-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E///NY81H8Slbt2uLzThAhiQpqbAOPAfLv01UE5NTnEFQX5vHNzCvNGm0pQKc14Z k54brIpFDSqgJxgiI07paA== 0000950136-06-003256.txt : 20060428 0000950136-06-003256.hdr.sgml : 20060428 20060428062900 ACCESSION NUMBER: 0000950136-06-003256 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20060428 DATE AS OF CHANGE: 20060428 GROUP MEMBERS: JOHN D. ZIEGELMAN GROUP MEMBERS: MAGNETAR FINANCIAL LLC GROUP MEMBERS: NEW WORLD OPPORTUNITY PARTNERS II, LLC GROUP MEMBERS: NWFP I LLC GROUP MEMBERS: ZIEGELMAN PARTNERS, L.P. SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: SUNTERRA CORP CENTRAL INDEX KEY: 0001016577 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE DEALERS (FOR THEIR OWN ACCOUNT) [6532] IRS NUMBER: 954582157 STATE OF INCORPORATION: MD FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-47333 FILM NUMBER: 06787031 BUSINESS ADDRESS: STREET 1: 3865 W CHEYENNE AVENUE STREET 2: BUILDING NO. 5 CITY: NORTH LAS VEGAS STATE: NV ZIP: 89032 BUSINESS PHONE: 702-804-8600 MAIL ADDRESS: STREET 1: 3865 W CHEYENNE AVENUE STREET 2: BUILDING NO. 5 CITY: NORTH LAS VEGAS STATE: NV ZIP: 89032 FORMER COMPANY: FORMER CONFORMED NAME: SIGNATURE RESORTS INC DATE OF NAME CHANGE: 19980722 FORMER COMPANY: FORMER CONFORMED NAME: KGK RESORTS INC DATE OF NAME CHANGE: 19960611 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: CD CAPITAL MANAGEMENT LLC CENTRAL INDEX KEY: 0001271084 IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 2 N RIVERSIDE PLAZA SUITE 600 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3124663239 MAIL ADDRESS: STREET 1: 2 N RIVERSIDE PLAZA SUITE 600 CITY: CHICAGO STATE: IL ZIP: 60606 SC 13D/A 1 file001.htm FORM SC 13D/A

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

SCHEDULE 13D/A

Under the Securities Exchange Act of 1934
(Amendment No. 4)*

SUNTERRA CORPORATION

(Name of Issuer)

COMMON STOCK, $0.01 PAR VALUE

(Title of Class of Securities)

86787D 20 8

(CUSIP Number of Class of Securities)

CD Capital Management LLC
2 North Riverside Plaza, Suite 720
Chicago, Illinois 60606
Attention: John Ziegelman
Telephone: (312) 466-3226

(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)

with copies to:


Greenberg Traurig, LLP The Metlife Building 200 Park Avenue New York, NY 10166 Attention: Clifford E. Neimeth, Esq. Telephone: (212) 801-9200				Greenberg Traurig, LLP 77 West Wacker Drive Chicago, Illinois 60601 Attention: Peter H. Lieberman, Esq. Telephone: (312) 456-8400

April 27, 2006

(Date of Event which Requires Filing of this Statement)

If the filing person has previously filed a Statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D and is filing this Schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box.

Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 240.13d-7(b) for other parties to whom copies are to be sent.

*The remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

The information required on the remainder of this cover page shall not be deemed to be ‘‘filed’’ for the purpose of Section 18 of the Securities Exchange Act of 1934 (‘‘Act’’) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).

(PAGE 1 OF 10 PAGES)


CUSIP No. 86787D 20 8	SCHEDULE 13D/A	Page 2 of 10 Pages


1.	NAME OF REPORTING PERSON: CD Capital Management LLC

I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
31-1816593


2.	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP

(a)

(b)


3.	SEC USE ONLY


4.	SOURCE OF FUNDS


5.	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e)


6.	CITIZENSHIP OR PLACE OF ORGANIZATION

Delaware


11.	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

999,206


12.	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES


13.	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)


	5.1%	OF COMMON STOCK⁽¹⁾


14.	TYPE OF REPORTING PERSON


	IA,	OO


(1)	Based on 19,719,896 shares of Common Stock of Sunterra Corporation outstanding on February 6, 2006.

(PAGE 2 OF 10 PAGES)


CUSIP No. 86787D 20 8	SCHEDULE 13D/A	Page 3 of 10 Pages


1.	NAME OF REPORTING PERSON: John D. Ziegelman

I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)


2.	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP

(a)

(b)


3.	SEC USE ONLY


4.	SOURCE OF FUNDS


5.	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e)


6.	CITIZENSHIP OR PLACE OF ORGANIZATION

United States


11.	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

1,024,206


12.	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES


13.	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)


	5.2%	OF COMMON STOCK⁽¹⁾


14.	TYPE OF REPORTING PERSON


(1)	Based on 19,719,896 shares of Common Stock of Sunterra Corporation outstanding on February 6, 2006.

(PAGE 3 OF 10 PAGES)


CUSIP No. 86787D 20 8	SCHEDULE 13D/A	Page 4 of 10 Pages


1.	NAME OF REPORTING PERSON: Magnetar Financial LLC

I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
04-3818748


2.	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP

(a)

(b)


3.	SEC USE ONLY


4.	SOURCE OF FUNDS


5.	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e)


6.	CITIZENSHIP OR PLACE OF ORGANIZATION

Delaware


11.	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

782,000


12.	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES


13.	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)


	4.0%	OF COMMON STOCK⁽¹⁾


14.	TYPE OF REPORTING PERSON


(1)	Based on 19,719,896 shares of Common Stock of Sunterra Corporation outstanding on February 6, 2006.

(PAGE 4 OF 10 PAGES)


CUSIP No. 86787D 20 8	SCHEDULE 13D/A	Page 5 of 10 Pages


1.	NAME OF REPORTING PERSON: New World Opportunity Partners II, LLC

I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
42-1681457


2.	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP

(a)

(b)


3.	SEC USE ONLY


4.	SOURCE OF FUNDS


5.	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e)


6.	CITIZENSHIP OR PLACE OF ORGANIZATION

Delaware


11.	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

290,122


12.	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES


13.	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)


	1.5%	OF COMMON STOCK⁽¹⁾


14.	TYPE OF REPORTING PERSON


(1)	Based on 19,719,896 shares of Common Stock of Sunterra Corporation outstanding on February 6, 2006.

(PAGE 5 OF 10 PAGES)


CUSIP No. 86787D 20 8	SCHEDULE 13D/A	Page 6 of 10 Pages


1.	NAME OF REPORTING PERSON: NWFP I LLC

I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
20-3708673


2.	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP

(a)

(b)


3.	SEC USE ONLY


4.	SOURCE OF FUNDS


5.	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e)


6.	CITIZENSHIP OR PLACE OF ORGANIZATION

Delaware


11.	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

171,312


12.	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES


13.	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

0.9% OF COMMON STOCK⁽¹⁾


14.	TYPE OF REPORTING PERSON


(1)	Based on 19,719,896 shares of Common Stock of Sunterra Corporation outstanding on February 6, 2006.

(PAGE 6 OF 10 PAGES)


CUSIP No. 86787D 20 8	SCHEDULE 13D/A	Page 7 of 10 Pages


1.	NAME OF REPORTING PERSON: Ziegelman Partners, L.P.

I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
36-4337005


2.	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP

(a)

(b)


3.	SEC USE ONLY


4.	SOURCE OF FUNDS


5.	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e)


6.	CITIZENSHIP OR PLACE OF ORGANIZATION

Delaware


11.	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

25,000


12.	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES


13.	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

0.1% OF COMMON STOCK⁽¹⁾


14.	TYPE OF REPORTING PERSON


(1)	Based on 19,719,896 shares of Common Stock of Sunterra Corporation outstanding on February 6, 2006.

(PAGE 7 OF 10 PAGES)

SCHEDULE 13D/A

CD Capital Management LLC, a Delaware limited liability company (‘‘CD Capital’’), John D. Ziegelman (‘‘Mr. Ziegelman’’), Magnetar Financial LLC, a Delaware limited liability company (‘‘Magnetar’’), New World Opportunity Partners II, LLC, a Delaware limited liability company (‘‘NWOP II’’), NWFP I LLC, a Delaware limited liability company (‘‘NWFP’’) and Ziegelman Partners, L.P., a Delaware limited partnership (‘‘ZP-LP’’ and collectively with CD Capital, Mr. Ziegelman, Magnetar, NWOP II, and NWFP, the ‘‘Reporting Persons’’) are jointly filing this Amendment No. 4 relating to the Statement of Beneficial Ownership on Schedule 13D, as filed with the Securities and Exchange Commission (the ‘‘Commission’’) on December 19, 2005, as amended by Amendment No. 1 thereto filed with the Commission on January 17, 2006, Amendment No. 2 thereto filed with the Commission on February 21, 2006, and Amendment No. 3 thereto filed with the Commission on April 24, 2006 (collectively, the ‘‘Schedule 13D’’).

The purpose of this Amendment No. 4 is to (i) report certain discussions with the Issuer and the contents of a letter addressing certain concerns of the Reporting Persons regarding the Issuer and (ii) reflect the purchase of shares by CD Capital. Except as set forth below, all Items of the Schedule 13D remain unchanged. All capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Schedule 13D.

ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION

Item 3 of the Schedule 13D is hereby amended to reflect the additional purchases set forth on Schedule A to this Amendment No. 4:

All purchases of Common Stock reflected on Schedule A to this Amendment No. 4 were made in open market transactions with investment funds of the Reporting Persons in accounts under management, which may, at any given time, include margin loans made by brokerage firms in the ordinary course of business. The total amount of funds expended for such purchases reflected on Schedule A to this Amendment No. 4 was approximately $255,260, all of which was expended by CD Investment. These amounts are in addition to the amounts previously reported.

ITEM 4. PURPOSE OF TRANSACTION

Item 4 of the Schedule 13D is hereby amended to add the following information:

On April 26, 2006, Mr. Ziegelman of CD Capital delivered to Mr. David Gubbay and Mr. Nicholas J. Benson, Chairman and CEO, respectively, of the Issuer, a letter to the Board of Directors of the Issuer, dated April 26, 2006, with respect to a number of issues (the "Issues Letter"), a copy of which is attached hereto as Exhibit 99.14 and which is incorporated by reference herein. The Issues Letter addresses a number of issues of concern to Mr. Ziegelman and the Reporting Persons, including, without limitation, (i) the high level of the Issuer's General and Administrative expenses, (ii) the delay in appointing Sean Greene to the Board of Directors, (iii) the Issuer's disclosure policy, and (iv) strategic challenges faced by the Issuer and the possible retention of an investment banking firm with respect to exploring strategic alternatives. Mr. Ziegelman further requested a forum to discuss these matters with the Board of Directors to which Mr. Gubbay responded by setting up a preliminary conference call for Mr. Ziegelman with Messrs. Gubbay and Benson in the afternoon of April 27, 2006, at which time the parties reviewed the contents of the Issues Letter. Upon completion of the conference call, Mr. Ziegelman and Messrs. Gubbay and Benson concluded that a more meaningful conversation could be achieved under a confidentiality agreement. In connection with such discussions, CD Capital is willing to enter into a mutually acceptable confidentiality letter, to be negotiated with the Issuer. Mr. Ziegleman believes that such a confidentiality agreement could be negotiated and executed within the next 48 hours. If and when the parties enter into a confidentiality agreement, Mr. Ziegelman believes he will be provided with information that could affect the matters addressed in the Issues Letter and thus no definitive, specific plan, proposal or recommendation has been made at this point in time. However, Mr. Ziegelman will be strongly urging the Issuer to: (i) consider the facts and issues raised by the Issues Letter; and (ii) where appropriate, take immediate actions to correct such issues. These immediate actions may include, but are not limited to:


	(i)	implementing an expense reduction program -- a 10-20% reduction in its G&A Expenses, with a longer term goal of reducing G&A Expenses to between 10-13% of total revenues -- and which would address what Mr. Ziegelman perceives to be duplicative infrastructure, seemingly high executive employee (cash) compensation and likely redundant corporate officer positions;
	(ii)	immediately appointing Sean Greene to the Board of Directors;

(PAGE 8 OF 10 PAGES)


	(iii)	working with Mr. Ziegelman to establish a new and modified disclosure policy with the aim of fuller disclosure to the Issuer’s shareholders and the investing public; and


	(iv)	retaining a top-tier national or regional investment banking firm to help the Board understand and explore possible strategic alternatives, including, without limitation, potential non-core asset dispositions and/or other value maximizing transactions involving all or part of the Issuer, especially in connection with the BCG analysis that is currently ongoing.

The Reporting Persons expressly reserve the right to propose other matters identified in and related to the Issues Letter, including without limitation, the implementation of a stock repurchase program. In addition, the Reporting Persons expressly reserve the right to propose other matters such as dispositions of non-core assets, transactions or actions with respect to Europe, and/or other value maximizing transactions with respect to all or parts of the Issuer, particularly following receipt by the Board of the BCG report and receipt by the Board of advice from a qualified investment banking firm. Mr. Ziegelman seeks to continue his dialogue with, and work with, the Issuer’s Board of Directors and management with respect to efforts to unlock shareholder value, including, without limitation, the matters outlined in the Issues Letter, the outcome of the BCG report (which Mr. Ziegelman believes should be summarized for the Issuer’s shareholders), and the outcome of discussions with a qualified investment banking firm which Mr. Ziegelman believes that the Board should immediately retain as noted above. The Reporting Persons expressly hereby reaffirm the reservation of all rights, options and possible future actions heretofore disclosed by them in this Item 4 to Schedule 13D.

ITEM 5. INTERESTS IN SECURITIES OF THE ISSUER

Item 5 is hereby amended to reflect the additional purchases of Common Stock shown on Schedule A to this Amendment No. 4, as follows:

As a result of the purchase of 20,000 shares of Common Stock as reflected on Schedule A to this Amendment No. 4, the aggregate number of shares of Common Stock beneficially owned by the Reporting Persons increased from 1,786,206 constituting approximately 9.1% of the Outstanding Shares to 1,806,206 constituting approximately 9.2% of the Outstanding Shares; the 1,004,206 shares of Common Stock constituting approximately 5.1% of the Outstanding Shares as reflected for Mr. Ziegelman in the chart of beneficial ownership increased to 1,024,206 constituting approximately 5.2% of the Outstanding Shares; the 979,206 shares of Common Stock constituting approximately 5% of the Outstanding Shares as reflected for CD Capital in the chart of beneficial ownership increased to 999,206 constituting approximately 5.1% of the Outstanding Shares; the 517,772 shares of Common Stock constituting approximately 2.6% of the Outstanding Shares under the caption "CD Capital/Mr. Ziegelman" in paragraph (a) has increased to 537,772 shares of Common Stock constituting approximately 2.7% of the Outstanding Shares; the 979,206 shares of Common Stock constituting approximately 5.0% of the Outstanding Shares under the caption "CD Capital/Mr. Ziegelman" in paragraph (a) has increased to 999,206 shares of Common Stock constituting approximately 5.1% of the Outstanding Shares; and the 517,772 shares of Common Stock under the caption "CD Capital/Mr. Ziegelman" in paragraph (b) has increased to 537,772 shares of Common Stock.

Paragraph (c) of Item 5 is amended by adding the following thereto:

Except for the transactions described on Schedule A attached to this Amendment No. 4, there have been no transactions by the Reporting Persons hereunder since the filing of Amendment No. 3 previously filed by the Reporting Persons.

ITEM 7. MATERIAL TO BE FILED AS EXHIBITS

Item 7 is hereby amended to add the following:


Exhibit 99.14	Issues Letter dated April 26, 2006 from Mr. Ziegelman to the Board of Directors of the Issuer.

(PAGE 9 OF 10 PAGES)

SIGNATURE

After reasonable inquiry and to the best of each of the undersigned’s knowledge and belief, the undersigned certify that the information set forth in this statement is true, complete and correct.

DATED: April 27, 2006

CD CAPITAL MANAGEMENT LLC

By: ZP II LP, its Managing Member

By: C3 Management Inc., its General Partner

BY: /s/ John D. Ziegelman

Name: John D. Ziegelman
Title: President

MAGNETAR FINANCIAL LLC

By: /s/ Paul Smith

Name: Paul Smith
Title: General Counsel

NEW WORLD OPPORTUNITY PARTNERS II, LLC

By: /s/ Michael Brodsky

Name: Michael Brodsky
Title: Managing Member

NWFP I LLC

By: /s/ Michael Brodsky

Name: Michael Brodsky
Title: Manager

ZIEGELMAN PARTNERS, L.P.

By: /s/ John D. Ziegelman

Name: John D. Ziegelman
Title: Managing Agent

/s/ John D. Ziegelman

JOHN D. ZIEGELMAN

(PAGE 10 OF 10 PAGES)

SCHEDULE A

This schedule sets forth information with respect to each purchase and sale of Common Stock which was effectuated by a Reporting Person since the filing of Amendment No. 3. All transactions were effectuated in the open market through a broker.

Purchase (Sale) of Shares effected by CD Capital for the account of CD Investment


Date	Number of Shares Purchased (Sold)		Price Per Share($)		Aggregate Price($)⁽¹⁾
April 25, 2006		20,000	$	12.763	$	255,260


(1)	Excludes commissions and other execution-related costs.

EXHIBIT INDEX


Exhibit 99.14				Issues Letter dated April 26, 2006 from Mr. Ziegelman to the Board of Directors of the Issuer.

GRAPHIC 2 ebox.gif GRAPHIC begin 644 ebox.gif M1TE&.#EA"@`*`(```````/___R'Y!```````+``````*``H```(1A(\0RVO= - -'G1J!CDQU+'FE!0`.S\_ ` end GRAPHIC 3 spacer.gif GRAPHIC begin 644 spacer.gif K1TE&.#EA`0`!`(```````````"'Y!`$`````+``````!``$```("1`$`.S\_ ` end GRAPHIC 4 xbox.gif GRAPHIC begin 644 xbox.gif M1TE&.#EA"@`*`(```````/___R'Y!```````+``````*``H```(6A(\0RVNA 2F'K0N0@QS3+Z6TE EX-99.14 5 file002.htm ISSUES LETTER

[Letterhead Omitted]

April 26, 2006

Mr. Nicholas J. Benson
Mr. David Gubbay
Mr. Olof S. Nelson
Mr. James H Dickerson, Jr.
Mr. James A. Weissenborn
Mr. Charles F. Willes

Attention: Nicholas Benson, Chief Executive Officer
Sunterra Corporation
3865 W. Cheyenne Ave.
North Las Vegas, Nevada 89032

Gentlemen:

I want to thank you all again for taking the time to meet me on January 22, 2006 and for giving me a forum to air some of our Group's frustrations and our views as to the importance of unlocking shareholder value. While my frustrations have not gone away completely since our meeting, I am encouraged by our collective desire to move from an environment of miscommunication and mistrust to one of cooperation with the end goal of unlocking the substantial latent value we see in Sunterra's common stock. I was also pleased to hear your update on some of the initiatives that the Company has taken, such as hiring BCG to assess the Company's strategic (capital) options. I think the Board has embarked on a very worthwhile exercise, having a qualified third party analytically reviewing every aspect of how the Company deploys strategic and maintenance capital; and to critically assess the core assets of the Company, including Europe. We look forward to hearing what BCG has to say -- as we believe all of the Company's shareholders will look forward to this -- and accordingly, have not addressed the potential issues with respect to the Company's advertising sales and marketing expenses, capital expenditures and Europe in general. We hope to work with you on these potential issues at the proper time.

Notwithstanding the progress to date, we feel very strongly that there is a lot more that the Company should be critically thinking about -- and potentially doing -- immediately to unlock shareholder value. Please let this letter serve as a roadmap of our thoughts with the end goal being a frank and honest dissussion about the issues the Company faces, which I hope will ensue immediately following the receipt of this letter.

Item One

The first item for critical analysis, discussion and possible action is the Company's general and administrative expenses ("G&A Expenses"). They are too high and seemingly filled with excess in relation to the Company's peers as described below. For the 12 month period ending December 31, 2005, Sunterra's G&A Expenses represented 20.6% of total revenues. This figure has actually increased year over year, as a % of revenues, despite some cutbacks announced last year in your European operations. In prior discussions, I have cited probable contributors to this problem such as: duplicative infrastructure, seemingly high executive employee (cash) compensation and likely redundant corporate officer positions. Obviously, I do not have details beyond what the Company has disclosed in its normal course, but I think this area is critically important as a first step to unlocking value. I am hopeful that our follow-on discussions to this letter will allow me to better understand why the Company's G&A Expenses seem to be so high.

In an effort to analyze what we do know, we looked at the expense structure of some similar companies. To use comparables that the Company would not object to, we turned to your Proxy Statement (dated January 30, 2006), where the Company defines its "peer group." Such peer group is made up of four timeshare related companies (Bluegreen, Intrawest, ILX Resorts and Silverleaf Resorts) and three hotel brands (Marriott, Starwood and Hilton); all of the latter have substantial timeshare businesses, but have operating efficiencies that, in our opinion, do not make them fair comparisons. We have summarized Sunterra's peer group G&A expense analysis plus Trendwest's, just prior to its sale to Cendant below.

SNRR Peer Group¹
Latest 12 Month ("LTM") G&A Expense
Period Ending December 31, 2005
Revised: 4/6/06; $'s in Millions


Ticker/Name	LTM Total Revenues²		LTM Total G&A²		G&A/Revenue
SNRR		428.4		88.2		20.6	%
BXG		684.2		71.2		10.4	%
IDR		1,665.1		NA		NM
ILX		56.8		6.2		10.9	%
SVL		201.9		28.0		13.9	%
Trendwest³		469.2		43.5		9.3	%
Timeshare Average⁴						11.1	%
HLT		4,437.0		103.0		2.3	%
MAR		11,550.0		753.0		6.5	%
HOT		5,977.0		253.0		4.2	%
Hotel Average						4.4	%
Total Average⁴						8.2	%


1.	Defined in Company's 2006 Proxy Statement plus Trendwest.


2.	As reported by each company per their SEC filings.


3.	Acquired, period ending 12/31/01.


4.	Excludes SNRR and due to differing reporting breakdowns, IDR.

While we concede the point that it is difficult to make an exact "apples to apples" comparison, the gap between Sunterra's trailing twelve month G&A Expenses of 20.6% and the Peer Group (Timeshare Average) of 11.1% is nearly double in size. From this comparison, it is hard to see how the Company's G&A Expenses can be characterized as anything other than "exceedingly too high." We think it is imperative that the Company explain this. In addition, if the Company is not able to justify this enormous disparity, we would like the Company to explain to its shareholders what it intends to do, both over the short term and long term, to address the G&A Expenses issue.

Therefore, we would like to discuss the possibility of, and hear the Board's viewpoint as to, the Company immediately implementing a 10-20% reduction in its G&A Expenses, with a longer term goal of reducing G&A Expenses to between 10-13% of total revenues, i.e., in the range of its peer group. For illustrative purposes, if an immediate reduction in G&A Expenses was implemented, the annual savings and the value it could create are projected below.

Potential Incremental Value Model¹
Latest 12 Month ("LTM") G&A Expense
Period Ending December 31, 2005
Revised: 4/11/06; $'s in Millions


SHOUT 19.7199	Lower Range			Midpoint			Upper Range
LTM G&A Expense		88.20			88.20			88.20
Potential Immediate Cuts		10	%		15	%		20.0	%
Resulting EBITDA Contribution		8.8			13.2			17.6
EBITDA Multiple²		6.00x			7.00x			8.00x
Potential Incremental Value³	$	2.68		$	4.70		$	7.16


1.	Potential incremental value created by cutting G&A Expenses and assumed multiples.


2.	For discussion purposes, not purported to be current market multiples.


3.	Per share.

The Board can ultimately decide the appropriate uses of the savings achieved, but we believe that one potential way to add additional shareholder value is for the Company to deploy the cash savings toward funding a share repurchase program effective immediately upon implementing such a cost savings program. Please advise whether the Board believes that there would be better and higher uses for any such savings. Please explain the Board's viewpoint on whether these reductions would be appropriate actions to take for the benefit of all the Company's shareholders.

Item Two

As you know from our prior discussions and 13D filings, we believe, and the Company has now agreed, that expanding the Board in order to bring in travel related business experience would be very positive for the Company and its shareholders. To that end, we are pleased that the Nominating Committee is currently recruiting potential new directors, including our Nominee, Sean Greene.

As you know, Sean spent 7 years of his career at McKinsey & Co., one of the world's preeminent strategic consulting firms. Considering Sean's extensive travel-related business experience in combination with his consulting expertise, we believe Sean Greene's appointment to the Board would immediately add value to the Company's Management and the existing Board. We also believe that Sean Greene, if appointed, would be perceived by Wall Street as a true "shareholders"' representative.

Therefore, in light of BCG's pending report, the Company's stated need for more talent on the Board, Sean's extensive business and travel experience in combination with his strategic consulting experience, we fail to understand why the Board has yet to appoint Sean as an additional member of the Company's Board? We do not believe that appointing Sean to the Board would in any way stop the Board from adding any other person who the Board would wish to add at some point in the future, if such an opportunity presents itself. We emphatically believe that Sunterra's shareholders would view the addition of two new value added directors, instead of just one, as a very positive step by the Board.

Item Three

I think we have established, and you agree, that the Company can and should be more open and communicative with its owners, Wall Street and potential new owners; and more transparent in its quarterly reporting and other disclosures. The fiasco surrounding the events leading up to and including the disclosure (or lack thereof) with respect to the Company's Form 8-K/A, dated April 10, 2006 is only the most recent case in point. I do not think "fiasco" is too strong a characterization in that Sunterra's shareholders lost approximately 15% of their equity market value from March 21, 2006 through April 11, 2006 versus the Russell 2000 Index, which was up approximately 1% during that same period.

At our meeting on January 22, 2006, I cited numerous examples from the prior 6 quarters of the Company's earnings call transcripts where shareholders and analysts were asking over and over the same or similar questions, only to be met with some rendition of "the Company does not disclose that." During our meeting on January 22^nd, I suggested that you study the transcripts yourself and analyze the opportunity set for better responding to and answering shareholders' and Wall Street Analyst's questions. Based on statements made to me by various members of the Company's Board at the January 22^nd meeting, I am certain that Management and the Board understand the need to be responsive to the owners of the Company and therefore, improve the Company's communication skills and expand its disclosure policies. While more disclosure in and of itself, will do nothing to improve Sunterra's cash flows, it will go a long way in rebuilding (the now shattered) trust with the Company's shareholders and Wall Street.

We further understand that disclosure of certain data could empower your competition, which we do not condone. We, nonetheless, do not want to see a continuing policy of non or partial disclosures rationalized by the notion that you are protecting trade secrets or that less is more! At the outset of this letter, I said I would not delve into the areas that I expect to be covered by BCG. However, given the situation in Europe, we believe that full disclosure of what initiatives the Company is or will be taking, as a result of the BCG Report, as well as insight into your specific goals in doing them, and how success for such goals is or will be measured is imperative.

In the meantime, we would like the Company's opinion on disclosing full income statement and balance sheet disclosure for the European segment in order to shed light on what the economics of Europe are versus North America. We believe this is important because it would allow shareholders to determine on their own what, if any, strategic and financial value the European operations present. We would further like the Company to consider disclosing the metrics on which they judge their own success or failure with respect to achieving value creation. As the largest shareholder of Sunterra, a team with a vast depth of experience in the finance, leisure and real estate businesses, we would like to work with you toward designing and implementing a corporate disclosure policy, which would solicit and incorporate input from all major shareholders in addition to us. We are certain that more and full disclosure and measurement statistics that hold Management and the Board accountable for their actions will be positively received by the owners and potential future shareholders of the Company.

Item Four

To be sure, Sunterra's business is a complex mixture of three different businesses complicated by arcane and difficult accounting rules. Your valuation status is further complicated by a trend toward declining liquidity in the stock; high relative cost of capital; few if any, pure-play public company comparables; and both size relative to, and increasing competition from, the branded hotel operators such as Starwood, Hilton and Marriott.

We believe that some of Sunterra's challenges, namely its G&A Expenses, lack of travel industry and strategic consulting experience on the Board and its disclosure policies could all be fixed with relative ease if the Board and Management were committed to doing so. However, your other challenges, such as competing with branded hotel and resort companies, lack of scale and high cost of capital are all daunting on an individual basis let alone in the aggregate. We believe that one of the clearest indications of Sunterra's relative disadvantages versus the branded companies is the differential between Sunterra's ASM expenses and those of the branded operators. We estimate that the hotel backed timeshare companies such as Marriott, Starwood and Hilton spend between 45% to 50% of each VI revenue dollar on advertising, sales and marketing in their timeshare segments; whereas Sunterra spends over 57%. We believe this advantage could become a serious threat to Sunterra's ability to efficiently compete. We also believe this is supported by the branded companies' significant market share increases over the past several years.

From the onset of our initial discussions with Sunterra, we have stressed that the Company needs to make sure that its "financial house" is in good order so that it can evaluate and be in a position to pursue potential longer term initiatives designed at expanding shareholder value. In fact, from our own market research, we believe that there would be a good number of potential financial/strategic partners that may

be interested in some form of a relationship and/or transaction with Sunterra. Moreover, if the Company addresses issues we have raised and implements BCG's recommendations, we believe that improved cash flow and Management credibility would result and that Sunterra's assets would be even more attractive, including to potential strategic or financial buyers.

In light of the issues of brand, cost of capital, and scale and the Board's fiduciary duty to address those issues, please advise us, and the Company's other shareholders, as to the Board's viewpoint on immediately retaining a top-tier regional or national investment banking firm to advise the Company with respect to strategic alternatives. Of course, retention of such a firm could augment and potentially implement the recommendations to the Board by BCG, which we conjecture could include the sale or other disposition of non-core assets, potentially including Europe, potential acquisition(s) and/or the outright sale of the entire Company. If it is the Board's decision to divest non-core assets, potentially including Europe, we believe there are suitors for those assets as well. Of course, while the Board would be required to exercise its fiduciary duty to determine the best use of proceeds from any asset sale that it may decide to pursue, as with proceeds from any cost-cutting strategies that were to be implemented, such proceeds could be applied to repurchasing common stock in an effort to further enhance shareholder value. Again, please advise whether the Board would view such a stock repurchase program as the best and highest use of funds.

I look forward to the opportunity to discuss these issues with the Company in a collaborative way so that we, and all other shareholders, can be well informed in making decisions about the best way forward for the Company and possible actions to be taken by the Company.

Very Truly Yours,

CD Capital Management, LLC

/s/ John D. Ziegelman
By: ZP II LP, its Managing Member
By: C3 Management Inc., its General Partner
By: John D. Ziegelman, President

-----END PRIVACY-ENHANCED MESSAGE-----

NUMBER OF
SHARES
BENEFICIALLY
OWNED BY
EACH REPORTING
PERSON
WITH

7. SOLE VOTING POWER
537,772 (see Item 5)

8. SHARED VOTING POWER
461,434 (see Item 5)

9. SOLE DISPOSITIVE POWER
999,206 (see Item 5)

10. SHARED DISPOSITIVE POWER
-0- (see Item 5)