgeted for any company; (I) Delivery of all materials in their possession to enable IGY to conduct its due diligence. (m) Accounts receivable in the ordinary course; (n) Lack of material inventory or supplies; (o) True and correct list of insurance policies and absence of cancellation or intent not to renew such policies; (p) Possession of permits and licenses; (q) Material contracts and commitments; (r) No changes in policies of customers or suppliers; (s) Labor, Benefits and Employment Agreements; (t) No conflicts or breach of statutes or documents; (u) Compliance with laws; (v) Litigation; (w) Intellectual property; (x) Bank accounts (y) Compliance with environmental laws and no known violations, to sellers' knowledge; (z) No improper payments or bribes; and (a) Investment intent with respect to IGY shares All representations as they relate to Village Cay and Virgin Gorda, neither of which are controlled by the Principals, are made with knowledge of sellers (in respect to their investment interests and in their capacity as a manager of the property). Representations IGY has made the following customary representations and warranties: and Warranties (a) Organization, good standing and qualification of buyer entities; of ICY: (b) Due authority to enter into Purchase Agreement and transactions; (c) Valid and binding agreement; (d) No conflicts or breach of statute or contract; and (e) Purchase of Principals Interests for investment Other IGY representations are made in the Subscription Agreement as Island Global Yachting Ltd. • • Fort Lauderdale. FL 33301 Tel: • Fax: • www.islecap.com EFTA01122439  I I SLAND 16 aLOBAL YACHTING to the shares being issued in respect to the Principal Interest Consideration. Covenants: The Principals agree to cause SRI, SRM and the partnerships that they control (i.e., excluding Village Cay and Virgin Gorda) to comply with certain covenants customary for transactions of this type between the date of