On 22 March, 2017, the following letter and resolutions were submitted by registered mail by a member of the VCC on behalf of the CIOG to the Secretary of the Club, Mr. Robert Reyes of Embarc Members Association.  As the VCC did last year, prior to the Special General Meeting (SGM) last June, the VCC  has prepared 5 resolutions to be included and voted on electronically in the action of the Club to hold an election for the independent director position.  As per the Club's bylaws, 3.12 & 4.2 any member can bring such business to be tabled and voted on when any action is taken by the Club, including an election  Therefore the VCC expects that the resolutions will be included in the notice of and voting that will take place in connection with the forthcoming election.

 

We urge all members to read the letter and resolutions and their rationale for requesting specific changes to our Embarc Club's governing documents  which control the operation of our Club.  The VCC and CIOG continue in our quest for fairness for members in the operation of Embarc.

 

We hope that when the election process is announced for the independent director the 5 resolutions will be included for a vote by members.  Please support the interests of all members of Embarc by voting for Konrad Kawalec and the resolutions when the time comes to vote.  Help us help you the members to obtain fairness in the operation of our Club.

CIOG Resolutions

March 14th, 2017

 

 

Embarc Members Association

The Landing, 375 Water St., Suite 326

Vancouver, BC

V6B 5C6

 

Attention:         Secretary of The Club

                        Mr. Robert Reyes

 

Subject:           Member Request for business to be added to the Election Dear Mr. Reyes

Given that the notice for request for nomination for candidates for the independent director position was sent by email by Embarc on February 24, 2017 with a closing date of March 10, 2017, it is assumed that this election will take place within the next three to six months. Therefore, I am writing to you as a Member pursuant to sections 4.2 and 3.12 of the Restated Bylaws of Embarc to have the following business be brought forward and included in the action of the Club to hold an election for the independent director position.

 

Resolution #1

 

To amend, TABLE 13, Sixth Amended and Restated Bylaws of Embarc and Certificate  of Incorporation, dated July 25, 2016, clause 4.2.3, Cumulative Voting, wherein it states, “that at least one (1) Director shall be elected solely by the Voting Power residing in Members other than the Declarant” to read

 

“that at least two (2) Directors shall be elected solely by the Voting Power residing in Members other than the Declarant”

 

Rationale for the resolution to amend TABLE 13, Sixth Amended and Restated Bylaws of Embarc and Certificate of Incorporation, dated July 25, 2016, clause 4.2.3,  Cumulative Voting.

 

The current composition of the Board of Directors does not adequately serve the interests of the membership at large for the following reasons;

 

  1. Three of the five directors are employees of the Declarant/Developer, Diamond Resorts International: Ms. Sarah Hulme, Mr. Ronan O’Gorman, and Mr. Robert Reyes.

  2. Although director, Mr. James Orr is a Club member, the declarant/developer can vote for this fourth director position, providing an unfair advantage to the declarant, who has 15 times the voting power of members.  Voting is based on a weighted factor, member = 1 vote for 15 points and declarant/developer = 1 vote for every unsold point. The declarant/developer use their unfair voting power to elect a member of their choice. This results in this director position being beholden and bias to the declarant/developer. This director position is not a truly independent director position because of the ability for the declarant/developer to cast their vote. This unfair voting advantage was evidenced in the 2016 election for two director positions on the board, where clearly, by the sheer number of votes Mr. Konrad Kawalec won the election but because the declarant/developer could vote, the weighted vote for the two DRI employees, resulted in Mr. Kawalec coming in third.

 

Candidate                          Count                     Weight

 

Trevor Bruno                      461                        256,929                  DRI employee

 

Ronan O’Gorman               394                        255,681                  DRI employee

 

Konrad Kawalec                1411                        38, 868                  random member

 

Edwin M. Bell                        91                          1,811                    random member

 

 

  1. Given the role of the manager and its broad discretion, having two members of the Board comprised of independent (non-declarant voting) Members helps to have the interests of the Club and the manager better aligned. 

  2. In the Unanimous Written Consent of the Special Committee of the Board of Directors of Club Intrawest, dated December 31, 2015, by Directors Smith and Orr, Section V, Decision and Recommendations indicates

 

(a) Increase Club Member representation on the Board of Directors. Given the role of the manager and its broad discretion, having a majority of the Board comprised of independent Club Members helps ensure the interests of the Club and the manager are well aligned and helps boost membership perceptions of the Board and the value of membership. This shift also could help ease Club Members’ concerns about the transition to Diamond. IRCG holds 3.6% of the Club’s Resort Points (with preferential voting, currently 36% of the vote) and

three of the Board’s five seats are occupied by IRCG employees. Club Members could be given the opportunity to replace a Board Member with an independent Club Member. Alternatively, the Club’s bylaws permit the board size to increase to seven, so the Club could add two seats to the Board so the Club Members could elect two more, for a total of four.”

 

In summary, the current composition of the Board of Directors does not adequately reflect independence from management and is unable to demonstrate oversight in the development and performance of internal control, a current requirement of COSO (Committee of Sponsoring Organizations of the Threadway Commission) 2013 Integrated Framework. COSO is the standard used to hold for profit and public sector Boards of Directors registered in the US to account.

 

Resolution #2

 

To amend TABLE 13, Sixth Amended and Restated Bylaws of Embarc and Certificate  of Incorporation, dated July 25, 2016, Article IV, Board of Directors, Section 4.1, Number, Term and Qualification, to change the composition of the Board of  Directors from five (5) persons to seven (7) persons, with these two (2) new positions categorized as “Independent Directors”, elected solely by the Voting Power of the Resort Point Members,

 

Rationale for the Special Resolution to Amend By-law 4.1

 

The current composition of the Board of Directors does not adequately serve the interests of the membership at large for the following reasons:

 

 

  1. Three (3) (Sarah Hulme; Ronan O’Gorman; and, Robert Reyes) of the five (5) Directors are employees of the Declarant/Developer (Diamond Resorts International).

  2. Of the two (2) remaining Director positions only one is officially independent, as indicated in the BC Disclosure Statement, article 3.9(c)(ii), a seat held currently by Mr. Kenneth Smith.

  3. Although Mr. Smith’s seat is considered independent, he is in a conflict of interest, as the company Traner Smith & Co., PLLC, where he is a principal owner, provides Financial Services to the Board of Directors. This conflict removes his ability to be independent.

  4. Although the Board has suggested that Mr. James Orr’s position is independent (as he is not a DRI employee), the Club instruments state otherwise; Mr. Orr’s position can be voted on by both the Declarant and Members. The imbalance between the Declarant vote (1 vote/1 point) to the

 

Member vote (1 vote/15 points) makes it impossible for this position to be independent.

  1. TABLE 13, Sixth Amended and Restated Bylaws of Embarc and Certificate of Incorporation, dated July 25, 2016 ARTICLE IV. BOARD OF DIRECTORS, Section 4.1 “allows for the number of Directors to be increased or decreased from time to time by an amendment to these By-Laws; provided, however, that the Board shall be comprised of at least five (5) but no more than seven (7) persons, and the Board shall at all times be comprised of an odd number of Directors.” 

  2. In the Unanimous Written Consent of the Special Committee of the Board of Directors of Club Intrawest, dated December 31, 2015, by Directors Smith  and Orr, Section V, Decision and Recommendations indicates “(a) Increase Club Member representation on the Board of Directors. Increase Club Member representation on the Board of Directors. Given the role of the manager and its broad discretion, having a majority of the Board comprised of independent Club Members helps ensure the interests of the Club and the manager are well aligned and helps boost membership perceptions of the Board and the value of membership. This shift also could help ease Club Members’ concerns about the transition to Diamond. IRCG holds 3.6% of the Club’s Resort Points (with preferential voting, currently 36% of the vote) and three of the Board’s five seats are occupied by IRCG employees. Club Members could be given the opportunity to replace a Board Member with an independent Club Member. Alternatively, the Club’s bylaws permit the board size to increase to seven, so the Club could add two seats to the Board so the Club Members could elect two more, for a total of four.”

 

 

Resolution #3

 

To amend, TABLE 13, Sixth Amended and Restated Bylaws of Embarc and Certificate  of Incorporation, dated July 25, 2016, clause 12.2, Membership Records, wherein it states,

“provided however, that the Club shall initiate a mailing to members upon the request of any member, if the purpose of such mailing, in the Board’s discretion, is to advance a legitimate Club business, or interest (such as proxy solicitation) and the Member who requests such mailing reimburses the Club in advance for the Club’s actual costs in performing the mailing” to read:

 

“provided however, that the Club shall initiate a request to members upon the request of any member, by electronic (e-mail) means, if the purpose of such e- mail is to advance a legitimate Club Business or interest and the Member who requests such distribution of an e-mail reimburses the Club for the Club’s actual costs in performing the task to send an e-mail.”

 

Rationale for the resolution to amend TABLE 13, Sixth Amended and Restated Bylaws of Embarc and Certificate of Incorporation, dated July 25, 2016, clause 12.2, Membership Records.

 

The current clause as stated does not adequately serve the interests of the membership at large for the following reasons;

 

  1. In several cases, the Board of Directors, DRI and Embarc have used e-mail as the method of choice when communicating with members including for official matters such as the payment of dues and the 2017 elections. If such official matters are advantageously dealt with by email, it is disingenuous to force Club members to use ordinary mail to communicate with each other as it results in a clear double standard for no rational reason.

  2. The control exercised by the Board of Directors of a not-for-profit club with respect to communications between members is debilitating and does not allow members to collaborate and develop an informed opinion of Club business, interests and operations.

  3. Clause 12.1, Notices, TABLE 13, Sixth Amended and Restated Bylaws of Embarc and Certification of Incorporation, dated July 25, 2016 clearly make allowances for communication and correspondence with Members via first class mail, postage pre-paid, facsimile or e-mail. In fact, Members receive information consistently from the manager by e-mail. Clause 12.2 is in conflict with 12.1, which provides options for communication with Members. Clause 12.2 is written with the intent to make it cost prohibitive for a Member to request a message be sent to members that advances a legitimate Club business or interest because the only option available to said member is through a “mailing” through the postal service.

  4. Moreover, the Board of Directors currently controls and censors messages because clause 12.2 stipulates that a judgement of whether a matter of business is legitimate or not is “in the Board’s discretion”.

 

In summary, clause 12.2, Membership Records, is in conflict with clause 12.1, Notices. Clause 12.2 allows for members to provide approval to share their contact information with other members in the case of a member’s request to communicate with other members to advance a legitimate Club business or interest. It behoves the Manager to provide members with the opportunity to determine for themselves if they agree/disagree for the Manager to release their contact information to another member for communications as it relates to advancing legitimate Club business or interest.

 

Resolution #4

 

To amend, TABLE 13, Sixth Amended and Restated Bylaws of Embarc and Certificate  of Incorporation, dated July 25, 2016, Article III, Club Meetings, Section 3.6.1, Three Classes of Members, so that all members, Resort Point Members, Declarant and Advantage Members have equal voting rights.

 

Section 3.6.1 (i), (ii) and (iii) to be deleted in their entirety and replaced with the following wording;

 

“Section 3.6.1, Class of Members, the Club will have three classes of Members that includes, Resort Point Members, Declarant and any appointees and Advantage Members.

 

  1. Resort Point Members shall be entitled to one (1) vote for every resort point shown on the Member’s Membership Certificate,

 

  1. The Declarant and any appointees shall be entitled to one (1) vote for each of the Declarant’s Resort Points and the Declarant’s Advantage Interests,

 

  1. Advantage Members shall be entitled to one (1) vote for every resort point shown on the Member’s Membership Certificate.

 

 

Rationale for requesting the amendment to the By-law

 

The Board of Directors operates to ensure the club is run in the best interests of the majority of the point owning members. The current arrangement skews in favour of a single class of owner with unrealistic opportunity for challenge.

 

  • When Club Intrawest was first incorporated, most of the points were owned by the declarant. The declarant at this stage carried significant risk, and included the declarant class of voting rights to mitigate that risk. The members owning ‘Resort point class’ points has been over 90% of all points for many years and therefore the risk to the declarant is no longer present. With the risk removed, the mitigation should also be removed.

  • As the declarant is able to have three members of it’s staff on the board of directors, most discussions will have overwhelming board member support

 

(3 positions out of 5 total) and as such it is unreasonable for it to have a 15:1 advantage in voting in addition.

 

In summary, the current class of members’ structure related to voting conflicts with the structure of a not-for-profit organization, which was established to create a Club of Members.  The unfair voting structure does not support the membership but serves the corporate entity, Diamond Resorts International, which controls the Board of Directors of the club with the intent to increase profits for the corporation.

 

Resolution #5

 

To put to a vote by Members other than the Declarant the renewal of the Restated Management Agreement pursuant to art. 6.1 of the Sixth Amended and Restated Bylaws of Embarc by asking such Members to vote on the following question:

 

“Diamond Resorts IW Holding Company, part of the management company arm of Diamond Resorts International (DRI)” (according to Embarc Member web site) is the current Manager of Embarc. Are you in favor of renewing or not  renewing the Restated Management Agreement with DRI when it is up for renewal on January 1, 2018.

 

______ Not renewing

 

______ Renewing”

 

Rationale for requesting this vote: The Restated Management Agreement (“RMA”) explicitly provides for the non-renewal of the RMA without cause at arts. 2. 5 and 6.1(e) of the RMA, subject to a 90 days’ notice of non-renewal issued by the Club to the Manager. There is therefore no need to justify a non-renewal without cause.

However, the rationale for not renewing is explained below.

 

Since the take-over of the management agreement by Diamond Resorts IW Holding Company there has been a considerable decline in the review ratings by members/guests. What was once a 5 star review rating as Club Intrawest on January 1, 2016, as of March 16, 2017, the Embarc Facebook page which replaced the Club Intrawest page now states that the review rating is 1.8.  Over 73% of the reviews are rated at 1 or as noted in the comments would have been 0 but selecting 0 rating as a review is not a permitted choice. Based on comments in the review area and visitor posts on the Embarc Facebook there is clear dissatisfaction with the current Manager with respect to customer service, problems with the reservation system, system errors when booking, system outages, member updates which are more focused on sale of new points, unexplained interest charges showing up on Member’s accounts, loan payments taken from bank accounts incorrectly and sometimes in duplication, lack of transparency and clear communications. Overall comments and reviews indicate an overwhelmingly dissatisfied Member base.

 

 

Furthermore, since DRI took over the RMA and acts as Manager of Embarc, there has been hundreds of documented cases where the new DRI reservation system has  been failing members in basic ways, for example, failure to accurately display vacation units’ availability. The Manager has been notified in hundreds of cases of these failings and, to date, these deficiencies have not been corrected. These cases are documented in an over 2,900 members closed Facebook group of Embarc members. There is more than enough evidence in these cases to terminate with  cause pursuant to art. 6.1(d) of the RMA. However, it is considered more prudent and in the best interests of DRI and Embarc to end the RMA amicably, hence the choice of putting the renewal of the RMA to a member vote under the Embarc governing documents noted above.