EFTA01122423

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 1.11 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 execution of the Purchase Agreement and the First Closing, as follows: (a) Providing buyers with access to information; (b) Conduct its business in the normal course; (c) Preserve its business relationships, including retain SRM as property manager on substantially the same terms; (d) Maintenance of all insurance policies; (e) Absence of certain transactions or events without IGY's consent (not to be unreasonably withheld), including amendments to organic documents, issuances of equity, incurrence of debt, payment of salary increases or bonuses not contained within budget, changes to senior management, capital expenditures outside of budget, payments of distributions to shareholders (IGY may withhold consent if it believes that it would result in negative working capital at the First Closing), and taking any material action or waiving any rights or abandoning claims with respect to the litigation against Reuben Hoppenstein, Ohavta LLC and their affiliates regarding the potential acquisition of Isle de Sol. No Shopping: The Principals agree not to solicit, negotiate, entertain or accept any proposal with respect to the sale of any SRM, SRI or the partnerships. This broad no-shop provision will not be breached if employees below the general manager level for a property entertain a solicitation and the Principals immediately take corrective action and advise IGY. Also, the no-shop does not apply to the two properties which the Principals do not control — Village Cay and Virgin Gorda -- except that the Principals cannot vote in favor of such alternative transaction. In all cases, no person within the companies may entertain a transaction that involves a sale of the "enterprise" as a whole — SRI, SRM and/or all of the Target Assets. The document provides for a standard "fiduciary out" in favor of the Principals. However, if the Principals do receive a competing offer, they are required to consider the totality of the offer (price, terms and financeability) AND to allow IGY to match those terms by adjusting the provisions of the Purchase Agreement. IGY would be permitted to exclude a property if an alternative proposal is accepted for that single property, and is not obligated to match any alternative terms that the Principals deem to be superior. Island Global Yachting Ltd. • • Fort Lauderdale. FL 33301 Tel: • Fax: • www.islecap.com EFTA01122440 I SLAND 17 aLOBAL YACHTING Consents: The Principals agree to use commercially reasonable efforts to obtain all required third party consents to transfer the shares of SRI and SRM and the Principal Interests. IGY has the right to approve (and has already reviewed) all written materials to be submitted to third parties. Additionally, IGY has supplied a "backgrounder" for inclusion with the consent that generally describes its business and enables the limited partner to make an informed decision about the IGY shares that would be issued in the Transaction. New Businesses The Principals have agreed to give IGY the opportunity to review, or Assets: during a minimum 60-day period, any new asset or business that is acquired by them prior to the First Closing. This includes some assets recently acquired but not yet evaluated by IGY — including an option to develop some property in Freeport, Texas and a marina called Endeavor in Texas. Conditions The obligations of IGY Services and IGY Facilities to deposit funds Precedent: with the escrow agent are subject to certain conditions, including without limitation: (a) Accuracy of representations and warranties; (b) Performance of all covenants and agreements by the Principals; (c) Absence of litigation that could impair consummation of the Transaction; (d) Receipt of all consents; (e) SRM's deposit of redemption agreements from minority shareholders and all stock certificates; (f) No material adverse change to the companies or assets, except as disclosed in the financial statements or in the schedules to the Purchase Agreement, or resulting from general economic conditions; and (g) Each Principal having executed an employment agreement to be effective at the Seller Closing. The obligations of IGY Services and IGY Facilities to consummate the First Closing are subject to certain standard conditions, including without limitation: (a) Bring-down certifications of the accuracy of all representations and warranties and the same matters referred to above; (b) Execution of the Subscription Agreements related to the IGY shares; and (c) Execution by IGY Facilities and MOF VI Limited Partnership of a purchase and sale agreement for American Yacht Harbor marina, or completion of that transaction. Island Global Yachting Ltd. • • Fort Lauderdale. FL 33301 Tel: • Fax: • www.islecap.com EFTA01122441 I SLAND 18 eLOBAL YACHTING The obligations of the Principals to consummate the Transaction are subject to standard conditions including, without limitation: (a) Release of guarantees posted by the Principals or their affiliates (other than companies being acquired by IGY) for any debt related to the properties that are being acquired by IGY); (b) No event or condition having occurred that is not specifically disclosed in the Confidential Disclosure Statement, dated August 1, 2006, prepared by IGY and delivered to the Principals, which such event or condition has or could reasonably be expected to have a material adverse effect on IGY and its subsidiaries; (c) Execution by IGY Facilities of appropriate assignment and assumption documentation; and (d) IGY's delivery of a legal opinion from its Maples & Calder counsel. Excluded Between signing and the First Closing, IGY may exclude a marina Properties: facility from the Purchase Agreement if: (a) it is dissatisfied with the results of its due diligence for any reason; (b) the Principals fail to obtain any required consents; or (c) the Principals elect to accept an alternatively superior offer for such facility (in accordance with the no-shop provision). If any of Simpson Bay, Village Cay or Virgin Gorda (each a "Required Facility") are excluded from the deal pursuant to the above, then IGY may terminate the Purchase Agreement and abandon the Transaction. Additionally, if the Principals fail to deliver consents relating to Hurst Harbor, then IGY shall not be required to purchase any of the Texas assets - Hurst Harbor, Yacht Harbor, Canyon Lake/Cranes Mill and Lakeway Marina. If an asset is excluded following due diligence, IGY and the Principals have agreed to split equally all due diligence costs up to $50,000 per asset. Otherwise, IGY would pay for all diligence costs. Termination of The Purchase Agreement may be terminated at any time prior to the Agreement: First Closing (a) by mutual agreement of the parties, (b) by either party if (i) a material breach of a representation occurs and remains uncured for 10 days following written notice, (ii) the other party takes any action prohibited by the Purchase Agreement and it could result in a material adverse effect on the Principals, SRI, SRM or the partnerships and such action remains uncured for 10 days following written notice, (iii) the other party fails to furnish materials required by the agreement, or (iv) if any required third party consents cannot be obtained, but Principals' right is to not close on the asset, while IGY has right to terminate the agreement if it relates to a Required Facility (otherwise, it can exclude Island Global Yachting Ltd. • • Fort Lauderdale. FL 33301 Tel: • Fax: • www.islecap.com EFTA01122442 I SLAND 19 "IN IGLOBAL YACHTING the property from the Transaction as described above), (d) by either party after the 10'h business day following signing, or the 20" business day if extended by the Principals, if the materials have not been deposited into the escrow account, (e) by either party if the First Closing has not occurred by December 31, 2006, as such date may be extended for IGY to evaluate any new assets or businesses for a 60-day period; the Principals may extend this date to February 28, 2007 if consents are not yet obtained (provided it is not then in breach of the agreement) or (f) by IGY if the Principals accept a superior alternative offer to buy SRI and SRM or all of the assets. If the Principals accept a superior proposal to sell either (i) SRM and SRI and/or (ii) the Target Assets in one or a series of related transactions with any third party with whom they have discussions beginning after May 3, 2006, and such transaction is signed or completed within 6 months after the Purchase Agreement is terminated, then the Principals will pay IGY a break-up fee of $1.0 million. Indemnities by Principals agree to jointly and severally indemnify IGY Facilities, IGY the Principals: Services and their affiliates ("Buyer Indemnified Parties") for any loss, liability, claim, damage or expense (including costs of investigation and defense and reasonable attorneys' fees), whether or not involving a third party claim, arising directly or indirectly from the following: (1) Breach of any representation or warranty, or failure to perform any covenant or agreement, contained in the Purchase Agreement; (2) Any unauthorized statement by the Principals regarding IGY in the solicitation of limited partner consents; (3) Any inaccuracy in any closing working capital statement; (4) Any liability or the failure to perform any obligation (whether known or unknown) accruing, occurring, arising or related to the period on or prior to the First Closing, EXCEPT if (a) waived by Buyer Indemnified Parties in writing, or (b) if the event, occurrence or obligation giving rise to such liability is specifically marked by the Principals on the Schedules to the Purchase Agreement as being exempt from indemnification (nothing is on the schedule as of now); (5) Any conduct, action or inaction of any Principal, SRI, SRM or any partnership or any affiliate thereof occurring, arising or related to the period on or prior to the First Closing (whether known or unknown as of such date) or any circumstances related to the operation, management or ownership of any partnership or marina facility occurring, arising or related to the period on or prior to the First Closing, EXCEPT for the same carve-outs as in clause (4) above. Island Global Yachting Ltd. • • Fort Lauderdale, FL 33301 Tel: • Fax: • www.islecap.com EFTA01122443 I SLAND 20 aLOBAL -YACHTING The Wincipals will not have an indemnification obligation for losses arising from an environmental condition unless such losses arise from a breach of the Principals' representations and warranties. Additionally, the Principals will not have an indemnification obligation for losses that arise after the First Closing and relate to the continuance of any practice that was in effect prior to the First Closing. The Principals are individually (not jointly) liable for breaches of representations as to title to their Equity Interests being conveyed or authority to enter into the Agreement. The various limitations on these indemnity obligations are as follows: (1) Basket — Losses are not payable until they exceed $100,000 in aggregate, after which recovery is from the first dollar of loss. The basket does not apply to losses resulting from (a) fraud, (b) a material breach of a post-closing covenant and (c) an inaccuracy in the closing working capital statements. (2) Caps — Losses suffered or incurred by Buyer Indemnified Parties are available for indemnification by the Principals on a joint and several basis (except for the representations for which they are individually liable, as noted above). The aggregate losses for which any Principal may be liable is limited to the following caps: SRM + SRI: 50% of the net proceeds (after deduction for payments to minority shareholders) received by such Principal from his share of the $6 million gross purchase price allocable to these companies LESS $83,333 Partnership Interests: 100% of the net proceeds (including cash and IGY Shares) received by any Principal from his sale of the GP and LP (including Class B) interests in the partnership that owns the property in question PLUS one-third of the balance in the Seller Indemnity Escrow (see below) (3) Seller Indemnity Escrow — Of the amounts payable to the Principals at the First Closing, $500,000 will be deposited into an escrow account (the `Seller Indemnity Escrow"). This will be the first source of recovery for indemnity claims, except to the extent that a Principal elects to pay some of the claim with IGY shares (as per below). Any remaining funds available on the date that is 12 months following the First Closing will be released to the Principals; however, this amount Island Global Yachting Ltd. • • Fort Lauderdale. FL 33301 Tel: • Fax: • www.islecap.com EFTA01122444 SLAND 21 aLOBAL YACHTING will not be released until the date that is 18 months following the First Closing if the Tender Escrow (defined below) does not amount to at least $500,000. (4) Limited Partner Contributions to Indemnity — Upon completion of the tender offers, each Principal's cap for any property in question will be reduced by a prorated share of the amounts actually funded into escrow upon closing of the tender offers. It is anticipated that 10% of the proceeds payable in the tender offers would be deposited into the escrow account (the 'Tender Escrow"). Any remaining funds available on the date that is 21 months following the First Closing will be released to the limited partners. This will be the sole source of recovery from the tendering limited partners. (5) Indemnity Payments — For any claims related to the Principal Interests (i.e., in respect to the Target Assets or Sun Partnerships), a Principal may elect to pay up to 80% of the claim in the form of IGY Shares (or the same percentage of equity representing the Principal Interest Consideration paid at the First Closing). The value of the shares shall be the issuance price of $15/sh. (6) Survival Periods — An indemnity claim must be served on the Principals or the tendering limited partners within the time frames provided below. General Claims — Liability of Principals: 12 months from the First Closing; however, this will be extended to 18 months if the Tender Escrow does not equal at least $500,000, and in such case the aggregate liability of the Principals during such 6- month period will not exceed $500,000. General Claims — Liability of Tendering LPs: 21 months from the First Closing. Exclusions front Time Periods - Extended Liability of Sun Principals: (a) securities law claims relating to sale of partnership interests or stock in SRI and SRM prior to the First Closing — indemnity period is applicable statute of limitations ("SOL"), or 6 years if no SOU (b) title to shares owned by any Seller — applicable statute of limitations, or 6 yrs if no SOL; Island Global Yachting Ltd. • • Fort Lauderdale. FL 33301 Tel: • Fax: • www.islecap.com EFTA01122445 I SLAND 22 eLOBAL -YACHTING (c) existence of any undisclosed subsidiaries or investments, or undisclosed ownership — applicable statute of limitations, or 6 yrs if no SOL; (d) adjustments in the working capital statement — 12 months or 18 months, depending on whether the Tender Escrow is greater than $500,000. (e) taxes for pre-closing period — applicable statute of limitations (f) breach of post-closing covenants — 6 months after the effective conclusion of the covenant period, or the applicable statute of limitations (g) unknown claims relating to pre-closing periods - 2 yrs from First Closing (h) undisclosed liabilities relating to pm-closing periods (i.e., fraud) — applicable statute of limitations, or 6 yrs if no SOL Losses from any indemnifiable claims relating to a specific marina facility or property owner will be recoverable pro rata from amounts contributed to the Tender Escrow in respect of such facility or property owner. IGY's IGY Services and IGY Facilities agree to jointly and severally indemnify Indemnity the Principals for any loss, liability, claim, damage or expense (including Obligations: costs of investigation and defense and reasonable attorneys' fees), whether or not involving a third party claim, arising directly or indirectly from the following: (1) Breach of any representation or warranty, or failure to perform any covenant or agreement, contained in the Purchase Agreement; (2) Any material misstatement or omission in the written information regarding IGY that it provides for inclusion in the consent forms; (3) Any action or omissions by IGY or its affiliates in connection with the tender offers; (4) Any liability or the failure to perform any obligation (whether known or unknown) accruing, occurring, arising or related to the period after the first Closing, EXCEPT to the extent (a) arising from any continuation of any unlawful or wrongful business practice in effect Island Global Yachting Ltd. • • Fort Lauderdale. FL 33301 Tel: • Fax: • www.islecap.com EFTA01122446 I SLAND 23 eLOBAL YACHTING prior to the First Closing and not specifically listed as being wrongful or unlawful in any disclosure schedule, or (b) arising or occurring pursuant to any directive or omission of a Principal given or made after the First Closing; (5) Any conduct, action or inaction of IGY Facilities, IGY Services or any acquired company occurring, arising or related to the 6-year period after the First Closing (whether known or unknown as of such date) or any circumstances related to the operation, management or ownership of any partnership or marina facility occurring, arising or related to the 6-year period after the First Closing, EXCEPT for the same carve-outs as in clause (4) above; and (6) Any sale of a property underlying the Principal Interests acquired at the First Closing within the 3-year period following the First Closing. The maximum liability will be equal to simple interest at 5% per year on the amount of federal and state income taxes required to be paid by the Principals in respect of income recognized as a result of the sale of the property in question. The time period is from the date on which the income tax return is filed for the year of the breach through the date that a return would be filed if such sale had taken place after the 3' anniversary date of the First Closing. This is a common blackout period granted to a seller who receives equity interests as consideration due to the potential income that may be recognized by the seller as not being rolled into equity. Post-Closing Among other standard covenants, IGY Facilities agrees to commence Covenants: the tender offers within 180 days following the First Closing. IGY Facilities agrees to reimburse the Principals for certain expenses related to the claims made against Reuben Hoppenstein as follows: (a) Litigation expenses incurred through signing (approximately $75k) plus amounts incurred through the First Closing that are pre-approved by IGY Facilities; (b) $100,000 deposit posted by the Principals for the asset acquisition, but only if IGY Facilities actually purchases the property or such deposit is returned to IGY in connection with a settlement; (c) Approximately $32,000 of third party expenses incurred for the IDS acquisition, but only if IGY Facilities purchases the property or it is returned in settlement or resolution of the litigation; and (d) Approximately $66,000 of loan expenses, but only if IGY Facilities finances an acquisition of IDS with the same lender or it is returned in settlement or resolution of the litigation. Governing New York law will be applied and the venue for settlement of any Law: disputes will be New York. Island Global Yachting Ltd. • • Fort Lauderdale. FL 33301 Tel: • Fax: • www.islecap.com EFTA01122447 I SLAND 24 NIIISGLOBAL YACHTING IGY At the First Closing, IGY will enter into a subscription with each Subscription Principal in respect to the IGY Shares issued to such Principal as part Agreement: of the Principal Interest Consideration. The form of this agreement will be attached as an exhibit to the Purchase Agreement and contain the standard terms applicable to IGY share subscriptions, including, but not limited to, the following: (a) True and accurate disclosure contained in the Confidential Disclosure Statement specifically prepared for and delivered to the Principals prior to signing; (b) An agreement to provide the same reports that are provided to other shareholders of IGY (i.e., Island Global Yachting L.P., Island Global Yachting II L.P. and Island Global Yachting III L.P.); (c) An agreement to conduct the marina business exclusively through IGY; (d) No transfers of IGY shares without prior consent; and (e) Drag-along rights in favor of IGY if 75% or more of the Class A voting shares are proposed to be sold. Employment of Each Principal will enter into a one-year employment agreement with Principals: IGY Services at the First Closing. After one year, employment will be on an at-will basis. The agreement will provide for a salary of $300,000 per year, a discretionary bonus (if any) determined by the Board of Directors of IGY, and the ability to participate in IGY's option plan as determined in the sole discretion of the Board of Directors of IGY. The agreements will contain standard severance provisions if the Principals are terminated other than "for cause" prior to the one-year term. Additionally, IGY may (but is not obligated to) repurchase the IGY shares issued in the Transaction, and each Principal may (but is not obligated to) put his shares to IGY, in each case at $I5/sh under the following limited circumstances: (a) IGY may, repurchase 100% of the shares if a Principal is terminated for cause during the initial one-year term; (b) A Principal may put 100% of his shares prior to the 2nd year anniversary, and 50% of his shares thereafter and prior to the 3s year anniversary, if he is terminated other than "for cause" or quits "for good reason"; and (c) IGY may repurchase 100% of a Principal's shares prior to the 2nd year anniversary, and 50% of his shares thereafter and prior to the 3`1 year anniversary, if such Principal quits other than "for good reason". Each Principal will be subject to a two-year no-raid and a one-year non- compete (except Michael Olszewski, who will not have a non-compete). Island Global Yachting Ltd. • • Fort Lauderdale. FL 33301 Tel: • Fax: • www.islecap.com EFTA01122448 ‘SI SLAND 25 aLOBAL YACHTING IV. VALUATION ANALYSIS As described elsewhere in this Memorandum, IGY (through IGY Facilities or IGY Services) would purchase: (1) 100% of the stock of SRI; (2) 100% of the stock of SRM; (3) 100% of the general partner interests held by the Principals (directly or indirectly) in the Sun Partnerships that own the Target Assets; and (4) 100% of the limited partner interests held by the Principals (directly or indirectly) in the Sun Partnerships that own the Target Assets. IGY has separately contracted to purchase American Yacht Harbor (St. Thomas) for $25,312,500. Execution of an agreement for that property is a condition to IGY's obligation to close the Transaction. SRI and SRM The purchase price for the acquisition of SRI and SRM is $6 million in cash, of which $3 million will be allocated to SRM and the balance to SRI. If a traditional valuation analysis were applied, the SRM purchase price would be equivalent to a 7.7x multiple of net operating income budgeted for 2006, after subtracting $900,000 in salaries payable to the Principals. We also excluded all fees from the 2006 budget, except for management fees for operating the marinas. However, we do not believe that a traditional valuation is appropriate in analyzing the Transaction. SRM's value is inextricably tied to the equity interests in the Target Assets. Therefore, the value of SRM is enhanced by the fact that one can acquire the equity in the assets while also acquiring a management business that, historically, does not require material funding above the cash flow it generates from operations and fees. While SRM's management contracts are terminable on short notice, this is controlled entirely by the general partner of each of the Target Assets which, in each case, are controlled by the Principals. In addition, we believe there exists significant value inherent h the litigation claim filed against Reuben Hoppenstein with respect to the failed acquisition of Isle de Sol in St. Maarten. This property nearly was acquired by IGY in 2005 and represents a strategic location for the mega-yachts. IGY, through its management subsidiary (CMMC), has managed this property with some success — actual 2005 results show an approximate 100% increase in the bottom line over 2004 results. If included within the IGY portfolio, we believe there exists the potential for even more upside. Island Global Yachting Ltd. • • Fort Lauderdale. FL 33301 Tel: • Fax: • www.islecap.com EFTA01122449 I SLAND 26 \ M=IGLOBAL YACHTING In April 2006, SRI commenced an action against Reuben Hoppenstein and Ohavta LLC in state court in Dallas, Texas. In May 2006, that action was removed to and is currently pending in federal court in Dallas. SRI made a claim for specific enforcement of a binding agreement to acquire the property at a purchase price that would approximate an effective 9- 10% capitalization rate based on 2005 NOI. Counsel to IGY has advised that SRI would have a fair chance of proving its claim. To date, the defendants have attempted to dismiss the case on the basis that proper venue was in New York, not Texas, and that the complaint fails to state a claim because SRI failed to complete certain conditions to closing within the time frames prescribed by the purchase contract. The motion to dismiss was fully briefed by September 1, 2006 and it is expected that it will take between 60-90 days for the Court to rule on the motion. Counsel to IGY does not believe the Court will dismiss the claim on the merits and believes there is a reasonable probability that the case will remain in the Dallas courts for further proceedings. Strategic Considerations IGY is looking to expand its portfolio at a rapid pace, and this enterprise transaction offers an opportunity to acquire at least 8 operating marinas. IGY has established a strong presence throughout the Caribbean through various development sites, but currently only owns one operating marina in Cabo San Lucas. The addition of 3 operating marinas in the Caribbean would solidify IGY's market dominance in the region. Additionally, IGY believes there exists opportunity to expand its premium brand of luxury marinas to a market segment that includes owners of boats ranging from small to mid-size, such as the Texas marinas. Under the Transaction, IGY would acquire investment interests in 3 Caribbean assets that will immediately enhance its market position in the BVI and St. Maarten. The acquisition of Simpson Bay would increase IGY's presence in St. Maarten and potentially add pressure to a settlement of the Hoppenstein litigation. The BVI properties present interesting development opportunities and immediately establish IGY as a strong presence in the Virgin Islands. Finally, American Yacht Harbor, the acquisition of which is loosely linked to the Transaction, would supplement IGY's presence in St. Thomas and offer an opportunity for overflow from Yacht Haven Grande. The acquisition of the Target Assets, SRI and SRM also enables IGY to supplement its acquisition and operational functions. The Principals and their employees have established a strong track record of acquiring profitable marinas and generating positive returns for their investors. The Transaction offers the opportunity for IGY to supplement its acquisition platform with experienced investors in marina properties. In lieu of hiring talent through recruiting efforts, IGY can immediately supplement its acquisition team with experienced investors with a proven investing strategy. Furthermore, the Principals and their employees have focused on an acquisition strategy that is similar to IGY's strategy. In fact, IGY's Cabo acquisition is due in part to the efforts of SRI's acquisition group, and IGY continues to work in joint venture with SRI to review and evaluate new marina properties that have been Island Global Yachting Ltd. • • Fort Lauderdale. FL 33301 Tel: • Fax: • www.islecap.com EFTA01122450 SI SLAND 27 GLOBAL YACHTING offered for sale in locations strategic to IGY's business. Finally, SRM offers an operating platform that can be immediately integrated within the IGY operating entities. As a final consideration, the Transaction would remove a potential competitor to IGY. During negotiations, the Principals and their affiliates have often been involved in evaluating the same deals that IGY is exposed to through its network. This combination of the two companies may reduce the significant price pressures that exist in the market for the properties that IGY seeks to acquire (albeit, not in a material way) and, more importantly, enable IGY to supplement its existing resources and portfolio with a well-established platform of assets and management business. We believe the preceding strategic considerations present a compelling justification for the purchase price to be paid for the SRI/SRM component of the Transaction. Target Assets IGY undertook a comprehensive financial review of the Target Assets. Attachment A to this Memorandum contains a summary financial analysis (including estimated pay-outs n respect to the Principal Interests and Tender Offer Interests) of the Target Assets and independent reviews of each asset based on 2006 budgets supplied by the Principals and reviewed by IGY. Attachment B to this Memorandum contains pictures and short descriptions of each Target Asset. IGY's analysis was based on the 2006 budgeted numbers provided by SRI. IGY adjusted its valuation based upon a number of factors including (a) potential returns over various holding periods, (b) project cash flows based on 2006 budgeted numbers and (c) development opportunities at the properties not reflected in the cash flow projections. Included with the asset valuation analysis is a sensitivity analysis illustrating capitalization rates and unlevered and levered IRRs over 3, 5, 7 and 10-year holding periods for the assets. Island Global Yachting Ltd. • • Fort Lauderdale. FL 33301 Tel: • Fax: • www.islecap.com EFTA01122451 I SLAND 28 eLOBAL -YACHTING V. RISKS Any potential risks associated with the Transaction are substantially mitigated by the fact that IGY may terminate the Purchase if it is dissatisfied with its due diligence review of the Target Assets. Technically, IGY would be permitted to exclude an asset if due diligence proves unsatisfactory, but if the asset is one of the 3 Caribbean assets (Virgin Gorda, Village Cay or Simpson Bay) then the Purchase Agreement may be terminated. We would expect that individual investment memoranda for each Target Asset will be produced during the due diligence phase and all appropriate risks will be considered in that context. Island Global Yachting Ltd. • • Fort Lauderdale. FL 33301 Tel: • Fax: • www.islecap.com EFTA01122452 I SLAND 29 aLOBAL YACHTING VI. CONCLUSION SRI and its affiliates have embarked on a marina roll-up strategy that is similar to IGY's strategy. The Principals are experienced acquirers and operators of marina assets, and offer an operational platform that can be easily integrated within IGY's corporate structure. Although the price for SRM and SRI does not lend itself to a traditional valuation analysis, there are compelling strategic considerations that justify the price, including (a) the ability to acquire controlling and equity interests in a portfolio of marina properties, (b) the opportunity to supplement IGY's existing acquisition and operational platforms with a team that is familiar with marina acquisitions and operations and (c) the removal of a potential competitor to the IGY business plan. While integration of the Texas assets is of uncertain value to IGY, by executing the Purchase Agreement, IGY will be able to immediately conduct due diligence of these assets for a 90-day exclusive period. This right to terminate the Purchase Agreement should IGY become uncomfortable with the Target Assets is probably the most compelling reason to execute the agreement now. Island Global Yachting Ltd. • • Fort Lauderdale. FL 33301 Tel: • Fax: • www.islecap.com EFTA01122453 I SLAND aLOBAL YACHTING ATTACHMENT A Summary Financial Analysis; Independent Property Reviews Island Global Yachting Ltd. • • Fort Lauderdale. FL 33301 Tel: • Fax: • www.islecap.com EFTA01122454 I SLAND fl LOBAL -YACHTING ATTACHMENT B Pictures and Descriptions of Properties Island Global Yachting Ltd. • • Fort Lauderdale. FL 33301 Tel: • Fax: • www.islecap.com EFTA01122455